Q4 2023 eXp World Holdings Inc Earnings Call

Participants

Denise Garcia; Investor Relations; eXp World Holdings Inc

Glenn Sanford; Founder, Chairman & CEO and CEO, eXp Realty; eXp World Holdings, Inc.

Leo Pareja; Chief Strategy Officer; eXp World Holdings, Inc.

Kent Cheng; Chief Accounting Officer, Principal Financial Officer; eXp World Holdings, Inc.

John Campbell; Analyst; Stephens Inc

Matt Filek; Analyst; William Blair & Company, L.L.C.

Tom White; Analyst; D.A. Davidson & Co.

Soham Bhonsle; Analyst; BTIG, LLC

Presentation

Denise Garcia

Good afternoon, everyone, and welcome to the eXp World Holdings fourth quarter and full year Earnings fireside chat via live stream and our metaverse on the web frame. My name is Denise Garcia, and I manage Investor Relations for EXP World Holdings.
Today, we'll begin our earnings fireside chat with prepared remarks from Glenn Sanford, Founder, Chairman and CEO of EMC World Holdings and CEO, EXP Realty and Leo Pareja, Chief Strategy Officer EXT Realty, followed by a review of the fourth quarter and full year 2023 financial highlights presented by Kent Cheng, Principal Financial Officer and Chief Accounting Officer of EXP. World Holdings. Following our prepared remarks, we will open the call to a Q&A session with ESP. World Holdings covering analysts and questions submitting submitted to EXP.
But first, let me begin with a review of our forward-looking statements. There will 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 and forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
Please see our filings with the SEC, including our most recently filed annual report on Form 10 K and quarterly reports on Form 10 Q for a discussion of specific risks that may affect our business performance and financial condition. We assume no obligation to update or revise any forward-looking statements or information. As a reminder, today's call is being recorded and a replay will also be made available on EXP World Holdings.com.
Now for a few logistics and we'll get started. (Event Instructions)
Now I'll turn the fireside chat over to our speakers before opening the call to questions. Glenn, you may begin.

Glenn Sanford

All right. Thank you, Denise, and thank you, everyone, and thank you again. Obviously, this is the first event that we've done publicly for frame of VR. And this is a platform we've actually been developing. And since 2019 timeframe is actually the first meta first platform that works on desktop mobile and immersive hardware like the MedQuest three. And if you're lucky enough to have won the Apple vision Pro, it's kind of like Squarespace.
But for the special web, we're really excited about the technology stack. It was presented by the CTO of Microsoft that Microsoft build 2023 and a frame now powers EXP. dot world. It's now our Brown New browser-based immersive collaboration platform. It's faster and easier for our staff and agents to collaborate online. .And specifically, EXP agents can now create their own spaces and also meet with clients up and even in reality, give remote home tours, agents can look at three 60 photos of properties, walk around Matterport scans and navigate Google Street views with others.
And then in terms of AI., which we've talked a little bit about frame actually uses AI to do real-time translations and closed captioning, but also to help people create their own custom spaces and 3D bots there's more to come in the areas of AI and 3D. We're just getting started. So stay tuned.
Now I'll move on to our fourth quarter earnings call information. So I'll start first with an overview of our business strategy before discussing our results for 2023 in the fourth quarter has most of you are familiar, 2023 has been a difficult year with existing home sales in the US at their lowest level in nearly 30 years despite the industry slowdown, North American Realty continues to gain market share, which I'll discuss in more detail in a moment, but first, I want to touch on our business strategy.
We began sharing our business segment information on this call one year ago to show how the profitability of EXP. North America enables us to invest in other growth opportunities across the business that can that. And that dynamic continued also into 2023. In 2023, our North American royalty segment generated $91 million of adjusted EBITDA, which allowed us to continue to drive our overall business growth initiatives forward. We're also EBITDA positive for the year when not adjusting for stock-based comp.
Our success in North America has enabled us to expand into international markets where we operate in 24th markets, including South Africa, which where I am today at 1205 in the morning, a unique item of about South Africa, as we're now we're the fastest-growing real estate estate agency in South Africa, and we're actually the seventh largest now. So it's pretty pretty cool to see in just a couple of few short years, the amount of impact here. And there's an event last week that was here and a lot of agents came together so far this year.
One of our goals is to definitely be more visible internationally that we have our first EXP. con in Lisbon, Portugal in in June of this year. We continue to see international realty as the largest driver of future growth for the Company. We continue to break records in our international segments.
In 2023, we grew international revenues 50% to $53.9 million. In Q4, we increased revenues by 67% year over year to $16 million, while at the same time decreasing our losses on an adjusted EBITDA basis by 14% year over year, while revenues revenues and affiliate services still remains small they're gaining momentum and represent opportunities for meaningful incremental revenue and margins per transaction in the future. eXp Realty, North America and international represent our path to overall revenue growth powered by our cloud-based asset-light model, which allows us to continue iterating on our superior agent value proposition.
The business areas I'll discuss on the next slide represent our key sources of differentiation. We are constantly iterating to improve the agent value proposition by developing an ecosystem of personal development, health resources and media like SUCCESS magazine and the recent appointment of Brian Ellington inside of EXP. Realty as Chief Learning Officer, which I mentioned last quarter. We have many exciting things going on in training and education that Leo will highlight in a moment.
Our enabling technology platform support our cloud-based brokerage model. And we also use AI and other machine learning technologies to improve our transaction management workflow and eventually plan to use technology to build out an entirely new way of transacting business. We'll continue to invest these resources to enhance the agent value proposition and ultimately increase the satisfaction of our agents as measured by agent NPS, which I'll discuss on the next slide.
But one area that we've been highlighting focused focus is on NPS. In fact, we added Fred Wright held the creator of Net Promoter System to our board last year. It's very important for us because we believe NPS is a leading indicator of our future success. I'm thrilled to share. So agent NPS improved throughout 2023 to reach 73 for the year. And we actually had a fair I called on anomalous 77 because it was a little bit of an outlier for the fourth quarter, but it just shows the strength of our of our model and how well it resonates with our agents and brokers. I believe this is is the result of constant iteration, our agent value proposition and are key sources of differentiation.
As discussed on the last slide. Also last year, our operations team made many improvements and investments to reduce agents' time spent on non-revenue generating tasks to enable them to be more productive. And a few examples are listed here. Most notably, we improved onboarding and transaction support with applications like Luna we launched Express pay and the expert care desk.
We expanded benefits within EXT. Asian healthcare powered by Clearwater to provide agents with exclusive access to industry leading plans for themselves and their families with low co-pays, load of pocket costs and $0 deductibles now over 2000 agents and their families get affordable quality health care from EXPH. in health care, we improved our marketing center in the U.S. and launched also into all other countries.
We also launched agent advisory councils in more jurisdictions. These operational improvements resulted in helping our agents get support, get paid and get more business. Ultimately, we hope to improve our agents live with ongoing operational improvements. We will expand on our operational improvements and additional products in a moment.
But first, I want to share some recognition awards we've received for EXP. and our agents on the next slide, both EXP. and EXP. agents have been recognized widely for our shared success. One award that I believe is driven by our high NPS scores as glass doors Best Places to Work.
We've made the list six years in a row in the US and we moved up to number seven from 15 in Canada. Also in 2023, our agent teams have been recognized across the industry. And EXP was named the number one growth leader across agent count volume in transactions at Real Trends, tier three and power broker.
Turning to the next slide, Tom. We've been updating this table for over a year now and the numbers keep proving that our platform is even stickier for productive agents in a down market, consistent with previous quarters. The majority of our attrition is with lower producing agents in the zero to two transactions per year category with home sales in the US and Canada at their lowest levels we've seen in decades. We proactively took off boarded many non-productive agents in the fourth quarter, such as agents that had no sides in the last 12 months and agents, which is also not that paid their fees.
We ended the year with 87,515 agents, which was up 2% over 2022, but down 1.8% from Q3. This is the first time in our history. Their agent counts declined quarter over quarter. Cover our agent value proposition remains strong with big teams and agents joining worldwide and agent NPS at their highest it's ever been. I think that are high. NPS scores will further drive retention of HTEX. these top agents. We're more likely than ever to recruit additional agents to the company.
Our focus continues to be to be on building the future of real estate with the most productive agents in the industry. So that ultimately when the market turns will be an optimal position to gain an outsized share of transactions in the market, which I'll discuss on the next slide.
So this slide actually compares EXPUS. residential sales transactions to US residential real estate industry as measured by transaction size on the left side and our market share on the right on the left, you can see that EXP Realty US residential real estate transactions were down less than 2% year over year in Q4 and approximately 8% for the full year. This compares to a US residential real estate industry, which was down over 10% year over year and Q4 over 17% in 2023.
As a result, we grew our transaction size market share, which I've talked about, focusing on the last almost two years, 8.4% in 2023 and nearly 7% in Q4 to 4.2% in the US. Before turning it over to Leo, I'll conclude with a few takeaways from 2023 and why I'm so optimistic about EMC's prospects in 2024.
On the next slide, we're entering 2024 with very strong momentum. To recap. Our value proposition remains strong with high agent NPS scores of 73 for 2023 and 77 for Q4 and big teams and agents are joining worldwide, and we are retaining our most productive agents.
We continue to grow our market share from 3.9% in 2022 to 4.2% in 2023, reflecting over 8% growth year over year. We're leveraging technology and increasing our operational efficiencies. And lastly, with 2023 behind us, we're entering 2024 in a position of strength with increased momentum with a solid vision for 2024.
And now I'll turn it over to Leo, who will take you through our 2024 goals.

Leo Pareja

Thank you, Glenn. If I were to characterize 2023, I would call it a year of operational excellence. No doubt it was a rough year and a tough one for the market. It's literally the worst year we've had since 1995, even worse than 2008. So what we've been focused on is what we can control with increased support for XP agents during these times by helping our agents reduce the time they spend on non-revenue generating tasks, we can increase their productivity so they can do what they do best, which is sell real estate.
In terms of operations, while we focus our efforts on three key areas faster onboarding, faster access to service, faster payments that Glenn mentioned earlier, we're obsessed with supporting our agents and making incremental improvements that will make a big difference in their lives as we continue to do so in 2024 in an evolving real estate commission landscape, we launched EXP exclusives, an initiative that could become increasingly important in this environment.
Exclusives was literally launched last quarter and we've had over 7,000 agents use the application with creating hundreds of unique listings only specific to our ecosystem. We launched EXPEXP. luxury with an astounding results already. We've had over 1,100 agents in the program and we began expanding globally. We've launched in five countries in 23. We then plan to expand to every country. In 2024. We've already expanded to Portugal, Spain, France, Italy, Germany and Greece so far this year.
We created a first of its kind collaboration with Opendoor them very excited about for a true Instant Offer for our agents and their sellers in the 50 plus markets they serve across United States revenues has increased the number of leads we deliver to agents by 250% compared to 22 ME two, delivering over 22,800 leads that led to over 1.1 billion in close volume in 2023. We also doubled down on our commitment to do more training and coaching programs by hiring Brian and intent as our first ever, Chief Learning Officer, as Glenn mentioned earlier.
We launched several programs that have been super well received, accelerate for new agents boost to attract independent brokers. TXP., which has already attracted some of the largest brokerages in the country to speak, including the being group at Boston and Justin Bieber and associates in Calgary, Canada that I discussed last quarter and thrive a program focused on incentivizing teams to join XP, partly through an equity incentive program. And we initiated a very important profitability improvement plan in the fourth quarter to reduce operational costs by approximately $20 million and identifying new revenue opportunities in 2024, which out discuss the next slide.
In 2024, we will continue to innovate and drive efficient growth through a number of initiatives starting with technology, we will continue to leverage our technology to improve operational efficiency and productivity. A great example is my EXP. app currently in beta, and it will become the center of the universe for our agents with easy access to their commissions, settlements, rupture and all of EXP technology services.
We expect to see dramatic improvements as we launch my experience in the next few months with our goal to continue to make technology simple mobile and easily accessible for one place for our agents. We will be working with many more software deals, lead partners at no additional cost to our agents, including providing tracking information that our agents have been asking for. The success of the luxury division encourage us to launch additional divisions this year, farm and ranch sports, entertainment and green to help our agents further differentiate themselves from our competitors in Ahmar.
While we expanded and hired a Chief Learning Officer, Brian, anything you can expect to see more announcements in training coaching, including some familiar faces that were partner within our EXP ecosystem. We're also launching a live streaming real estate radio station to further establish our agents as thought leaders in the space. The station will feature podcast channels, content creators and industry experts to discuss new strengths, strategies and tactics to grow agent businesses, and it's expected to be live soon.
And last but not least, I'm personally focused on continuing to help our agents increase their productivity and operating business more efficiently. In 2024, we will be paying close attention to our unit economics through in SG&A to unit cost as a new KPI to measure efficiencies in 2024.
On that note, I'll pass along to Kent to provide additional insight into into Q4 and 2023 financial results.

Kent Cheng

Leo, thank you. Fourth quarter, NPS increased to 77, which was an outstanding result of our investment in operational excellence in 2023. Due to our compounding agent value proposition, we increased our agent count by 2% year over year. While we off-boarded a significant number of unproductive agents during the fourth quarter resulted in a decrease in our agent count for the third quarter we retain our most productive agent cohort.
Our real estate transactions unit grew 6% year over year, outperformed the industry. This was really a remarkable outcome and thanks for the hard work of our higher productive agents and dedicated staff.
Our two most important financial objectives are revenue and adjusted EBITDA. Our Q4 revenue was $983 million, an increase of 5% year-over-year. We generated $0.5 million adjusted EBITDA compared to $3.6 million in prior year quarter. Reported gross profit was $71 million, a decrease of 15%.
You might recall we started to report agent grow incentive compensation expense in the cost of sales in 2023. In the previous year, the expense was reported in the sales, general and administrative expenses. If this expense has been excluded in both years, 2023 inventory gross profit would have been consistent with last year.
Reported SG&A was $89.4 million, a 5% decrease from the fourth quarter in the prior year, primarily due to the above mentioned, the reallocation of agent grow incentive stock compensation to the cost of sale. In addition, the fourth quarter, including approximately $8 million of one-time costs related to EST. con and a position for workforce reduction.
Net loss was $21.2 million in Q4 2023 compared to a net loss of $7.2 million in Q4 2022, driven by $9.2 million of impairment charge with the related to Virbela segment and $8 million dollar one-time SG&A costs as I mentioned previously. Adjusted operating cash flow was $42.3 million, and we repurchased $25.9 million of share during the quarter. In the next slide, I will provide more detail about the driver of our revenue change in the fourth quarter.
This chart helps to explain what drove the change in the fourth quarter revenue between 2022 and 23. 2022, revenue was $933.4 million, as indicated by the bar on the left. 2023 revenue was $983 million, indicated by the bar on the right. Year-over-year increase in revenue was $50 million or 5%. The increase was attributable to a $45 million increase in North America realty segment, which consists of the US and Canada and a $6.5 million increase in international loyalty segment. I will dive into more detail of the $45 million revenue growth in North America beauty segment, which included the bars under the heading. North America royalty settlement revenue change plus $45 million.
Our agent base grew 2% and contributed $21 million of additional revenue. According to NAR, assistant home sales and US Census Bureau's new home sales data, US residential home sales size decreased approximately 8%, which pressured our Asian production. We calculated the negative impact of lower home sales to our revenue as $62.6 million.
Normalize the impact of lower home sales of the ore markets, an increase of our agent productivity over prior year contributed $42 million revenue increase. Higher home sales prices and more affordable, more favorable commission mix also brought in $30.8 million incremental incremental revenue. Lastly, our focus on growing our lease rental and other ancillary services contributed additional $13.5 million in revenue. I will discuss certain financials for the quarter on the next slide.
On this slide, you can see our Q4 2023 seven revenue and adjusted EBITDA for each of our four business segments and the breakdown of corporate and elimination, our North America royalty segment was the primary driver of the revenue and profit of the company. Revenue was $965 million, an increase of 5% over prior year. Adjusted EBITDA was $8.6 million. International realty segment revenue was $16.3 million, an increase of 67%. Adjusted EBITDA loss was $3.6 million.
Virbela contributed a modest amount of revenue and adjusted EBITDA was 1.9 million. The other segment, which is primarily success also contributed a modest amount of revenue and generated a small adjusted EBITDA loss. On the next slide, I will recap our full year financial performance on a consolidated basis.
Next slide, please. For Asia NPS was 73, an increase from 71 in 2022. We completed nearly 0.5 million transmission unit in 2023. Our real estate sale transaction and unit growth growth outperformed the industry. 2023 full year, revenue was $4.3 billion, a decrease of 7% of year over year. Adjusted EBITDA was $57.5 million, a decrease of 5% from prior year. However, we are able to maintain adjusted EBITDA relatively stable to [4.3] level despite a significant market decline.
Reported gross profit was $324 million, a decrease of 5% year over year. As I mentioned before, in 2023, we began including agent grow incentive stock compensation expense in cost of sales. If this expense has been excluded from both. So total cost of sales in both years 20 promising gross profit would have been consistent with 2012.
Reported SG&A was $331.3 million, an 8% decrease from prior year, primarily due to the above mentioned the allocation of stock compensation expense. If the expense has been excluded from both year, 20, essentially, SG&A would have been flat compared to 2022.
2023 Net loss was $9 million, primarily due to $9.2 million of non-cash onetime impairment charge recorded in the Virbela. That decline net income year-over-year was primarily due to lower impairment charges, increased agent growth, incentive compensation, and a higher effective tax rate. Finally, we repurchased $161 million of shares during the year. To give you some perspective, our share repurchase in 2011, we repurchased $10.1 million shares, which is equivalent to 91% of share issue. We are our agent grow incentive and agent equity plan.
And now I will tell you for the full year 2022 to anniversary revenue change analysis. 2022 revenue was [$4,598 million] indicated by the bar on the left front, Hemisphere revenue was [$4,281 million], as indicated by the bar on the right, the year-over-year decline in revenue was [$370 million]. North America annuity segment contributed [$333] million revenue decrease, partially offset by an $18 million revenue increase in the international loyalty segment.
Let me dive into more detail of the North America Europe segment revenue change in 2023. Our agent base grew 2%, which contributed to $280 million of additional revenue. According to NAR, existing home sales and U.S. Census Bureau's new home sales data, US residential wholesale sites decreased approximately 17.3%. We calculated the negative impact of lower home sales. Slow revenue was a reduction of $759 million.
Normalized the impact of lower home sales of all markets. Our Asian productivity improvement contributed an increase of $93 million in revenue, higher home sales price and a more affordable commission mix of more favorable commission has brought in additional revenue $11 million. Lastly, growing our lease deferral and other ancillary services contributed $43 million revenue addition. In summary, due to our superior agent value proposition and the Louisville resilience and hard work of our agent and staff, our revenue growth outperformed the industry.
Now I will take you through our full year segment performance. Turning to the three North America loyalty segment revenue $4.2 billion decreased 7% year over year. Adjusted EBITDA was $91.1 million. Again, our core North American VLT business verse profitable. International royalty revenue was up 50% to a record $53.4 million in 20 and three due to our continued investment in the international royalty. Adjusted EBITDA loss was $13.7 million.
Virbela revenue was down 14% in 20. Obviously, while our adjusted EBITDA loss improved by 41% year over year due to cost reduction actions. And revenue in Other segment was down 6% in tons, obviously to a $4.8 million with adjusted EBITDA loss of $3.8 million.
And next slide will summarize the highlights. This slide summarize our highlights for the year, most of which I have discussed in the previous slides was important to point out is our plan for 2020. For the Leo mentioned previous at the end of the year, we identified approximately $20 million of cost savings and other profit improvement initiatives for 2010 before.
We will continue to monitor our business volume and cost stays and identify additional profit improvement opportunities throughout on the floor. We are well positioned for 24. I'm confident ESP. will emerge from current market downturn into a much stronger position to capitalize the future market growth opportunity.
With that, I will turn it back to Deniseto take your questions.

Question and Answer Session

Denise Garcia

Great. Thanks, Kent. I'll kick it off with a question for you speaker before we open the call to our analysts and questions from the audience. First, starting with you, Glenn agent count grew 2% year over year, but it declined slightly from the third quarter. Can you discuss what happened to your agent count from the third quarter to the fourth quarter?

Glenn Sanford

Yes. So I touched on it in my prepared remarks, but basically, we obviously we have a tough housing market. And as a result agents come I've sold less real estate has been one one aspect. So there's definitely been just industry churn. The other part was that we actually had a number of nonproductive agents that were on our on our rosters and had weren't contributing any work costs, not every agent that's with the XP. There's a there's a there's a cost to have them involved technology support and other things.
So we did off for them, but they hadn't sold real estate for a piece of real estate for over 12 months and had been paying fees, most cases a similar length of time. So it was really just them and trimming the numbers to be really our productive agents who were actually focused on being here on moving forward, we expect our agent count to return. It's growth over time as we continue to sort of retain our highly productive agents and demonstrate, obviously, and that's because demonstrated really by our strong agent satisfaction.
But we're going back to the drawing board on a few different things that we we're I'm really excited to be here, work on and hopefully be able to announce here in the not too distant future that we think's going to be really helpful as well.

Denise Garcia

Great. Now as Leo a question, you mentioned a lot of initiatives at EXP. kicked off in 2023 that would improve agents' lines and your plans for 2024. Is there any one that truly differentiate the value proposition from the competition?

Leo Pareja

Yes, one of the strongest value propositions that gives us an advantage over everybody is scale. We've achieved scale profitability consistently, which allows us to reinvest and take advantage of new opportunities. And we're hyper-focused on initiatives that are unique and on replicatable due to our size and scale, whether that's, you know, technology that's proprietary and or substantially cheaper than retail all the way to just advantages like exclusive due to size. A lot of our copycat competitors have undercurrent our economic model and have yet to prove any net profitability ith no path forward.

Denise Garcia

Got it. And then and then I'll wrap up with one for Kent. Can you discuss the components of the $20 million profit improvement plan?

Kent Cheng

You mentioned Yes, no, we're very excited about it. But ordinary profit improvement is really important impact on operating costs, which impacted our cost of sales and SG&A and also some additional revenue opportunity.

Denise Garcia

All right. I will I'll move over to our covering analysts and then open up the call for John Campbell from Stephens.

John Campbell

Thanks, Denise. You've mentioned I think, cynicism Hey, guys, Glenn, maybe a couple of quick questions or kind of stay on the topic of the decision to offer them productive agents. I guess a few questions there. Why why now would be the first one?
And then do you feel like that this is kind of a one-time cleanup effort? Or is this like you're going to have iterations over the next couple of months next couple quarters? And then I guess from a bigger picture, does this imply that you might have a minimum for agents over a year or so? Is there a timeframe? Is there a minimum that you might be exploring now?

Glenn Sanford

No -- I we're know it from. We had really cleaned up a lot of our we'll say, our operations in the last year or so. And when one thing that we had noted was fairly significant one. We've cleaned up a whole bunch of what we call accounts receivable, which basically means there was a lot of things that we hadn't collected that needs to be collected. And in that it sort of revealed as we kind of got more granular on that. We've got a group of agents who are for all intents and purposes.
We're just on our on our roster ARM, but there's you know, we're providing there's there's a number of tools and technologies. So you figure out that each agent has. It has a monthly cost and they just we had worked with them. We had tried to get them in production. A lot of really effectively goes to us as an organization. So they weren't even really communicating with us.
So that was that was it was so we did onboard some in Q4. We onboarded a few more here in Q1 and but I think we're pretty much done and then Dennis should be a much more. There shouldn't be like big blocks of agents are afforded for this reason because we do want to stay a little bit more up to speed on it so that we don't show a higher agent count and truly active and productive with eXp.

John Campbell

Okay. That's helpful. And then maybe this is a question for Kent. But on the gross margin, hopefully, we get a solid rebound in US housing this year. I mean, it sounds like that would maybe apply a little bit of underlying pressure on gross margin with more capping.
You've got the incentive programs in place like boost comp. Seems like that's going to provide a little bit of an impact at least this year, and then you'll lap that and it kind of goes away. So maybe can't it. I don't know if you want to put a fine tooth comb on it and give us some direction on where you think gross margin goes exactly or maybe just high level, do you think it's up or down relative to 23.

Kent Cheng

Yeah if talk about like 2023, your logo on the full-year base, as I talk about is we in 2003, we started to report the agent growth incentive expense in the cancer cell by if you take that out, right, not a like-to-like comparison on the full year base at your our gross margin percentage is higher. It honestly was funded in 22.
And so so I would say if going forward, I mean, our number is difficult to forecast because a lot of variable One is your cat? Yes, agents are compensation. But in general, what we would expect our age, our gross margin percentage more like more or less similar like similar at this level by 2020 20, 24, similar to 23 level.

John Campbell

Okay. And then also just to help pinpoint it for us, I guess, in what quarter was it 3Q restarted adding on the agent growth incentive going to gross more into cost of goods?

Kent Cheng

Now that started Q1 2023.

John Campbell

Okay. So we're going to annualize that in 1Q 24.

Kent Cheng

Yeah

John Campbell

Okay. That's all I wanted to know. Thank you.

Denise Garcia

Great. Thanks, John. I will take our second question from Matt Filek from William Blair that you may go ahead.

Matt Filek

Thank you, Denise. Hey, everyone. You have met filing on for Stephen Sheldon, thank you for taking my questions and the opportunity to experience the frame platform. Wanted to start with one on agent growth. How are you thinking about the agent growth potential in 2024? And how should we be thinking about the agent growth between the United States and international markets? And there's kind of a second part to that question also, curious if you feel agent growth trends are being impacted by any sort of changes in the competitive landscape?

Glenn Sanford

Yeah. So certainly domestically, certainly, we felt some competitive pressures. We were effectively the only cloud-based brokerage model for the first 11 years of our existence. Now there's there's a bunch you probably know the names, but there's real LPT. Epic, and there's there's a number of others as well. So there's a there's a bunch of these these these for lack of better term copycat, cheaper versions of the model. And so we've definitely felt some pressure.
Certainly, agents have had lost agents to some of these other models. And we've also gained back from from some of those models already, even though they're pretty young in their lifecycle. So So domestically, we probably see some of that. But internationally, we are in a completely Blue Ocean.
I mentioned earlier that in South Africa and just a couple of years, we've grown to about 1,200 agents, seventh largest state agency in South Africa, but we're growing fast and South Africa, France, Dubai still U.K., which has been a really great market for us and we're getting we're getting traction in different markets. We also have some markets where we haven't really grown.
And so we're either looking at leadership changes or just seeing if the model needs to be tweaked and some some capacity. But we really expect that international is going to be and our big growth in the next to the next coming years. And I'm super excited about it. It's really these are anecdotal numbers because there's there's not statistics like NAR in most of these countries, but we figure there's there's approximately 20 million real estate professionals worldwide.
And I believe over the next 10, 15 years can get to a similar market penetration that we have in the US and Canada. And that puts us gives us a path to yes to a potential million agents, which is a crazy number to think about under one umbrella. But because we're very unique in the way that we approach the model. We think there's a lot a lot of growth potential there, and that's where we're spending a fair bit of time really figuring that piece out.

Matt Filek

That's very helpful. Thank you, Glenn. A quick clarification on when most of the international growth come from existing markets, I believe last time we spoke the focus was on ramping profitability and growth within the countries you're already in? Or do you expect to start entering new countries over the course 2024?

Glenn Sanford

Yeah, we already have some at least one or two countries that are fairly fairly mature in the in the discussions to open up those new countries. One country we expect all day one of those start with hundreds of agents. And so we've got a number of good partners in terms of international.
But one of the things we're doing though, is we're actually going back to the drawing board and how we actually operate international parks now got enough experience opportunities running international markets to go back and retool in a way that we think is going to reduce our expense to run a international market substantially.
So in the early days of EXP, we could cooperate in a given state in the U.S. with the managing broker and Tom can then just the EXP. back office stuff, but we can operate now $10,000 a month or so with no transactions. We think that there is a way to do some an analog to that when we grow internationally so that our expense load is substantially lower.
So we can keep these markets open while the initial momentum in those countries take place. And so we're trying to kind of regroup on on a lot of that. And that's actually been that was part of our strategic discussions late last year. And going into this year. And we think we've got a good path to really operate these more efficiently with more entrepreneurial mindset, country leaders.

Matt Filek

Got it. Thank you. And then one more, if I may. I was wondering if you could elaborate on the technical advantages of frame compared to for Bala and maybe how those advantages enhance the value proposition for EXP. agents. I know you talked about 3D home tours, which sounds interesting, but any additional color there would be helpful when we think about frame compared to Virbela?

Glenn Sanford

Yeah. So frame it, as I've referred to in the past, when we've talked about it as really kind of geared to do it yourself, metaverse, meaning that it doesn't whereas VirBELA was a fairly heavy application had to do. I didn't have to download a client. And then those clients when you get into large enterprises, investment banks, et cetera, onetime state, you're getting through the Info Security infosec to actually get those things actually allowed or firewalls or other things.
We're just prevent the application at in the way that we envisioned it when you're doing it through the web. It makes it much more accessible home. We can stringing together rooms very easily put in doors and basically portals to other spaces.
And you can go to frame VR and I/O and start playing with it today. Like literally from go there, you can set up your own space. You can go and build your I don't know if there's auditoriums and there probably is, but you can you've got yield 50 plus spaces that you can choose from either offices to big campuses to the lodges to what have you and we so there's a lot of things going on behind the scenes just in the metaverse arena on a module, a hubs.
There's some stuff going on with them right now. We've got. We're actually because EXP is using this at a very high level where this now really what I call enterprise-ready, and that's why we sort of put it out there at this point on for Bell is a great platform that we don't have a number of clients that use that use it, but it never really got the appeal on the enterprise level that we originally expected in 2020 after COVID hit. So we made a big investment before it was really just we were using it primarily for us. And obviously, some clients came.
Our frame, I think, is going to have it already has a natural fan base of users because of the way that it's structured from teacher organizations to museums to all kinds of different places because it is much more accessible. So you'll see a lot of that freemium type service coming out of frame. And we think there's a good path to actually create a SaaS based platform that could be significant over time using Frama.

Leo Pareja

Very helpful. Thank you, Glenn and team.

Denise Garcia

Tom White, D.A. Davidson. And Tom, if you have a question, you can go ahead.

Tom White

Thanks, guys.Glenn, you mentioned an expectation to return to growth at some point here. Could you maybe talk a little bit about your expectations around domestic agents in the next couple of quarters. If you look at like NAR member rolls over the years, that tends to be kind of an uplift in kind of licensed agents in the spring. Just curious if you're seeing any signs that maybe your business will exhibit some of that. And I guess sort of related.
Just was hoping you comment a little bit about the success or traction, maybe that things like accelerate and thrive in those platforms may may be getting you feel like they're helping you kind of go back on offense a little bit in domestic agents or domestic agent count? Or do you still feel like you're maybe a little bit on the defensive and domestically, given some of the competition you touched on earlier?

Glenn Sanford

Yeah. Well, domestically, I think the tire, I think that we're in an industry right now. That's not going to see a huge number of new licensees like we've seen like in 2020, 21, maybe even given 2022 with the decline in real estate transactions, obviously, there's a lot there's a backdrop of what's the industry going to look like in two, three, four years, I think, than a lot of people's minds, even even potential new licensees.
I think we're kind of in this kind of a little bit of a slower growth, obviously, if the Fed decides to reduce interest rates substantially and then that ultimately adds fuels the fire, maybe we end up picking up more agents wanting to get in the business. So I think the backdrop is we're not going to see a lot of industry changes in terms of IT account books and you'll accelerate THRIVE boost.
Those are some tools that we have now that are definitely helping. We think that there's probably more things we can do and to be offensive in terms of a growth. We've got some meetings coming up in early March where we're actually going over on some things that we believe are going to do just that. So we're excited to ARM kept those com master minded and rolled out and by term.
So I guess the long and short of it is it's a little bit early too early to tell. But we did we have obviously seen more competition, no doubt, and we've seen less agents in the in the industry at-large, which doesn't help in terms of overall growth. But we've still obviously continuing to grow market share, which is really kind of the thing I mentioned a couple of years ago, let's focus on market share because the market's going to be tough and then on. But we think that there's some ways to actually get some good Asian growth by creating some some better ways to monetize from an agent's perspective to BXP.

Tom White

That makes sense. Thanks. Maybe just one quick follow-up or clarification. So the 20 million in annualized benefit your results you called out in the press release, it made it sound like it was a combination of cost saves and kind of revenue enhancements. But then did I did you say in the prepared remarks that that cost adjustments will kind of be the bulk of that. Can you just maybe just clarify a little bit? I'm trying to get a sense of like what your quarterly kind of G&A might look like, you know, kind of starting in starting in the first or second quarter?

Glenn Sanford

Yeah. I mean, we've got an interesting backdrop of things going on. We've got obviously, we're defending a ton of these commission-based losses. So there's definitely what we've called Risk Management. So there's some risk management fees because we're just our legal costs are going up significantly. So we're working on generating some additional revenue to pay some of that legal cost. And then we made an adjustment to the discount on the stock comp plan again.
Yes, it's a little bit noncash. But at the same time, it's still me on item that actually plays a role and sort of our cost to operate in and everything else. So we made a couple of adjustments there. And then we do have we do have new revenues coming down the pike as well. So we don't break all of it out at this point. I think those may be I don't know how much visibility you've had to some of that, but we've got a couple couple of small tweaks on the which through reducing costs on our stock comp, increasing a little bit of revenue on a risk management fees.
And then we've got other other business opportunities are coming in a lot of our stuff that Leo has been on under the revenues and agent services, affiliated services field, even things like our. We've got some some revenue come from places like that, our Clearwater and some partnership type stuff that we've got there. And then we've got others. So I don't know if, Leo, if you've got any others that you want to touch on, but those are just some they're top of mind.

Leo Pareja

Yes, I mean it is piggybacking on the last question that was asked, you know, believe it or not. Even with the dark clouds ahead, the conversations have sped up with independents that probably wouldn't have considered folding into a national company and just maintaining independently. So there could be some growth that continues to materialize from the larger companies joining the single agents have struggled the most, and that's where we're seeing our most attrition.
But on the profit improvement, it's cost plus additions. So we're hyper focused on unit economics, making sure that we're very efficient from an SG&A dollar unit standpoint and just really focusing on now that we're more of a mature enterprise running it as such. And so we're just being very careful and holding everything accountable.

Tom White

Well. Great. Thanks so much for the color, guys, and I love the new frame via. It's great.

Denise Garcia

We have time for one more question from Soham Bhonsle from BTIG. So if you have a question, please go ahead.

Soham Bhonsle

Great. Good evening, everyone. I guess the first one was just on the agent count up 2%. I was hoping you can maybe help us quantify the impact from the off-boarding of agents in that number and then sort of where agent count growth has been in North America versus international?

Kent Cheng

Yeah. Maybe I can tell you one way to answer the question.

Glenn Sanford

Yes, I think you've got the more granular data.

Kent Cheng

Yeah so we don't violate our addition and termination, right? We have not provided. But what we can say is look at 2023 growth. So much of our Asia growth is come from United States and Canada.

Soham Bhonsle

Okay. And then on the gross margin, I think last quarter you had talked about maybe being above 7.5% for this quarter. I think came in a touch lighter than that. So I'm just wondering what's driving that? Is that sort of any mix shift that's happening within your base, more productive agents doing more or is just sort of we have to pay a higher split into sort of environment which we're hearing as well.

Kent Cheng

Yes, the major driver. Why even compared to if we look at the list on the if you like we talk about Asian stock compensation is included in gross margin. Last year I was received about 8% and Q4 2020. I mean Q4 20 times two is 8% to 400 sorry, 7.2%. So we do talk about 80 basis points upon. Majority is alluding to is the increase of the stock compensation. Now, Sarcom agents are compensation in Q4, about $12.5 million was Q4 22 $8 million. So that's a major driver on that.

Soham Bhonsle

Okay. And then last one for SG. and A. is the best way to think about it. I think there was about $8 million of one-time items this quarter. So that would say, you know, $78 million is sort of a normalized run rate and then we sort of take $5 million every quarter and sort of run with that going forward?

Kent Cheng

Yes, the TR, how I think about it right now, we don't provide guidance about 89.4. I mean that is one part ELIJAH EST. Com, the provision on workforce reduction, basically a base roughly 81 82. If you do a smaller one, Ray rifle for full quarter, give you about $326 million, that kind of cost.
And yes, you know, we know Leo and Glen talk about positive significant cost saving or the profit improvement, $20 million is SG&A. So one that answer Tom's question. So with some further reduction in SG&A. Now what you can expect is number our SG&A costs will be lower in 2004 versus 2023.

Soham Bhonsle

Great. Thanks a lot for the answers.

Denise Garcia

Thank you. And thank you, everyone, for joining us today. And as always, please stay connected by visiting SeaWorld holdings.com for the latest updates on the 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. So this concludes the EXP. road Holdings fourth quarter 2023 fireside chat. Thank you.