AGNT, Inc. (AGNT)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about material information relevant to an assessment of the financial condition and results of operations of eXp World Holdings, Inc. and its subsidiaries for the three-year period ended December 31, 2024. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this Annual Report. This discussion contains forward-looking statements that constitute our estimates, plans and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Statements” and “Item 1A. – Risk Factors” included elsewhere within this Annual Report for a discussion of certain risks, uncertainties and assumptions associated with these statements.

This MD&A is divided into the following sections:

All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

OVERVIEW

eXp is a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform. The Chief Operating Decision Maker (“CODM”) manages the business and allocates resources as three separate operating segments: North American Realty; International Realty; and Other Affiliated Services. See additional information in Note 11 –Segment Information to the consolidated financial statements included elsewhere in this Annual Report.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions.

Prior to 2024, eXp managed and reported its operations in four operating business segments which included, in addition to the current business segments, a Virbela segment covering eXp’s historical application-based Virbela business, which was considered discontinued operations beginning in the first quarter of 2024. The Company completed the disposition of Virbela during the fourth quarter of 2024. All prior period financial statements and segment information have been reclassified to conform to the current reporting structure in this Annual Report. See Note 4 – Discontinued Operations to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding the discontinuation of Virbela.

Strategy and Company-Wide Initiatives

Our strategy is to grow organically in the North American and certain international markets by increasing our independent agent and broker network. We continue to attract productive real estate agents and broker professionals that contribute to our growth; we are also committed to providing agents with the tools to help them grow their business and increase their productivity.  Through our technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate. By building partnerships and strategically deploying capital, we seek to grow the business and enter attractive vertical and adjacent markets.

Agent Net Promoter Score

In 2024, we continued to focus on achieving operational excellence and understanding and enhancing the experience of both our agents and employees, which we monitor using agent Net Promoter Score (“aNPS”). NPS is a widely recognized metric for assessing satisfaction and loyalty. NPS is calculated on a scale ranging from -100 to 100, with scores above 50 considered

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excellent. Within the Company, we utilize aNPS to evaluate agent satisfaction. In 2024, the Company achieved an aNPS of 76 for the year and 77 in the fourth quarter, reflecting strong agent alignment with our mission and values.

The NPS process is an important vehicle for delivering our core values of transparency. While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trend of NPS. As NPS scores are often leading indicators to agents and employees’ future actions, we can learn quickly what may be a ‘pain point’ or program that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score.

During 2024, we remained focused on empowering our agents, increasing their productivity, and maintaining strong engagement through these and other agent-centric initiatives. Other agent-centric initiatives include our improved agent eXpert Care Desk, which was expanded globally with multi-language capabilities, enhanced agent mentor/mentee offerings and improved performance tracking and management.

Additionally, in response to industry changes in response to US antitrust lawsuits, the Company led the industry by introducing new listing agreements and buyer representation forms for its agents and the industry. These programs and efforts underscore our commitment to fostering agent success by lowering barriers, increasing earning opportunities, and creating a collaborative, growth-oriented environment. By continually evolving to meet the needs of our agents and employees, the Company remains well-positioned to continue to drive growth.

Revenue Share Plan

A key component of our capital deployment strategy is our Sustainable Revenue Share Plan (the “Revenue Share Plan”), whereby we pay real estate professionals affiliated with the Company a portion of eXp Realty’s commission for their contribution to Company growth. We launched the Revenue Share Plan when the Company was in its infancy as a competitive differentiator that has since disrupted the residential real estate brokerage model. Participants in the Revenue Share Plan are eligible to receive additional income from the Company’s closed real estate transactions based on the participant’s number of frontline qualifying active (“FLQA”) agents and their downline agents. An FLQA agent is an agent or broker whom a participant (“sponsor”) has personally attracted to the Company and who has met specific real estate transaction volume requirements. Revenue share is paid to the sponsor from the commission earned by the Company on transactions closed by the sponsor’s FLQAs and their downline agents. Additionally, all sponsors must adhere to eXp’s policies and procedures and may not, among other things: (i) take actions that result in criminal liability; (ii) engage in activities constituting harassment; or (iii) interfere with, coerce, or otherwise unethically convince a prospective or current agent’s choice of sponsorship declaration.

The supplementary income distributed to the sponsor under the Revenue Share Plan is exclusively derived from the Company's portion of the transaction commission.  Revenue Share supplemental income is not earned on transactions for which the Company does not receive a commission (e.g., when an FLQA has reached the maximum brokerage contribution threshold (i.e., has “capped”) and earns 100% of commission on its closed transactions). The Revenue Share Plan does not impact or reduce the commission earned by the FLQA on the transaction. The Company’s costs incurred under the Revenue Share Plan are included as commissions and other agent-related costs in the consolidated statements of comprehensive income.

The Revenue Share Plan is integral to our growth strategy, fostering a collaborative brokerage that aligns with our core values of sustainability and collaborative success. Regular evaluations are conducted to ensure the plan’s continued alignment with the Company's overarching objectives and for regulatory compliance.

We believed our Revenue Share Plan was crucial in attracting and retaining agents and teams, especially during a period marked by ongoing market contraction, due to lower transaction volumes and higher mortgage rates, and increased agent attrition from the industry. To further counter these challenges in 2024, we instituted a series of significant enhancements to certain new agent revenue programs, including the ICON Incentive Program and the Revenue Share Capping Incentive Program. Further, in 2024, we introduced REVenue Share 2.0, which simplified the earnings calculations and provided the agents with the ability to receive their revenue share payment instantly, for a small fee. These programs were designed to enhance agent earning potential and allow more instant access to earnings.

Agent Stock Ownership

In addition to utilizing aNPS and building programs based on our agents’ feedback, the Company fosters a culture of agent stock ownership through its Agent Growth Incentive Program (“AGIP”) and Agent Equity Program (“AEP”). Both stock programs align agents’ and brokers’ success with the Company’s performance. Under AGIP, agents and brokers can earn awards of the Company’s common stock by achieving production and agent attraction benchmarks, reinforcing their stake in the Company’s growth and success. The AEP further strengthens this ownership culture by allowing agents and brokers in participating jurisdictions to elect to receive 5% of their commission in Company common stock at a discounted market price. This program not only incentivizes participation but also underscores our commitment to attracting and retaining independent agents and brokers who are invested in the Company’s long-term success.

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Together, these programs are integral to our operational strategy, creating a community of stockholder-agents whose interests are aligned with the Company’s performance. While these initiatives contribute significantly to our commission structure and operating results, they are key to building a scalable, collaborative model that drives sustainable growth.

Additional information for our AGIP and AEP programs are more fully disclosed in Note 10 – Stockholders’ Equity to the consolidated financial statements included elsewhere in this Annual Report.

Operational Excellence

In addition to agent-focused efforts, we realized substantial cost savings from initiatives implemented in 2023 and continued to optimize our operating costs to align with revenue trends in 2024. Such initiatives included changing the annual in-person shareholders’ meeting to a virtual meeting, continuing to streamline our support organization, moving to a more decentralized, self-empowered frontline staff framework, deploying a seasonal flex offshore resource program for improved supply and demand alignment, and expanding our eXpert care level 1 support desk to include multi-language capabilities and beginning to leverage AI for mentor pairing, document reviews, and staff assistants. Finally, we have migrated to our proprietary web-based metaverse (Frame VR.io) virtual workspace for both staff and agents with over 2 million visits in 2024.

MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the volume of home sales transactions and prices, which can vary based on economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. Key economic factors influencing housing markets include economic growth, inflation, interest rates, unemployment, consumer confidence, mortgage availability, and the balance of supply and demand.

In periods of economic growth, rising consumer confidence and lower interest rates, demand typically increases resulting in higher home sales transactions and home sales prices. Conversely, in periods of economic recession, declining consumer confidence and higher interest rates, demand typically decreases, resulting in lower home sales transactions and home sale prices. Additionally, regulations imposed by local, state and federal government agencies and geopolitical instability can also negatively impact the housing markets in which we operate.

In 2024, the U.S. residential existing home sales market decreased 0.7% from 2023, according to preliminary data from the National Association of Realtors (“NAR”). NAR reported that the preliminary pending home sales index decreased 5.0% in December 2024 compared to December 2023 and decreased 2.7% for the full-year ended December 31, 2024, compared to the full-year of 2023. The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company believes that it remains well positioned for growth in the current economic climate. Despite the challenges of the current housing market, we have a strong base of agent support, which should drive organic market share growth, retention and productivity. Additionally, our efficient operating model, driven by our cloud-based platform and lack of brick-and-mortar locations, allows us to adapt swiftly to market changes while maintaining lower fixed costs.

We are confident in our ability to leverage our low-cost, high-engagement model. This approach affords agents and brokers increased income and ownership opportunities while offering a scalable and resilient solution to independent brokerage owners seeking to succeed amid economic fluctuations.

National Housing Inventory

In 2024, the continued relatively higher mortgage rates and higher home prices have caused inventory levels, as measured in months of supply, to rise. According to NAR, preliminary inventory of existing homes for sale in the U.S. was 1.2 million or 3.3 months at December 31, 2024, compared to 990,000 or 3.1 months at December 31, 2023.

According to preliminary data from the United States Census Bureau, new construction housing starts decreased by 4.4% in 2024, compared to 2023 and new construction housing completions decreased 0.8% in 2024 on a seasonally adjusted annual rate compared to 2023.

Mortgage Rates

Persistently high mortgage rates continue to negatively impact the demand for homebuying. Based on Freddie Mac data, the average rate for a 30-year, conventional fixed-rate mortgage was 6.85% in December 2024 compared to 6.61% in December 2023.

Housing Affordability Index

According to preliminary data from NAR, the composite housing affordability index decreased to 99.0 for November 2024 from 100.5 for December 2023. As home prices and interest rates have increased, the housing affordability index has become unfavorable. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase

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a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The unfavorable housing affordability index is due to increased mortgage rate conditions and higher average home prices driven by inventory levels.

Existing Home Sales Transactions and Prices

According to preliminary data from NAR, existing home sale transactions for the year ended December 2024 decreased 0.7% to 4.06 million compared to 4.09 million for the year ended December 2023.

According to preliminary data from NAR, nationwide existing home sales average price for December 2024 was $404,400, up 6% from $381,400 in December 2023. For full-year 2024 (preliminary) the nationwide existing home sales average price was $407,500, up 4.7% from $389,300 for full-year 2023.

SEGMENTS

The Company has three operating and reportable segments as follows: North American Realty, International Realty and Other Affiliated Services. We report corporate expenses, as further detailed below, as “Corporate expenses and other.” All segments follow the same basis of presentation and accounting policies. See Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report for additional information about the Company’s significant accounting policies.

Corporate expenses include costs incurred to operate eXp World Holdings, Inc., including expenses incurred in connection with strategic resources provided to the agents, as well as certain other centrally managed expenses that are not allocated to the operating segments, including administrative, brokerage operations and legal functions.

The CODM uses Adjusted Segment EBITDA as a key metric to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions and allocate resources.

The following discussion focuses on the operating performance of the Company for the years ended December 31, 2024, 2023, and 2022 and the financial condition of the Company as of December 31, 2024 and 2023.

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

Agent Net Promoter Score (aNPS)

aNPS is a scale-based measure of customer satisfaction and an aNPS above 50 is considered excellent. aNPS plays a crucial role in attracting and retaining agents and teams, especially during a period marked by ongoing market contraction, due to lower transaction volumes and higher mortgage rates, and increased agent attrition from the industry.

The Company’s aNPS improved to 76 in 2024 compared to 73 in 2023. Despite the challenging market conditions, aNPS improved due to significant investments in brokerage operations and enhancements to agent revenue programs, including ICON Incentive Program, the Revenue Share Capping Incentive Program, and REVenue Share 2.0.

Agent Count

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One of our key strengths is continuing to attract and retain productive real estate agent and broker professionals that contribute to our growth. We are also committed to providing agents with the tools to help them grow their business and increase their productivity. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general including interest rates, declining transaction volume in the U.S., and industry practice changes.

The number of agents declined (5.2)% in 2024, compared to 2023, as we continue to off board less productive agents. However, we have attracted and retained productive agents in the United States and Canada through the execution of our growth strategies and the end-to-end suite of services we offer our agents.

Real Estate Sales Transactions and Sales Volume

Real estate sales transactions are based on the side (buyer or seller) of each real estate transaction and are recorded when our agents and brokers represent buyers or sellers in the purchase or sale, respectively, of a home. The number of real estate transactions is a key driver of our revenue and profitability. Transaction volume represents the total sales value for all transactions and is influenced by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, economic growth, local inventory levels, mortgage interest rates, and seasonality.

Real estate sales transactions increased 2.7% in 2024, compared to 2023, primarily driven by increased sales volume in Canada and in our international markets. Real estate sales volume increased 9.4% in 2024, compared to 2023 driven by increased sales prices, and to a lesser extent, increased transactions.

Other real estate transactions

Other real estate transactions are recorded for leases, rentals and referrals that are undertaken by our agents and brokers.

Other real estate transactions increased 18% in 2024, compared to 2023. The increase in other real estate transactions was primarily driven by higher mortgage rates and affordability challenges shifting demand toward rentals, strategic expansion of our referral network and leasing services, enhanced agent productivity through training and technology improvements.

Real estate per transaction cost

Real estate per transaction cost is measured as selling, general and administrative, sales and marketing and technology and development expenses in North American Realty and International Realty segments, divided by total transactions (real estate sales transactions and other real estate transactions).

Real estate per transaction cost decreased (2.6)% in 2024, compared to 2023, primarily due to lower costs attributable to cost containment initiatives, partially offset by legal expenses related to the antitrust lawsuits.

Revenues

Revenues represent the commission revenue earned by the Company for closed brokerage real estate transactions.

Revenues increased 6.9% in 2024, compared to 2023, primarily driven by increased home sale prices, and higher sales transactions.

Revenues decreased (6.9)% in 2023, compared to 2022. Revenues decreased in 2023 primarily because of lower volume of real estate brokerage commissions, which is attributable to a decrease of overall real estate transactions and lower home sales prices in our markets, partially offset by growth in our agent base, compared to 2022.

Operating (Loss) Profit

The operating (loss) profit decreased ($19.5) million in 2024, compared to 2023. Operating (loss) profit in 2024 includes $34.0 million related to litigation contingency accrual and $4.9 million of impairment expense Operating profit, excluding the litigation contingency accrual and the impairment expense in 2024 improved substantially due to increased revenue, net of agent commissions and other agent-related costs and lower operating costs, partially offset by legal expenses related to the antitrust lawsuits.

Our operating profit decreased ($15.8) million in 2023, compared to 2022 due to a decrease in revenues partially offset by a decrease in operating expenses.

Adjusted EBITDA

Management reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance.

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Adjusted EBITDA increased $10.2 million in 2024, compared to 2023. The improvement in Adjusted EBITDA reflects increased revenues, partially offset by legal expenses related to antitrust lawsuits and higher operating costs.

Adjusted EBITDA decreased ($6.2) million in 2023, compared to 2022, which reflects lower revenues, partially offset by lower operating costs.

RECENT BUSINESS DEVELOPMENTS

North American Realty Initiatives

The Company continues to focus on growth in the United States and Canada by attracting and retaining top-producing agents while providing growth opportunities and support for agents at all stages of their careers. During 2024, the Company introduced various agent-focused initiatives and incentive programs designed to enhance agent earning potential and to attract culturally aligned agents, teams and independent brokerages to the Company. These programs include the ICON Incentive Program, the Revenue Share Capping Incentive Program, and REVenue Share 2.0, which offer unique financial incentives by lowering barriers to entry, facilitating seamless transitions to eXp, and rewarding agents for contributing to growth.

Additionally, the Company launched new ancillary programs and services to support the development and success of its agents, brokers, and clients. These initiatives include eXp Elevate Coaching, Global Agent Referral Platform, eXp Commercial Groups, new on-demand eXp University courses including the Fast Cap Training Program and Fast Start Series, and affiliate relationships with Sisu and Canva. In 2024, the Company acquired the assets of LUXVT to enhance our eXp Luxury agent program, which experienced continued growth throughout the year.

International Realty Initiatives

We have operations in the U.K., Australia, France, India, Mexico, Portugal, South Africa, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, the Dominican Republic, Greece, New Zealand, Chile, Poland and Dubai. During 2024, the Company announced plans to expand into Türkiye, Peru and Egypt, currently expected to be launched in 2025. The Company continues to pursue growth opportunities and increase market share in the countries where operations began in recent years. The Company has focused on increasing productivity throughout our international entities. Our operations in the U.K, South Africa, and France in particular are experiencing meaningful agent and transaction growth. During 2024, we launched the Global Agent Referral Program, which is designed to simplify and accelerate the real estate referral process and is part of our expansive set of innovative tools to empower our agents worldwide to effortlessly connect and collaborate, contributing to a robust and interconnected global marketplace.

Other Affiliated Services

In 2024, the Company strategically realigned its affiliated services to better meet the evolving needs of agents, brokers, and customers. In response to the increasing demand for mobile and web-accessible platforms, the Company fully transitioned to FrameVR.io, our web-based immersive 3D platform that facilitates seamless virtual collaboration without the need for extensive hardware or software installations. FrameVR.io enhances accessibility and user experience, aligning with our commitment to innovation. After December 31, 2024, the Company’s CODM began managing the FrameVR.io business as part of the North American Realty segment. As a result, in the first quarter of 2025, the Company reclassified FrameVR.io from the Other Affiliated Services segment to the North American Realty segment to align with this change in management approach.

SUCCESS® Enterprises LLC (“SUCCESS”) continued to empower personal and professional development through its diverse multi-media properties, including SUCCESS® magazine, SUCCESS.com, newsletters, podcasts, and the SUCCESS® speakers bureau. The print magazine industry has experienced significant disruptions over the last several years, driven by technological advancements, evolving consumer preferences and economic pressures. In September 2024, we launched SUCCESS+™, an all-inclusive subscription model powered by AI-driven coaching and DISC assessments, offering personalized learning experiences to our community. The organization continues to invest in robust sales and marketing initiatives, with a focus on expanding membership, subscribers, and clients across diverse industries and global sectors.

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RESULTS OF OPERATIONS

Year ended December 31, 2024 vs. Year ended December 31, 2023

Total revenues increased 7% due to higher home sales prices and an increase in real estate transactions in 2024, driven by improved agent productivity and increased international production in previously launched markets.

Commissions and other agent-related costs increased 7% primarily because of the increase in real estate transactions and increased home sales prices. Commissions and other agent-related costs include sales commissions, revenue share and stock-based compensation paid to our agents.

General and administrative expenses increased 2% due to increased employee-related expenses and increased legal expenses related to the antitrust lawsuits, partially offset by lower costs related to the shareholders summit in 2024, because it was conducted virtually, and lower eXpcon costs. General and administrative expenses include costs related to wages, employee stock compensation, and other general overhead expenses.

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Technology and development expenses decreased (2)%, primarily due to higher capitalized technology investments. These expenses include employee-related costs and other expenses related to the maintenance and development of the technology used by both our agents and our employees.

Sales and marketing expenses decreased (1)% in 2024 compared to 2023 due to decreased advertising in the U.S. and Canada residential real estate market.

Other (income) expense, net increased 9% primarily due to increased interest income when compared to 2023. Other (income) expense, net includes interest income earned on cash and cash equivalents, and (earnings) losses related to equity investments.

The Company’s provision for income tax (benefit) expense from continuing operations decreased $1.1 million from the year ended December 31, 2023. The decrease in income tax (benefit) expense was primarily attributable to the decrease in excess benefit from stock-based compensation in the current year.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 13 - Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information.

Year ended December 31, 2023 vs. Year ended December 31, 2022

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Total revenues decreased 7%, primarily because of the lower volume of real estate brokerage commissions, which is attributable to a decrease of overall real estate transactions and lower home sales prices in our markets, partially offset by growth in our agent base, compared to 2022.

Commissions and other agent-related costs decreased 6% primarily because of a decrease in overall real estate transactions and lower home sales prices, partially offset by growth in our agent base and an increase in agent-related stock-based compensation.

General and administrative expenses decreased 10% due to lower reported stock compensation expense, partially offset by increased employees, increased contract labor wages and compensation and increases in seminars and conferences expenses.

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Technology and development expenses increased 10%, primarily due to increased investment in technology.

Sales and marketing expenses decreased (21)% due to decreased advertising in the U.S. and Canada residential real estate market.

Other (income) expense, net increased primarily due to increased interest income when compared to 2022.

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The Company’s provision for income tax (benefit) expense from continuing operations decreased $8.2 million from the year ended December 31, 2022. The decrease in income tax benefit was primarily attributable to the decrease in excess benefit from stock-based compensation in 2023 and higher non-deductible executive compensation expenses.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 13 - Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information.

BUSINESS SEGMENT DISCLOSURES

See Note 11 – Segment Information to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding our business segments. The following table reflects the results of each of our reportable segments during the years ended December 31, 2024 and 2023:

North American Realty revenue increased 6% in 2024 compared to 2023 primarily due to an increase in average selling price in the U.S. and in overall real estate transactions in Canada, and improved agent productivity, partially offset by reductions in our agent base. Adjusted Segment EBITDA increased 9% primarily due to an increase in gross profit related to the increase in real estate transactions and increased home selling prices.

International Realty revenue increased 63% in 2024 compared to 2023 primarily due to increased real estate transactions driven by increased productivity in previously launched markets. Adjusted Segment EBITDA improved in 2024 compared to 2023 due to gross profit improvements related to increase in revenue.

Other Affiliated Services revenue increased 27% due to an increase in FrameVR.io technology revenue, partially offset by a decrease in coaching revenue. Adjusted Segment EBITDA decreased by (28)% primarily due to an increase in personnel costs.

Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty. Corporate expenses increased 13% in 2024 compared to 2023.

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LIQUIDITY AND CAPITAL RESOURCES

This section generally discusses items pertaining to and comparisons of financial results between 2024 and 2023. Discussions of 2022 items and comparisons between 2023 and 2022 liquidity and capital resources can be found in “Management’s Discussion and Analysis Liquidity and Capital Resources” in Part II, Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 MD&A”). The 2023 MD&A is incorporated by reference herein from Part II, Item 7 of our annual report on Form 10-K filed on February 22, 2024 (Commission File No. 001-38493).

Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock and meet obligations as they become due. At present, our cash and cash equivalents balances and cash flows from operations have remained positive, as we focused on cost savings initiatives and operational excellence despite the challenging market conditions of 2024.

Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses. During 2024, we utilized our cash on hand to support our agent productivity, growth initiatives and investment in technology, and to a lesser extent, for repurchases of our common stock and quarterly cash dividends. There can be no assurance that future cash dividends will be declared by the Board of Directors or that the stock repurchase program will be sustained or proceed at historical levels.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 14 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report.

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our normal operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including the outcome of pending antitrust litigation settlement, our level of investment in technology, our rate of growth into new markets and cash used to pay quarterly cash dividends and repurchase shares of the Company’s common stock. Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates and other monetary and fiscal policy changes to the manner in which we currently operate. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months.

We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements. As of December 31, 2024, our cash and cash equivalents totaled $113.6 million. Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds. We currently do not hold any other marketable securities.

Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital for the periods presented:

As of December 31, 2024, net working capital decreased ($42.7) million, or (34)%, compared to the prior year, primarily due a decrease in cash and cash equivalents of ($12.3) million and an increase in the litigation contingency accrual of $34 million related to the antitrust lawsuits, partially offset by an increase in accounts receivable of $2.3 million and a decrease in accrued expenses of ($0.8) million.

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Cash Flows

The following table presents our cash flows for the periods presented:

For the year ended December 31, 2024, cash provided by operating activities decreased (8)% compared to the same period in 2023, primarily due to lower agent equity program participation in 2024, partially offset by an increase in gross profit net of agent commission and related expenses.

For the year ended December 31, 2024, cash used in our investing activities increased 44% compared to the same period in 2023, primarily due to an increase in cash spend of ($6.2) million in acquisitions, and an increase in purchases of property, plant, and equipment, partially offset by a decrease in investments unconsolidated subsidiaries.

For the year ended December 31, 2024, cash used in financing activities decreased by (7)%, compared to the same period in 2023, primarily related to lower repurchases of our common stock of ($19.4) million compared to 2023, partially offset by decreased proceeds from stock option exercises $3.0 million and an increase in dividend payments of $1.6 million compared to 2023.

Outlook

As we continue to scale our Company by investing in people, technology and processes, we believe we are well positioned to grow productive agents and revenues in the U.S., Canada and selectively international markets.

These statements involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in them. Factors include, among others, (i) changes in demand for the Company’s services and changes in consumer behavior; (ii) macroeconomic conditions beyond our control; (iii) the Company’s ability to effectively maintain its infrastructure to support its operations and initiatives; (iv) the impact of governmental regulations related to the Company’s operations; (v) the outcome of ongoing antitrust litigation; and (vi) other factors, as described in this Annual Report in Part II, Item 1A, “Risk Factors.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available as of the reporting date of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

Stock-based compensation

Our stock-based compensation is comprised of AGIP, AEP, stock option awards and restricted stock units. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value and the stock-based compensation cost is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met. The Company estimates the share-based liability based on estimated performance probabilities using our most recent estimates on probable achievement of the performance measures established under our AGIP. These estimates are calculated based on the agent’s historical performance for each award type. Also, the requisite service period at the grant date of performance awards is estimated based on the probability of the period of time it will take an agent to meet the performance metric. The value of the stock award is amortized over this period and recognized as stock-based compensation expense starting on the grant date.

If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See Note 10 – Stockholders’ Equity to the consolidated financial statements

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included elsewhere in this Annual Report, for more information regarding the assumptions used in estimating the fair value of our awards.

Revenue recognition

The Company generates substantially all of its revenue from North American Realty and International Realty and generates a de minimis portion of its revenues from other affiliated professional services.

North American Realty and International Realty

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing real estate transactions. The Company is contractually obligated to provide services for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services necessary to legally represent the transfer of real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. As principal and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled.

Revenue is derived from assisting homebuyers and sellers in listing, marketing, selling and finding real estate. Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation. Agent-related fees are currently recorded as a reduction to commissions and other agent-related costs.

At each reporting period, we estimate and accrue revenue for closed transactions for which we are entitled to but have not yet received the closing documents due to timing of when a transaction settles. The accrual for estimated revenue was immaterial for the years ended December 31, 2024 and 2023.

Business combinations

The Company accounts for business combinations using the acquisition method of accounting, under which the consideration for the acquisition is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities assumed at the fair values as of the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as incurred and not considered in determining the fair value of the acquired assets.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates and other market factors. Significant assumptions used in determining the allocation of fair value include the following valuation techniques: the cost approach, the income approach and the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

At the acquisition date, the Company recognizes the identifiable acquired assets, liabilities assumed and contingent liabilities (identifiable net assets) of the acquired company on the basis of fair value. Recognized assets and liabilities assumed may be adjusted during a maximum of one year from the acquisition date (the “measurement period”), depending on new information obtained about the facts and circumstances in existence at the acquisition date.

If current expectations of future growth rates are not met or market factors outside of our control change significantly, then our goodwill or intangible assets may become impaired. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or macroeconomic conditions deteriorate.

Income taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized. Our assumptions, judgments, and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income. As of December 31, 2024, based on our assessment of the realizability of the net deferred tax assets, we reached the conclusion that some of our net deferred tax assets will most likely not be fully realized and therefore a valuation allowance of $0.02 million was recorded.

Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions related to income taxes have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.

See Note 13 – Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information related to our income tax positions.

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Litigation

We recognize expenses for legal claims when payments associated with the claims become probable and can be reasonably estimated. Actual costs of resolving legal claims could have a material adverse impact on our results of operations and cash flow. While the currently pending derivative litigation presents various reasonably possible outcomes, the financial impact(s) of such litigation is not presently estimable. Separately, the currently pending US and Canadian antitrust litigation presents various reasonably possible outcomes; however, we have accrued $34.0 million as of December 31, 2024, to reflect the terms of the US Hooper Settlement, as the loss is deemed probable and reasonably estimable under ASC 450. For the Canadian antitrust litigation, no accrual has been made as a loss is not probable, and a reasonable estimate cannot yet be determined. See Note 14 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report for further information related to our litigation.

NON-U.S. GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA and Adjusted Segment EBITDA, non-U.S. GAAP financial measures, to understand and evaluate our core operating performance. These non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We define the non-U.S. GAAP financial measure of Consolidated Adjusted EBITDA to mean net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense and stock option expense. Adjusted Segment EBITDA is defined as operating profit plus depreciation and amortization and stock-based compensation expenses, impairment expense and litigation contingency expense. We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA. In particular, we believe the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

We are presenting the non-U.S. GAAP measures of Adjusted EBITDA and Adjusted Segment EBITDA to assist investors in seeing our financial performance through the eyes of management and because we believe these measures provide additional tools for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA and Adjusted Segment EBITDA compared to net income, the closest comparable U.S. GAAP measure. Some of these limitations are:

The following tables present a reconciliation of Adjusted EBITDA, the most comparable U.S. GAAP financial measure, for each of the periods presented:

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The primary driver for the increase in Adjusted EBITDA was increased revenues, partially offset by increased commissions and other agent-related expenses and slightly higher general and administrative expenses.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about material information relevant to an assessment of the financial condition and results of operations of eXp World

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Holdings, Inc. and its subsidiaries for the three-year period ended December 31, 2023. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this Annual Report. This discussion contains forward-looking statements that constitute our estimates, plans and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Statements” and “Item 1A. – Risk Factors” included elsewhere within this Annual Report on Form 10-K for a discussion of certain risks, uncertainties and assumptions associated with these statements.

This section generally discusses items pertaining to and comparisons of financial results between 2023 and 2022. Discussions of 2021 items and comparisons between 2022 and 2021 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 MD&A”). The 2022 MD&A is incorporated by reference herein from Part II, Item 7 of our annual report on Form 10-K filed on February 28, 2023 (Commission File No. 001-38493).

This MD&A is divided into the following sections:

All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

OVERVIEW

eXp is a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform. The Chief Operating Decision Maker (“CODM”) manages the business and allocates resources as four separate operating segments. See additional information in Note 10 –Segment Information to the consolidated financial statements included elsewhere in this Annual Report.

eXp manages its operations in four operating business segments: North American Realty; International Realty; Virbela; and Other Affiliated Services.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions.

Strategy

Our strategy is to grow organically in the North American and certain international markets by increasing our independent agent and broker network. Through our cloud-based operations and technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate. By building partnerships and strategically deploying capital, we seek to grow the business and enter attractive vertical and adjacent markets.

In 2023, our primary emphasis was on achieving operational excellence, which we monitor using agent Net Promoter Score (“aNPS”). aNPS plays a crucial role in attracting and retaining agents and teams, especially during a period marked by market contraction, due to lower transaction volumes and higher mortgage rates. To counter these challenges, we instituted a series of strategic initiatives including Boost, Thrive, Accelerate, and Masterminds, with a sustained emphasis on agent productivity. Through these initiatives, we were able to increase our agent count by 2% compared to the prior year, despite difficult market conditions. Furthermore, we were able to increase our market share of total transactions. Additionally, we implemented cost savings initiatives that we believe will better position us to grow as real estate market conditions improve. We remain focused on optimizing our operating costs to match our revenue trends.

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One critical area of capital deployment is our Sustainable Revenue Share Plan (the “Revenue Share Plan”), whereby we pay real estate professionals affiliated with the Company a portion of eXp Realty’s commission for their contribution to Company growth. We launched the Revenue Share Plan when the Company was in its infancy as a competitive differentiator that has since disrupted the residential real estate brokerage model. Participants in the Revenue Share Plan are eligible to receive additional income from the Company’s closed real estate transactions based on the participant’s number of frontline qualifying active (“FLQA”) agents. An FLQA agent is an agent or broker that a participant (“sponsor”) has personally attracted to the Company and who has met specific real estate transaction volume requirements. Revenue share is paid to the sponsor from the commission earned by the Company on transactions closed by the sponsor’s FLQAs. Additionally, all sponsors must adhere to eXp’s policies and procedures and may not, among other things: (i) take actions that result in criminal liability; (ii) engage in activities constituting harassment; or (iii) interfere with, coerce, or otherwise unethically convince a prospective or current agent’s choice of sponsorship declaration.

The supplementary income distributed to the sponsor under the Revenue Share Plan is exclusively derived from the Company's portion of the transaction commission and is not earned on transactions for which the Company does not receive a commission (e.g., when an FLQA has capped and earns 100% of commission on its closed transactions). The Revenue Share Plan does not impact or reduce the commission earned by the FLQA on the transaction. The Company’s costs incurred under the Revenue Share Plan are included as commissions and other agent-related costs in the consolidated statements of comprehensive income.

The revenue share program is integral to our growth strategy, fostering a collaborative brokerage that aligns with our core values of sustainability and collaborative success. Regular evaluations are conducted to ensure the plan’s continued alignment with the Company's overarching objectives and for regulatory compliance.

MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the levels of home sales transactions and prices, which can vary based on economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, rising consumer confidence and lower interest rates, demand typically increases resulting in higher home sales transactions and home sales prices. Conversely, in periods of economic recession, declining consumer confidence and higher interest rates, demand typically decreases, resulting in lower home sales transactions and home sale prices. Additionally, regulations imposed by local, state and federal government agencies and geopolitical instability can also negatively impact the housing markets in which we operate.

In 2023, the existing home sales market declined 18.7%, according to preliminary data from the National Association of Realtors (“NAR”), the lowest level in nearly 30 years. Due to increasing interest rates and continued low inventory of homes for sale, the market contraction that began in the second quarter of 2022 continued through 2023. According to preliminary NAR housing statistics, existing home sales continued to decline to 4.09 million for the year ended December 31, 2023, down 18.7% from 2022. NAR reported that the preliminary pending home sales index increased 1.3% in December 2023 compared to December 2022, and decreased 16.8% for the full-year ended December 31, 2023, compared to the full-year of 2022. The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company believes that it continues to be well-positioned for growth in the current economic climate. We have a strong base of agent support, which should drive organic market share growth, retention and productivity. Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based model, with no brick-and-mortar locations.

Regardless of whether the housing market continues to decline or growth returns, we continue to believe that we are positioned to leverage our low-cost, high-engagement model, which affords agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to prosper amidst fluctuations in economic activity.

National Housing Inventory

In 2023, the continued increase of mortgage rates and higher home prices have caused inventory levels, as measured in months of supply, to rise. According to the United States Census Bureau, new construction housing starts decreased by 9% in 2023, compared to 2022; however, new construction housing completions increased 4.5% in 2023 compared to 2022. According to NAR, inventory of existing homes for sale in the U.S. was one million.

Mortgage Rates

Persistently high mortgage rates continue to negatively impact the demand for homebuying. Based on Freddie Mac data, the average rate for a 30-year, conventional fixed-rate mortgage was 6.61% in December 2023 compared to 6.42% in December 2022. Mortgage rates are expected to decline in 2024 due to continued moderate levels of inflation, which we expect to boost homebuyer demand and homebuilder sentiment.

Housing Affordability Index

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According to NAR, the composite housing affordability index decreased to 94.2 for November 2023 (preliminary) from 109.3 for December 2022. As home prices and interest rates have increased, the housing affordability index has become unfavorable. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The unfavorable housing affordability index is due to increased mortgage rate conditions and higher average home prices driven by inventory levels.

Existing Home Sales Transactions and Prices

According to NAR, existing home sale transactions for the year ended December 2023 (preliminary) decreased to 4.09 million compared to 5.03 million for the year ended December 2022. NAR believes that December 2023 represented the bottom of the housing market during the current cycle and expects a return to growth in 2024.

According to NAR, nationwide existing home sales average price for December 2023 (preliminary) was $382,600, up 4.4% from $366,500 in December 2022, the sixth consecutive month of year-over-year price increases. For full-year 2023 (preliminary) the nationwide existing home sales average price was $389,800, up 0.9% from $386,400 for full-year 2022.

SEGMENTS

The Company has four operating segments and four reportable segments.

The CODM uses Adjusted Segment EBITDA as a key metric to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions and allocate resources.

The Company has four reportable segments as follows: North American Realty, International Realty, Virbela and Other Affiliated Services. We report corporate expenses, as further detailed below, as “Corporate expenses and other.” All segments follow the same basis of presentation and accounting policies. See Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report for additional information about the Company’s significant accounting policies.

Corporate expenses include costs incurred to operate eXp World Holdings, Inc., including expenses incurred in connection with strategic resources provided to the agents, as well as certain other centrally managed expenses that are not allocated to the operating segments, including administrative, brokerage operations and legal functions.

The following discussion focuses on the operating performance of the Company for the years ended December 31, 2023 and 2022 and the financial condition of the Company as of December 31, 2023.

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

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One of our key strengths is attracting real estate agent and broker professionals that contribute to our growth. Real estate sales transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home. Other real estate transactions are recorded for leases, rentals and referrals. The number of real estate transactions is a key driver of our revenue and profitability. Transaction volume represents the total sales value for all transactions and is influenced

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by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, economic growth, local inventory levels, mortgage interest rates, and seasonality. Real estate transaction revenue represents the commission revenue earned by the Company for closed brokerage real estate transactions. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general including rising interest rates and declining transaction volume in the U.S.

We continue to increase our agents and brokers in the United States and Canada through execution of our growth strategies despite a challenging market. Settled home purchases and sales transactions and volume result from closed real estate transactions and typically fluctuate directionally with changes in the market’s existing home sales transactions as reported by NAR, with disproportionate variances representative of company-specific improvements or shortfalls. Our real estate sales transaction decline was directly related to the decline in existing home sales in the U.S. in 2023 compared to 2022 as reported by the NAR.

We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S. (“U.S. GAAP”), to assess eXp’s financial performance from period to period.

Gross profit is calculated from U.S. GAAP reported amounts and equals the difference between revenue and cost of sales. Gross margin is the calculation of gross profit as a percentage of total revenue. Commissions and other agent-related costs represent the cost of sales for the Company. The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue. Gross profit is based on the information provided in our results of operations on our consolidated statements of comprehensive income and is an important measure of our potential profitability and brokerage performance. For the years ended December 31, 2023, 2022 and 2021, gross profit was $324.1 million, $366.9 million and $296.0 million, respectively. Reported gross profit decreased year-over-year primarily due to a decrease in real estate transactions and an increase in reported agent-related stock-based compensation expense, compared to 2022. For the years ended December 31, 2023, 2022 and 2021, gross margin was 7.6%, 8.0% and 7.8%, respectively. Gross margin in 2023 decreased from 2022 primarily due to a lower volume of real estate transactions and an increase in agent-related stock-based compensation.

Management also reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. For the year ended December 31, 2023 adjusted EBITDA declined due to lower revenue, and increased operating costs.

RECENT BUSINESS DEVELOPMENTS

North American Realty Initiatives

The Company continues to focus on growth in the United States and Canada. During 2023, the Company announced various new agent incentive programs to enhance the agent experience and to attract culturally aligned agents, teams and independent brokerages to the Company. New incentive programs include Boost, Accelerate, and Thrive, which offer unique financial incentives. During 2023, the Company also launched various new ancillary programs and services to support the development and success of its agents, brokers and customers, including the global expansion of eXp Luxury™, Military Rewards Program, Listing Kits, Bundle Select™, eXp Exclusives™, My Link My Lead™, and affiliate relationships like HomeHunter™.

International Realty Initiatives

We have operations in the U.K., Australia, France, India, Mexico, Portugal, South Africa, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, the Dominican Republic, Greece, New Zealand, Chile, Poland and Dubai. The Company continues to pursue growth opportunities and increase market share in the countries where operations began in recent years. The Company has focused on increasing productivity throughout our international entities. Our operations in the U.K and South Africa, in particular are seeing meaningful agent and transaction growth. During 2023, the eXp Luxury program expanded into Puerto Rico, the United Kingdom, Australia, New Zealand and South Africa.

Virbela

We continue to develop the core Virbela enterprise virtual world technology and the newer WebXR FrameVR (“Frame”) platform through our subsidiary, eXp World Technologies, LLC. Frame is a metaverse collaboration technology that is accessible from any device with a browser such as mobile, personal computer, virtual reality device and tablet. As the post-COVID return-to-office trend continues, there's a clear surge in demand for on-the-go technology solutions. While the application-based Virbela platform has seen a decrease in demand, the web-accessible Frame platform is gaining traction. Keeping these market trends in mind, we continue to evaluate our capital deployments between our various platform offerings, while continuing to service existing and new contracts for both platforms. As a result of the changing market conditions, in the fourth quarter of 2023, the Company determined that the goodwill and certain intangible assets associated with Virbela were impaired. As a result of the impairment test, the Company recognized impairment charges of $9.2 million for goodwill and intangible assets for the year ended December 31, 2023.

Other Affiliated Services

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SUCCESS Enterprises LLC (“SUCCESS”) is a multi-media company which includes SUCCESS® print magazine, SUCCESS.com, SUCCESS® newsletters, SUCCESS® podcasts, SUCCESS® plus (digital training courses), SUCCESS® speakers bureau, and SUCCESS coaching.

In 2023, SUCCESS made strategic investments in leadership and established cross-functional departments dedicated to content creation, media relations, and business development. A streamlined strategy unified the entire ecosystem to capitalize on the brand’s strength, attract renowned personalities as cover talent such as Chance The Rapper, Tamron Hall, Steve Aoki, and others, and substantially enhance media exposure through successful appearances on programs like "The View" and "The Tamron Hall Show," reaching an audience of over four million viewers. Strategic partnerships brought new programs and content and expanded our customer offerings and reach.

The organization continues to invest in robust sales and marketing initiatives and funnels, with a focus on expanding membership, subscribers, and clients across diverse industries and global sectors. Several new customer-centric offerings are being rolled out including: a cutting-edge digital magazine, immersive virtual and live events, new online courses, comprehensive whole-life coaching services, and the inauguration of The SUCCESS Magazine Podcast. We expect these new initiatives will attract and engage new audiences and contribute to the growth of the organization.

Company-Wide Initiatives

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents’ and employee experience. In doing so, we have adopted many of the principles of the Net Promoter Score® (“NPS”) across many aspects of our organization. NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100. A NPS above 50 is considered excellent. The Company’s aNPS was 73 for 2023 and 77 in the fourth quarter. Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?" or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees. In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

The NPS process is an important vehicle for delivering our core values of transparency. While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS. As NPS scores are often leading indicators to agents and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score. This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing and employee benefits.

The Company continues to expand agent growth opportunities in this uncertain market and has introduced programs such as Boost, Accelerate, and Thrive. Boost is a program that provides a financial incentive for culturally aligned independent brokerages to join our global platform. Accelerate is a program for individual agents who join the Company to experience enhanced revenue share capabilities with their second and third lines open for an initial amount of time. Thrive is a program for culturally aligned teams that provides a stock incentive to the team leader to relocate his or her team to the Company.

Agent Ownership

The Company maintains an agent growth incentive program (“AGIP”) whereby agents and brokers of eXp Realty can become eligible for awards of the Company’s common stock through the achievement of production and agent attraction benchmarks. Under our equity incentive program, agents and brokers who qualify are issued shares of the Company’s common stock and it continues to be another element in creating a culture of agent-ownership.

Our agent equity program (“AEP”) represents a key lever in our strategy to attract and retain independent agents and brokers. Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock at a 10% discount to the market price of our common stock. Our operational strategy and the importance of the AEP and AGIP to our strategy have not changed.

The costs attributable to these plans are also a significant component of our commission structure and our results of operations.

Additional information for our AGIP and AEP programs are more fully disclosed in Note 9 – Stockholders’ Equity to the consolidated financial statements included elsewhere in this Annual Report.

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RESULTS OF OPERATIONS

Year ended December 31, 2023 vs. Year ended December 31, 2022

Revenue

Our total revenues were $4.3 billion in 2023 compared to $4.6 billion in 2022, a decrease of ($317.1) million, or (7)%. Total revenues decreased primarily as a result of lower volume of real estate brokerage commissions, which is attributable to a decrease of overall real estate transactions and lower home sales prices in our markets, partially offset by growth in our agent base, compared to 2022.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $4.0 billion in 2023 compared to $4.2 billion in 2022, a decrease of ($274.2) million, or (6)%. Commission and other agent-related costs include sales commissions paid and are reduced by agent-related fees. Commission and other agent-related costs decreased primarily because of a decrease in overall real estate transactions and lower home sales prices, partially offset by growth in our agent base and an increase in agent-related stock-based compensation.

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General and Administrative Expense

General and administrative expenses were $319.2 million in 2023 compared to $346.1 million in 2022, a decrease of ($27.0) million, or (8)%. The decrease in general and administrative expenses was due to lower reported stock compensation expense, partially offset by increased employees, increased contract labor wages and compensation and increases in seminars and conferences expenses.

Sales and Marketing

Sales and marketing expenses were $12.2 million in 2023 compared to $15.4 million in 2022, a decrease of ($3.2) million, or (21)%. Sales and marketing costs include lead capture costs and promotional materials. Sales and marketing expenses decreased primarily as a result of a decrease in advertising costs of ($1.8) million and internet advertising costs of ($1.3) million.

Impairment expense

2023 includes impairment charges for goodwill and amortizable intangible assets of $9.2 million related to the Virbela segment.

Other (Income) Expense, Net

Other (income) expense in 2023 and 2022 includes interest income partially offset by equity in losses of unconsolidated subsidiaries.

Income Tax Benefit (Expense)

The Company's provision for income taxes amounted to a benefit of ($4.5) million, a benefit decrease of $6.4 million for the year ended December 31, 2023. The decrease in income tax benefit was primarily attributable to the decrease in excess benefit from stock-based compensation in current year and higher non-deductible executive compensation expenses.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 13 - Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information.

BUSINESS SEGMENT DISCLOSURES

See Note 10 – Segment Information to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding our business segments. The following table reflects the results of each of our reportable segments during the years ended December 31, 2023 and 2022:

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2023 Compared to 2022

North American Realty revenue decreased (7)% in 2023 compared to 2022 primarily due to a decrease in overall real estate transactions, driven by market conditions, partially offset by growth in our agent base. Adjusted EBITDA decreased (12)% due to decrease in gross profit related to the decline in real estate transactions, and increases in selling, general and administrative expenses resulting from increased headcount to support our agent growth strategy.

International Realty revenue increased 50% in 2023 compared to 2022 primarily due to increased real estate transactions driven by increased productivity in previously launched markets. Adjusted EBITDA was relatively flat in 2023 compared 2022 due to gross profit improvements related to increase in revenue, partially offset by increased selling, general and administrative expenses to support the increased production in existing operations.

Virbela revenue decreased (14)% due to softer customer demands for virtual events resulting from the post-COVID 19 work environment of return to the office and hybrid work globally, as well as the increase in the demand for artificial intelligence solutions. Adjusted EBITDA increased 41% primarily due to workforce reductions and decrease in marketing and advertising expenses.

Other Affiliated Services revenue decreased (6)% due to a decrease of coaching revenue as a result of a reset of the business strategy. Adjusted EBITDA decreased by (46)% primarily due to an increase in personnel costs and the decrease in revenue.

Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty. The decrease in these costs reflects the impact of cost cutting initiatives.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock and meet obligations as they become due. At present, our cash and cash equivalents balances and cash flows from operations have remained positive, as we have continued to grow our agent count and focus on operational excellence despite the challenging market conditions of 2023.

Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses. Our current capital deployment strategy for 2024 is to utilize our cash on hand to support our agent productivity, growth initiatives and investment in technology, and to a lesser extent, for repurchases of our common stock and quarterly cash dividends. There can be no assurance that future cash dividends will be declared by the Board of Directors or that the stock repurchase program will be sustained or proceed at historical levels.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report.

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our normal operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including the outcome of pending antitrust litigation, our level of investment in technology, our rate of growth into new markets and cash used to pay quarterly cash dividends and repurchase shares of the Company’s common stock. Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates and other monetary and fiscal policy changes to the manner in which we currently operate. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months.

We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements. As of December 31, 2023, our cash and cash equivalents totaled $126.9 million. Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds. We currently do not hold any marketable securities.

During 2022, our unconsolidated joint venture, SUCCESS Lending, obtained $25 million in revolving warehouse credit lines from each of Flagstar Bank FSB and Texas Capital Bank, which represent off-balance sheet financing arrangements for the Company. The Company’s capital liability under the warehouse credit lines is limited to $3.25 million in the aggregate. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial

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condition, results of operations, liquidity, capital expenditures, or capital resources. For information regarding the warehouse credit agreements, see Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report.

Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital for the periods presented:

As of December 31, 2023, net working capital decreased ($3.0) million, or (2)%, compared to the prior year, primarily due to a decrease in accounts receivable of ($1.3) million, partially offset by an increase in accrued liabilities of $9.2 million and an increase in cash and cash equivalents of $5.3 million. The decrease of accounts receivable was due to lower real estate transactions in the fourth quarter 2023 compared to the fourth quarter 2022.

Cash Flows

The following table presents our cash flows for the periods presented:

For the year ended December 31, 2023, cash provided by operating activities decreased modestly compared to the same period in 2022.

For the year ended December 31, 2023, cash used in our investing activities decreased primarily due to a decrease of ($6.7) million in capital expenditures and an increase of $5.4 million invested in unconsolidated subsidiaries in the current year offset by $9.9 million Zoocasa business acquisition in 2022.

For the year ended December 31, 2023, cash used in financing activities decreased primarily related to lower repurchases of our common stock of $18.9 million and increased proceeds from stock option exercises $4.3 million compared to 2022 partially offset by an increase in dividend payments of $3.3 million compared to 2022.

Outlook

As we continue to scale our Company by investing in people, technology and processes, we expect to increase market share, agent base and real estate transaction volume in the U.S. and Canada and selectively grow in the international markets.

These operating ambitions are not forecasts and do not reflect our expectations, but rather are aspirational targets for future performance that may never be realized. These statements involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in them. Factors include, among others, (i) changes in demand for the Company’s services and changes in consumer behavior; (ii) macroeconomic conditions beyond our control; (iii) the Company’s ability to effectively maintain its infrastructure to support its operations and initiatives; (iv) the impact of governmental regulations related to the Company’s operations; (v) the outcome of ongoing antitrust litigation; and (vi) other factors, as described in this Annual Report in Part II, Item 1A, “Risk Factors.”

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

Stock-based compensation

Our stock-based compensation is comprised of agent growth incentive programs, agent equity program and stock option awards. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value and the stock-based compensation cost is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met. The Company estimates the share-based liability based on estimated performance probabilities based on our most recent estimates on probable achievement of the performance measures established under our agent growth incentive program. These estimates are calculated based on the agent’s historical performance for each award type. Also, the requisite service period at the grant date of performance awards is estimated based on the probability of the period of time it will take an agent to meet the performance metric. The value of the stock award is amortized over this period and recognized as stock compensation expense starting on the grant date.

If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See Note 9 – Stockholders’ Equity to the consolidated financial statements included elsewhere in this Annual Report, for more information regarding the assumptions used in estimating the fair value of our awards.

Revenue recognition

The Company generates substantially all of its revenue from North American Realty and International Realty and generates a de minimis portion of its revenues from software subscription and professional services.

North American Realty and International Realty

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing real estate transactions. The Company is contractually obligated to provide services for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services necessary to legally represent the transfer of real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. As principal and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled.

Revenue is derived from assisting homebuyers and sellers in listing, marketing, selling and finding real estate. Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation. Agent-related fees are currently recorded as a reduction to commissions and other agent-related costs.

At each reporting period, we estimate and accrue revenue for closed transactions for which we are entitled to but have not yet received the closing documents due to timing of when a transaction settles. The accrual for estimated revenue was immaterial for the years ended December 31, 2023 and 2022.

Business combinations

The Company accounts for business combinations using the acquisition method of accounting, under which the consideration for the acquisition is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities assumed at the fair values as of the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as incurred and not considered in determining the fair value of the acquired assets.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates and other market factors. Significant assumptions used in determining the allocation of fair value include the following valuation techniques: the cost approach, the income approach and

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the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

At the acquisition date, the Company recognizes the identifiable acquired assets, liabilities assumed and contingent liabilities (identifiable net assets) of the acquired company on the basis of fair value. Recognized assets and liabilities assumed may be adjusted during a maximum of one year from the acquisition date (the “measurement period”), depending on new information obtained about the facts and circumstances in existence at the acquisition date.

If current expectations of future growth rates are not met or market factors outside of our control change significantly, then our goodwill or intangible assets may become impaired. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or macroeconomic conditions deteriorate.

Goodwill impairment

Goodwill is not amortized but is subject to impairment testing. We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. No additional impairment steps are necessary if we qualitatively determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. An impairment loss for goodwill would be recognized based on the difference between the carrying value and its estimated fair value, which would be determined based on either discounted future cash flows or another appropriate fair value method.

The evaluation of goodwill for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP, including, but not limited to, economic, industry and company-specific qualitative factors, projected future net sales, operating results and cash flows. Although we currently believe the estimates used in the evaluation of goodwill are reasonable, differences between actual and expected net sales, operating results and cash flows and/or changes in the discount rates used could cause these assets to be deemed impaired. If this were to occur, we would be required to record a non-cash charge to earnings for the write-down in the value of the goodwill, which could have a material adverse effect on our results of operations and financial position but not on our cash flows from operations.

During the fourth quarter of 2023, we performed an assessment of goodwill. The Company determined that the goodwill associated with Virbela, the Company’s technology segment, was impaired. During the impairment evaluation, the Company determined that the projection for future cash flows associated with Virbela had declined significantly resulting from the post-COVID 19 work environment of return to the office and hybrid work initiatives globally, as well as the increase in the demand for artificial intelligence solutions. Based on this determination, the Company determined that the estimated fair value was significantly lower than the book value of Virbela and the goodwill associated with Virbela should be impaired. As a result of the impairment test, the Company recognized an impairment charge of $8,248 for goodwill in the fourth quarter of 2023.

To perform these assessments, we identified and analyzed macroeconomic conditions, industry and market conditions and Company-specific factors. As a result of the analysis performed, management believes the estimated fair value of the reporting units continue to exceed their carrying values and does not represent a more likely than not possibility of potential impairment.

Income taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized. Our assumptions, judgments, and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income. As of December 31, 2023, based on our assessment of the realizability of the net deferred tax assets, we reached the conclusion that our net deferred tax assets will most likely be fully realized and therefore no valuation allowance was recorded.

Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions related to income taxes have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.

See Note 12 – Income Taxes to the consolidated financial statements included elsewhere in this Annual Report for further information related to our income tax positions.

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Litigation

We recognize expenses for legal claims when payments associated with the claims become probable and can be reasonably estimated. Actual costs of resolving legal claims could have a material adverse impact on our results of operations and cash flow. While the currently pending antitrust litigation presents various reasonably possible outcomes, the financial impact(s) of such litigation is not presently estimable. See Note 13 – Commitments and Contingencies to the consolidated financial statements included elsewhere in this Annual Report for further information related to our litigation.

NON-U.S. GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We define the non-U.S. GAAP financial measure of Consolidated Adjusted EBITDA to mean net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense and stock option expense. Adjusted Segment EBITDA is defined as operating profit plus depreciation and amortization and stock-based compensation expenses and impairment expense. We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA. In particular, we believe the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net income, the closest comparable U.S. GAAP measure. Some of these limitations are that:

The following tables present a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP financial measure, for each of the periods presented:

The primary driver for the changes in Adjusted EBITDA was lower net income attributable to lower revenue and impairment charges, partially offset by reduced operating costs.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about material information relevant to an assessment of the financial condition and results of operations of eXp World Holdings, Inc. and its subsidiaries for the three-year period ended December 31, 2022. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements that constitute our estimates, plans and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Statements” and “Item 1A. – Risk Factors” included elsewhere within this Annual Report on Form 10-K for a discussion of certain risks, uncertainties and assumptions associated with these statements.

This section generally discusses items pertaining to and comparisons of financial results between 2022 and 2021. Discussions of 2020 items and comparisons between 2021 and 2020 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 MD&A”). The 2021 MD&A is incorporated by reference herein from Part II, Item 7 of our Annual Report on Form 10-K dated February 25, 2022 (Commission File No. 001-38493).

This MD&A is divided into the following sections:

All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

OVERVIEW

eXp is a diversified portfolio of service-based businesses whose operations benefit substantially from utilizing our enabling technology platform. Effective in December 2022, the Chief Operating Decision Maker (“CODM”) began managing the business and allocating resources as four separate operating segments. The change to business segments aligns with how the CODM assesses performance and allocates resources for the Company’s business segments. Information provided herein reflects the impact of this change for all periods presented. See additional information in Note 14 –Segment Information.

eXp manages its operations in four operating business segments: North American Realty; International Realty; Virbela; and Other Affiliated Services.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions.

Strategy

Our strategy is to grow organically in the North American and certain international markets by increasing our independent agent and broker network. Through our cloud-based operations and technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate. By building partnerships and strategically deploying capital, we seek to grow the business and enter attractive vertical and adjacent markets.

During 2022, we believe that we made progress towards achieving our strategic goals, including a 21% increase in our agent base year over year and an increase of 15% of real estate transactions year over year, as well as opening new business operations in six countries. The expected outcome of these activities will be to better position us to deliver on our full potential, to provide a platform for future growth opportunities and to achieve our long-term financial goals.

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MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state and federal government agencies and geopolitical instability, can also negatively impact the housing markets for which we operate.

In 2022, the existing home sales market declined 16%, according to the National Association of Realtors (“NAR”), which is the lowest the market has been since 2014.  Due to the increasing interest rates and increasing inflation, the market began a contraction trend beginning in the second quarter of 2022. According to NAR housing statistics, existing home sales continued to decline for the 11th straight month to a seasonally adjusted rate of 4.02 million in 2022, down 34.0% from the same period in 2021. NAR reported that pending home sales increased by 2.5% in December 2022 compared to November 2022, after six consecutive months of decreases. The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company believes that it continues to be well positioned for growth in the current economic climate. We have a strong base of agent support, which should drive organic market share growth, retention and productivity.  Additionally, we have an efficient operating model with lower fixed costs driven by our cloud-based model, with no brick-and-mortar locations.

Regardless of whether the housing market continues to slow or grow, we continue to believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to prosper in a series of fluctuations in economic activity.

National Housing Inventory

Throughout 2022, increased mortgage interest rates and higher home prices have caused inventory levels, as measured in months of supply, to rise. Construction of new homes continues to slow also due to rising mortgage rates and the strained availability of labor and materials. According to NAR, inventory of existing homes for sale in the U.S. was 970,000 at the end of December 2022 compared to 910,000 at the end of December 2021.

Mortgage Rates

The sharp increase in mortgage rates is negatively impacting the demand for homebuying.  Based on Freddie Mac data, the average rate for a 30-year, conventional fixed rate mortgage was 6.42% in December 2022 compared to 3.1% in 2021. As inflation continues to moderate into 2023, mortgage rates are expected to decline, which we expect to boost homebuyer demand and homebuilder sentiment.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 95.5 for December 2022 (preliminary) from 142.2 for December 2021. As home prices and interest rates have increased, the housing affordability index has become unfavorable. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The unfavorable housing affordability index is due to increased mortgage rate conditions and low inventory levels, driving increases in the average home price.

Existing Home Sales Transactions and Prices

According to NAR, seasonally adjusted existing home sale transactions for the year ended December 2022 (preliminary) decreased to 4.02 million compared to 6.09 million for the year ended December 2021. NAR anticipates transactions to decrease slightly in 2023 due to higher mortgage rates.

According to NAR, nationwide existing home sales average price for December 2022 (preliminary) was $366,900, up 2.3% from $358,000 December 2021.

SEGMENTS

Historically, management made operating decisions and assessed performance based on product lines with three operating segments and one single reportable segment. Effective in December of 2022, as a result of the growth in international operations and changes in the North American markets, the Company revised the presentation of segment information to align with changes to how the CODM manages the business and allocates resources as four operating segments.  The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues

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and incurs expenses, (ii) has discrete financial information and is (iii) regularly reviewed by the CODM, who is Glenn Sanford, Chief Executive Officer, eXp World Holdings and eXp Realty, to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the current and historic revenues and profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. Based on this analysis, in December 2022, we determined that there are four operating segments and three reportable segments.

The CODM uses Adjusted Segment EBITDA as a key metric to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.

The Company has four reportable segments as follows: North American Realty, International Realty and Virbela and Other Affiliated Services. We report corporate expenses, as further detailed below, as “Corporate expenses and other.” All segments follow the same basis of presentation and accounting policies. See Note 2 of the Notes included herein for the Company’s significant accounting policies.

Corporate expenses include costs incurred to operate the corporate parent of eXp, including expenses incurred in connection with strategic resources provided to the agents, as well as certain other centrally managed expenses that are not allocated to the operating segments, including administrative, brokerage operations and legal functions.

The following discussion focuses on the operating performance of the Company for the years ended December 31, 2022 and 2021 and the financial condition of the Company as of December 31, 2022.

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

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Our strength is attracting real estate agent and broker professionals that contribute to our growth. Brokerage real estate transactions are recorded when our agents and brokers represent buyers and/or sellers in the purchase or sale, respectively, of a home. The number of real estate transactions are key drivers of our revenue and profitability. Real estate transaction volume represents the total sales value for all homes bought and sold by our agents and brokers and is influenced by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, local inventory levels, mortgage interest rates and seasonality. Real estate transaction revenue represents the commission revenue earned by the Company for closed brokerage real estate transactions.

We continue to increase our agents and brokers significantly in the United States and Canada through the execution of our growth strategies. We are continuing to expand our agent base internationally, as well. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general.

Settled home purchases and sales transactions and volume resulted from closed real estate transactions and typically change directionally with changes in the market’s existing home sales transactions as reported by NAR, as disproportionate variances are representative of company-specific improvements or shortfalls. Our home sale transaction growth was directly related to the growth of our agent base over the prior comparative period.

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We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S. (“U.S. GAAP”), to assess eXp’s financial performance from period to period.

Gross profit is calculated from U.S. GAAP reported amounts and equals the difference between revenue and cost of sales. Gross margin is the calculation of gross profit as a percentage of total revenue. Commissions and other agent-related costs represent the cost of sales for the Company. The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue. Gross profit is based on the information provided in our results of operations on our consolidated statements of comprehensive income and is an important measure of our potential profitability and brokerage performance. For the years ended December 31, 2022, 2021 and 2020, gross profit was $366.9 million, $296.0 million and $159.6 million, respectively. Gross profit increased year-over-year primarily due to growth in agent base, an increase of real estate transactions and increased home sales prices compared to 2021 For the years ended December 31, 2022, 2021 and 2020, gross margin was 8.0%, 7.8% and 8.9%, respectively. Gross margin in 2022 increased narrowly from 2021 was primarily due to a slightly more favorable company commission of real estate transactions. Gross margin decreased from 2020 to 2021 primarily due to rising home prices and increased demand which resulted in agents reaching their transactions capping requirements sooner, entitling them to a higher percentage of the home sale commission.

Management also reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. For the year ended December 31, 2022, Adjusted EBITDA declined due to increased general and administrative costs resulting from the Company’s increase in employee count to continue to support our agent growth strategy and increased costs related to entering international markets.  Adjusted EBITDA has grown significantly for the years ended December 31, 2021 and 2020 due to our revenue growth and higher leverage of our cost structure.

RECENT BUSINESS DEVELOPMENTS

North American Realty Initiatives

The Company continues to also focus on growth in the United States and in Canada. On July 1, 2022, the Company acquired Zoocasa. Zoocasa is a consumer real estate research portal that offers proprietary home search tools, market insights and a connection to local real estate experts. This acquisition enables eXp to further its presence in Canadian markets.  The United States and Canada operations are aggregated together to be reported as the North American Realty segment, due to similarities in markets and management strategies.

International Realty Initiatives

Throughout 2022, we commenced operations in the Dominican Republic, Greece, New Zealand, Chile and Poland. In addition, in 2022 we announced operations in Dubai, which is expected to be fully operational in 2023.  In previous years, the Company expanded internationally into France, India, Mexico, Portugal, South Africa, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany. The Company continues to pursue growth opportunities and increase market share in the countries where operations began in recent years.

Virbela

We continue developing the core Virbela enterprise metaverse technology through our subsidiary, eXp World Technologies, LLC (“World Tech”), to accommodate for the increasing use and scale required to support all eXp subsidiaries and a growing number of enterprise customers worldwide. Upon Facebook's announcement to shift its name to Meta, Virbela has seen increased interest from Fortune 2000 enterprises looking to become both customers and partners as they invest in metaverse technologies and build out their own strategies. In 2021, we enhanced scale, reliability, security and privacy of our core product to improve the Enterprise readiness. In 2021, Virbela also released a new product called Frame into beta. Frame is a metaverse collaboration technology that is accessible from any device with a browser such as mobile, personal computer, virtual reality device and tablet. We expect to continue to service existing and new business-to-business enterprise level contracts, solidify channel partnerships and bring the Frame product out of beta.

Other Affiliated Services

On December 4, 2020, the Company acquired the equity ownership interests in SUCCESS Enterprises LLC (“Success”) and its related media properties, including SUCCESS® print magazine, SUCCESS.com, SUCCESS® newsletters, podcasts, digital training courses and affiliated social media accounts across platforms, for cash consideration. With the addition of Success, the Company intends to blend its technology and content to enhance the personal development platform for entrepreneurs and sales professionals.  The Company continues to invest in Success to create a better experience for our agents and other entrepreneurs.

Acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business. These affiliate and media services include mortgage origination, escrow and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services. We anticipate

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continued growth and investment in these service offerings through 2023; however, actual performance will depend directly on utilization by eXp Realty agents.

Company-Wide Initiatives

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents and employee experience. In doing so, we have adopted many of the principles of the Net Promoter Score® (NPS) across many aspects of our organization. NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100. A NPS above 50 is considered excellent. The Company’s agent NPS was 73 in the fourth quarter of 2022. Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?" or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees. In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

The NPS measure is an important vehicle for delivering on our core values of transparency. While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS. As NPS scores are often leading indicators to agents and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score. This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing and employee benefits.

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible for awards of the Company’s common stock through the achievement of production and agent attraction benchmarks. Under our equity incentive program, agents and brokers who qualify are issued shares of the Company’s common stock and it continues to be another element in creating a culture of agent-ownership.

Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers. The costs attributable to these plans are also a significant component of our commission structure and results of operations. Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock. Effective January 1, 2020, we issued share-based compensation to our agents and brokers at a 10% discount to the market price of our common stock. Our operational strategy and the importance of the agent compensation plans to our strategy have not changed. Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 10 – Stockholders’ Equity to the consolidated financial statements.

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RESULTS OF OPERATIONS

Year ended December 31, 2022 vs. Year ended December 31,2021

Revenue

Our total revenues were $4.6 billion in 2022 compared to $3.8 billion in 2021, an increase of $827.0 million, or 22%. Total revenues increased primarily as a result of higher volume of real estate brokerage commissions, which is attributable to growth in our agent base, an increase of real estate transactions and increased home sales prices compared to 2021.

Commission and Other Agent-Related Costs

Commission and other agent-related costs were $4.2 billion in 2022 compared to $3.5 billion in 2021, an increase of $756.1 million, or 22%. Commission and other agent-related costs include sales commissions paid and are reduced by agent-related fees. Commission and other agent-related costs increased primarily as a result of growth in agent base, increased real estate transactions and increased home sales prices compared to 2021.

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General and Administrative Expense

General and administrative expenses were $346.1 million in 2022 compared to $249.7 million in 2021, an increase of $96.4 million, or 39%. General and administrative expenses include costs related to wages, including stock compensation and other general overhead expenses. General and administrative expenses increased primarily as a result of an increase of $66.3 million in compensation related expenses including salaries, contract labor, employee benefits and payroll taxes and processing. The Company had an increase in stock compensation expense of $7.7 million. These increases are a direct result of the Company’s increase in employee count to continue to support our agent growth strategy. Employees increased from 1,669 in 2021 to 2,016 in 2022, representing an increase in headcount of 21%. The Company’s agent base increased by 21%. Also, in support of the Company’s business operations, computer and software costs increased $9.4 million compared to prior year, mostly consisting of online subscriptions. Finally, $5.2 million of the increase in general and administrative expenses is related to increased agent-related seminars and conferences. These increased costs are a result of the Company’s growth in agent count and real estate transaction volumes, international expansion and the investment in employees and technology.

Sales and Marketing

Sales and marketing expenses were $15.4 million in 2022 compared to $12.2 million in 2021, an increase of $3.2 million, or 26%. Sales and marketing costs include lead capture costs and promotional materials. Sales and marketing expenses increased primarily as a result of an increase in lead costs of $1.7 million and advertising costs of $1.7 million.

Other (Income) Expense, Net

Other (income) expense in 2022 and 2021 includes interest income, equity in losses of unconsolidated subsidiaries, start-up costs and, amortization expense of the present value adjustment to our stock payable in 2021. There were no significant changes in other (income) expense in 2022 compared to 2021.

Income Tax Benefit (Expense)

The Company's provision for income taxes amounted to a benefit of ($10.8) million, a benefit decrease of $36.7 million for the year ended December 31, 2022. The decrease in income tax benefit was primarily attributable to the release of the valuation allowance in prior year and lower deductible share-based compensation expenses.

Refer to Critical Accounting Policies and Estimates within the MD&A and Note 12 - Income Taxes to the consolidated financial statement for further information.

BUSINESS SEGMENT DISCLOSURES

See Note 14 – Segment Information to the consolidated financial statements for additional information regarding our business segments. The following table reflects the results of each of our reportable segments during the years ended December 31, 2022, 2021 and 2020:

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2022 Compared to 2021

North American Realty revenue increased 22% in 2022 compared to 2021 primarily due to increased real estate transactions driven by higher agent count. Adjusted EBITDA decreased (12)% due to increases in selling, general and administrative expenses related to the continued expansion of the business, partially offset by an increase in gross profit.

International Realty revenue increased 102% in 2022 vs 2021 primarily due to increased real estate transactions driven by a higher agent count and increased productivity in previously launched markets. Adjusted EBITDA (loss) increased 50% in 2022 vs 2021 due to continued expansion efforts in new markets and growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenue decreased (2)% due to the post-COVID 19 work environment of return to the office and hybrid work initiatives globally. Management shifted focus from small- to-medium sized business (“SMB”) market and one-time events to long-term enterprise monthly recurring revenue (“MRR”). MRR revenue increased 13% from 2021 to 2022. Adjusted EBITDA (loss) decreased (24)% primarily due to workforce reductions and decrease in marketing and advertising expenses, as we shift our focus to technology improvements and expanding our Software as a Service (“SaaS”) customers.

Other Affiliated Services revenue increased 76% due to expansion of SUCCESS® Coaching and SUCCESS® Media, primarily SUCCESS® magazine. The increases in revenue directly contributed to Adjusted EBITDA (loss) decrease of (22)%.

Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty. The increase in these costs (increase in Adjusted EBITDA (loss) of 22% in 2022 compared to 2021) reflect increased insurance costs as we expand our business globally and software investments.

2021 Compared to 2020

North American Realty revenue increased 109% in 2021 compared to 2020 primarily due to increased real estate transactions driven by higher agent count. Adjusted EBITDA increased 59% due to increases in gross profit, partially offset by increases in selling, general and administrative expenses related to the continued expansion of the business.

International Realty revenue increased 788% in 2021 vs 2020 primarily due to the entrance into nine new markets as well as previously launched markets gaining traction. Adjusted EBITDA (loss) increased 466% in 2021 vs 2020 due to the continued expansion efforts in these new markets as well as growing selling, general and administrative expenses to support the incremental production in existing operations.

Virbela revenue increased 50% due to the COVID 19 pandemic remote work expansion changes around the world. Both one-time events and long-term enterprise monthly recurring revenue (“MRR”) grew as a result of the global pandemic. MRR revenue increased 50% from 2020 to 2021. Adjusted EBITDA (loss) increased 152% directly related to increased personnel as we support the expansion of our Software as a Service (“SaaS”) customers.

Other Affiliated Services revenue increased 786% due to the acquisition of SUCCESS Enterprises and expansion of the SUCCESS® Coaching and SUCCESS® Media, primarily SUCCESS® magazine. Increased personnel costs to grow the business to scale directly contributed to Adjusted EBITDA (loss) increase of 774%.

Corporate expenses and other contain the costs incurred to operate the corporate parent of eXp Realty. The increase in these costs (increase in Adjusted EBITDA (loss) of 56% in 2021 compared to 2020) reflect additional executive compensation & travel related to the expansion of the business along with legal expenses.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock and meet obligations as they become due. At present, our cash and cash equivalents balances and cash flows from operations have strengthened primarily due to transaction volume growth and improved cost leverage over the prior five years, especially during 2020 and 2021, attributable to the expansion of our independent agent and broker network and, to a lesser extent, increased average prices of home sales.

Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses. Our current capital deployment strategy for 2022 is to utilize excess cash on hand to support our growth initiatives into select markets and enhance our technology platforms and for repurchases of our common stock.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 13 – Commitments and Contingencies.

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets and cash used to repurchase shares of the Company’s common stock. Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates and other monetary and fiscal policy changes to the manner in which we currently operate. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months.

We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would likely suffer. As of December 31, 2022, our cash and cash equivalents totaled $121.6 million. Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds. We currently do not possess any marketable securities.

During 2022, our unconsolidated joint venture, SUCCESS Lending, obtained $25 million in revolving warehouse credit lines from each of Flagstar Bank FSB and Texas Capital Bank, which represent off-balance sheet arrangements for the Company. The Company’s capital liability under the warehouse credit lines is limited to $3.25 million in the aggregate. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. For information regarding the warehouse credit agreements, see Note 13 – Commitments and Contingencies.

Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital for the periods presented:

As of December 31, 2022, net working capital decreased ($4.7) million, or (4)%, compared to the prior year, primarily due to a decrease in accounts receivable of ($46.2) million, partially offset by an decrease in accrued liabilities of ($32.7) million and an increase in cash and cash equivalents of $13.4 million. The decrease of accounts receivable and accrued liabilities was due to lower real estate transactions in the fourth quarter 2022 compared to the fourth quarter 2021.

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Cash Flows

The following table presents our cash flows for the periods presented:

For the year ended December 31, 2022, cash provided by operating activities decreased ($36.4) million compared to the same period in 2021. The change resulted primarily from increased general and administrative expenses and investment in international markets, partially offset by increased gross profit and favorable working capital.

For the year ended December 31, 2022, cash used in our investing activities decreased primarily due a decrease of ($1.4) million in capital expenditures and a decrease of $2.5 million invested in unconsolidated subsidiaries in the current year offset by an increase in payment for business acquisitions (Zoocasa in 2022) by $7.4 million from prior year.

For the year ended December 31, 2022, cash used in financing activities primarily related to higher repurchases of our common stock of $7.5 million compared to the prior year period and increased dividends paid of $13.7 million compared to 2021.

Outlook

As we continue to scale our Company by investing in people, systems and processes, we expect to increase market share, agent base and real estate transactions volume in the U.S. and Canada and selectively grow in the international markets.

These operating ambitions are not forecasts and do not reflect our expectations, but rather are aspirational targets for future performance that may never be realized. These statements involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in them. Factors include, among others, (i) changes in demand for the Company’s services and changes in consumer behavior; (ii) macroeconomic conditions beyond our control; (iii) the Company’s ability to effectively maintain its infrastructure to support its operations and initiatives; (iv) the impact of governmental regulations related to the Company’s operations; and (v) other factors, as described in this Annual Report on Form 10-K in Part II, Item 1A, “Risk Factors.”

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

Stock-based compensation

Our stock-based compensation is comprised of agent growth incentive programs, agent equity program and stock option awards. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value and the stock-based compensation cost is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met. The Company estimates the share-based liability based on estimated performance probabilities based on our most recent estimates on probable achievement of the performance measures established under our agent growth incentive program. These estimates are calculated based on the agent’s historical performance for each award type. Also, the requisite service period at the grant date of performance awards is estimated based on the probability of the period of time it will take an agent to meet the performance metric. The value of the stock award is amortized over this period and recognized as stock compensation expense starting on the grant date.

If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See Note 10 – Stockholders’ Equity to the consolidated financial statements for more information regarding the assumptions used in estimating the fair value of our awards.

Revenue recognition

The Company generates substantially all of its revenue from North American Realty and International Realty and generates a de minimis portion of its revenues from software subscription and professional services.

North American Realty and International Realty

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing real estate transactions. The Company is contractually obligated to provide services for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services necessary to legally represent the transfer of real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. As principal and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled to.

Revenue is derived from assisting home-buyers and sellers in listing, marketing, selling and finding real estate. Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation. Agent-related fees are currently recorded as a reduction to commissions and other agent-related costs.

At each reporting period, we estimate revenue for closed transactions for which we have not yet received the closing documents due to timing of when a transaction settles. Additionally, provisions for anticipated differences between consideration due and amounts expected to be received are estimated and recorded to revenue. The accrual for estimated revenue was immaterial for the years ended December 31, 2022 and 2021.

Business combinations

The Company accounts for business combinations using the acquisition method of accounting, under which the consideration for the acquisition is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities assumed at the fair values as of the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as incurred and not considered in determining the fair value of the acquired assets.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates and other market factors. Significant assumptions used

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in determining the allocation of fair value include the following valuation techniques: the cost approach, the income approach and the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

At the acquisition date, the Company recognizes the identifiable acquired assets, liabilities assumed and contingent liabilities (identifiable net assets) of the acquired company on the basis of fair value. Recognized assets and liabilities assumed may be adjusted during a maximum of one year from the acquisition date (the “measurement period”), depending on new information obtained about the facts and circumstances in existence at the acquisition date.

If current expectations of future growth rates are not met or market factors outside of our control change significantly, then our goodwill or intangible assets may become impaired. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or macroeconomic conditions deteriorate.

Goodwill impairment

Goodwill is not amortized but is subject to impairment testing. We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. No additional impairment steps are necessary if we qualitatively determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. An impairment loss for goodwill would be recognized based on the difference between the carrying value and its estimated fair value, which would be determined based on either discounted future cash flows or another appropriate fair value method.

The evaluation of goodwill for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP, including, but not limited to, economic, industry and company-specific qualitative factors, projected future net sales, operating results and cash flows. Although we currently believe the estimates used in the evaluation of goodwill are reasonable, differences between actual and expected net sales, operating results and cash flows and/or changes in the discount rates used could cause these assets to be deemed impaired. If this were to occur, we would be required to record a non-cash charge to earnings for the write-down in the value of the goodwill, which could have a material adverse effect on our results of operations and financial position but not on our cash flows from operations.

During the fourth quarter of 2022, we performed an assessment of goodwill. Management did not identify any new events or changes in circumstances that would more likely than not indicate that the fair value of the goodwill is below its carrying value. To perform these assessments, we identified and analyzed macroeconomic conditions, industry and market conditions and company-specific factors. As a result of the analysis performed, management believes the estimated fair value of the reporting units continue to exceed their carrying values and does not represent a more likely than not possibility of potential impairment. The goodwill analysis did not result in an impairment charge.

Income taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized. Our assumptions, judgments and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income. As of December 31, 2022, based on our assessment of the realizability of the net deferred tax assets, we reached the conclusion that our net deferred tax assets will most likely be fully realized and therefore no valuation allowance was recorded.

Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions related to income taxes have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations and cash flows.

See Note 12 – Income Taxes to the consolidated financial statements for further information related to our income tax positions.

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Litigation

We recognize expenses for legal claims when payments associated with the claims become probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on our results of operations and cash flow, if we were to become a party to a material legal action.

See Note 13 – Commitments and Contingencies to the consolidated financial statements for further information related to our litigation.

NON-U.S. GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We define the non-U.S. GAAP financial measure of Consolidated Adjusted EBITDA to mean net income, excluding other income (expense), income tax benefit (expense), depreciation, amortization, impairment charges, stock-based compensation expense and stock option expense. Adjusted Segment EBITDA is defined as operating profit plus depreciation and amortization and stock-based compensation expenses. We believe that Consolidated Adjusted EBITDA and Adjusted Segment EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted Segment EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted Segment EBITDA. In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net income, the closest comparable U.S. GAAP measure. Some of these limitations are that:

The following tables present a reconciliation of Adjusted EBITDA to net income, the most comparable U.S. GAAP financial measure, for each of the periods presented:

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The primary driver for the changes in Adjusted EBITDA was lower net income attributable to the increased general and administrative costs resulting from the Company’s increase in employee count to continue to support our agent growth strategy and increased costs related to entering international markets and investments in Virbela.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about material information relevant to an assessment of the financial condition and results of operations of eXp World Holdings, Inc. and its subsidiaries for the three-year period ended December 31, 2021. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements that constitute our estimates, plans, and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Statements” and “Item 1A. – Risk Factors” included elsewhere within this Annual Report on Form 10-K for a discussion of certain risks, uncertainties, and assumptions associated with these statements.

This section generally discusses items pertaining to and comparisons of financial results between 2021 and 2020. Discussions of 2019 items and comparisons between 2020 and 2019 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 MD&A”). The 2020 MD&A is incorporated by reference herein from Part II, Item 7 of our Annual Report on Form 10-K dated March 11, 2021 (Commission File No. 001-38493).

This MD&A is divided into the following sections:

All dollar amounts are in USD thousands except share amounts and per share data and as otherwise noted.

OVERVIEW

We operate one of the world’s fastest growing real estate brokerage businesses utilizing a cloud-based model that enables a variety of businesses to operate remotely and supported by a technology platform that allows our independent agents and brokers the ability to provide a suite of more efficient and cost-effective services to home buyers and sellers.

While we do not consider acquisitions a critical element of our ongoing business, we seek opportunities to expand and enhance our portfolio of solutions.

Strategy

Our strategy is to grow organically in the North American and certain international markets by increasing our independent agent and broker network. Additionally, we intend to continue our advancement into more international markets. Through our cloud-based operations and technology platform, we strive to achieve customer-focused efficiencies that allow us to increase market share and attain strong returns as we scale our business within the markets in which we operate. By building partnerships and strategically deploying capital, we seek to grow the business and enter into attractive vertical and adjacent markets.

During 2021, we believe that we made progress towards achieving our strategic goals, including a significant increase in our agent base and real estate transactions year over year, as well as opening new business operation in nine countries. The expected outcome of these activities will be to better position us to deliver on our full potential, to provide a platform for future growth opportunities, and to achieve our long-term financial goals.

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MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state, and federal government agencies, and geopolitical instability, can also negatively impact the housing markets for which we operate.

For the year ended December 31, 2021, the effects of the COVID-19 pandemic on business worldwide lessened, however the full magnitude and duration of the impact from COVID-19 are not fully known and cannot be reasonably estimated as the global economy continues to recover and adapt. The impact to the Company for the year ended December 31, 2021 has been minimal to date. We believe that once COVID-19 is further contained the economy will continue to rebound depending on the continued pace, rate, and effectiveness of lifting public health restrictions on businesses and individuals and how quickly people become comfortable engaging in public activities.

According to the National Association of Realtors (“NAR”), the housing market is the strongest it has been in 15 years and the economy has recovered from the initial downturn during the beginnings of the COVID-19 pandemic in 2021. Due to the low interest rate environment and continued increase in demand for homes, the market has expanded significantly. The sizable shift to remote work, which has led to homeowners looking for larger homes and vacation homes, and the continued historic low interest rates have accelerated housing demand. These low mortgage rates, which are the lowest in recent history, are allowing more buyers to enter the market. According to the NAR housing statistics, existing home sales, adjusted for seasonality, totaled 6.2 million in 2021, down 7.1% from 2020 and the most annual home sales since 2006. However, at the end of December 2021, housing inventory declined to 910,000 and a 1.8-month supply, which are both historic lows. The NAR reported that pending home sales fell 3.8% in December 2021, indicating a slowing in contract activity, mostly impacted by inventory levels. The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company performed well throughout 2021 and is well positioned for continued growth. However, depending on the continued course of the COVID-19 pandemic, specifically in key areas of operations, it is too early to predict the full extent of the effects of the COVID-19 pandemic will have on our Company moving into 2022.

Regardless of whether the housing market continues to grow or slows, we believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to prosper in a series of fluctuations in economic activity.

National Housing Inventory

In 2021, supply chain constraints including delays in sourcing building materials and labor shortages resulted in slowed construction of new homes. These tightened supply conditions, when coupled with elevated housing demand due to low interest rates, caused inventory levels to decline to record lows. According to the NAR, inventory of existing homes for sale in the U.S. was 910,000 at the end of December 2021 compared to 1,060,000 at the end of December 2020. The NAR indicated the need for new home construction due to the high demand of homes and the record-low inventory levels, and noted supply chain bottlenecks are expected to ease in 2022.

Mortgage Rates

According to the NAR, mortgage rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.0% in 2021, compared to 3.1% for 2020. Mortgage rates are expected to remain low through 2022 but are forecasted to increase to an average of 3.6% for 2022. Low mortgage rates are expected to continue to contribute to overall high demand for home-buying.

Housing Affordability Index

According to the NAR, the composite housing affordability index decreased to 147.8 for December 2021 (preliminary) from 172.5 for December 2020. Although home prices have increased, the housing affordability index continues to be at favorable levels. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The favorable housing affordability index is due to favorable mortgage rate conditions. However, as housing prices continue to climb due to low inventory and high demand and in light of the higher unemployment rate and the ongoing COVID-19 pandemic, it is still too early to predict the extent to which the effects of these factors will have on unemployment and housing affordability.

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Existing Home Sales Transactions and Prices

According to the NAR, seasonally adjusted existing home sale transactions for the year ended December 2021 (preliminary) decreased to 6.2 million compared to 6.7 million for the year ended December 2020. The NAR anticipates transactions to decrease slightly in 2022 due to higher mortgage rates.

According to the NAR, nationwide existing home sales average price for December 2021 (preliminary) was $358,000, up 15.8% from $309,200 in December 2020. Due to high demand and modest expected increase in supply, the average sale price is expected to increase through 2022. However, it is still too early to predict the extent of the effects of the ongoing COVID-19 pandemic will have on the economy and home sales prices.

KEY BUSINESS METRICS

Management uses our results of operations, financial condition, cash flows, and key business metrics related to our business and industry to evaluate our performance and make strategic decisions.

The following table outlines the key business metrics that we periodically review to track the Company’s performance:

Our strength is attracting real estate agent and broker professionals that contribute to our growth. Brokerage real estate transactions are recorded when our agents and brokers represent buyer and/or sellers in the purchase or sale, respectively, of a home. The number of real estate transactions are key drivers of our revenue and profitability. Real estate transaction volume represents the total sales value for all homes sold by our agents and brokers and is influenced by several market factors, including, but not limited to, the pricing and quality of our services and market conditions that affect home sales, such as macroeconomic factors, local inventory levels, mortgage interest rates and seasonality. Real estate transaction revenue represents the commission revenue earned by the Company for closed brokerage real estate transactions.

We continue to increase our agents and brokers significantly in the United States and Canada through the execution of our growth strategies. During 2020, we expanded operations to the South Africa, India, Mexico, Portugal and France. By the end of 2021, the Company expanded into other countries, including Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general. The Company’s agent base and transactions have not been significantly impacted throughout the global COVID-19 pandemic, however the full effect on these factors will continue to depend on the duration and severity of the COVID-19 pandemic.

Settled home sales transactions and volume resulted from closed real estate transactions and typically change directionally with changes in the market existing home sales transactions as reported by the NAR, as disproportionate variances are representative of company-specific improvements or shortfalls to the norm. Our home sale transactions growth was directly related to the growth of our agent base over the prior comparative period.

We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S. (“U.S. GAAP”) to assess eXp’s financial performance from period to period.

Gross profit is calculated from U.S. GAAP reported amounts and equals the difference between revenue and cost of sales. Gross margin is the calculation of gross profit as a percentage of total revenue. Commissions and other agent-related costs represent the cost of sales for the Company. The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue. Gross profit is based on the information provided in our results of operations or our consolidated statements

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of comprehensive income (loss), and is an important measure of our potential profitability and brokerage performance. For the years ended December 31, 2021, 2020 and 2019, gross profit was $296.0 million, $159.6 million, and $84.1 million, respectively. The gross profit increased year-over-year due to significant growth of real estate transaction volumes. For the years ended December 31, 2021, 2020 and 2019, gross margin was 7.8%, 8.9% and 8.6%, respectively. Gross margin decreased year-over-year primarily due to rising home prices and increased demand which resulted in agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

Management also reviews Adjusted EBITDA, which is a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. Adjusted EBITDA has grown significantly for the years ended December 31, 2021, 2020 and 2019 due to our revenue growth and improvements in our cost structure.

RECENT BUSINESS DEVELOPMENTS

Real Estate Brokerage Initiatives

Global Expansion of Our Real Estate Cloud Brokerage

In 2020, the Company continued its international expansion into France, India, Mexico, Portugal and South Africa. Throughout 2021, the Company initiated operations in Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany. The Company continues to pursue growth opportunities into new global markets. In addition to the international expansion, the Company continues to also focus on growth in the United States and in Canada.

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents and employee experience. In doing so, we have adopted many of the principles of the Net Promoter Score® (NPS) across many aspects of our organization. NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100. A NPS above 50 is considered excellent. The Company’s agent NPS was 69 in the fourth quarter of 2021. Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?" or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees. In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

The NPS measure is an important vehicle for delivering on our core values of transparency. While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS. As NPS scores are often leading indicators to agents and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score. This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible for awards of the Company’s common stock through the achievement of production and agent attraction benchmarks. Under our equity incentive program, agents and brokers who qualify are issued shares of the Company’s common stock, and it continues to be another element in creating a culture of agent-ownership.

Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers. The costs attributable to these plans are also a significant component of our commission structure and results of operations. Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock. Prior to January 1, 2020, we issued share-based compensation to our agents and brokers at a 20% discount to the market price of our common stock, which changed to a 10% discount for issuances beginning in January 2020 and had a direct and positive impact on gross margin above. Our operational strategy and the importance of the agent compensation plans to our strategy have not changed; however, the financial impact of the change in the discount has had a meaningful effect on our results of operations. Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 10 – Stockholders’ Equity to the consolidated financial statements.

Technology Products and Services

We continue developing the core Virbela enterprise metaverse technology through our subsidiary, eXp World Technologies, LLC (“World Tech”), to accommodate for the increasing use and scale required to support all eXp subsidiaries and a growing number of enterprise customers worldwide. Upon Facebook's announcement to shift its name to Meta, Virbela has seen increased interest from Fortune 2000 enterprises looking to become both customers and partners as they invest in metaverse technologies and build out their own strategies. Enterprise readiness was a core product focus in 2021 (e.g., scale, reliability, security, and privacy). In 2021, Virbela

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also released a new product called Frame into beta. Frame is a metaverse collaboration technology that is accessible from any device with a browser (e.g., mobile, personal computer, virtual reality device, tablet). In 2022, we expect to continue to service existing and new business-to-business enterprise level contracts, solidify channel partnerships, and bring the Frame product out of beta. Affiliate and Media Services

Acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business. These affiliate and media services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services. We anticipate continued growth and investment in these service offerings through 2022; however, actual performance will depend directly on utilization by eXp Realty agents.

In July of 2021, the Company formed SUCCESS Lending, a residential lending joint venture with Kind Partners, LLC, a subsidiary of Kind Lending, LLC. With the formation of SUCCESS Lending, the Company intends to provide more enhanced services and products to customers.

RESULTS OF OPERATIONS

Year ended December 31, 2021 vs. Year ended December 31, 2020

Revenue

Our total revenues were $3.8 billion in 2021 compared to $1.8 billion in 2020, an increase of $2.0 billion, or 110%. Total revenues increased primarily as a result of higher volume of real estate brokerage commissions, which is primarily attributable to growth in agent base and increased home sales prices.

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Commission and Other Agent Related Costs

Commission and other agent-related costs were $3.5 billion in 2021 compared to $1.6 billion in 2020, an increase of $1.8 billion, or 112%. Commission and other agent related costs include sales commissions paid and are reduced by agent related fees. Commission and other agent related costs increased primarily as a result of an increase in settled real estate transactions and growth in our agent base.

General and Administrative Expense

General and administrative expenses were $249.7 million in 2021 compared to $122.8 million in 2020, an increase of $126.9 million, or 103%. General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses. General and administrative expenses increased primarily as a result of an increase of $71.6 million in compensation related expenses including salaries, contract labor, employee benefits, and payroll taxes and processing. The Company had an increase in stock compensation expense of $15.6 million. These increases are a direct result of the Company’s increase in employee count. Employees increased from 900 in 2020 to 1,669 in 2021, representing growth in headcount of 85%. The Company’s agent base increased by 72%. Also, in support of the Company’s business operations, computer and software costs increased $9.7 million compared to prior year, mostly consisting of online subscriptions and security and virus protection. Finally, $19.5 million of the increase in general and administrative expenses is related to professional fees including accounting, legal, and other consulting. These increases are directly related to the Company’s continued revenue growth, international expansion and new business ventures.

Sales and Marketing

Sales and marketing expenses were $12.2 million in 2021 compared to $5.2 million in 2020, an increase of $7.0 million, or 133%. Sales and marketing costs include lead capture costs and promotional materials. Sales and marketing expenses increased primarily as a result of an increase in lead costs of $1.2 million, internet advertising costs of $3.0 million, and advertising costs of $2.1 million.

Other Expense, Net

Other expense includes start-up costs and amortization expense of the present value adjustment to our stock payable. There were no significant changes in other expense in 2021 compared to 2020.

Income Tax Benefit (Expense)

The Company’s provision for income taxes amounted to a benefit of $47.5 million, a benefit increase of $47.9 million for the year ended December 31, 2021. The increase in income tax benefit was primarily attributable to the release of the valuation allowance and higher deductible share-based compensation expenses. Refer to Critical Accounting Policies and Estimates within this MD&A and Note 12 – Income Taxes to the consolidated financial statements for further information.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to fund our operations and capital expenditures, repurchase our common stock, and meet obligations as they become due. At present, our cash and cash equivalents balances and cash flows from operations have strengthened primarily due to transaction volume growth and improved cost leverage over the prior five years, especially during 2020 and 2021, attributable to the expansion of our independent agent and broker network and, to a lesser extent, increased average prices of home sales.

Currently, our primary use of cash on hand is to sustain and grow our business operations, including, but not limited to, commission and revenue share payments to agents and brokers and cash outflows for operating expenses. Our current capital deployment strategy for 2022 is to utilize excess cash on hand to support our growth initiatives into select markets and enhance our technology platforms and for repurchases of our common stock. As of December 31, 2021, the Company is not party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. In addition to, the Company has no known material cash requirements as of December 31, 2021, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions). The cash requirements for the upcoming fiscal year relate to our leases and legal settlement costs. For information regarding the Company’s expected cash requirement related to leases, see Note 9 – Leases to the consolidated financial statements.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 13 – Commitments and Contingencies.

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets, and cash used to repurchase shares of the

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Company’s common stock. Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months.

We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would likely suffer. As of December 31, 2021, our cash and cash equivalents totaled $108.2 million. Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds. We currently do not possess any marketable securities.

Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital for the periods presented:

As of December 31, 2021, net working capital increased $16.9 million, or 15%, compared to the prior year period, primarily due to an increase in cash and cash equivalents of $8.1 million and accounts receivable of $56.5 million resulting from increased real estate transactions. In correlation to the number of real estate transactions, accrued expenses increased $48.9 million, which included higher commissions payable of $25.2 million. The change in working capital is also due to an increase in legal contingencies of $10.4 million.

Cash Flows

The following table presents our cash flows for the periods presented:

For the year ended December 31, 2021, cash provided by operating activities increased $127.2 million compared to the same period in 2020. The change resulted primarily from the increased volume in our real estate sales transactions, improved cost leverage, and higher participation by our agents and brokers in our agent stock compensation programs. See Note 10 – Stockholders’ Equity to the consolidated financial statements for further details related to this program.

For the year ended December 31, 2021, cash used in our investing activities increased primarily due an increase of $7.0 million in capital expenditures and an increase of $3.0 million invested in unconsolidated entities in the current year offset by a decrease in payments for business acquisitions by $8.0 million from prior year. As we continue to develop and refine our cloud-based platforms and accelerate our business in innovative ways, we expect to continue to use our existing cash resources on similar expenditures for the next twelve months.

For the year ended December 31, 2021, the cash used in financing activities primarily related to higher repurchases of our common stock of $142.6 million compared to the prior year period.

Outlook

As we continue to scale our Company by investing in people, systems and processes, we expect to increase market share, agent base and real estate transactions volume in the US and Canada and selectively grow in the international markets.

These operating ambitions are not forecasts and do not reflect our expectations, but rather are aspirational targets for future performance that may never be realized. These statements involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in them. Factors include, among others, (i) changes in demand for the Company’s services and changes in consumer behavior; (ii) macroeconomic conditions beyond our control; (iii) the Company’s ability to effectively maintain its infrastructure to support its operations and initiatives; (iv) the impact of

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governmental regulations related to the Company’s operations; and (v) other factors, as described in this Annual Report on Form 10-K in Part II, Item 1A, “Risk Factors.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

Stock-based compensation

Our stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value, and the stock-based compensation cost is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met. The Company estimates the share-based liability based on estimated performance probabilities based on our most recent estimates on probable achievement of the performance measures established under our agent growth incentive program. These estimates calculated based on the agent’s historical performance for each award type. Also, the requisite service period at the grant date of performance awards is estimated based on the probability of the period of time it will take an agent to meet the performance metric. The value of the stock award is amortized over this period and recognized as stock compensation expense starting on the grant date.

If factors change causing different assumptions to be made in future periods, estimated compensation expense may differ significantly from that recorded in the current period. See Note 10 – Stockholders’ Equity to the consolidated financial statements for more information regarding the assumptions used in estimating the fair value of our awards.

Revenue recognition

The Company generates substantially all of its revenue from real estate brokerage services and generates a de minimis portion of its revenues from software subscription and professional services.

Real Estate Brokerage Services

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing real estate transactions. The Company is contractually obligated to provide services for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services necessary to legally represent the transfer of the real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. As principal, and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which we expect to be entitled to.

Revenue is derived from assisting home buyers and sellers in listing, marketing, selling and finding real estate. Commissions earned on real estate transactions are recognized at the completion of a real estate transaction once we have satisfied our performance obligation. Agent related fees are currently recorded as a reduction to commissions and other agent related costs.

At each reporting period, we estimate revenue for closed transactions for which we have not yet received the closing documents due to timing of when a transaction settles. Additionally, provisions for anticipated differences between consideration due and amounts expected to be received are estimated and recorded to revenue. A hypothetical change of 10% in the accrual for estimated revenue would have impacted total revenue by approximately $1.0 million and pre-tax income by approximately $0.2 million for the year ended December 31, 2021.

Business combinations and goodwill

The Company accounts for business combinations using the acquisition method of accounting, under which the consideration for the acquisition is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities

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assumed at the fair values as of the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as incurred and not considered in determining the fair value of the acquired assets.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding significant changes or planned changes in the use of the assets, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors. Significant assumptions used in determining the allocation of fair value include the following valuation techniques: the cost approach, the income approach, and the market approach, which are determined based on cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions.

At the acquisition date, the Company recognizes the identifiable acquired assets, liabilities, and contingent liabilities (identifiable net assets) of the subsidiaries on the basis of fair value. Recognized assets and liabilities may be adjusted during a maximum of one year from the acquisition date (the “measurement period”), depending on new information obtained about the facts and circumstances in existence at the acquisition date.

If current expectations of future growth rates are not met or market factors outside of our control change significantly, then our goodwill or intangible assets may become impaired. Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or macroeconomic conditions deteriorate.

Goodwill impairment

Goodwill is not amortized, but is subject to impairment testing. We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. We assess goodwill for possible impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. No additional impairment steps are necessary if we qualitatively determine that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. An impairment loss for goodwill would be recognized based on the difference between the carrying value and its estimated fair value, which would be determined based on either discounted future cash flows or another appropriate fair value method.

The evaluation of goodwill for impairment requires management to use significant judgments and estimates in accordance with U.S. GAAP, including, but not limited to, economic, industry, and company-specific qualitative factors, projected future net sales, operating results, and cash flows. Although we currently believe the estimates used in the evaluation of goodwill are reasonable, differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates used could cause these assets to be deemed impaired. If this were to occur, we would be required to record a non-cash charge to earnings for the write-down in the value of the goodwill, which could have a material adverse effect on our results of operations and financial position but not our cash flows from operations.

During the fourth quarter of 2021, we performed an assessment of goodwill related to our previous business acquisition. To perform these assessments, we identified and analyzed macroeconomic conditions, industry and market conditions, and company-specific factors. Taking into consideration these factors, we determined that it was not more likely than not that the fair value of our reporting unit for which goodwill has been assigned was less than its carrying amount. As a result of the analysis performed, management believes the estimated fair value of the reporting units continue to exceed their carrying values by a substantial margin and does not represent a more likely than not possibility of potential impairment. The goodwill analysis did not result in an impairment charge. Also, a reasonable hypothetical change in assumptions, such as a 1% change in the discount rate or a 10% change in the projected cash flows, would not have resulted in an impairment charge for the year ended December 31, 2021.

Income taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized. Our assumptions, judgments, and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income. As of December 31, 2021, based on our assessment of the realizability of the net deferred tax assets, we reached the conclusion that our net deferred tax assets will most likely be fully realized and therefore we recorded a valuation allowance release of $22.1 million, resulting in recognition of deferred tax assets and a tax benefit of the period.

Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions related to income taxes have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.

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See Note 12 – Income Taxes to the consolidated financial statements for further information related to our income tax positions.

Litigation

We recognize expense for legal claims when payments associated with the claims become probable and can be reasonably estimated. Due to the difficulty in estimating costs of resolving legal claims, actual costs could have a material adverse impact on our results of operations and cash flow, if we were to become a party to a material legal action.

See Note 13 – Commitments and Contingencies to the consolidated financial statements for further information related to our litigation.

NON-U.S. GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.GAAP.

We define the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation, amortization, and impairment charges, stock-based compensation expense, and stock option expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:

The following tables present a reconciliation of Adjusted EBITDA to net loss, the most comparable U.S. GAAP financial measure, for each of the periods presented: