Q3 2024 The Real Brokerage Inc Earnings Call

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Okay.

Good day, everyone and welcome to the real brokerage third quarter 2024 earnings call.

This morning real published an earnings press release, including results for the third quarter ended September 32020 for the press release, along with the unaudited consolidated financial statements and related management's discussion and analysis for the quarter have been filed with the U S Securities and Exchange Commission on Edgar and with the Canadian Securities.

Regulators on Cedar.

Speaker Change: Before we get started I'd like to remind everyone that statements made in this conference call that are not historical facts, including statements about 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.

Speaker Change: And the SEC reports.

Speaker Change: Real disclaims any intent or obligation to update these forward looking statements, except as expressly required by law with that I'd like to turn the call over to our chairman and Chief Executive Officer, Jim Here Boy Sneer. Please proceed.

Speaker Change: Good morning, and thank you Robby I will start with an overview of our strategy and some recent business highlights Sean will provide an update on the actions we are taking to drive agent growth and improve the agent experience and Michelle will provide a more in depth discussion of our financial results. This quarter. I'll then provide a few closing remarks before opening up the call for Q&A.

To begin realizing real estate technology company that is differentiated in our industry.

Like traditional real estate brokerage firms, we provide real estate agents with a compelling combination of financial incentives are proprietary software based technology platform, which eliminates the need for physical office space and a collaborative culture that we believe is unique in our industry.

Our vision is to simplify life's most complex transaction that is a purchase or sale of a home by providing agents with the tools technology and resources they need to grow both their businesses and as individuals all while delivering a seamless experience for homebuyers and sellers.

Speaker Change: In the short term. This vision include the rollout of a consumer facing product, which streamlines the client experience and enhances attachments of our higher margin ancillary services.

Speaker Change: In the future, we expect our platform to encompass a holistic ecosystem of financial technology products payments and investment planning tools, providing agents with an avenue to build long term wealth all.

Speaker Change: Similarly, as the platform matures, we believe homebuyers and sellers could also benefit from the breadth of our service offering.

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

Speaker Change: Importantly, just like our institutional investors many of our agents are also shareholders in our company.

Speaker Change: And that is why we are keenly focused on generating long term value.

Speaker Change: For our agents for their clients and for our shareholders.

Speaker Change: Turning to the quarter. This morning, we reported record third quarter results with revenue in the third quarter of 2024, increasing by 74% versus the prior year to $372 5 million driven by a 76% increase in the number of transaction closed, including 88% year over a year.

Speaker Change: Transaction growth in the U S.

Speaker Change: This increase was all organic and compares favorably to the 2% decline in existing home sale industry transactions during the quarter.

Speaker Change: Gross profit in the third quarter of 2024 was $32 1 million compared to $18 8 million in the third quarter of 2023 and contributed to adjusted EBITDA of $13 3 million a significant improvement from $3 5 million of adjusted EBITDA in the third quarter of 2023.

Speaker Change: We ended the third quarter with 21770 agents up 79% versus the prior year and an increase of over 8000 agents since the start of 'twenty 'twenty four as of this morning, our agent count now exceeds 22500, meaning we've added over 700 agents since the start of the fourth quarter.

Speaker Change: Our mortgage and title business lines also saw impressive performance growing by a combined 97% versus the prior year, including over 200% growth in mortgage these ancillary business lines typically carry gross margins that are six to eight times higher than our brokerage business and they are expected to continue outpacing.

Speaker Change: Growth in our core brokerage business in the future.

Speaker Change: Now regarding the broader market environment affordability challenges continue to weigh heavily on existing home sales, which are on pace to finish this year near a 30 year trough.

Speaker Change: And it's it's actually accelerated and Michelle I know you talked to technology efficiencies, but I'm just trying to better understand.

Speaker Change: I know you're investing in the business, but how has the business hit an inflection point, where this operating leverage flow through is sustainable.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Nice to hear from you thanks for your questions.

Speaker Change: So.

Speaker Change: In terms of our general operations I would say operating loves it.

Speaker Change: All.

Speaker Change: Operating leverage is definitely sustainable we are.

Speaker Change: As you know always focused on efficiency and automation. However, now that we have achieved a different level of revenue we.

Speaker Change: As we have discussed before have additional regulatory requirements and compliance requirements and so we are going to be investing more so in that business, but.

Speaker Change: When we think about that effect over the long term it will impact US you know over the next year or so as we stand up the programs and higher than necessary individuals, but that shouldn't then sort of stabilize going forward as well.

Speaker Change: Alright, and then one more if I may.

Speaker Change: I think that's what's impressive in this quarter is the fact that despite of the fact that we invest heavily in technology with all of the analysis that we announced a couple of weeks ago with Leo cope either them deal for consumers and the real wallet. So this this is a heavy lift in terms of our cost of of technology innovation.

Speaker Change: We still maintained a focus on profitability and I think that this is very impressive.

Speaker Change: Definitely agree on that just one more if I may on revenue churn it looks like.

Speaker Change: That's kind of cadence in the 2% range, maybe sub debt this year and I know you guys call out revenue churn versus agent churn I'm just.

Speaker Change: Why has revenue churn year to date has been so much lower than last year I know your roof. Some agents, but is that how we should think about that I just would assume as you get bigger.

Speaker Change: That number might creep up.

Speaker Change: Yeah, I think that.

Speaker Change: Hey, good morning, guys. Thanks for taking the question the ancillary services have been growing very nicely you know over the past couple of quarters, but you are still hovering around kind of the 70 basis point Mark as a percentage of total revenue you know as these businesses continue to grow is there a target percentage that you guys are looking for.

Speaker Change: And are expecting.

Speaker Change: Sharran Srivatsaa, Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle

Speaker Change: I'm sure I think that we've communicated in the past that there is great potential in the testing ancillary services to to our transactions and obviously our focus is to getting the attach rates to double digits. It's in very low single digits at the moment I think that what we're doing now.

Speaker Change: Sure, I think that we've communicated in the past that there is great potential in attaching auxiliary services to our transactions and obviously our focus is to getting the attach rates to double digits. It's in very low single digits at the moment. I think that what we're doing now with Leo Copilot and Leo4 clients will

Speaker Change: With Oh, copilot and Lille for clients Wil.

Speaker Change: Very likely dramatically changed the paradigm of Patrick's. So we'll have to wait until the second half of 2025, maybe to see a more meaningful jump in attach rates, but until then we are as you see making efforts and and increasing revenue and attach rates as well its not.

Unknown Attendee Very likely, dramatically

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

Sharran Srivatsaa, Unknown Attendee, Michelle Ressler, Tamir Poleg

Speaker Change: To the fullest potential in my opinion, a we can do better but that's the board needs to come from technology and product and those things take time I think that long term, there's true potential to exceed what you have seen in the industry done by any anyone else just because of the.

Speaker Change: to the fullest potential, in my opinion, we can do better. But that support needs to come from technology and product. And those things take time. I think that long term, there's true potential to exceed what you have seen in the industry done by any anyone else just because of the

Speaker Change: The tech platform that we're building that could integrate everything.

Speaker Change: the tech platform that we're building that could integrate everything in a seamless way using and then leveraging AI to actually push at that rate.

Speaker Change: Seamless way of using and then leveraging AI to actually push it Patrick.

Patrick: Yeah, that's very helpful. Thank you guys and congrats on the quarter.

Speaker Change: Thank you.

Speaker Change: 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.

Thank you.

Speaker Change: 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.

Speaker Change: And this is on for Tom Thanks for taking our questions I have.

Speaker Change: One on the NAR settlement you mentioned in the prepared remarks that commission rate pressure seems to be pretty negligible at least so far can.

Speaker Change: Can you talk about the relative resilience of your business if buyers agents start to see more meaningful commission compression and perhaps if there is a reduction in the number of agents out there.

Speaker Change: Can you talk about the relative resilience of your business if buyers agents start to see more meaningful commission compression and perhaps if there is a reduction in the number of agents out there?

Sean: Sure I can take this one Sean you.

Speaker Change: You might add if you want.

Speaker Change: Yeah.

Speaker Change: I think that we have to remember a couple of things one more than 50% of our transactions are done by kaffirs. So we do not collect the commission split we collect an actual fee and transaction fee. So even if commission rates do drop eventually.

Speaker Change: I think that we have to remember a couple of things. One, more than 50% of our transactions are done by cappers. So we do not collect the commission splits, we collect an actual fee, a transaction fee. So even if commission rates do drop eventually, I think that it wouldn't have a meaningful effect on our revenue. That's number one. Number two, I believe that if

Speaker Change: I think that it wouldn't have a meaningful effect on our revenue. That's number one number two I believe that if our commission rates dropped in the overall industry a lot of agents will be looking for a new brokerage that allows them to keep more money in their pockets because they will be making fewer dollars on every transaction.

Speaker Change: And that might accelerate that growth. So I would believe that any decline in revenue because of lower.

Speaker Change: Lower commissions will be offset by higher gross but again still.

Speaker Change: It remains to be seen but as of now we're not seeing any indication of commissions are declining.

Speaker Change: Got it that makes sense and then.

Speaker Change: I can't help but ask a question on the election I mean, we saw mortgage rates jumped yesterday on Trump and congressional results any initial thoughts on what a Trump presidency might mean for the housing market and your business versus the last administration.

Speaker Change: Again, I can take this one shrunk three or three to add.

Speaker Change: I think that's what we've seen in the past couple of years with our with market conditions is that we're able to grow despite of any external factors and and I think that we will continue to focus on building a great company and building value for our agents and we will continue to grow because of that.

Speaker Change: I think that what we've seen in the past couple of years with market conditions is that we're able to grow despite of any external factors.

Speaker Change: I think that we will continue to focus on building a great company and building value for our agents and we will continue to go because of that.

Speaker Change: No matter, what the market throws at us or the you know the economic environment, but Sharon if you have anything to any thoughts on specific to the elections feel free.

Speaker Change: Sharran Srivatsaa, Unknown Attendee, Michelle Ressler, Tamir Poleg, Tamir Poleg, Tamir Poleg,

Speaker Change: No that's spot on to me.

Now it's spot on to me.

Speaker Change: Alright, Thank you guys.

All right, thank you guys.

Speaker Change: Thank you there are no further questions in the queue.

Speaker Change: Ravi.

Unknown Attendee Probably.

Ravi: Great now that we've concluded the analyst portion of the call.

Speaker Change: We will address some of the questions that were received from shareholders on the state technology Q&A portal that was opened last week, we received a number of excellent questions and thank you to all who participated.

Speaker Change: We'll address some of the questions that were received from shareholders on the SAIT Technologies Q&A portal that was open last week. We received a number of excellent questions, so thank you to all who participated.

Speaker Change: With real wallet launch and this question is for Michelle.

with Real Wallet launched. This question is for Michelle.

Speaker Change: to have their transition from their existing brokerage to real be released.

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

Speaker Change: On the retention side, we think about retention in two big pieces, culture and performance. Culture is a great component of what we have going on the rail, but the performance component is where when agents are producing, when they're making money, when they're taking advantage of other revenue streams.

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

Speaker Change: Great. Next question for Tamir. With REEL occupying all 50 states and four provinces in Canada,

Speaker Change: What would leadership like to see occur prior to expanding into additional countries?

Speaker Change: if at all, and a related question, when can we expect to see some expansion in Canada?

Sure. So earlier this year,

Speaker Change: Our goal of opening in Saskatchewan, Canada in 2025, which we're actively working towards.

Speaker Change: Great. Thanks, Tamir. And last question. What feature releases, if any, are you looking forward to release by Q1 of 2025? And Sharran, feel free to also weigh in.

Sharran Srivatsaa: Tamir, I'll start. I know you love this topic because you've been really driving the product innovation side.

Tamir Poleg: But the two real key features for us are that are going to benefit both growth and

Unknown Attendee, Michelle Ressler, Tamir Poleg, Unknown Attendee, Michelle Ressler,

and the second no one's ever built.

and I often talk about how do you actually normalize

Tamir Poleg: You know, use my business as an asset. Leverage and borrow from my business and continue to invest so I can smooth out the revenue flows in my business that allows them.

Tamir Poleg: to have a much more stable business, a much more growth-oriented focus, so they can not be susceptible to the volatility. When we get those two key features kind of built and continue to get integrated and adopted, the fundamental change of how an agent works day-to-day is really powerful. So that's what we're really looking forward to. But Tamir, if I missed anything.

Spot on. Thanks.

Ravi?

Unknown Attendee Great.

Speaker Change: That concludes today's conference call. If you have any additional questions on today's earnings release, please feel free to contact me directly. Matthew, would you please give conference call replay instructions once again? Thank you.