Q3 2021 eXp World Holdings Inc Earnings Call
Very quickly so.
John I'm going to just kind of.
Turn over to you for a few of the questions and I'll jump into answering a problem from my perspective, and <unk> and they will continue on so thanks again Courtney and.
John over to you.
Thanks Glenn.
It's a thrill to be here with you guys, especially on the hills of such a impressive quarter.
It's good to hostess again.
Picked up coverage of you guys back in 2018.
And as you know, we saw something kind of special underway for you guys.
I will say never imagine you guys get to the point you've gotten as quickly as you gotten it's been pretty remarkable C. But just going back to that launch of coverage I mean, if we if you go back and look backwards looking at I think it took you guys nearly a decade to get to 15000 agents and.
And you just put the net adds of 17000 over the last two quarters. So I mean, clearly you've got the flywheel spinning.
If you look at the overall agents as a percent of kind of nor our U S agents three or 4%.
If you look at it internationally, obviously, just brushing the surface so.
You guys are still kind of bottom of the first inning. So there's a lot of opportunity there.
And you know the last time I help moderate this call I talked about the <unk>.
Valuation for your stock and whether investors, giving you credit for it and you kind of compare that to what redfin is at right. Now if you look at Red fence revenue multiple if you take out the eye buying revenue, which as you know a big big chunk of that revenue base.
And you put that on the E X Gi stock.
It's about $131 stock today.
Last time I heard it.
Moderate as costs at $125 stock, but the difference here is you guys. Obviously had the two for one stock split so thats on an apples to apples basis, that's more like a $262 stock for you guys.
Relative to what it would have been in the past so needless to say a lot of opportunity. It feels like to continue to build up the agent base and obviously a lot of opportunity on the stock as well so.
That's my tidbits.
I wanted to kind of pass along but Glenn as far as I can.
A question to start off here.
Honestly a lot of good things to talk about in the quarter and the fundamentals but.
But let's start off with a dividend.
When I when I was up this morning, and I saw that I scratch my head a little bit it didn't seem.
Like a move that you make is a growth company early on but the more I thought about it the more it seems to be kind of brilliant move for you guys to talk to us about what that means for agents in the overall ESP I value prop.
Yeah. So thanks, Thanks, John Yeah, So the dividend and you don't think a lot of people weren't expecting it for the same reasons you talked about is your high growth companies typically arent dividend companies, but were being an agent.
Oriented real estate brokerage and we've been obviously, we've got our equity programs that we've been.
Building out on behalf of our agents and brokers since really 2014, and we really just look at the fact that you know over time, we want this additional potential stream of income to be able to go to two to our agents brokers and obviously, our shareholders as well, but the real key for us is to.
Continue to iterate on the age of value proposition. So you know, whether we think about you know how we develop a rupture how we developed our equity how we think about or health care options for agents, how we think about all the different things that are there.
The dividend was it was a natural next step for us because we've been now profitable I think since late 2019 quarter after quarter consistently and now you know where you got Mike and Jeff will talk about financials, but we're now solidly over $100 million in in in cash on the books.
It just makes sense to start to tilt.
To look at you know paying paying out a dividend and that obviously the board would you'll look at this quarterly.
But it would be my goal two to ultimately make this a relatively permanent part of the infrastructure of E X P going forward because it then.
Makes this not just be something that you have to sell as Nathan to sort of get returns from you'll be able to you know get income just as an agent.
As an additional stream soccer for us it really was a really cool differential and I think it also just highlights. The fact that you know we are running a profitable a profitable real estate brokerage and and and that is really key and I think when we you know when we see the housing market turn a bit.
We should be able to as we saw last year in Q2, especially we're able to moderate our expense level such that even in a down market.
We plan to operate it in such a way that we can continue to be profitable and by extension hope we pay the dividend.
Yeah makes sense.
And in looking at this relative gene I mean.
<unk>.
If you've got a lot of copycats out there there's kind of it is going to be more that come because you guys continue to experience a lot of success.
But I think you've kind of hit on this.
What are your views relative to the competition as far as their ability to pay a dividend. It just seems like this is as you think about the scale like one of the major advantages you guys face right now.
Is your ability to scale to create a consistent free cash flow to be profitable, but just talk about how that looks at kind of relative to competition.
Yeah. So you know obviously, we developed a really unique agent centric real estate brokerage model, starting in 2009, and and you know for a lot of prolonged time people you've sort of said that would work in and then and then eventually you know obviously in the last few years has become obvious that good work we've had companies.
That are literally almost copying exactly what we're doing but theyre going cheaper like maybe they're not charging them up with PS mirror, they're paying out more money, there or whatever but you know at the end of the day you know companies do have to eventually you'll actually build themselves to be profitable and and if they don't then you know then eventually the equity sort of you know me.
May not be worth that much at the end of the day and garage. We thought this was another way to sort of draw attention to the fact that you know our model is scalable and and has you really got to a point, where it feels like it's going to be consistently profitable over the long term and that you know.
He has to deal with the various ways that we really really built out the model we.
We re cast a little bit of the Rev share model about.
A year and a half ago or so.
Where we committed to the 50% accompanied dollar payouts and so that helped us build sort of moderate some things and we just we just moderated everything so that we can in fact be profitable and be able to show apples to apples.
You know.
The financial statements the income statements and balance sheets.
'gainst any company industry, now and I think that where we're going to look great on on.
For basically every metric you can pick up.
Yeah absolutely.
I know, Jeff is going to get into the details on the quarter, but from where you sit kind of at the CEO level.
What did you see in this quarter that was kind of stood out as the most impressive thing to you.
No.
It will.
<unk> is a little less from a financial perspective, but more just the way our agents and brokers are stepping up to actually do.
Whether it be in real life events from last year was really interesting we didn't have it you don't.
Shareholders or EXLP con in in person because of Covid this year.
Shareholders was done in.
Online in November we're planning on.
And we're scheduled to have DXP con in Las Vegas, or first in real life event, but our agents or brokers really stepped up to fill the gap in terms of collaboration community.
Coaching training. So so many agent led events around the country around the world.
And then we supplemented that with no sponsorship of our sprint initiatives, where we would we would help sort of the smaller more intimate groups actually connect and and help level up the other thing I think we saw was how.
One of the tweaks that we made a year or so ago was the way that we count what we refer to as frontline qualifying agents and.
We initially gave people sort of credit for anybody they recruited for six months, but what we realized is that that wasn't really in the best interests of the people being attracted to the company and to some extent hurt that hurt the company heard other agents.
By making that change I think one of the things that you saw was this increased productivity.
What I hear consistently from the field as agents will want agents to be more successful and they're willing to help in any way. They can I heard about an initiative and a lot more detail here. This last weekend Kobe DXP family tree, which is where a number of our top agents.
Have come together to help any agent anywhere in really in the world.
You'll level up so the company has the I don't know what the number is now, but it's 60 70 hours a week of in World training. We've got some some in real life stuff going on at the local levels sponsored primarily by the brokers in that sort of thing, but then the agent lead stop is just amazing and eye.
I think that's really translating into something very special.
Yeah makes sense I've got one more for you then what will a lot difference in his piece but.
Clearly what you guys are offering to agents is attractive I think that's pretty evident in the the rate of agent growth.
You know you've seen a pretty positive trend it feels like the last couple of quarters of of larger kind of agent teams joining the platform.
Are you still seeing that is that still kind of playing off full force and kind of what's driving that.
It is yeah no for sure we continue to attract.
And I think that the the longer we are are we prove that we can.
Ill provide that infrastructure that that that platform for agents and brokers to build unique style.
Organizations that is not possible in a franchise model the more that these top teams that could be.
Thinking about how do I break out of my just my local geography, and how do I actually monetize this in multiple markets DXP really is.
The only platform that they can tap into that provides so many benefits for them to expand in that not just expand nationally into all 50 U S States in Canada, but we've got another well on top of that another 15 countries with two more coming on board before the end of the quarter.
And you just look at the the ability to leverage your towers that you honed over 10 15 20 years in the business and now you've got a platform that you can really monetize your business even better.
Yes, absolutely.
Corny I think that's all I got for now we can go back to Q&A later at other yeah, Hey, tuna.
Alright.
Alright, alright. Thank you Glenn Thank you John for being here appreciate it just a quick quick quick story before I start.
In 2000, Eighteen's the company did $500 million in revenue for the entire year and I started talking about it it's not $500 million to have a building right. We got to start thinking bigger and so now a few couple of years later, believing is seeing so are our Q1 revenue. If we just go to the summary page Courtney please.
Q Q2 revenue was $1 billion were up 183% year over year. Our gross profit in Q2 was $79 9 million up 133% year over year and our Q2 net income was $37 million, that's up 350% and.
Our Q2 this is a pretty extraordinary for this quarter and it includes a $20 6 million tax provision benefit by releasing our valuation allowance.
We've incurred previous operating losses and built up.
Net operating loss benefit on our balance sheet over the years since we have shown sustained profitability over our recent quarters. We are required by GAAP to released the benefit from our balance sheet to our income statement and that's how we get to the $37 million and net income in Q2.
Our Q2 delivered diluted earnings per share is 24 cents or three 8%, which includes that tax benefit our adjusted EBITDA, which is a non-GAAP metric is $27 million and basically that's a major metric that we look at internally, taking up primarily stock compensation expense to see how we're doing.
Our operating cash flow in Q2 was $68 million and that's up 185% year over year. So now lets take a look at some of our key metrics.
I'm going to focus first on our Q2 metrics and what we're starting here, which is we talk about it a lot, but we really need to highlight it and.
Express how important it is what our agent NPS score is our top metric and basically we have a 70 in 2021 in Q2 and that's a critical measurement on how we run our business and put some of this in perspective.
A.
Bain came up with the NPS score and plus zero is good plus 20th favorable plus 50 is excellent.
S eighties World class. So we're hitting a 70 and we look at that score and as it goes as it goes down in certain areas, we really focus on our business and make sure that that we fix whatever we need to fix to make our agents have the best possible experience. So.
So from any brokerage so we're at 70, which we're very proud of our the.
The agent Count ended at $58 63, which is up 87% versus last year. Our units is 115 for 31 up 164% versus last year and a price per unit is we're all experiencing and housing market is up 70% at $3 49, I mentioned, the Glen I think when I came here I think our average would like to.
<unk> hundred 45000, so way up our volume was $40 billion versus 13 in the second quarter of last year up 210% and so looking now at the financial metrics I mentioned, the revenue being $1 billion versus 354 million up 183%. Our gross margin was $80 million for 34 up 100.
33%, a gross margin percentage was 8% versus 9.7 and this is this is kind of a it's kind of a result of our model between the number of agents capping because we're doing so many so much volume and the price per unit going up that margin kind of goes down a little bit there is pressure on that but you know the volume makes up for it as you can.
See in the operating income so we are getting leverage on the next slide from SG&A. So we're at SG&A were six 3% of.
Our revenue grew seven 4% operating income $17 million versus 8 million net income $37 million 8 million and our adjusted EBITDA as I mentioned before is 27% $27 million versus 14 up 98%.
Operating cash flow of $61 million was 21, and a cash equivalents our cash in the bank after out there our investments our buyback is $107 million or $64 million in the same quarter of last year. So we're up 69%. So really really quick on a year to date basis, you can see that most of the operating metrics state stay.
A close other than units. So we've done 189309 units up.
132% on a year to date basis, and our volume is at 65 billion versus 24 billion. So we're up one 7% a year to date basis cut.
A couple of other metrics 1.584 billion in revenue year to date up 153%.
Our gross margin is $133, 60% to 114% and then I'll just kind of slipped out of the bottom. The net income on a year to date basis was $42 million versus $8 million.
And our operating cash flow of 101 was $36 million.
Balance is the same in one O seven so very very healthy condition, both from a growth standpoint from an investment standpoint and from a profitability standpoint. So as we look at the next page and you look at our agent and our revenue growth over time.
You can see this chart and we've we've had phenomenal agent and revenue growth.
Over time, especially since 2016.
And it really it really exploded in 2018, we've elevated growth in both age account revenues as a result, as Glenn mentioned, our commitment to our agents.
This the chart in front of US shows DXP Realty, ending agent count and revenue by quarter. So to give you. Some perspective, it's a bit of an eye chart, but in 2018. We added we ended the year with 55000 agents $500 million in revenue in 'twenty.
22019, It was 25004 23 agents and $980 million of revenue and last year. It was 41313 $1.8 billion of revenue last year. So overall, our agent growth year over year is 87%. We're now at 60000 agents.
And our total Q2 revenue is $1 billion. So now for some recent highlights and our focused investment areas.
As we mentioned we declared our first cash dividend and a driver of that is that the company has achieved positive accumulated earnings and shareholder equity. So if you look at our balance sheet and we've gone from a loss to a positive accumulated earnings so the four cents per share.
As expected to be paid on August 30th to shareholders on record as of August 16th you've seen our recent press release roadmap established success lending. This is a new joint venture for us with kind of lending and where we're spending a ton of time, unless we want to make it the best possible value proposition for agents and that our shop share buybacks. So.
We repurchased approximately $54 9 million of common stock in Q2, and our purpose to remind.
People again is that we have a goal to offset the dilution from our agent equity plans and we're really happy to say that on a quarter basis and on a year to date basis, we have done that with the buyback.
So on the right hand side, our major investment areas for growth include marketing.
Allstate technology innovations and Courtney itself will get into that in some detail.
Our our realty expansion. So if you see what's happening in the domestic market in the U S. What we.
We're seeing really is a network effect so back in the day, we had few large influencers and now we have watch.
We've had some great meetings, just recently with some great great leaders in our business, we're starting to see the network effect in the U S International you've heard a lot about that were in 70 countries right now and growing and then our commercial business. We are building awareness and at the same time, we're adding benefits and training tools for our residential agents that do both residential commercial.
So it's gone well affiliate services mortgages are great.
Example of this and then finally, we continue to invest in rubella and frame our virtual platforms. Our virtual platform of abella for work is poverty XP growth.
The productivity of the growth take international Nobody's got on a plane. So far we're in 17 countries. It's just phenomenal and as time goes on it is the best product on the marketplace and I think a lot more outside company is going to experience at soon.
So thank you very much.
Got that thank all our staff and their agents for a great quarter.
We can now pass it over to our CFO, who is responsible for applying.
The ESP rolled holding brands and leading all areas of marketing, including drive digital strategy a growth for enhancing <unk> value proposition for our agents and our staff welcome Cortland.
Please join us.
Excellent. Thank you Jeff.
Glad to be here.
Today, I'm going to be focusing on the agent and consumer insights to inform our marketing strategy and innovation strategy as well.
Background here on ESG insights from based on proprietary research and generated from us from both internal and external sources.
Strategy that underpins our findings as really around uncovering a deeper understanding of the agent value proposition and brand perceptions as well as a better understanding of consumer sentiment towards home ownership preferences and expectations related to the pandemic. These findings provide key insights that help our team.
Build out the HP brand and collaboration agents enrich the overall value proposition and you also guide the priority <unk> of our investments in marketing and innovation they help us co create.
Services and capabilities and ultimately empower our agent technology to better serve their customers. So let's dive into a little bit more detail here in terms of like Asia values, what is our agents value.
From a service and social listening research, we know the top benefits most valued by our agents ranged from mortality ball tomorrow, unless you know our agents value. If you look here on the left hand side on ownership and compensation and their development and it's more emotive benefit of freedom with regard to honor.
Yet the equity component is highly valued.
It's a key component that's within that eight and talk to us about a lot in addition to.
Quantitative research I'm talking to you. We also have a lot of qualitative research and leadership areas in leadership and development training education is really important on that something we do really well and you can see here in the middle we have extra University. Our agents are all enrolled they have access to 80 plus hours of training in the world just like we are.
Meaning day right, it's like from a sense of what's happening real time.
Big course topics starting on building a real estate business working with buyers and sellers and then now for the attribute of freedom, which is more subjective.
Talking to agents it sounds from being able to build their personal brand. We really do believe that the agent brand is hair up right and that's built in tandem with the E X T ran last year, we built the ESP brand and visual elements with the agents right. We will let them for about 90 days, where we created and voted on the new law.
Which is something that has historically important to ask the same thing we did when I started the company.
Freedom also means.
Idea of being able to operate across borders and boundaries right. So it can operate across several states and in 17 countries in 17 countries and markets that we operate.
Now, let's move on to the brand.
So how agents perceive our brand you know with last year's refreshing the brand I. Just mentioned, we found that agents year over year report, having stronger associations with the brand attributes. So on the left hand side chart, you can see what resonates most with the agents at the attribute of an Asian, how you read is at 81%.
Our agents will be selecting the attribute of innovation is something that resonates with them right, which is a 10 point lift over the previous year.
This is really interesting because in the second valued and attribute this associated is the virtual world that we're operating on right. So these are very correlated.
In terms of being collaborative and success all those kind of like behind it. Since this is the real perception and agents out of our brand and why that's important as these brand stores and each brand scores of all increased year over year. That's a positive indicator of brand clarity right. So let's talk more about consumer insights we've been talking to so far about.
Our agents perceptions and grand are and value prop.
We did a study on this year. It is Enfield in April and it's going to be released in the next couple of weeks and 18 of.
The 2021 and margin real estate trend study it focuses on achieving a deeper understanding of new homebuyers and owners and those interested in selling a home.
The research provides timely insights that consumers, they're recognizing the importance of agents and technology.
The recording of a shift in our perspective of home ownership of large which is related to the pandemic right. It's comparing a for the pandemic to know the.
The key findings that will find here in the system.
Top level right it's over.
Over 70% of new homeowners and buyers, they're reporting owning a home is more important now because of the pandemic right. This is especially true. If you look at the millennial segment. They actually report that 80% in terms of the pandemic has changed their view on the importance of owning a hump on its driven a lot by the understand the smart financial decision.
And savings.
You take a look at on the left as well, 86% of new and seem to be homeowners same real estate agents are important are very important to the home buying process.
<unk> agents remains high and will remain high if we think about what's happening right now and as we take a look it's reasonable to think in the future that that will continue.
61% of new Hallmark homeowners and buyers are also more likely to ask about the real estate agent technology and resource towards comport compared to before the pandemic. So the takeaway here is that there's a customer expectation that the real estate agency.
Right. So as we move into the innovation update is there there's an emphasis on technology to empower agents and new ways to connect with them and the consumers during these times and into the future.
So with that I'm going to transition over to our VP of innovation technology set.
<unk> joined us in mid 2019, he's been in the real estate industry for over two decades operating numerous false broker startup founder CTO.
In a short time here already he has built several software products elements, including express offers our eye buying platform. Seth will continue this presentation review of our innovation approach and areas of opportunity malcolmson.
Welcome Seth.
Thanks, a lot Courtney.
Time to be here everyone.
John DXP about two years ago.
And it was kind of an easy decision and looking at the landscape.
It's just super easy to see that this is the most innovative company with the biggest appetite.
James Thanks for the better while keeping agents at the center of things and that's a belief that I sure.
As well that agents are indispensable and it's our job and my job here to build upon that and continue to build on it.
But today I am Super funds to tell you about a new initiative that we launched that's called the innovation hub.
Obviously innovation is.
I think Q, new here at DXP I am talking to you as an avatar in a pink blazer for instance, that's already pretty innovative, but but do the new innovation hub initiative, we're positioning to take the commitment to innovating for agents really to that next level.
And I'm going to start by telling you a little bit about our approach which is on the slide here.
The innovation hub is new this is a new concept, but the approach is something that we've actually.
Honed and refined for years here.
It allows us to target our resources for for development and innovating.
Really efficiently and <unk>.
Learn and then develop right after that to summarize it we.
Gathering information about pinpoints needs opportunities.
88, and then validate before we type a single line of code rapid prototype, which is something that I think we've got down to a science here and then controlled beta test from there where we can kind of learn.
And refine and typical agile cycle and from there we can make a decision and.
And decide if it's something that we want to launch wide.
To me, though the most important steps in this thing are the first two and this speaks a lot to what Courtney was just showing you guys.
Okay.
We want to know what to build before rebuild that essentially we've all heard about companies, adding an innovation department before right, let's be honest, but what you normally end up getting is innovation for the sake of of innovation you get buzzy headlines trendy Tac.
That kind of stuff that we've all sort of heard about but at the end of the day. The other part that we've heard about is that users end up not really caring about any of that stuff. They don't end up using it and it doesn't make a difference day to day here, we have an unwavering commitment to building things that actually will make a difference day to day to an agent's business.
We want them to want to use it whenever we build and actually go ahead and do so.
Let's call it data driven ideation.
So, let's dig into the innovation hub a bit further.
But on the next slide we're going to start with a project that I started with my first day here at the XT.
Which is called the express offers that's our take on the eye by a program because it's a good example of.
Of our innovation approach in action, a nice mix of innovation and tech and innovation business as well.
For those that don't know I buying as an alternative approach to selling a home for cash as opposed to the traditional listing process. It.
It sort of allows the seller to sell on their own terms and ens and schedule.
And without dealing with some of the other things that come with the traditional listing like for you.
Anthem repairs, and showings and financing contingencies, and all that kind of stuff in 2019, when I joined I buying which is picking up steam and we heard.
Through our channels from the agents that they needed a way to get a tool.
Like that into their pockets to sort of see to remain competitive.
And are our approach to it differs from the competition.
And in a number of ways the DXP flavor on this is that.
<unk> remains a key part of the process and they guide sellers through the eye buying process end to end through the express offers.
Start to finish.
We actually maintain a network of a third party cash buyers in all 50 states so, whereas other eye buyer of companies typically they themselves to the buying ESP doesn't buy any houses in this we work with this network of.
A huge number of buyers and we're in all 50 states, which is another key differentiator.
Most of the way that that is all structured sellers going to end up receiving multiple cash offers and the results have been good we've had thousands of property submitted thousands of offers in response to that and all of this is enabled by that for proprietary check that we ended up building not to run. This he already XP in fact, I myself was lucky.
Enough to actually write the code and build the initial version of the software Thankfully today This program as well.
And it always has been run by a killer team on the business side and Thankfully for me. It's now pushed forward into the future by some of our best software Engineers.
Who have taken it over and continue to Ideate and.
And iterate and and bring it forward.
So what's next what opportunities are we're focused on now on the right side of the slide.
Number one enhanced agents that capabilities with so much innovation in the real estate space seeking to dis intermediate the agents from the transaction were following the research that Courtney mentioned earlier that the public wants to work with agents and we want our innovation everything that we're doing.
To enhance the value of the agent the capability of the agent the scalability of the agents and.
And everything Thats associated with that on our side of the business as well.
Tumor portal features as Glenn has mentioned before our consumer portal initiatives Thats really our consumer touch point and could be a great lead Gen opportunity one day for ESP as well.
We've secured most of the MLS feeds in the U S and we see a really big opportunity.
Potentially for our showcase IDEXX team to build a really unique tool for consumers that could end up being a great source of leads for the ESP agents here.
If we actually really know that just right.
Experts continue on the Legion.
<unk> is a a pilot in house lead Gen program that is leveraging some intelligent lead routing software that we built here as well that routes leads to agents, who are geographically close to their lead opportunities.
You know again region is showing to be one of the most important things that we can provide for agents we hear about it our survey after survey.
After all agent contact channels, so we're happy to keep providing solutions for that.
Success lending as you've also heard that as our recently announced mortgage JV.
Got a big opportunity there.
Our opportunity to create our own native mortgage experience from the ground up we can really make this work for agents and consumers alike, and Theres a lot to chew on here from an innovation standpoint, so it's a big area of interest for me personally as well.
And then an eye towards the future what comes after that what else are we doing on our side.
To be honest, we're watching the trends we're interested in things like machine learning and AI and thinking about how that can improve our business looking at ways that it can scale our operations as well by automating things that are time consuming but still complex. We're looking at things like cross reality in the opportunities that that could provide for real estate.
Great.
But at the end of the day, we're going to do what moves the needle for our agents and our business, we're not going to innovate for the sake of saying that we innovated, we're always going to focus our resources and remain committed to that data driven ideation approach that I talked about before.
So as I said ESG has always been an innovative company, but we're just taking that next step now we're really interested in and leading the industry with new ideas novel innovation and things that will actually move the needle that will actually make a difference day to day for the agents out there in the field.
In our ESP family and the operation side to support them.
So with that now I'm going to hand, it back to Glenn Jeff and John Thanks, everyone. This is fun.
Gary Thank Seth, Thanks, Courtney and and of course, thanks. Thanks, Thanks, Jeff.
This is a we've got 1200 I believe that staff that make DXP work from a from a back office leadership perspective, and then and that's in addition to the 60000 agents and this is just obviously such a small subsection of the amazing people that are behind the scenes.
Gluing it altogether there are parts of the organization that are well designed and then there's others that is a lot more on the innovation and let's see if this might work. So it's a great great to get those updates so with that why.
Why don't we jump in John I know, you've probably got a few even a few more questions. After hearing from from the team here, but turn it over to you for some Q&A with the with Jeffrey Yeah. Thanks, and congrats again you guys. It just feels like a professionalizing the business more and more creative structure informality. So this is.
That's it.
You know I want to start off maybe just on the housing market in general I don't feel like we can't forget one of these calls out of the way without doing that so I mean market still kind of fills crazy you've got a lot of price growth you've got a lot of competition bidding war still happening.
It seems like there could be loosening up a little bit maybe a little bit of inventory coming on the market and maybe buyers are starting to wind back a little bit, but just curious about your thoughts on kind of where we are in the market today, if there's a turning point and maybe also if theres any kind of thoughts around the pandemic and if theres effect later this year.
Oh, yeah, so you're asking about my Crystal ball.
So so yeah, we are definitely seeing a little bit more.
Inventory is showing up we got a little less well.
And so we're seeing some.
Moderation of the housing market, but not not to the extent that it's slowing.
To any extent, but maybe just not.
Going as fast as the hyper speed that was going.
Rob.
So I think there from that perspective.
It's actually good for the market to see a little little moderation as.
As we are.
Obviously, we've got this delta variant that's kicked in which is creating masked men. So.
Vaccine mandates a whole bunch of stuff. So you know I think.
It's still a little bit.
Well very much of an unknown as to what are they going to be the various responses.
But you.
What I think we're seeing is that that COVID-19 is not going away just the fact, the fact that people got vaccinated.
And isn't fundamentally stopping COVID-19 from being a backdrop to what's going on and so I think what we're going to see is we're going to see more.
We caught home office agents agents working you know.
Remote relative to their brokerage.
And that can become more and more of a norm. So the question will ultimately come back to why why do offices, even exist and of course, we've really pioneered this fall you'll brixton.
Bricks and mortar white.
Or non bricks and mortar based operations of course, we did that with the entire executive team as well from day one.
So I think from a Covid perspective, I think we're.
To be well positioned to have to adapt with them that plays into the further housing cycle, which is where do people want to live that they don't have to go to an office and I think that's just going to continue to drive a fair bit of of continued transition in the housing market that will keep you know.
That portion going of course low interest rates.
I don't think they're going up anytime soon.
Me personally.
But I think that where.
We've seen these historical low interest rates I think there's a lot of cash out there.
And as a result, that's going to keep interest rates down as well as in all the fed decisions. So that's going to keep some some positive outlook or for housing because most buyers are impact payment buyers. So so that's kind of my my thoughts Chuck.
Well it probably took everything.
Yeah you.
So you've got a cover glass thats.
Great answer.
Yes, so Glen we talked about.
The positive trends around the agent additions in the kind of team based approach kind of playing it playing out for you guys, but if we look at the other side of it like the retention side of things I know this industry can be a game of musical chairs, sometimes I personally don't see why you would leave the E X P platform, especially now with the dividend.
But talk to us about what you're seeing on the retention side I don't know if you guys break it out by like quadrants of agents, but how it has kind of looked under the surface as well.
Yeah, So we don't really break it out too much.
What we have seen and Jeff you actually dive into these numbers more than than I do.
But I believe that you know since last year since Covid became part of our backdrop. Our retention figures have went up pretty substantially so Jeff.
Yes.
Yes, we don't break it out, but our retention has gone up at least 30%.
Since since this time last year. So you saw a lot more movement.
But now I think.
The value proposition, just keeps getting stronger and stronger and I think the other thing too is that we I was talking earlier about this network effect.
And we just got some really strong leadership across our agent base across the country and now across the world. So I think I think the awareness of the company and the benefits and once they see it.
They cannot see it anymore and I think the retention numbers I'm seeing we're up about 30% year over year on retention.
Okay, that's great to hear and then.
And Courtney sections, she talked about the importance of the you know the equity compensation for agents, we've clearly had a lot of questions in the past from investors around.
Does the stock price, whether it be up or down does that doesn't have an influence on your recruiting annual retention.
You know I think from my angle, obviously looking at this from an investor I would be more likely to join you guys. If the stock is low right because I think theres a lot of upside can only get that equity equity issuance and then be able to benefit from it but just curious I mean have you seen kind of any kind of notable conclusions you've been it'll come to just based off the stock price and whether that influences retention and recruiting.
Yeah, I think I think it does influence a little bit on the recruiting side in that your agents are.
They use a lot of social media.
They like to create awareness for <unk>.
For the business on multiple fronts. So you know when we saw the stock hit hit new highs early this year.
There's a lot of the social media that was playing around that so I think that does play a little bit into it but I I don't know that it hurts us when the stock is down it just I think it just helps us when you know when we have different things going on that's a positive in the marketplace. So like today. If you go onto social media, you'll see a lot of social shares from.
Our agents because obviously the dividend.
Is something Thats unique.
That makes us stand out from any other company that is trying to do stuff like us.
And so that's going to play out well and just just getting attention on on the company.
So anytime there's good things going on in stock price can be considered a good thing when its going up.
It just helps us on the attraction side.
Yeah, I would add John I mean, as we see the company grow like it is the.
The agents are just really excited and I think what the what the equity piece of the stock does it makes them feel like they are owners, which they are alright. So to do the right thing youre kind of seeing the long game and we have consistently delivered quarter after quarter up until Q2.
And I think people get excited as you see the growth you see the profitability that you see the shape of the company and they feel like owners. So I think it's as important that feeling as owners.
As opposed to whether it goes up or down we don't goes up or down but on the long haul.
It's just a feeling of ownership its a big deal for us.
Right.
I think that's fair and then your owners now with a four cent dividend increase quite so pay raise for you. So that's that's nice as well.
Yeah, let's talk about the commercial or excuse me the international side.
I don't know if you could give us a snapshot now kind of what roughly what percent of your agent base is international and how that has kind of grown if there's any key markets you might want to call out.
Yeah, so internationally.
About 10% of our agents are international and that includes Canada. So so you sort of look at 60008, and 6000 and I think we're probably around half of that is actually and in Canada.
It's.
We one of the things that we've been doing is is kind of looking at as we're in markets for some period of time year two years three years, where we're looking at you know what we need to do to tweak the model to become even more competitive and so just just being aware that we have the ability to be.
More agile I believe and a lot of these markets around the world than than most of the incumbents because.
Cause we have such a low cost to operate as a brokerage it does give us certain advantages. So we're definitely making some some some moves there.
Can also.
No checkout E X P. I believe it's.
DXP Global Dot partners, if you are from a.
From a website perspective, and that really talks to a bunch of the sort of international expansion, where we're at where we're getting ready to launch and.
And so I'll give you a little bit more detail, so XP global dot partner stock not dotcom DXP global about partners.
Yeah, and I'd add John that the markets that we've entered so far.
Some of the that we're getting.
Solid traction in countries like India, Mexico, United Kingdom.
South Africa, Brazil, Portugal, and theirs and in certain countries like I mentioned, Adam day right. Now. So this is a completely that this is a completely different way of selling real estate in that country and they're doing such a fantastic job and really show them. The benefits of this model in that country. So we are getting.
Actually the teams up to 17 were up 17 foreign countries right now and as Glenn mentioned as we go and we learn we adapt and he wanted to be the most competitive and also.
And the benefits that we have for those agents globally and what we're also seeing is we're seeing our U S agents getting really excited about growth globally, and that's also a huge benefit of us being one brokerage as opposed to franchise.
Yeah, absolutely and I think that's something that some of us might overlook sometimes is that you know I hate to keep using the cliches of a flywheel, but it's absolutely what it is that's what you did in the U S. You start off with a handful of thousand agents and it kind of builds upon itself. So it's encouraging that you're weighing those seeds I guess in those international markets, but Glenn I think you and I've talked about this before but.
Talk about the split structure rare.
Relative to the U S relative to some of international markets and how that could maybe impact gross margins over time.
Yeah. So.
In the U S and Canada. We're you know we're an 80 20 model we cap out that 16000, we have some some some transaction fees.
Post capping.
So that we're a.
Breaking even if <unk>.
Not making a small amount on a per transaction basis post cap.
But internationally the the backdrop and a lot of countries is.
He is closer to a 50 50 model so in the U S.
70, 30 in a franchise fee is a pretty typical backdrop.
Internationally, it's closer to 50, 50, 60, 40, and maybe a franchise fee on top of that so for us to be able to go into a market. We can typically go in at a <unk>.
$75 25, and still be the best.
Model or one of the best models in the marketplace and then you add the revenue sharing component, which is typically not something that's available to agents to help expand the brokerage and then you add the potential for equity and we've got jumped through a bunch of groups internationally on the equity side. So there may be some countries where.
It's just too small to sort of think about but.
Practices and stuff like that but for the most part we want to be able to be the most.
Robust value prop in each market, we go into and we should be able to pick up an extra.
50% or so margin effectively on the transactions while agents are capping.
Just because of the way we're structured so in theory, we should be more profitable internationally, but then the flip side of course is that in a lot of countries. The effective dollar cost of our property as you know 50% of what U S dollar price would be.
So adjusting for those those dynamics, but we should have a higher higher margin percentage internationally.
Yeah makes sense and then speaking of margins so gross margins something some investors point to you get some compression there obviously, but it's.
Theres a clear explanation obviously your agents are outperforming your capping more so it's not necessarily a bad thing.
I always like to say you know you don't you don't pay your bills with percentages right from an absolute dollar level. The level of your revenue growth has given you have so much more where you're able to kind of track ahead of expectation. So well that said just talk to us about the gross margin.
The trends around gross margins.
What's kind of driving that lower and then when do you feel like there's an inflection point and other maybe drivers longer term of what can get that higher yes.
Yes.
As you mentioned, Jonathan you need the cafe is the major driver for the margin to go down and then I'd say the other the other major driver is the price per unit. So.
We're doing less you can do less units and so cap with that price per unit over time.
You can see the revenue.
The growth and the volume is making up from a profit standpoint for the lower margins.
But over time, we see we see opportunity in affiliate services and we've talked about this quite a few times.
It's just going to it's going to take some time and we're working hard on it but over over time, we see that and we see some of the other technology that chefs and lead generation things quarter, you were talking about to help on that margin of the business. So late so I'm talking more operating margin.
But I think that.
A lot of people talk about when times go bad when it's not Covid Ironically, our margin last year as you can see it was close to 10% right. So in a lower growth. We did 33% growth rate last last year. This time and our margin was almost 10%.
So yeah.
As you said the revenue growth makes up for it pressure is really coming from cafe and the price per unit, but it does balance out at the end because of the volume makes up for the operating margin.
Yeah makes sense and then I went deep deep down as far as I could go in my notes on your guys for over all these years and it seems like you've had the cap at 16000 for several years, obviously the housing market has done exceptional since that timeframe.
But any sense for like what percent of agents are capping I don't know if that's something you guys can share.
So Jeff have you broken that out.
I believe our capping agents has historically been around 25% of our agents are capping agents.
Yes that is a historical level.
As you know John I mean, the growth is going so well we don't have averages that we can we can look at it right now about 25% is kind of what we've seen historically mhm it.
It could be up a little more recently because of the price.
But that's around the level that we see.
Okay. That's helpful I want to touch on maybe one or two of the newer developments I know, we're running out of time here, but I.
I thought that you know the announcement of the mortgage JV. It was pretty interesting. So just talk to us about what kind of lending what drove that decision to pair up with them and what what you see as an opportunity over time.
Yeah. So.
If you get a chance to just kind of do the the backstory Glen Glen Stearns.
Stearns lending one of the top five lenders in the country.
The sold to Blackstone I think in 2012 or 2013.
And that was for some some some personal reasons at the time.
And then.
Here about a year or two years ago got back into the mortgage industry. He was on the first season of undercover billionaire which was how I sort of learned about him and of course, we put together our relationship with grant Cardon, who was in the second season of undercover billionaire and so.
Got a chance to meet him learn about his his background.
Very very aligned on core values as core values and our core values in the way they approach things in the way that they do things.
Really matched up well with the way we are with the type of partner that we would love to have in that business. The other part that I think was really key for US was is that.
This is a team that really wants to roll up their sleeves and help make a JV work. So it's not like you just.
You announced a deal with guaranteed rate like everybody's got to deal with guaranteed rate kind of thing.
This was actually something much more strategic where we were actually going to work hard together to build a mortgage company.
We're combining.
Combining efforts to actually do something very unique in the marketplace and so for US we think that.
One huge experience in the mortgage there are a lot of the team that Lewis with Stearns is now part of kind of lending and by extension is helping launch the success lending JV.
And with that I think by October we should have our licensing in place to start to actually do the first loan but this is someone that has some a celebrity status, which I think is going to be really key because we're talking about your agents brokers and their customers.
You know.
Wanting to do business with this entity as opposed to just being another generic joint.
Joint ventures, so for US I think its rules again another.
Hope will prove out to be a very strategic move on our part, but we think this is going to be something that.
Glenn <unk> and myself, we're going to actually get on claims work on recruiting loan officers in local markets. The top loan officers to join a really great brand underneath success lending that is able to then leverage that 125 year history of personal development and Paul.
All of that what we're gonna be we want to create something again pretty unique pretty special and then and then being able to then combine that with some of the other offerings that we have.
Yeah, I mean, that's really exciting and even if you look at Realogy.
One of your competitors out there doing over $100 million a year in the JV earnings so.
Lots of potential there. So it's encourage you guys to get that in place cant wait to see what you do with that but.
Gordon that's all I've got if Glenn if you want to leave with the closing comments are I. Appreciate you guys give me the time to host today and look forward to talking to you guys again soon awesome well. Thanks. Thank you John Thank you.
Thank you, Jeff and Courtney and Seth for joining us on stage here today obviously.
I can tell you that DXP in my opinion changed so much and especially in a while.
Third quarter of 2018 with Jeff join joined Us.
He has been such a partner in helping grow the business. So thanks again for joining us.
Today.
One we're going to continue to work on the various business aspects of the company and we're going to our goal is to grow to worldwide.
We want to be able to launch Hill.
510, plus countries a year entering really grow internationally.
To a large large size are changing lives of agents and brokers and by extension.
All of us as shareholders benefit from this amazing organization that we are growing together. So again, thanks for joining us today. Thanks for being part of this I think it is.
The fact that you know Jeff White side gets to talk about the fact that we did a 1 billion in revenue in the quarter makes it a pretty special day and again thanks.
Thanks, everyone for being part of this.
Alright, Thanks, Scott Thanks, Don Courtney Seth Thank you very much.
Yeah.
And with that we conclude our Q2 'twenty.