Q4 2021 eXp World Holdings Inc Earnings Call
There is a review of the 2021 financial highlights presented by Jeff Whiteside, CFO and Chief collaboration Officer of ESP World Holdings, followed by Jason guessing, our CEO of <unk> Realty, who wish.
Sure our accelerated growth as well as operational excellence and agent employee satisfaction. Finally, we returned to Tom White and our leadership team for Q&A, let's begin the earnings Fireside chat with a review of the 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 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 recent quarterly.
The report on Form 10-K for a discussion on 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 ESP World Holdings Dot com now for <unk>.
Few logistics and we'll get started for those of you in the <unk> World.
Should you wish to see all three screens hit the stage zoom button to the right of your chat box to zoom into a specific screen you can hit the plus icon above that screen. If you happen to see no slides are gratified at the refresh icon button at the top right hand corner of that screen to correct Weiland NXP campus should you need any help or half question.
Please enter your comments in the chat box at the bottom on the left and a member of the team will contact you as mentioned the last segment of our Fireside chat is the Q&A.
If we wanted to talk quickly about slideshow to ask a question. During our presentation you can enter questions by scanning the QR code presented on the screen with your phone or go to <unk> Dot com and tightened the event code E X pie from there you can submit a question or vote up an existing question by giving a thumbs up.
You'd also like that question asked the screen will ramp on the left hand side of the stage at this time I would like to turn the fireside chat over to Glen Sanford and Tom White start the earnings conversation.
Hey, Tom are you there yes.
Glen.
Woman.
Things out there.
Gordon could bring growth.
Terrific, great well good morning, everyone.
Thanks for joining us and thanks to the folks at <unk> for <unk>.
Joining me to host.
<unk> research analyst with da Davidson I cover disruptor.
Disruptive companies from the residential real estate space.
Had the pleasure of covering ESP World Holdings.
Early 2018.
Ask.
Question here of Glenn to kind of get things going and then we'll go through a couple of presentations from Jeff and Jason and then we'll circle back and.
And do some more Q&A, but I guess first off Glenn.
Congrats on a really strong end to the year.
Maybe just a comment.
On kind of your high level thoughts about how you thought the business performed last year.
How you've managed to kind of sustain the growth.
You've put up.
And really manage kind of your overall growth rate would just be curious to hear your high level thoughts.
Thanks, Tom for being here, it's been you've been following us for quite some time.
Yes.
It's been a prime journey so far.
No.
One kind of registrar and attention to just a couple stats.
Jason is going to cover a bit of this in his section, but we.
We just went over 76000 agents so.
We're continuing to grow at a very rapid rate in fact, another interesting stat is that as of now in the United States.
125 real tourists in United States is actually DXP agent so.
We've obviously grown very fast.
But I think the key for our growth is really around big truly mission driven that's been.
Kind of are I don't want to call our secret sauce, but it really is the driver for growth.
We are continuing to be the most agent centric real estate brokerage on the planet.
<unk>.
That's really how we approach everything we are approaching it from how do we how do we truly build.
Our market share and turning this industry into an industry that's really agent.
Tom.
Web and agent.
<unk>, driven and that we want to provide the best opportunity for our <unk> from brokers.
<unk>.
We all sort of enhancing that already exciting value proposition for agents something you'll hear a bit about later on this year.
Even now is how we are enhancing our revenue share program, our revenue share program peso, 50% of our company dollar.
And we're actually enhancing that.
With our with profits from our affiliate companies services to actually pay out more than 50% of company dollar.
In 2022 to our agents and brokers, who helped us grow and and even in 2021, we shared almost $170 billion in revenue share and actually share at approximately $50 million of equity.
Two our productive agents outside of them electing to receive.
Equity Commission, that's actual awards to our agents, so we actually paid out approximately $220 million.
Additional benefits over and above.
The normal production of agents, which really dwarfs any other brokerage or brand that shares with our agents and brokers. So we shared out more than anyone else.
And in 2022, we expect to share more than anyone else on a rev share side.
By itself in 2022 than any other brokers that shares with their agents. So we're really excited about continuing to.
Extend those benefits and that really has been a big driver for our agent traction in growth.
We want to also help our agents' productivity and partnerships and then also adding more competitive moats.
Last but not least before turning it over to Jeff for more of the.
<unk> is really around just continuing to be agile re imagining our brokerage works at 500000 agents versus where we are now and just figuring out what the philosophy is for supporting agents, while providing them a higher touch experience over time with our staff Thats, probably our biggest thing being a.
Cloud based brokerage.
And we use NPS really has a big driver for decision, making but I think one of the places where we'll spend a lot of time in 2022 is just figuring out how to be even higher touch brokerage for the agents and brokers that join us all over the world. So super excited about that.
Why don't I go ahead and turn it over to.
<unk>.
Jeff.
To talk a little bit about some of our financials.
Awesome, alright, well, thank you very much Glenn and Courtney really appreciate it. Thank you Tom for moderating today.
Good morning, all and thank you for joining us at our fourth quarter 2021, virtual fireside chat.
<unk>.
<unk> had another phenomenal quarter.
In the fourth quarter of 2021, and full year 2021 of growth and I'm proud on behalf of our team to share our results today, and we'll be talking about the fourth quarter and the full year of 2021, so on a first page.
A highlight level starting with the revenue in Q4, our revenue was $1 1 billion.
Up 77% year over year, our gross profit in Q4 was $83 1 million, an increase of 65% year over year.
And our net income in Q4 was $15 5 million, which was an increase of 101% year over year as noted and includes eight in Q4 of $14 2 million.
Income tax provision benefit primarily driven by our stock based compensation deduction and the fact that we shown sustained sustainable profitability.
From a diluted.
From a diluted share standpoint earnings per share was <unk> 10.
And that was up a 100% year over year.
Now if I look at the.
Our adjusted EBITDA.
And so there is a bit of a difference this quarter on adjusted EBITDA. So the adjusted EBIT as reported.
It was $13 $1 million, which was down 21%, but we did have a onetime legal settlement costs that we booked in Q4 and that was $10 million. So after that adjustment our adjusted EBIT would be at $23 1 million, which was up 39% and.
And lastly on the fourth quarter summary page, our operating cash flow was $48 $5 million, an increase of 59% year over year quarter over quarter. So now I'll just go back into the same highlights for the full year 2021, starting again with revenue and.
And our revenue for the full year was $3 8 billion.
Which was up 110% year over year.
Our gross profit in 2021 was $296 million.
And Thats, an increase of 85% year over year.
Net income was $81 2 million in 2021, an increase of $1 62 and as noted.
Then we do have a tax benefit in that number and in 81. Two there is a tax benefit of $47 5 million again, primarily.
Benefit from our stock based compensation deduction.
The full year, our diluted earnings per share was <unk> 51.
Which is 143% year over year.
Hold on that last chart. Please.
The full year numbers.
And then our adjusted EBITDA was $78 million up 35% and then if you would back that $10 million onetime extraordinary charge, our adjusted EBITDA for the year.
$88 million up 52% year over year.
And finally, our full year operating cash flow was $247 million and Thats, an increase of 106% year over year.
Now I will just go over some of the.
The highlights when we look at our business.
We have two different cycles.
These are our key metrics and in the chart charged broken up into two categories. One is the operating metrics and what is the financial metrics. So looking at our operating metrics for Q4 and full year 2021, as a reminder, Glenn mentioned this previously.
We run our business based on agent and employee net <unk> scores and we call that <unk> NPS our goal as a company is to hit a score above 70 or above.
Which is it's a world class score and when we do that we find that that predicts our agent our retention in our employee satisfaction. So in our fourth quarter, our E&ps score was 69.
73% of full year score was 71, our fourth quarter NPS was $78 75 with a full year scored 79, so very proud of both those scores.
And our royalty model, adding productive agents to our platform drives unit sales volume and revenue and then gross margin that feeds our business. So our agent count in Q4 was 71137 with a growth rate of 72% year over year as Glenn mentioned, we are up 75.
<unk> thousand today, and we've had many questions about the breakdown between international and the.
Domestic and <unk>.
As we sit here today, we've got about 11% of our agents are international versus 89% domestic as.
As we move on to unit sales in Q4.
Our unit sales were $125 29 up 52% quarter over quarter and our.
Our unit sales were up 86% on a full year 2021, our price per unit was $3 59 up 19% quarter and 16% year over year full year.
And our volume was $44 9 billion up 82%.
Quarter over quarter and 156 billion.
In 2021, which is 116% 16% year over year growth now.
Now looking at some of our financial metrics, we have covered some of these sort of summarize before our revenue increased 77% in order.
10% year over year gross margin was up 65% quarter.
At 85%.
Year over year.
And our SG&A.
If we look at that Q4 over year over year was full full.
Full basis as we continue to invest in our key focused areas of international growth technology productivity with.
We've previously covered the next few lives so I won't repeat that in the results and so I'll just couple more metrics, our ending cash balance in 2021 was $108 million to <unk>.
<unk> as a company an internal metric of about $100 million in cash.
After we cover expenses operating expenses investments and stock buybacks. So we continue to have positive operating cash flow with zero debt on the balance sheet and another consecutive quarter of positive EBITDA earnings since Q3 2018.
And now some other highlights that I'll take you through.
The first one would be.
We ended 2021 as I mentioned before this is a real big deal for US I mean, if you. If you understand NPS of 70 scores very much world class and we're very proud of that and I think that's that has a lot to do with our success in 2021 and before that.
<unk> positive accumulated earnings and shareholder equity and so what that's enabled us to do is pay more money back to our investors in the form of cash dividend. So we paid cash dividend in Q4, when we declared another cash dividend, which will be paid on March 31, and finally to offset dilution for.
For our shareholders and our agents, we repurchased $30 million in common stock in Q4 at $172 million year to date.
In 2021.
On the right hand side.
<unk> growth continues DXP realty domestic our domestic business is hitting what we can call our network effect, meaning that not too many years ago. There was a much smaller group of people that were influencing in growing the company that we literally have hundreds in the U S. Fantastic leadership agent leadership across the <unk>.
So you can see that that's kind of driving the numbers global expansion 20 countries and growing we recently announced New Zealand, Greece Dominican Republic.
As we look at this.
We see what's happening in the marketplace, we're really changing the commercial real estate brokerage model via technology data and services, our technology innovations and our investments continue expanding utilization of frame VR ml.
MLS coverage and plus 9%.
<unk> Dot Com last time I look it was about 1 million three listings in there and.
And finally affiliated services and success, we hired Eric Robbins.
To run it.
Success business as the president with a focus on building our coaching business. So really excited about that.
And then success lending is licensed in 23 states. So those that's the progress we've had in the last quarter and some great stuff that's happening that will absolutely effect.
Positively affect our operating margin down the road.
Our 10-K will be released pre market tomorrow.
And now I would like to introduce our CEO of Realty, Jason guessing who will expand on our agent growth key drivers.
Our operational excellence welcome Jason.
Thank you very much Jeff and good morning to everybody I just want to start by saying, Thank you and congratulations to all of our agents and brokers and staff, who really make this possible make 2021 possible and too driven by the mission right alongside us.
As Jeff noted we've continued to grow at a really rapid and accelerated pay 72% increase in agent growth year over year and total revenues of $3 8 billion. Today, we have built a meta versus community of more than 76000 agents brokers and staff, who work together daily across geographies and in our ESP World.
We can attribute our growth as we have.
In recent quarters to a couple of different things. The first is really strong growth and performance inside of the United States, Jeff talked about the network effect and we continue to bring on top performers in all markets.
They come with other folks and so every time somebody comes over people turn heads and they inquire about the company they learn about the company and ultimately they joined.
Just continues.
Continues to grow.
Additionally, we've been able to expand globally by utilizing our platform enabled in 2021 had nine countries to our footprint and already this year.
We've opened operations in the Dominican Republic, Greece, and New Zealand are coming later in the quarter and we've done this really without having to get on any plans to visit any of these markets.
And as Jeff noted, we also continue to expand the commercial division and I think with great success.
A lot of agents, who will practice, both on the residential and the commercial side Theres, a great opportunity and offering for them on the royalty side of the business, but we've really been focused on the pure commercial players.
And we couldnt be more happy with the results. We continue to gain recognition of some of the educational offerings that we provide in the commercial space and some tools that are new to market and best in class.
The bulk of my focus is going to be on operational excellence I think going back to 2016, we crossed 1000 agents for the first time, we recognize that as important as any other factor what really is going to drive and sustain growth is making sure that we're delivering great experiences for our agents I should point out by the way on the growth.
Side, because our agent count number today in the United States puts us above brands like Remax I think we are now the third largest brand in.
The residential market in the United States and also the single largest brokerage brokerage by agent count in the United States as well.
But all of that is as a result of delivering better than industry, leading experiences for our agents and you'll hear about NPS a lot I think another theme that you'll pick up in my remarks is really elevating our level of service to our concierge level of service in multiple areas of the business that are critical to <unk> success. So.
We're tracking NPS at the agent level to ensure their satisfaction from the time that they initially onboard into the company to the time, where they are growing their business and developing new approaches to it and all the while if they are achieving their levels of success.
Throughout the course of their careers at the company, our NPS for agents or <unk> 71 for the full year really reflects our commitment to our agents and we do believe it continues to be one of our strongest differentiators within the marketplace contributing to the score or some significant operational improvements we have made during 2021 and which we continue to make today and we're excited about.
Additional opportunities that we're working on presently for increased efficiency and support in the coming year. Our focus always is on supporting our agency ways to make their lives easier. So they can focus on their business I will give you a couple of examples of these improvements. The first is that we've been able to enhance our agent support through what we call our expert care Concierge service.
So this team our expert care team really provides fast and efficient support services for our agents with respect to any ESP or work related inquiries. So this isn't specific necessarily the onboarding of payment or anything like that this is somebody who maybe wants to verify their icon eligibility they might be at risk of leaving because they've been misinformed about something that maybe you don't want to know where they can find out.
To sign up for <unk> and healthcare.
So they really address the needs of all of our agents that I can tell you that in 2021, we introduced some new support channels. So our agents are able to reach us now newmar.
In numerous ways.
Putting phone email texting or intranet workplace and now our newly constructed DXP World Hub Center here in the Med <unk>.
Through all of those channels and all of those efforts our concierge team in 2021 managed to close to 300000 inquiries from our agents.
Notably almost one third of those were solved inside of ESP World and.
And as a result that team helps retain millions of dollars of revenue through its efforts and really represents an important retention and engagement tools. Additionally.
Through streamlining of our programs and processes, we have been able to speed up.
<unk>, which has resulted in a decrease in response time to agent issues.
<unk>, 4% and a decrease in resolution of those same issues of 33%. Additionally, we've introduced the concierge level of service specific to our Onboarding process, which really allows us to walk agents through all of the elements of getting set up an ESP. It has.
<unk> two a dramatic increase in our Onboarding NPS, which has more than doubled in 2021.
And also at the state level, we've introduced the concierge level of service into our broker state rooms.
Putting a really a localized level support that really saves our state managing brokers at provincial managing brokers as well as administrative support coordinate coordinators considerable time as they help agents navigate questions resources tools support maybe they are looking for multiple listing service or association paperwork and all of that stuff is handled by our state level.
<unk>.
Also important that we focus on payments and that we achieve excellence on payments that we pay <unk> is timely and accurately and.
And we're really excited about the progress we've made in 2021 and that we continue to make.
We've added new resources and capabilities to simplify and speed up payments and transaction processing.
Through overall staffing efficiencies, we've been able to decrease agent Commission payment turnaround time by 45% year over year, and our agent MTS specific to transaction support in the United States now stands at 80 or was it 80 for 2021.
Coming up this year in 2022, we anticipate launching transaction coordination services at least across all of our states in the United States last year was quietly piloting the service in 27 States. We're pleased with where we are and where we're going.
And in.
In addition to our revenue opportunity for the company, we really see this as a chance to meet the needs of our agents by freeing them from tasks that would otherwise divert their attention for building their business and serving their customers.
We also think that the PC service can help mitigate compliance Chris for the agent for the broker and for the company because we are able to ensure that the files requisite paperwork is complete accurate and contained within the transaction folder.
And we also believe that the service will really help us as we go to layer in and drive adoption of our affiliated services.
Additionally, we introduced a concierge level of service and <unk> in our transaction Department that.
That team managed to more than 12000 transaction related inquiries and needs in 2021, and this is sort of a big one from my perspective last year, we introduced a new platform capability that allows our agents in the United States to deposit earnest money checks at other escrow checks directly a digitally without having to drive to drive to their in office or.
Place in the mail.
Discovered the some delays, particularly in Canada with the Royal Mail and <unk>.
So in Canada.
In addition to allowing.
Allowing agents deposit earnest money checks, we also make the platform available to cooperating brokers cooperating agents and vendors and so what that means for our Canadian agencies, if they can get paid faster.
Once the payment is issued and put into the platform. It immediately goes to the agents. So we've been able to speed up Canadian payment times and that was that was a significant significant excuse me achievement over the last 12 months as.
As we look ahead to this year a couple of other things we're excited about.
Going to be launching a pre onboarding solution for agents teams and brokerages.
This will really speed up the process by providing advanced information access to tools consultations. So new agents brokers and teams can really hit the ground running on day, one having already been familiarized with our tools and our technologies.
Size and the size of the volume of the business at these teams in brokerage as you're bringing over is enormous and we really need to make sure. We were putting those folks in a position to have a.
Good experience without any business interruption.
So our planning to recognize greater efficiencies by utilizing where possible our existing teams and talent in these critical functional areas to provide great support and service to our agents and global markets, while avoiding staffing redundancies and at the same time preserving the local flavor of and respecting the customs within each individual country.
Lastly, I want to touch upon employee NPS, which Jeff mentioned, we'd like to say around here that you can have good agent NPS unless you have good employee NPS and so we're particularly proud of our score of 79.
And we think Theres a direct correlation between the two scores we've.
We've made some great advancements in our employee programs.
Probably reflected in the MBS score, but also in some external recognition from companies like Glassdoor, where last year, we placed 15 or excuse me four out of 100 on glass doors Best places to work for U S. Large companies with an overall company rating of four six it was our fifth year in a row on glass doors best places to work.
<unk> list. Our current rating has improved to $4. Eight we also placed 15 out of 25% on glass doors Best places to work in Canada list with an overall company rating of $4 one.
We've really offered a significant in growth and development opportunities to our employees as we continue to expand globally and into new lines of business. So could.
To provide opportunities for leadership for SaaS.
<unk> launched our <unk> XP leadership development program, which brings cohorts together to tackle the company initiatives over the course of a two week program. Secondly, we continue to build our culture here and the measures are.
Entire works is collaborative with connected in this place really comes to life in <unk> World, where employees have the unique opportunity to engage and interact on a daily basis.
Each month more than 1300 employees from around the globe joined our all hands meetings to discuss organizational updates wins and strategy.
Finally, we're committed to providing world class benefits that help attract and retain top talent. In 2021. This included expanded paid parental leave in the United States as well as enriched medical plan designs and expanded benefits options, which now also include new well Miss resources and activities ranging from meditation applications to participation in group yoga classes.
DXP World and closing.
We're proud to have the most agent centric brokerage on the planet backed by very happy in terms of employees. Tom. Thank you for allowing me a few minutes I will turn it back to you.
Great terrific. Thank you Jason.
Okay. So I guess, we'll jump back into the kind of the Q&A here.
Glenn.
And I just want to remind folks if you are listening and want to pose a question you can submit it via slide, though but Glenn maybe first a couple of questions just on kind of the the state of the housing market.
Last year was obviously another strong year for for volumes, despite pretty rapid home price appreciation and some pressure on inventory, but how do you think the market is kind of shaping up so far.
2022.
Well I think.
The reality is as we do we are on.
We've got interest rates are supposedly going to go up next month with the fed raising interest rates, we've already seen mortgage rates keep up with that.
In anticipation of some of the some of the rate increases.
I think you've got still a lot of people buying homes question is.
At what level will the fed raised interest rates, which ironically I thought that there was going to be we're going to be on a lower interest rate.
Environment now so that was.
My Crystal ball broke a long time ago and that was definitely the case last year when I'm sort of suggested.
Continue to have low interest rates this year.
But I think the reality is is that we're likely going to see fewer.
Fewer transactions.
Starting sometime maybe second half of <unk>.
2022 than we've seen previously I think between.
Interest rates and some other factors.
That would be my prediction.
And so we will see some softening towards the latter half of the year and then we'll just have to see how it goes into 2023.
Okay, and how should we think about or how should investors think about how the ESP model.
Performs.
In that type of environment sort of a slower industry growth or maybe even a year.
Maybe a contraction in the industry.
The platform I feel like might be relatively more appealing to agents, just given kind of the economic value prop that.
<unk> agents have here.
But would just be curious to hear your view on how you think the business kind of performs generally in the environment you described yes.
Yes, so yes.
We're uniquely positioned.
Where a lot of our bricks and mortar.
Counterpart competitors have had to.
Answer, we'll say the XP model with either reducing the amount that they charged to agents or what have you. They havent been able to in fact, they probably shouldn't reverse happen in terms of their cost of their bricks and mortar footprints in some of the other answers that it takes to run a brokerage.
So we.
We were actually designed from day, one to be a model that could.
Increase or decrease its expenses really at.
Whatever the market throws at us.
Sort of our case, there would be what happened in Q1 Q2 of 2020.
We were able to not that we were excited to do it but we were able to reduce our expenses substantially and actually put up one of our best quarters, if not our best quarter ever at that point in time, because we're able to fully contract a lot of the expenses it takes to run a brokerage while starting.
Quality of service for our agents so our value prop for our agents doesn't change at all in fact, I think it continues to get.