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00:02 Good morning, ladies and gentlemen, and welcome to the Real Brokerage third Quarter Earnings Call. At this time, all participants are on a listen only mode and the floor will be open for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, James Carbonara with Hayden Investor Relations. Sir, the floor is yours..

00:23 Thank you. And once again, welcome to Real’s third Quarter twenty twenty one earnings call. With me on the call are Tamir Poleg, Chief Executive Officer; and Michelle Ressler, Chief Financial Officer.

This morning Real filed its financial results and management discussion and analysis for its third quarter ended September thirty, twenty twenty one on SEDAR. These documents along with the accompanying news release can be found on SEDAR.

00:51 The content of this conference call should be considered in conjunction with and is qualified in its entirety by reference to such documents. I'll now read the forward looking safe harbor statement.

This statement is made pursuant to the safe harbor for forward looking statements described in the Private Securities Litigation Reform Act of nineteen ninety five.

01:10 All statements made on this call with the exception of historical facts may be considered forward looking statements within the meaning of Section 27a of securities act of nineteen thirty three and Section twenty one (a) of the Securities Exchange Act of nineteen thirty four.

01:24 Although the company believes that expectations and assumptions reflected in these forward looking statements are reasonable it makes no assurances that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in the forward looking statements due to various risks and uncertainties.

01:41 For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward looking statements, please see risk factors detailed in the company's annual report, which contains subsequent filed quarterly reports, as well as in other reports that the company files from time to time with SEDAR.

01:59 Any forward looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward statement to reflect subsequent knowledge events or circumstances, unless otherwise maintenance. All references in this call reflect currency in U.S. dollars.

This conference call will include references to adjusted EBITDA, which is non- International Financial Reporting Standards, IFRS financial measure. 02:28 Non-IFRS measures are not recognized measures under IFRS.

They do not have standardized meaning prescribed by IFRS, and therefore are unlikely to be comparable to similar measures presented by other companies, adjusted EBITDA is used as an alternative to net income by removing major non-cash items such as amortization, interest stock based compensation, current and deferred income tax expenses, and other items management considers non-operating in nature.

02:58 Adjusted EBITDA has no direct comparable IFRS financial measure. The company uses non-IFRS measures solely to provide investors with added insight into real financial performance. Listeners are cautioned that such non-IFRS measures may not be appropriate for any other purpose.

Non-IFRS measures should not be considered in isolation or as a substitute for measures or performance prepared in accordance with IFRS. 03:26 Now, I'd like to turn the call over to Tamir Poleg, Chief Executive Officer of Real. Tamir, please proceed..

03:34 Thanks, James, and thanks everyone for joining today. I would like to start by thanking the hundreds of agents who joined Real in the past few months and to our community of agents who have contributed to the growth we are experiencing.

I will now continue by highlighting some top level financial results, then I will provide some operational updates before turning it over to our Chief Financial Officer, Michelle Ressler to dive deeper to our financials. After that, we will open up the call for a Q and A. 04:03 Let's start with the financial results.

Q3 revenue was thirty nine million, an increase of eight eighty five percent year over year. Driving that growth was one hundred and thirty two percent increase in real estate agents joining Real, as well as a three twenty five percent increase in the revenue per agent to thirteen thousand dollars. 04:03 Now, turning to operating highlights.

When we consider what is supporting our growth, it is based on a number of operational factors and strategies, mainly geographical expansion, agent referral, retention, product focus, the amazing culture that attracts more and more agents, and the efficiency of our team, beginning with geographical expansion.

04:47 During the third quarter, we announced Real’s expansion into Canada with the launch of Real Brokerage in Alberta. We also expanded into Indiana, North Dakota, Minnesota, and Montana.

After the quarter ended, we announced expansion to Iowa and Michigan, bringing our tally to thirty eight states, the district of Colombia and the Province of Alberta in Canada. 05:09 We look forward to growing our business in Canada, and in each of our operating states. Our focus closing out the year and for twenty twenty two will be North America.

The intention is to go deeper in the U.S. rather than expanding horizontally. In terms of agent referrals, our agent attraction has always been correlated to our existing engines. 05:31 We will be rolling out more tools for current agents to attract more agents. Every agent that joins the company has the potential to attracting more and more agents.

As a reminder, agents are incentivized to recruit other agents because Real agents earned revenue share through five years of referral creating a network growth effect. 05:51 We also believe that our story resonates with a lot of people. The culture that the agents we are attracting, is also attracting other like-minded agents.

Just as an example, this is what attracted red line brokerage, and it's eighty five agents into Real in October. They saw our platform technology network and further by joining Real they can both maintain the momentum that they are proud to have achieved and provide greater benefits to their agents.

06:19 We are proud to say that we are now part of the Real team and we look forward to having them play an integral role in our operations. 06:27 Moving to retention, at Real, we offer an equity incentive plan to both attract and retain agents. Agents can purchase stock at a discount with their commissions.

They can earn stock by capping and attracting other agents. Agents can also earn elite agent stock award if they reach specific production benchmarks. 06:48 The majority of agents join and opting to the equity incentive plan, it is a huge incentive to join and state.

Moreover, we believe that the equity incentives plan has allowed us to attract and retain more agents and more high producing agents. It has also allowed us to attract top tier talent to our management team. In fact, in the last two weeks, we made two important appointments.

07:13 Firstly, just last week, we announced that Katharine Mobley will join our management team as the Chief Marketing Officer. Kathy is an award winning executive with more than twenty years of experience. Her focus has been on delivering strategic and data driven strategies for growth, venture back, and private equity company.

07:34 Previously, Kat led global marketing at First Advantage, prior to her role at First Advantage, she served as the Chief Marketing Officer at several technology firms and managed a range of global brands with accounts at several Fortune 500 companies.

07:49 Secondly, earlier this week, we announced Raj Naik will join our management team as Chief Operating Officer. Raj has been an entrepreneur and technology for over twenty years. He joins Real from Workrise, previously known as RigUp.

08:06 Workrise is a workforce management platform for the skilled trades where he served as Managing Director for its construction business unit and was a member of the executive leadership team. Raj also spent nearly four years at Uber, holding senior leadership positions in the rides, vehicle, solutions and Uber Eats business units.

Prior to Uber he held executives and founding roles at startups in election, software, family safety, technology and business performance and compliance software. Raj founded his first company with his friends while he was studying at the University of North Carolina at Chapel Hill, later sold to Oracle.

08:46 Clearly, we further bolstered our management team with two driven accomplished and leading executive in Kat and Raj. They've been were Real has added and will provide enormous value in supporting our growth conditions. We welcome them to the family and at Real we believe they will fit right into our culture and team.

09:10 Turning to our product focus. I'll start with Instant Payments, which we launched a couple of weeks ago. Instant Payments is intended to change the way agents are paid in the real estate industry. With the first of its kind model, agents will have the option to be paid at the time a transaction is executed rather than at closing.

09:30 We are doing something that we believe no other brokerage has done before or has the ability to do in terms of the data they collect and process. I really hope that other brokerages will be following us because this is what is fair for agents.

I encourage other brokerage to do the same because I want more agents in this country to benefit from it and because I think that this is what’s fair in every agent for every agent in this country.

09:56 Having said that, I think that very few brokerage can actually execute on a program like this because some do not simply have the data processing capabilities or the vast majority do not have the cash to actually support and finance that program. Agents work hard for months without payment.

10:16 Our number one priority is our agents, and we want to be there to both help them and reward them for their efforts. This new program was disrupting the industry by assisting agents, new and experienced to build and grow their business by getting paid faster. We are really excited to providing some payments to our agents.

10:38 Other items on the products focus includes our new agent app that gives our agents better visibility into the business in real time and provides more services to enable them to service their clients in a better way.

We have a new internal system that allows us to scale to one hundred thousand agents without meeting additional substantial investment and technology infrastructure. 11:01 One of the takeaways from [zero] [ph] termination of their I buy program is that you cannot realize rely solely on software.

Real will be basing its consumer facing experience on a combination of software solutions for providing convenience, transparency and speed on one hand and a human agent who will be able to guide the client and understand their needs and emotional journey.

11:24 We believe that by building a digital experience that lead to the agents in the center of the transaction, we can dramatically improve the way people buy and sell homes.

I think that in a few years, when people talk about yield or think about yield, and who are we competing with? The first answer will not be traditional or technology brokerage, but rather larger online real estate company? 11:50 Finally, moving on to the efficiency of our team, we continue to have growth in the number of full time employees, which has led to a positive correlation to the volume of our real estate transactions.

This has been done very efficiently. In fact, as of September thirty twenty twenty one our current efficiency ratio, which is full-time employees divided by the number of agents that are currently on our team remains high right around one to sixty.

12:20 I think that this is excellent because we are at that phase of growth where we are adding more and more resources at a fast pace, even though we are hiring and putting a lot of resources to work in anticipation of building future products, we are still at a very good ratio.

One to sixty is similar to Q2 and higher than Q1, which was one to fifty six. We are at a long term target of one to seventy five. For context, most companies in our field have a ratio closer to one to twenty five.

12:54 We view this as a competitive advantage in terms of how quickly and efficiently, we can scale and it provides the benefit of – the benefit in future profit margin. 13:06 To sum up, we are focused on continued growth through geographical expansion, agent referral, retention, product development and the efficiency of our team.

Powering it all is our mission of having a positive impact on as many real estate agents and homebuyers as possible. 13:25 At this point, I will now turn it over to Michelle Ressler for a more in-depth view of our financials.

Michelle?.

13:33 Thank you, Tamir. So, I'll start by assessing some of our key financial results for the quarter. Our Q3 revenues grew eight eighty five percent year over year to thirty nine million, compared to three point nine million last year in the same quarter.

This increase was mostly driven by agent growth, which was up one hundred and thirty two percent and revenue per agent, which grew three hundred and twenty five percent year over year.

This growth is further supported by our proprietary technology platforms, which allows us to continue expanding our agent count and geographic footprint at an accelerated pace.

14:07 If we look at gross profit, our gross profit grew three forty eight percent to three million in Q3 twenty twenty one versus seven hundred and forty one thousand in Q3 twenty twenty.

Our margins are affected by the increase of number of agency cap and the increase in volume and rising unit prices, resulting in downward pressure as we continue to attract high producing agents.

14:29 We expect the release of instant payments which Tamir touched on previously to help offset this pressure, as well as the future projects in our products focus. Our net loss for the quarter was one million dollars compared to four hundred and twenty two thousand last year.

This change was primarily result of investments in building our team of agents, key management, employee personnel, as well as our technology infrastructure.

14:52 We placed great importance on our management team and on hiring top talent all across the board and look forward to the enormous value Kat, Raj and the rest of those who have joined us this quarter will add.

We view each and every one of a hires and investments and infrastructure as key contributors to our growth and necessary to support this accelerated team. 15:10 Adjusted EBITDA for the loss for the quarter was recorded at seven hundred and forty four thousand in comparison to two hundred and sixty one thousand for the prior year.

Management believes that adjusted EBITDA provides useful information about our financial performance and also helps identify our underlying trends in our business, but otherwise [indiscernible] by the effective expenses we excluded adjusted EBITDA.

15:33 In particular, we believe the exclusion of stock based compensations expenses provides a useful supplemental measures for evaluating the performance of our operations and also provides better transparency into our results of operations.

15:46 Overall, our operating expenses were four point three million and this is in comparison to one point one million last year. On an adjusted EBITDA basis, operating expenses were approximately four million and that’s compared to one million last year.

The change is primarily due to increases in headcount, improvements in our technology infrastructure, stock-based compensation expenses and other one-time expenses, such as those related to our listing on NASDAQ capital market.

16:14 General and administrative costs were two point one million in comparison to nine hundred and eighty thousand dollars in a prior year. That increase is mostly driven by the cost related to being a public company, increases in headcount and further efforts to support our growth.

G&A Expenses are expected to increase going forward as we continue to scale rapidly. However, we continue to actively monitor our spending and impact on our bottom line.

16:40 Marketing costs were one point six million compared to eighty eight thousand last year and the change is primarily due to the revenue share paid to agents that Tamir touched on previously as part of our incentive model.

16:51 Just as a reminder, agents can earn revenue share for the new agents that they personally refer to Real, and we do expect to see the costs associated with our revenue share programs to continue to translate into significant year over year growth and also believe it to be very fruitful contributor to long term goals and success of the company.

17:10 As a percentage of revenue, our sales, general and administrative costs were ten percent in the current quarter, and as a reminder, they were twenty seven percent last year. This is highly representative of our level of efficiency and ability to scale.

We have a technology infrastructure that enables us to continue scaling rapidly as we continue on the path forward to one hundred thousand agents with minimal impact on our operational costs.

17:36 We ended Q3 strong with forty five million dollars funding cash and investments, which is a significant increase from the total cash balance of one point nine million in the prior year. Cash flows from operations increased by five eighty one percent in comparison to Q3 last year and the company holds no debt.

The company continues to strengthen its balance sheet and industry footprint, as well as demonstrate significant year over year growth. 17:59 We expect this acceleration to continue to ramp up as we expand our focus from not only our agents, but to the consumer journey as well. This concludes my financial remarks.

I will now ask the operator to open up lines for q and a.

Operator, can you please poll for questions?.

18:16 Certainly. [Operator Instructions] Your first question is coming from Darren Aftahi with Roth Capital Partners. Your line is live..

18:51 Good morning guys. Thanks for taking my questions and nice job on the quarter. I have a few technical and maybe bigger picture after that.

So, in the quarter, could you be what the average kind of home price was and the transactions you guys concentrated on your platform?.

19:09 Sure. Hi, Darren and thanks. The average home price was around three hundred and thirty thousand dollars..

19:19 Great. And then, I appreciate you bringing on fairly large levels of books of businesses. And so, maybe looking at agent productivity over twenty twenty one is the right metric, but I know a lot of investors focus on it. That metric was zero point nine. It was one point three in the second quarter.

So, two question, just one, is that a timing thing of ramping agents and so the denominator is getting bigger and maybe the productivity of that denominator is not fully exploited yet.

And then as you think about your goal longer term years from now, like what would you like to see that transaction per agent really be on a run rate basis?.

20:05 Sure. Good question. First of all, there is zero point nine figure was a typo and we are now correcting it. The correct number was one point five. So it's actually an improvement from one point three. We apologize for that typo.

20:19 Longer-term, I think what we're seeing is that within our – currently, we're close to three thousand five hundred agents on our team and within them, we have about one thousand historic agents that had a lower than average productivity, but the agents that we've been attracting in the past twelve months are higher than average in terms of production.

20:43 So, I think that long term, we should be looking at around two point five to three transactions per agent per quarter. That's the long term goal. We're getting there, but I mean, still there are some ways those historic agents that we had with us that had lower than average productivity..

21:06 Great. That's helpful. And thanks for that correction. On the gross margin, I know Michelle, you spoke to kind of the capping and there's been downward pressure and you've spoken about in the past.

So, a couple of questions, one, kind of, I know that resets in the beginning of the year, but how do we think about gross margins on kind of a run rate basis? And then you spoke of instant payments, how will that positively impact your gross margin and then on Instant Payments there’s a second question, since you’ve announced that, have you seen a tick-up in interest from agents on your platform just given it's kind of a unique product out there right now?.

21:52 Sure. So, on the gross margin, we first have to understand what's impacting that. And we've had a higher number of high performing teams joining us compared to what we previously thought would happen. So, our financial and economics with, excuse me, high performing teams is such that their agents cap have lower caps.

So, our gross margin on their transactions are actually lower and there was some downward pressure on gross margin. 22:28 We have to remember that we are still in this early growth phase. And we're starting to grow and funnel as much GMV to the top of the funnel, and then the next step would be trying to monetize as much as possible.

Currently, we're only monetizing through real estate brokerage services, but very soon we will add additional services such as ancillary services. 22:48 Instant Payments was designed to do basically two things. One, benefit with our agents and actually provide them better visibility or better ability to plan and better cash flow.

Two, every time an agent requests an Instant Payment, does the processing fee involved. So that will enable us to have a positive impact on gross margins. 23:11 We launched it just a couple of weeks ago initially just to a group of about one hundred and twenty agents. We are now starting to expand and expand.

What we've been hearing from agent is at the beginning it took a little bit of education on what exactly does it mean and how does it work? But we think that there's definitely a positive impact when it comes to attracting agents to the company. 23:11 I will also say that it's a great tool for team leaders to attract agents to their teams.

So, currently, we did not enable it to leaders, but I think that once we open it up to teams that will probably attract more agents that are coming through teams as well – as well as enable us to make a better gross margin on team members. 23:59 So, Darren, hopefully that answers the question..

24:03 Yes. It's helpful. Just if I could squeeze one more in. So, I mean you have a fairly large cash balance, you're not a cash burning business, it's super capital intensive. And I know you're increasing and your hiring people, but this as you think kind of big picture.

I mean, where is that cash going to be deployed, if you think about kind of twenty twenty initiative beyond just kind of hiring and growing your agent phase?.

24:29 I would state too many things. One is product. We have set an ambitious goal of changing the way people buy and sell homes in this country. And that will require massive investment in product. So, that's one thing. And the second is, acquisitions. We're constantly monitoring for acquisitions.

Right now we're focusing on early stage startups in topics that deal with things such as agent productivity, mortgage in title. We have some targets that we're talking to and some of that forty five million dollars will be attributed to acquisitions..

25:12 Sorry, just on that last point.

I mean things like mortgage and title, are you more thinking you want to JV these things or you want to run them as owned and operated entities under Real’s platform?.

25:26 Long term, we want to operate independently under our platform and actually own the entire food chain. Initially, we saw that the, kind of fastest and easiest way would be to JV.

I think that we might be able to make an acquisition that at least on one of those ancillary services will help us kind of own the entire food chain from the very beginning without needing to go to a JV first.

25:58 So, long term, it should be owning it, in the short term probably on the mortgage side, it will be a JV and maybe on the title side, it will start with us just owning it from day one..

26:14 Great. Thanks. I'll pass it on. Appreciate it..

26:16 Thanks Darren..

26:19 [Operator Instructions] Your next question is coming from Tom White with D.A Davidson. Your line is live..

26:32 Great. Thanks so much. This is [Tervis] [ph] on for Tom. Just two questions if I may? First on agent growth. So clearly, your combination at the low fees and proprietary is resonating with your agents. So, we're curious to see whether you see your value proposition changing over time.

Do you anticipate having the changes or lowering your foot or fees or at what level your agents cap maybe be introducing new financial benefit to stay in line or stay ahead of your competitors? And then I have a follow-up..

27:06 Thank you. So, our core offering to agents in terms of economics has not changed since twenty fourteen. We sometimes make some small adjustments and most of the adjustments that we've made along years were actually for the benefit of the agents. So, we do not anticipate changing anything in the basic model.

We do think that right now, we're at that phase where we need to be attracting as many agents as possible and just generate that momentum, which is already happening.

27:40 And at some point, maybe we'll need to optimize a few things that will not have a significant impact on the vast majority of agents, but the way we look at it is that at the end of the day, around a real estate transaction, there's so much money changing hands in so many ways that you can monetize a single transaction and we're just right now at the beginning.

The only service that we're now selling to our agents is real estate broker services and that will change over time and we will be offering more and more services.

28:15 So, at the end of the day, out of a single transaction, let's take three hundred thousand home for example that our agents sell and the commission on that is nine thousand dollars and we keep roughly nine hundred dollars out of that or so.

I think that in the future, it will be quite easy to double triple and quadruple that amount if we build the right experience around those services that we want to offer directly to the consumer. 28:45 So, the way we think about it is let's funnel as many transactions to the top of the funnel right now.

And then over time, just monetize it in a better way..

28:58 Great, thank you.

And then I understand that you are probably not in position to provide formal guidance for twenty twenty two right now, but I was wondering if you could maybe talk about the range of outcomes you are anticipating on aging additions in twenty twenty two?.

29:14 Sure. We do not provide any formal guidance, but as you can see, we're growing [agent pound] [ph] by around one hundred and twenty percent to one hundred and forty percent year over year. We don't see that slowing down.

We actually – back in May or June, we were trying to hit the brakes a little bit because we were growing so fast and we wanted to make sure that we continue and service and serve our agents the right way. So, this tremendous growth of close to nine hundred percent happened organically without us even having a single salesperson in the company.

29:53 So, we think that we need to become a little bit more structured in our sales approach, a little bit more structured in our marketing and Kat would be extremely valuable in that.

But at the end of the day, I think that we could expect to see somewhat of a similar agent growth if not even kind of stronger growth in agent count in terms of percentage year over year. And I mean, that, you can draw your own conclusions out of that..

30:31 Thank you..

30:37 We have no further questions from the lines at this time. Thank you ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation..