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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the quarterly period ended  June 30, 2020

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or

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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from ______________________ to ______________________

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Commission File Number: 001-38493

2219 Rimland Drive, Suite 301

Bellingham, WA 98226

(Address of principal executive offices and Zip Code)

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Registrant’s telephone number, including area code: (360) 685-4206

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒    No ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒    No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has selected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐    No ☒

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There were, 68,532,510 shares of the registrant’s Common Stock, $0.00001 par value, outstanding as of June 30, 2020.

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FORWARD LOOKING STATEMENTS

This Quarterly Report and our other public filings contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. Forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions to future periods. Forward-looking statements are not based on historical facts but rather represent current expectations and assumptions. Forward-looking statements include statements we make about matters such as: future revenues; future industry market conditions; future changes in our capacity and operations; future operating and overhead costs; operational and management restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of personnel; tax and interest rates; capital expenditures and their impact on us; productivity, business process, rationalization, investment, acquisition and acquisition integrations, consulting, operational, tax, financial and capital projects and initiatives; changes in the regulatory environment; and future working capital, costs, revenues, business opportunities, cash flows, margins, earnings and growth.

Forward-looking statements relate to the future and are subject to many risks, assumptions, and uncertainties, including those risks set forth in this report and as described in our Annual Report on Form 10-K, Part I, Item IA Risk Factors incorporated by reference. Although we believe the expectations reflected in the forward-looking statements are reasonable, actual results, developments and business decisions could differ materially from those contemplated by such forward-looking statements. The environment in which we operate is highly competitive and rapidly changing and it is not possible for our management to predict all risks, as new risks emerge from time to time, such as the rapidly evolving environment and uncertainties relating to the outbreak of a novel strain of coronavirus, that causes COVID-19. The coronavirus continues to spread globally and was declared a pandemic by the World Health Organization in March 2020. As of the end of the second quarter of fiscal year 2020, the COVID -19 pandemic has not had a significant impact on our results of operations, however given the continuous volatility resulting from the ongoing pandemic, the potential effect of COVID-19 may not be fully reflected in our results of operations and financial performance until future periods, if at all.

All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future developments or otherwise, except as may be required by law.

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See Notes to the Condensed Consolidated Financial Statements

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See Notes to the Condensed Consolidated Financial Statements

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See Notes to the Condensed Consolidated Financial Statements

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eXp World Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(UNAUDITED)

(Amounts in thousands, except per share data and as noted otherwise)

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equity method or the cost method of accounting for investments. The Company uses the equity method of accounting for entities in which the Company holds a 50% or less investment and exercises significant influence. Entities in which the Company has less than a 20% investment and where the Company does not exercise significant influence are accounted for under the cost method. Intercompany transactions and balances are eliminated upon consolidation. See Note 11 – Variable Interest Entities.

Noncontrolling Interest

The Company determined that First Cloud is a variable interest entity (“VIE”), as the Company is the primary beneficiary that has both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE. The Company treats the interest in First Cloud that it does not own as noncontrolling interest. The noncontrolling interest balance is adjusted each period to reflect the allocation of net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interest, as shown in the condensed consolidated statements of comprehensive income (loss). The noncontrolling interest balance in the condensed consolidated balance sheets represents the proportional share of the equity of the joint venture entities, which is attributable to the minority shareholders.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation, specifically the allowance for credit losses/bad debt on receivables is now separately disclosed as its own line item on the Company’s Condensed Consolidated Statement of Cash Flows, previously it was included in the accounts receivable line item.

Cash and cash equivalents

The Company considers all highly liquid investments with maturity when purchased of three months or less to be cash equivalents. From time to time, the Company’s cash deposits exceed federally insured limits. The Company has not experienced any losses resulting from holding deposits in accounts in excess of federal insurance limits.

Restricted cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

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Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers. The Company recognizes a corresponding customer deposit liability until the funds are released. Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

Stock-based compensation

Stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards. Stock-based compensation is more fully disclosed in Note 6 – Equity. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value and stock based compensation is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met.

Goodwill

Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination. The Company evaluates goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill is below its carrying value. Generally, this evaluation begins with a qualitative assessment to determine if the fair value of the reporting unit is more likely than not less than its carrying value. The test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred.

Revenue recognition

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

Real Estate Brokerage Services

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

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

Software Subscription and Professional Services

Subscription revenue is derived from fees from customers to access the Company’s virtual reality software platform. The terms of subscriptions do not provide customers the right to take possession of the software. Subscription revenue is generally recognized ratably over the contract term.

Professional services revenue is derived from implementation and consulting services. Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended (labor hours) input method. 

Software subscription and professional services revenue accounts for less than 1% of all revenue for the three and six months ended June 30, 2020 and 2019.

The Company does not currently collect sales and use taxes on fees from agents and brokers and assumes responsibility to pay these costs to the appropriate taxing authorities.

Disaggregated revenue

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The Company primarily operates as a real estate brokerage firm. The vast majority of the Company’s revenue is derived from providing a single service, real estate brokerage services, to purchasers and sellers of homes in the U.S. See Note 10 – Segment information for details regarding segment and geographic information.

Management believes that no disaggregation of revenue from services to customers currently exists that would provide additional insight into the future recognition of revenue and cash flows.

Recently Adopted Accounting Principles and Change in Accounting Principle

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets. The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables. The amendment requires entities to consider other factors, such as economic conditions and future economic conditions. The Company adopted ASU 2016-13 effective January 1, 2020 and concluded it did not have a material impact on either the financial position, results of operations, cash flows, or related disclosures of the Company. There was no impact on beginning balance retained earnings upon adoption of this ASU. See Note 3 – Expected Credit Losses for more information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes certain disclosure requirements related to the fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement. The Company adopted ASU 2018-13 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. ASU 2018-15 requires a customer in a hosting arrangement to capitalize certain implementation costs. Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed. The Company adopted ASU 2018-15 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740) (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. The Company is still assessing the amendments of ASU 2019-12 and the impact the amendments will have on the Company’s consolidated financial statements and related disclosures.

3.EXPECTED CREDIT LOSSES

The Company is exposed to credit losses primarily through trade and other financing receivables arising from revenue transactions. The Company uses the aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions. The Company’s accounts receivable is separated into three categories to evaluate allowance under the CECL impairment model. The receivables in each category share similar risk characteristics. The three categories include agent non-commission based fees, agent short-term advances, and commissions receivable for real estate property settlements.

The Company analyzed collectability for the three categories of receivables and concluded that only agent non-commission based fees receivables and agent short-term advances carry any risk of expected credit losses. Current economic conditions and forecasts of future economic conditions do not affect expected credit losses or collectability of real estate property settlements. The collection of these payments are in-substance guaranteed because they represent commission payments on closed transactions, and the Company has no historical experience or expectation of losses related to these receivables. Receivables from real estate property settlements totaled $49,186 as of June 30, 2020. As of

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June 30, 2020, agent non-commission based fees receivable and short-term advances totaled $3,357, of which the Company recognized expected credit losses of $1,260.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is uncollectible. The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

Changes in the allowance were not material for the six months ended June 30, 2020.

For the three months ended June 30, 2020 and 2019, depreciation expense was $794 and $455, respectively. For the six months ended June 30, 2020 and 2019, depreciation expense was $1,551 and $823, respectively.

5.GOODWILL AND INTANGIBLE ASSETS

Goodwill was $8,248 as of June 30, 2020 and December 31, 2019.

Due to the ongoing COVID-19 pandemic, the Company assessed the current economic environment, and its goodwill for impairment during the six months ended June 30, 2020. The current performance and expected forecast in relation to the results of the annual impairment test performed for 2019 indicated that it was not more likely than not that goodwill was impaired.

Definite-lived intangible assets were as follows:

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Definite-lived intangible assets are amortized using the straight-line method over its estimated useful life. Amortization expense for definite-lived intangible assets for the three months ended June 30, 2020 and 2019 was $126 and $78, respectively. Amortization expense for definite-lived intangible assets for the six months ended June 30, 2020 and 2019 was $230 and $151, respectively.

6.EQUITY

As of June 30, 2020, the Company had 70,579 shares of common stock issued and 68,532 shares outstanding.

The Company’s shareholder approved equity plans are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan. The purpose of the equity plans is to retain the services of valued employees, directors, officers, agents, and consultants and to incentivize such persons to make contributions to the Company and motivate excellent performance.

Agent Equity Program

The Company provides agents and brokers the opportunity to elect to receive 5% of commissions earned from each completed residential real estate transaction in the form of common stock. If agents and brokers elect to receive portions

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of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable. Prior to January 1, 2020, the Company recognized a 20% discount on these issuances as an additional cost of sales charge during the periods presented. Beginning in January 2020, the Company amended the Agent Equity Plan and changed the discount on issued shares from 20% to 10%.

During the three months ended June 30, 2020 and 2019, the Company issued approximately 928 and 935 shares of common stock, respectively, to agents and brokers for $10,503 and $10,234, respectively, net of discount. During the six months ended June 30, 2020 and 2019, the Company issued approximately 1,563 and 1,555 shares of common stock, respectively, to agents and brokers for $19,297 and $16,444, respectively, net of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks. The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones. Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company. Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of performance metrics. As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved. For the three months ended June 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $3,246, of which the total amount of stock compensation attributable to liability classified awards was $483. For the six months ended June 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $6,765, of which the total amount of stock compensation attributable to liability classified awards was $1,525. Stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the condensed consolidated statements of comprehensive income (loss).

The following table illustrates changes in the Company’s stock compensation liability for the six months ended June 30, 2020:

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Stock Option Awards

During the three and six months ended June 30, 2020, the Company granted 248 and 399 stock options, respectively, to employees with an estimated grant date fair value of $10 and $9.69 per share, respectively. The fair value was calculated using a Black Scholes-Merton option pricing model.

Stock Repurchase Plan

In December 2018, the Company’s board of directors (“the Board”) approved a stock repurchase program authorizing the Company to purchase up to $25 million of its common stock, which was later amended in November of 2019 to increase the authorized repurchase amount to $75 million. Purchases under the repurchase program may be made in the open market or through a 10b5-1 plan and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The timing and number of shares repurchased depends upon market conditions. The repurchase program does not require the Company to acquire a specific number of shares. The cost of the shares that are repurchased is funded from available working capital.

The repurchase program began on January 2, 2019 and was discontinued in March 2020. In June 2020 the stock repurchase plan resumed due to the Company’s better than expected performance for the first half of 2020.

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. During the three and six months ended June 30, 2020, the Company repurchased 131 and 1,122 shares, respectively, of common stock at a total cost of $1,682 and $11,987, respectively. These shares are considered issued but not outstanding.

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7.EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed based on net income (loss) attributable to eXp World Holdings Inc. shareholders divided by the basic weighted-average shares outstanding during the period. Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options. The Company uses the if-converted method to reflect the potential dilutive effect of the stock settled consideration in connection with the VirBELA acquisition.

The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:

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Total outstanding shares of common stock for the three months ended June 30, 2020 excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive were 411.

Total outstanding shares of common stock for the six months ended June 30, 2020 excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive were 402.

8.FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

The Company holds funds in a money market account, which are considered Level 1 assets. The Company values its money market funds at fair value on a recurring basis.

As of June 30, 2020 and December 31, 2019, the fair value of the Company’s money market funds was $18,369 and $18,281, respectively.

There have been no transfers between Level 1, Level 2 and Level 3 in the period presented. The Company did not have any Level 2 or Level 3 financial assets or liabilities in the period presented.

9.LEASES

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years, with the weighted average lease term being three years.

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Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements. These leases generally also include real estate taxes.

Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.

Included below is other information regarding leases for the six months ended June 30, 2020:

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As of June 30, 2020, maturities of lease liabilities by fiscal year were as follows:

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10.SEGMENT INFORMATION

Historically, management has not made operating decisions nor assessed performance based on geographic locations. Rather, the chief operating decision maker makes operating decisions and assesses performance based on the products and services of identified operating segments. While management does consider real estate and brokerage services, technology services, and affiliated services to be identified operating segments, the profits and losses and assets of the acquired technology and affiliated services segment are not material.

Operating Segments

The Company primarily operates as a cloud-based real estate brokerage. The real estate brokerage business represents 99.8% and 99.9% of the total revenue of the Company for the six months ended June 30, 2020 and 2019, respectively. The real estate brokerage business represents 94.4% and 95.8% of the total assets of the Company as of June 30, 2020 and December 31, 2019, respectively.

The Company offers software subscriptions to customers to access its virtual reality software platform. Additionally, the Company offers professional services for implementation and consulting services. However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through First Cloud and eXp Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of June 30, 2020.

The Company aggregates the identified operating segments for reporting purposes.

Geographical Information

The Company primarily operates within the real estate brokerage markets in the United States and Canada. During the fourth quarter of 2019, the Company expanded operations into the UK and Australia.

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The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities. For the six months ended June 30, 2020 and 2019, approximately 4% and 2%, respectively, of the Company’s total revenue was generated outside of the U.S. Assets held outside of the U.S. were 9% as of both June 30, 2020 and December 31, 2019.

The Company’s technology services and affiliated services are currently provided primarily in the U.S.

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11.VARIABLE INTEREST ENTITIES

A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has concluded that First Cloud is a VIE and that it is the primary beneficiary as it has the power to direct the activities of First Cloud and has an economic interest that will absorb the losses and/or receive benefits that could be significant to the VIE. Accordingly, the Company consolidates the assets and liabilities and operating results of First Cloud in the condensed consolidated financial statements. The Company recognizes noncontrolling interest in the condensed consolidated balance sheets. The income or loss allocations reflected on the condensed consolidated statements of comprehensive income (loss) may create volatility in the reported results of operations, including net losses attributable to common stockholders.

The financial information of First Cloud is presented below.

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12.SUBSEQUENT EVENTS

COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. COVID-19 has caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020.  In an effort to slow and contain the spread of COVID-19, local, state, and national governments implemented various measures, which have impacted businesses worldwide.

As of the date of this quarterly report, the Company’s results of operations, liquidity and financial condition have not been significantly impacted; however, the Company will continue to monitor events and/or changes in circumstances. While the Company is positioned to survive and thrive in a series of fluctuations in economic activity, the full impact the economic situation will have on the Company’s results of operations or financial condition, and management’s judgment could change in the future due to the ongoing pandemic and the uncertainty around its magnitude and duration.

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Showcase Acquisition

On July 31, 2020, the Company acquired the equity ownership interests in Showcase Web Sites, L.L.C. (“Showcase”) for cash consideration of $1.5 million and promissory notes totaling $1.5 million (the “Showcase Acquisition”). Showcase is a technology company focused on agent website and consumer real estate portal technology. With this acquisition, the Company will be able to strategically focus on creating consumer home-search technology for utilization by our independent agents and brokers, as well as continued services offerings to third party clients of Showcase.

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The Company is positioned to continue to survive and thrive in a series of fluctuations in economic activity and is performing better than expected at the of the first half of 2020. However, depending on the continued course of the COVID-19 pandemic, specifically in key areas of operations, it is too early to predict the full extent of the effects the COVID-19 pandemic will have on our Company moving into the latter part of the year.

Inventory

Prior to June 30, 2020, increased demand and low mortgage rates caused inventory levels to decline to record lows. With government implemented actions in response to COVID-19, fewer individuals are listing their homes and as a result year over year inventory has decreased further. According to the NAR, inventory of existing homes for sale in the U.S. was 1.6 million as of June 2020 (preliminary) compared to 1.9 million at the end of June 2019. The NAR indicated the need for new home construction due to the high demand of homes and the record-low inventory levels.

Mortgage Rates

According to the NAR, mortgage rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.2% for the second quarter of 2020, compared to 4.0% for the second quarter of 2019. Mortgage rates are forecasted to decrease to 3.0% throughout 2020 and increase minimally to 3.1% in 2021. Despite forecasts, mortgage rates continue to be volatile. Although the Federal Reserve cut interest rates in an effort to stabilize the economy in response to COVID-19, some lenders have increased interest rates in an effort to slow refinance activity. There is still uncertainty regarding the impact fluctuations in interest rates will have on the housing market and the economy due to the ongoing COVID-19 pandemic.

Housing Affordability Index

Also, according to the NAR, the composite housing affordability index increased to 169.4 for May 2020 (preliminary) from 150.8 for May 2019. The housing affordability index continues to be at historically favorable levels. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The favorable housing affordability index is due to favorable mortgage rate conditions. However, despite a cut in rates by the Federal Reserve in an effort to stabilize the economy, unemployment increased sharply throughout the second quarter of 2020. It is still too early to predict the extent of the effects the ongoing COVID-19 pandemic will have on housing affordability.

Home Sales Transactions

According to the NAR, existing home sale transactions for June 2020 (preliminary) decreased to 4.7 million compared to 5.3 million for June 2019. For the six months ended June 30, 2020, eXp Realty settled home sales units were 81,535 (whole units) resulting in sales volume of $23.9 billion. Our home sale transactions growth was directly related to the growth of our agent base, which increased 54% to 31,091 agents from 20,162 agents the prior comparative period. While home sales transactions remained strong during the second quarter of 2020, home sales transactions are expected to decline as a result of government implemented actions and rising uncertainty among buyers and sellers. The NAR indicated that home sale transactions will continue to be temporarily interrupted for the next couple months. Beyond this, it is still too early to predict the full extent of the effects of COVID-19 on transactions.

Existing Home Sales Price

According to the NAR, nationwide existing home sales average price for June 2020 (preliminary) was $295 compared to $285 in June 2019. During this same period, eXp Realty homes sales price averaged $297 in the second quarter of 2020 compared to $286 in the second quarter of 2019. With rising uncertainly and fewer listings in an already housing shortage environment, home sale prices are likely to remain steady. However, it is still too early to predict the extent of the effects COVID-19 will have on home sales prices.

Continued Accelerated Growth

Our strength is attracting real estate agent and broker professionals that have contributed to our growth. As of June 30, 2020, we have grown our agent and broker base 54% to 31,091 agents and brokers compared to 20,162 as of the June 30, 2019.

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The following table sets forth the number of transactions, sales volume and commission revenue earned on real estate transactions: