Q4 2022 eXp World Holdings Inc Earnings Call
<unk> looking statements.
There'll 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 forward looking statements.
Are based on assumptions as of today February 28, 2023, and the company undertakes no obligation to revise or update them. Please see our filings with the SEC, including our most recently filed annual report on Form 10-K for a discussion of specific risks that may affect our business performance and financial condition.
As a reminder, today's call is being recorded and a replay will also be made available on ESP World Holdings.
Now for a few logistics and we will get started for those of you joining on the ESP campus today to see all three screens hit the stage zoom button to the right of your chat box to zoom into a specific screen you could hit the plus icon above that screen.
If you happen to see no slides or a great slide hit the refresh icon on the top right hand corner of that screen to correct. While <unk> campus should you need any help or have questions. Please enter your comments in the chat box at the bottom left and a member of the team will contact you.
On slide out should you wish to ask a question during our presentation you can enter your questions by scanning the QR code presented on the screen.
Your phone or go to slide <unk> Dot com and type in the event code E X P. I from there you can submit a question or vote up an existing question by giving a thumbs up if you'd like that question to be asked this green will remain up on the left hand side of the stage now I'll turn the fireside chat over to Glen and Jeff.
Before I open the call to questions.
Thank you Denise.
Thank you everyone for attending here as well.
First and foremost.
Many of you know.
<unk> Holdings was primarily a residential real estate brokerage, which I founded a little over 13 years ago of course of 13 five years ago.
On behalf of our agents, who also are our shareholders alright.
And an EBIT will be touring.
Bid on how we're driving continuing to drive this mentality through our organization through the use of NPS and a new term that we referred to as earned growth rate.
I think it's important to understand that in the context of being a long term shareholder even though obviously today, we're going to be talking a little bit about our past results, but our continued focus on the agent value proposition I think is what's most important when you think about future results obviously.
Right the challenging market in 2022, the XP value continued to attract agents kind of results. We grew revenues, while maintaining a strong balance sheet with zero debt. We also paid dividends to our shareholders as part of our differentiated value proposition and our equity offering to agents, which is unique in the marketplace.
But this year.
As of this.
10-K.
Increasing our financial transparency into the organization, we're doing that through what we referred which referred to is segmenting.
And <unk>.
One of the reason why did.
Because of the challenging market, we wanted to show to our agents staff shareholders and others.
That at scale DXP Realty.
As we've said for a long time, we believed it would be profitable in good times and bad times, and what Youll be able to see is when you actually look through our segmented filings, you'll actually see that DXP Realty North America, even in a tough market continues to be profitable and you're also able to.
See how we're actually investing into other markets international others, which you'll be able to certainly see as well so.
When we started an ESP royalty we introduced.
To the marketplace and the agent centric cloud based model, which had significantly lower costs as well as higher agent engagement and.
In support.
What's interesting is the industry really has been fairly slow to respond to the new normal even with the pandemic.
The industry hasn't shifted that much and.
As I would like to stay at least relative to many of the legacy franchise players. It really feels like at least from a competitive standpoint that there is a lot of brokerages that are basically dinosaurs teaching other dinosaurs how to be better dinosaurs.
Because of that backdrop.
We've been able to scale to really tens of thousands of agents and <unk>.
Hundreds of millions of dollars actually billions of dollars in revenue and in North America.
Really a fairly short period of time.
Without much in the way of competition. However, as we've continued to scale.
We're actually now starting to see.
Some new entrants in the marketplace, although the vast majority of the industry remains wedded to the to the legacy high cost infrastructure models.
To drive the next phase of ESP growth, we're actually really one of the reasons why it came back as CEO of <unk>.
<unk> royalty.
Was to really continue our focus on the agent centric nature of the real estate brokerage.
Leveraging our scale with the ultimate goal of being the number one worldwide real estate brokerage and brand and we've done a great job. So far in 2023 and beyond we will continue to make investments into our as you can see our segments our core segments primarily.
<unk>.
DXP Realty North America.
International is.
It's a big growth area for us, it's a lot of investment going into that.
However, we also have a strong balance sheet with over $100 million in cash and zero debt, which enables us to continue to be.
Hi, Giles and innovative in the various different business segments that we compete in.
We continue to make investments in the market downturn in fact, we've made a shift which Jeff will talk to in a little bit in terms of how we're thinking about it in terms of the financial management side.
We believe that now is the time to actually grow in.
In a down market.
Now that we've actually broken out these segments and you can see that we actually have a.
Scalable.
<unk> model at scale.
In North America, our goal is to actually make that a reality in many many international markets around the world.
One of the things that we've talked.
Given at the beginning of the call talked a little bit about.
Promoter score R&R terrorist case, our net promoter score and that's really our north star and is really a.
Great predictor of our long term success.
We have an all time high globally.
73.
And we continue to sort of double down on how we're using MTS as a tool to actually drive a founder's mentality into an organization.
In a way that creates key metrics for our team to iterate around.
We're investing in products to drive growth.
Your agent productivity.
Ultimately.
It means that they're getting high quality opportunities our revenues as a newly stood up organization underneath.
<unk>, which aggregates national opportunities for agents, we've stood up a luxury division at DXP Con, which has been well received and we continue to expand our ESP Realty Division.
Well, we also have been growing our national search portals. Some of the things you may remember, we talked about in years past as a concept called the <unk> portal.
Which in this case, we've been scaling new Corsa, we announced a few weeks ago, a partnership with <unk> Dot Com and then we've also continued to build out ESP realty's.
A website and web presence, we've got some cool innovations that we're going to be talking about.
Not today, but very shortly which is going to give agents a significant advantage.
In relation to the.
The company owned website for lead Gen for agents. So we're excited about a lot of the things that are coming down the pipe.
We also continue to invest in personal and professional development services.
We've got a number of things that we've done there including success health <unk>.
Success coaching and then we've got an announcement that were going to be talking about on March 6th Monday next week, which we're really excited about in terms of expanding out the success ecosystem.
And then we continue to really focus on in this really falls under.
Patrick O'neil, who recently joined us really improving the overall experience across the entire agent lifecycle.
We've been improving the onboarding.
Training Mentorship processes.
We've enhanced payment processing and in fact in some markets. We've literally got to the point, where we can pay agents within 24 hours of us recognizing that the transaction is closed even before in some cases.
Actually collected the money because.
<unk> are a highly.
Collectable transaction from a from a closing perspective, so we're really excited about some of the innovations we have.
<unk> agent pay we've also revamped our support and collaboration services for existing agents.
We've launched a express care desk and next generation squads in local markets. So we are actually driving more and more into local markets.
We are also focused on new global capabilities.
With teams focused on.
Around the World 24 by seven support and so those are other things that we're focused on barbella.
One thing is we continue to do is invest there because thats the single, enabling technology, that's allowed us to grow and in fact year here in one of the many verbally campuses that we maintain for various purposes.
For the shareholder meeting today, and we continue to invest in another met.
<unk> platform frame VR, which is a web based <unk>, which is super accessible from desktop mobile.
Oculus headsets et cetera, so excited about that.
I've talked a little bit about this earlier, but one of the things that we.
<unk> been using since 2016, as we focused on net promoter score.
Came about from a number of books that I personally read that I've shared with the management team back then.
And it really matched up with what I call, the founder's mentality and the founder's mentality is that.
It's about creating a differentiated value prop for your customer and then delivering on that every single day.
And that ultimately turns into something called the net promoter score or net promoter system that was developed by Fred ratio at Bain <unk> company, a number of years ago, which was written about in the ultimate question to point out.
In his most recent book, which I have also shared with the entire management team and the board.
Winning on purpose.
He introduced a concept called earned.
Revenue growth or earned growth rate.
And that's a really important concept because what it does is it breaks down for long term shareholders why the most important metric that you want to be measuring.
What is what do customers feel about the differentiated product or service offerings that our company provides.
And by understanding.
That then you can make some predictions on the health and growth of the company and so we've really focused on it and what I believe that it really does from my perspective is it helps us teach the organization at scale to actually think like a small company founder.
Whose focus really closely on the customer and getting close to in our case the agent and understanding that there are the ones that ultimately we're building it for but if we do it right.
Long term the shareholders win as well and of course, we've shared equity with our agents and brokers. So this concept runs way deeper than just thinking about it from an external perspective this actually becomes.
Very much of a virtuous circle of how we operate the business and ultimately retain our revenue at a much lower if <unk>.
No marketing cost.
Type of business. So the Bottomline is highly satisfied agents stay with us longer grow their businesses by attracting new agents of the company.
And that allows us to invest money that we would have normally spent on marketing into actually building things that our agents actually want and need and that's the virtuous circle that ultimately yields for long term growth and with that I'm going to turn it over to Jeff White side.
Alright, well, thank you very much Glenn and thank you Denise.
Good afternoon, all and good evening I know some people from Europe . So thank you for showing up to the presentation.
I'll start the financials by highlighting our full year 2022 results beginning with DXP World Holdings.
<unk> revenues increased by 22% year over year to $4 6 billion.
While gross margin percentages and dollars increase in 2000 <unk> 2021.
We maintain adjusted EBIT profitability throughout the year, despite a challenging second half of 'twenty, two that will get into and.
And we ended the year with a strong a stronger cash position.
With no debt on our balance sheet.
As Glenn mentioned earlier, beginning this quarter, we will be reporting four operating segments DXP North American Realty DXP International Realty the Bella.
And other affiliate services on this first page I'd, just like to highlight a couple of buyer our segments being North America and International Realty.
2020 to the North American business grew by 22% revenue and solidly EBITDA profitable throughout the entire year, even as we expanded our business and acquired <unk> Casa <unk>.
DXP International Realty remains in investment mode, as we scale the business our full year revenue grew at 102% as we increased our agent count productivity and previously a launch markets.
During 2022, we entered six new markets, Dominican Republic, Greece, New Zealand, Chile, Poland in Dubai.
2023 International Realty will be focused on growing driving growth in production in our existing markets.
And as Glenn mentioned.
In his opening statements in our operating plan in 2023 and beyond is to continue to invest in segments that provide value to our agents and the long term in.
In terms of capital allocation, we will continue to fund investments in each segment that we believe will generate an attractive long term financial returns so I'm going to get into some of those numbers on the next slide if we can move there I'll provide some more information on our segments.
So if you look at slide 13, Youre going to see a full year 2020 to segment revenue and adjusted EBITDA numbers for all four of our segments.
In 2022 is comparable in previous years, our North American Realty segment is.
A primary driver of revenue at $4, $5 4 billion and adjusted EBITDA of $103 million.
Three so we've talked about this we have this.
This is the first time, we're actually breaking it out but I've talked about several times throughout the year that we're very very fortunate in our business.
Have the North American business really driving.
Growth and profitability that allows us to invest not only in North America, but international and in our technologies, that's what you're going to see in this presentation.
International royalty of about another affiliate services segments contribute modest amounts of revenue today, but we believe the investments we're making these segments and potential to help drive our growth into the next phase of growth.
So if we look at our international <unk> segment as I mentioned before we've entered 22 international markets. Each market is different and it takes time to optimize the model in each country based on local market dynamics.
Turning to tune the models in each country and drive top line and margin expansion and that's kind of what our focus is going to be in 2023 and.
And as our Bella as Glenn mentioned, we're making investments to support our collaboration centric cloud business model.
<unk> talked about this.
Since I got here it blows me away.
Productive and how how.
Well our platform works to help us grow and service our agents and our employees.
The other part of the rebel product is frame so that's.
That is that's a web based software solution that we are generating as we speak.
That's going to be on the commercial side, we also generate revenue and rubella from third party enterprise license, our technology and operate their businesses on our platforms.
Lastly, our other affiliated services segments.
In that in that segment, our investments in success health and coaching that helped brokers and agents develop personally and professionally and while growing their business.
DXP agents represent one of our largest pool of brokers and agents in the industry. When we focused we are focused on leveraging that scale developed high margin ancillary revenue streams with that amongst the next slide and review some key metrics on a consolidated basis.
So this is at the consolidated level of Spi for 2022, the entire year comparing the 2021, our key operating metrics and we talk about this every time.
MPS is huge for US we ended at 71 for the entire year, which is the same number that we ended at last year.
Our goal is to shoot above $70 70, and above which is world class and we've done that this year agent count we ended at 86203 agents up 21% year over year.
Our units were 511089 up 15% year over year and our volume. We ended 2022 volume at $187 3 billion, which is up 20% year over year two.
2022 revenue grew at 22% as I mentioned, which reflects growth in the first half.
Some in the third quarter at a more challenging market environment in the second half of the year that I will get into in the fourth quarter.
Our full year gross profit increased by 24% and our gross margin percentage increased slightly to 8%.
On a full year adjusted EBITDA of $61 million were down were down from 78 million in 2021, as we made investments to support the international market expansion and drive agent centric innovation.
Full year 2022, operating cash flow was $242 million.
Up 17% year over year.
And this also shows US when was matching our ability to generate this level of cash flow and a challenging year speaks to the resilience of our business model. It also provides us with a major competitive advantage in a down market.
Due to our strong cash flow generation, we ended the year with $122 million of cash and equivalents up 12% year over year, even as we distributed after we distributed $205 million of our shareholders in the form of share repurchases and dividends.
On the next slide.
We'll take a look now at the fourth quarter, so the fourth quarter of 2022.
Especially in the U S market was a challenging environment.
Home sales declined more than 30% from the fourth quarter of last year interest rates as we all are very well aware, it's dramatically increase throughout 2022, reaching a high for the year in Q4 and inventory remained constrained.
On this slide you can see our Q4 segment revenue adjusted EBITDA for each of our four business segments and a breakout of our corporate allocations.
At a consolidated level. The <unk> holdings ended Q4 with $933 $4 million in revenue and $3 6 million and EBITDA of <unk>.
North American Realty segment again, the primary driver of revenue at $920 million seven and adjusted EBITDA of $12. One so the one point before.
One of the toughest quarters, we've had as an industry.
The North American Realty business generated $12 1 million and adjusted EBITDA and.
And despite a very challenging environment in the fourth quarter.
North American revenue decline was 14% versus industry wide sales decline and the 30 plus range and we remain profitable.
International royalty increased revenue by 49% in the quarter to $9 8 million as you can see we continue to invest in our international expansion strategy and rubella and other affiliated service segments contributed modest amounts of revenue, while reflecting our ongoing investment.
Now we will move through our consolidated key metrics for Q4.
We ended Q4 with a global agent net promoter score of 73 up from 69 in Q4 2020.
Previously mentioned by Glenn We believe high NPS score is the best indicator of underlying health of the business and the most important driver of shareholder value over the long term.
At the consolidated level Q4, and comparing Q4 2021, our key operating metrics include agent Count 86002, or three of 21% unit sold 109, 168 down 15% and volume at 37 6 billion down 16%.
<unk> growth in Q4 was offset by lower volume per agent as elevated mortgage rates resulted in fewer transactions and price declines year over year.
On a consolidated basis Q4 revenues were 933 down 13% year over year, reflecting challenging conditions in our core North American Realty market, where we continue to gain share.
I'd like to take a we get a lot of questions over the years about margin. So this is actually from a margin percentage standpoint.
Our margins actually increased year over year, both for 2022 and for Q4.
In a down market a revenue share cushion a revenue share model cushioned the impact of our lower revenue on our bottom line as fewer agents hit their caps and this was most evident in Q4, when gross margin percentages increased 120 basis points year over year to eight 9%.
This resulted in roughly a flat gross profit dollar relative to Q4 2021, even on $144 million lower than revenue.
So thats.
That's kind of how that we've talked about this before and that is how the model works.
So with lower revenue, we actually maintain the same amount of.
Gross profit dollars that we did this time last year.
SG&A increased 15% year over year in Q4, driven by higher personnel costs related to supporting our 21% increase in agent count which as.
It was partially offset by a reduction of SG&A that we went after in Q3, and Q4 about $4 million per quarter quarter over quarter.
Quarter four GAAP net loss was $7 2 million and adjusted EBITDA was a positive three six.
Bite of down market, we remain adjusted EBIT profitable in Q4 and generated $38 million of operating cash flow, bringing our full operating cash flow for the entire year of $240 million.
For opening up the call for <unk>.
And answers from analysts sure I just wanted to take a step back and look at our growth over the longer term frame, which is shown on the last slide.
So on this chart, what we're showing is our agent count in total revenue on a quarterly basis over the past six years.
Growth over this period has been extraordinary with our agent count and revenue, increasing 6000 agents and $156 million in revenue and 27.
So over 86000 agents and $4 6 billion in revenue at the end of 2022.
Our focus on agent satisfaction has clearly paid off over the long term and that is why we're doubling down an agent centric innovation.
Drive our next phase of growth at ESP that I will turn it back to Denise and begin the Q&A portion of the call.
Thank you Denise.
Great. Thanks, Jeff I'll kick off with a few questions to you and to Glenn before we open the call to our covering analysts.
First I'll start with you Glenn you've broken out international from North America relative for the first time.
Can you just talk a little bit about the international opportunity.
Yes, So international is really.
What we've found having now been growing internationally outside of North America.
Specifically the U S and Canada since 2018 2019, when we opened up the UK and Australia is that the value prop that we developed here translates very well when we go to international markets. We had a 22 different international markets too.
<unk> XP and.
Internally, but we don't break it out yet.
I think a couple of those markets are actually.
Profitable internally.
We expect that more will be we will be profitable over time.
Each country is a little bit different there almost like.
Some countries are smaller then.
Small states in the United States. So each country is going to have a little bit different mix, but as we continue to grow out.
Market place, we think that international is going to be.
Again at scale, when we get to scale internationally will be as big or bigger than than North American Realty, just because they are technically is more agents.
On <unk>.
Lower.
Good financial terms with their brokerages.
Internationally than there is domestically so there's a bigger opportunity.
To help agents.
Yes.
Businesses inside of the business as we expand and we're seeing that I mean it was on.
On calls earlier today, the UK last week, Australia.
And we.
Always talking with agents in markets around the world and to the business.
Business model translates.
Great. Okay, just one more for you.
Why do you see for the industry this year in 2023.
Well my Crystal ball broke years ago. So just so but we think that the industry is going to be.
Challenged.
For the balance of.
2023 for the most part we think that there is.
Probability that Q4 will be.
Better than Q4.
Last year, partially because Q4 this last year was a really tough quarter.
But we were expecting that Q1 as an industry will be lower than Q1 last year and same thing with Q2, and Q3 is a little bit of a toss up.
Our internal numbers suggest that it'll actually be a little bit more challenged than Q3 last year, but.
It could go either way and the way we're looking at Q.
Q3.
Okay, Great and Jeff just one for you before I open it up to the analysts how are you thinking about allocating costs and investments as you move forward into 2023.
Yes.
I did touch on that from a capital allocation standpoint, I think what kind of happened in the.
If we think back a little bit after the Covid days, when Covid hit and everything was everything what everybody was crazy we didn't know what to do.
A lot of.
Actions right away.
It was it.
It's not the same situation with Covid I'm, not saying that at all what I'm, saying is that we're going to be very thoughtful alright. So so that's why we broke out the segmentation and we're focused on growing.
Our North American business, we're focused on investing in our other investments so.
We talked last year, I talked last year and we.
Talk about getting back to that $80 million per quarter target on SG&A and as the teams got together and just wanted to come back into our business I mean, we're thinking more strategically.
We are absolutely going to be good stewards of our capital as you can see from the numbers and we've got quite a quite a number of years of history now doing that.
But at the same time with the cash that we generate in the business.
And the opportunities we believe we have in the future the big opportunities.
Not going to we're not going to try to we're not going to try to save cost in the quarter.
Due to sacrifice some big opportunities we have in the future. So having said that we're going to be we're going to we're going to we're going to be good stewards of our capital, but we are going to invest in the areas that we pointed out today.
And make sure that we drive results from from those areas.
Got it. Thanks, So now I'll open the call up to questions from our analysts.
John I will take your questions.
Okay, Great can you guys hear me okay.
Yeah, Yeah, Hey, John Yep, Hey, guys.
So on the gross margin that was a lot better than we anticipated I think of 120 bps year over year. That's the best kind of annual movement you guys had seen since the heart of Covid back into <unk>, 'twenty, but Geoff to your point, which I think is a really good one that help keep the gross profit roughly flat on a revenue decline.
I think thats, an important or kind of underappreciated angle the model, but I wanted to get your take on how that might shake out. This year. If we assume that average agent production kind of continues to drop a bit here, maybe even stays at the current levels, how should we be thinking about gross margin all in for 2003.
So I think that.
As I.
As we kind of went through it when we get challenged on the revenue side and as long as we continue to do the right thing for the agents, we think that the gross margin percentage.
Stay up in the level that we're kind of seeing.
In the in the fourth quarter range got it.
As the market picks back up again, we expect that to come down so you've seen this over the last few years, John So as we predicted as the market will start to come down the gross margin percentages will go up so we can so I guess to answer the question.
If we continue to see.
Challenges in the first half of the year, we'll probably have.
A stronger percentage of both gross margin and as the business picks up again, which it will over time.
That percentage will lower as the volume comes through the system.
Okay. That's helpful and then I think that's probably upside.
A lot of investors models as far as the gross margin, but on the Opex side. It sounds like you will continue to invest pretty heavily here.
I guess consistently about $93 million to $96 million is what <unk> seen on each quarter last three quarters of total G&A and marketing spend how should we think about that going forward is that a pretty good quarterly run rate.
It is.
In that range, yes.
So we don't have.
Don't have a plan to blow out expenses at all on the SG&A side.
What we're going to be doing is were working on productivity in a big way.
So the same kind of range that we saw this year is kind of at this point in time that kind of range that we're looking at for 2023.
Okay. That's helpful. I appreciate the Lumpiness, yes, sorry, yes, the one thing that.
I'm.
Coaching the team on and also I guess investors on.
Is that we.
We don't want to be boxed into a number if we see opportunities so.
For us when we're looking at improving the agent experience say in the UK or Australia, or France or wherever.
We're going to be making more strategic investments.
More rapidly than maybe we have in the past.
But we also.
We're just more.
We're not.
I don't want the team to feel boxed into numbers that they may have.
<unk> in our Q&A in a public setting so just can just leaving that out there as well.
Yes, that's good clarification I appreciate that thank you Glenn.
Alright.
Tom Tom if youre ready.
Great. Thanks, guys nice to be back in the ESP campus here.
A couple if I could maybe Glenn first off or for Jeff.
I was hoping you guys could just parse out.
The net agent addition trends kind of in the U S versus international a bit both in the fourth quarter and kind of maybe so far.
This year are you confident that you are maintaining or gaining <unk> share in the U S.
Percentage agents share for sure.
Actual agent counts.
Is pretty flat the last last the end of Q4 and the beginning of Q1.
In North America.
I I haven't verified the numbers, yet, but I've heard that they are roster dropped quite considerably since the beginning of the year.
And.
So we feel that our percentage share of the market continues to increase even if our numbers are flat.
Slightly up slightly down from flat at the moment. So we've got.
December we were down a few agents of January maybe the same February .
I think we might be up.
Alright.
Got into the numbers Super detailed but it's very flat for the most part and the churn as we've talked about in the past.
Four times the.
On the zero to two agent transaction range agents four times as many of those agents are churning out as the agents who are icon top producers. So.
It's pretty linear the more productive they are the more they are staying with us and so the majority of the agents that we are losing our agents who are fundamentally.
Looking for other employment outside the real estate industry.
That's that's great that's really helpful. Thanks.
Maybe then just one on international.
Can you can you.
Okay.
What we should expect in terms of like the overall driver.
And consolidated EBITDA in 2023 as it relates to to internationally should we expect you guys are going to kind of invest in us.
At a similar kind of clip relative to last year and then also sort of the same question on corporate expenses.
Pretty big drag obviously on EBITDA that we can see now too.
Curious, whether you can kind of meaningfully slow that or maybe even reduce that.
Industry volumes or worse than you expected.
Yes.
The World Holdings portion is to some extent fairly fixed is a lot of its compliance infrastructure for being a public company.
So that's fairly early.
And Jeff can certainly comment more to that on the international front, we did slow down our new country growth all launches we did that.
Sort of second half.
2022.
That being said now that we've broken it out we actually broke out segmented out.
The numbers for a reason one was so that we could actually invest more in international growth.
By showing that.
That the model does work and scale, but there are.
52 to 80 more countries, we want to grow into in the next few years, but the key is to.
Make sure that we're able to manage it.
Cash balance.
Such that we're able to make the moves that we need to make in order to grow so I wouldn't say, we're going to accelerate growth, but we're not going to.
Slow down growth too much more than we did last year and probably we will start to approach that.
4% to five new countries, a year range towards the end of the year.
Thanks, a lot of things up.
World Holdings, a large two big pieces of that is professional services and the stock comp.
So these are so they're relatively theres not a lot of.
Variability in those numbers.
Secondly on <unk>.
Glenn on the investment side of it but I think the other thing thats going to happen that we're going to see over the short period type work.
The short period of time some of our companies are countries that have been in business for a while.
The U K.
So we're going to we're going to start getting we're going to get more productivity, we're going to get more sales, so theres going to be more margin coming back off some of our moves.
That's going to be a big focus for us in 2023.
Great. Thanks, I'll get back in the queue here.
Okay. Thanks, Tom.
Now I'll take a question from Matt <unk> from William Blair, Matt If you're right.
Hey, everyone. This is Matt <unk> on for Stephen Sheldon. Thank you for taking my questions and great to be in the campus.
To start had one on commercial was wondering if you can provide an update on your efforts to expand into commercial real estate and more specifically roughly how many agents are focused on commercial and how do you see that business evolving over the coming years.
Yes so.
I believe we've got similar similar number of agents as we had towards the end of Q3 around.
Agents on the commercial side.
What we expect is the commercial the commercial universe of agent is substantially smaller.
Then the.
<unk> central agents.
And we still have fairly low competitive caps in that space.
Meaning that we are $20000 caps versus 16000 lower caps, but in comparison to a lot of firms that are still 50, 50 and no cap we represent a really great place to for commercial agents to move their license.
So we do expect that over time will become a larger and larger commercial firm.
But I think that in the context of a larger enterprise it'll still be a fairly small number.
Relative to the potential for <unk>.
Net income.
Revenue growth, what we have done.
Because we built out the entire commercial infrastructure, meaning that we have commercial brokerage in most U S states presence.
Presently we have actually started a referral brokerage.
Agents can if they're more if they're not in active production. They can actually move their license to the referral brokerage, which is actually housed underneath the commercial brokerage and there is some.
Technical.
MLS and.
NAR reasons, they are not members of NAR. So they don't have the.
<unk> thousand plus dollars a year that the need to spend there.
Not typically members of the MLS is per se.
US too so it's less expensive for an agent to hang their license there, but they can still refer out real estate transaction. So we're building up this extra layer.
And we're looking at other things that that layer can be supportive of.
The overall.
Brokerage.
Got it that's a helpful update thank you for that and just had a quick one on international any markets in particular, where the initial traction has been stronger than expected and are you most optimistic about over the near term.
Hum.
Jeff mentioned briefly South Africa.
Fairly new country for US were over 1000 agents now in South Africa, and these are a much more professional.
<unk> base then is in other.
Other countries like.
<unk>.
I'll use India, and Mexico, where we have a similar number of agents, but real estate is not well organized there from a professional standards perspective, so we're pretty optimistic about South Africa.
So we've got.
I'd say the three countries that are.
At or near.
Profitable would be UK, Australia, and South Africa.
And then we're continuing to work on the other countries, we're getting more mature in India.
We're getting more mature in Mexico, when I say that because in both of those markets there wasn't.
There isn't a lot of infrastructure.
Infrastructure for organized real estate and so we're having to bring kind of.
Infrastructure to an industry that.
And a lot of the country doesn't have.
Much in the way of standards of practice.
Got it thank you Glen and Jeff I'll jump back in the queue. That's it for me.
Great. Thanks, Matt.
Now I'll move on to slide Alan will take some questions from the audience.
New client and Geoff I'll take the first one.
Of the $13 7 million International segment EBITDA loss, how much is the result of new country opening costs versus sub scale operation.
Good question.
It is a good question I would say.
Most of the most of the $13 seven as investment.
And opening up new countries and actually I think one of the learnings we've had.
It has taken a little more time than we originally anticipated.
And because we go into a country we.
<unk>.
What play around with models to some extent when they make sure that the proper models for agent value proposition in those countries. So it's taken a little bit longer and we try different things and we're so we're doing a lot of work in each country side most of that money is investment.
And growing and getting getting the name.
<unk> landed in the country you are getting the right people in place getting the right operations in place.
And building the teams and the age groups.
Got it take a couple of months it seems that the agent count growth is slowing in North America is the 500000 agents called primarily focused on international expansion and what's the target for agent in North America.
Yes, so our 500000 agent number as I've stated in the past as well as in <unk>.
Aspirational number that we believe that we will get to eventually at some point, we've talked about the idea of maybe 500000 agents in five years, we think there's some reasons for that but it was also based on when we made those statements a couple of years ago.
For the first time it was based on a much different housing market than we have today.
So that really has.
I was looking at it I.
We look at it from a perspective.
The slowing housing market, we believe there is.
Two to three maybe 400000 agents in North America that will cease being real estate professionals in the next 12 months to 24 months.
And so that's a big chunk of the industry it could be 25% of the industry that won't be here and if we use that as a factor. When you can almost take a 100000 agents off of that that 500000 agents sort of prevent sort of we'll call it that.
Aspirational five year outlook.
But I think the idea is that we are.
As long as we focus on building a really great agent value proposition and we don't take our eye off that Paul and we continue to work on what do we need to do to do.
Do better by our agents then eventually we will get there it's really a matter of what the timing of that number is which is.
Very similar to the earlier question.
It's aspirational and the Crystal ball.
Broke years ago.
Got it alright, I think we have time for one more one from an agent here is the plan to eventually move away from the DXP campus over to frame and if so what's the expected timeline.
So if youre asking me.
Yes.
Asking the overall team.
Then, it's a little bit more mixed in terms of.
Moving away and win.
So just because a lot of but people really developed.
Habits.
Way to use propeller and how it works relative to frame that.
The things that I really like about brain is that it is a it doesn't need.
The same type of infrastructure from a.
Client perspective, because it's fully web based and browser based.
And it doesn't need a lot of client based updates. So when you came into EXLP campus. If you've been here before offer previous calls you will notice that it had to patch and do some other things at Europe on your client side on whether Youre on a windows machine.
Mac.
Et cetera on a on a web based version.
Don't have to update client side.
Software.
There's stuff is updated.
And the browser.
And so for me that feels a lot more modern in terms of the infrastructure and tool set.
Frame is already in the Microsoft teams App store I believe.
Got a lot of getting some of the same commercial clients that are using propeller are coming up with use cases on the frame side.
And.
We continue to see frame as being something that's used more and more inside of ESP as an alternative to going into rubella.
And I know the roadmap for frame is such that over time, it will be able to support hundreds of.
<unk> of simultaneous users similar to.
Propeller as it scales I think it was a natural that will move over to frame timing.
Don't have an expected timeline, but I wouldn't be surprised if next year.
During this earnings call, we do in frame as opposed to verbally.
Great got it so let me close the call just wanted to remind everyone in the audience here that ESP as shareholders will take place in May may 17 through 20th in Orlando, Florida. This year, we'd like to invite all of the analysts investors and agents to join us for our shareholder specific sessions at the event. So please register at EXLP shareholder.
Summit Dot com and as always please stay connected by visiting ESP World Holdings' Dot com for the latest updates on ESP 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. Thank you for joining US today. This concludes the ESP holdings fourth quarter and full year two.
<unk> 22 earnings Fireside chat.