The Real Brokerage Inc (NASDAQ:REAX) reported record first quarter results with revenue of $354 million, a 76% increase compared to the prior year.
The company saw a 77% increase in the number of transactions closed, reaching 33,600, despite a 2% decline in the existing home sale industry.
Agent count increased by 61% year-over-year, with over 27,700 agents as of the call date.
The company's technology platform and high-margin ancillary businesses, including mortgage, title, and RealWallet, grew by a combined 50% versus the prior year.
RealWallet generated $126,000 in revenue in its first full quarter, with an annualized run rate revenue exceeding $700,000, highlighting strong adoption and growth potential.
Negative Points
The company reported a net loss of $5.1 million, although this was an improvement from a $16.1 million loss in the prior year.
Gross margin declined to 9.6% from 10.3% in the prior year, due to a higher mix of production from agents who have reached their annual commission cap.
Operating expenses increased by approximately $12 million year-over-year, driven by higher revenue share, agent equity-based compensation, and corporate investments.
The company faces ongoing challenges in the housing market, with existing home sales down about 2% year-over-year due to affordability pressures.
The shift in revenue mix towards more productive capped agents may continue to impact gross margins in the short term, despite efforts to offset this with fee changes and ancillary services.
Q: How is agent adoption of AI and Leo services progressing, and are there any metrics on how these tools are enhancing agent productivity? A: (CEO) Leo co-pilot is currently handling all inbound phone calls and thousands of daily interactions with agents, primarily addressing compliance and tech-related questions. While we don't have metrics on how Leo directly enhances agent productivity yet, it is helping agents save time by providing faster support and assistance with document reviews.
Q: Can you discuss the trends in gross margins and the impact of capped agents on these margins? A: (CFO) We started the year with a higher mix of capped agents, which is a positive sign of productivity. This trend will likely continue into Q2, but will be offset by fee program changes and the scaling of ancillary services, which should improve gross margins over time.
Q: What opportunities do you see for leveraging voice AI within the value proposition for agents? A: (CEO) We are transitioning our agent support phone line to use my AI voice, allowing agents to have conversations with me. We are also testing real-time conversations between Leo and potential buyers and sellers, which could include scheduling showings and discussing financial situations. This technology will help reduce overhead and enhance agent support.
Q: What is driving Real Brokerage's ability to grow agent count when others are losing agents? A: (CEO) Our success in attracting agents is due to the balance between providing value and maintaining a cost-effective platform. Technological advances and innovations, such as private label and pro teams, contribute to this value, but there isn't a single reason for our growth. It's a combination of value and cost.
Q: How does the conversion of employees in India to full-time status impact product development and speed to market? A: (CEO) Converting contractors to full-time employees strengthens the bond and commitment, which is positive overall. While the team is expanding, making direct comparisons difficult, this move will help improve time to market for our initiatives.
Q: Are you seeing the same growth at the top of the funnel, and has onboarding time changed with recent additions? A: (CEO) The pipeline remains strong, with about 900 agents added since the beginning of the quarter. Onboarding time hasn't changed significantly, but market conditions are challenging, affecting agent and team movements. We've added skilled leaders to improve onboarding, making it smoother than a year ago.
Q: What is the strategy for expanding ancillary services like title and mortgage across all 50 states? A: (CEO) We are not currently looking to expand to all 50 states. Our focus is on improving service levels and revenue within existing geographies. Both mortgage and title services had record revenue months in April, and we believe focusing on current markets is more beneficial than expanding nationwide.
Q: What acquisitions or tech developments are on the horizon, and how does Real prioritize in-house R&D versus external partnerships? A: (CEO) We actively evaluate M&A and tech opportunities that enhance our agent value proposition. While we invest in our platform, particularly in AI and fintech, we remain open to external opportunities that add value for agents and shareholders. We stay disciplined, pursuing only those that truly enhance our offerings.
