The Real Brokerage Inc. (REAX) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed outlook. While there are positive developments like agent productivity growth, technology and AI advancements, and positive EPS, there are concerns about declining margins and unclear timelines for ancillary services and Real Wallet. The Q&A session reveals ongoing challenges and uncertainties, particularly in achieving growth targets. Without market cap information, the overall sentiment is neutral, as positive and negative factors balance each other.
Key Financial Performance
Revenue Revenue in the second quarter increased by 59% year-over-year to $541 million, driven by a 62% increase in the number of transactions closed. This growth was organic and outpaced the total existing home sales market, where industry transactions declined by 1%.
Gross Profit Gross profit in the second quarter increased 50% year-over-year to $47.9 million. This growth outpaced a 42% increase in operating expenses, resulting in the company's first-ever quarter of positive operating income.
Operating Income Operating income was $1.7 million in the second quarter, marking the first-ever positive operating income for the company. This was an improvement from a loss of $0.6 million in the prior year.
Net Income Net income was positive $1.6 million, an improvement from a net loss of $1.1 million in the prior year period.
Adjusted EBITDA Adjusted EBITDA rose to $20 million, a 43% improvement from $14 million in the second quarter of 2024, driven by strong revenue and gross profit growth.
Cash Flow from Operating Activities Cash flow from operating activities was $41 million, including $16 million in customer deposits.
Agent Count The company ended the second quarter with 28,000 agents, marking a 43% increase year-over-year. Transactions per average agent increased by 7% year-over-year, and revenue churn held firm at 2%.
Ancillary Business Revenue Revenue from ancillary businesses totaled $3.3 million during the second quarter, a 50% year-over-year increase. One Real Mortgage saw exceptional revenue growth of 80%, while One Real Title grew by 7%.
Real Wallet Revenue Real Wallet generated Q2 revenue of $250,000, with total deposits exceeding $14 million, a nearly 70% increase since the last earnings call.
Gross Margin Gross margin was 8.9% in the second quarter, compared to 9.4% in the prior year. The decline reflects a growing share of revenue generated by agents who had reached their annual cap.
Operating Expenses Total operating expenses were $46.2 million in the second quarter, a 42% increase from $32.5 million in the prior year. Revenue share expense rose 41% to $17.6 million.
Stock-Based Compensation Stock-based compensation was approximately $18 million in the quarter, with $12 million reflected in cost of sales, $3.5 million in agent equity awards, and $2 million in employee-related stock compensation.
Transaction Volume The total value of homes transacted over the platform increased to $20.1 billion in the second quarter, a 60% year-over-year increase.
Median Sale Price The median sale price of properties sold by agents was $387,000, representing a 1% year-over-year increase.
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Operating Highlights
Consumer-facing product rollout: Real is rolling out a consumer-facing product to streamline client experience and enhance attachment of higher-margin ancillary services.
Flyhomes acquisition: Acquired Flyhomes' AI-powered consumer home search portal to deliver an end-to-end AI-driven home buying experience. This includes integrating Flyhomes' platform into Real's upcoming consumer-facing product, Leo for Clients.
Real Wallet: Real Wallet generated $250,000 in Q2 revenue, with deposits exceeding $14 million. U.S. lending product pilot and Real Wallet rewards points launch planned for Q3.
Agent growth: Agent count increased by 43% year-over-year to 28,000, with over 29,200 agents as of the call date.
Market share: Real's transactions grew by 62%, significantly outpacing the 1% decline in the total existing home sales market.
AI integration: Integrated Leo CoPilot AI assistant for agent support, reducing human support calls by 28%.
Automation: Automated closing and payment processing for nearly 50% of transactions, reducing operational costs.
Agent productivity program: Launched a free 60-day virtual program to boost agent productivity, covering marketing strategies and AI training.
Title strategy shift: Transitioned from team-based joint ventures to state-based joint ventures for scalability and profitability.
Revenue share model changes: Updated revenue share model to reward productive agents and network builders.
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Risk or Challenges
Housing Market Headwinds: The housing market is facing challenges such as volatile interest rates and fundamental changes in how business is conducted, which could impact agent performance and transaction volumes.
Agent Retention and Productivity: While agent count has grown, the company offboarded over 1,500 agents who did not renew licenses or pay dues. This could indicate challenges in retaining less productive agents and maintaining overall agent productivity.
Gross Margin Pressure: Gross margin declined year-over-year due to a higher share of revenue being generated by agents who reached their annual cap, resulting in lower commission splits. This trend is expected to continue, potentially impacting profitability.
Operational Costs: Operating expenses increased by 42% year-over-year, driven by revenue share expenses and investments in growth initiatives. This could strain profitability if revenue growth slows.
Scalability of Ancillary Businesses: While ancillary business lines like One Real Mortgage and Real Wallet are growing, they currently contribute a small portion of total revenue and require significant investment to scale.
Integration of Flyhomes Acquisition: The acquisition of Flyhomes' technology assets adds $2-3 million in annual operating expenses. Successful integration and realization of expected benefits are critical to justifying this investment.
Seasonal Revenue Decline: Revenue is expected to decline modestly in the third quarter due to typical industry seasonality, which could impact financial performance.
Competitive Pressures: The company faces competitive pressures from other brokerages and technology platforms, which could impact agent recruitment and retention.
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Guidance & Outlook
Consumer-facing product rollout: The company plans to roll out a consumer-facing product to streamline the client experience and enhance attachment of higher-margin ancillary services.
Long-term platform vision: The company envisions its platform encompassing a holistic ecosystem of real estate services and financial technology products to help agents build long-term wealth.
Ancillary business growth: The company aims to grow and scale its ancillary business lines, including One Real Mortgage, One Real Title, and Real Wallet, which generate higher gross margins than the core brokerage.
Real Wallet expansion: The company plans to pilot its U.S. lending product and formally launch Real Wallet rewards points in Q3 2025, with expectations of significant growth given the larger U.S. agent base.
Flyhomes acquisition integration: The company will integrate Flyhomes' AI-powered consumer home search portal into its upcoming consumer-facing product, Leo for Clients, to offer a more intelligent and personalized home search journey.
Revenue and gross margin expectations: The company anticipates a modest revenue decline in Q3 2025 due to seasonality and expects a sequentially lower gross margin percentage due to a higher mix of agents reaching their annual commission caps.
Operating expense outlook: Operating expenses are expected to increase in Q3 2025 due to headcount additions, expenses related to the Flyhomes acquisition, investments in AI automation, and higher professional fees.
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Shareholder Return Plan
Share Repurchase: During the quarter, Real generated cash from operating activities of $41 million, including $16 million in customer deposits and allocated $2.7 million to share repurchases. We ended the quarter with unrestricted cash and investments at an all-time high of $55 million on our balance sheet, and we continue to have no debt. Given our strong cash position and confidence in our outlook, we expect to increase our pace of share repurchases in the second half of the year under our recently announced buyback authorization.
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Key Q&A
Q:How should investors think about the potential financial impact of the revenue share model enhancements?
A:The revenue share is capped at 60% of the split, and the changes will not impact the financial statements. There will be a redistribution of revenue share internally within the agent community, but the company will continue to pay the same amount in revenue share.
Q:Should we expect gross margins to be down year-over-year in the second half of the year?
A:Yes, given the dynamics seen in the first half of the year where margins were down, this trend is expected to continue. This is due to more revenue being generated by more productive agents in the current market environment.
Q:What is the update on the agent and team recruiting pipelines?
A:The pipeline is very strong, with around 1,200 agents added in the past 5 weeks. The slowdown in net agent count in the second quarter was due to offboarding over 1,500 nonproductive agents, but per-agent productivity rose by 7%. The company is back on track with strong growth.
Q:Are you through the churn process with unproductive agents?
A:The churn process is market-dependent. The company is retaining agents who are closing deals and gaining market share, even as the overall number of agents in the industry is expected to decline.
Q:What goals do you have internally to help productive agents cross-sell ancillary services?
A:The company believes meaningful ancillary services adoption will come through product enhancements rather than traditional methods. Changes in the title JV structure and growth in mortgage services (80% year-over-year) are expected to drive significant growth. Attach rates are currently 4% for title and 1% for mortgage, with plans to increase these to double digits.
Q:What is the expected usage and rollout plan for the credit piece of Real Wallet?
A:The rollout will be staged and not open in all states initially. In Canada, agents used over $4 million in lines of credit, and with 10x more agents in the U.S., demand is expected to be solid. The scalability of the product and lending appetite will determine the rollout.
Q:How many states have you launched state-level JVs for Title, and what are the early learnings?
A:The intention is to open about 12 state JVs in the near term. Some are already set up and showing positive signs, though growth dipped in the second quarter due to the strategy change. The company is confident in achieving meaningful growth in Title.
Q:Are there more levers to pull in terms of automation to drive efficiency?
A:Yes, the company is building an AI and automation team to accelerate progress. There is a roadmap for further automation, and significant advancements are expected in the next few weeks and months.
Q:Did you change incentives for mortgage revenue growth?
A:Yes, some growth was driven by incentives provided to the end client (rebates at closing). There were no incentives for agents, and future growth is expected without additional promotions.
Q:What is driving the outperformance in agent productivity?
A:The outperformance is due to a combination of high-quality teams joining the platform and efficiencies enabled by technology and AI. The company expects these trends to continue.
Q:Is there a correlation between deeper adoption of the ecosystem and agent retention?
A:Yes, early signs indicate that tools like Wallet are driving retention among higher-producing agents. Features like lines of credit and reward systems are expected to further enhance retention.
Q:How are you adapting operational strategies to current macro challenges?
A:The company focuses on long-term growth and technology/AI to maintain a lean and efficient model. This approach ensures resilience in challenging environments.
Q:How is contract labor utilized by Real, and what tasks are handled by contractors versus full-time employees?
A:The company uses a mix of contract labor and full-time employees to support growth. In Q1, 130 contractors in India were converted to full-time employees. Certain functions in the U.S. and Canada are still handled by contractors, and roles are evaluated annually.
Q:What are your goals and timeline to achieve positive earnings per share, and how will you use cash flow?
A:The company achieved positive earnings per share this quarter and aims to build on this momentum. Cash flow will be used for share buybacks and opportunistic M&A in technology and profitable businesses.
Q:What is the R&D prioritization strategy for the coming years?
A:The focus is on strengthening core technology, leveraging AI for efficiency, investing in consumer roadmaps (e.g., Leo for Clients), and evolving Real Wallet to provide financial tools for agents.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timeline for achieving double-digit attach rates for ancillary services and the exact scalability of the Real Wallet credit product. Additionally, while they expressed confidence in the state-level JV strategy for Title, they did not provide concrete data or timelines for its success.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI automation
AI technology
Chief Legal
Chief Officer
LLC Research
Legal Officer
Lumpkin
Officer Chief
Research Division
acquisition
activity
agent base
agent community
agent support
base agent
community agent
consumer product
context
core brokerage
event
home search
house
improvement cash
improvement loss
income improvement
income line
lending
line today
milestone
network
position
processing
road map
segment
shift
strategy
term scalability
today Real
REAX Transcript
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The earnings call presents mixed signals: strong ancillary revenue growth and improved operating leverage are positive, but increased expenses and seasonal revenue decline are concerns. The Q&A reveals optimism in agent recruitment and AI initiatives, yet lacks detailed guidance. The company's strategic shifts and scalability efforts are promising, but uncertainties in JV transitions and unclear management responses temper enthusiasm. Overall, the sentiment is balanced, suggesting a neutral stock price movement.
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The Real Brokerage Inc. (REAX) Q2 2025 Earnings Call Transcript
Unknown8-7
The earnings call summary presents a mixed outlook. While there are positive developments like agent productivity growth, technology and AI advancements, and positive EPS, there are concerns about declining margins and unclear timelines for ancillary services and Real Wallet. The Q&A session reveals ongoing challenges and uncertainties, particularly in achieving growth targets. Without market cap information, the overall sentiment is neutral, as positive and negative factors balance each other.
REAX Slides
Real Brokerage Q1 2026 slides: 32% revenue growth amid forecast miss2026-05-07
Real Brokerage Q4 2025 slides: agent count triples, EBITDA surges2026-03-04
Real Brokerage Q3 2025 slides reveal 53% revenue growth amid tech transformation2025-10-30
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REAX Report
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