The Real Brokerage(REAX) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2023 reached $185 million, representing a 65% year-over-year increase and a 72% sequential increase from the prior quarter [9][17] - Gross profit increased by 91% year-over-year to $17.8 million, with gross margin expanding to 9.6% from 8.3% in Q2 2022 [17] - Adjusted EBITDA for the quarter was positive at $2.6 million, compared to $583,000 in Q2 2022, marking a significant milestone for the company [35] Business Line Data and Key Metrics Changes - The total number of transactions on the platform increased to 17,537, a 72% year-over-year increase [24] - The revenue generated by Title and Mortgage businesses is ramping up, with Title revenue close to $1 million and Mortgage revenue over $350,000, both showing significant year-over-year growth [55][59] - Agent churn improved to 6.5% from 8.3% in the previous quarter and 7.2% in Q2 2022 [11] Market Data and Key Metrics Changes - U.S. existing home sales were down 21% year-over-year and 2% quarter-over-quarter, yet the company achieved record transaction volumes [8] - The median sales price of properties sold was $369,000, reflecting a 1.6% decline compared to the same quarter in 2022, consistent with broader market trends [17] - 56% of commission revenue was generated by agents representing the buy side, with 40% from the sell side, remaining stable over the past year [20] Company Strategy and Development Direction - The company aims to expand its geographic footprint, expecting to operate in all 50 states by the end of the year [11] - A focus on technology-driven solutions is evident with the rollout of Leo, an AI-powered virtual concierge, aimed at enhancing agent efficiency [14] - The company is exploring monetization opportunities for the significant portion of revenue that is currently pass-through, indicating potential for future margin expansion [76] Management's Comments on Operating Environment and Future Outlook - Management noted that elevated mortgage rates are impacting residential housing activity, but they anticipate a rebound in market volume [6][8] - There is optimism about remaining adjusted EBITDA positive for the second half of the year, supported by strong agent growth and productivity improvements [7] - The company is seeing a spike in new listings on its platform, indicating potential recovery in the market [67] Other Important Information - The company announced plans to voluntarily delist from the Toronto Stock Exchange to streamline operations and reduce costs, while continuing to grow its Canadian business [37] - The unrestricted cash and investments balance increased to $28.1 million as of June 30, 2023, up from $19.5 million at the end of Q1 2023 [36] Q&A Session Summary Question: What is driving the agent growth compared to other brokerages? - Management believes their model is more attractive during market downturns, providing agents with cost-effective solutions [40] Question: What is the pipeline for larger agencies joining? - There is a strong pipeline of both individual agents and high-performing teams, with larger teams indicating intentions to join soon [42] Question: Can the company maintain the EBITDA yield going forward? - Management indicated that the current EBITDA yield is a good indicator, but seasonality should be considered [44] Question: Are home prices increasing due to agent focus on higher-end homes? - Average home prices have seen a slight decline year-over-year, but there is potential for steady increases as luxury agents join [48][50] Question: What is the status of the Title and Mortgage businesses? - The Title business is now operating in 11 states with significant revenue growth, while the Mortgage business has also seen over 100% growth compared to the previous quarter [55][59] Question: What is the overall state of the real estate market? - The market remains tight on both supply and demand sides, with recent spikes in new listings and solid demand observed [66][69] Question: How does the company plan to stay ahead of competitors? - Management feels confident in their competitive advantages, particularly in technology, and does not see immediate pressure to change their offerings [73]