[Call Starts Abruptly] or Metaverse. My name is Courtney Keating, and I’m the CMO of eXp World Holdings. Dave will begin our earnings fireside chat with opening comments and a conversation between Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings; and Tom White, Managing Director and Senior Research Analyst from D.A. Davidson. We are happy to welcome Tom back as our moderator. Following the initial segment, we will move into a presentation which includes a review of the Q3 2022 and year-to-date 2022 financial highlights. [Technical Difficulty]

Courtney, you just cutout.

It looks like I got a bit of an echo give me one moment, please. As said before, we will return for a continuation of the Q&A before concluding the fireside chat. Let’s begin 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 filed quarterly report on Form 10-Q and Annual Report on Form 10-K for a discussion of specific risks that may affect our business performance and financial condition. We assume no obligations 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 look at started. For those of you joining in the EXPI Campus today, steel screens hit the stage zoom button on the right of the chat box. [Operator Instructions] At this time, I would like to turn the fireside chat over to Glenn our Founder and Tom White to start the earnings conversation in opening remarks. Over to you, Glenn.

Hey thanks, Courtney, and welcome, Tom. And I’m hearing some audio on a microphone. Okay. Now, that cleared. So yes. So Tom, obviously, you’ve been covering us for quite some time, and I’m sure you’ve got some questions to kick things off, but obviously had a great quarter considering what’s going on in the economy, but I’ll turn it over to you to kind of ask some questions.

Great. Terrific. Thanks, Glenn. Thanks, Courtney, and Jeff and the rest of the team for asking me to host this quarter. I appreciate it. Yes, Glenn, a lot of stuff to talk about looking forward to digging into it. Maybe just to kick things off sort of a high level here. Maybe just touch on maybe your highlights from the third quarter performance.

Yes. So we’ve been – we’re talking a little bit about what we were expecting in Q3, Q4, even at the beginning of the year as rates were going up and the Fed was raising rates. And sure enough, we have not been immune to what has been taking place I think later on today, we’re going to have another announcement as to what the Fed is going to do relative to interest rates, and there’s some expectations around what that’s going to be and higher interest rates are a big indicator of buyers’ ability to buy at current prices based on the fact that 70 or so percent of buyers use a mortgage to purchase a property. So with that, there’s been a slowdown in the market and with that, we’ve also started to see what we’ll call market attrition in that agents are in this mode of either not renewing or not getting licensed in to begin with in the industry itself. So we’re actually making a little bit of a shift. We’ve talked about it for a while, which is that when the market does shift, we expect to pick up model of the Brendon Burchard [Technical Difficulty] a much more robust space to impact a large number of lives. But with that, we think there’s a lot of opportunities for growth. Then we’ll go to the next slide here. We think about the idea that when we – just in the coaching space, just use that – we think about that as being a business that will be in the $50 million to $100 million a year range over time. And it will take multiple years to get there, but it is something that we’re focused on really building that out. We’ve recently did a partnership…

Great. Thanks for that, Glenn, and interesting new disclosures there that look forward to looking at those more closely. I know Jeff is going to talk a little bit about kind of the financial performance in the quarter, but you guys did release third quarter results this morning. Maybe just briefly, I would be curious to hear were there any I guess how do the key kind of financial metrics and operational metrics that you follow, how did they kind of match up to your – maybe to your expectations heading into the quarter for the last three months?

Yes. I think yes, Jeff will definitely talk to a bit of this. I mean one of the things that we’ve – it’s a little bit different than say, Q2 of 2020, we saw that massive slowdown because of the sort of what we call it the COVID pause. And we didn’t know how bad it was going to be and we – so we literally cut a significant portion of our staff. And then we came out of that and literally then Q3, Q4 was really busy all the way through really Q1 – beginning of Q1 of this year. So we had this really significant ramp. We knew that as interest rates were going up, that we were going to need to halt hiring and then potentially shift the way that we work with our head count to make up more of that variable-based elements. But it wasn’t – we have didn’t approach it the same way that we did in 2020. So I think one of the things that we’re looking at is how do we moderate our expense load to match up with our transaction mode. Because the way I think about it is that we – once we get to sort of this next level of where the market sort of bottoms out at, we become, again, a fairly profitable organization as a company because we are able to shift our resources in such a way that we should be able to be profitable in good markets and bad markets. And of course, we’re in the shift that will be in for another couple few quarters before we get to what we’ll call that flattened level. But once we hit that, then I think we’re going to look really good just in terms of the way that we’re structured as an organization. I hope that helps a little bit there.

Yes. No, it does. Thank you. So you referenced that, obviously, what’s kind of happening in the broader housing market here and the agents on your platform are going to have kind of a different next few quarters than they’ve had the last kind of four to eight quarters or so. I wanted to talk a little bit about what you guys are doing to help your agents kind of weather this slowdown, be it new products, new resources. We’re a few weeks off of the eXp Con event. You guys announced a flurry of new things, revenues, referral division, luxury, maybe it seems like those are all about kind of trying to give agents new tools, new ways to succeed in kind of a tough housing market. Maybe just talk a little bit about which of those you’re sort of most excited about? And is it about kind of outright revenue contribution from these things? Is it more about agent retention or agent attraction – maybe just walk through that a bit.

Yes. So well, there’s – we focus on all of those things in various different initiatives. But one of them that we announced was around our new referral division. So that’s the ability for an agent, and they’re really going to be that low producing agent that is looking at, say, 2023 saying, hey, the market is going to be really slow. I’ve got to pay real or dues. I have to pay for MLS dues. I’ve got to pay for a bunch of stock just to be in the business. And so we’ve got a referral division where if they’re not going to be actively showing or listing property, they can actually hang their license there and actually reduce their fee exposure quite a bit and simply refer out transactions. So it gives them a place to hang their license during the slower periods if – certainly, if they’ve been here for a period of time and they built a revenue share organization up, that would be maybe a place for some of them to move their license as well. So that, I think, is one of the ways that we’re working on the retention front. The other retention pieces is really growth-oriented is we believe that agents through training, coaching and just getting the basics of the business, blocking and tackling down that they’re going to be more successful. And so we provide 70, 80 hours a week of training in our campuses. We’ve got these now partnerships with companies like Agent Academy, where for a very low dollar amount, I think its $350 an agent can actually go to a three-day super-intensive training platform, and they do that in person. The next one that we’re involved in is in January in Fort Lauderdale but they’re going to be able to really get in that environment to help them take their business to the next level, even though the market is slowing those who can figure out ways to drum up business are going to do fine. And so that I’m excited about. So those are a couple of them. Certainly, the things we’re doing with Zoocasa, lead gen in Canada, we’re doing that across Canada. And then also, we’re looking at how do we create more opportunities in the U.S. I know that underneath the revenues and some of our other opportunities that are coming from that, there’s going to be different things that even are going to get exposed to because we’re one large brokerage, one large platform that some of these national players can just tie into. They don’t need to negotiate with all kinds of franchises to get their business into the hands of active agents. So we’re excited about all of that.

That’s great. I think now maybe, Jeff, if you’re ready, it might be a good time for you to walk through your content.

Absolutely. So thank you, Glenn. Thank you, Tom, and good morning, all, and thank you for joining our third quarter 2022 virtual fireside chat. On behalf of our agents, units and staff team, I’m proud to share our third quarter results and highlights with you today. As we look at the first page summary, eXp delivered a solid third quarter with record revenue. Continued growth in agent count, as Glenn mentioned, transaction volume and gross margin, and we continue to have very positive cash flow throughout the business. eXp Realty continues to grow market share with sustainable operating model and positive cash flow. Board of Directors voted today $0.045 per share Q4 dividend and as Glenn mentioned before, we’ve successfully navigated numerous cycles in the economy in challenging markets. And as you can see from the results in the third quarter, we have done that again. We continue to have zero debt on our balance sheet, a variable cost structure and our organic growth model that has provided resilience as we move into the future here. And one thing I wanted to clear up was that as we previously communicated, we entered 2022 after a very strong 2021 with annual SG&A plan of about $400 million for the year, all right? And this – and what we’ve done in the past is we’ve supported – we’ve actually hired ahead of the curve supporting the anticipated growth, and that’s kind of where that $400 million plan came from. And as we saw the indication in Q1 pointed towards a weaker economy in the second half of 2022, we reduced our plan to about $360 million. So we took about $40 million of our annual SG&A plan. And as part of that $40 million annual reduction we did adjust in Q3, our…

Great. Thanks, Jeff. That was great. A lot of detail in there. Maybe just to kick things off, Jeff, I guess just from your seat as the CFO and kind of looking at all the financial metrics and data, like what are the one or two things that maybe stood out to you the most in terms of the performance of the company in the quarter?

Yes. I think the thing that stood out to me the most time was the – basically the continuation and the success of our organic growth model. I mean the events, including eXp Con that you mentioned before, the agent events that we’re having across the country and across the world. So I think that’s – we’ve got to a level where this organic growth model just keeps going day after day, week after week, quarter after quarter. So I think that’s the highlight. And I think that, that’s going to be the major competitive advantage that’s going to get us across – through these times and really shine as the economy picks up again.

Great. And then circling back on the commentary on operating expenses. Thank you for clarifying that and sort of what the new run rate is. I think investors have been focused on the trends there. Could you maybe just talk a little bit about where are the areas where you’re either making cuts or driving big efficiencies? And how much more room potentially do you have to further drive efficiencies in operating expenses. Let’s say, if the housing market takes another leg down or is softer for even a longer period of time than maybe folks think?

Yes. I mean first of all, we’re decreasing our spend across all the areas of the business where we have increased capacity and growth. So as I mentioned before time, historically, we’ve hired ahead of the curve and we invested ahead of the curve from a capacity standpoint for the Realty business. So we stopped doing that in Q1 of this year, all right? So there’s opportunity in that area and that’s where a lot of the current savings is going to come from – we’re also looking around our business as we do on a continual basis and look at our business units to see what makes sense from an investment standpoint and what’s changing, right, and shifting resources I think that there’s a tremendous amount of opportunity for us from a productivity standpoint. And Patrick and the brokerage team is making huge strides that I think we’re going to see in the first part – the first half of next year. So I think there’s opportunity there. And if the volume of the industry continues to decline the way it’s predicted as we sit here today. I mean we do have the ability to decrease our cost structure to reflect and to match that volume that’s in the industry.

Great. That’s helpful. Maybe moving up the income statement a little bit. Gross margins, I noticed that they were up a few hundred basis points on a year-over-year basis. Can you maybe just talk a little bit about – obviously, there are a bunch of different things that can impact gross margin. But in the third quarter and over the next few quarters, what are the main kind of drivers that are going to move gross margins around? And can we anticipate that we’re going to see kind of further gross margin expansion here over the next few quarters?

Yes. I think what we’re going to see is as volumes go down, the actual gross margin percentage, as you saw in the quarter actually goes up, right? And what we focus on is the dollars. But to answer your specific question on the percentage is, I mean, we do believe that’s going to go up towards about an 8% range. And that’s – the function is – it’s the volume, it’s capping and it’s price. So as volume comes down, price comes down, the percentages actually go up. So we do see that going towards about 8% in the near term.

Okay. I guess, maybe last one for you, Jeff, and then we can open it up and get Glenn back. But I guess as you – outside of operating expenses, which you kind of touched on, I mean, when you think about how to manage the business through a challenging housing market, what are you kind of most focused on from a financial perspective?

Yes. So we’re focused on making sure we’re matching our capacity from a cost standpoint with what volumes coming through the front door. And we’re also, at the same time, looking for other opportunities from a revenue standpoint. Glenn mentioned, there’s a lot of things around affiliate services. I know we’ve talked about that for years. But we’re actually – we have very specific programs to increase our operating margin via affiliated services. We’re looking at huge productivity opportunities across our business on the brokerage side. And then at the same time, we’re looking at – as we hit an environment, if it’s as down as people predict it could be, I mean we just got to look at our business differently and things that we were able to put into our cost structure before we might not be able to put in our cost structure in that environment. So we do have the opportunity to decrease cost structure time. And I think we have the opportunity to increase margin through other sources and then gain that productivity.

Great. Yes, maybe we’ll bring Glenn in here to join us again. Good segue there, Jeff, as far as touching on affiliated services, wanted to maybe just get an update from you guys. Where do things stand right now as it relates to kind of the key affiliated services that you guys are investing in and are focused on? And when can investors maybe look forward to those having a more appreciable impact on the income statement.

One that we’ve been investing in now for over a year is the SUCCESS Lending joint venture. That one – we actually are – it’s an interesting one to be investing in, in a slowing, especially dramatically slow mortgage market. The nice thing about where we’re at is that we’re continuing to grow SUCCESS Lending, whereas almost everybody who has established are shrinking their lending platform. So we’re actually in a really interesting place to be able to actually attract productive loan officers on the platform. It doesn’t mean that we’re profitable in that segment yet. I think we’re actually investing in other – I think there was a little bit of a cash call, just a small one, about $0.5 million and I think it’s our first cash call in that, but it’s just because the market has slowed more dramatically than we had anticipated when we launched this in 2021. And so that’s – but where we’re optimistic around it is that we’re getting a lot of really good loan officers in the seats geographically distributed around the country and then creating opportunities to get them loan business. But we’re in this, we’ll call it a little bit of a slowdown pause over time the rates go up, we see mortgage applications decline and we’ve seen that happen 5 times so far this year. I think today’s announcement, we’ll make it the sixth. And so that has definitely dampened that. So I think we’re looking at is we are in a market that’s dramatically slowing and – but we’re able to – because we’re actually forming these businesses in a down market, we’re actually better positioned to build out the infrastructure or when the market gets back to normal, we’re – I actually think we’re growing it at exactly the right time because it’s actually tougher to grow in some respects in an upmarket because loan officers, they’re doing a lot of business. And now they’re actually looking for where is the opportunity. And so that specific JV actually is a pretty good one. And then we’re just continuing to work on the other initiatives, mortgage or title and Escrow, we’re looking at Escrow opportunities in California. We’re looking at title and Escrow opportunities across the U.S. And we’re going to have some things to announce probably early in the year around some of that stuff that we’ll be excited to share.

Yes. Tom, I’d add that from an operating margin standpoint, I think in the second half of next year, we’ll be able to point to a number of successful programs that the team is working on very hard right now. And I think they’re going to start becoming material in the second half of next year.

Okay. That’s great. I guess, you can consider it an affiliated services, but I wanted to double click on the SUCCESS brand and specifically kind of the coaching and training part of it. And Glenn, I think you mentioned a little bit earlier in your prepared remarks that you guys thought this could be kind of a $50 million to $100 million business in a few years. Can you just talk a little bit about like how it gets there, like the building blocks of that?

Yes, for sure. We’ve been evaluating. We just finished a meet up of some of the folks involved at SUCCESS Jairek Robbins, Marcus Truman, our head coach. Courtney is also the Chief Operating Officer over on the SUCCESS side as well. So we’re working diligently on this. But we were looking at where is a lot of our traction and our SUCCESS Coaching certification program is something that’s getting a ton of traction. We actually are booked out until February, March or coaches wanting to get certified because the – and it’s the brand and the history of the brand that makes it so compelling to become a SUCCESS certified coach. We currently are certifying 30 coaches a month through that and they’re investing between $5,000 and $6,000 to go through the coaching certification. We believe that sometime in 2023, we’re going to be able to increase the number of coaches getting certified to closer to 100 to 150 coaches a month going through coaching certification and then we have on the backside, the revenues from delivering actual coaching through relationships that the coaches generate or relationships that SUCCESS generates. And so there will be – for those who are on the SUCCESS Coaching team, which is different than the certification, but they’re actually on the team that should be a pretty significant revenue stream as well. Then we’ve got partnerships that we currently have like on the Agent Academy, where there’ll be some revenue or profit sharing that comes from some of those activities, and we’re still in the throes of figuring out what that looks like. And then we’re starting to have partnership conversations with other companies. We had a conversation here recently their organization with over 400,000 members in their community that they’re looking to outsource some coaching, group coaching to SUCCESS. To help coach members of their organization. And so we’re – that opportunity might be a little bit too big for us to completely match today but we believe that there’s lots of those opportunities that we’ll be able to go in with build a coaching curriculum training relative to the goals that, that organization has and be able to bring a number of already pre-vetted SUCCESS certified coaches to that. So the coaching piece, we think, is just the certification process is a multimillion dollar year enterprise and then the coaching beyond that is, again, a large enterprise. We’re just in the early stages of this. It’s been – we’ve been working on it now for less than a year. Marcus Truman, our head coach just joined us six months ago. We’re now putting in a lot of the scaling infrastructure that will be pretty meaningful over time.

Okay. That’s helpful. Thank you. A few more minutes here, and maybe we can talk about agents a little bit more. And at eXp Con at the investor meeting there, you guys sounded pretty confident that you expect to be able to kind of continue to grow agent count kind of through this year and presumably kind of into next regardless of kind of what the market is doing. Can you maybe just – it’s only – I guess it’s only been a couple of weeks since then, but it’s rapidly evolving backdrop here. Maybe just kind of give us an update on how things are going on the agent count side of things? And are you still confident there? And maybe just to touch on like NPS, like how do you kind of see agent NPS holding up in a slower market?

Yes. So one thing to note is our NPS was actually up versus Q3 last year. So I think we’re 71% versus 69% on our NPS. And the way we look at NPS is we think about the idea that if we’re over 70%, we’re really in a good place, NPS wise. It’s not a number that normally, you can get to 100%. But our NPS and then our employee NPS combined has resulted in us being, I think, the number four employer as recognized by Glassdoor or best places to work. And so our focus on building the most agent-centric real estate brokers on the planet and truly doing that, like not just being a phrase that we use for marketing purposes, but we actually iterate around that yields a high NPS score, which results in agents wanting to be with us. And what we’re having right now as we’re having this large amount of churn, especially in that low production category of agents, but we’re also starting to really see agents that are higher producing taking a serious look at eXp, and they could be doing 4, 5, $800 million a year of historical production, say, 2021, 2022 might be down for them, too. In a lot of cases, they’re down 20%, 30% in terms of their team volume. But we’re really a place that a lot of these people are moving to because of that sort of focus on that. If our NPS numbers are below 60 and where in any category and so that could be onboarding. It could be transaction services. It could be support, it could be whatever it is. In those areas, we bring sort of all hands on deck kind of approach to that because we know how critical NPS is, and…

Okay. That’s helpful. Maybe I just – you guys shared the new disclosures around attrition and of the folks that attrit [ph] kind of breaking it out by productivity level. Glenn or Jeff, can you maybe just give us a little bit of a sense, there are some quarters, I think, that you guys in your slides show gross ads and net ads. Just trying to get a sense of like I guess just that dynamic, how is like gross attraction going and relative to attrition?

Yes. So the gross – the additions are relatively strong compared to other quarters, although there’s a lot less people entering the industry right now. What’s happening what we’re seeing, Tom, though, is there’s more people leaving the industry. And I think that’s where we’re going to see when we see NAR data that comes out. So the – what’s happened from a trending standpoint is our additions has gone down slightly, but they’re still relatively strong. From a growth standpoint, the terminations have gone up over the last quarter, two quarters as people exit the industry.

Okay. That’s great. And then maybe just last one from my side here. Talk a little bit about kind of teams and independent brokerages. It seems like that might be a fertile kind of hunting ground, if you will, specifically these independent brokerages that have significant overhead, presumably are on kind of like a legacy type business model and are going to maybe struggle when volumes decline, like how do you guys make sure that you make the most of the opportunity to go after those maybe kind of vulnerable teams and try and get them to port over. Like what’s the I mean the pitch to the agents would seem super compelling, what’s the pitch to like the brokerage owner? And how do you make sure you make the most of the opportunity there?

Well, our basic pitch is that they can – if they convert their brokerage over to eXp that in most cases, they’ll actually net more in moving their brokerage to eXp than they do running their own brokerage. And we look at it based on the economics of a brokerage, you’ve got your fixed bricks-and-mortar expenses, and then you’ve got your staffing expenses to support that. And if you’re not – if you’re a small brokerage spreading those expenses over your agent count most small brokerages. And actually, a lot of even midsized and larger brokerages, they’re right now losing money. And so if they have an opportunity to get out from underneath their leases and move their agents to eXp, they’ll immediately go from losing money to actually making money. And then the upside around our aligned compensation model, helping eXp grow allows them to still have the upside in some cases – in most cases, more upside growing eXp than they did running their individual office or brokers. So that’s really the piece and they’re hurting right now. We’re going into – we’re in November, December and January, and those brokerages will be feeling a lot of pressure financially, I suspect that we’re going to see a number of broker owners and we saw this in the 2008, 2009 period 2007, where we’re going to see a lot of broker owners that, unfortunately, will have to declare bankruptcy just because the economy from their perspective and the way that they run their brokerage and no fault to them it just is the economics for them do not work in a down market, and that’s where we find ourselves. So they’re going to be looking for a home. So it’s really trying to meet them where they’re at, help them with a soft on-ramp onto the eXp platform and then help them – help their agents actually create a different type of career path than they had in the brokerage model that they had previously. And so that’s really the pitch and the conversations. And then when we think about large teams, obviously, I think there they’re looking at their influence having built large, credible real estate teams that, in some cases, are known throughout the country as being highly productive agents and teams. And so they’re able to then leverage their personas in the industry to actually grow a network of agents through the country. And so for them, it becomes an additional revenue stream to their already reasonably, if not very successful real estate practice.

That’s great. We’re running short on time here, but we did get some questions from the audience that maybe we can do just a quick little speed around here, Glenn and Jeff. First one is, can you explain why net income went from $23.8 million last year to $4.4 million is the first one. Second is an update on international agent count – what’s the latest there? And then someone asking Glenn, why the recent stock sales on your part?

Yes. So I can take the first one. So basically, there’s two drivers to the lower net income year-over-year. One is in our investment from an SG&A standpoint was higher this year. And then another big deal is that we’ve had – we have lower tax benefits this year based on the deductions that we can take. So it’s – two drivers time. One is the lower operating margin based on higher investments and the second one is lower tax benefits year-over-year, both in Q3 and on a year-to-date basis.

Yes. And I’ll take the other two there. The – and obviously, you know this, but I had expiring options that expired at the end of, I believe it was the end of September of 2022. And so that was the last stock sales was to make sure that I made it into – before my options actually expire. And currently, I have no plans in place to sell more shares. So those were – that was in conjunction with my stock options that were set in 2012. So that was that. And that was actually – if you look at my sales, I believe, 100% of the sales that took place in 2022 were all related to expiring stock options. And then the other piece was around international agent count. Our U.S. agent count, I think we looked at it was year-over-year, it’s about 23% growth and our agent base over the Q3 to Q3 was 30%. The balance of that was international agent growth. And so that was a combination of Canada and other markets. So we’re now in excess of 10,000 or 11,000 maybe 12,000 agents internationally, including Canada. So that’s – that is the fastest-growing part of our organization. I believe it’s well in excess of 100% year-over-year growth rate as a category. And so we expect that international is going to be a significant growth area for the company as we grow new markets. So we’ve talked about in the past, but we’ve been the fastest-growing brokerage and the UK, South Africa, India, actually, most of the markets that we go into, Mexico. Most of those markets that we go into, we become fairly quickly the fastest growing brand in the country. We’re already in, I think, the top 12 or 13 estate agencies in South Africa now and by brands. And we’re seeing us grow into fairly large sizes fairly quickly. So that’s been an exciting growth piece of the model.

Terrific. I think we’ve used the full 60 minutes here. I just want to thank you again for giving the opportunity to host. I really appreciate the discussion. I will pass it back to you guys for any closing comments.

Thank you very much, Tom. Really appreciate your help.

Thanks, Tom.

All right all, thank you. As a reminder, please visit expworldholdings.com for the latest update on eXp News results and events. Additionally, you will find the recording of this call and our latest investor presentation. Thank you for joining today. This concludes the eXp World Holdings Q3 2022 earnings fireside chat.