AGNT, Inc (AGNT) Earnings Call Transcript & Summary

All right. I think we're live here, guys. Welcome to all investors who are joining us. This is the virtual version of the annual Stephens investment conference. Obviously, it's a bit of a crazy year, so we're happy to continue the tradition here. We're talking with some guys here who are very used to the virtual world, so I don't think there's any change for them whatsoever. We'll clearly talk a lot of that, but we do hope that all of you guys and your families are staying safe and you're able to keep your wits as much as possible during these times. But -- so up next, we've got eXp World Holdings. That's ticker is EXPI. These guys, I think, have been a disruptor to the true sense of the world -- of the word in the kind of real estate space. They went from a few hundred agents just a handful of years ago to about 38,000 now. That's helped them scale their top line from $20-something million, I think, in 2015. I think according to our forecast, they're well above $1.5 billion this year. So just really remarkable growth. But we have the EXPI team here. We have the Founder, CEO, Chairman, and I think he terms himself the chief thinker for EXPI. It's Glenn Sanford. And then we have the CFO, Jeff Whiteside. I think you guys know the drill here. We kind of run back-and-forth Q&A. Usually, these are a lot more kind of interactive with the audience, but with the virtual setting, we're doing just a submission of questions. [Operator Instructions] But with that, guys, really appreciate the time. It's been a super exciting story, so I definitely want to dig in, in particular with EXPI, but maybe if we start off kind of top down and talk about market conditions.

But the first question, I think, is a question that's on a lot on investors' mind, which is the impact of the election. So as you guys think about maybe the ripple effects, be it positive, negative, whatever, of a maybe change in the White House, what do you see out there? Any kind of expectations over the next year or so?

Yes. I think -- I don't know if there's going to be a whole bunch of changes. I always think that real estate is primarily driven by interest rates. And I don't -- assuming that interest rates don't go up, we're going to see a lot -- demand continue to stay high. I think there's still this underlying question of how much does the fed need to play a role in keeping the economy going. And if they keep on keeping interest rates low and maybe they take them lower, if that's even possible, that, that just continues to be really good for the housing market. So that's kind of the way I look at it. Obviously, work-from-home has become a much bigger trend. I think you're the only person I've seen go to their own physical office today. But the fact that now that people are able to live different places and still get work done, I think that's certainly a driver to the housing market as well. So I think that will probably continue on even post COVID. And I'm not sure at what level the administration's going to play a role, but I think housing is such a big driver to the overall economy that you don't want to mess with one of the big drivers.

Right. I 100% agree with that. You were once an agent -- a top-producing agent at Keller Williams back in the day. I don't know if this caught you in between that time frame and kind of standing up EXPI, but what were your impressions of the last kind of first-time homebuyer tax credits? Was that -- or did you see any kind of novel impact on the market back in [indiscernible]?

Yes. I mean we were -- I think there was a whole bunch of stuff that was trying to get the industry propped up. I think it definitely helped a bit, but I don't know that it was -- there was so much nervousness at that point in time that it helped. But it wasn't the reason why people were jumping in per se because I think everybody's looking for stability in the market first, which is why the TARP program and all the asset purchases took place, was to sort of stabilize the market. And then once it was stabilized, then I think the tax credit started to play a role. But stabilization was sort of first and foremost. And then once it was stable, then I think any other incentives definitely helped.

Yes. We'll get into the core business in a little bit and in particular, agent productivity, but that was a metric that was down in 2Q. So you had some naysayers saying that you had unproductive agents blah, blah, blah. I think a lot of that was the macro. And then in 3Q, sure now that snapped back in your favor in a big way. So I think that silenced -- obviously silenced a lot of critics. But clearly, transactions were really good in 3Q. So to what extent you can see -- I don't know if it's listings, if it's actual production, closing sos far, but what are you seeing kind of through October and the early stages of November? Is it a continuation of the strength you guys saw?

Yes. I think we are, John. What happened was in the first half of Q2, things really slowed down. And since that point in time, all the way through October, it's been very, very busy. So productivity is way up in Q3, as you said, and we're seeing that kind of go into Q4.

Yes. And I think -- and given this is a webcast, we can even -- I think we were up -- but October is looking like it's over 100%, October-over-October. So we're continuing with the same trend that we saw in Q3.

Yes. Yes.

Yes. That's great to hear. Yes. So just thinking about the sustainability of the surge, I mean, clearly, there's this great migration, right? A lot of people are anxious and making the move. I think inventory is still so tight that maybe there's probably a backlog there even if that does kind of dissipate to some extent. Rates probably are not going anywhere anytime soon. So what do you guys think about the sustainability of this? I know the -- I think the MBA is calling for over 6 million of existing home sales next year. Any kind of sense for how long this market will hold this type of strength?

So I think it really -- obviously, interest rates are a driver, but I really think that what's going on with work-from-home is probably as important if not a more important driver to the long-term sustainability of what's going on. So I sort of think about the idea that I don't think you're going to put the genie back in the bottle relative to what's going on in terms of the acceleration of working remote. And so if that's the case, then I think that, that plays a major role in the catalyst going into all of 2021 and potentially beyond, potentially even into 2022. And then the question is, is how long does that turn over until you get a new norm where people live where they want to live rather than where they have to live.

Right. No, I agree with all that. So in Canada, you guys have started your market expansion. I think you're being pretty disruptive in that market so far. That's also your home market, so I think you're pretty -- probably still pretty familiar with it. How is the health of the Canadian market? Is it similar to the U.S.? Are they seeing a surge in transactions? What are you seeing there?

It is, yes. It's not dissimilar to the U.S. at all. There's pockets where it slows down, but there -- they have a lot of the similar macroeconomic factors that are driving a lot of things going on there. Certainly like -- places like Vancouver, you're certainly not seeing the influx of people maybe from China. That's probably slowed down a bit in Toronto. So that was a big influx. But outside of that, I think you're seeing a pretty robust housing market, again driven by low interest rates.

Yes. Makes sense. All right, let's get into the EXPI model. This is -- for those who might be new on the webcast -- might be new to the EXPI story, just how is the model different? What exactly does it mean to be a cloud-based brokerage? And what are you guys doing that's kind of structurally different than a Coldwell Banker or RE/MAX, the Keller Williams of the world?

Yes. So a cloud-based brokerage basically means that we have no physical offices. And we took it to the extreme, meaning that we have no corporate office either. So we -- Jeff and I don't go to a physical office. We don't see each other in real life other than at major events that might take place around the country or some QBRs or something like that. But the -- effectively, we built the first single real estate brokerage operating in all 50 states and multiple countries around the world without physical office infrastructure. And as one single brokerage, it allows us to play with the comp model and other things, especially given that we don't have the bricks-and-mortar expenses, in a way that puts agents first relative to growing the brokerage. So agents get a better split than they get at traditional Keller Williams, RE/MAX, Coldwell Banker, et cetera. But we've also shared a portion of what we normally would just keep as a real estate brokerage, and we've actually shared that back with the agent. So our agents are on an 80/20 split. Typical real estate brokerage is 70/30 split. Typically, they have a 6% franchise fee. We don't have any franchise fees. Most brokerages you're paying anywhere from $18,000, $20,000, $24,000 a year on your 70/30 split to the brokerage before you get to a cap. And in some markets, it goes way higher. In some, there's no cap. In our model, it's $16,000. So for agents, generally speaking, they can move to eXp, effectively get a raise just by moving their real estate license. And then we've created the benefits that would normally go to the broker-owner or the sales manager or the recruiter for the office, and we extended those benefits to our agents and brokers who help the company grow. So we've created a revenue sharing model. We actually modeled off of Keller Williams' 7-level profit share program. So they developed a profit share program. They started in the early '90s, and that took them from 1,000 agents to now over 160,000 agents worldwide. We developed a very similar model. But instead of calling it profit share, where they had to actually balance the local office profit against what they were distributing, in our model, we do a revenue sharing model. So we distribute a fairly predictable amount of revenue off of every transaction to the agents and brokers who help us grow. And then the last piece is that we actually distribute equity to our agents, small amount, a couple of hundred dollars worth of equity on their first transaction each year, $400 worth of equity if they pay us the full $16,000. We have a stock comp plan where they can take 5% of their commission dollars and get stock at a 10% discount to market. We have about 25-or-so percent of our agents that take advantage of that. But all of these sort of create a really unique basket. And then we operate the entire brokerage inside of a virtual world-for-business platform, VirBELA, which we bought in 2018, and it's really been the single most important enabling technology for us to scale the way we've scaled over the last number of years. So it's really a very -- it's very unique from that perspective and the way we approach collaboration and community, and then how we train agents and how we use a virtual world for business. We just did last week our eXp convention, which we were going to do in Las Vegas. We did that in our virtual campus. And so we had over 12,000 people attend from all over the world. And we had keynotes from folks like Robert Herjavec and others that came in and did keynotes. And then we had tons of training by our specific agents and top producers along with our staff, and it was a really great event. But we pulled off a real-world convention using our virtual world-for-work platform that was pretty much second to none in terms of being able to pull that off. So really approaching innovation and disruption different than anybody else in the real estate space, and so that's played out well.

And John, just another example just in this quarter is that -- the expansion internationally into 5 countries. So we haven't gone there, all right? So we haven't been on 4. We're going to get in 5 countries, and we're going to expand into commercial. We've done a couple of acquisitions. So the productivity we get and the competitive edge we have from the model and the platform is just -- especially in these times, but before, during and after, I mean, it's very productive.

What are you guys hearing maybe just anecdotally? As new agents have come on, do you have a swathe of agents who've said, well, I've never imagined being able to work remote and having all my support given to me remote, and then the pandemic hit, and I realize that I can actually still do my job and be remote? I mean did you guys feel like there's a benefit stemming from the pandemic that actually helped recruiting for you guys?

It did, yes. I mean before there was a little bit of turnover with agents who came from a more traditional bricks-and-mortar-based brokerage. And they joined, maybe they didn't plug in. Maybe, for whatever reason, their previous company leaned on them heavily to come back. But with the pandemic, why would you leave a brokerage that literally was built for the current environment that we're in, not because of it, but it just happened to be that way versus going back? And so we had always had anecdotal feedback from our agents that they didn't realize how good eXp was until they got here. But that didn't mean that there weren't some agents that would churn off the platform because they really had -- they did value that bricks-and-mortar space. So our attraction, number of agents sort of joining on a month-over-month basis, has increased. Our retention has improved as well. So for us, COVID was kind of like this. We got a lot of benefit from COVID just the way that we were structured.

Right. Yes. It seems like the model was clearly built for that. And I want to touch on VirBELA a bit more here in a second, but it just seems like from a timing standpoint, I don't know if there's a better time to be buying that asset ahead of all this. That was very fortunate and good timing for you guys. Last question on the business model, though. What do you see as kind of the main competitive moat? Like what stops others from creating the exact same model as you guys have? And I think you've seen maybe flavors of that with Fathom and Real. But what do you view as kind of the main competitive moats around the business?

Yes. One, first mover's advantage definitely is a big moat for us. We're still -- we're accelerating our growth rate. We're keeping track of the competition, and they're growing. I don't know as much about Fathom, but I've been following anecdote -- just a little bit on the Real side. But they're growing at about half of our rate of growth on a percentage basis. So they're growing maybe a couple of percent a month kind of thing, and we're in that 5%-or-so-a-month range. So they're not getting quite the traction they're going to need for launch velocity. But I also think that our virtual world-for-business platform is -- and I talked about it being the single most important enabling technology that we have because it allows for us to build collaboration and community and have serendipitous water cooler conversation. Of course, you've been in there as well. But it's -- it allows us to go somewhere, to go to work and be around other people while working 100% remote. And so that's a really big moat from our perspective, and we're so far ahead of the competition in terms of having comparative technology. The other piece just is -- might seem minor at the moment. But last week, on Thursday, we announced that we entered an agreement to acquire all of SUCCESS' media and assets and et cetera. But think about professional coaching, development, a 123-year-old brand in the personal development space, having that attached to eXp, having folks like Tony Robbins and others having an affiliation with the SUCCESS brand over the years and now attaching that to eXp on the real estate coaching and training side. You can think about all the other sort of overlaps that, that brand represents relative to residential real estate space. And we're not yet talking about some of those because we want those to be a surprise some time in the first quarter or so. But there are some really cool stuff that we're going to be able to do relative to that overlap that, again, will just reinforce the moat that we're building around eXp.

Yes. On that acquisition, I was going to ask you about that later on, but I think it makes sense now. And investors, I think a lot of people see that name they don't understand, don't know what it does. I think people in the industry probably are pretty well aware of it. So it's an immediate value prop for what you bring to agents. But is there a revenue event tied to that? Are you paying for that type of training as an agent as an incremental fee? Is it annual? Is it monthly? Or is it just a way to improve the value prop for you guys as kind of an example?

Yes. From our perspective, it's a little bit of both. It's going to immediately add to our agents because we're going to be able to -- we already were mailing SUCCESS magazine to all of our agents for the last 2 years because it really represents uplevelling your professionalism, sales skills, work-life balance and all the other things that sort of go with independent entrepreneurs, micro entrepreneurs, which real estate agents are. The other part is that it was an underutilized asset relative to the real estate space. So now we can start to think about real estate training and coaching and sort of matching up masterminds and other things. So it's not -- no longer just eXp, but a 123-year-old brand, oldest brand in the personal development space. It just has a huge affinity. And so it is a revenue generator for us. It's -- historically, it's made money. So it is generally accretive even though I think there are some reasons why we're going to invest heavily in the platform because we think that, that brand, along with eXp, and investing in that brand will elevate both brands just synergistically. And so anyway, there's a lot of stuff to unpack there, but it's -- for us, it's a pretty exciting potential to expand in the eXp ecosystem.

Yes. We look forward to hearing more about that for sure. On the agent count, I mean, agent growth for you guys, that's kind of the core revenue driver. That's your leading indicator, the fuel for your fire, if you will. I think you guys have clearly -- like I mentioned, you've kind of made it a -- made it known you were a force to reckon with. I mean you guys have gotten up to 38,000 agents now. Glenn, I think maybe a couple of quarters ago, you had talked about kind of clear line of sight to 100,000 agents. I think you might have said the time frame of 2023. On the last call, you sounded like maybe 2022, and then Valdes got on and said 100,000 by the end of next year with 25% of those agents being international. So what is kind of reasonable stretch goal? Who...

Yes. So I definitely put Valdes on the stretch side of the equation. So he's so very aspirational. I always think about the idea that we have a sort of just a standard internal growth rate that takes us somewhere above 50% year-over-year growth rate. And that's really kind of a domestic growth. So you think about U.S., maybe you add Canada in that. But -- so you think about the idea that, that gets us to whatever next year, 60,000-or-so agents domestically and then you add in international to that. And we think there's a possibility that we can accelerate that well above the 50% year-over-year growth rate. So could we get to 100,000? It's possible. But we're not giving guidance. Don't hold us to that number, but we are growing.

Yes. I have modeled in 55,000, 56,000 agents for next year. So we're a little over halfway there. So don't worry, we're not going too far, have we? Yes. So talk to us a little bit about the process and kind of really the time it takes to recruit agents and kind of like what that pipeline looks like. Are you in constant conversations with thousands of agents? Or is it more like you go to team leaders and they've got 40 agents with them and you're talking to each of them? Just talk to us a little bit about the process.

Yes. So for that, we have an internal dashboard. And so it typically shows a number on the dashboard of anywhere from 1,600 to 2,000 agents that are in the joining pipeline. And they do fall out 30,60 days out if they don't actually join. So we've always got that sort of visibility on the pipeline. We do have an internal growth team that basically talks to people who need extra support in joining eXp. So they're having conversations throughout the day. They're going on webinars. They're doing some stuff in real life to meet with various teams and agents. But 90% of our growth comes agent-to-agent. So literally, when somebody goes and starts the join process and types in their info on our join.exprealty.com site, it has almost 0 to do with the -- with talking corporately and all about them talking to agents out in the field. And so they're doing the heavy lift. Of course, we provide a lot of -- there's a lot of videos. There's a lot of stuff that's online. There's a lot of research that agents can do before they actually get into ecosystem. But it really is very much of an agent-driven growth model and less about corporately spending a lot of time, money and effort actually trying to recruit but more just acting in a supporting role for our agents in the field.

Yes. That makes sense. Any sense -- I think you might have framed this out there once as far as before. But any sense for what percent of agents are actually producers versus simply recruiters or building businesses?

Yes. About 80% of our agents sell real estate. And of the 20%, about half of those 20% are maybe active recruiters. The other 10% are just struggling in the business. So -- and that final 10% is usually where we get most of our churn from. So our agents who are actively -- obviously, if they're actively recruiting and they're attracting agents to eXp, then they're -- they've got a revenue stream from that. If they're actively selling, they tend to be staying on the platform. When they're selling 1, 2, 3 properties a year, there's still a fair bit of churn there. But if you're an icon agent, our platform's incredibly sticky. But 80-20 is about sort of the different -- but then -- and we're really talking about agents who have been on -- in the eXp platform for 1 year or more. There's a ton of churn among brand-new licensees to eXp, but that's true for any real estate brokerage. 80% of real estate agents don't make it to their first renewal across all brands. And so -- and about 1/3 of the agents that do join us are brand-new licensees. So that's where the predominance of our churn takes place, is in the brand-new licensees and relative nonproducers.

Yes. It's funny. And when we talk about the churn, I think one of the things -- one of the most eye-opening things for me when I started covering this industry is the level of industry churn. It is -- it's a game of musical chairs. It feels like 1 comes in, 1 comes out. So it's just kind of like kind of turning over. I think one of the things some investors might push back a little bit on your model is that it's multilevel marketing, right? And you've got downline employees and yada, yada. Now what's the rebuttal to that, and I want to hear how you guys kind of position as well, is that if you can find a way to retain agents in a very turnover-based type business, it's an effective way to do business. But what is typically your response when people kind of push back on the multilevel approach?

Yes. I think similar to what you were talking about, I mean, we were looking for ways to attract and retain agents that was cost effective. But that's really the whole thing. It's like most brokerages, they spend a lot of money. They hire full-time staff to work on the recruiting side. There's only one of them in our model. We have 38,000 people that without spending any extra upfront dollars, they're out there helping expand the brand. And so for our ability to get to that 100,000 agents-plus, now really, for us, we just have to make sure that we keep our support high, we focus on the things that matter, which shows up typically in our Net Promoter Score. So we do those surveys very consistently every day. We're sending out 1,000-plus inquiries as to what -- where we're at. So we're watching that like a hawk. And it has been one of the most effective models to grow organizations historically, even franchises and master franchises and all that. I mean that's a form of network marketing that most people don't really think about it as network marketing. But you sell a region in the country, then you sell a master franchise to California and then you sell an L.A. master franchise, then you have somebody that actually gets a franchise. I mean it's not -- it's just a different way of distributing the dollars.

And John, I mean, when people talk about multilevel marketing, sometimes they think about stuffing the channel with inventory. So in our model, there is no channel. There is no inventory. So nobody gets paid unless we sell a house. And so that's -- I think that's a big difference.

Yes. I think -- I couldn't agree more, yes. And the other thing is like when you think about staffing or warehousing bad agents, right, that's some of the pushback you get. But, I mean, if you assume that 10% are active recruiters, they're on variable pay, right? You can -- actually, you could call them HR staff, right, where they're going out recruiting on the [indiscernible]?

Well, the financial model, for the most part, is variable. Our cost structure is variable. And that's why you're seeing it dropping down as we grow.