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EW

EXP World Holdings, Inc. (EXPI)·Q2 2023 Earnings Summary

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) .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Revenue ($USD Billions)$0.933 $0.851 $1.233
Gross Profit ($USD Millions)$83.1 $73.1 $96.5
Operating Income ($USD Millions)-$10.709 -$1.673 $11.097
Net Income ($USD Millions)-$7.201 $1.453 $9.422
Diluted EPS ($USD)-$0.05 $0.01 $0.06
Total Operating Expenses ($USD Billions)$0.944 $0.852 $1.222
MarginQ4 2022Q1 2023Q2 2023
Gross Margin %8.9% 8.6% 7.8%
Operating Margin %-1.1% -0.2% 0.9%
Net Income Margin %-0.8% 0.2% 0.8%

Segment breakdown (Q2 2023):

SegmentRevenue ($USD Millions)Adjusted Segment EBITDA ($USD Millions)
North American Realty$1,219.3 $34.1
International Realty$12.0 -$3.8
Virbela$1.8 -$1.2
Other Affiliated Services$1.1 -$1.2
Corporate/OtherN/A-$3.2
Consolidated$1,232.9 $24.7

Key KPIs:

KPIQ4 2022Q1 2023Q2 2023
Agent Count86,203 87,327 88,248
Transactions (Units)109,168 102,305 137,199
Transaction Volume ($USD Billions)$37.6 $33.2 $48.6
Agent NPS73 70 72

Notes:

  • Adjusted EBITDA and adjusted operating cash flow are non-GAAP; reconciliations provided in the press release .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2023$0.045 (Q2 2023 payout) $0.05 (declared July 28, 2023) Raised
SG&A Run-Rate (Commentary)Q3–Q4 2023N/A~$85.4M per quarter (“in the range” for rest of year) Commentary (maintained range)
Formal Revenue/EPS/Margins GuidanceFY/Q3None provided None provided Maintained (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022)Previous Mentions (Q1 2023)Current Period (Q2 2023)Trend
AI/Technology InitiativesSegment reporting introduced; agent-centric innovation emphasis Focus on modernizing infrastructure; agent experience emphasis Launched Luna (GPT-4) for agent support; early strong engagement Building, accelerating
Macro: Mortgage Rates/InflationIndustry downturn; core NA profitability Global residential real estate downturn noted High mortgage rates persist; inflation cooling; rates near peak; pent-up demand expected Cautiously improving outlook
International Expansion/PerformanceExpanded into new markets Record international revenue +52% YoY Record Q2 international revenue +35% YoY; continued investment Strong growth, continued investment
Agent Productivity/SupportAgent NPS 73; agent-centric focus Agent NPS 70; variable cost model NPS 72; 24/7 support, Luna, faster payouts; programs to improve productivity Improving service/engagement
Recruiting/Retention (Rev Share/Boost)Emphasis on agent-centric model N/AReduced revenue share criteria; Boost program with pipeline of ~1,500 agents, ~$3B production Incentives enhanced

Management Commentary

  • Glenn Sanford (CEO): “We are continually raising the bar on what it means to be the most agent-centric brokerage…We have prioritized agent support through our reimagined eXpert Care Desk…launched Luna, the GPT-4 powered generative AI support agent…even early in its development, Luna can correctly answer the majority of questions asked” .
  • Jeff Whiteside (CFO): “Operating income, $11.1 million, reflected 8 basis points of year-over-year operating margin expansion…North America Realty generated an adjusted EBITDA of $34.1 million…adjusted operating cash flow…was $64.6 million…we ended the quarter with $124.7 million of cash” .
  • Macro stance: “While high mortgage rates are expected to persist in the short term…forward interest rate curves suggest that rates may now be at or near peak levels. We are optimistic that lower mortgage rates will unleash significant pent-up demand” .

Q&A Highlights

  • Revenue Share Criteria: Management affirmed rev-share remains fixed at 50% of company dollar; changes are reallocations, with no gross margin impact .
  • AI Scope (Luna): Near-term focus on internal agent support; longer-term potential in contract review and transaction workflow, enhancing compliance and throughput .
  • Boost Program / Team Recruitment: Structured incentives for culturally aligned brokerages; active pipeline of ~1,500 agents and ~$3B production considering transition .
  • SUCCESS Lending: Targeting accretion in 2024; ~500 units YTD with monthly run-rate improving from ~10 loans; licensed in 42 states .
  • Expenses/Investment: SG&A “around $85.4M” per quarter for the rest of 2023 (subject to growth investments); largest incremental investment focused on international .

Estimates Context

  • Wall Street consensus estimates (S&P Global/Capital IQ) for Q2 2023 and prior quarters were unavailable due to request limits at the time of retrieval. As a result, we cannot present quantitative beat/miss versus consensus for revenue and EPS in this recap [functions.GetEstimates error].

Key Takeaways for Investors

  • Profitability and operating margin expansion in a down market underscore the resilience of the cloud brokerage model; North American Realty remains the earnings engine .
  • International growth is a multi-year lever; record Q2 revenue and continued investment suggest durable expansion with improving scale economics over time .
  • Enhanced agent support (24/7 desk, faster payouts) and AI (Luna) should bolster productivity and retention, supporting transaction recovery when rates ease .
  • Capital returns (dividend increase to $0.05, $48.8M buybacks) reflect balance sheet strength and cash generation; zero debt offers flexibility amid macro uncertainty .
  • Near-term trading implications: narrative catalysts include AI initiatives, Boost program pipeline, and international momentum; macro watchpoints are mortgage rates and affordability .
  • Medium-term thesis: as volumes normalize, eXp’s variable cost structure and agent-centric platform should expand margins, with international turning toward breakeven and ancillary services (mortgage/title) adding incremental earnings .
  • Absence of formal revenue/EPS guidance shifts focus to execution on KPIs (agent count, NPS, productivity) and segment EBITDA trends to gauge trajectory .