eXp World Holdings Inc

NASDAQ:EXPI

Earnings Call Transcript 2020-Q3

[Greg Falesnik, Investor Relations, MZ Group]

Good morning, everyone and thank you for joining us for eXp Virtual Fireside Chat. Today we're going to be discussing third quarter 2020 results. The overall trends we're seeing in the market for eXp and really walk through some of the key updates and growth initiatives underway here at eXp.

My name is Greg Falesnik and CEO of MZ Group, the Investor Relations Firm for eXp World Holding and your moderator for today's call. Joining me today Glenn Sanford; the Founder, Chairman and CEO of eXp World Holdings; Jeff Whiteside, CFO and Chief Collaboration Officer and Michael Valdes, President of International Growth for eXp. I've had the distinct pleasure to follow the company closely and watch it growth like a weed over the last five years and I think just wow it's been a pretty phenomenal ride and really fun to watch. I think agent count since I've followed it several years ago is up almost 10x.

I think just hats off to the entire eXp team and all the agents. It's really phenomenal to see how resilient you guys have been, in fact not only resilient. But actually thriving and continuing to innovate even during a global pandemic. So that kind of goes across the board, your agent adds at rapid clip. You've had your strongest quarter ever in terms of agent adds in this last quarter. Particularly impressive I think just given some of the comp's that you lapped in 2019 and then your agents obviously are more productive. Your EBITDA flow through is improving and there is a lot of opportunities from what we can see today that should add to the top of bottom line as you grow including international, commercial mortgaging title and VirBELA just a name a few.

So really to kick things off, I'd love to hand it over to Glenn to maybe just touch on some of the key highlights from the quarter and some of the highlights from your perspective.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Thanks Greg and its great also to have you and the rest of the MZ as part of the extended eXp family. I know that was just recently we just recently announced that, you guys were great to work with in the past I'm really excited to continue to work with you guys. Certainly this last quarter, crazy quarter especially given the backdrop of the pandemic. Q2, we really sort of put the brakes on some things just because we didn't know how bad things were going to be and Q3 was a total leap forward in terms of things that were going in the market. A lot of people saw, there was a lot of strong housing demand, but eXp really grew at a really high rate.

One of our key metrics has always been agent count and agent count is very much for us a leading indicator, what's going to happen in the future, and Q3 we had the highest number of agents showing. We have the best retention that we've had for a while. So the retention side improved. One of the other things that was really interesting given the backdrop of COVID is that, Glassdoor I think last week or maybe two weeks ago. They looked at all wide range of companies now we're in the large company space in Glassdoor. And they looked at companies that had navigated COVID the best and they actually ranked eXp in the top 20 companies for work-life balance given the backdrop of the COVID, which is pretty incredible. But part of that just because of where you stand right now in the VirBELA platform that's allowed us to continue to build an organization that's totally geographically distributed without physical bricks mortar for our offices and as a result. We didn't have the stress of trying to figure out how to go back to work? How to navigate that? How to effectively social distance? And do all the other things to mitigate the challenges that COVID has created and so that created this really great sort of work-life balance.

This last quarter we also bought a platform called Showcase IDX and we closed that not too long ago and they've been really working on building on a national portal for us. We just actually in the process rolling out our Canadian portal. But we're going to be a building a lot of functionality and features that I think is going to be really cool when we think about competing against the national players. The Zillows, the Redfins, the realtor.coms. We're really looking forward over the next 12 to 18 months dusting off the SEO playbook to be able to compete at a national level.

You'll hear little about international here in a bit from Michael. But one of the other things and that's been expanded quickly. But then our iBuyer platform continues to get traction as well. So we got a platform called Express Offers and if you haven't checked it out. You can certainly go to expressoffers.com. But that's starting to really generate consistent growing lead flow for our agents, for listing opportunities as well as partners who are looking to be buyers in our platforms. And one of the cool things about it is, for us we're not in a position to lose money in every transaction.

Some of the stats coming out on some of our competitors is that they're losing a lot of money on their transactions. We're working directly with buyers who actually want to buy the homes and so they're paying the value that they see or they're going turning into fully marketed listing to maximize the value that sellers are getting through the eXp agent. So we're really excited about the Express Offers platform.

VirBELA we've put a press release earlier today. It's continuing to really grow rapidly. It's still a very small part of the eXp overall value prop. But it's such a cool enabling technology that it's really allowed us to scale up, very quickly. Everything on the eXp side today we're doing one of the largest. We're actually the largest real estate industry event ever to use a virtual world for business platform. Which is obviously VirBELA and that's supporting today we'll have thousands maybe over 10,000 people who will - 10 different breakouts and different events inside of our version of eXp World.

So VirBELA has grown, our customer base quite a bit. The usage is really through the roof in here. In here we're in the open campus which is really a platform that anybody can use and then if people want to step up to things like Team Suites, they can do that. But then we've got a lot of really interesting customers that are stepping up for private campuses or becoming strategic resellers folks like HTC and others that are stepping us.

So it's pretty cool to see that and then the last piece that I think it's worth noting on the innovation side is really what we're doing on the web-based remote work platform framevr.io. Some really cool innovations came out even just as late as last week and if you get a chance definitely check out framevr.io. But it's really our cross platform web based fully immersive VR ready platform. So it's a really cool platform and we're not far away from actually starting to actually monetize that, the platform is that good, that we're really excited about what that might mean in this ecosystem.

So with that, again super excited, super proud of everything we've done this last quarter. We're obviously doing a lot of stuff even so far this quarter and you're seeing some of the announcements come out on that. But maybe Jeff, you can touch on some of the financials and some of those highlights that we've had so far this year.

[Jeff Whiteside]

Good morning, everybody. Thanks very much, Glenn. Great to have you on the stage with us and Michael the same. So as Glenn would say we're absolutely stoked to share our results in Q3. Q3 pretty much was - with continued strong performance in our eXp realty business, as we scale VirBELA and Showcase IDX. It's all around the agent value proposition, the eXP - our model. eXp technologies with VirBELA. eXp enterprise and Showcase and then the growth opportunities that we have in this company that we've talked about before. We're starting to see them big time and international is probably the biggest in front of us right now. But then on the top of that we're going to be talking about some commercial rollout and our affiliate services.

If we look at our numbers at a summary levels. The revenues increased 100% year-over-year. So we went from $282 million to $564 million in revenue year-over-year in the third quarter. Our agent growth was up 56% then we ended 35,877 and our productivity was up 26% and as Glenn mentioned before we net added 4,786 agents which was a company record. So that's great growth and obviously the great growth of the best agents in the country have driven our revenue to the heights that it hit in Q3.

If we look at gross margin, our gross margin was $46.8 million versus $23 million in the last year and that was 8.3% versus 8.2% and Q3 margin was lower than the first half of 2020 and basically driven by higher capped agents and that was consistent and expected with what we see from a seasonality standpoint. So that will change in the fourth quarter and go up slightly higher. SG&A so from a leverage standpoint, our SG&A was 5.6% of revenue versus 8.7% in prior year and basically, we're able to leverage continuing investment in growth and technology. So we're seeing that and as a result, we ended up with a net income of $1.49 million and that compares to a loss of $1.8 million in the prior year and then it also gives us a fourth consecutive positive gap income quarter. So very proud of that.

As we've talked a few times cash flow again has come on very strong. We had $28.3 million versus $3 million in 2019 with a cash balance of $92 million after a $9.3 million stock buyback. So as we've talked about before this is really important thing for us. We have zero debt on our balance sheet still and do not foresee taking on debt in any kind of near term and then Glenn will talk about VirBELA and we'll get into that with some details with some metrics. But that has grown and the team is doing very well there.

Showcase was consolidated with eXp and the investment is growing and we'll get into that a little bit later. One thing I'd like to end with just on the financial summary is that, we had a very strong growth business prior to COVID. So put in perspective in 2018, we did $500 million in sales, 2019 we did a $1 billion. So we're growing at 100% back before COVID. We actually grew through COVID we're doing very well right now and we anticipate growing after COVID. The growth continues, what we're seeing in the quarter. We're still seeing strengthen in the business. We're really seeing strengths in the transactions and the company has done very well in Q3 and we expect to have a very strong Q4.

So I'll give it back to you, Greg. Actually I think we're going to go over to Michael right now, for Michael to give us international update.

[Michael Valdes, Executive Vice President, International Growth]

Sure. Thank you, Jeff and Glenn, for inviting me to share the stage with you and thank you, Greg for being the moderator today and to really advancing this conversation. It has been an incredible time here with the International focus that we've had. As you know we already were in the US, Canada, Australia and the United Kingdom. We opened in South Africa last month. We're opening in India on Monday. We're opening Mexico also in the month of November and then in the early part of December. We're going to finish up by opening Portugal and France.

So the idea that we're opening these five countries as we announced on the last quarter back in August. We announced these five countries. And it's amazing to sort of see that we're able to do this in a middle of pandemic where no one's jumped on a plane and what the growth potential is for these five collective countries, just think about this for a moment. Those five countries represent $1.6 billion people in population. They represent 7.37 GDP, trillion dollars. $7.37 trillion dollars in GDP and then three million possible agent pool.

So when we started looking at what our growth trajectory is, it's enormous. That's not even looking at what we're going to be doing next year and what our focus is for Q1. Already which we'll be announcing soon. But the idea that we have a very aggressive growth trajectory has not stopped. We're going to end the year in a very strong agent count number and we're also doing some other projects. We're looking at doing a global website which we'll be promoting and getting further along next year. The idea of a global referral platform. There's some great projects that we're working on, not just with the growth of countries but really on the growth and focus on international overall.

So with that Greg, I'll shoot it back over to you for any specific questions you might from any of these topics.

[Greg Falesnik, Investor Relations, MZ Group]

Sure, appreciate that Michael. The high-level commentary from both Glenn and Jeff. I'd love to get into some Q&A that I have if you guys don't mind. By the way, if anyone is watching this live stream and you want to ask a question. You can actually go to sli.do. Just type in sli.do on your browser and then enter the code EXPI. The company's ticker. So we'll see those and we'll be accepting questions from the audience after I get through some of the ones here, that I have enough [indiscernible].

Maybe just to kick it too, over to you Glenn. Would love some general commentary on what you're seeing on the strength of the housing market in the third quarter of 2020 and more specifically we're almost halfway through Q4 now? How the trends been in October, November so far and kind of what are your general thoughts for eXp in the residential real estate side in the US for the next several months?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

One of the things and Jeff you can certainly comment on this because I think you're already starting to see some of these trends show up. But we're still seeing really strong Q4, I mean we're seeing the type of volumes through just say October that we were seeing in Q3 and so we're really optimistic that will continue on in November, December and I think it's really still driven by two big trends and one is the fact that, people are moving when they're no longer locked in having to live within your 20-30 minutes of their workplace because of what's going on with COVID and they start to be stuck in the same house. They're wanting to make a change and so that's something that's definitely going on. And then of course the historically low interest rates that make it so much easier to think about buying because consumers are payment buyers. So you just look at of course we had great recovery, Q3 - the improvement on the overall economy which was historic. So that just again creates a lot more internal demand and so as a result we're just seeing across the board real estate being consumed at a really high level.

[Jeff Whiteside]

Yes, I'd add to that Glenn. I think that based on what's happening around the world right now. The traditional seasonality when people stop moving and start hunkering down for the winter season, we're not seeing that right now. We're actually seeing very strong growth in October. So I think that's changed to an extent. What we've also seen as we've seen a bunch of younger generation of agents come on board knowing that we're up 24x7. So I think going through Q2 as strong as we did in staying up. I think that's helped us and that's going to help us with our growth going forward.

[Michael Valdes, Executive Vice President, International Growth]

Sorry, if I can just jump in, internationally. What we've seen as early indicators for those countries that we're still entering such as India and Mexico. We have seen a large number of agents. I'm talking about four digits that are looking to join and are in various stages of being [indiscernible] to join because of exactly what Glenn and Jeff are talking about and what the demand is and what our model allows for doing on a global scale. So it's really exciting to see what our future is.

[Greg Falesnik, Investor Relations, MZ Group]

Great, that's really helpful. If I'm looking around maybe regional markets are there any that really, you're finding or standing out and performing best and maybe some markets that you're seeing some weakness in?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

It's pretty ubiquitous across the board. There's really no markets and I think the other piece is, win. Normally the selling season historically has been from March to September as sort of matched up to some extent. When kids are out of school. Right now the fact is that even schools are little bit changed up and so you're not really seeing the need for people to be hunkered down in any one location and that's again pretty much across the board and so that's really creating a unique backdrop where people are actually more willing to make a move when in prior years they'll be really sort of moving in that March to September timeframe.

[Greg Falesnik, Investor Relations, MZ Group]

Great, it's helpful. One of the things I'd like to transition to and talking about agents, transaction and productivity. Maybe just spend some time on the operational metrics driving your core residential real estate business. So on the agent side, any general commentary would be helpful. On the effects of COVID-19 and how has that made the agent attraction process? Has it been easier? And then even on top of that how has that trended between agent retention?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Yes, it's well for sure. I mean the fact that eXp hasn't missed a beep in terms of the ability to support agents out in the field listing and selling homes has definitely been a positive. We've got different states and different parts of the country and different parts of the world, that are going into various levels of lockdown and real estate agents need to be able to go out and list and sell real estate in order to make a living and the fact that we're open, the fact that we're there. We can support them. It doesn't matter, what is going on. It has made agent attraction easier. It's also driven I think to some extent the retention numbers as well getting better as well because before agents had a very viable choices in bricks and mortar-based offices. And agents would join us then find out that they really like to go to an office. Well right now there's not a lot of agents that will tell you that they really like to go to an office. So it's really helped sort of with just the overall eXp value prop.

[Jeff Whiteside]

And Greg I mentioned before, our productivity in the quarter is up 26% versus the previous year. Our units are up 95% and our volume is up 112%. So not only is growth at the agent count - continue to be very solid. Production is going up as time goes on here too. So I think the model is working very well for a lot of the people that joined the company.

[Greg Falesnik, Investor Relations, MZ Group]

Great. One of the comments that you touched on in your opening remarks, Glenn really surrounded the Net Promoter Score trending up. I mean in my experience agents have loved working with eXp, really put a strict focus on making it a great place for them to work. Maybe just speak a little bit more about that and what this Net Promoter Score really is. How closely do you track this figure and why?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

So the Net Promoter Score is probably our biggest driver for the choices that we make internally at the company to sort support our agents and brokers in the field. And so, you can look up what it is. But basically, it's the standard question which is on a scale of zero to 10, how likely would you refer a friend or colleague or family member to join eXp realty. And from that data, anybody who sort of referred to us as detractor [ph] or passive generally they're telling us things that needed to be improved and so by focusing on those things that in their mind need to be improved and coming up with viable solutions. Agents just are happier at eXP. And so that is one of our biggest drivers and the general sense of it is that, in our opinion that's the reason why we've got such high Glassdoor scores. Our Glassdoor scores are driven by really solid agents.

What's interesting is like presently we're the only real estate brokerage that I believe in the top 50 maybe even the top 100 companies are in Glassdoor based on current trending. And so that's because I think of our continual focus on agent satisfaction and continue to drive with that as our primary North Star.

[Jeff Whiteside]

Greg, just to give examples of how we use in day-to-day. So our overall NPS score is 73, which is a very respectable score especially in the industry. But we measure everything. We measure onboarding, every onboarding transaction. All the transactions of payment support, service desk, production support and employee satisfaction. Everyday we're measuring this to Glenn point. I think we need to have great employees that want to be with us and that's going to lead the great agents that want to stay with us and that's what we're using NPS for.

[Greg Falesnik, Investor Relations, MZ Group]

Makes perfect sense, thank you for the color there. So just curious if you look at your long-term agent add goals. Have you put any goalpost out for how many agents you like to attract in a set amount of time? So specifically like when do you think you'd be able to attain that $100,000 agent mark? When is that attainable by?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Yes, a good question. If you ask our growth leaders, Dave Conord, Michael Valdes and others. I think they're pretty ambitious. Initially I was thinking 2022, 2023 or I think 2023. But I think that we're definitely moving it up probably into 2022 and if Dave and Michael have their way. When are you guys thinking?

[Michael Valdes, Executive Vice President, International Growth]

So we're thinking next year actually. We're thinking at the end of next year there'll be 100,000 agents of which 25% will be on the international side. So we are looking very aggressively with growth and the thing is that we're looking to expand into some really large territories. I mean, you know India has 1.3 billion people, Mexico is 165 million people. So we're here we're dealing some huge territories and there's some huge opportunities that are there. Dave and I had a little friendly bet yesterday during eXp Con and we're pretty confident on those numbers.

[Greg Falesnik, Investor Relations, MZ Group]

That's incredible. Regardless of you guys getting there next year or the year after, it's incredible feat. I think only a few companies have achieved that and I'd almost be willing to bet, you guys have achieved it faster than anyone, once you hit that mark. So that's incredible. So just looking at some of the other metrics and switching gears pretty much every other metric is up across the board residential transaction side, residential transaction volume. Are you seeing a notable volume increase across all of your agents as a whole or is it being driven by a key group or a groups of people on the platform?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Right now it's really across the board and we're even seeing it little bit in other people's data as well other brokerages. And as it really comes down to the idea that right now you've got so many people out looking to purchase homes that the fact this is your busy agent was already busy before this uptick and so there's a lot of spillover to other agents who aren't as busy and so it really is across the agent base and it's actually one of the reasons why, in Q3 we had so many of our agents capped and that one of the reasons why our gross margin goes up in slower seasons versus busier seasons is because when agents cap. We don't earn as much for the balance of their year. So hopefully that helps.

[Greg Falesnik, Investor Relations, MZ Group]

Yes, it does. And maybe this is a good question for you Jeff. What are some of the factors playing into the higher average revenue per agent and average revenue per transaction?

[Jeff Whiteside]

Yes, I think one thing we found and I think it became pretty material in the second quarter is that, we've really attracted some of the biggest top producing agents in the country, in the some of the bigger cities too. So and I think when they went through second quarter and they realized that we're up and going 24x7, the same way they need to be. I think that drove it, Greg. I think that was a big part of it. But I also think I mean just a support network that we have across the business from an education, training, sharing. What you're seeing in eXp Con this week. I think basically it just creates a community of very productive agents and we're seeing that.

We mentioned before retention is also up. So I think from what I've seen for we're up about 30% this quarter on retention and so not only we're attracting the big producers, we're keeping them. And so I think that's why you're seeing those kind of numbers in the third quarter.

[Michael Valdes, Executive Vice President, International Growth]

And I think I'll just add to that. Is also the focus that we've had as a company on really the other division, so really the growth of global, the focus on commercial? What we're focusing on next with luxury and other things that we're doing. There's been a lot more for that agent to be able to focus on and excel in under an eXp model. So those things are also really important to the agents production.

[Greg Falesnik, Investor Relations, MZ Group]

Very helpful. Michael this is a good time to maybe transition to some of the more specific questions geared at the international side of things. Obviously we've been really strong in North America, UK, Australia and several other markets that you've talked about expanding into. We did get some stats kind of the five countries and the amount of population and agent pools that they have. Maybe just, if you won't mind walking us through sort of what should we expect in the next call it few months in the near term for opportunity to then, which ones are maybe going to be longer term call it in the next 12 to 18 months.

[Michael Valdes, Executive Vice President, International Growth]

So thank you for that question, Greg. I think that what we are looking at is obviously what we've already announced is happening all within this calendar year. So India, Mexico, Portugal and France all will be open before year end. What we're looking at - we haven't announced our Q1 countries yet. We have an incredibly strong pipeline. I think what we'll talk about is, is really talking about what our criteria and focus is for what we want to do obviously as one of the fastest growing real estate companies in America. We really want to try to piggyback on what has been that success domestically and continue to grow organically and correctly across the globe.

So we're looking for those countries that can provide us with a large footprint which can provide us with a large revenue stream, with a large agent pool, with an established real estate industry within those countries and so we're looking establish a lot of those strategic foothold across the globe. Obviously, we want to fill out Continental Europe. We want to look at the Middle East. We want to look at Asian countries. We want to be able to have those footholds in a different continents to be able to continue to grow our story and our footprint.

As I mentioned, we're going to be doing a global referral platform and a global website. So we want to make sure that, as we look at these other two really large products. We're looking at this and growing this story in an organic and systematic way.

[Greg Falesnik, Investor Relations, MZ Group]

I mean you've not only have been able to do it quickly, I mean you joined in May and already expanding into all these different geographies. It seems that you've been able to do it pretty cost effectively. One of my overarching questions and I'm sure it's something on lot of people's mind. You had such a successful domestic rollout. Right? I mean there's a huge agent pool in the US and Canada alone. Why disrupt this by expanding worldwide?

[Michael Valdes, Executive Vice President, International Growth]

Well I don't think it's a disruption at all. I think it's actually an evolution. So this is what the brand is supposed to be doing. The model is proven. Remember, we're not a franchise. So we're a business platform geared to giving the agents those tools and resources that they need to succeed. They are the brand. The agent is the brand. When you're just looking at that and you're flipping the conversation. We're not asking for a franchise fee. We're not asking for a royalty fee. We're making sure that agent becomes the brand and when that happens, we give them the tools and resources that they need and create a global platform for them, that growth is exponential and that growth is unlimited. So that's why we have such aggressive numbers for growth and agent counts because once you start looking at what this model is on a global scale. It becomes the evolution of what has already been created.

[Greg Falesnik, Investor Relations, MZ Group]

Right as you're identifying and prioritizing which markets enter internationally. Is there any specific criteria you're looking for?

[Michael Valdes, Executive Vice President, International Growth]

So as I mentioned before we're looking to do is just to make sure that we're building this story organically that we're building it strategically. We want to make sure that when somebody - we have 38,000 ambassadors of this brand right now and so what we want to us make sure, that as they're looking for their own growth potential on a global scale that we're giving those agents and those ambassadors the greatest platform we can give them. So we're looking to be in strategic countries around the world. We're looking to make sure that our story has the ability and our platform has ability to have that as critical mass in those countries that we're going into and to continue to build this incredible story, that's been built thus far.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

If I can add on there as well. I know it is a question that comes up fairly often because I've definitely heard it. Real estate itself is actually a fairly ubiquitous business country-to-country. So it's not like we're talking about putting in factories or different things as Michael mentioned in your franchise agreements and other things that we don't do. And then the other piece, we touched on earlier is the way we make decisions at eXp and how we improve agents business and lives. The way we approach that is very scalable.

So using Net Promoter Score as our underlying driver for decision making it makes it really easy. It doesn't require us to have - I mean we do have really smart and sharp people. We've got our management brokers and our leaders in each of the different countries that understand the domestic customs. The actual business of real estate actually still - it's a pretty simple business. So we list homes and we sell homes. We advertise. We put signs in the ground and we coach agents and brokers on how to do the best job and to provide the best service. And if you serve approach from that perspective business actually gets really easy and opening up other countries is not other than going through the paperwork exercise is not an extremely difficult exercise.

[Greg Falesnik, Investor Relations, MZ Group]

Well said, I mean I would think that just like anything else there's challenges when you're expanding new markets. Michael, are you curious to know how you're overcoming some of those obstacles such as for instance language barriers?

[Michael Valdes, Executive Vice President, International Growth]

Well we're actually working with a translation company now to be able to fill the gap that we need in that regard. But some of the other challenges that might exists. There's no MLS really in any other country outside of the United States. It's only five MLS outside of the US. There's a lot of countries that don't require licensing and so what happens at that point. Is that I think that our model actually works even better in those markets. It's the ability that you have the potential for great growth and I think at that point, what you're dealing with is finding the right leaders and that's what we've been really fortunate in doing. This model has attracted some incredible people in market and we have built some incredible leadership in country that we've done with each of the five countries that we're doing this year and then what we're already looking for Q1 some of those leaders are already in place. And so that is what I think is the key is finding great leadership to be able to effectively come into those markets and be able to tell our story effectively and then be able to grow that agent count.

[Greg Falesnik, Investor Relations, MZ Group]

It's incredible what you guys have done again in a shorter period of time. Maybe over to you Jeff, to just comment broadly on some of the financials, really just the total agent count, is that the core driver on the top line. Are you seeing acceleration in gross commissions or productivity as meaningful contributors?

[Jeff Whiteside]

Yes, I think in Q3 as I mentioned productivity was up 26%, so that helped drive the numbers in Q3. Definitely. I mean the way the model works Greg as you know is that we're adding productive agents and that's kind of what we're seeing. So and productivity is up. The commission is relatively flat, that hasn't been a big driver. As we think about going forward, we want to maintain and continue to improve the best agent model in the industry and then on top of that. As we'll talk about little bit, as affiliated services get traction, commercial gets traction, technology, IDX etc. that's where we see the revenue model changing and the margin model changing a little bit in the future.

[Greg Falesnik, Investor Relations, MZ Group]

I think gross margin were up 10 basis points year-over-year and obviously the affiliated service and some of the other drivers you have are going to be meaningful contributors to that. If you're looking at that, you had mentioned you did $9.3 million stock buyback in the quarter. do you anticipate continuing that stock buyback program on a steady cadence or how should we think about that?

[Jeff Whiteside]

Yes, I mean that's what our plan is right now. I mean as the market changes and the stock price changes and where our cash balance goes. But at this point in time, that's where we're looking at continuing in the short-term anyways.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

And philosophically Greg just so you know, the idea is that we have number of agent equity programs that we provide to our agents and ultimately, we want to offset that because in some respects they're receiving stock in lieu of cash and the nice thing is, they become owners and that ownership piece really changes their engagement with the brokerage. But to the extent that we can offset that I think just makes sense because I don't want things that I hear a bit is about dilution and the stock and certainly relative to growth it's pretty small. But it is still something that comes up on a fairly regular basis in conversation. So we do want to get to - we call it a dilution neutral relative to our equity awards [ph] with agents.

[Greg Falesnik, Investor Relations, MZ Group]

Makes sense. Jeff on a capital allocation from a capital allocation standpoint. What else are you prioritizing or thinking about? I mean specifically are there any other interesting opportunities in acquisition pipeline? I know you've made few recently, is that something you guys will continue to do?

[Jeff Whiteside]

Yes, I mean it's some - we'll definitely continue to do as you can see from the acquisitions we've made so far, none of them have been. They haven't been material where would be a situation where we have to go out and get funding. So we're continuing to look at opportunities. We will continue to bring new technologies into the company and also anywhere we can add to help our agents be more productive and keep our retentions rates up. Those are the kind of investments we're looking at. There's nothing major that would change our capital allocation at this point in time. So in the foreseeable future, we believe we earn the cash to make these kind of acquisitions without going to the market.

[Greg Falesnik, Investor Relations, MZ Group]

Right. I mean there are so many other growth levers you guys have right now and it's amazing you've kept up with growth here. On the affiliated services front maybe just an update there mortgage title escrow settlement. What is really the long-term value proposition for both the agents and eXp as a company?

[Jeff Whiteside]

Glenn, you want to take that one?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Sure yes. The affiliates services in my opinion sort of represents an opportunity to smooth out the transaction whether it be on the mortgage or title escrow side. One of the things as right now agents and consumers are working with multiple entities throughout the closing transaction and it can be somewhat challenging when you have to go to - you go to a real estate agent and then you have to go talk to a entirely separate mortgage company and then you have to close with entirely separate title escrow company, which from a RESPA perspective, may continue to be part of the backdrop. But the more that we can create a one stop shop with the best mortgage services, the best title on escrow services. The home warranty and other things that a consumer might need and we can streamline that. It makes it easier for the agent. But also makes it better for the consumer and so from our perspective, that just makes sense. Every mature real estate brokerage has these services at scale. The difference is we've grown so fast that just layering these things in. It's actually more work when the company is growing 50%, 100% year-over-year then if the company is relatively static because then you're only working on one thing. But here we're working on multiple entities at the same time trying to get those layered in and then that sort of as part of the value mix.

It's a little bit of delicate balance because we don't want to tread on or hurt the agent, which we certainly do not. But at the same time agents are somewhat loyal to their [indiscernible] professionals, current title escrow professionals and then until there's pain in their business. They generally aren't looking for other services and so we want to just be there when there's an opportunity to help improve their business, in their life.

[Greg Falesnik, Investor Relations, MZ Group]

It's very helpful. I mean one of the core technologies that I'm just personally really excited about and you talked about this earlier just your VirBELA platform, right? I mean growth obviously has been pretty impressive. You always commented on the fact that this is really an enabling technology and now with framevr.io I've actually had an opportunity to see that and just unbelievable what opportunities that presents. Could you just comment generally on why you're so excited about VirBELA and how do you feel the opportunity has changed over the last couple of quarters as people have shifted to remote work environments?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Yes, I mean the work from home environment and the working remote environment has totally changed this year. It's probably accelerated by at least 10 years just because of what took place with COVID-19 and so we're seeing our usage from Q2 to Q3. We had over I think over 100,000 people used the VirBELA platform in Q3 versus 63,000 people that used in Q2. And last year, if you were look at this same time last year. Our usage was primarily eXp Realty. I mean we were the number one user of virtual world for work platform across any company and any industry and that's why we bought VirBELA back in 2018. And then we had number of just core users that loved the platform that were - these include customers like Stanford and some e-commerce companies. We had some other number of small used cases. But now we've got HTC, now pitching this in Asian companies as part of their HTC VIVE Suite. And we've got all these other companies that are now standing up, full on campuses some with as many as I think one company that we're currently building out of large campus has over 30,000 employees and expect at least half of them to be using VirBELA as their primary way to go to work and so you look at a lot of these enterprises and you start to see that something a lot of people were really excited back about back in 2007, 2008, 2009.

Now this stuff is actually becoming a reality because just what's been going on in the world and I think the other piece is that. I think the traction no matter what happens vaccine is coming out whatever. I think we've now made a fundamental shift. We now do believe at sort of we call it in maybe in DNA level that we can in fact work remote and still get work done and that was always this question. And so we did it, started in 2009 and we've grown the faster growing real estate brokerage in the history of residential real estate by using a virtual world for work platform. But now we've got lots of other customers and lots of other clients and partners that are seeing what type of economic leverage can be created and community leverage can be created by using a platform like VirBELA and we're because of the amount of work that eXp put into it, using it as a primary vehicle, it is the most business ready virtual platform for the type of activity across any platform and it's because we pushed the envelopes.

We broke things early, we broke things often and we've learned a whole bunch of stuff about this that other companies yet have to figure out because they didn't have a big customer like eXp pushing the envelope.

[Jeff Whiteside]

Greg, just add to that, I mean the poster child right now for us and VirBELA is international expansion. So historically you'd have to go out, you'd have to build offices, you'd have to travel all over the place. We haven't gone anywhere and we're being very successful. You'll see these meetings with people from all over the world and VirBELA. And Alex mentioned yesterday too that, he believes that we set probably world record yesterday at eXp Con having plus 1,500 people in one room being able to interact with each other on a VR side. So it's been fantastic for us and it's enabled our growth and it's going to enable our growth into the future.

[Greg Falesnik, Investor Relations, MZ Group]

Well you've certainly proven to the world that it works. Just a great case study here and I'm sure people are excited about it. I have to ask though. Longer term from a growth perspective what's your ultimate vision for VirBELA and how big do you think this ultimately can be?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

I think we're still truly waiting for a little bit more traction. We certainly have a number of early adopters in the VirBELA platform. I'd say that even the customers that come our direction to - are really those early adopters. So we've not reached a point of really getting the masses to use the VirBELA platform. But I think VirBELA really is part of a larger category of remote work enabling technology and certainly you've got sort of Zoom on one end and then you've got VirBELA maybe in a slightly other end of continuum. But these technologies are going to be used in partnership with lots and lots of other technologies. So you're going to see VirBELA and you're going to see Zoom and you're going to see Microsoft Teams and Workplace by Facebook and you're going to see all these things sort of built and connect to each other in a way that, they support these really unique used cases and as we scale, I think we're going to hit some sort of traction point where VirBELA becomes the place you go to work.

Where these other platforms will be the place you keep track of conversations and these other tools will be kept for quick and nerdy video conferences and you're going to have sort of –they're going to start to slow on categories once it's sort of recognized that VirBELA is the place you go to work. I think this thing takes off and we can have 200 companies, enterprises spending $50,000 a month on the platform and I don't think that's unrealistic to think about what does it mean to have 200, 300, 500 companies that have replaced their physical bricks and mortar office buildings and campuses with a virtual world for business because who knows what happens in the future and why wouldn't you have for very in compared to their overall expenses. Why wouldn't you have a platform that you could scale that is for all intents and purposes, clear and can scale without some of the natural disasters and other things that might come out there.

[Greg Falesnik, Investor Relations, MZ Group]

On the commercial real estate side of things. I mean this is another huge growth opportunity for you guys. Maybe you could broadly comment, how are things rolling out and are you adding agents and brokers? How should we think about this over the next six months?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Jeff you want to touch on?

[Jeff Whiteside]

Yes, sure. So we brought on our leader, James Huang from Sperry and he has joined us as President. So we probably have less than 1,000 but we have people that do commercial and we're setting it up right now. We believe that towards the end of the next year we'll probably have about 1,000 plus pure commercial agents. We're going through the process right now. We launched on November 1 and then going into next year. I think we'll get traction Greg going into the first, second quarter of next year. But everything has been set up, the brokers are being set up. All the contracts with all our suppliers are being set up. What we found so far just like Michael found on the international side is James has seen a lot of traction for this particular, our particular model in the commercial space and with the cost structure that it affords you to be able to go and do business.

[Michael Valdes, Executive Vice President, International Growth]

And I just wanted to add to that, there's also a lot of the cross divisional opportunities because we've seen a lot of interest for commercial internationally obviously domestically. So there is a lot of cross divisional opportunities that will exist on a global scale also for commercial.

[Greg Falesnik, Investor Relations, MZ Group]

Yes that's a great point Michael, naturally makes sense. And then if I'm thinking about the integration of Showcase IDX, how is that coming along?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Yes, it's coming along quite well; if you know the reality is that it's a fairly new team to eXp they've been providing what's referred to as IDX or basically real estate websites to agents for the last 10, 15 years. They have very mature platform and when we bought them for was to actually build out our own national platforms and then also rollout our own internal websites to agents as well. We mentioned I think last time that we're looking at 12 to 18 months for this to really get where we'll start to see results and that's because there's a lot of work in the background. But we're already got a preview of the Canadian website. We'll start to get that rolled out by year end. We've got some US websites we'll start to re-tool early next year and then there's a lot of other things that will just come out of the Showcase platform. Don't want to talk too much about it because we think that there's some things that we'll be doing that will give some strategic advantages in terms of attracting customers to the platform. But again we're pretty excited we're only a few months into the journey with Showcase. But it's a pretty exciting platform.

[Greg Falesnik, Investor Relations, MZ Group]

Yes on the surface it looks like there is a lot of leverage in components with that platform that can open up new revenue streams and be really good for the overall agent value proposition. So my last question before turning it over to some Q&A from the audience. Glenn, you commented on this early on in your opening remarks. But I think there's been a lot of buzz initially with the traditional iBuyer model and we're certainly see some of the challenges with balance sheet risk and losses that come into play. It seems that your Express Offer platform is slightly different. Maybe just touching on how this is different and why it makes sense versus going the traditional iBuyer model route?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Yes so couple of things. One, obviously you've got Opendoor and Zillow Offers are probably the two biggest players out there at the moment in the iBuyer space. They both entered it for kind of different reasons. I think Opendoor actually came into the business because they actually thought and believed that they could create a marketplace where you could actually do it through an instant sale and instant offer. I think that's and there are long ways from truly proving that actually works.

Zillow entered it for a different reason. They entered it sort of be able to generate leads for their agents and I think that, at some level they probably done that. But they're taking a huge loss to do that. We approached it from a totally different perspective as we wanted to develop a platform that generated leads for agents. But then [indiscernible] was backed up by a network of hundreds if not thousands of potential buyers who are in either buying for their own investments, they're doing fix and flip. They're doing different things. But not take any balance sheet risk and basically provide multiple bids for multiple buyers through a platform that we built out.

You know the cool thing is that, so far that platform seems to really be getting traction. We started on this initiative late last year. We spent most of this year sort of building it out, getting it in place and now you go to expressoffers.com and you see at least on the surface you can see the basis of the platform from a consumer perspective and on the back end, though we're starting to generate a lot of listing lead and we're able to actually put sign in the ground and fully market listings and at the same time, for those who want cash for keys, we have a number of transactions that are going to direct to your buyers who are stepping up and paying the dollars the seller is willing to take in the short run to not have to have their house on the market.

So I think it's a really scalable platform. I think that once it's entirely built out and we've got lots of additional plans with this platform. We think it could represent a pretty significant percentage of the iBuyer market again without the balance sheet risk. So we're pretty excited about. We think it's got a lot of potential and we think that it could be a game changer in the industry and one that I think we're already starting to see some people sort of copy a little bit of our approach that we started with which was sort of aggregating buyers on the back end. So I think we'll see some copycats but we've never and as its part of the reasons why our financials I think are the way they are. We've never really taken a lot of balance sheet work [ph] on anything because I think there's lot of creative ways to solve problems and that's just we've always approached that.

[Greg Falesnik, Investor Relations, MZ Group]

Yet another tool that you guys have in your belt and sure it's much appreciated by everyone on your platform. So that is everything I wanted to cover. I think right now just in the next couple of minutes to touch on some of the questions that have come in. the first one really being directed at Michael probably. What international market is seeing the best traction so far? And further to that, what's the most likely catalyst for one of your international markets just completely taking off? Is it just a function of time or something else?

[Michael Valdes, Executive Vice President, International Growth]

So that's a great question. I think that by far from our current footprint. It's our Canada operations. We're probably at 1,600 agents now. Really incredible growth trajectory there continuing to do so. We've attracted some incredible teams. We've just attracted one of the largest teams from a competitors of ours in Canada. He was had a 23-member team, had about $400 million in production. We're getting a lot of attention with our platform and so Canada is doing incredibly well and what we're looking at for some of the newer countries that we're looking at expanding in. I think that from some of our early interest as I mentioned before both Mexico and India seem to have a very really large amount of promise for us in the early stage.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Great and the next question, this is highly requested question. Probably for you Glenn back to VirBELA. Do you think VirBELA can be a standalone company?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

It's a great question. One of the things and I'll just give you a little bit of insight on it. VirBELA we actually did look at earlier this year the potentially of spinning out VirBELA as a standalone company. What we found at least in the short run because we think VirBELA does truly stand on its own. We think if VirBELA and eXp were separate we think that even from a shareholder perspective there'd be more value unlocked for shareholders because of the two entities apart because where there are some people who are very much virtual for business, remote work, technology based investors and that doesn't may not be the same investor group that's interested in real estate brokerage even though we're enabled by the VirBELA platform. But what we found is at least in the short run, there's some pretty significant tax implications to being able to spin out of its standalone company.

So we're still researching. We'd love to be able to have VirBELA be a pure play just like eXp was originally in its early day, a pure play in cloud based residential real estate brokerage and we think that pure play has potentially more value as a separate company but today we don't have a path quite yet to get there.

[Greg Falesnik, Investor Relations, MZ Group]

Sure, that makes sense and I think just in essence of time. We'll take one more. Can you talk about or quantify the agents retention trends and the dynamic between gross versus net agent adds?

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Jeff, you want to take that?

[Jeff Whiteside]

Yes. As we look at our agents what we're seeing is we're seeing over the last two quarters that actually increased our retention rates by 30% in each quarter. So we don't break out all our adds. We don't go through the details of here's how many came in this month? Here's how many went off. But what I can tell you is that, our retention has improved by 30% in Q2 and Q3. So we're pretty excited about that, Greg.

[Greg Falesnik, Investor Relations, MZ Group]

Well, I'm excited for you guys. I think with that, we should wrap it up. I'd like to thank you Jeff, Michael and Glenn for the Fireside Chat today and again congratulations to you all and every single eXp agent for having just an absolutely blow out quarter in terms of revenue and profitability. So with that, I think we can wrap the session up.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Thank you, Greg.

[Jeff Whiteside]

Thanks everyone.

[Glenn Sanford, Founder, Chairman and Chief Executive Officer]

Thank you very much.