EXPI - NASDAQ

Good afternoon, everyone and welcome to the eXp World Holdings Fourth Quarter and Full Year Earnings fireside chat via live stream and our Metaverse on the web Frame. My name is Denise Garcia and I'm manage, Investor Relations for eXp World Holdings. Today, we'll begin our earnings fireside chat with prepared remarks from Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings and CEO eXp Realty; and Leo Pareja, Chief Strategy Officer, eXp Realty; followed by a review of the fourth quarter and full year 2023 financial highlights presented by Kent Cheng, Principle Financial Officer and Chief Accounting Officer of eXp World Holdings. Following our prepared remarks, we’ll open the call to Q&A session with eXp World Holdings covering analysts and questions submitted to eXp. First, let me begin with a review of our forward-looking statements. There will be a number of forward-looking statements made today that should be considered in conjunction with the cautionary statements contained in the Company’s SEC filings. Forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Please see our filings with the SEC, including our most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q for a discussion of specific risks that may affect our business, performance and financial condition. We assume no obligation to update or revise any forward-looking statements or information. As a reminder, today's call is being recorded, and a replay will also be made available on expworldholdings.com. Now for a few logistics, and we'll get started. For those of you joining us in Frame today to zoom into a specific screen. You can click on that screen and then click zoom in. If the content on the screen disappears or if you lose audio, simply refresh your page. While in Frame, if you need help, just use the help button on the bottom right hand to link with tech support. Should you wish to ask a question during our presentation, you can enter your questions by scanning the QR code presented on this screen with your phone or go to slido.com and type in the event code EXPI. From there, you can submit a question or vote up an existing question by giving a thumbs up if you would like that question to be asked. This screen will remain up on the left hand side of the stage. Now I'll turn the fireside chat over to our speakers before opening the call to questions. Glenn, you may begin.

All right. Thank you, Denise, and thank you, everyone. Thank you again. Obviously, this is the first event that we've done publicly for Frame VR and this is a platform we've actually been developing since 2019. Frame is actually the first platform that works on desktop, mobile and immersive hardware like the Meta Quest 3, and if you're lucky enough to have one, the Apple Vision Pro, it's kind of like Squarespace but for the spatial web. We're really excited about the technology. In fact, it was presented by the CTO of Microsoft at Microsoft Build 2023, and Frame now powers exp.world. It's now our new browser based immersive collaboration platform. It's faster and easier for our staff and agents to collaborate online. And specifically, eXp agents can now create their own spaces and also meet with clients, and even in reality give remote home tours. Agents can look at 360 photos of properties, walk around, matterport scans and navigate Google Street views with others. And then in terms of AI, which we've talked a little bit about, Frame actually uses AI to do real time translations and closed captioning, but also to help people create their own custom spaces and 3D bots. There's more to come in areas of AI and 3D. We're just getting started, so stay tuned. Now, I'll move on to our fourth quarter earnings call information. So I'll start first with an overview of our business strategy before discussing our results for 2023 and the fourth quarter. As most of you are familiar, 2023 has been a difficult year with existing home sales in the U.S. at their lowest level in nearly 30 years. Despite the industry slowdown, North American Realty continues to gain market share, which I'll discuss in more detail in a moment. But first, I want to touch on our business strategy. We began sharing, business segment information on this call one year ago to show how the profitability of eXp North America enables us to invest in other growth opportunities across the business and that dynamic continued also into 2023. In 2023, our North American Realty segment generated $91 million of adjusted EBITDA, which allowed us to continue to drive our overall business growth initiatives forward. We're also EBITDA positive for the year, when not adjusting for stock based comp. Our success in North America has enabled us to expand in international markets, where we operate in 24 markets, including South Africa, which -- where I am today. It's 12:05 in the morning. A unique item about South Africa is we're now -- we're the fastest growing real estate agency in South Africa and we're actually the 7 largest now. So it's pretty cool to see in just a couple of few short years the amount of impact here. There's an event last week that was here, and a lot of agents came together. So, this year, one of our goals is to definitely be more visible internationally. In fact, we have our first eXp con in Lisbon, Portugal in June of this year. We continue to see International Realty as the largest driver of future growth for the company. We continue to break records in our International segment. In 2023, we grew International revenues 50% to $53.9 million. In Q4, we increased revenues by 67% year-over-year to $16 million, while at the same time decreasing our losses on an adjusted EBITDA basis by 14% year-over-year. While revenues and affiliate services still remain small, they're gaining momentum and represent opportunities for meaningful incremental revenue and margins per transaction in the future. eXp Realty North America and International represent our path to overall revenue growth powered by our cloud based asset light model, which allows us to continue iterating on our superior agent value proposition. While the business areas I'll discuss on the next slide represent our key sources of differentiation. We are constantly iterating to improve the agent value proposition by developing an ecosystem of personal development, health resources and media like SUCCESS Magazine, and the recent appointment of Bryon Ellington inside of eXp Realty as Chief Learning Officer, which I mentioned last quarter. We have many exciting things going on in training and education that Leo will highlight in a moment. Our enabling technology platforms support our cloud based brokerage model, and we also use AI and other machine learning technologies to improve our transaction management workflow and eventually plan to use technology build out an entirely new way of transacting business. We'll continue to invest these resources to enhance the agent value proposition and ultimately increase the satisfaction of our agents as measured by agent NPS, which we'll discuss on the next slide. One area that we've been highlighting focus is on NPS. In fact, we added Fred Reichheld, the creator of Net Promoter System to our Board last year. It's very important for us, because we believe NPS is a leading indicator of our future success. So I'm thrilled to share that agent NPS improved throughout 2023 to reach 73 for the year. And we actually had a fair -- I called an anomalous 77 because it was a little bit of an outlier for the fourth quarter, but it just shows the strength of our model and how well it resonates with our agents and brokers. I believe this is the result of constant iteration on our agent value proposition and our key sources of dip differentiation, I discussed on the last slide. Also, last year, our operations team made many improvements and investments to reduce agents' time spent on non-revenue generating tasks to enable them to be more productive and a few examples are listed here. Most notably, we improved onboarding and transaction support with applications like Luna. We launched eXpress Pay and the eXpert Care Desk. We expanded benefits within eXp Agent Health Care powered by Clearwater to provide agents with exclusive access to industry leading plans for themselves and their families with low co pays, low to pocket costs and $0 deductibles. Now over 2,000 agents and their families get affordable quality health care from eXp Agent Healthcare. We improved our marketing center in the U.S. and launched also into all other countries. We also launched agent advisory councils in more jurisdictions. These operational improvements resulted in helping our agents get support, get paid and get more business. Ultimately, we hope to improve our agents' lives with ongoing operational improvements. Leo will expand on our operational improvements and additional products in a moment. But first, I want to share some recognition awards we've received for eXp and our agents on the next slide. Both eXp and eXp agents have been recognized widely for our shared success. One award that I believe is driven by our high NPS scores is Glassdoor's best places to work. We've made the list 6 years in a row in the U.S., and we moved up to number 7 from 15 in Canada. Also in 2023, our agent teams have been recognized across the industry, and eXp was named the number one growth leader across agent count, volume and transactions at RealTrends T3 and Power Broker. Turning to the next slide. We've been updating this table for over a year now and the numbers keep proving that our platform is even stickier for productive agents in a down market. Consistent with previous quarters, the majority of our attrition is with lower producing agents in the 0 to 2 transactions per year category. With home sales in the U.S. and Canada at their lowest levels we've seen in decades, we proactively off boarded many nonproductive agents in the fourth quarter, such as agents that had no sides in the last 12 months and agents which also not paid their fees. We ended the year with 87,515 agents, which was up 2% over 2022, but down 1.8% from Q3. This is the first time in our history that our agent count has declined quarter-over-quarter. However, our agent volume proposition remains strong with big teams and agents joining worldwide and agent NPS at their highest it's ever been. I think that our high NPS scores will further drive retention of eXp's top agents, who are more likely than ever to recruit additional agents to the company. Our focus continues to be on building the future of real estate with the most productive agents in the industry so that, ultimately, when the market turns, we'll be in optimal position to gain an outside share of transactions in the market, which we'll discuss on the next slide. So this slide actually compares eXp U.S. residential sales transactions to U.S. residential real estate industry as measured by transaction sides on the left side. And our market share on the right on the left, you can see that eXp Realty U.S. residential real estate transactions were down less than 2% year-over-year in Q4 and approximately 8% for the full year. This compares to a U.S. residential real estate industry, which was down over 10% year-over-year and Q4 over 17% in 2023. As a result, we grew our transaction side market share, which I've talked about focusing on the last almost 2 years, 8.4% in 2023 and nearly 7% in Q4 to 4.2% in the U.S. Before turning it over to Leo, I'll conclude with a few takeaways from 2023 and why I'm so optimistic about eXp's prospects in 2024 on the next slide. We're entering 2024 with very strong momentum. To recap, our value proposition remains strong with high agent NPS score at 73 for 2023 and 77 for Q4. Big teams and agents are joining worldwide and we are retaining our most productive agents. We continue to grow our market share from 3.9% in 2022 to 4.2% in 2023, reflecting over 8% growth year-over-year. We're leveraging technology and increasing our operational efficiencies. And lastly, with 2023 behind us, we're entering 2024 in a position of strength with increased momentum. We have a solid vision for 2024. And now, I'll turn it over to Leo who will take you through our 2024 goals.

Thank you, Glenn. If I were to characterize 2023, I would call it the year of operational excellence. No doubt it was a rough year and a tough one for the market. It's literally the worst year we've had since 1995, even worse than 2008. So what we've been focused on is what we can control with increased support for eXp agents during these times. By helping our agents reduce the time they spend on non-revenue generating tasks, we can increase their productivity so they can do what they do best, which is sell real estate. In terms of operations, while we focus our efforts on three key areas, faster onboarding, faster access to service, faster payments that Glenn mentioned earlier. We're obsessed with supporting our agents and making incremental improvements that will make a big difference in their lives as we continue to do so in 2024. In an evolving real estate commission landscape, we launched eXp exclusives, an initiative that could become increasingly important in this environment. Exclusives was literally launched last quarter, and we've had over 7,000 agents use the application. We're creating hundreds of unique listings only specific to our ecosystem. We launched eXp luxury with an astounding results. Already, we've had over 1100 agents in the program, and we it began expanding globally. We've launched in 5 countries in 2023, with a plan to expand to every country in 2024. We've already expanded to Portugal, Spain, France, Italy, Germany, and Greece so far this year. We created a first of its kind collaboration with Open North. I'm very excited about for a true instant offer for our agents and their sellers in the 50 plus markets they serve across the United States. Revenues has increased the number of leads we've delivered to agents by 250% compared to '22 delivering over 22,800 leads that led to over 1.1 billion in closed volume in 2023. We also doubled down on our commitment to do more training and coaching programs by hiring Bryon Ellington as our first ever Chief Learning Officer as Glenn mentioned earlier. We launched several programs that have been super well received, accelerate for new agents, boost to attract independent brokers to eXp, which has already attracted some of the largest brokerages of the country to eXp, including the Bean Group in Boston and Justin Havre & Associates in Calgary, Canada that I discussed last quarter, and Thrive, a program focused on incentivizing teams to join eXp, partly through an equity incentive program. And we initiated a very important profitability improvement plan in the fourth quarter to reduce operational cost by approximately $20 million and identifying new revenue opportunities in 2024, which I'll discuss in the next slide. In 2024, we will continue to innovate and drive efficient growth through a number of initiatives starting with technology. We will continue to leverage our technology to improve operational efficiency and productivity. A great example is My eXp app. Currently in beta and it will become the center of the universe for our agents. With easy access to their commissions, settlements, rev share and all of eXp technology services. We expect to see dramatic improvements as we launch My eXp app in the next few months with our goal to continue to make technology simple, mobile and easily accessible for one place for our ages. We will be working with many more software deals, lead partners at no additional cost for agents, including providing tracking information that our agents have been asking for. The success of the luxury division encourages to launch additional divisions this year, Farm & Ranch, Sports and Entertainment and Green to help our agents further differentiate themselves from our competitors in all markets. While we expanded and hired, Chief Learning Officer, Bryon Ellington, you can expect to see more announcements in training and coaching, including some familiar faces that were partnered within our eXp ecosystem. We're also launching a live streaming real estate radio station to further establish our agents as thought leaders in the space. This station will feature podcast channels, content creators and industry experts to discuss news trends, strategies and tactics to grow agent businesses and it's expected to be live soon. And last but not least, I'm personally focused on continuing to help our agents increase their productivity and operating business more efficiently in 2024. We will be paying close attention to unit economics through an SG&A to unit cost as a new KPI to measure efficiencies in 2024. On that note, I'll pass it along to Kent to provide additional insight into Q4 and 2023 financial results.

Leo, thank you. Fourth quarter NPS increased to 77, which was an outstanding result of our investment in operational excellence in 2023. Due to our compelling agent value proposition, we increased our agent count by 2% year-over-year. While we off boarded a significant number of unproductive agents during the fourth quarter, resulting a decrease in our agent count from the third quarter, we retained our most productive agent cohorts. Our real estate transaction unit grew 6% year-over-year, outperformed the industry. This was really a remarkable outcome and thanks to the hard work of our higher productive agents and dedicated staff. Our two most important financial objectives are revenue and adjusted EBITDA. Our fourth quarter revenue was $983 million, an increase of 5% year-over-year. We generated $0.5 million adjusted EBITDA compared to $3.6 million in prior year quarter. Reported gross profit was $71 million a decrease of 15%. You might recall, we started to report agent growth incentive stock compensation expense in the cost of sale in 2023. In the previous year, the expense was reported in the sales, general and administrative expenses. If this expense has been excluded in both years, 2023 gross profit would have been consistent with last year. Reported SG&A was $89.4 million, a 5% decrease from the fourth quarter in the prior year, primarily due to the above mentioned reallocation of agent growth incentive stock compensation to the cost of sale. In addition, the fourth quarter including approximately 8 million of onetime cost related to ESP con and a provision for workforce reduction. Net loss was $21.2 million in Q4 2023 compared to a net loss of $7.2 million in Q4 2022, driven by $9.2 million of impairment charge related to Virbela segment and $8 million onetime SG&A cost as I mentioned previously. Adjusted operating cash flow was $42.3 million and we repurchased $25.9 million of share during the quarter. In the next slide, I will provide more detail about the driver of our revenue change in the fourth quarter. This chart helps to explain what drove the change in the fourth quarter revenue between 2022 and 2023. 2022 revenue was $933.4 million, indicated by the bar on the left. 2023 revenue was $983 million indicated by the bar on the right. The year-over-year increase in revenue was $50 million or 5%. The increase was attributable to a $45 million increase in the North America Realty segment, which consists of the U.S. and Canada and a $6.5 million increase in International Realty segment. I will dive into more detail of the $45 million revenue growth in North America Realty segment, which included the bars under the heading North America Realty segment revenue change plus $45 million. Our agent base grew 2% and contributed $21 million of additional revenue. According to NAR, Assistant Home Sales and U.S. Census Bureau's New Home Sales data, U.S. residential home sales size decreased approximately 8% which pressured our agent production. We calculated the negative impact of lower home sales to our revenue as $62.6 million. Normalized the impact of lower home sales of the overall markets, an increase of our agent productivity over prior year contributed $42 million revenue increase. Higher home sales prices and more affordable – more favorable commission mix also brought in $30.8 million incremental revenue. Lastly, our focus on growing our lease, rental and other ancillary services contributed additional $13.5 million revenue. I will discuss some financial for the quarter on the next slide. On the slide, you can see our Q4 2023 segment revenue and adjusted EBITDA for each of our four business segment and the breakdown of corporate and elimination. Our North America Realty segment was primarily driver of the revenue and profit of the company. Revenue was $965 million, an increase of 5% over prior year. Adjusted EBITDA was $8.6 million. International Realty segment revenue was $16.3 million an increase of 67%. Adjusted EBITDA loss was $3.6 million. Virbela contributed modest amount of revenue and its adjusted EBITDA was $1.9 million. The other segment, which is primarily SUCCESS, also contributed modest amount of revenue and generated a small adjusted EBITDA loss. On the next slide, I will recap the full year financial performance on a consolidated basis. And next slide, please. Agent NPS was 73, an increase from 71 in 2022. We completed nearly $0.5 million transaction unit in 2023. Our real estate sale transaction unit growth outperformed the industry. 2023 full year revenue was $4.3 billion, a decrease of 7% year-over-year. Adjusted EBITDA was $57.5 million, a decrease of 5% from prior year. However, we are able to maintain adjusted EBITDA relatively stable to 203 level, despite a significant market decline. Reported gross profit was $324 million, a decrease of 5% year-over-year. As I mentioned before, in 2023, we began including agent growth incentive, stock compensation expense and cost of sale. If this expense has been excluded from both -- from cost of sale in both years, 2023 gross profit would have been consistent with 2022. Reported SG&A was $331.3 million, an 8% decrease from prior year, primarily due to the above mentioned reallocation of stock compensation expense. If the expense has been excluded from both year 2030 SG&A will have been flat compared to 2022. 2023 net loss was $9 million, primarily due to $9.2 million non-cash, one-time impairment charge recorded in the Virbela segment. The decline net income year-over-year was primarily due to Virbela impairment charges, increased agent growth incentive stock compensation and a higher effective test rate. Finally, we repurchased $161 million of share during the year. To give you some perspective of a share repurchase in 2023, we purchased 10.1 million shares, which is equivalent to 91% of share issued via our agent growth incentive and agent equity plan. And now I will take you through the full year 2022 to 2023 revenue change analysis. 2022 revenue was $4.498 billion indicated by the bar on the left. 2023 revenue was $4.281 billion indicated by the bar on the right. The year-over-year decline in revenue was $370 million. The North America Realty segment contributed $333 million revenue decrease, partially offset by an $18 million revenue increase in the International Realty segment. Let me dive into more detail of the North America Realty segment revenue change in 2023. Our agent base grew 2%, which contributed $280 million of additional revenue. According to NAR, Assistant Home Sales and U.S. Census Bureau's new home sales data, U.S. residential home sale sites decreased approximately 17.3%. We calculated the negative impact of lower home sales to our revenue was a reduction of $759 million. Normalized the impact of lower home sales of overall markets, our Asian productivity improvement contributed an increase of $93 million revenue. Higher home sales price and a more affordable commission mix -- a more favorable commission mix brought in additional revenue $11 million. Lastly, growing our lease, referral and other ancillary services contributed $43 million revenue additionally. In summary, due to our superior agent value proposition and the resilience and hard work of our agents and staff, our revenue growth outperformed the industry. Next, I will take you through a full year segment performance. 2023 North America Realty segment revenue $4.2 billion decreased 7% year-over-year. Adjusted EBITDA was $91.1 million. Again, our core North American realty business was profitable. International Realty revenue was up 50% to a record $53.4 million in '23. Due to our continued investment in the international royalty, adjusted EBITDA loss was $13.7 million. Virbela revenue was down 14% in 2023, while adjusted EBITDA loss improved by 41% year-over-year due to cost reduction actions. And revenue in other segment was down 6% in 2023 to a $4.8 million with adjusted EBITDA loss $3.8 million. And next slide we'll summarize the highlight. This slide summarizes our highlights for the year, most of which I have discussed in the previous slides. What's important to point out is our plan for 2024 that Leo mentioned previously. At the end of the year, we identify approximately $20 million of cost saving and other profit improvement initiative for 2024. We will continue to monitor our business volume and cost base and identify additional profit improvement opportunities throughout 2024. We are well positioned for 2024. I'm confident ESP will emerge from current market downturn into a much stronger position to capitalize the future market growth opportunity. And with that, I will turn it back to Denise to take your question.

Great. Thanks, Kent. I'll kick it off with a question for each speaker before we open the call to our analysts and questions from the audience. First, starting with you, Glenn, agent count grew 2% year-over-year, but it declined slightly from the third quarter. Can you discuss what happened to your agent count from the third quarter to the fourth quarter?

Yes. So I touched on it in my prepared remarks, but basically we -- it's obviously, we have a tough housing market. And as a result agents have sold less real estate. That has been one aspect, so there's definitely been just industry churn. The other part was that we actually had a number of nonproductive agents that were on our rosters and weren't contributing, and they work cost. Every agent that's with eXp, there's a cost to have them involve technology, support and other things. So we did off board them, but they hadn't sold real estate for -- a piece of real estate for over 12 months and hadn't been paying fees, most cases of similar length of time. So it was really just trimming the numbers to be really our productive agents who are actually focused on being here. Moving forward, we expect, our agent count to return to growth over time as we continue to sort of retain our highly productive agents and demonstrate, obviously, it's demonstrated really by our strong agent satisfaction. But we're actually going back to the drawing board on a few different things that we're really excited to work on and hopefully be able to announce here in the not too distant future that we think is going to be really helpful as well.

And now I'll ask Leo a question. You mentioned a lot of initiatives that eXp kicked off in 2023 that would improve agents' lives and your plans for 2024. Is there anyone that truly differentiates eXp's value proposition from the competition?

Yes. One of the strongest value propositions that gives us an advantage over everybody is scale. We've achieved scale and profitability consistently, which allows us to reinvest and take advantage of new opportunities. And we're hyper focused on initiatives that are unique and unreplicable due to our size and scale, whether that's technology that's proprietary and/or substantially cheaper than retail, all the way to just advantages like eXp exclusive due to size. A lot of our copycat competitors have undercut our economic model and have yet to prove any net profitability with no path forward.

And then I'll wrap up with one for Kent. Can you discuss the components of the $20 million profit improvement plan you mentioned?

Yes. We're very excited about it. The $20 million profit improvement is really including impact on operating costs, which impact our cost of selling and SG&A, and also some additional revenue opportunity.

I'll move over to our covering analysts and open up the call for John Campbell from Stephens.

Glenn maybe a couple of questions. I want to kind of stay on the topic of the decision to offer the unprotected agents. I guess a few questions there. Why now would be the first one. And then, do you feel like that's -- this is kind of a one-time cleanup effort or is this, like, new you're going to have iterations over the next couple of months, next couple of quarters? And then, I guess, from a bigger picture, does this imply that you might have a minimum, for agents over a year or so? Is there a timeframe? Is there a minimum that you might be exploring now?

No. We had really cleaned up a lot of our, we'll say our operations in the last year or so. And one thing that we had noted was a fairly significant -- one, we had cleaned up a whole bunch of what we call accounts receivable, which basically means there was a lot of things that we hadn't collected that needed to be collected. And in that, it sort of revealed as we kind of more granular that we've got a group of agents who for all intents and purposes were just on our on our roster. But there's we're providing there's a number of tools and technologies. So you figure out that each agent has a monthly cost. And they just, we had worked with them. We had tried to get them in production, and a lot of them really effectively ghosted us as an organization. So they weren't even really communicating with us. So it was -- so we did off board some in Q4, we off board a few more here in Q1. But I think we're pretty much done and then it should be a much more -- there shouldn't be like big blocks of agents off boarded for this reason, because we do want to stay a little bit more up to speed on it so that we don't show a higher agent count than truly active and productive with eXp.

And then maybe this is a question for Kent, but on the gross margin, hopefully, we get a solid rebound in U.S. housing this year. I mean, it feels like that would maybe apply a little bit of an underlying pressure on gross margin with more capping. You've got the incentive programs in place like Boost. Seems like that's going to provide a little bit of an impact, at least this year and then you'll lap that and it kind of goes away. So maybe, Kent, I don't know if you want to put a fine tooth comb on it and give us some direction on where you think gross margin goes exactly, or maybe this is high level. Would you think it's up or down relative to '23?

If you maybe talk about 2023, it's look on the full year base as I talk about as we in 2023, we started to report the agent growth incentive expense in the cost of sale. If you take that out, you learn a like to like comparison on the full year base actually, our gross margin percentage is higher '23 versus '22. I would say is going forward, I mean, our number difficult to forecast. Because a lot of variable, when is your cap, yes, agent stock compensation. But in general, what we would expect our gross margin percentage more like similar this level like 2024 similar to 2023 level.

And then also just to help pinpoint this for us, I guess, in what quarter was it 3Q where you started adding the agent growth incentive into gross margin to cost of goods?

That start at Q1 2023.

We'll take our second question from Matt Filek from William Blair.

You have Matt Filek on for Stephen Sheldon. Thank you for taking my questions and the opportunity to experience the Frame platform. I wanted to start with one on agent growth. How are you thinking about the agent growth potential in 2024? And how should we be thinking about the agent growth between the United States and international markets? And it's kind of a second part to that question. Also curious if you feel agent growth trends are being impacted by any sort of changes in the competitive landscape.

So domestically certainly, we felt some competitive pressures. We were effectively the only cloud based brokerage model for the first 11 years of our existence. Now there's a bunch. You probably know all the names but there's real LPT epic, and there's a number of others as well. So there's a bunch of these for lack of better term, copycat, cheaper versions of the model. And so, we we've definitely felt some pressure. Certainly, agents have we've had lost agents to some of these other models and we've also gained agents back from some of those models already, even though they're pretty young in their life cycle. So, domestically, probably see some of that. But internationally, we are in a completely blue ocean. I mentioned earlier that in South Africa in just a couple of years, we've grown to about 1,200 agents, 7 largest state agency in South Africa, but we're growing fast in South Africa, France, Dubai, still UK, which has been a really great market for us. We're getting traction in different markets. We also have some markets where we haven't really grown and so we we're either looking at leadership changes or just seeing if the model needs to be tweaked in some capacity. But we really expect that international is going to be our big growth in the next coming years, and I'm super excited about it. And it's really, these are anecdotal numbers because there's not statistics like NAR in most of these countries, but we figure there's approximately 20 million real estate professionals worldwide. And if we -- over the next 10, 15 years can get to a similar market penetration that we have in the U.S. and Canada then that puts us gives us a path to a potential 1 million agents, which is a crazy number to think about under these one umbrella. But because we we're very unique in the way that we approach the model, we think there's a lot, a lot of growth potential there and that's where we're spending a fair bit of time really figuring that piece out.

A quick clarification, will most of the international growth come from existing markets? I believe last time we spoke, the focus was on ramping profitability and growth within the countries you're already in or do you expect to start entering new countries over the course of 2024?

Yes. We already have at least 1 or 2 countries that are fairly mature in the discussions to open up those new countries. One country we expect to day 1, we'll start with 100 of agents. And so we've got a number of good partners in terms of international market. But one of the things we're doing though is we're actually going back to the drawing board and how we actually operate international markets. We've now got enough experience, open running international markets to go back and retool in a way that we think is going to reduce our expense to run a international market substantially. So, in the early days of eXp, we could operate in a given state in the U.S. with a managing broker and then just the eXp back office stuff. But we could operate $10,000 a month or so, with no transactions. We think that there's a way to do some an analog to that when we grow internationally, so that our expense load is substantially lower so we can keep these markets open while the initial momentum in those countries take place. And so, we're excited to kind of regroup on a lot of that and that's actually been that was part of our strategic discussions late last year and going into this year. And we think we've got a good path to really operate these more efficiently with more entrepreneurial mindset, country leaders.

And then one more, if I may. I was wondering if you could elaborate on the technical advantages of Frame compared to Virbela, and maybe how those advantages enhance the value proposition for eXp agents. I know you talked about 3D home tours, which sounds interesting but any additional color there would be helpful when we think about Frame compared to Virbela?

So Frame is I've referred to it in the past when we've talked about it as really kind of you’re to do it yourself Metaverse. Meaning that it doesn't whereas, Virbela was a fairly heavy application you had to do -- had to have to download a client and then those clients, when you get into large enterprises, investment banks, et cetera. A lot of times getting through the info security or info sec to actually get those things actually allowed or firewalls or other things would just prevent the application in the way that we envision it. When you're doing it through the web, it makes it much more accessible. We can string together, rooms very easily, put in doors and basically portals to other spaces. And you can go to framevr.io and start playing with it today. Like, literally, you can go there. You can set up your own space. You can go and build I don't know if there's auditoriums in there. Probably is. But you can you've got 50 plus spaces that you can choose from either offices to big campuses to lodges to what have you. There's a lot of things going on behind the scenes just in the Metaverse arena. Mozilla Hubs, there's some stuff going on with them right now. We're actually because eXp is using this at a very high level, we're -- it's now really what I call enterprise ready and that's why we sort of put it out there at this point. Virbela is a great platform. There we don't do have a number of clients that use it, but it never really got had the appeal on the enterprise level that we originally expected in 2020 after COVID hit. So where we made a big investment. Before, it was really just we were using it primarily for us and obviously since clients came. Frame, I think is going to have an already has a natural fan base of users because of the way that it's structured from teacher organizations to museums to all kinds of different places because it is much more accessible. So you you'll see, a lot of that premium type service coming out of Frame, and we think there's a good path to actually create a SaaS based platform that could be significant over time using Frame.

And next we'll go to Tom White from D.A. Davidson.

Glenn, you mentioned an expectation to return to agent growth at some point here. Could you maybe talk a little bit about your expectations around domestic agents in the next couple of quarters? If you look at, like, NAR member roles over the years, there tends to be kind of an uplift in licensed agents in the spring. Just curious if you're seeing any signs that maybe your business will exhibit some of that? And I guess sort of related, just I was hoping you comment a little bit about the success or traction maybe that things like Accelerate and Thrive and those platforms may be getting? I mean, do you feel like they're helping you go back on offense a little bit in domestic agents count, or do you still feel like you're maybe a little bit on the defensive domestically given some of the competition, you touched on earlier?

Yes. Well, domestically, I think it's -- I think that we're in an industry right now that's not going to see a huge number of new licensees, like we've seen, like, in 2021, maybe even 2022, with the decline in real estate transactions. You obviously, there's a backdrop of what's the industry going to look like in 2, 3, 4 years, I think, in a lot of people's minds, even potential new licensees. So I think we're kind of little bit of a slower growth. Obviously, if the Fed decides to reduce interest rates substantially and then that ultimately adds fuel to fire. Maybe we end up picking up more agents wanting to get in the business. So, I think the backdrop is we're not going to see a lot of industry changes in terms of data count but Accelerate, Thrive, Boost, those are tools that we have now that are definitely helping. We think that there's probably more things we can do to be offensive in terms of growth. We've got some meetings actually coming up in early March, where we're actually going over some things that we believe are going to do just that. So we're excited to get those masterminded and rolled out. But, so I guess the long and short of it is it's a little bit early too early to tell but we did, we have obviously seen more competition, no doubt. We've seen, less agents in the industry at large, which doesn't help in terms of overall growth. But we've still obviously continued to grow market share, which is really the thing I mentioned a couple years ago. Let's focus on market share because the market's going to be tough. And then, but we think that there's some ways to actually get ways to actually get good agent growth by creating some better ways to monetize from an agent's perspective to be at eXp.

Maybe just one quick follow-up or clarification. The $20 million in annualized benefit to your results that you called out in the press release, it made it sound like it was a combination of cost saves and kind of revenue enhancements. But then did I did you say in kind of the prepared remarks that cost adjustments will kind of be the bulk of that. Can you just maybe just clarify a little bit? I'm just trying to get a sense of, like, what your quarterly G&A might look like starting in starting in the first or second quarter?

I mean, we've got an interesting backdrop of things going on. We've got obviously, we're defending a ton of these commission based lawsuits, so there's definitely what we call risk management. So there's some risk management fees because we're our just our legal costs are going up significantly. So we're working on generating some additional revenue to pay some of that legal cost and then we made adjustment to the discount on the stock comp plan. Again, it's a little bit non-cash, but at the same time, it's still an item that actually plays a role in sort of our cost to operate and everything else. So we made a couple adjustments there, and then we do have new revenues coming down the pike as well. So, we don't break all of it at this point. I think those may be I don't know how much visibility you've had to some of that, but we've got a couple small tweaks, which reducing costs on our stock comp, increasing a little bit of revenue on our risk management fees. And then we've got other business opportunities that are coming in. A lot of that are stuff that Leo's been on underneath the Revenos and agent services, affiliate services even things like our and we've got some revenues that come from places like Clearwater and some partnership type stuff that we've got there, and then we've got others. So I don't know, Leo, if you got any others that you want to touch on but those are just some that are on top of mind.

I mean, piggybacking on the first last question that was asked, believe it or not, even with the dark clouds ahead, the conversations have sped up with independence that probably would have considered folding into a national company and just maintaining it independently. So, there could be some growth that continues to materialize from the larger companies joining. The single agents have struggled the most and that's where we've seen our most attrition. But on the profit improvement, it's cost plus addition. So we're hyper focused on unit economics, making sure that we're, very efficient from an SG&A to unit standpoint. And just really focusing on, you know, now that we're more of a mature enterprise running it as such. And so we're just being very careful in holding everything accountable.

We've got time for one more question from Soham Bhonsle from BTIG.

I guess first one was just on the agent count up 2%. I was hoping you can maybe help us quantify the impact from the off boarding of agents in that number. And then sort of where agent count growth has been in North America versus international?

Maybe I can. Glenn you want me to answer the question?

Yes. I think you've got the more granular data.

Yes. So we don't provide, let's say, our addition and termination. We are not provided. But what we can say is look at 2023 growth, too much all our agent growth is come from United States and Canada.

And then on the gross margin, I think last quarter, you talked about maybe being above 7.5% for this quarter. I think you came in a touch lighter than that. So I'm just wondering what's driving that. Is that sort of any mix shift that's happening within your base, you’re more productive agents doing more or is this sort of we have to pay a higher split in this sort of environment, which we're hearing as well?

Yes. The major driver, right, even compared to if you look on the -- if you like, we talk about the agents stock compensation, if including gross margin last year, right, which we stayed about 8% and Q4 2022 is 8%, Q4 2023 is 7.2%. So we do drop about 80 bases point. Majority, the really is the increase of the stock compensation. I mean, our stock comp -- agent stock compensation in Q4 about $12.5 million versus Q4 '22 $8 million. So that's a major driver on that.

And then, Kent last one. For SG&A is the best way to think about it, I think there was about $8 million of one-time items this quarter. So that would say $78 million is sort of the normalized run rate and then we sort of take $5 million every quarter and sort of run with that going forward?

Yes. The key how I think about it, right, is now we don't provide guidance. You think about $89.4, right? $8 million is one-time related to ESP comp and the provision on workforce reduction. So you're based roughly 81, 82. If you do this more run rate, right, for four quarter, give you about $326 million that kind of cost. And, yes, Leo and Glenn talked about part of the significance cost saving or the profit improvement $20 million is SG&A. So I want to answer Tom's question. So with some further reduction SG&A, now what you can expect is our SG&A cost will be lower in 2024 versus 2023.