Good afternoon, and welcome to the eXp World Holdings Fourth Quarter and Full Year 2022 Earnings fireside chat via live stream and EXPI Campus, our Metaverse. My name is Denise Garcia and I manage Investor Relations at 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, followed by a review of the fourth quarter and full year 2022 financial highlights presented by Jeff Whiteside, CFO and Chief Collaboration Officer at eXp World Holdings. Following our prepared remarks, we will 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, February 28, 2023, and the company undertakes no obligation to revise or update them. Please see our filings with the SEC including our most recently filed Annual Report on Form 10-K 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. Now for a few logistics and we'll get started. For those of you joining on 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 gray slide, hit the Refresh icon on the top right hand corner of that screen to correct. While in the EXPI's campus, should you need any help or have any questions, please enter your comments into the chat box at the bottom on the left, and a member of the team will contact you. On slide, should you wish to ask a question during our presentation, you can enter your questions by scanning the QR code presented on the screen with your phone or go to slider.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 like that question to be asked. This screen will remain on the left hand side of the stage. Now, I will turn the fireside chat over to Glenn and Jeff, before I open the call to questions.

Hi, thank you, Denise. And thank you everyone for attending here as well. First and foremost, as many of you know, eXp World Holdings is primarily a residential real estate brokerage which I founded a little over 13 years ago, close to 13.5 years ago. On behalf of our agents, who also are our shareholders, and in a little bit, I'll be sharing a bit on how we're driving -- continuing to drive this mentality through our organization through the use of NPS, a new term that we referred to as earned growth rate. I think it's important to understand that in the context of being a long-term shareholder, even though obviously today we're going to be talking a little bit about our past results, but our continued focus on the agent value proposition, I think, is what's most important when you think about future results. Obviously, despite the challenging market in 2022, the eXp value prop continued to track agents. And a result, we grew revenues while maintaining a strong balance sheet with zero debt. We also paid dividends to our shareholders as part of our differentiated value proposition and our equity offering to agents, which is unique in the marketplace. This year, in as of this 10-K, we're actually increasing our financial transparency into the organization. We're doing that through what we're referring -- what's referred to as segmenting, and one of the reasons why I did that is because of the challenging market, we wanted to show to our agents, staff shareholders, and others that at scale eXp Realty is, as we've said for a long time, we believed it would be profitable in good times and bad times. And what you'll be able to see is when you actually look through our segmented filings, you'll actually…

All right. Well, thank you very much Glenn. And thank you, Denise. Good afternoon all, and good evening, I know some people from Europe. So, thank you for showing up to the presentation. I'll start the financials by highlighting our full year 2022 results, beginning with eXp World Holdings. Consolidated revenues increased by 22% year-over-year to $4.6 billion, while gross margins, percentages, and dollars increased in versus 2021. We maintain adjusted EBITDA profitability throughout the year despite a challenging second half of '22 that we'll get into. And we ended the year with a stronger cash position of no debt on our balance sheet. As Glenn mentioned earlier, beginning this quarter, we will be reporting four operating segments, eXp North American Realty, eXp International Realty, VirBELA, and other affiliates services. On this first page, I'd just like to highlight a couple of our segments being North America and International Realty. 2022, the North American business grew by 22% revenue and solidly EBITDA profitable throughout the entire year, even as we expanded our business and acquired to Zoocasa. eXp International Realty remains an investment mode as we scale the business. Our full year revenue grew at 102% as we increased our agent count, productivity in previously launched markets. During 2022, we entered six new markets Dominican Republic, Greece, New Zealand, Chile, Poland, and Dubai. 2023 international Realty will be focused on growing --driving growth and production in our existing markets. And as Glenn mentioned in his opening statements, our operating plan in 2023 and beyond is to continue to invest in segments that provide value to our agents in the long term. In terms of capital allocation, we'll continue to fund investments in each segment that we believe will generate an attractive long-term financial return. So, I'm going to get into…

Great. Thanks, Jeff. I'll kick off with a few questions to you and to Glenn before we open the call to our covering analysts. First, I'll start with you, Glenn. You've broken out international from North America Realty for the first time. Can you just talk a little bit about the international opportunity?

Yes. So, international is -- really what we found, having now been growing internationally outside of North America, specifically the U.S. and Canada since 2018, 2019 when we opened up to U.K. and Australia, is that the value prop that we developed here translates very well when we go to international markets. We've added 22 different international markets to eXp and internally that we don't break it out yet, I think, a couple of those markets are actually profitable internally and we expect that more will be profitable over time. Each country is a little bit different. There are almost like -- and some countries are smaller than small states in the United States, so each country is going to have a little bit different mix. But, as we continue to grow out the marketplace, we think that international is going to be again at scale. When we get to scale internationally, we'll be as big or bigger than North American Realty just because there technically is more agents on lower good financial terms with their brokerages internationally than there is domestically. So, there's a bigger opportunity to help agents create businesses inside of the business as we expand. We're seeing that on calls earlier today, the U.K., last week Australia, and we're always talking with agents in markets around the world and the business model translates.

Great. Okay. Just one more for you. What do you see for the industry this year in 2023?

My crystal ball broke years ago. So just -- but we think that the industry is going to be challenged for the balance of 2023 for the most part. We think that there is probability that Q4 will be better than Q4 last year, partially because Q4 this last year was a really tough quarter. But we're expecting that Q1, as an industry, will be lower than Q1 last year, and same thing with Q2. And Q3 is a little bit of a toss out. Our internal numbers suggest that it will actually be a little bit more challenged than Q3 last year, but it could go either way, the way we're looking at Q3.

Okay. Great. And Jeff, just one for you before I open it up to the analysts. How are you thinking about allocating costs and investments as you move forward into 2023?

Yes. Denise, I did touch on that from a capital allocation standpoint. I think, what kind of happened in the -- if we think back a little bit back to the COVID days, when COVID hit and everything was -- everything went -- everybody was crazy, we didn't know what to do. We did a lot of actions right away. It was -- it's not the same situation with COVID, I'm not saying that all. What I'm saying is that we're going to be very thoughtful, all right? So we -- so that's why we broke out the segmentation. And we're focused on growing our North American business. We're focused on investing in our other investments. So, we talked last year -- I talked last year and we talked about getting back to that $80 million per quarter target on SG&A. And as the team has got together, and as Glenn has come back into our business, I mean, we're thinking more strategically. We're absolutely going to be good stewards of our capital, as you can see from the numbers, and we got quite a number of years of history now of doing that. But at the same time, with the cash that we generate in the business and the opportunities we believe we have in the future, the big opportunities, we're not going to try to say pass in the quarter due to sacrifice some big opportunities we have in the future. So, having said that, we're going to be good stewards of our capital, but we're going to invest in that we pointed out today and make sure that we drive results from those areas.

Got it. Thanks. So now, I'll open the call up to questions from our analysts. John, I'll take your question first.

Okay. Great. Can you guys hear me okay?

Yes

Yes, John.

Thank you, guys. So on the gross margin, that was a lot better than we anticipated, I think 120 bps year-over-year. That's the best kind of annual movement you guys are seeing since the heart of COVID back in 2Q '20. But, Jeff, to your point, which I think is a really good one, that help keep the gross profit roughly flat on the revenue decline. I think that's an important kind of under-appreciated angle of the model. But I wanted to get your take on how that might shake out this year, if we assume that average agent production kind of continues to drop a bit here, maybe even stays at the current levels. How should we be thinking about gross margin all in for '23?

So, I think that if -- as we kind of went through it, when we get challenged on the revenue side, and as long as we continue to do the right thing for the agents, we think that the gross margin percentage stay up in the levels that we're kind of seeing in the fourth quarter range, all right? As the market picks back up again, we expect that to come down. So, you've seen this over the last few years, John. So, as we predicted, as the market will start to come down, the gross margin percentage will go up. So we can -- so, I guess, to answer the question, if we continue to see challenges in the first half of the year, we'll probably have a stronger percentage gross margin, and as the business picks up again, which it will over time, that percentage will lower as the volume comes through the system.

Okay. That's helpful. And then I think that's probably upside, a lot of investors models as far as the gross margin, but on the OpEx side, it sounds like you will continue to invest pretty heavily here, I guess consistently about $93 million to $96 million is what you've seen on each quarter last three quarters of total G&A and marketing spend. How should we think about that going forward? Is that a pretty good quarterly run rate?

It is in that range. So we don't have a plan to blow out expenses at all on the SG&A side. What we're going to be doing is, we're working on productivity in a big way. So, the same kind of range that we saw this year is kind of the -- at this point in time, that kind of range that we're looking at for 2023.

Okay. That's helpful. I appreciate the time, guys. Sorry, Glenn.

The one thing that I'm coaching the team on, and also I guess investors on, is that we don't want to be boxed into a number, we see opportunities. So, for us, when we are looking at improving the agent experience, say in the U.K. or Australia or France or wherever, we're going to be making more strategic investments, more rapidly than maybe we have in the past. But we also -- we're just more, we're not -- I don't want the team to feel boxed into numbers that they may have provided you in a Q&A in a public setting. So, I -- just leaving that out there as well.

Yes. That's good clarification. I appreciate that. Thank you, Glenn.

All right. We'll move to Tom. Tom, if you're ready.

Great. Thanks guys. Nice to be back in the eXp campus here. A couple if I could. Maybe Glenn, first off, or for Jeff. I was hoping you guys could just parse out the net agent addition trends kind of in the U.S. versus international a bit, both in the fourth quarter and kind of maybe so far this year. Are you confident that you're maintaining or gaining agent share in the U.S.?

Percentage agent share for sure, actual agent count is pretty flat the last -- the end of Q4 and the beginning of Q1 in North America. I haven't verified the numbers yet. But I've heard that they are roster-dropped quite considerably since the beginning of the year. And -- but we -- so, we feel that our percentage share of the market continues to increase even if our numbers are flattish, slightly up, slightly down from flat at the moment. So, we've got, I think December, we were down a few agents; January, maybe the same; February, I think we might be up, but we haven't got into the numbers super detail, but it's very flat for the most part. And the churn, as we've talked about in the past, four times the zero to two agent transaction range agents, four times as many of those agents are churning out as the agents who are icon top producers. So -- and it's pretty linear, the more productive they are, the more they're staying with us. And so, the majority of the agents that we are losing are agents who are fundamentally looking for other employment outside the real estate industry.

That's great. That's really helpful. Thanks. Maybe, then just one on international. Can you -- what we should expect in terms of like the overall [technical difficulty] consolidated EBITDA in 2023 as it relates to internationally. Should we expect you guys are going to kind of invest at a similar kind of clip relative to last year? And then, also sort of the same question on corporate expenses. That's a pretty big drag obviously on EBITDA that we can see now, too. Curious whether you can kind of meaningfully slow that or maybe even reduce that industry volumes are worse than you expect?

Yes. So, the eXp World Holdings portion is to some extent fairly fixed, it's a lot of its compliance infrastructure for being a public company. So that's fairly early, and Jeff can certainly comment more to that. On the international front, we did slow down our new country growth launches. We did that sort of second half of 2022. That being said, now that we've broken it out, we actually broke out, segmented out the numbers for a reason. One was so that we could actually invest more in international growth by showing that the model does work at scale. But there are 50 to 80 more countries we want to grow into in the next few years, but the key is to make sure that we're able to manage a cash balance such that we're able to make the moves that we need to make in order to grow. So, I wouldn't say we're going to accelerate growth, but we're not going to slow down growth too much more than we did last year and probably will start to approach the four to five new countries a year range towards the end of the year.

I would add some more things on the World Holdings. A large -- two big pieces of that is professional services and the stock comp. So, these are -- so relatively, there's not a lot of variability in those numbers. Secondly, I'm with Glenn on the investment side of it, but I think the other thing that's going to happen that we're going to see over the short period of time or relatively short period of time, some of our company -- our countries that are meeting business for a while. The U.K. [technical difficulty] we're going to start getting -- we're going to get more productivity. We're going to get more sales. So, there's going to be more margin coming back off some of our moves. That's going to be a big focus for us in 2023.

Great. Thanks. I'll get back in the queue here.

Great. Thanks, Tom. Now, take a question from [Matt Filyk] from William Blair. Matt, if you're ready?

Hi, everyone. This is [Matt Filyk on for Stephen Sheldon]. Thank you for taking my questions and great to be in the campus. To start had one on commercial, I was wondering if you can provide an update on your efforts to expand into commercial real estate, and more specifically, roughly how many agents are focused on commercial and how do you see that business evolving over the coming years.

Yes. So I believe we've got similar number of agents as we had towards the end of Q3 around 1,000 agents on the commercial side. What we expect is the commercial -- the commercial universe of agents is substantially smaller than the residential agents and we still have fairly low competitive caps in that space, meaning that we're 20,000 caps versus 16,000 caps but in comparison to a lot of firms that are still 50/50 and no cap we represent a really great place to -- for commercial agents to move their license. So we do expect that over time, we'll become a larger and larger commercial firm. But I think that in the context of a larger enterprise, it will still be a fairly small number relative to potential or for net income and revenue growth. What we have done is we built out the entire commercial infrastructure, meaning that we have commercial brokerage in most the U.S. States presently. We've actually started a referral brokerage, where agents can -- if they're not in active production, they can actually move their license to the referral brokerage, which is actually housed underneath the commercial brokerage and there's some technical MLS and NAR reasons. They're not members of NAR, so they don't have the $1,000 plus you could need to stand there. They're not typically members of the MLSs per se, so there's no MLS 2. So it's less expensive for an agent to hang their license there, but they can still refer out real estate transactions. So we're building out this extra layer. And we're looking at other things that, that layer can be supportive of the overall brokerage.

Got it. That's a helpful update. Thank you for that. And just had a quick one on international. Any markets in particular or the initial traction has been stronger than expected and you're most optimistic about over the near term?

Jeff mentioned previously South Africa. That's a fairly new country for us. We're over 1,000 agents now in South Africa. And these are a much more professional agent base than is in other countries like, I'll use India and Mexico, where we have a similar number of agents, but real estate is not well organized there from a professional standards perspective. So we're pretty optimistic about South Africa. So we've got -- the three countries that are at or near profitable would be U.K., Australia and South Africa. And then we're continuing to work on the other countries. We're getting more mature in India. We're getting more mature in Mexico. And I say that because in both of those markets, there wasn't -- there isn't a lot of infrastructure for organized real estate. And so we're having to bring kind of infrastructure to an industry that in a lot of the country doesn't have much in the way of standards of practice.

Got it. Thank you, Glenn and Jeff, I'll jump back in the queue. That's it for me.

Great. Thanks, Matt. Now I'll move over to Slido, and we'll take some questions from the audience for you, Glenn and Jeff. I'll take the first one. Of the $13.7 million international segment EBITDA loss, how much is the result of new country opening costs versus subscale operations?

Good question.

I mean, it is a good question. I'd say most of the $13.7 million is investment in opening up the new countries. And actually, I think one of the learnings we've had is that it has taken a little more time than we originally anticipated. And because we go into a country, we play around with models to some extent when they make sure that they're the proper models for agent value proposition in those countries. So it's taken a little bit longer, and we try different things and we're -- so we're doing a lot of work in each country. So most of that money is investment and growing and getting the name landed in the country, getting the right people in place, getting the right operations in place and building the teams and the agent groups.

Got it. I'll take a couple more. It seems that the agent count growth is slowing in North America, is the 500,000 agents goal primarily focused on international expansion? And what's the target for agents in North America?

Yes. So our $500,000 agent number, as I've stated in the past, is an aspirational number that we believe that we will get to eventually at some point. We've talked about the idea of maybe 500,000 agents in five years. We think there's some reasons for that. But it was also based on when we made those statements a couple of years ago for the first time, it was based on a much different housing market than we have today. So that really has -- if I was looking at it, I'd look at it from the perspective of the slowing housing market. We believe there's 200,000 to 300,000, maybe 400,000 agents in North America that will cease being real estate professionals in the next 12 to 24 months. And so that's a big chunk of the industry. It could be 25% of the industry that won't be here. And if we use that as a factor, then you can almost take 100,000 agents off of that 500,000 agents sort of for that sort of we call it the aspirational five-year outlook. But I think the idea is that we are -- as long as we're focused on building a really great agent value proposition, we don't take our eye off that ball, and we continue to work on what do we need to do to do better by our agents then eventually we'll get there. It's really a matter of what the timing of that number is, which is very similar to the earlier question, it's aspirational and the crystal ball broke years ago.

Got it. All right. I think we have time for one more one for an agent here. Is the plan to eventually move away from the eXp campus over to Frame? And if so, what's the expected time line?

So if you're asking me, yes, we're asking the overall team then it's a little bit more mixed in terms of moving away and win. And that's just because a lot of people really develop great habits and the way to use VirBELA and how it works relative to Frame. The things that I really like about Frame is that it is a -- it doesn't need the same type of infrastructure from a client perspective because it's fully web-based and browser-based. And it doesn't need a lot of client-based updates. So when you came into eXp campus, if you've been here before for previous calls, you will have noticed that it had to patch and do some other things at New York on your client side, on whether you're on a Windows machine or a Mac, et cetera. On a web-based version, you don't have to update client-side software, there's stuff that's updated in the browser. And so for me, that feels a lot more modern in terms of the infrastructure and tool set where Frame is already in the Microsoft Teams app store, I believe. It's got a lot of -- it's getting some of the same commercial clients that are using VirBELA are coming up with use cases on the Frame side, and we continue to see Frame as being something that's used more and more inside of eXp as an alternative to going into VirBELA. And I know the road map for Frame is such that over time, it will be able to support hundreds of thousands of simultaneous users similar to VirBELA. And so as it scales, I think it's a natural that will move over to Frame. But timing don't have an expected time line, but I wouldn't be surprised if next year, during this earnings call, we do it in Frame as opposed to VirBELA.

Great. Got it. So before we close the call, I just want to remind everyone in the audience here that eXp's Shareholder Summit will take place in May 17 through 20 in Orlando, Florida this year. We'd like to invite all the analysts, investors and agents to join us for shareholder specific sessions of the event. So please register at expshareholderssummit.com. 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 fourth quarter and full year 2022 earnings fireside chat.