Q3 2023 The Real Brokerage Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the real brokerage third quarter earnings call.

At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.

I will now turn the call over to Ravi Johnny Vice President of Investor Relations financial planning and analysis at the real brokerage Sir the floor is yours.

Thanks, and good morning, Thank you for standing by and welcome the real brokerage conference call and webcast for the third quarter ended September 32023, we appreciate everyone. Joining us today with me on the call today are near Bullock, Our chairman and Chief Executive Officer, <unk>, <unk>, President Michel Ressler, our Chi.

Financial Officer. This morning real filed its financial statements and management discussion and analysis for the third quarter. These documents along with the accompanying earnings press release can be found on both SEDAR and Edgar before we get started I'd like to remind everyone that statements made in this conference call that are not historical facts, including statements.

That future time periods may be deemed to constitute forward looking statements. Our actual results may differ materially from these forward looking statements and the risk factors that could cause. These differences are detailed in our Canadian continuous disclosure documents and SEC reports real disclaims any intent or obligation to update these forward looking statements except as expressly.

As required by law with that I'd like to turn the call over to our chairman and Chief Executive Officer near Bullock Sameer. Please proceed.

Good morning, and thank you Robby.

I will start with an overview of our strategy and some recent business highlights Sharon will provide an update on our brokerage operations and actions. We are taking to drive further agent growth and retention and Michelle will provide a more in depth discussion on our financial results in the quarter.

I'll then provide a few closing remarks before opening up the call for Q&A.

So to begin with.

Is the real estate experience company that is differentiated in our industry. Unlike traditional brokerage model, we provide real estate agents with an unmatched combination of attractive financial incentives and proprietary software based technology platform that eliminates the need for expensive physical office space and a collaborative culture that we believe is unique in our in the.

St.

Our vision is to simplify life most complex transaction that is a purchase or a sale of the home by providing agents with the tools technology and resources they need to grow both of their businesses.

And as individuals.

While delivering a seamless experience for clients.

In the short term. This includes the rollout of our consumer facing mobile apps, which will streamline the client experience and ultimately improve attachment of our higher margin ancillary services.

In the long term, we expect our platform to provide a holistic ecosystem encompassing financial services payments and investment planning tools, providing agents with an avenue to build generational wealth.

Italy as the platform matures, we believe clients and consumers could benefit from the depth of our service offering.

Our goal is to redefine the role of the real estate brokerage in the lives of our agents and in the broader housing industry.

Just like our institutional investors agents are owners of our business.

And that is why everything we do is we'd be intend to grow long term shareholder value.

Turning to the quarter.

This morning real reported record third quarter results with revenue in the third quarter of 2023, increasing 92% versus the prior year to $215 million driven by an 82% increase in the number of transaction close which topped 20000 in the quarter and a 5% increase in average commission revenue per.

Transaction.

We ended the quarter with a record 12175 agents and 81% increase versus the prior year and a 6% sequential increase from the end of the second quarter.

Adjusted EBITDA in the third quarter was positive $3 5 million or 3 million improvement from the third quarter of 2022, and our second consecutive quarter of positive adjusted EBITDA.

The improvement reflects our robust revenue and gross profit growth, which outpaced growth in operating expenses and demonstrates the scalability of our platform combined with the benefits of actions taken earlier this year to improve margins and optimize discretionary spend.

Based on the strength of our performance year to date, we expect that we would be adjusted EBITDA profitable for the full year of 2023.

While our performance this quarter would be phenomenal in any market environment. It is particularly notable given the current housing backdrop in which 30 year mortgage rates are at a multi decade highs.

And existing home sales are down mid teens versus last year, and nearly minus 35% from two years ago.

As such our results this quarter are a testament to the strength of our business model, our unique agent value proposition the advanced capabilities of our technology platform and the culture. We've built over the past decade, all of which have enabled us to thrive during this challenging time for the industry.

Perhaps nowhere was this more apparent than our second annual rise 2023 agent conference in San Diego last month, where over 1300 real agents gathered both to celebrate our achievements from the past year and to learn about innovative products tools and technologies. We are building to further strengthen their businesses in the years ahead.

One of the significant highlights from rise was the official launch of our one real mobile app.

This consumer facing portal equips agents with the ability to invite clients to be preapproved for a home mortgage from the palm of their hands.

Once preapproved consumer can confidently shop for a home and easily complete the mortgage application process within a matter of minutes directly from the App.

The one real App also allows the consumer to communicate directly with a loan officer provide necessary documents and track the progress of their loan application from start to close.

Through the App Annie eligible consumer in one of the 20 states in which one real mortgage operates can be approved and clear to close on a home loan in as little as 14 days.

The launch of one real marks an important milestone in our vision to create a simple solution that combines every touch point in the home buying and selling process into a single seamless experience the capabilities of one real App will continue to improve in subsequent updates, but we are excited to now have it in the hands of <unk>.

<unk> and consumers and we invite you all to download the app from App store for iOS, and Google play store for Android and swap it out.

That's why we also unveiled an exciting new product called the real wallet, a first of its kind centric product designed specifically for religion.

The real wallet centralizes the functionality of a debit card credit card.

<unk> points in an era of perks to provide agents and new way of unlocking financial sources that were not previously available to them.

The real world. It represents a significant step towards our vision of a future where agents enjoy transparency reliable and predictive way to manage a substantial portion of their finances.

We believe over time, the real well it could be a game changer for the company by putting us at the intersection of Fintech and real estate and by opening up exciting opportunities for real in the payment space.

Initial testing for the real well it is scheduled for the first half of 'twenty 'twenty four and we will provide additional details as we approach the launch date.

On the technology front, we rolled out a major update to our first to market AI powered virtual concierge called Leo 2.0.

Beyond its existing capability to provide real time responses using our vast proprietary data Leo now both predictive functionalities. It can anticipate agents questions based on historical interactions and even anticipate future questions by analyzing patterns across our entire agent network.

In essence.

<unk> has evolved into a proactive assistant adept at foreseeing questions and addressing issues before agents, even think to ask them.

Currently.

No answers over 700 agent questions a day, reducing the needs for three additional full time support staff.

We are excited about <unk> potential to significantly enhance our agents' productivity by saving them valuable time, and allowing them to focus on what they do best serving their clients and growing their businesses.

With regard to our ancillary title and mortgage businesses. We are actively working to increase attachment. While we continue to outperform the broader market. This businesses remain subscale, and we are making necessary adjustments to our business model in order to accelerate their growth.

We also welcome Kristian wallets as chief of integrated home services last month to lead this important endeavor.

Christian brings a wealth of experience to real joining us from rocket mortgage where she was responsible for a number of initiatives designed to improve the customer experience.

And her expertise will be instrumental in scaling these businesses.

We are excited by the opportunity to expand our title and mortgage businesses, giving these business lines typically command gross margins that are six to eight times higher than our traditional brokerage margin. This represents a significant opportunity to enhance our overall margin structure in the future as always we will be thoughtful.

And how we integrate and expand these operations into our existing platform.

Lastly.

We announced that as of October 2023, really is now operational in all 50 states as well as four Canadian provinces.

Well this marks an important achievement in our company's history, we still represent less than 1% of the entire real estate agent population in North America, and we see ample opportunity to further expand our share in each state in province.

With that I'll turn it over to Sharon for an introduction and update on our exciting agent initiatives.

Ron.

Thank you Jim here for those of you on the call who don't know me I joined real as President last year.

Although most recently I was a principal for a private investment firm and spent my earlier career at Goldman Sachs and credit Suisse I am an entrepreneur at heart, having built scaled and exited numerous businesses across our real estate and technology sectors over the past two decades. My journey has been driven by quest for innovation and the desire to create.

<unk> robust platforms that empower companies and professionals to achieve their utmost potential.

As <unk>, President and responsible for all aspects of Grilles growth, including agent attraction training and education retention and also as the sales leader for firm wide sales performance, meaning it's my job to whip, our agents into shape to sell a lot more homes.

I'm excited to contribute to rails efforts to revolutionize the real estate brokerage industry and I firmly believe that we built a business that is truly differentiated and we're just getting started as.

As highlighted by two mirror in the third quarter, our agent Count Rose to a record 1175 agents up 81% versus the third quarter of 2022.

This growth underscores the significant investments we have made in our business technology culture and agent resources in order to establish real as the destination brokerage for all real estate agents.

We know that if we can provide an unparalleled value proposition and a deep sense of community. We can become a brokerage that agents will never want to lease.

During the rise conference in October we introduced a slate of new tools to enhance agencies marketing and lead generation efforts. This.

This includes our end to end agent lifting toolkit, a suite of listing presentation tools digital and video marketing assets and a step by step coaching resources.

Furthermore, we launched our digital asset management system, a centralized hub for all of Reals creative materials, facilitating easy discovery and distribution of content, while preserving brand consistency.

Additionally, we have developed a new relationship with luxury presence as a preferred vendor to assist our agents and developing AI enhanced website optimized for lead generation.

All of these were designed for agents to run as smooth and profitable business all from their phones in the palm of their hands.

Also at Rice, we introduced several new initiatives designed to provide agents, even more opportunities to generate income build wealth and support their families.

First we made a significant adjustment to a revenue sharing model, reducing the threshold for unlocking the second tier of revenue share from 10 to five agents attracted to real allowing more agents to participate in additional tiers of revenue sharing much sooner.

Second we announced that all real agents will have access to health care benefits consultation resources, allowing real agents to benefit from our large group purchasing power.

We were also proud to announce the creation of real retirement, a program, allowing agents the ability to continue earning income even after stepping back from actively selling real estate.

Under the program beginning January one 2024 agents, who have been producing with real for at least the last three years, we will be eligible to continue to collect their monthly revenue share payments. After theyre no longer actively representing clients provided they maintain an active real estate license with real.

Extending our support of agents as financial stability and long term what generation, we introduced a new suite of tools that we call the wealth plan.

Emphasizing education planning and accountability wealth plan helps agents design and realize their wealth goals and allows them to share their wealth plan with team leaders coaches and advisors, ensuring that there is a support system to monitor progress and help them maintain accountability towards achieving their goals.

Whilst plan embodies our belief in a collaborative growth, providing the necessary resources and community support to navigate their financial journey.

Lastly, last month, we also announced the one real impact fund designed to provide tax re financial assistance to agents during times of hardship.

In closing the advancements and innovative programs, we've rolled out underscore our dedication to fostering a supportive environment for our agents at real.

Our journey is more than transactions, it's about building a community where agents can thrive.

Selling real estate is not about counting transactions, but it's actually a rewarding career.

The growth the tools and the financial security initiatives. We've introduced are all aimed at fostering such an environment for our agents.

I'm honored to be part of the team excited for the future and look forward to engaging with many of you as we continue this journey together with that ill turn it over to Michelle.

Thank you Sharon and thank you everyone for joining us I'll start by reviewing some of our key financial results for the third quarter more details on our results and key operating metrics can be found in the earnings press release and Investor presentation that accompany this call.

Revenue in the September 2023rd quarter was $215 million, an increase of 92% versus the prior year and a 16% increase sequentially.

This was driven by a 91% increase in commission revenue, which benefited from an 82% increase in transactions closed which grew to 20400 in the quarter.

By with a 5% increase in commission revenue per transaction.

Well call our primary economic unit as an individual transaction also recognize revenue at the time the transaction closes.

Fee income and other revenue totaled $3 1 million during the quarter, an increase of approximately 245% versus the prior year, reflecting increased agent and transaction count as well as adjustments to our fee structure implemented earlier this year.

Title and mortgage revenue was $1 3 million in the quarter, an increase of 173% versus the prior year.

Excluding the contribution from one rail mortgage, which we did not own in the prior year period organic growth that is ancillary services would have been approximately 100%.

Gross profit in the quarter was $18 8 million, 119% increase versus the prior year third quarter.

Gross margin at eight 7% increased approximately 100 basis points versus the prior year with.

With the increase driven primarily by higher fee and other revenue, which effectively drops through to the bottom line.

On a sequential basis gross margin declined from nine 5% in the second quarter as expected due to the seasonality in our business given a higher percentage of agents typically reach their clinician cats in the third quarter.

As a reminder, our cost of goods solid include stock based compensation related to our agent stock purchase program.

This program allows agents to receive a portion of their commissions in a form of real ugly subject to certain vesting requirements.

<unk> is excluded from adjusted EBIDTA and stock based compensation line.

Total operating expenses for the quarter were $22 $7 million or 10, 6% of revenue.

This reflects a roughly 100 basis point improvement both year over year and sequentially.

Improvement is attributed to operating leverage with our fixed costs growing at a slower rate than both revenue and gross profit.

Revenue share expense, which is our largest operating expense was $7 $9 million by three 7% of revenue up from $3 $9 million or three 5% of revenue in the prior year period.

Ross is entirely variable and reflects the wheels commission share paid to agents for recruiting new agents to the brokerage.

Categorize revenue share as a marketing expense as our sponsorships dropped hearing AIDS in attracting and retaining new agents, while enhancing productivity across our platform.

This quarter, we introduced a new non ifr S financial measure called adjusted operating expense.

This metric reflects total operating expenses minus revenue share stock based compensation depreciation and other unique or noncash items.

It is designed to help investors better understand the composition of our non variable ongoing cash operating expenses.

This quarter, our adjusted operating expense totaled $11 4 million or five 3% of revenue, marking an 80 basis point improvement from six 1% and further illustrating the scalability of our business model.

Well its net loss for the quarter narrowed to $3 $9 million compared to a $5 2 million net loss in the third quarter at 2022.

This translates to a loss per share of two cents compared to a loss per share of three cents in the comparable prior year period.

Adjusted EBITDA improved to $3 $5 million compared to $5 million for the third quarter of 2022 with the increase driven by higher revenue and gross profit, which outpaced growth in operating expenses.

As stated at the top although the fourth quarter is always seasonally lighter than the third quarter. We're on track to be adjusted EBITDA profitable for the full year of 2023 and expect to remain profitable on a full year basis going forward.

Turning to our balance sheet and cash flow.

So cash flow from operations was an outflow of $8 million in the quarter. This was primarily due to a $13 million reduction in customer deposits, which are reflected as restricted cash on the asset side of our balance sheet and consistent cash held in escrow on behalf of real estate buyers.

The sequential reduction from the second quarter reflects typical seasonality in our business.

Importantly, our unrestricted cash and investments balance increased approximately $5 million to $33 million as of September 30 up from $28 $1 million as of June 30.

This consists of $19 million of unrestricted cash and $14 million and short term investments.

We remain well capitalized and believe we have ample liquidity to fund our business, while continuing to invest in high returning growth opportunities such as real wallet and one real mobile app.

To close I'll recap a few kpis, we are commonly asked about before turning it back to generics.

The total value of how this turns out that over our platform increased to $8 $1 billion in the third quarter and 91% year over year increase.

The median sales price of properties sold by our agent was roughly unchanged from last quarter at $370000, which represents a two 8% increase compared to the same quarter in 2022 and is in line with the broader market trends.

Total operating expense per transaction, excluding revenue share continued its downward trajectory and were $725 in the quarter of 10% year over year improvement.

As of the end of the third quarter 12, 5% of our agents had exceeded their commission cap up from 10, 2% at the end of the second quarter and essentially in line with the end of the third quarter in 2022.

This cohort represented approximately 51% of commission revenue during the quarter.

Canada accounted for 21% of commission revenue in the third quarter compared to 20% in the prior year period.

Our head count efficiency ratio, which we define as full time employees, excluding real title and one real mortgage employees divided by the number of agents that are on our platform with one to 101 at the end of the quarter. This compares to $1 77 at the end of the third quarter 2022.

This concludes my financial remarks, I will now turn it back to Tim here.

Thank you Michelle.

Before opening up the lines for Q&A I want to address a few topics of investor interest.

First on the market environment, although we take great pride in this quarter as a result, we recognize the extremely difficult landscape that our agents and the industry at large are navigating amidst the current the housing downturn.

During the third quarter, the annualized rate for existing home sales dipped below $4 million for the first time since 2010, as both potential buyers and sellers grapple with the impact of mortgage rates that are now around 8%.

We expect the current combination of higher rates affordability challenges and scarce inventory to persist for the next several quarters, if not longer while we believe our business is uniquely positioned relative to peers. In this type of environment. We do expect less productive agents will leave the industry and that weaker competitors.

We will find it difficult to sustain which brings me to the second topic agent churn.

As is typical during periods of housing market weakness, we did see a number of agents churn this past quarter with the vast majority due to agents, who let their real estate licenses expire or who left the industry altogether.

Importantly, revenue churn, which we define as revenue generated by churn agents over the last two quarters was only four 5% in the third quarter relatively consistent with the first half of the year.

This suggests that the agent churn is predominantly driven by those agents with low or no production, whereas our most prolific agent remain dedicated to our platform.

Lastly, regarding the current class action legal matters in our sector, we'd like to clarify that we have not been identified as a defendant in any of these cases and it's not our place to comment.

Our approach has always been rooted in since Barents Sea and we've taken measures to ensure our agents engaged with clients in a clear consistent and transparent manner.

We firmly believe in the vital role that previously the agents play in transactions, both for sellers and buyers.

Should we envision a scenario, where an increasing number of buyers agents are paid directly by their clients. We hold a strong belief that one off.

Our long standing investment in consumer facing platform positions real agents to provide an exceptional experience that stance to set them apart from the competition.

Two.

In such market evolution large brokerages like ours are likely to benefit disproportionately as our scale and resources afford the ability to offer a comprehensive suite of bio solutions that smaller players may not be able to match and lastly will stand in a favorable position when compared to many of.

Our peers, given our industry, leading commission splits and low cost structure, we believe we face less potential economic risk should the overall commission pool diminish.

Nevertheless.

We hope for a balanced resolution so that our entire industry can move forward and we can continue to provide value to our agents and their clients.

In closing, let me emphasize our unwavering commitment to navigating the obstacles and the opportunities before us while the housing landscape is undoubtedly challenging we have proven that our model strives even in the most adverse conditions, our innovative tools and technology robust financial performance.

<unk> dedication to our agents are the cornerstone of our resilience.

Together, we will weather this storm and emerge stronger ready to shape the future of real estate.

Thank you for your continued support and I look forward to our journey ahead now, let's move to the Q&A session.

Certainly ladies and gentlemen, the floor is now open for analyst questions. If you have any questions or comments. Please press star one on your phone at this time.

We do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

Once again, if you have any questions or comments. Please press star one on your phone.

Your first question is coming from Darren <unk> from Roth M. K M. Your line is live.

Hey, guys. Good morning, Thanks for taking my questions nice job on the quarter.

Question for me around your comments about churn.

I know in the past there was some.

Voluntary churn you guys just kind of.

Push.

The churn we saw on the quarter on the agents was that all in voluntary.

Hi, there and thank you, yes, the churn this quarter came from agents, who predominantly decided to leave the industry. What happens in many MLS is is that agents have to pay their dues twice a year. Once in January once in July so a lot of agents had to pay their dues in July and they just decided.

So instead of claims there those two just giving away their licenses and they love the industry. So Fortunately the vast majority of those agents where nonproductive.

Yes, we did not proactively terminate agents this quarter.

Got it.

Then.

Your your productivity per agent it seems like it continues to rise.

Quarter on quarter this year.

Curious about your thoughts with the introduction.

Leo to point out the App platform.

The impact of productivity, meaning do you think that you are able to grow your business more efficient Lee with more agents just given this tech platform can automate a lot of these backend processes.

Sure So two things one.

I think that it's a little bit early to say that the per agent productivity increases are attributed to Leo as we said as we communicated we announced 2.0, which is D O being proactive in helping agents close deals and close them faster and get them paid faster so the.

The two different things is how you will helps us in the back office and operation in support of the agents and we're already seeing that Leo as we said is answering 700 questions a day and that number continues to increase which means that.

We are saving some cost of hiring new people to serve those questions that are now served by MEO and agents are happier because they get instantaneous answers instead of waiting a few minutes for our support personnel.

Get back to them. So that's one thing the second thing is how do you help them with productivity and this is something that we're just now starting to see with Neil 2.0, and I do expect to see some.

Some impact on production per agent coming from deal and we will track and communicate that in the future.

Great and just last one for me.

The mortgage entitled Business I appreciate how impactful that could be on your bottom line can you just speak to some of the adjustments you mentioned earlier.

With the hiring.

Of that new individuals from from rocket mortgage if you kind of have one real last kind of plays into <unk>.

Scaling that business longer term thanks.

Sure. So on the mortgage side, one real mortgage now uses the consumer facing got the one relapse to take clients through the home the the mortgage application process. So just earlier this week they started taking 100% of their clients through that process and we think that.

It'll be very successful at the same time title. We're now looking at the geographies in which title has expanded to we're looking at some JV that we've done with different teams. We're trying to analyze what's working what's not working with a great. We're seeing a lot of traction in California, and we think that California could be a huge Ah Ah.

Profit center for real title moving towards so we're trying to concentrate our efforts on those geographies and those schemes in N. J vs that are actually working and Kristian came from rocket Homegirls rocket mortgage and she knows those businesses very well. She was on top of everything I think that we're doing great efforts when it comes.

Through better planning, both on projecting revenue and on how to how we spend our dollars. So I think the 'twenty 'twenty four is going to be an instrumental leader for both real time and one mortgage.

Great. Thank you.

Thank you. Your next question is coming from Stephen Sheldon from William Blair. Your line is live.

18 years, Matt Violet gone for Stephen Sheldon Congrats on the launch of your consumer facing application had the opportunity to download the app and thought the user interface was excellent.

The App is currently focused on processing mortgage applications, but wondering if you can elaborate on what functionality do you plan to roll out over the next year and then longer term.

Sure. Thank you, we see the App as being an holistic journey for homebuyers from the very first moment that they think about buying a home and until they actually close on a home. So if you try to break it down to different segments.

With home discovery, so just the ability to look at listings and then scheduled showings directly with the agents of applying for a mortgage of having.

A checklist of what needs to be done before you were actually starting to look at homes with buyer education of what does it mean to buy a home and what does it need to own a home a some sort of a tracker transaction tracker that shows them exactly where they are and what's expected next and what's expected from them there should be a a document cabinet.

That stores all of the documents do they have fine there is the ability to to choose the closing date.

And all of the different updates, obviously communicating with the agent and the loan officer. So we have a holistic view on the home buying experience and in the next year, we will be adding more and more features I think that for the app to be.

It's fully operational with all of the elements that I, just described and more by the way, including purchasing a home insurance as well it'll probably take another 18 to 24 months.

Got it that's very helpful. Thank you for that and know this may be tougher to call, but if we assume housing market conditions remained consistent with the current environment should we expect a similar pace of quarterly agent additions looking ahead.

Hmm.

Honestly, we were a little bit disappointed with the net agent growth and I think that it was mainly mainly attributed to those agents, who decided to leave the industry and those were non productive agents I can tell you that we're almost halfway through the fourth quarter and we have seen an uptick in new agents, joining so I think that the remainder of the year and moving forward, we will probably we will.

We see a stronger growth numbers when it comes to agent growth.

Great. Thank you very much.

Thank you. Your next question is coming from Matt <unk> from Jones trading your line is live.

Hey, guys. Thanks for taking the question.

And with the agents.

At the moment you know how these new products and services kind of attracted either new agents or agent interest since you guys have announced these products.

Thanks, Matt.

I think that's what we're seeing is a lot of energy around the company. So existing agents. Just you know very enthusiastic about everything that we're rolling out and all of those tools that help them in their day to day and with their clients and I think that that creates and the energy that the addictive and it makes others wonder okay, what's going on in real in May.

We should check it out and once they have those conversations they were also able to articulate what is it exactly that our technology provide them and how we're differentiated and what it can actually do for them. So.

It may not be a direct effect, but definitely there's a lot of our energy and buzz around the company right now in the marketplace and it's driven by our agents that are extremely happy about all of the technological advancement.

Yes, I got you that's helpful. And then I guess once these products are rolled out you know what impact do you think that it's going to have on Rev.

Our revenue margins EBITDA margins, just going forward thinking about that.

Yeah.

Yeah, I think that longer term, if we think about our title business and mortgage business and some of the fintech products that we will be rolling out next year, I think that our kind of longer term.

Gross margin target would be around 20% and our EBITDA margins at around 10%.

It'll probably take.

Five years or so to get there.

But that's our that's our plan.

That's helpful. Thank you guys.

Yeah.

Thank you. Your next question is coming from David Marsh from singular research. Your line is live.

Hey, guys congratulations on the quarter, so really impressive, especially with what's going on and with mortgage rates at this time.

Just wanted to start by touching on the finance expense line are really really low in the quarter could you talk about a change what changed there and is that a sustainable level.

Level going forward or have you made some kind of a change there, but you're just not going to require any kind of payments for financing expenses.

Hi.

Great to hear from you today.

My name is offensive is generally related to foreign currency translation, so that will fluctuate as they say.

Fluctuations in a strengthening or weakening of our Florida operation.

Got it got it.

You know I know you guys aren't really in the business of providing guidance and there's a lot of moving parts here, but especially in light of market conditions, but yeah. As we think about seasonal patterns in real estate and residential real estate transactions you know typically when you see a dip.

Towards the end of the year and then the first quarter and then kind of strength in the second and third quarter.

But obviously.

Growing agents pretty rapidly I mean.

We kind of are in the business of modeling. So can you give us some idea of how to think about things I mean, we're part of good solid halfway through the fourth quarter here.

I mean should we think about us a sequential decline or is the agent growth still.

Such that.

You know you're not going to you're going to have some muted effect of that seasonal factors.

I'm sure I can take this one.

Hi, David So you know typically Q4 is.

A decline of 20% to 30% over Q3, just because of seasonality I think that what we have seen in the third quarter is interest mortgage rates, reaching 8%, which probably will affect the backlog of transactions that are scheduled to close in the fourth quarter in the industry in general and it will probably apply additional pressure on.

The volume of transactions closed in the fourth quarter, we think that given the fact that we're continuing to grow our agent count.

The fourth quarter will obviously be a much.

Higher one compared to the fourth quarter of 2022, but we do think that you know seasonality plays a role here so sequentially over the third quarter, the fourth quarter will probably be weaker in terms of those transactions and revenue.

Internally, we also think that the first quarter is going to be challenging obviously, it's very interest rate dependent but we do think that.

The spring.

We will probably bring some from energy and.

And a lot of new transactions into the market. So we're optimistic as to March and on but we do think that it's going to be quite a cold winter for real estate.

Well you know the good news is if we do actually get up a pause or a flat out stop in rate hikes that.

That could really help things I mean, the 10 year as we sit here today is down to $4 56, and I think I'd just start to see some headlines of mortgage rates dipping back down into the seven and a half ballpark, so that should probably help a little bit.

I guess just lastly for me you know, it's kind of like my like you know my favorite thing to talk about because I think it's kind of the most exciting part of your story.

You know just the vertical integration opportunity that you have with title and mortgage I mean could you just.

You know, let us know on the mortgage side.

It sounds like things are really picking up could you just talk about how many states you're doing mortgage business C N N and.

You know kind of what that looks like in terms of rollout.

Rollout.

Sure.

I think that's one thing that.

It's starting to change here is that we're trying to focus on fewer markets and and you know create a playbook that we can then duplicate to additional markets instead of just chasing the transaction here in a transaction there.

So that's part of the strategy for the remainder of the year in the for 2024.

We're now really doing business and I would say less than 10 states and I mean significant volume.

And I think that we will continue to focus on those.

Less than 10 states on the on the mortgage side and.

And once we we have like a model that works and we know exactly how to you.

Started the business in that state and get the momentum going and engage all of our agents, we can duplicate that to additional territories. So that's currently the plan.

As Michelle said.

Mortgage is up about 100% year over year.

This is still small numbers. So we do expect those businesses, both mortgage entitled to grow at a faster pace, even though 100% is impressive we have a much bigger clients for both of those businesses.

Yes.

Well, that's a that sounds like a very very physically and operationally responsible path forward there and I think that speaks very highly of your your stewardship of the company to mirror. So I wish you guys. The basket and just hanging there hopefully rates will come down and things are really going to take off.

Thank you David.

Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.

Your next question is coming from Tom White from D. A Davidson your line is live.

Hey, this is why it on for Tom Thanks for taking our questions triumph won on.

There's been some chatter about some of the smaller independent brokerages out there faced with the prospect of another year of low total sales turnover.

Who may finally decide to move their businesses over to some of the virtual or lower cost offerings like real and others. So how do you guys make sure that real brokerage maximizes its capture of these smaller independents or teams if in fact that does happen.

Thank you what.

We are in constant conversations with a lot of existing smaller brokerages as well as large teams in the country I think that.

We are becoming a household name in the industry and in more and more people hear about us and.

It's all about execution at the end of the day, if they see that we provide value and and we also build products that are.

A little bit more tailored to what they need which is something that we're doing right now by the way, where we're trying to do.

Build our systems in a way that will provide more flexibility to teams and brokerage isn't coming over and not changing their entire back backbone system or the way. They are they interact with their agents from a financial perspective, it'll just make the transition smoother for them. So this is something that we're now building in.

And we will communicate that to them, but I think that it's all about creating more and more conversations and also educating our agents on how to have those conversations because at the end of the day. There is so much we can do as a company, but we can also rely on our agents to go in and attract and just put the word out there about the company.

But yes, I agree with you that if the current conditions will remain a lot of smaller brokerages independent brokerages are will not be able to sustain that and they will be looking to to make some sort of a change in obviously I mean as the only company in the industry that is currently growing I think that we will be able to attract many of them.

Just based on the fact that they see that there is a momentum happening here and they would want to be a part of it.

Got it I appreciate the detail.

Thank you very much Mr. Johnny there are.

No further questions.

Great now.

Now that we've concluded the analyst portion of the call. We wanted to address some of the questions received from shareholders on the Sei technologies Q&A platform that was launched last week, we received a number of excellent questions and so thank you to all who participated.

So the first question, which kind of dovetails with David's question is how impactful are in and set up an effect in ancillary services, such as one year old mortgage real title and in the near future real insurance cap on the value real brokerage can you or do you want to take that one.

Yeah, sure and I feel like we touched on that a little bit but thank you for the question. This is actually a great question because these businesses both title and mortgage has the opportunity to truly transform our margin profile and long term earnings trajectory. When we look at it if mortgage and title. These are businesses business lines that typically carry gross margins between $60.

80% of Super High and so when we look at the profit potential of an individual transaction that includes both the brokerage Thailand mortgage we can potentially see seven ex the gross profit per transaction relative to just a brokerage only transaction. So that's meaningful regarding how much of an impact.

These businesses will have in the near future is really a function of how quickly we can scale them, which is something that we are acutely focused on as I mentioned.

But to give you a rough order of magnitude every five percentage point of attachment for mortgage and title would translate into approximately two percentage point of gross margin.

On a total company basis and so that's why when we look at our look out over the long term, we see a path to gross margin approaching 20% and EBITDA margin nearing 10% as I mentioned, but to summarize while today those businesses are small we expect them to have a profound.

The impact on the value of the business in the future.

Next question, what part of the business is giving you the most troubled now.

[laughter].

Well, our rapid growth over the past three years has certainly represented us with a variety of challenges across the company, which is coming for organizations that are scaling up our pace I wouldn't characterize any of these as trouble per se, but because we're actively managing these challenges with with strategies in place.

I wouldn't call them trouble that said the man the main area of focus and perhaps my greatest source of impatience is the pace at which we can rollout our innovative ideas and technological developments.

I have an exciting roadmap and I'm eager to bring these advancement to fruition, we're moving as fast as we can but quality can be rushed and ensuring we do things right as a priority in essence, we're racing against our own high expectations to deliver exceptional value and that's kind of a good challenge to have.

Our next question from Michelle how much of the company's stock is owned by agents.

So we don't know how many shares ancient hold in their personal checking account, but based on the shares that we attribute to agents, we estimate it to be around 15% of our company and you know for US. This is important because it is actually aligned with our management and our shareholders and making sure the company is profitable.

They're partners in the business also this later invested in continuing to grow out.

Great.

One question was about the App and you addressed this.

A little bit earlier in the future of the applicant.

Can agents have an app that clients can use to see if they've completed certain tasks for their buy sell process and what next steps are.

Sure and I touched on that briefly but the one real app, which is our first consumer facing app is really our initial products to address just that well one real today is built for homebuyers to get Preapproved, then have greater certainty of closing overtime. This app will be the solution, including every.

From a closing checklist that you just mentioned to an entire mobile home management system. So yes. It's in the pipeline in the works are just stay tuned as the product evolves, but rest assured that we are working to give agents are the tools to make sure that their clients receive the best and most differentiated experience.

Sharon next question what can agents to successfully today that can change their business 12 months from now.

Hey, Ravi. Thank you for this I think this goes to the heart of how we actually run the real estate business. Because this has been a quite challenging market environment, where most agents businesses, where you are in the marketplace and that North America is down about on average thirtyish percent, but theres something Super important note here right because just in the last three years we've moved.

From what I like to call them momentum based market to our skills based market, meaning during the time, when we were in and coming out of the pandemic. The market was moving so fast and the agents and consumers are just managing momentum of the transactions that were happening but over the last 12 months the skill of an individual agent is what in studying each of them apart.

So if we think about kind of the the focus of what agents should do I think there's three things that I've been sharing with all of our agents to position themselves to win over the next 12 months and let me walk you through what those three things I said number one is to capture attention agents, who have a massive focus on what I call. The front end of the funnel with the idea of building the infrastructure list.

Well when market conditions as market conditions change because most consumers are indeed waiting and watching to pull the trigger zone, we even if the interest rates environment, we had seven consecutive periods of interest rates, increasing and the consumer was actually getting used to what the new normalized and as soon as they see a one term pullback.

Now, they're like wait a minute I'm just gonna weight. So that's actually caused more disruption because now it's changed the way of this watching and waiting so for us it is capturing and building the interest lift on the front end of the funnel and the second is the days of kind of churning and burning our over because we.

We need to implement what I call a lifetime nurture. This means that building the interest lift is not enough. We have to both build the list and served the list, meaning agents, who take a lifetime nurture approach as opposed to return on burn approach will win in this market because of lifetime nurture approach says hey, I'm always in the right place Mr. Mrs client I'll wait for your right time to.

And the last but not least I really hope that everybody in our industry learns this is that today is the time, where an upgraded skill will come will completely set us apart so consumers need sound advice now more than ever over the last 20 years shares the utilization of working with an agent is up 31%, even though there's more data in.

More tools available to the consumer so I'd say this is because the transaction is becoming more and more complex. So understanding new contracts understanding pricing strategies understanding negotiation skills with all that's happening in our landscape is is what's gonna be important for agents to win so I take capture attention on the front end of the funnel implement lifetime nurture and really work on upgrading skills.

Thanks, Ron.

Next question what are the current projections as an overall percentage of profit that debenture interest in taxes is expected to make specifically how much of an impact are you expecting the rollout of the real credit card to make as a percentage of overall profits.

I have to say that we're incredibly excited about the reward and its potential to really transform the role of brokerage within an agent's life and are in the financial ecosystem. The real wallet allows agents to monetize all of their assets accumulated it real well, it's really too early to.

Specific financial projections.

We've clearly studied the impact of loyalty card programs on other industries, whether it's the Costco card program or any of the major airline programs and that's why we're so excited about how transformative it could be for real and in our agents given it gives agents a unique opportunity to monetize their wealth and earn route.

Awards from spending are that they would have done otherwise on someone else's platform, which they can now use to reinvest into their business.

And then really it gives us an opportunity to potentially it's potentially monetize the significant amount of G. N V and pass through revenue that flows through our ecosystem and our income statement, which for which we we don't really receive any economic benefit for example, this quarter our agents sold eight point.

1 billion worth of homes and yet as a company we generated only $3 5 million of adjusted EBITDA, It's easy to see how capturing even a few basis points of such an enormous thumb could really impact our bottom line in a way that's beneficial for agents and shareholders. So it's it's a little bit too early to say, but we do think.

This can have a very profound impact on our financial statements in the future.

Great and last question, we'll take some say portal, what does real doing to attract outside investment from institutional and retail investors that we'll want to see the stock price grow in the coming years.

It's a great question and I wish people knew how much where how much time and effort, we're actually investing in that product that's called the stock price, but obviously, we are fully committed to maintaining an active dialogue with our shareholders and we recognize that your engagement is vital to our success to that end, we've harnessed innovative platform.

Forms like the very portal that we're using right now to receive this question to foster of open communication and transparency with our investor community in parallel we're diligently broadening our outreach by participating in more investor conferences and road shows and cultivating relationships with new investors and research analysts are these initiatives.

Are designed to improve the market's understanding of our business and our strategy strategic vision.

With that being said, we know that ultimately our stock price reflects two things an earnings number and a multiple we don't control the multiple that's impacted by things like interest rate market expectations and on any given day could be the result of a host of other factors instead, we focus on what we.

We actually can control and that's stealing our business effectively and investing prudently in driving profitability profitable growth that can enhance our earnings and cash flows and our goal is pretty clear we want to build a resilient company that delivers sustained long term value for our shareholders. We are stead.

Fast in our commitment to this objective and believe.

We believe our strategic efforts and execution will be reflected in our stock performance over time.

Okay.

Right.

A great way to end if you have any additional questions on today's earnings release, please feel free to contact me directly.

Matthew would you please give the conference call replay instructions once again thank you.

Absolutely in order to access the replay you need to call 8774814010, with a confirmation code of 49 to two one once again the phone number is 870 74814010 and the confirmation.

Code for 92 to one.

The replay will be available at two P M eastern today.

Ladies and gentlemen, this does conclude the conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.