eXp(EXPI) - 2022 Q2 - Quarterly Report

FORM 10-Q Filing Information This section details the company's quarterly report filing, registrant status, and common stock information Filing Details This document is a Quarterly Report (Form 10-Q) filed by EXP WORLD HOLDINGS, INC. for the period ended June 30, 2022. The registrant is a Delaware corporation with IRS Employer Identification No. 98-0681092, and its common stock is registered on NASDAQ - The report is a Quarterly Report (Form 10-Q) for the period ended June 30, 2022[2] - EXP WORLD HOLDINGS, INC. is a Delaware corporation with its common stock listed on NASDAQ[2] Registrant Status The registrant is a large accelerated filer and has filed all required reports and interactive data files. As of June 30, 2022, there were 151,798,879 shares of common stock outstanding - The registrant is classified as a large accelerated filer[3] - The registrant has filed all required reports and interactive data files during the preceding 12 months[2] Common Stock Outstanding | As of Date | Shares Outstanding | | :--------- | :----------------- | | June 30, 2022 | 151,798,879 | Forward Looking Statements This section provides a disclaimer regarding forward-looking statements, emphasizing inherent risks and uncertainties Disclaimer and Nature of Statements This section highlights that the report contains forward-looking statements, which are not historical facts but current expectations subject to known and unknown risks and uncertainties. Investors are cautioned not to place undue reliance on these statements, as actual results may differ materially - Forward-looking statements are based on current expectations and assumptions, not historical facts, and involve known and unknown risks and uncertainties[10] - Investors should not place undue reliance on these statements, which are not guarantees of future performance, and actual future results may differ materially[10] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[10] PART I FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive income, stockholders' equity, and cash flows, along with detailed notes on business description, accounting policies, credit losses, assets, equity, and subsequent events for the periods ended June 30, 2022 and December 31, 2021 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of specific dates Condensed Consolidated Balance Sheets (In thousands) | ASSETS (June 30, 2022) | Amount ($) | | :--------------------- | :--------- | | Cash and cash equivalents | 134,898 | | Restricted cash | 105,883 | | Accounts receivable, net | 154,997 | | Prepaids and other assets | 7,822 | | TOTAL CURRENT ASSETS | 403,600| | Property, plant, and equipment, net | 19,906 | | Operating lease right-of-use assets | 2,265 | | Other noncurrent assets | 1,943 | | Intangible assets, net | 7,071 | | Deferred tax assets | 59,719 | | Goodwill | 12,945 | | TOTAL ASSETS | 507,449| | LIABILITIES AND EQUITY (June 30, 2022) | Amount ($) | | :----------------------------------- | :--------- | | Accounts payable | 5,971 | | Customer deposits | 93,566 | | Accrued expenses | 147,393 | | Current portion of lease obligation - operating lease | 213 | | TOTAL CURRENT LIABILITIES | 247,143| | Long-term payable | 2,714 | | Long-term lease obligation - operating lease, net of current portion | 720 | | TOTAL LIABILITIES | 250,577| | Total eXp World Holdings, Inc. stockholders' equity | 255,703 | | Equity attributable to noncontrolling interest | 1,169 | | TOTAL EQUITY | 256,872| | TOTAL LIABILITIES AND EQUITY | 507,449| Condensed Consolidated Balance Sheets (YoY Changes, In thousands) | Item | June 30, 2022 ($) | Dec 31, 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :---------------- | :--------------- | :--------- | :--------- | | TOTAL ASSETS | 507,449 | 413,826 | 93,623 | 22.6% | | Cash and cash equivalents | 134,898 | 108,237 | 26,661 | 24.6% | | Restricted cash | 105,883 | 67,673 | 38,210 | 56.5% | | Accounts receivable, net | 154,997 | 133,489 | 21,508 | 16.1% | | TOTAL CURRENT ASSETS | 403,600 | 319,315 | 84,285 | 26.4% | | TOTAL LIABILITIES | 250,577 | 190,293 | 60,284 | 31.7% | | Customer deposits | 93,566 | 67,673 | 25,893 | 38.3% | | Accrued expenses | 147,393 | 111,672 | 35,721 | 32.0% | | TOTAL EQUITY | 256,872 | 223,533 | 33,339 | 14.9% | Condensed Consolidated Statements of Comprehensive Income This section outlines the company's financial performance, including revenues, expenses, and net income over specific periods Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | 1,415,060| 999,887 | 415,173 | 41.5% | | Commissions and other agent-related costs | 1,307,810| 919,970 | 387,840 | 42.2% | | General and administrative expenses | 91,391 | 60,721 | 30,670 | 50.5% | | Sales and marketing expenses | 4,210 | 2,683 | 1,527 | 56.9% | | Total operating expenses | 1,403,411| 983,374 | 420,037 | 42.7% | | Operating income | 11,649 | 16,513 | (4,864) | (29.5)% | | Income before income tax expense | 11,020 | 16,458 | (5,438) | (33.0)% | | Income tax (benefit) expense | 1,661 | (20,585) | 22,246 | (108.1)% | | Net income | 9,359 | 37,043 | (27,684) | (74.7)% | | Net income attributable to eXp World Holdings, Inc. | 9,359 | 37,050 | (27,691) | (74.7)% | | Earnings per share Basic | 0.06 | 0.25 | (0.19) | (76.0)% | | Earnings per share Diluted | 0.06 | 0.24 | (0.18) | (75.0)% | Condensed Consolidated Statements of Comprehensive Income (Six Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | 2,425,791| 1,583,720| 842,071 | 53.2% | | Commissions and other agent-related costs | 2,235,077| 1,450,317| 784,760 | 54.1% | | General and administrative expenses | 166,713 | 107,021 | 59,692 | 55.8% | | Sales and marketing expenses | 7,910 | 4,940 | 2,970 | 60.1% | | Total operating expenses | 2,409,700| 1,562,278| 847,422 | 54.2% | | Operating income | 16,091 | 21,442 | (5,351) | (24.9)% | | Income before income tax expense | 14,735 | 21,515 | (6,780) | (31.5)% | | Income tax (benefit) expense | (3,488) | (20,374) | 16,886 | (82.9)% | | Net income | 18,223 | 41,889 | (23,666) | (56.5)% | | Net income attributable to eXp World Holdings, Inc. | 18,241 | 41,896 | (23,655) | (56.5)% | | Earnings per share Basic | 0.12 | 0.29 | (0.17) | (58.6)% | | Earnings per share Diluted | 0.12 | 0.27 | (0.15) | (55.6)% | Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity, including common stock, treasury stock, and accumulated earnings Condensed Consolidated Statements of Stockholders' Equity (Six Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | Change ($) | | :----------------------------------- | :------- | :------- | :--------- | | Common stock, end of period | 2 | 1 | 1 | | Treasury stock, end of period | (289,829)| (126,906)| (162,923) | | Additional paid-in capital, end of period | 509,476 | 295,035 | 214,441 | | Accumulated earnings, end of period | 37,007 | 2,734 | 34,273 | | Accumulated other comprehensive income (loss), end of period | (953) | 318 | (1,271) | | Noncontrolling interest, end of period | 1,169 | 1,015 | 154 | | Total equity | 256,872| 172,197| 84,615 | Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, In thousands) | Activity | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Net cash provided by operating activities | 165,298 | 167,425 | (2,127) | (1.3)% | | Net cash used in investing activities | (8,077) | (7,109) | (968) | 13.6% | | Net cash used in financing activities | (91,209) | (87,136) | (4,073) | 4.7% | | Effect of changes in exchange rates on cash, cash equivalents and restricted cash | (1,141) | 71 | (1,212) | (1707.0)% | | Net change in cash, cash equivalents and restricted cash | 64,871 | 73,251 | (8,380) | (11.4)% | | Cash, cash equivalents and restricted cash, ending balance | 240,781 | 201,175 | 39,606 | 19.7% | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION eXp World Holdings, Inc. operates a cloud-based real estate brokerage and a technology platform business, rapidly expanding in the US and internationally. The interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim information - eXp World Holdings, Inc. operates a cloud-based real estate brokerage and a technology platform business, enabling remote operations[29] - The real estate brokerage is one of the largest and fastest-growing in the US and is expanding internationally, including Canada, UK, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, The Dominican Republic, Greece, and New Zealand[29] - The accompanying interim unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[29] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the company's significant accounting policies, including principles of consolidation for subsidiaries and variable interest entities, equity method for joint ventures, and the use of estimates for various financial statement items. It also covers policies for restricted cash and the impact of recently adopted and issued accounting pronouncements - The company consolidates wholly-owned subsidiaries and variable interest entities where it is the primary beneficiary; uses the equity method for joint ventures and the cost method for investments under 20% ownership without significant influence[31][32][33] - Management makes estimates and assumptions for allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances[34][36] - Restricted cash primarily consists of cash held in escrow for real estate buyers, with a corresponding customer deposit liability, and cash held for acquisitions[38] - The adoption of ASU 2019-12 (Income Taxes) had no material impact, and ASU 2021-08 (Business Combinations) will be applied prospectively for future business combinations[39][40] 3. EXPECTED CREDIT LOSSES The Company estimates current expected credit losses (CECL) using an aging schedule method for three categories of receivables: agent non-commission based fees, agent short-term advances, and commissions receivable for real estate property settlements. Allowances for credit losses were recognized, with changes not material for the six months ended June 30, 2022 - The Company uses the aging schedule method to estimate current expected credit losses (CECL) for three categories of receivables: agent non-commission based fees, agent short-term advances, and commissions receivable for real estate property settlements[41] Expected Credit Losses on Receivables (In thousands) | Receivable Category | June 30, 2022 ($) | Dec 31, 2021 ($) | | :------------------ | :---------------- | :--------------- | | Real estate property settlements | 147,824 | 128,499 | | Expected credit losses (real estate) | 904 | 0 | | Agent non-commission based fees and short-term advances | 9,979 | 7,188 | | Expected credit losses (agent fees/advances) | 1,902 | 2,198 | - Changes in the allowance for expected credit losses were not material for the six months ended June 30, 2022[45] 4. PLANT, PROPERTY AND EQUIPMENT, NET The Company's net plant, property, and equipment increased to $19.9 million as of June 30, 2022, from $15.9 million at December 31, 2021, primarily driven by an increase in computer hardware and software. Depreciation expense also increased year-over-year Plant, Property and Equipment, Net (In thousands) | Item | June 30, 2022 ($) | Dec 31, 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :---------------- | :--------------- | :--------- | :--------- | | Computer hardware and software | 30,200 | 20,824 | 9,376 | 45.0% | | Total depreciable property and equipment | 30,226 | 20,850 | 9,376 | 45.0% | | Less: accumulated depreciation | (15,270) | (11,711) | (3,559) | 30.4% | | Depreciable property, net | 14,956 | 9,139 | 5,817 | 63.6% | | Assets under development | 4,950 | 6,763 | (1,813) | (26.8)% | | Property, plant, and equipment, net | 19,906 | 15,902 | 4,004 | 25.2% | Depreciation Expense (In thousands) | Period | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | 1,954 | 1,189 | 765 | 64.3% | | Six months ended June 30 | 3,570 | 2,196 | 1,374 | 62.6% | 5. GOODWILL AND INTANGIBLE ASSETS Goodwill remained stable at $12.9 million as of June 30, 2022, with no impairment events. Definite-lived intangible assets decreased slightly to $7.1 million, primarily due to amortization, which increased year-over-year - Goodwill remained at $12,945 thousand as of June 30, 2022, with no impairment events identified[46] Definite-Lived Intangible Assets, Net (In thousands) | Item | June 30, 2022 ($) | Dec 31, 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :---------------- | :--------------- | :--------- | :--------- | | Trade name | 2,171 | 2,314 | (143) | (6.2)% | | Existing technology | 561 | 744 | (183) | (24.6)% | | Customer relationships | 1,439 | 1,534 | (95) | (6.2)% | | Licensing agreement | 64 | 100 | (36) | (36.0)% | | Intellectual property | 2,836 | 2,836 | 0 | 0.0% | | Total intangible assets | 7,071 | 7,528 | (457) | (6.1)% | Amortization Expense for Definite-Lived Intangible Assets (In thousands) | Period | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | 475 | 318 | 157 | 49.4% | | Six months ended June 30 | 817 | 621 | 196 | 31.6% | 6. LEASES The Company's lease portfolio consists primarily of office leases with a weighted-average remaining lease term of 7.3 years and a weighted-average discount rate of 5.061% as of June 30, 2022. Operating lease expenses and short-term lease expenses increased significantly year-over-year - The Company's lease portfolio consists of office leases with terms ranging from less than one year to seven years, with a weighted average lease term of three years[47] Lease Information (In thousands) | Item | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Operating lease expense | 97 | 84 | 206 | 202 | | Short-term lease expense | 260 | 10 | 282 | 26 | | Cash paid for operating leases | 60 | 84 | 131 | 202 | Weighted-Average Lease Terms and Rates | Item | June 30, 2022 | June 30, 2021 | | :----------------------------------- | :------------ | :------------ | | Weighted-average remaining lease term (years) – operating leases | 7.3 | 3.6 | | Weighted-average discount rate – operating leases | 5.061% | 4.855% | 7. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, including common stock issuances through agent equity and growth incentive programs, stock option grants, and the company's stock repurchase plan. The Agent Equity Program allows agents to receive 5% of commissions in common stock at a discount, while the Agent Growth Incentive Program awards stock based on performance milestones Common Stock Issued (Shares) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance, beginning of quarter | 158,300,605 | 147,934,768 | 155,516,284 | 146,677,786 | | Shares issued for stock options exercised | 639,861 | 1,797,132 | 1,363,055 | 2,344,908 | | Agent growth incentive stock compensation | 403,652 | 339,904 | 914,324 | 625,026 | | Agent equity stock compensation | 3,942,452 | 1,075,182 | 5,492,907 | 1,499,266 | | Balance, end of quarter | 163,286,570 | 151,146,986 | 163,286,570 | 151,146,986 | Agent Equity Program This program allows agents to receive a portion of their commissions in common stock at a discount, fostering agent ownership - Agents and brokers can elect to receive 5% of commissions earned in common stock at a 10% discount[52] Agent Equity Program Stock Issuances (Shares and Value in thousands) | Period | Shares Issued (2022) | Value (2022 $) | Shares Issued (2021) | Value (2021 $) | | :----------------------------------- | :------------------- | :------------- | :------------------- | :------------- | | Three months ended June 30 | 3,942,452 | 48,335 | 1,075,182 | 38,451 | | Six months ended June 30 | 5,492,907 | 86,835 | 1,499,266 | 59,853 | Agent Growth Incentive Program This program awards common stock to agents and brokers based on attraction and performance benchmarks, vesting over time - Agents and brokers can receive common stock awards based on agent attraction and performance benchmarks, typically vesting after performance and three years of service[53][55] Agent Growth Incentive Program Stock Compensation Expense (Six Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | | :----------------------------------- | :------- | :------- | | Stock compensation expense attributable to AGIP | 17,028 | 11,312 | | Stock compensation expense attributable to liability classified awards | 4,451 | N/A | Stock Option Awards This section details the stock options granted to employees, including the number of options and their fair value Stock Options Granted to Employees | Period | Options Granted (2022) | Fair Value per Share (2022 $) | Options Granted (2021) | Fair Value per Share (2021 $) | | :----------------------------------- | :--------------------- | :---------------------------- | :--------------------- | :---------------------------- | | Three months ended June 30 | 288,007 | 11.64 | 66,739 | 26.77 | | Six months ended June 30 | 772,385 | 13.24 | 194,004 | 24.80 | Stock Repurchase Plan This section outlines the company's stock repurchase activities, including the authorized amount and shares repurchased - The Board approved an increase to the stock repurchase program from $400 million to $500 million on May 3, 2022, and increased monthly repurchases from $10 million to $20 million[58] Common Stock Repurchases (Three Months Ended June 30, 2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approximate Dollar Value Remaining ($) | | :----------------------------------- | :--------------------- | :------------------------------- | :------------------------------------- | | April 1, 2022 - April 30, 2022 | 611,955 | 16.78 | 168,425,444 | | May 1, 2022 - May 31, 2022 | 1,448,783 | 13.92 | 148,468,912 | | June 1, 2022 - June 30, 2022 | 1,543,213 | 12.98 | 128,530,534 | | Total | 3,603,951 | 14.56 | | 8. EARNINGS PER SHARE Basic EPS is calculated based on net income attributable to eXp stockholders divided by basic weighted-average shares outstanding, while diluted EPS accounts for potential common shares using the treasury stock method. Both basic and diluted EPS decreased significantly for the three and six months ended June 30, 2022, compared to the prior year - Basic EPS is computed using net income attributable to eXp stockholders and basic weighted-average shares outstanding[59] - Diluted EPS includes the effect of all dilutive potential common shares and common share equivalents, using the treasury stock method for unvested stock awards and unexercised options[59] Earnings Per Share (Three Months Ended June 30) | Item | 2022 | 2021 | Change | Change (%) | | :----------------------------------- | :--- | :--- | :----- | :--------- | | Net income attributable to common stock ($ thousands) | 9,359| 37,050 | (27,691)| (74.7)% | | Weighted average shares - basic | 150,783,418| 145,584,495| 5,198,923| 3.6% | | Weighted average shares - diluted | 155,816,038| 157,288,672| (1,472,634)| (0.9)% | | Earnings per share - basic ($) | 0.06 | 0.25 | (0.19) | (76.0)% | | Earnings per share - diluted ($) | 0.06 | 0.24 | (0.18) | (75.0)% | Earnings Per Share (Six Months Ended June 30) | Item | 2022 | 2021 | Change | Change (%) | | :----------------------------------- | :--- | :--- | :----- | :--------- | | Net income attributable to common stock ($ thousands) | 18,241| 41,896 | (23,655)| (56.5)% | | Weighted average shares - basic | 150,049,170| 144,973,139| 5,076,031| 3.5% | | Weighted average shares - diluted | 156,579,590| 158,096,735| (1,517,145)| (1.0)% | | Earnings per share - basic ($) | 0.12 | 0.29 | (0.17) | (58.6)% | | Earnings per share - diluted ($) | 0.12 | 0.27 | (0.15) | (55.6)% | 9. INCOME TAXES The Company's income tax provision shifted from a benefit in 2021 to an expense in 2022 for the three months ended June 30, and a reduced benefit for the six months ended June 30, 2022. This change was primarily due to the release of a valuation allowance in 2021 and lower deductible stock-based compensation in 2022 Income Tax (Benefit) Expense and Effective Tax Rates (In millions) | Period | Income Tax (Benefit) Expense (2022 $) | Effective Tax Rate (2022) | Income Tax (Benefit) Expense (2021 $) | Effective Tax Rate (2021) | | :----------------------------------- | :------------------------------------ | :------------------------ | :------------------------------------ | :------------------------ | | Three months ended June 30 | 1.66 | 15.16% | (20.585) | (125.8)% | | Six months ended June 30 | (3.49) | (23.81)% | (20.374) | 95.1% | - The decrease in income tax benefit was primarily attributable to the release of valuation allowance in 2021 and lower deductible stock-based compensation in 2022[62][105] 10. FAIR VALUE MEASUREMENT The Company measures the fair value of its financial instruments using a three-level hierarchy. As of June 30, 2022, the Company held money market funds valued at $43.4 million, classified as Level 1 assets, with no Level 2 or Level 3 financial assets or liabilities - The fair value hierarchy prioritizes inputs into Level 1 (quoted market prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[63] Fair Value of Money Market Funds (In thousands) | As of Date | Fair Value ($) | | :--------- | :------------- | | June 30, 2022 | 43,423 | | Dec 31, 2021 | 43,386 | - The Company's money market funds are considered Level 1 assets, and there were no transfers between levels or any Level 2 or Level 3 financial assets/liabilities in the period[63] 11. COMMITMENTS AND CONTINGENCIES The Company is subject to various legal claims and actions, including a class action lawsuit settled for $10.0 million in November 2021, pending judicial approval. Additionally, the Company has capital commitment liabilities totaling $3.25 million related to SUCCESS Lending's mortgage warehouse credit facilities, which are off-balance sheet arrangements - The Company agreed to settle a class action lawsuit under the Telephone Consumer Protection Act for $10.0 million, subject to judicial review and approval[65] - SUCCESS Lending, an indirect subsidiary and unconsolidated joint venture, entered into Mortgage Warehouse Agreements with Flagstar Bank FSB and Texas Capital Bank, providing revolving credit lines up to $25 million each[65] - The Company has capital commitment liabilities under Capital Maintenance Agreements for SUCCESS Lending, limited to $2.0 million with Flagstar Bank FSB and $1.25 million with Texas Capital Bank, representing off-balance sheet arrangements[65] 12. SEGMENT INFORMATION The Company operates primarily as a cloud-based real estate brokerage, which constitutes the vast majority of its revenue and assets. While it identifies technology and affiliated services as operating segments, they are not material enough to be reported separately, resulting in one reportable segment - The Company primarily operates as a cloud-based real estate brokerage, representing 99.1% of total revenue and 96.8% of total assets for the six months ended June 30, 2022[67] - Technology and affiliated services (e.g., First Cloud, Silverline) are in emerging stages and not material to total revenue, net income, or assets, leading to one reportable segment[67] Operating Segments The company's real estate brokerage business dominates revenue and assets, making other segments immaterial for separate reporting - The real estate brokerage business accounts for 99.1% of total revenue for the six months ended June 30, 2022, and 96.8% of total assets as of June 30, 2022[67] - Technology services (e.g., virtual reality software platform) and affiliated services (e.g., First Cloud, Silverline) are not managed as separate reportable segments due to their immaterial contribution to total revenue, net income, or assets[67] Geographical Information The company primarily operates in the US and Canada, with recent international expansion, and a small portion of revenue and assets outside the US - The Company primarily operates in the United States and Canada, with recent expansions into numerous international markets including The Dominican Republic, Greece, and New Zealand in 2022[68] - Approximately 9% of total revenue for both six-month periods ended June 30, 2022 and 2021, was generated outside of the U.S.[68] - Assets held outside of the U.S. were 8% as of June 30, 2022 and December 31, 2021[68] 13. SUBSEQUENT EVENTS Subsequent to June 30, 2022, the Company declared a quarterly cash dividend of $0.045 per share payable on August 29, 2022, and acquired Zoocasa Realty Inc. on July 1, 2022, to expand its online lead generation and home search capabilities - On July 29, 2022, the Board declared a quarterly cash dividend of $0.045 per share, payable on August 29, 2022[71] - On July 1, 2022, the Company acquired Zoocasa Realty Inc. and Zoocasa.com to expand online lead generation, home search, and listings portal capabilities in North America[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, covering an overview of its business, market conditions, key performance metrics, recent business developments, detailed analysis of financial results, non-GAAP measures, liquidity, and critical accounting policies Overview eXp World Holdings focuses on empowering the new economy through its cloud-based real estate brokerage, eXp Realty, and technology platforms. The company's strategy is organic growth in North America and international markets by increasing its independent agent and broker network, leveraging customer-focused efficiencies, and strategic capital deployment - eXp World Holdings operates one of the world's fastest-growing real estate brokerages, eXp Realty, with a focus on being agent-centric through a generous commission model and cloud-based collaboration suite[74] - The company's strategy is to grow organically in North America and international markets by increasing its independent agent and broker network, leveraging cloud-based operations for efficiency and market share[76] - Agent count increased by 42% from 58,263 agents as of June 30, 2021, to 82,856 agents as of June 30, 2022[76] Market Conditions and Industry Trends The real estate market experienced a slowdown in the first half of 2022 due to rising interest rates and home prices, impacting affordability and leading to decreased existing home sales transactions. Despite these challenges, the Company maintained growth in revenue and agent count, leveraging its low-cost, high-engagement model - The housing market slowed in the first six months of 2022 due to rising interest rates and home prices, impacting affordability[78] - Existing home sales decreased by 14.2% year-over-year in June 2022, while the median home sale price increased by 13.4% to $416.0 thousand[78] - Despite market slowdown, the Company achieved a 53% year-over-year increase in revenue and a 42% increase in agent count for the first six months of 2022[78] National Housing Inventory US housing inventory increased in June 2022 due to higher mortgage rates and home prices - Housing inventory increased to 1.3 million existing homes for sale in the U.S. as of June 2022, up from 1.2 million in June 2021, driven by increased mortgage rates and higher home prices[79] Mortgage Interest Rates The average 30-year fixed-rate mortgage sharply increased to 5.5% in June 2022, negatively impacting homebuying demand - The average rate for a 30-year, conventional, fixed-rate mortgage sharply increased to 5.5% in June 2022, compared to 3.0% in all of 2021, negatively impacting homebuying demand[80] Housing Affordability Index The housing affordability index declined significantly in May 2022 due to rising mortgage rates and low inventory - The composite housing affordability index decreased to 102.5 for May 2022 (preliminary) from 148.2 for May 2021, indicating declining affordability due to increasing mortgage rates and low inventory[81] Home Sales Transactions Existing home sales decreased in June 2022, while the median price continued its upward trend for 124 consecutive months - Seasonally adjusted existing home sale transactions decreased to an annual rate of 5.1 million in June 2022 (preliminary) from 6.0 million in 2021[81] - The nationwide existing home sales median price for June 2022 (preliminary) was $416.0 thousand, up from $367.0 thousand in June 2021, marking 124 consecutive months of year-over-year increases[81] Key Business Metrics The Company tracks agent count, transactions, volume, revenue, gross profit, gross margin, and Adjusted EBITDA to assess performance. Significant growth was observed in agent count, transactions, volume, and revenue, while gross margin decreased due to agents reaching commission capping requirements sooner. Adjusted EBITDA increased for the six months ended June 30, 2022 Key Business Metrics (Three Months Ended June 30, In thousands, except transactions and agent count) | Metric | 2022 | 2021 | Change | Change (%) | | :----------------------------------- | :------- | :------- | :----- | :--------- | | Agent count | 82,856 | 58,263 | 24,593 | 42.2% | | Transactions | 150,032 | 115,431 | 34,601 | 30.0% | | Volume ($) | 57,894,767| 40,117,368| 17,777,399| 44.3% | | Revenue ($) | 1,415,060| 999,887 | 415,173| 41.5% | | Gross profit ($) | 107,250 | 79,917 | 27,333 | 34.2% | | Gross margin (%) | 7.6% | 8.0% | (0.4)% | (5.0)% | | Adjusted EBITDA ($) | 26,914 | 26,988 | (74) | (0.3)% | Key Business Metrics (Six Months Ended June 30, In thousands, except transactions and agent count) | Metric | 2022 | 2021 | Change | Change (%) | | :----------------------------------- | :------- | :------- | :----- | :--------- | | Agent count | 82,856 | 58,263 | 24,593 | 42.2% | | Transactions | 264,337 | 189,309 | 75,028 | 39.6% | | Volume ($) | 99,274,268| 64,625,224| 34,649,044| 53.6% | | Revenue ($) | 2,425,791| 1,583,720| 842,071| 53.2% | | Gross profit ($) | 190,714 | 133,403 | 57,311 | 42.9% | | Gross margin (%) | 7.9% | 8.4% | (0.5)% | (6.0)% | | Adjusted EBITDA ($) | 44,627 | 41,810 | 2,817 | 6.7% | - Gross margin decreased year-over-year primarily due to rising home prices and increased demand, leading agents to reach commission capping requirements sooner and receive a higher percentage of commission[84] Recent Business Developments The Company continued its global expansion, enhanced agent and employee experience through NPS, reinforced agent ownership programs, developed its Virbela metaverse technology, and expanded affiliate and media services, including the formation of SUCCESS Lending Real Estate Brokerage Initiatives The company expanded globally, improved agent and employee experience using NPS, and strengthened agent ownership programs - The Company expanded its real estate cloud brokerage operations into The Dominican Republic, Greece, and New Zealand during the first and second quarters of 2022, continuing its global growth[88] - The Company adopted Net Promoter Score (NPS) principles to improve agent and employee experience, achieving an agent NPS of 68 in Q2 2022, leading to improvements in agent onboarding, commission processing, and employee benefits[89] - Agent ownership is fostered through an equity incentive program where agents can receive common stock awards based on production and agent attraction benchmarks, and elect to receive 5% of commissions in common stock at a discount[90] Technology Products and Services eXp World Technologies continues to develop its Virbela metaverse platform, focusing on enterprise readiness and launching Frame into beta - eXp World Technologies, LLC (World Tech) continues to develop the Virbela enterprise metaverse technology, focusing on enterprise readiness (scale, reliability, security, privacy) and released Frame, a browser-accessible metaverse collaboration technology, into beta[91] - In 2022, the Company expects to continue servicing existing and new B2B enterprise contracts, solidify channel partnerships, and bring the Frame product out of beta[91] Affiliate and Media Services Acquisitions and partnerships have enabled the company to offer complementary services, including the formation of SUCCESS Lending for mortgage services - Acquisitions and partnerships have enabled the Company to offer complementary services such as mortgage origination, title, escrow, and settlement services[92] - In July 2021, the Company formed SUCCESS Lending, LLC, a residential lending joint venture, to provide enhanced mortgage services and products to customers[94] Results of Operations The Company experienced significant revenue growth for both the three and six months ended June 30, 2022, driven by increased agent count, closed transactions, and rising home prices. However, net income and operating income decreased due to higher operating expenses, particularly general and administrative costs, and a shift from income tax benefit to expense Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021 This section compares the company's financial performance for the three months ended June 30, 2022, against the same period in 2021 Financial Performance (Three Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | 1,415,060| 999,887 | 415,173 | 42% | | Commissions and other agent-related costs | 1,307,810| 919,970 | 387,840 | 42% | | General and administrative expenses | 91,391 | 60,721 | 30,670 | 51% | | Sales and marketing expenses | 4,210 | 2,683 | 1,527 | 57% | | Total operating expenses | 1,403,411| 983,374 | 420,037 | 43% | | Operating income | 11,649 | 16,513 | (4,864) | (29)% | | Income before income tax expense | 11,020 | 16,458 | (5,438) | (33)% | | Income tax (benefit) expense | 1,661 | (20,585) | 22,246 | (108)% | | Net income | 9,359 | 37,043 | (27,684) | (75)% | Revenue Total revenues increased significantly due to higher agent count, closed transactions, and rising home prices - Total revenues increased by $415.2 million (42%) to $1.415 billion for the three months ended June 30, 2022, primarily due to increases in agent count, closed transactions, and rising home prices[95] Commission and Other Agent Related Costs Commission and agent-related costs rose due to increased agent count, transactions, and agents reaching commission caps sooner - Commission and other agent-related costs increased by $387.8 million (42%) to $1.308 billion, driven by higher agent count, closed transactions, and agents reaching commission capping requirements sooner due to rising home prices[95] General and Administrative Expense General and administrative expenses increased significantly, primarily due to higher compensation, agent-related events, and software costs - General and administrative expenses increased by $30.7 million (51%) to $91.4 million, mainly due to a $19.6 million increase in compensation and personnel expenses, $3.9 million in agent-related seminars/conferences, $1.7 million in computer/software, and $3.9 million in stock compensation[98] Sales and Marketing Sales and marketing expenses increased due to expanded advertising for real estate operations and software services - Sales and marketing expenses increased by $1.5 million (57%) to $4.2 million, attributed to increased advertising for real estate operations and software services expansion[99] Income Tax Benefit (Expense) The company shifted from an income tax benefit to an expense, primarily due to the release of a valuation allowance in the prior year - The Company recorded an income tax expense of $1.66 million (15.16% effective rate) for Q2 2022, compared to a $20.6 million benefit (-125.8% effective rate) in Q2 2021, primarily due to the release of a valuation allowance in 2021[101] Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021 This section compares the company's financial performance for the six months ended June 30, 2022, against the same period in 2021 Financial Performance (Six Months Ended June 30, In thousands) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | 2,425,791| 1,583,720| 842,071 | 53% | | Commissions and other agent-related costs | 2,235,077| 1,450,317| 784,760 | 54% | | General and administrative expenses | 166,713 | 107,021 | 59,692 | 56% | | Sales and marketing expenses | 7,910 | 4,940 | 2,970 | 60% | | Total operating expenses | 2,409,700| 1,562,278| 847,422 | 54% | | Operating income | 16,091 | 21,442 | (5,351) | (25)% | | Income before income tax expense | 14,735 | 21,515 | (6,780) | (32)% | | Income tax (benefit) expense | (3,488) | (20,374) | 16,886 | (83)% | | Net income | 18,223 | 41,889 | (23,666) | (56)% | Revenue Total revenues increased significantly due to higher agent count, closed transactions, and rising home prices - Total revenues increased by $842.1 million (53%) to $2.426 billion for the six months ended June 30, 2022, driven by higher agent count, closed transactions, and rising home prices[103] Commission and Other Agent Related Costs Commission and agent-related costs rose due to increased agent count, transactions, and agents reaching commission caps sooner - Commission and other agent-related costs increased by $784.8 million (54%) to $2.235 billion, due to increased agent count, closed transactions, and agents reaching commission capping requirements sooner[103] General and Administrative Expense General and Administrative expenses increased significantly, primarily due to higher compensation, agent-related events, and software costs - General and administrative expenses increased by $59.7 million (56%) to $166.7 million, primarily due to a $37.8 million increase in compensation and personnel expenses, $4.7 million in agent-related seminars/conferences, $4.3 million in computer/software, and $6.6 million in stock compensation[103][105] Sales and Marketing Sales and marketing expenses increased due to expanded advertising for real estate operations and software services - Sales and marketing expenses increased by $3.0 million (60%) to $7.9 million, driven by increased advertising for expanding real estate operations and software services[105] Income Tax Benefit (Expense) The company recorded a reduced income tax benefit, primarily due to the prior year's valuation allowance release and lower deductible stock compensation - The Company recorded an income tax benefit of ($3.49) million (-23.81% effective rate) for the six months ended June 30, 2022, compared to a ($20.4) million benefit (95.1% effective rate) in 2021, primarily due to the release of a valuation allowance in 2021 and lower deductible stock-based compensation in 2022[105] Non-U.S. GAAP Financial Measures The Company uses Adjusted EBITDA, a non-U.S. GAAP financial measure, to evaluate core operating performance, excluding items like other income/expense, income tax, depreciation, amortization, impairment, and stock-based compensation. Adjusted EBITDA increased for the six months ended June 30, 2022, reflecting revenue growth and improved cost leverage - Adjusted EBITDA is defined as net income (loss) excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense, and stock option expense[106] - Adjusted EBITDA provides useful information for understanding financial performance, identifying underlying business trends, and comparing performance across periods and with industry peers[106] Adjusted EBITDA Reconciliation (In thousands) | Item | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Net income | 9,359 | 37,043 | 18,223 | 41,889 | | Other (income) expense, net | 629 | 55 | 1,356 | (73) | | Income tax (benefit) expense | 1,661 | (20,585) | (3,488) | (20,374) | | Depreciation and amortization | 2,429 | 1,507 | 4,387 | 2,817 | | Stock compensation expense | 9,230 | 5,840 | 17,028 | 11,312 | | Stock option expense | 3,606 | 3,128 | 7,121 | 6,239 | | Adjusted EBITDA | 26,914 | 26,988 | 44,627 | 41,810 | Liquidity and Capital Resources The Company's liquidity is primarily from cash on hand and operating cash flows, which have strengthened due to transaction volume growth. Excess cash is used for growth initiatives, technology platforms, and stock repurchases. Net working capital increased by 18% to $156.5 million, while cash provided by operating activities slightly decreased, and cash used in financing activities increased due to cash dividends - Primary liquidity sources are cash and cash equivalents and cash flows from operations, strengthened by transaction volume growth and improved cost leverage[109] - Current capital deployment strategy for 2022 includes using excess cash for growth initiatives in select markets, enhancing technology platforms, and repurchasing common stock[109] - The Company believes existing cash balances and operating cash flows will be sufficient for operating requirements for at least the next twelve months and beyond[109] Net Working Capital Net working capital increased by 18% due to higher agent and commission receivables linked to revenue growth Net Working Capital (In thousands) | Item | June 30, 2022 ($) | Dec 31, 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :---------------- | :--------------- | :--------- | :--------- | | Current assets | 403,600 | 319,315 | 84,285 | 26.4% | | Current liabilities | (247,143) | (186,814) | (60,329) | 32.3% | | Net working capital | 156,457 | 132,501 | 23,956 | 18.1% | - Net working capital increased by $24.0 million (18%) for the six months ended June 30, 2022, primarily due to an increase in agent and commission receivables linked to revenue growth[110] Cash Flows Cash provided by operating activities slightly decreased, while cash used in financing activities increased due to cash dividends Cash Flows (Six Months Ended June 30, In thousands) | Activity | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Cash provided by operating activities | 165,298 | 167,425 | (2,127) | (1.3)% | | Cash used in investment activities | (8,077) | (7,109) | (968) | 13.6% | | Cash used in financing activities | (91,209) | (87,136) | (4,073) | 4.7% | | Net change in cash, cash equivalents and restricted cash | 64,871 | 73,251 | (8,380) | (11.4)% | - Cash provided by operating activities decreased by $2.1 million, mainly due to increased real estate transactions and agent stock compensation, offset by a decrease in customer deposits[112] - Cash used in financing activities increased primarily due to the payment of cash dividends in the first half of 2022, which were absent in the first half of 2021[112] Critical Accounting Policies and Estimates There were no material changes to the Company's critical accounting policies or estimates since the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes occurred in critical accounting policies or estimates since the 2021 Annual Report on Form 10-K[113] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company's exposures to market risk, including interest rate and foreign currency exchange risks, since December 31, 2021 - No material changes in market risk exposures (interest rate and foreign currency exchange) have occurred since December 31, 2021[114] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022. A material change in internal control over financial reporting occurred with the replacement of the Intacct ERP system with Oracle ERP on April 1, 2022, which is undergoing post-implementation monitoring - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[116] - The Company replaced its Intacct cloud-based ERP system with a hosted, cloud-based Oracle ERP system on April 1, 2022, which is reasonably likely to have a material effect on internal control over financial reporting[117] - Post-implementation monitoring and process modifications are ongoing to maintain effective internal control over financial reporting for the new Oracle ERP system[117] PART II OTHER INFORMATION This part covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures Item 1. Legal Proceedings The Company is routinely involved in litigation incidental to its business, including potential class actions. While provisions are made for probable and estimable claims, litigation is inherently unpredictable, and adverse resolutions could materially impact financial condition, results of operations, or cash flows - The Company is involved in routine litigation, including potential class or collective actions, and accrues for legal claims when payments are probable and estimable[122] - Litigation is unpredictable, and adverse resolutions, including judgments, penalties, or settlements, could materially affect the Company's financial condition, results of operations, or cash flows[122] Item 1A. Risk Factors This section highlights risks related to the Company's business and operations, particularly concerning SUCCESS Lending, an unproven business model facing regulatory, compliance, consumer trend, and macroeconomic risks. Its reliance on third-party warehouse credit facilities, guaranteed by eXp, and lack of sole control over SUCCESS Lending pose significant financial risks - SUCCESS Lending, an unproven business model, faces significant risks including ongoing compliance with a complex regulatory environment, increasing client and loan numbers, obtaining favorable funding, and navigating macroeconomic changes[124][125] - SUCCESS Lending relies on third-party warehouse credit facilities from Flagstar Bank FSB and Texas Capital Bank, totaling up to $50 million, which are guaranteed by eXp through Capital Maintenance Agreements with limited liabilities of $2.0 million and $1.25 million, respectively[126][128][130] - The Company does not have sole control of SUCCESS Lending, and potential losses or liabilities may require additional capital contributions, adversely affecting financial condition[130] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the Company's common stock repurchases under its publicly announced plans. For the quarter ended June 30, 2022, the Company repurchased 3,603,951 shares at an average price of $14.56 per share, with approximately $128.5 million remaining under the authorized repurchase program Issuer Purchases of Equity Securities (Quarter Ended June 30, 2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approximate Dollar Value Remaining Under Plans or Programs ($) | | :----------------------------------- | :--------------------- | :------------------------------- | :----------------------------------------------------------- | | April 1, 2022 - April 30, 2022 | 611,955 | 16.78 | 168,425,444 | | May 1, 2022 - May 31, 2022 | 1,448,783 | 13.92 | 148,468,912 | | June 1, 2022 - June 30, 2022 | 1,543,213 | 12.98 | 128,530,534 | | Total | 3,603,951 | 14.56 | | - The stock repurchase program was increased to $500.0 million, with monthly repurchases increased to $20.0 million, as authorized by the Board on May 3, 2022[134] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - No defaults upon senior securities were reported[133] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[132] Item 5. Other Information This section states that there is no other information to report - No other information is reported in this section[135] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, XBRL instance documents, and various agreements such as the Restated Certificate of Incorporation, Restated Bylaw