eXp World - Q2 2023

Executive Summary

• Q2 2023 revenue was $1.233B, down 13% year over year; net income was $9.4M with diluted EPS of $0.06, and adjusted EBITDA was $24.7M. Operating income of $11.1M reflected year-over-year operating margin expansion, despite lower transactions and volume.
• International Realty delivered a record quarter: revenue +35% YoY to $12.0M; total agent count rose 7% YoY to 88,248; transactions fell 9% to 137,199, and transaction volume fell 16% to $48.6B; agent NPS improved to 72.
• Board increased the quarterly dividend by 11% to $0.05 (Q3 2023), repurchased ~$48.8M of stock in Q2, ended with $124.7M cash and no debt; management highlighted AI initiatives (Luna) and the Boost program as catalysts to drive agent productivity and recruitment.
• Macro headwinds (high mortgage rates) pressured industry volumes; management sees rates near peak and pent-up demand building, positioning the company to benefit when affordability improves.

What Went Well and What Went Wrong

What Went Well

• Maintained profitability and expanded operating margin versus prior year in a down market: “Operating income, $11.1 million, reflected 8 basis points of year-over-year operating margin expansion…showcasing the resiliency of eXp model”.
• International Realty revenue +35% YoY to a record $12.0M; North American Realty generated $34.1M of adjusted EBITDA in Q2, underpinning consolidated profitability.
• Strong cash generation and balance sheet: adjusted operating cash flow of $64.6M, $124.7M cash, dividend increased to $0.05; aggressive buybacks ($48.8M) signal capital return discipline.

What Went Wrong

• Top-line pressure: revenue -13% YoY to $1.233B; transactions -9% to 137,199; transaction volume -16% to $48.6B due to high mortgage rates keeping buyers sidelined.
• Expense mix and segment investment: International Realty and Virbela posted adjusted EBITDA losses (International -$3.8M; Virbela -$1.2M) as the company continues investing in these segments.
• Gross profit fell 10% to $96.5M; while gross margin percentage improved, unit economics remain pressured by lower volume and price per unit (-8% YoY).

Transcript

Denise Garcia (Investor Relations Manager)

Good afternoon, welcome to the eXp World Holdings Q2 2023 Earnings Fireside Chat via live stream and the EXPI campus, our metaverse. My name is Denise Garcia, and I manage investor relations for eXp World Holdings. Today, we will begin our earnings Fireside Chat with prepared remarks from Glenn Sanford, Founder, Chairman, and CEO of eXp World Holdings and CEO, eXp Realty, and Michael Valdes, Chief Growth Officer, eXp Realty, followed by a review of the Q2 2023 financial highlights presented by Jeff Whiteside, CFO and Chief Collaboration 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. Let's begin with a review of the forward-looking statements.

There'll 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. Forward-looking statements are based on assumptions as of today, August 3, 2023, and the company undertakes no obligation to revise or update them. Please see our filings with the SEC, including our most recently filed quarterly report on Form 10-Q, for a discussion of specific risks that may affect our business performance and financial condition. 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 in the eXp campus today, to see all three screens, hit the Stage Zoom button to the right of your chat box. To zoom into a specific screen, you can hit the plus icon above that screen. If you happen to see no slides or a gray slide, hit the refresh icon on the top 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. For Slido, should you wish to ask a question during our presentation, you can enter your questions by scanning the QR code that's presented on this Slido 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'd also like that question to be asked. Screen will remain up on the left-hand side of the stage. I'll turn the Fireside Chat over to our speakers before opening the call to questions. Glenn, you can go ahead.

Speaker 6

Denise, can you hear Glenn?

Glenn Sanford (Founder, Chairman, and CEO)

I apologize. That was my bad. Everyone, thank you so much for coming today. Just as a quick review, eXp Realty is our cloud-based brokerage, and we have now 88,000 agents in 24 countries. We also have SUCCESS Enterprises, which we invested in in 2020, I believe, and which has continued to build out our coaching and training ecosystem. Virbela is our metaverse platform, along with a number of metaverse-related entities inside of that company, which supports all of the things that we do as a company.

We run with no physical offices, and we've been enabled to grow all of our businesses without having to be dependent on bricks and mortar since inception, and Virbela has been a big part of that story since we started using their platform in, in 2016. Kind of to, to actually look at a little bit of the highlights of the company, I'll take you through some of those before turning the call over to Michael Valdes to speak about growth and Ancillary Services, and then Jeff Whiteside for a more detailed review of the financials. You know, the Q2 of 2023, you know, we continued to, to grow a number of different parts of the business, but most importantly, we always work on the agent value proposition.

That is, you know, eXp Realty being our largest business and the business that I started almost 14 years ago, with 24 agents. We've now, you know, grown to 88,000 agents worldwide. Our net income and adjusted EBITDA were both positive, we continue to have solid financial profile with strong cash flow generation and a significant cash balance, and zero debt. International also posts another record quarter, increasing 35% over Q2 last year and 42% year to date. You know, our core North American Realty business continues to be strong and profitable, with unit growth and agent growth outperforming the industry. You know, North American Realty, which is U.S. and Canada, delivered $34 million of EBITDA in the quarter and $55 million year to date. This enables us to grow what we're doing at eXp and continues to strengthen our overall value prop.

I believe this is also what's driving a meaningful increase in our quarter's NPS score, which increased from 68 in theQ2 of last year to 72 this year. I'll talk a little bit about how we've continued to sort of build that out. We, we really do continue to invest in our agents, and that's really the big driver. When we think about what has been taking place over the last year or so, and we talked about this a little bit in the, in the Q1. Early in the Q1, we switched from cost-cutting to actually more investment in, actually growing out the ecosystem of eXp.

I think you're seeing that in both our agent Net Promoter Score, and you're also seeing it in our employee Net Promoter Score, which has also been improving. It really is around this whole idea of delighting the agent and supporting the agent. So that we've also invested in a lot of additional support services for our agents. So we now have 24-hour support for agents, whether it be transaction, new agent, onboarding, et cetera. So there's a ton of support, 24/7. We've also added technology like Luna, which is our first AI enabled tool that's built into a number of our different platforms, whether it be our workplace platform by Meta, our Virbela, and other places.

Agents can get tons of support with a generative AI platform, which is doing a great job at providing first-level support for, for agents. The range of questions and the accuracy and the support is pretty amazing, what we've been able to do in a very short period of time. It's really increased dramatically, that, the use of that platform. We've also focused a lot on agent payouts and, and getting agents faster. In, in some markets, especially in Canada, we've been working on actually getting agents paid before even the company gets paid. That has to do with, with some of the ways that traditionally real estate has been done. We're, we're bringing those fast pay features throughout the eXp ecosystem.

We've also now have, from, from an NPS perspective, we have a 48-hour follow-up system. If, if you're a detractor, meaning that you've given us a score of 0 to 6, we're following up with you very quickly, and, and we're building out any thematic from that so that we can continue to make sure that we're doing a great job. We've also added what our, our operation team is really proud of, which is the No Busters Hotline. If you received a no from a part of the organization and you didn't actually believe it should be a no, we actually have it, who's actually incented to help you get those no's turned into a yes.

Talked a little bit about the 24-hour check-ins that we already have, and now we have a premier support desk for our agents, especially our ICON agents and top producers and the like. With that, let me. Actually, let's go to attrition and talk a little bit about that. This is something we've been talking about now for about a year, I think. We've been, we've, we've been talking about the attrition metrics. Our attrition right now, 75% of our attrition has been, historically, between 75% to 80% has been in the zero to two category. That's been for quite a number of years. This quarter, no different. 75% of our agents were in that zero to two category.

What's interesting to note is that our [stickiness] as a platform, we're actually improved- improving for our top producing agents. Agents doing over 21 sales, and these are basically our ICON agents. We've actually become stickier since we started to, to report this, these metrics out. Originally, we were about, I think, 3.5x more sticky for the top producing agents than the, than the bottom producing agents. We're now 4.4x as sticky. This is at the, the based on the number of agents in that cohort. The, the the agents churning there is significantly smaller as a percentage of that base than the, than the other groups. From a churn perspective, our top producing agents continue to have a very low churn.

With that, let me go ahead and turn to Michael Valdes to talk about what we're doing to drive the agent value prop and Ancillary Services.

Michael Valdes (Chief Growth Officer)

Glenn, thank you so much. You know, it's, it's, it's amazing. I'm sitting here and, and hearing your story of starting this 14 years ago with 24 agents, and it's extraordinary to think about that and where we've gone in such a short period of time. Really, it's my pleasure to talk about our last quarter with Ancillary Services and growth. In the terms of Ancillary Services, our team is really focused on solutions that help our agents increase their value proposition and create amazing customer experiences for their end customers. With products like home warranty, utility services, signs, and home renovation pre-listing services, we're also in the process of a cost-conscious build-out of our mortgage business, and we're well positioned for growth.

We're now licensed and operating in 42 states. Success Lending has actually tripled funded units and loan volume Q2 of 2023 over the same period last year. We launched our first local level eXp-endorsed title partnership with our top-producing agents and already have two to three other JVs in near-term pipeline. Stay tuned for those announcements. On our growth team, they're really focused on growing across all segments of our business, and we launched a couple of programs in Q2 to further drive the agent value proposition. The first thing that we launched was the Boost program, which provides financial incentives to qualifying independent teams and brokerages that join eXp Realty. Now, the program just launched on June 29th, so it's still very early. Current applicants represent over 1,500 potential agents and over $3 billion of potential production.

These candidates are moving through our approval process very quickly, and we have over 50 other candidates that are in various stages of our due diligence pipeline. Secondly, we reduced revenue share criteria to accelerate agent rewards at a time when other companies are actually raising their barrier to entry for many agents. We're committed to putting agents first and helping them focus on driving production. Now, on the next slide, we're gonna talk and turn our attention to what we've done on our growth-led events. On the first one has been our top agent masterminds. Now, Leo Pareja, our Chief Strategy Officer, and I have been on a bit of a roadshow, following on what Glenn has done with his masterminds on our key events. What we've been doing is meeting with our top agents, and these are the top-producing agents by production.

We have been facilitating really deep discussions on core topics that are focused on driving growth, which has really been an amazing experience. Now we're actually proud to announce our very first EXPCON Canada. This is the first Canadian conference that's in line with the country's strong growth trajectory. We have over 6,000 agents in Canada. This event will be taking place in Vancouver on September 6th through the 8th, and our speakers are gonna focus on production, on technology, and again, of course, on growth. Of course, we're doing our EXPCON in Las Vegas on October 2nd to 5th, and our focus actually on that event will be on AI, which has been a key focus of ours. Glenn alluded to our app, Luna, other deliverables that we've done. We're also gonna be focusing on agent production, mindset, and growth.

Finally, our regional rallies. These are our agent-led events, which will take place in November across the country. We're planning about 15 to 20 of them. It builds community, it celebrates milestones, it helps deliver education and training. Last year, we did, oh, gosh, I think about 3,000 or so agents that were touched during those rallies. It's been incredible with our growth story. With that, I'm gonna let you get to the meat of this meeting with our CFO, Jeff Whiteside, to talk about our numbers. Jeff, over to you, sir.

Jeff Whiteside (CFO and Chief Collaboration Officer)

All right. Well, thank you very much, Michael, and good afternoon all, and thank you for joining us today for our Q2 of 2023 Earnings Call. Before I take you through the financials, I wanted to share a couple of data points regarding the current operating environment, and residential real estate continues to be under pressure, as all are aware. In terms of unit sales, Fannie Mae forecasted that in Q2 2023, total home sales declined 17% year-over-year. This forecast compares to our business, where we were nine year-over-year decline in our eXp North American Realty business. Then in terms of agent count, so unit sales, and now we talk about agent count.

Agent count growth, NAR reported U.S. residential real estate agents declined in numbers by 1.1% from June year-over-year, 2022 to 2023. For us in North, if our U.S. agents actually increased by 4% within our eXp North American Realty group. eXp total agent count grew at 7% to 88,248, and we're now operating in 24 global markets year-over-year. Just at a higher level, at the eXp World Holdings level, our highlights are as follows: net income of $9.4 million, which was an increase of 1% year-over-year compared to the Q2 of 2022, while our revenue declined 13%. Operating income, $11.1 million, reflected 8 basis points of year-over-year operating margin expansion.

We also generated significant adjusted EBITDA, at $24.7 million, that was driven primarily by North American Realty, which generated an adjusted EBITDA of $34.1 million, showcasing the resiliency of the eXp model while on the down market. An adjusted operating cash flow, which excludes customer deposits, was $64.6 million at the end of the Q2 in 2023. I'll review our Q2 financials for each segment on the next slide. On this slide, you can see our Q2 2023 segment revenue and adjusted EBITDA for our four business segments and a breakout of our corporate allocations. Our North American Realty segment is again the primary driver of revenue, at $1.2 billion. As I mentioned in the previous slide, the North American Realty segment remained profitable, with $34 million in adjusted EBITDA.

International Realty had another record quarter, increasing revenue by 35% year-over-year, to $12 million. Virbela contributed a modest amount of revenue and improved its EBITDA loss by approximately $1.5 million year-over-year in the quarter. Our Affiliated Services segment also contributed modest amounts of revenue, with the corporate eliminations, we consolidate to $1.232 billion in revenue and $24.7 million in adjusted EBITDA in Q2. On the next slide, I'll review our financial details on a consolidated basis. A lot of numbers on this slide, we've talked about some of them already, but on a consolidated basis, we've increased our agent NPS, as Glenn was talking about, from 68 to 72 quarter-over-quarter versus 2022, while also at the same time adding agents despite a tough macro environment.

Unit sales were 137,199, as referenced earlier, and that's a 9% drop versus 17% drop in the industry. We saw our price per unit drop 8% from $386,000, $354,000. Revenue is $1.232 billion, as noted, and decreased 13% year-over-year. Gross margin dollars decreased 10%, while gross margin percentage increased 3% due to lower transaction volume. SG&A decreased -11% due to slowdown in hiring, decreased marketing spend, and a reallocation of agent growth incentive stock compensation expense that we discussed in detail in Q1. Net income grew 1% to $9.4 million, as I mentioned. We generated $24.7 million adjusted EBITDA.

Our cash flow was $64.6 million, and we ended the quarter with $124.7 million of cash and cash equivalents in our bank. Finally, on this page, we increased our dividend 11% in the quarter to $0.05 versus $0.045, and that's gonna be effective in the next payout. Going to the next slide, we'll take a look at our year-to-date segment. This slide details our, our segment revenue on a year-to-date basis and our adjusted EBITDA for each of our four business units. On a year-to-date basis, North American Realty is down 15% compared to our first half of 2022, with over $2 billion in revenue and $55 million in adjusted EBITDA.

International Realty revenue is up 42% year to date, with a record $22.7 million, year to date with a record $22.7 million in revenue. As you can see, we continue to invest in International Realty. Virbela is up 3% year to date compared to the same time period last year, and improved its EBITDA last by approximately 55%. Revenue in the other segments is up 46%, year to date basis, to $2.7 million, with an adjusted EBITDA down 17% to $1.8 million. You know, this is where we're, we're investing again, as Michael mentioned, with some of the programs we have in, in his presentation. On my final slide, we'll look at agent and revenue growth over a rolling five-year period.

This final chart here, the chart was getting pretty difficult to read. We had all, you know, almost from the beginning of time, we've shortened it and the timeline to a five-year rolling basis, the story is still the same. Historically, we've grown agents and revenue, even with recent market conditions impacting revenue, we continue to increase eXp's agent count, which grew at 7% on a year-over-year basis this quarter. Continue to have zero debt on our balance sheet and are proud of the results we produce for our investors over the short, medium, and long term.

Summary for the Q2 of 2023, although our revenue decreased year-over-year, driven by a volume slowdown across the industry, we outperformed the industry and will continue to invest in future growth priorities and delivering profitability comparable to the Q2 of 2022, when the revenue was higher. With that, I'll turn it over to Denise for Q&A.

Denise Garcia (Investor Relations Manager)

Great. Thanks, Jeff. Let me kick it off with a question for Glenn before we open the call to our covering analysts. First, Glenn, regarding NPS, we had such a big increase this quarter. What do you think had the biggest impact on, on driving NPS?

Glenn Sanford (Founder, Chairman, and CEO)

You know what? I think there's been a number of things. One, we've been making an investment in growth since the beginning of Q1. As I alluded to comments, that's been really helpful. I think more important is the way our entire brokerage operations and organization has really rallied around supporting agents in real time. You know, with the rapid growth that we had for, you know, many sequential years, we were throwing bodies at the challenge and not being as systematic in how we solved for agent challenges.

I think one of the things that the slowdown of the housing market has given us, it's also given us the opportunity to retool and to really think strategically on what are the best ways to support agents that are out there listing and selling homes and, and providing them with the services that they need in real time. So that, I think, has really worked well.

Then also getting this down to the individual brokerage units for individual states, regions, cities, et cetera. I think there's been a really, a buy-in to understanding what that really means and how they are empowered to actually solve challenges even, even better than maybe they were before. Some of it has also required us to turn over, you know, some of our staff so that we have staff that's both competent, but then also staff that is truly engaged with the agent in a constructive way. Sometimes those, those two people don't live in the same body. We've had to make, you know, different changes from time to time to make sure that we have the right people on the right seats on the bus.

Denise Garcia (Investor Relations Manager)

Great, that makes sense. All right, let's open it up. Why don't we take our first question from John Campbell from Stephens? John, go ahead.

John Campbell (Managing Director and Equity Research Analyst)

Hi, guys. Good afternoon. Thanks for having us.

Jeff Whiteside (CFO and Chief Collaboration Officer)

John.

John Campbell (Managing Director and Equity Research Analyst)

I wanna touch on the lower revenue share criteria. I know you guys are obviously pretty hell-bent on enhancing that agent value prop. We can see that, you know, pretty directly through the positive effects on, on the agent NPS. I, I get why you, why you did it. My question here is, is what led up to the change or maybe why now? Then, Jeff, just separately, I'm thinking this is probably not gonna have a huge influence on gross margin, but just wanna get your latest thoughts on what that impact might be.

Glenn Sanford (Founder, Chairman, and CEO)

Yes. We're, we're continuing to listen for, to, to the agents. They're also, you know, our agents are in it to win long-term with us as a brokerage platform. We, you know, some, some of the feedback came from our agents as to things we could do to make the, the model a bit better from their perspective as they're out there growing their organizations inside of eXp. You know, Jeff can certainly comment to the, the financial impact, but one of the things that hasn't changed at all is what we put in place in late 2019, which is our 50% of, of whole company dollar is paid out in the form of revenue share.

We adjust the revenue share payout such that every month, we pay out exactly 50% of company dollar in the form of rev share, regardless of any of the little inside minor tweaks that we might make.

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yeah

Glenn Sanford (Founder, Chairman, and CEO)

That's kind of the, the initial commentary.

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yep. John, there won't be any impact on the financials for the change. It's basically, it's a reallocation of the 50%.

John Campbell (Managing Director and Equity Research Analyst)

That makes sense. Okay.

Michael Valdes (Chief Growth Officer)

John, I just want to add one other thing. It also allows our leaders to focus within their own organizations to put more time into making them more productive as well, which will also increase the agent PPP.

John Campbell (Managing Director and Equity Research Analyst)

Okay, well, that makes sense. I appreciate that. On the AI work that you started, that sounds pretty interesting. It sounds like, at least for now, that Luna is gonna be geared more towards that internal agent support. Glenn, I know you guys have spent a lot of time and effort on improving that onboarding process. I imagine that's gonna be hugely helpful there. I'm curious, Glenn, I mean, you, you do tend to think big. You've got pretty grand aspirations. I'm curious, what do you think Luna might be able to become one day? If you ever really envision agents using that directly or if it's sitting, you know, one day in between agents and consumers?

Glenn Sanford (Founder, Chairman, and CEO)

Yeah, I mean, there, there's elements of AI that's sitting between agents and consumers right now through our Inside Real Estate, kvCORE. We've got innovation work being done inside of Zoocasa for for using AI. There will be some AI components for sure between our web experience and the consumer experience. Where I think there's a lot of really interesting stuff is with regard to transaction processing and brokerage review of contracts, and sort of what does that look like in the future? You know, we'll still have the same individuals that are required, you know, by law to be in place, but their, their roles are gonna be significantly enhanced by AI.

We know, we heard even before we went down this road, but even a couple of years ago, where legal AIs were catching things legally at a higher rate than humans were, in terms of just understanding of contracts and what's in there, and all that. AI is gonna be hugely beneficial in the transaction process workflow, over time. Then I do think that, that, you know, again, simplifies both, improves the agent experience, but simplifies the brokerage management piece, where it's more managed based on actual real estate law than based on what one person's, maybe, leaning to being conservative or liberal interpretation of what real estate law is.

I think there's just a lot of good stuff that's gonna come out of that from a brokerage throughput perspective. I think there's a lot of good stuff that's gonna come from AI. What it's gonna be, I think it's very experimental at this point. We don't have enough data to say that it's, you know, when that's gonna become a reality. We are playing with it, and we've got a number of different teams working on various function, you know, AI initiatives.

John Campbell (Managing Director and Equity Research Analyst)

Okay, all very helpful. Thank you, guys.

Denise Garcia (Investor Relations Manager)

Sure. Thanks, John. Why don't we take our next question from Matt Filek from William Blair? Matt, go ahead.

Matt Filek (Research Analyst)

Hey, Glenn and Jeff, you have Matt Filek on for Stephen Sheldon. Thank you for taking my questions. Was wondering if you could provide some more color on your recent initiative to attract larger broker teams. Thinking of things like the types of teams you're looking to attract, what the offer terms look like, and what it could mean for agent growth over the near and long term.

Glenn Sanford (Founder, Chairman, and CEO)

Yeah, we talked a little bit about it. Michael talked about the Boost program. And what we've done with the Boost program is we've actually memorialized a lot of the things that we were already doing when brokerages were, were looking to convert. Meaning that oftentimes they would come in, but we'd have to sort of, you know, negotiate to some numbers, and sometimes they wouldn't even start the discussion because they didn't know if there was any flexibility around our model for, to really invite them in. We've done a couple things. One is, in order to get to the numbers stage, we actually have a cultural questionnaire that a broker-owner needs to actually go through and, and answer. And it really has to do with the fact that we want them.

We know that there's a continuity of leadership need necessary for transitions from agents being underneath one broker or independent brokerage over to eXp, and that is that the leader they bought into needs to be bought into what we're doing here, and they need to be part of the growth story of eXp going forward. If they're not committed to being part of the growth story of eXp, they're not culturally aligned. We have enough experience around this to have seen when people are culturally aligned and those that are culturally not, and they're just dropping their agents off and hoping they make money off of rev share, et cetera.

The whole idea is to really attract the right type of brokerage to eXp that wants to actually help grow eXp, that understands our mission, vision, and values around our agents, and then are wanting to actually take a go on the journey with us growing eXp. That's really it. The, the, the financials, you know, we're, we're able to provide some pretty good numbers to these broker-owners because we're able to value the agents as, as individual agents, even if they, as broker-owners, weren't able to run profitable real estate brokerages because of a tougher market. We're able to give them some good, good transition money to actually transition their agents over. As I think Michael alluded to, there's a number of, of agents in the pipeline.

I don't know if you mentioned that number, but Michael, maybe you can talk a little bit more about.

Michael Valdes (Chief Growth Officer)

I sure can.

Glenn Sanford (Founder, Chairman, and CEO)

How much has happened.

Michael Valdes (Chief Growth Officer)

Yeah. What we have in the active pipeline has about 1,500 potential agents and close to $3 billion of production from what we have of people that have raised their hands already. To Glenn's point, when we're looking at a market that's tightening at this time, to really have an independent brokerage, they're running on thin margins as it is. When you're looking at their entire OpEx, when you look at our platform, we're a very viable solution for them, which allows them a global platform by which they can continue to grow their business, and those agents are very much attracted to that deliverable. We do expect this to be a very viable part of our growth.

Matt Filek (Research Analyst)

That's a tremendous overview. Thank you both for that. Very helpful. wanted to ask one on SUCCESS Lending. Know that success has been more of an expense line as you build out capabilities and market conditions remain challenging. When do you think that could become accretive? As a second part to the question, just curious on how many loans are currently coming through on a monthly basis.

Glenn Sanford (Founder, Chairman, and CEO)

Yeah, the relative to when it should become accretive, in all likelihood, next year, 2024, it will be accretive. There's definitely, I think the loan apps are up 2x to 3x what they've been earlier this year. We're, we're, we're talking, and maybe, Jeff, you've got the more specific numbers in terms of loans closed, but I know that those numbers are growing pretty rapidly on the platform. It's growing rapidly on fairly small numbers at the moment. Maybe, Jeff, you've got any more?

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yeah

Glenn Sanford (Founder, Chairman, and CEO)

... clarity on any of that.

Jeff Whiteside (CFO and Chief Collaboration Officer)

On a year-to-date, the units are somewhere around 500 units that have gone through the system, and they're in different stages. Now, we were initially doing somewhere around, you know, 10 loans per month. That, so the rates are going up, and I would, you know, with Glenn's statement on, I think next year, the business should be turning around, and for the company.

Matt Filek (Research Analyst)

Great. Thank you very much. I'll jump back in the queue.

Denise Garcia (Investor Relations Manager)

Great. Thanks, Matt. We also have a question emailed in from one of our analysts who couldn't be on stage today, Tom White, from D.A. Davidson. He asked, should we, this is for you, Jeff, should we expect a similar step up for the remaining quarters of this year in terms of G&A expense, or is this a good level to model the Q3 and Q4?

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yeah, I think, I mean, there was. Yeah.

Denise Garcia (Investor Relations Manager)

Go ahead.

Jeff Whiteside (CFO and Chief Collaboration Officer)

To answer that question, Tom, there's two things that happened from Q1 to Q2. The, the biggest drivers of the G&A going up was the, the investors event that we had, so our shareholders event. That, that was a, that was an increase in cost, and then the second one is the merit increases that hit in the Q2. If you look at what we have at that, you know, we did $85.4 million in SG&A, and that's around, you know, that's kind of around what we're seeing for the rest of the year. Again, we, you know, we say this every time we talk about SG&A, if we have an opportunity to invest, the cash, to, to grow, we're gonna do that. Like, you know, I...

That 85.4 is kind of in the, in the range of what we're seeing, you know.

Denise Garcia (Investor Relations Manager)

Right. Okay. Can you still hear me?

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yep.

Denise Garcia (Investor Relations Manager)

Great. All right. He also had a follow-up question to that, which were: What are the biggest sources of incremental operating expenses, investments since Q1? Are you mostly invested in the core US brokerage? Is it international mortgage?

Jeff Whiteside (CFO and Chief Collaboration Officer)

Yeah. Biggest, biggest investment that we have going right now is international. You know out of all the investments we have. That would be above and beyond what we're doing in, in the core business. We look at the core business as if we're gonna fund that, and we're going to make sure we have the right NPS and the right support network in place to do that, both from a broker job standpoint, technology standpoint. Our above and beyond investment, the largest one is still going to international time.

Denise Garcia (Investor Relations Manager)

Right.

Jeff Whiteside (CFO and Chief Collaboration Officer)

That hasn't changed from the last, I'd say, four quarters.

Denise Garcia (Investor Relations Manager)

All right. Great. Also, audience, just as a reminder, if you wanna ask a question via Slido, there is the, the code up on the left-hand screen if you want to download that or go to slido.com/exp and submit a question. We do have another question from one of our newest, covering analysts, Soham Bhonsle at BTIG. He emailed in his questions as well, and he asked a question on agent productivity. He was asking about this metric that he sees continues to decline in line with some market transactions. What steps are you taking to improve the agent productivity metric going forward?

Glenn Sanford (Founder, Chairman, and CEO)

Yeah, we're definitely investing in technology and tools. The success side of the house, we've, we've now partnered with, with a number of top coaches and trainers, bringing them into our ecosystem, where we've been doing- touched on the masterminds that we've been doing with our agents to help them be more productive. Our, our regional rallies are around production. A lot, most of our events are around production, and then we've got literally 80 hours of available training in world and online every single week for agents in various different parts of the business. We now have at least, I think, two different podcasts going on from members here.

Actually, I think Michael and I both do podcasts, along with a number of other agent productivity podcasts done by our agents, for agents to help support agents. There's a ton of coaching and training, masterminding going on, and that's where historically, most of the business has been improved. Every agent is an independent contractor, so they have to opt in to a large extent, improving their business. If they opt in, we have something for them to opt into, to take their business to the next level.

Denise Garcia (Investor Relations Manager)

Okay.

Michael Valdes (Chief Growth Officer)

We also have a 30, 60, 90-day program that we've initiated as well, as well as a Kickstart program for those that are either new to eXp, new to the industry, or both, and also how they can have their path and journey to productivity. Everything that Glenn just said, we've got a very formalized plan for that and continue to do so as we continue to build the program out through our eXp University and other resources.

Denise Garcia (Investor Relations Manager)

Great. I think we have a follow-up question from John Campbell. Stephens, go ahead.

John Campbell (Managing Director and Equity Research Analyst)

Yeah. Thanks. I had a question that was kind of related to the one you just answered. On the agent productivity, I'm actually seeing the opposite. It looks like that you guys, from a transactions per agent standpoint, looks like you outperformed the market by, you know, a pretty wide measure this quarter. I mean, obviously, it's down year-over-year. You know, just given transactions, it looks like you did outpace the market. My question here, and I've been kind of curious about this the last couple of quarters, you know, you guys keep citing that, you know, about a 3/4 of attrition is largely coming from those agents doing zero to two transactions.

I would think maybe from a mix shift standpoint, that would be helpful for overall productivity. Also, what I'm curious about is, you know, how long do you think that you see that kind of heightened attrition on the lower end? I know it usually takes a little bit of time as people have annual dues coming up. You know, that usually could be a kind of a moving point for them to maybe move off the platform, but I'm curious about how long you think that ends up being a bit of a headwind.

Glenn Sanford (Founder, Chairman, and CEO)

Yeah, well, I think, you know, so 1/3 of our agents historically have joined are brand new agents, and about 80% of those agents, historically haven't made it to their first renewal. You can just think about that's a big amount of churn that comes from that group just automatically. Because, and, and so that will continue to be the case. The, the, because we are stickier, the more production, productive you are on the platform, there is a bit of improve over time, just based on us continuing to support agents, as long as we continue to be the best place for top-producing agents to hang their license. We think that that will be the case.

The other thing that happened is that over the last year and a half or so, let's say since, you know, Q1 of 2022, the zero to two cohort has, has increased in terms of the size of people in that group from agents who previously maybe were selling three to four homes. Now they're having trouble finding, you know, doing even, even the zero to two. Down, when the housing market picks up, there's a, you know, some of those agents who would be marginal in that zero to two category are gonna find it easier to do their third and fourth transaction and fifth transaction, et cetera. Right now, we're still in this market that's, you know, generally pretty tough.

We haven't seen the attrition in the industry overall that would be reflective of the real estate transactions going on. I certainly expect there to be a fair bit more attrition. For a number of reasons, including having a pretty robust economy, even considering the what's going on in the housing market. I think that just that as well supports the notion that, you know, part-time agents can still have a, you know, another income and have a real estate license, not feel the need to, to hang it up. There's just a few different dynamics that are going on, but I do expect that there's gonna be fewer agents in the industry in the next 12 months.

We're seeing, you know, some pockets where renewals are being imposed, based on a 6-month lagging renewal cycle, where we're seeing agents, you know, have to leave the business because they're refusing to pay their dues, and they're not making any money.

John Campbell (Managing Director and Equity Research Analyst)

Okay, thank you so much.

Denise Garcia (Investor Relations Manager)

All right. Thanks, everyone. With no other questions on Slido, I think it's a good time to remind everyone that our first EXPCON Canada will take place in Vancouver, September 6th to 8th this year, and the annual EXPCON event that Michael had mentioned will be in Las Vegas, October 2nd to 5th. Please register at exconcanada.com or expcon.exprealty.com to join us, and 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. Thank you for joining us today. This concludes the eXp World Holdings Q2 2023 Earnings Fireside Chat.

Jeff Whiteside (CFO and Chief Collaboration Officer)

Thanks, Denise.

Glenn Sanford (Founder, Chairman, and CEO)

Thanks, everyone.

Michael Valdes (Chief Growth Officer)

Thank you very much.