Q4 2021 Compass Inc Earnings Call

Speaker 1: Our CFO will discuss our financial results and expectations later in the call. But I want to share what we expect to deliver in 2022 first.

We'll discuss our financial results and expectations later in the call.

But I want to share what we expect to deliver in 2022.

We respect that all constituents will make their own assumptions about near term market growth rates, but let me share with you. What we are seeing from our unique vantage point given the markets, we serve and agents we have.

Speaker 1: We respect that all constituents will make their own assumptions about near-term market growth rates. But let me share with you what we are seeing from our unique vantage point, given the markets we serve and agents we have.

Speaker 1: While inventories are tight, demand has remained extremely strong into 2022, as evidence by prices continuing to increase in 2022 above and beyond a year where home prices increase 19%.

While inventories are tight demand has remained extremely strong into 2022 as evidenced by prices continuing to increase in 2022 above and beyond a year, where home prices increased 19%.

We foresee strong market growth for the rest of this year for perspective, even if prices are flat for the rest of the year given that 19% home prices was the improvement we saw in 2021.

Speaker 1: We foresee strong market growth for the rest of this year. For perspective, even if prices are flat for the rest of the year, given that 19% home prices was improving we saw in 2021.

Speaker 1: and the continued momentum that we're continuing to see in 2022, there is a strong level of embedded growth for the rest of 2022.

And the continued momentum that we're continuing to see in 2022, there is a strong level of embedded growth for the rest of 2022.

Speaker 1: And actually, the supply demand dynamics we see in the market every day suggests that prices will continue to increase even further in 2022.

And actually the supply demand dynamics, we see in the market everyday suggest that prices will continue to increase even further in 2022.

As we see the benefits of being prudent the 2022 revenue expectations, we provided today.

Speaker 1: As we see the benefits of being prudent, the 2022 revenue expectations we provided today do assume some market growth moderation, but they also reflect the modeled impact of Cumbiz market share gains due to three factors.

Do assume some market growth moderation, but they also reflect.

Slide the modeled impact of Columbus market share gains due to three factors.

Speaker 1: One, the annualized impact of the 2021 Agent Recruits that have already joined.

One the annualized impact of the 2020 , one agent recruits that have already joined compass.

Speaker 1: Two, strong visibility on new 2022 agent recruits. And three, a low single digit increase in agent team productivity.

<unk> strong visibility on new 2022 agent recruits and three a low single digit increase in agent team productivity.

In other words, we expect to continue to gain market share in.

Speaker 1: In other words, we expect to continue to gain market share and significantly outperform the market regardless of how fast the market grows.

And significantly outperformed the market regardless of how fast the market grows.

Speaker 1: We have a multi-year track record of rapidly gaining share by adding agents and increasing their productivity.

We have a multiyear track record of rapidly gaining share by adding agents and increasing their productivity.

Speaker 1: Our market share was 1.1% three years ago, 4% in 2020, and 5.6% in 2021.

Our market share was one 1% three years ago, 4% in 2020 and five 6% in 2021.

That reflects an increase of 40% year over year.

Speaker 1: That reflects an increase of 40% year over year and a 50% three year CAGR.

And a 50% three year CAGR.

Speaker 1: Despite our strong gains, our 5.6-cent market share remains relatively small, and we model that it will grow meaningfully from here.

Despite our strong games or five 6% market share remains relatively small and we model that it will grow meaningfully from here in.

In markets in which we have operated for more than five years, our market share averages over 20%.

Speaker 1: In markets in which we have operated for more than five years, our market share averages over 20%, which shows what we can do.

It shows what we can achieve.

Speaker 1: In summary, what we see in the market every day makes us optimistic about revenue growth, but we have haircut certain assumptions to arrive at the 2022 revenue expectation we presented today. We are also committed to managing our business to achieve our 2022 and long-term EBITDA goals.

In summary, what we see in the market everyday makes us optimistic about revenue growth, but we have haircut certain assumptions to arrive at the 2022 revenue expectation we presented today.

We are also committed to managing our business to achieve our 2022 and long term EBITDA goals.

Speaker 1: Our splits are improving and by summer our agents will be able to service the entire real estate transaction on the come this platform which drives agent productivity.

Our splits are improving and by summer our agents will be able to service the entire real estate transaction on the <unk> platform was drive agent productivity.

As we turn our product development attention toward lowering the cost to serve our agents and integrating adjacent services that drive margin, we expect to get more leverage against our tech spending.

Speaker 1: As we turn our product development attention toward lowering the cost of server agents and integrating adjacent services that drive margin, we expect to get more leverage against our text ending.

Speaker 1: We also have discretion to manage certain expenses going forward and will do so.

Also have discretion to manage certain expenses going forward and will do so.

I want to get specific on our five agent related Kpis that we focus on every day.

Speaker 1: I want to get specific on our five agent-related KPIs that we focus on every day.

Speaker 1: which are also driving operating efficiency improvements and are key to driving toward our margin goals.

Which are also driving operating efficiency improvements and are key to driving toward our margin goals.

These kpis are one agent recruiting to agent retention three technology adoption.

Speaker 1: These KPIs are one, agent recruiting, two, agent retention, three, technology adoption, four, lowering our cost to serve.

For lowering our cost to serve.

Speaker 1: and five, growing our adjacent service businesses.

And five growing our adjacent service businesses.

So first agent recruiting.

Speaker 1: We continue to be successful with recruiting agents. We grew the total number of agents from 7,400 in Q4 2018 by a multiple of 3.5 times to 26,302 for 2021.

We continue to be successful with recruiting agents. We grew the total number of agents from 7400 in Q4 2018 by a multiple of three five times to 26300 in Q4 2021.

Speaker 1: We expect to add a similar number of agents in 2022 as we did in 2021.

We expect to add a similar number of agents in 2022 as we did in 2021.

Higher productivity not splits is why new agents joined compass and our splits are improving.

Speaker 1: Higher productivity, not splits, is why new agents join Compass, and our splits are improving.

Speaker 1: In the fourth quarter of 2021, 62% of agents who came to Compass told us that they did so for a less favorable split than at their previous brokerage firm.

In the fourth quarter of 2021, 62% of agents, who came to compass told us that they did so for a less favorable split then at their previous brokerage firm.

In the fourth quarter of 2021.

Speaker 1: We recruited agents who reported historical annual revenue consistent with our prior record recruiting quarter in Q4 2019.

We recruited agents, who reported historical annual revenue consistent with our prior record recruiting quarter in Q4 2019.

Speaker 1: But with 31% fewer incentives and 50 base points, better commission economics to come.

With 31% fewer incentives and 50 basis points better Commission economics to compass.

Speaker 1: The payback period on our average incentive contract is now less than 12 months. We also are winding down the use of the

The payback period on our average incentive contract is now less than 12 months.

We also are winding down the use of equity to recruit agents.

Speaker 1: In January , for example, less than 9% of the agents we recruited received equity.

In January for example, less than 9% of the agency we recruited received equity.

60% of Commission revenue comes from principal agents, then make more than 1 million a year at compass.

Speaker 1: 60% of commission revenue comes from principal agents that make more than $1 million a year at Compass. Compared to the national average.

Compared to the national average of 14%.

Speaker 1: which is a key reason why our average splits are higher than some in the industry.

Which is a key reason why our average splits are higher than some of the industry.

Speaker 1: We have demonstrated that our model can succeed at all market levels and will continue to shift our agent mix away from agents that command the highest split.

We have demonstrated that our model can succeed at all market levels and will continue to shift our mix away from agents that command the highest splits.

Given that the difference in splits between the highest producing cohorts and lower producing ones can be as high as 900 basis points, we expect significant margin benefit to results as our agent mix normalizes to more closely resemble the industries.

Speaker 1: Given that the difference in splits between the highest producing cohorts and lower producing ones can be as high as 900 bases

Speaker 1: We expect significant margin benefits to result as our agent mix normalizes to more closely resemble the industry.

Speaker 1: We provide more information on this on page 13 of the investor presentation.

We provide more information on this on page 13 of the Investor presentation.

We improved commissions as a percentage of revenue by 130 basis points in 2021% versus 2020.

Speaker 1: We improved commissions as a percentage of revenue by 130 base points in 2021 versus 2020. And we modeled approximately 250 base points out of the margin improvement by 2025 resulting from a combination of our agents, cohorts maturing, and agent mix normal.

And we model of approximately 250 basis points of margin improvement by 2025, resulting from a combination of our agent cohorts maturing and agent mix normalizing.

We provide more information on this on pages 14, and 19 of the Investor presentation.

Speaker 1: We provide more information on this on pages 14 and 19 of the investor presentation. Second, agent retention.

Second agent retention.

Our strong technology platform.

The strength of the <unk> brand and the attraction of Compass referrals are drivers of our ability to successfully recruit agents and our key and Archie to the industry, leading agent retention that we have.

Speaker 1: the strength of the compass brand and the attraction of compass referrals are clear drivers of our ability to successfully recruit agents and our key to the industry leading agent retention that we have.

Speaker 1: Our principal agent retention rates are consistently above 90% in an industry that averages 68% retention.

Our principal agent retention rates are consistently above 90% and an industry averages 68% retention.

Speaker 1: and our retention rates have strengthened since the IPO.

And our retention rates have strengthened since the IPO.

These retention rates stay strong over time, including well after our agents come off their initial contracts.

Speaker 1: These retention rates stay strong over time, including well after our agents come off their initial contract.

Speaker 1: in our three oldest markets, New York City, Washington, D.C., and Boston.

Our three oldest markets, New York City, Washington, DC and Boston.

Speaker 1: The percentage of agents off their initial contracts are 77%, 83%, and 75% respectively. And the agent retention is 95%, 95%, and 93% respectively.

Percentage of agents off their initial contracts are 77%, 83% and 75% respectively and.

And the agent retention is 95%, 95% and 93% respectively.

I want to re articulate that in the case of let's say the 95% agent retention the 5% that is reduced to get to 95% is including the burden of people that retire.

Speaker 1: I want to re-articulate that in the case of, let's say, the 95% aging retention, the 5% that is reduced to get to 95% is including the burden of people that retire, people that are asked to leave, or people that move industries altogether, reflecting a very high integrity number. See page 9 of our presentation for more detail..

People that are asked to leave or people that move industries altogether, reflecting our very high integrity number.

See page nine of our presentation for more detail.

On to number three technology adoption.

A key area of focus remain in 2022 is agent technology adoption.

Speaker 1: A key area of focus for me in 2022 is agent technology.

Speaker 1: Our technology is a key driver of agent productivity and is going to be the key driver of improvement in operating efficiency and margin in the future.

Our technology is a key driver of agent productivity and is only is going to be the key driver of improvement in operating efficiency and margin in the future.

Speaker 1: By this summer, Compass agents won't have to leave the Compass platform or pay for third-party real estate software to complete a transaction.

By this summer.

Agents and won't have to leave the compass platform or pay for third party real estate software to complete a transaction. This stands in stark contrast to the industry, which still cobbled together a large number of third party solutions and we're tech adoption is low.

Speaker 1: This stands in stark contrast to the industry which still cobbles together a large number of third-party solutions and where tech adoption is low.

In 2021 study covering 75% of our agent teams, we found that the top quartile of agents, who use our technology platform. The most grew.

Speaker 1: In a 2021 study covering 75% of our agent teams, we found that the top quartile of agents who use our technology platform the most.

Speaker 1: grew their business two and a half times more than those who use it the least.

Grew their business, two and a half times more and those who use at least.

When you consider that most of an agent's day is in the field. It is impressive that the top 25% of our agent teams use our platform to ours and 14 minutes per day and multi agent teams are using it for hours and three minutes per day.

Speaker 1: When you consider that most of an agent's day is in the field, it is impressive that the top 25% of our agent teams use our platform 2 hours and 14 minutes per day, and multi-agent teams are using it 4 hours and 3 minutes per day.

Speaker 1: This drives revenue, operational efficiency, and margin, which is why we want to drive further adoption of our platform.

This drives revenue operational efficiency and margin.

Which is why we want to drive further adoption of our platform.

Speaker 1: In 2022, we launched Compass Corps focused on coaching agents on how to grow their business with the Compass technology platform.

In 2022, we launched compass core focused on coaching agents on how to grow their business with the <unk> technology platform in.

Speaker 1: In Q1, we've seen nearly 7,000 agents engage in the program, and the feedback has been nothing short of outstanding.

In Q1, we've seen nearly 7000 edens engaged in the program and the feedback has been nothing short of outstanding.

A primary example of how we connect our cogent investments with business outcomes for agents is the likely to sell AI tool, which is particularly important in this low inventory environments.

Speaker 1: A primary example of how we connect our coaching investments with business outcomes for agents is the Likely to Sell AI tool, which is particularly important in this low inventory environment.

Speaker 1: The Likely to Sell tool uses advanced AI to evaluate attributes of the home, the market, and the owner to recommend the most likely to sell prospects from the agents CRM.

The likely to sell tool uses advanced AI to evaluate attributes of the home.

The market.

And the owner to recommend the most likely to sell prospects from the agents' CRM.

Speaker 1: In 2021, 151 million growth commission revenue was from listings that the Likely to Sell tool recommended to our agents before the listing was created.

In 2021 $151 million gross commission revenue was from lithium that are likely to sell tool recommended to our agents before the lithium was creative.

We expect this number to exceed $400 million in 2022.

Speaker 1: We expect this number to exceed 400 million in 2022.

Fourth.

Speaker 1: Fourth, lowering our cost to serve our agents.

Lowering our cost to serve our agents.

Now that we're close to being able to support the whole transaction on our platform.

Speaker 1: Now that we are close to being able to support the whole transaction on our platform, let's take a look at the next stop on the Technology and Operational Efficiency Roadmap.

The next stop on the technology and operational efficiency roadmap.

Speaker 1: is to use our own technology platform to lower the cost to serve our agents, which will drive even more leverage from our tech spending. No one else in the industry is even trained to do this.

Is to use our own technology platform to lower the cost to serve our agents, which will drive even more leverage from our tech spending.

No one else in the industry is even trying to do this at scale.

Speaker 1: We look forward to the next two quarters this year when we can share with you metrics proving that using the technology ourselves to serve agents is lowering our cost to serve and increasing our adjacent services attached.

We look forward to the next two quarters. This year when we can share with you metrics proving that using the technology ourselves to serve agents is lowering our cost to serve and increasing our adjacent services attach.

And finally number five adjacent services.

Speaker 1: The winner in the space will be the company that can best monetize the Real Estate Transactors.

The winner in this space will be the company that can best monetize the real estate transaction.

Speaker 1: The clear path to achieve this result is to integrate adjacent services into the transaction flow.

The clear path to achieve this result is to integrate adjacent services into the transaction flow.

At $140 billion annually the market opportunity in adjacent services is larger than the $100 billion in commissions generated and the whole industry each year.

Speaker 1: At $140 billion annually, the market opportunity in Jason's services is larger than the $100 billion in commissions generated in the whole industry each year.

<unk> agents play a key role in helping their clients with navigating the adjacent services landscape. For example, the majority of the mortgages in the U S results from an agent referral.

Speaker 1: Agents play a key role in helping their clients with navigating the adjacent services landscape. For example, the majority of the mortgages in the US result from an agent referral.

To be clear.

Speaker 1: To be clear, all of our adjacent revenue is still made.

All of our adjacent revenue is still nascent.

Speaker 1: at only 1% of 2021 revenue because we just began.

Only 1% of 2021 revenue because we just began.

Speaker 1: Our Q4 end annualized revenue run rate was $85 million, which has already helped our margins. But more importantly,

Our Q4 and annualized revenue run rate was $85 million, which was already helped our margins.

But more importantly.

Our initial uptake rates are very promising.

Speaker 1: We have already seen strong attach rates for our title and escrow services. Attachments for KBS title business quickly grew from 19% in acquisition in Q1 2021 to 39% in Q4 2021.

We have already seen strong attach rates for our title and escrow services attach rates for caveats title business quickly grew from 19% in acquisition in Q1, 2021% to 39% in Q4 of 2021.

You can see page 16 of the investor presentation for more detail.

Speaker 1: You can see page 16 of the investor presentation for more detail.

We now offer title and escrow in nine States and Washington D C.

Speaker 1: We now offer title and escrow in nine states and Washington, D.C. from just two at the start of 2021. We plan to grow our teeny business in our existing markets and plan to expand into additional markets in 2022.

Just two at the start of 2021.

We plan to grow our <unk> business in our existing markets and plan to expand into additional markets in 2022.

Speaker 1: Also in 2021, we launched our mortgage business with a joint venture in mortgage with guaranteed rates.

Also in 2021, we launched our mortgage business with a joint venture in mortgage with guaranteed rates.

Speaker 1: I am happy to say that we underwrote our first mortgage in December in the Chicago market.

I am happy to say that we underwrote our first mortgage in December in the Chicago market.

Speaker 1: We expect to offer mortgages in the majority of our markets by the end of 2022.

We expect to offer mortgages in the majority of our markets by the end of 2022.

In summary, we.

Speaker 1: In summary, we are committed to driving growth in revenue, EBITDA, and cash flow by giving our agents the technology platform and tools they need to be more productive and to drive more profitable revenue for Compass. We have a significant technology advantage.

We are committed to driving growth in revenue.

EBITDA and cash flow by giving our agents the technology platform and tools, they need to be more productive and to drive more profitable revenue for compass.

We have a significant technology advantage.

It is also not lost on us that.

Speaker 1: that recent developments in the public and private capital market

At recent developments in the public and private capital markets.

Speaker 1: particularly with growth companies and real estate companies, should lead to less innovation capital for potential competitors and therefore widening our competitive mode. I will now hand the call.

Particularly with growth companies and real estate companies should lead to less innovation capital for potential competitors, and therefore widening our competitive moat.

I will now hand, the call over to Kristin.

Yeah.

Speaker 2: Thank you, Robert. We're proud of our 2021 results and we exceeded our expectations.

Thank you Robert.

We are proud of our 2021 results and we exceeded our expectations, we achieved growth at scale, while improving our margin profile.

Speaker 2: We achieved growth at scale while improving our margin profile. This shows that we can successfully and aggressively add new agents, help them grow their business through our platform, and launch new adjacent services businesses, all while driving profitability on an adjusted EBITDA basis and prioritizing our path to free cash flow and EBITDA margin.

<unk> that we can successfully and aggressively add new agents help them grow their business through our platform and launched new adjacent services businesses, all while driving profitability on an adjusted EBITDA basis, and Taylor tightening our path to free cash flow and EBITDA margins.

For the full year 2021, our revenue grew 73% year over year to $6 $4 billion over the past three years, we grew revenue at a 94% CAGR and market share at a 50% CAGR our market share grew to five 6% in 2021 up from one 1% just three years ago.

Speaker 2: For the full year 2021, our revenue grew 73% year over year to $6.4 billion. Over the past three years, we grew revenue at a 94% CAGR and market share at a 50% CAGR. Our market share grew to 5.6% in 2021, up from 1.1% just three years ago. We expect to continue to rapidly take share.

We expect to continue to rapidly take share.

At the same time, we've dramatically improved adjusted EBITDA and 2019, our adjusted EBITDA loss was $325 million improved to a loss of $156 million in 2020 and reached positive adjusted EBITDA of $2 million for the full year 2021. This exceeds our most we.

Speaker 2: At the same time, we've dramatically improved adjusted EBITDA. In 2019, our adjusted EBITDA loss was $325 million. This improved to a loss of $156 million in 2020 and reached positive adjusted EBITDA of $2 million for the full year 2021. This exceeds our most recent guidance for a $5 to $25 million loss for 2021.

<unk> guidance for our 5% to $25 million loss for 2021.

And 2021, we incurred a GAAP net loss of $494 million compared to a net loss of $270 million a year ago. The increase GAAP loss was primarily driven by a year over year increase of $343 million and noncash stock based compensation expense.

Speaker 2: In 2021, we incurred a gap net loss of $494 million, compared to a net loss of $270 million a year ago.

Speaker 2: The increased GAAP loss was primarily driven by a year-over-year increase of $343 million in non-cash stock-based compensation expense due to a change in the GAAP accounting for33

Due to a change in the GAAP accounting for RSV.

Speaker 2: Consistent with most companies when they go public, our RSU's contained a condition that did not allow for the recognition of expense until our IPO. As a result, we started recording non-cash stock-based compensation at the time of our IPO, and this trend will continue in the future.

And with most companies when they go public Rs used contained a condition that did not allow for the recognition of expense until our IPO. As a result, we started recording noncash stock based compensation at the time of our IPO and this trend will continue in the future.

Speaker 2: Our balance sheet is strong with $618 million in cash at the end of 2021 and an untapped $350 million revolver. If a downturn occurs at some point in the next five years, we believe we will benefit as strong agents look for a place to expand their business and other brokerages find it harder to compete.

Our balance sheet is strong with $618 million in cash at the end of 2021, and an untapped $350 million revolver epic downturn occurs at some point in the next five years. We believe we will benefit as strong agents look for a place to expand their business and other growth against find it harder to compete.

Okay.

Turning to the fourth quarter of 2021, we generated revenue of $1 61, 2 billion growing 31% over the prior year and ahead of the midpoint of our guidance range. The two year revenue Caylor comparing revenue in Q4 2019 to Q4 2021 was 56% and shows a return.

Speaker 2: Turning to the fourth quarter of 2021, we generated revenue of $1.612 billion, growing 31% over the prior year and ahead of the midpoint of our guidance range. The two-year revenue cager comparing revenue in Q4 2019 to Q4 2021 was 56% and shows a return to a more normalized seasonality for the business in line with our expectations.

Turning to a more normalized seasonality for the business in line with our expectations adjusted EBITDA for the quarter was a loss of $51 million ahead of our guidance of a loss of $55 million to $75 million Commission.

Speaker 2: Adjusted EBITDA for the quarter was a loss of $51 million, ahead of our guidance of a loss of $55 to $75 million.

Speaker 2: Commissions as a percentage of revenue improved by 130 basis points year over year. Transactions grew 20% in line with our expectations.

Commissions as a percentage of revenue improved by 130 basis points year over year transactions grew 20% in line with our expectations last year's seasonality was skewed by Covid, because the brief market pies and Q Q2 thousand 20, plus transactions into the seasonally weaker fourth and first quarters, thus, creating an abnormal.

Speaker 2: Last year's seasonality was skewed by COVID because the brief market pause in Q Q2 020 pushed transactions into the seasonally weaker fourth and first quarters, thus creating an abnormal comp for Q4 2021 that will continue into Q1 of 2022.

Comp for Q4 of 2021 that will continue into Q1 of 'twenty tail.

Now, let me turn to guidance first and foremost I want to reiterate Robert perspective that our expectations for 'twenty, two and beyond reflect our focus on improving profitability and free cash flow.

Speaker 2: Now let me turn to guidance. First and foremost, I want to reiterate Robert's perspective that our expectations for 22 and beyond reflect our focus on improving profitability and free cash flow.

As Robert mentioned earlier, while we operate in a cyclical industry, we expect to continue to gain market share regardless of market cycles, while we foresee strong market growth for the rest of 2022. This is a factor that we can't control what we can control is market share and managing our spending and we are laser focused.

Speaker 2: As Robert mentioned earlier, while we operate in a cyclical industry, we expect to continue to gain market share regardless of market cycles. While we foresee strong market growth for the rest of 2022, this is a factor that we can't control. What we can control is market share and managing our spending. And we are laser focused on both.

On both.

Speaker 2: Now I will talk specifically about our 22 guidance and our longer-term guidance.

Now I will talk specifically about our 'twenty two guidance and our longer term guidance.

Speaker 2: First, I want to spend a moment on the outlook for industry growth. In 2022, real estate experts have a wide range of estimates for annual growth in the residential real estate market, ranging from low single digits to in excess of 20%.

First I wanted to spend a moment on the outlook for industry growth in 2022 real estate experts have a wide range of estimates for annual growth in the residential real estate market ranging from low single digits to in excess of 20%.

As Robert mentioned demand is strong, but inventory is tight and that will likely slow the rate of growth in transactions in Q1 relative to last year with limited inventory there is strong upward pressure on price.

Speaker 2: As Robert mentioned, demand is strong, but inventory is tight. And that will likely slow the rate of growth in transactions in Q1 relative to last year. With limited inventory, there is strong upward pressure on price.

Speaker 2: For one to conclude that the market will decline, that would mean a significant decline in transactions to offset the aforementioned price increases, a scenario that we view to be highly unlikely.

For one to conclude that the market will decline that would mean a significant decline in transactions to offset the aforementioned price increases a scenario that we view to be highly unlikely.

Also keep in mind that we operate in the upper end of the market our price points are 750000.

Speaker 2: Also, keep in mind that we operate in the upper end of the market at price points of $750,000 and higher. This segment of the market is less sensitive to interest rates and continues to see strong demand driving prices higher in the face of limited inventory.

Dollars and higher this segment of the market is less sensitive to interest rates and continues to see strong demand driving prices higher in the face of limited inventory.

Speaker 2: We believe that these higher prices will unlock inventory. But since we can't predict human behavior, including what the Fed will decide on interest rates, we see the benefits of taking a measured approach to our outlook at this time.

We believe that these higher prices will unlock inventory, but since we cannot predict human behavior, including what the fed will decide on interest rates, we see the benefits of taking a measured approach to our outlook at this time.

Speaker 2: Our current outlook for 2022 revenue is $7.9 to $8.1 billion, or 25% growth year over year.

Our current outlook for 2022 revenue is seven 9% to $8 1 billion or 25% growth year over year.

This is mostly driven by factors that we control and initiatives that we have executed consistently to date. These are the factors that drive our market share gains.

Speaker 2: This is mostly driven by factors that we control and initiatives that we have executed consistently to date. These are the factors that drive our market share gains.

Speaker 2: We model that we could grow revenue in 2022 by 18 to 20 percent through market share gains in 21 and 22, independent of growth in the real estate market. We have also assumed some market growth in our revenue outlook.

We model that we could grow revenue in 2022 by 18% to 20% through market share gains in 'twenty, one 'twenty two independent of growth in the real estate market. We have also assumed some market growth and our revenue outlook.

Speaker 2: The components of the market share drivers include the annualization of our 2021 cohort of agents that joined Compass last year, in-year revenue from agents that will join Compass in 2022, and the productivity uplift for our agents, all of which Robert already discussed.

The components of the market share drivers include the annualized <unk> of our 2021 cohort of agents that joined <unk> last year in year revenue from agents that will join Columbus in 2022, and the productivity uplift for agents all of which Robert already discussed.

Speaker 2: Now the best indicator of our ability to continue to gain share is our principal agent count, which we expect to increase by 2,600 to 2,800 principal agents on a net basis in line with 2021 level.

Best indicator of our ability to continue to gain share as our principal agent count, which we expect to increase by 2600 2800 principal agents on a net basis in line with 2021 levels.

Speaker 2: Regardless of market conditions, we will achieve that objective.

Regardless of market conditions, we will achieve that objective.

Robert referenced investor presentation in his remarks in particular I refer you to slide three four and five that demonstrate we are significantly growing transactions and CTV per agent as our agents outpace the average agents in the industry by two five to three five times.

Speaker 2: In particular, I refer you to slides three, four, and five that demonstrate we are significantly growing transactions and GTV per agent as our agents outpace the average agents in the industry by two and a half to three and a half times.

Speaker 2: For 2022, we expect adjusted EBITDA to be at least $40 million. EBITDA and pre-cash flow are our top financial priority.

For 2022, we expect adjusted EBITDA to be at least $40 million EBITDA and free cash flow are our top financial priorities to be 100% clear. While this EBITDA expectation reflects the benefits of improving economics with our agents and leverage against our tech spend going forward. We also.

Speaker 2: To be 100% clear, while this EBITDA expectation reflects the benefits of improving economics with our agents and leverage against our tech spend going forward, we also have discretion to manage certain expenses, which we will do to deliver $40 million of EBITDA.

Have discretion to manage certain expenses, which we will do to deliver $40 million of EBITDA.

Speaker 2: That said, we see a number of scenarios in which this $40 million number could be higher. As 2022 unfolds, we believe we will have more insight into the direction of the market.

That said, we see a number of scenarios in which this $40 million number could be higher as 2022 unfolds. We believe we will have more insight into the direction of the market.

Turning to our first quarter 'twenty two guidance as you think about updating your models for the quarterly distribution of our 'twenty two guidance keep in mind that seasonality plays a big factor in our quarterly revenue Q1 is always the weakest revenue quarter for the entire industry as fewer homes are lifted during the December holiday season.

Speaker 2: Turning to our first quarter of 22 guidance, as you think about updating your models for the quarterly distribution of our 22 guidance, keep in mind that seasonality plays a big factor in our quarterly revenue.

Speaker 2: Q1 is always the weakest revenue quarter for the entire industry, as fewer homes are listed during the December holiday season.

<unk>.

Speaker 2: Q4 is higher than Q1, and Q2 and Q3 are the highest quarters.

Q4 is higher than Q1, and Q2 and Q3 are the highest quarters, while the COVID-19 pandemic altered the typical quarterly patterns in 2020 and 2021 the seasonality patterns are normalizing as we started to see in Q3 and Q4 of 2021.

Speaker 2: While the COVID pandemic altered the typical quarterly patterns in 2020 and 2021, the seasonality patterns are normalizing, as we started to see in Q3 and Q4 of 2021. As a result, you should expect to see our Q1 revenue approximate between 16.25% and 16.75% of our full year revenue.

As a result, you should expect to see our Q1 revenue approximate between $16, two 5% and 16, 75% of our full year revenue.

While <unk> quarterly revenue distribution follows a pattern as reported through nor the.

Speaker 2: While Compass's quarterly revenue distribution follows the pattern as reported through NAR, the percentage of Compass's revenue in the first quarter averaged 100 to 200 basis points below the NAR sales volume in the last three years.

The percentage of <unk> revenue in the first quarter average of 100 to 200 basis points below the sales volume in the last three years.

Speaker 2: The main reason is that our revenue grows throughout the year as we continue to add agents to our platform. Now this will soften some of the normal seasonality trends you typically see in the industry and has the effect of further reducing the first quarter revenue distribution for Compass compared to the industry.

The main reason is that our revenue growth throughout the year as we continue to add agents to our platform now this will soften some of the normal seasonality trends you typically see in the industry and has the effect of further reducing the first quarter revenue distribution for compass compared to the industry.

Speaker 2: Please refer to page 20 of our investor deck for more detail.

Please refer to page 20 of our investor deck for more detail.

Speaker 2: As for the quarterly distribution of our expenses, you should expect the Commission's expense line to move closely in sync with the quarterly distribution of revenue.

As for the quarterly distribution of our expenses you should expect the commission expense line to MS closely in sync with the quarterly distribution of revenue.

Speaker 2: However, the other operating expense lines will trend sequentially upward throughout the year as the size and scale of our agent base and our service offerings grow. While you should expect to see operating leverage as our business gets more and more efficient, many of the expenses included within sales and marketing, ops and support, R&D, and G&A do not move in line with the seasonal quarterly fluctuations of our revenue.

However, the other operating expense lines will trend sequentially upward throughout the year as the size and scale of our agent base and our service offerings grow.

While you should expect to see operating leverage as our business gets more and more efficient many of the expenses included within sales and marketing ops and support R&D and G&A do not move in line with the seasonal quarterly fluctuations of our revenue you can see the sequential upward trend in 2021 and you should expect this to continue in 2022.

Speaker 2: You can see the sequential upward trend in 2021, and you should expect this to continue in 2022. We've included a table on slide 31 of the investor deck that shows this quarterly trend of non-GAAP operating expenses during 2021 for quick reference.

We've included a table on slide 31 of the Investor deck that shows the quarterly trend of non-GAAP operating expenses during 2021 for quick reference.

Based on this trend you should expect to see our Q1 2022, non-GAAP operating expenses increase, albeit at a very modest level versus the prior sequential quarter of Q4 2021.

Speaker 2: Based on this trend, you should expect to see our Q1 2022 non-GAAP operating expenses increase, albeit at a very modest level, versus the prior sequential quarter of Q4 2021.

Speaker 2: Using the assumptions above, we expect an adjusted EBITDA loss in Q1 of 22 of $100 to $110 million.

Using the assumptions above we expect an adjusted EBITDA loss in Q1 of 'twenty two of $100 million to $110 million.

Speaker 2: This represents the return to normal seasonality in the real estate industry, combined with strategic investments we made in 2021 to drive long-term profitability.

This represents the return to normal seasonality in the real estate industry combined with strategic investments, we made in 2021 to drive long term profitability.

Speaker 2: These include continued investment in our platform, which drives Compass' outperformance relative to the industry.

These include continued investment in our platform, which drives campuses outperformance relative to the industry.

Speaker 2: launching high margin adjacent services, expansion into 25 new MSA markets in 2021, and supporting 7,000 new agents, and post-COVID hiring throughout the rest of the business.

Launching high margin adjacent services expansion into 25, new MSA markets in 2021, and supporting 7000, new agents and post COVID-19 hiring throughout the rest of the business.

Speaker 2: As promised at the Q2 2021 earnings call, we remain committed to adjusted EBITDA profitability for the year. With fiscal year 2022 guidance of at least $40 million in EBITDA, we expect to see substantial positive EBITDA for the remainder of the year as seasonality returns to normal and investment is moderated.

As promised at the Q2 2021 earnings call, we remain committed to adjusted EBITDA profitability for the year with with fiscal year 'twenty two guidance of at least $40 million and EBITDA, we expect to see substantial positive EBITDA for the remainder of the year as seasonality returns to normal.

And investment has moderated.

Okay.

Based on our margin maturity curves tech adoption trends and splits we are comfortable providing a view on long term adjusted EBITDA and free cash flow margin targets.

Speaker 2: Based on our margin maturity curves, tech adoption trends, and splits, we are comfortable providing a view on long-term adjusted EVA. Free cash flow margin targets.

Speaker 2: For 2025, we expect to grow adjusted EBITDA to a minimum of $1.2 billion for an adjusted EBITDA margin of at least 10% and to grow free cash flow margins to 8 to 9%.

For 2025, we expect to grow adjusted EBITDA to a minimum of $1 $2 billion for an adjusted EBITDA margin of at least 10% and to grow free cash flow margins to 8% to 9%. We have a comprehensive plan to achieve these margins by continuing to deliver improvements in our cost structure and operating leverage consistent.

Speaker 2: We have a comprehensive plan to achieve these margins by continuing to deliver improvements in our cost structure and operating leverage consistent with what we've already done.

With what we've already done.

Speaker 2: Page 19 of our investor deck shows an illustrative outline of our plan to achieve 10% EBITDA margins in 2025. While the exact path to 10% could vary somewhat from what we present here, we are confident that we can achieve our goal. I want to be clear that while we remain optimistic about our revenue growth prospects, we are also prepared to manage our expenses as necessary to deliver on our specific 2022 and 2025 EBITDA and cash flow goals.

Page 19 of our Investor deck chosen illustrative outline of our plan to achieve 10% EBITDA margins in 2025, while the exact path to 10% could vary somewhat from what we present here. We are confident that we can achieve our goal I want to be clear that while we remain optimistic about our revenue growth prospects. We are also.

We're prepared to manage our expenses as necessary to deliver on our specific 2022, and 2025, EBITDA and cash flow goals.

Speaker 2: As you can see, the largest levers will be in commissions and other, sales and marketing, and R&D.

As you can see the largest levers will be in commissions and other sales and marketing and R&D.

We expect to see 450 basis points of improvement in the commissions and other line 250 basis points of that 450 basis points will come from recruiting more up and coming agents and also improving agent economics, which we have done at a rate of 100 basis points per year. Historically, another 200 basis points will come.

Speaker 2: We expect to see 450 basis points of improvement in the commissions and other lines. 250 basis points of that 450 basis points will come from recruiting more up and coming agents and also improving agent economics, which we have done at a rate of 100 basis points per year historically. Another 200 basis points will come from growth and adjacent services.

Some growth in adjacent services.

We expect 200 basis points of improvement will come into sales and marketing line. This is a steep discount to the operating leverage we have seen in this line historically and reflects the recent strength we've seen in our recruiting efforts in the fourth quarter, we had a record recruiting quarter paired with record low customer acquisition costs a trend we expect to continue.

Speaker 2: We expect 200 basis points of improvement will come in the sales and marketing line. This is a steep discount to the operating leverage we have seen in this line historically and reflects the recent strengths we've seen in our recruiting efforts. In the fourth quarter, we had a record recruiting quarter paired with record low customer acquisition costs, a trend we expect to continue into 2022.

When you enter 2022.

And finally, we expect an additional 130 basis points will come in the R&D line as we see more leverage going forward relative to the accelerated <unk> investment over the past three years.

Speaker 2: And finally, we expect an additional 130 basis points will come in the R&D line, as we see more leverage going forward relative to the accelerated tech investment over the past three years.

Yeah.

Speaker 2: We are very pleased with the continued improvement in our financial profile since the IPO. We've grown the business ahead of our expectations and crossed the line to adjusted EBITDA profitability this year with a path to at least $40 million in adjusted EBITDA in 2022 and 10% adjusted EBITDA margins in 2025.

We are very pleased with the continued improvement in our financial profile since the IPO. We've grown the business ahead of our expectations and cross the line to adjusted EBITDA profitability. This year with a path to at least $40 million and adjusted EBITDA in 2022, and 10% adjusted EBITDA margins in 2025.

Speaker 2: And we are committed to generating free cash flow in 2023 and beyond.

And we are committed to generating free cash flow in 2023 and beyond.

Speaker 2: We believe that our business is in the best position it's ever been. This is not just borne out by our strong execution over the past several quarters, but also in the investment we've made to drive profitability in our business.

We believe that our business is in the best position. It's ever been this is not just borne out by our strong execution over the past several quarters, but also in the investment we've made to drive profitability in our business. Our economics are improving as we continue to attract and retain top agents launch new markets and capture market.

Speaker 2: Our economics are improving as we continue to attract and retain top agents, launch new markets and capture market share. Our adjacent services businesses are nascent but present a significant opportunity to drive profitability per transaction.

Sure our adjacent services businesses are Nathan represent a significant opportunity to drive profitability per transaction. We are a long term market share gainer, because we have the leading platform in the industry harnessing the power of the most productive agents at scale to drive a sustainable financial advantage.

Speaker 2: We are a long-term market share gainer because we have the leading platform in the industry harnessing the power of the most productive agents at scale to drive a sustainable financial advantage.

Most importantly, we have the commitment and the conviction to achieve our 2025, EBITDA and free cash flow targets.

Speaker 2: Most importantly, we have the commitment and the conviction to achieve our 2025 EBITDA and Pre-Catch Flow targets.

With that let me turn it back to the operator to start the Q&A portion of the call.

Speaker 2: With that, let me turn it back to the operator to start the Q&A portion of the call.

Speaker 1: Thank you very much, Mr. Anchor Brandt. Ladies and gentlemen, at this time, if you do have any questions or comments, simply press star one. If you do find your question has already been answered, you can remove yourself from the queue by pressing star one again. And with that, we'll go first to Mike Ng with Goldman Sachs.

Thank you very much. Thank you Brent ladies and gentlemen at this time, if you gave any questions or comments simply press star. One if you do find that your question has already been answered you can remove yourself from the queue by pressing star one again and with that we will go first to Mike <unk> with Goldman Sachs.

Speaker 3: Hey, good afternoon. Thank you very much for the question and thank you for all the additional detail in the slides today. That was very helpful. I just had a question about the path of revenue less commission margin improvement over the next several years. You guys called out agent tier mix and split improvement.

Hey, good afternoon. Thank you very much for the question and thank you for all the additional detail in the slides today that was very helpful.

Just had a question about the path of.

Revenue less commission margin improvement over the next several years you guys called out.

Asia Tier mix split improvements I was wondering if you could just provide a little bit more color on the drivers of each of those items is it simply expect expansion into less competitive markets.

Speaker 3: I was wondering if you could just provide a little bit more color on the drivers of each of those items. Is it simply expansion into less competitive markets and better initial contracts? Are you able to drive that because of a better recognition of your platform? What's really helping that improvement there? Thank you.

Better initial contracts and our.

Are you able to drive that because of a better recognition of your platform like what's really.

Helping that improvement there. Thank you.

Speaker 1: Yeah, so there's two things. One is just the agent's cohort maturing. If you look at page 12 in the deck, it highlights that we've historically improved 100 base points a year for each, for every respective cohort over the last three cohorts. And then secondly, we're, we are not only hiring agents and more tracker splits, which you can see in page 12 each year, but as

Yes. So there's two things one is just the agents cohorts mature and if you look at page 12 in the in the deck and highlights that we've historically improved 100 basis points a year for each cohort for every respective Gordon over the last three quarters, and then secondly, where.

We are not only hiring agents are more attractive splits, which you can see on page 12, each year, but as.

Speaker 1: as we hire an agent mix that reflects the mix of the industry, not just, you know, a very aggressive focus on high-end agents, then you have massive margin improvements. So, specifically, if you look at page 13, 60% of the agents that Compass hires are generating above $1 million in revenue. When you look at the market overall, it's expected that it's 14%.

<unk>.

Higher.

And even mix that reflects the mix of the industry not just.

Very aggressive focus on high end items, then you have a massive margin improvements so specifically.

Look at page 13, 60% of the agents that campus hires are generating above a million dollars in revenue when you look at the market overall as expected it was 14%.

Speaker 1: And for agents that are generating below 150k in annual revenue, it's 4% for us, while for the industry it's 34%. The delta in splits...

We are generating below a 150 K and in our revenue.

4% for us well for the industry is 34% the delta in split.

For agents at combos between 150, U K and $1 million at 900 based ones and so when you look at the opportunity. If we if we did reflect the full market that is.

584 basis points of margin improvement, but we're assuming that we only get a third of that over the medium term.

And so that so it's the agent mix again to a third of that which is 180 basis points.

Assuming another 60 basis points of improvement.

The existing agent co working firms.

Speaker 3: Great. Thanks, Robert. That's really helpful. And if I could just have a follow-up on the really strong attach rates for Tidal in DC, you know, pre-deal and since you guys acquired it, maybe you can talk a little bit about how the flow or the go-to-market for that Tidal business changed once you acquired it that was able to drive that pickup in that patch. Thank you.

Great. Thanks, Robert that's really helpful and if I could just have a follow up on the.

And the really strong attach rates for title in D C.

Pre deal and since you guys acquired it maybe you can talk a little bit about how the flow or the go to market for that title business changed since you acquired it that was able to drive that pickup in attach rates. Thank you.

Hey, Mike, It's Chris and I'll I'll take that one so we are obviously very excited too.

Speaker 2: Hi, Mike, it's Kristen. I'll take that one. So we were obviously very excited to bring KBS onto our platform in the first quarter of 2021. It was a service that our agents already really loved and we're utilizing quite a bit as you can see in the attach rate.

KBS onto our platform in the first quarter of 2021.

Was a it was a service that our agents already really loved them are utilizing quite a bit as you can see in the attach rates as we were.

Speaker 2: As we were integrating KVS into our platform, we just simply had a more concentrated effort, both in enjoying some of the referral benefits of our agents in that market, talking about KVS, talking about the quality of the service.

Integrating <unk> into our platform, we just simply had a more concentrated effort both enjoying some of the referral benefits of our agents in that market talking about <unk> talking about the quality of the service.

Speaker 2: And then we have also been working with the KVS team to help them market themselves more effectively to our broader set of agents.

And then we have also been working with the caveats team too.

Hope them market themselves more effectively to our broader set of agents I will say that team at caveats, there very strong operators and I think together, we really formed quite a powerhouse as you can see in the increase in attach rates in a very short period of time.

Speaker 2: I will say, you know, that team at KVS, they're very strong operators, and I think together we've really formed quite a powerhouse, as you can see in the increase in the attach rates in a very short period of time.

Yes, the only thing I would add to that is.

Speaker 1: The only thing that would add to that is that the success we've realized to date.

The success, we have realized to date.

Speaker 1: is by and large excludes the platform driven success that we'll realize in the future. Because if you take our R&D over the course of the last five years, 99% of it has been focused on agent productivity. And that's why we have industry leading agent retention rates. That's why we continue to grow our agency.

By and large excludes the platform driven success were realized in the future because if you take our R&D over the course of the last five years, 99% of it is in focus on agent productivity and that's why we have industry, leading agent retention rates. That's why we continue to grow our adas business faster than.

Speaker 1: faster than the market, excluding the benefit of team formation, excluding the benefit of price year after year after year, which you can see in the investor deck. And that's why we continue to hire agents at a very high pace.

The market, excluding the benefit of information between the benefit of price year after year after year, which you can see in the investor deck.

And that's why we continue to hire agents.

Hi pace.

Speaker 1: and have a 71% NPS score. But we are now moving our R&D spend to focus on lowering our cost to server agents, but also into adjacent services. And so there are a number of...

And how about <unk>, 71%.

NPS score, but we're now moving our R&D spend too.

Our focus on lowering our cost to serve regions, but also into adjacent services and so.

There are a number of.

Speaker 1: And this year's that we're going to implement over the course of the next year by driving the recommendation and the integrated experience through the platform that should drive attach even further. Great, thank you very much. Those are helpful.

I'm not sure that we're going to implement over the course of next year by driving the recommendation.

The integrated experience through the platform should drive attach even further.

Great. Thank you very much those are helpful.

Thank you we'll go next now to <unk> Tandon with Needham.

Thank you good evening, Congrats Robert and Christian on the quarter I wanted to just start Robert with.

Speaker 4: Thank you. Good evening. Congrats, Robert and Kristin on the quarter. I wanted to just start, Robert, with market share goals. I think during the IPO, you had identified market share expansion opportunities. Could you sort of talk about where you are today versus what your goals were back then? Like, where are you running relative to those expectations? Are you able to identify the markets that you're really targeting for launching in 2022?

Market share goals I think during the IPO you had identified market share expansion opportunities, but are you sort of talk about where you are today versus what your goals were back then like where are you running relative to those expectations are you able to identify the markets that youre really targeting for launching in 2022.

Yes, so look our market share went from less than 1% market share five years ago to five 6% market share in this past year.

Speaker 1: Yeah, so our market share went from less than 1% market share five years ago to 5.6% market share this past year. And we exceeded our original goals along those lines.

And we exceeded our original original goals along those lines.

Speaker 1: We have a lot of detail on market share by market.

We have a lot of detail on market share by market.

Speaker 1: and by a cohort of where the market launched. And you can see a consistently gained market share.

And by cohort, where the market launch and you can see we've consistently gain market share.

Speaker 1: Um, across our markets and. Um, you know, we, I think there was a question that some people may have had of can you gain market share in lower price plane markets or in the suburbs? And I think the goal of that disclosure today. Is help highlight that regard whether it's a high price point market. Or a sub 300000 dollar market, like Philadelphia, or a big city or a small suburb that we're gaining market share and market after market.

Across our markets and.

We think there is a question that some people may have had or can you gain market share in lower price point markets or.

So in the suburbs.

Our goal with that disclosure today is help highlight that regard whether it's a high price point market or sub 300000.

ESP market, like Philadelphia, or big city, or a small suburb.

We're gaining market share in market after market.

Speaker 1: And so we feel really good about where we are. And the only other point that I mentioned is we launched more markets last year than we had in our original IPO model. And so, you know, we're seeing not just more success on market share by market, but also more markets want.

And so we feel really good about where we are and.

The only other point that I mentioned as we launch more markets last year than we had in our original IPO model.

So we're seeing now.

More success on market share by market, but also more markets launched.

That's all helpful. Robert and then sort of a similar question on the adjacent services.

Speaker 4: That's helpful, Robert. And then sort of a similar question on the adjacent services. You know, when I look back again during the IPO, I think you'd identified several post-transaction services on the adjacent services side that you were planning to launch. And I just wanted to get a sense on timeline and how does M&A fit into that to be able to scale those services over time.

I look back again during the IPO I think you identified several post transaction services.

The adjacent services side that you were planning to launch.

And I just wanted to get a sense on timeline and how does M&A fit into that to be able to scale those services over time.

Speaker 1: Maybe I'll highlight where we are on the timeline, and then, of course, you can highlight, you know, the M&A side. So we originally in the IPO, we said we were going to launch mortgage in 2022. So we've actually accelerated that launch, albeit only in one market, but we're proud that we did accelerate it. And by the end of this year, we should have mortgage in the majority of our market.

Yes.

Maybe I'll highlight where we are on the timeline and then of course you can highlight there.

The M&A side.

So we originally in the IPO, we said, we're going to launch in mortgage in 2022, so we've actually accelerated that launch.

Albeit only one market but.

Whether we're proud that we did accelerate it.

At the end of this year, we should have mortgage and the majority of our markets.

Speaker 1: The, you know, we, we are like, we are exploring. The launch of another major adjacent service this year, but we haven't made a commitment to that.

We are like we are exploring the launch of another major adjacent service this year, but we haven't made a commitment to that.

Speaker 1: The greatest opportunity is title and mortgage. And so we really want to focus on that. But there is a next best opportunity, which we're exploring.

The greatest opportunity in mortgage and so you really want to focus on that but.

There are the next best opportunity, which we're exploring.

Right and I think as we as we look ahead.

Speaker 2: And I think as we look ahead in terms of the full scope of adjacent services that

In terms of.

The full scope of adjacent services that.

Speaker 2: where we could expand our business. Title and escrow and mortgage were the largest opportunities.

Where we could expand our business title and escrow and mortgage where the largest opportunities.

Speaker 2: and you know Title and Escrow at $35 billion, mortgage at $50 billion. So, you know, those are the places where we wanted to focus our efforts to start. And we use different strategies for that, right? Title and Escrow, we have done a dual prong strategy where we have done some organic expansion and some M&A, you know, and you saw the results of the acquisition that we did.

And title and escrow at $35 billion mortgage at $50 billion. So those are the places where we wanted to focus our efforts to start and we use different strategies for that right title and escrow. We have done a dual pronged strategy, where we have done some organic expansion and some M&A.

The results of the acquisition that we did and in Washington D C.

Speaker 2: in Washington, D.C. For mortgage, we decided to form a joint venture with Guaranteed Rate, a leading mortgage provider, and that is off to a very good start so far. As we look ahead, you know, we'll look to, for each adjacent services, we'll look to utilize the strategy that we think

For mortgage we decided to form a joint venture with guaranteed rate a leading mortgage provider.

And that is off to a very good start so far as we look ahead.

We'll look to for each adjacent services will look to utilize the strategy that we think is best suited to.

Speaker 2: is best suited to that particular strategy. I don't know that we need to own necessarily all of the services. I think there are some good partnership opportunities that are out there as well. But I wouldn't be surprised if you saw us form another JV or utilize M&A for some of those different adjacent services that we plan to launch over the next several years.

To that particular strategy I don't know that we need to own necessarily all of the services I think there are some good partnership opportunities that are out there as well, but I wouldn't be surprised if you saw his farm.

Other JV or utilize M&A for some of those different adjacent services that we plan to launch over the next several years.

Speaker 4: That's very helpful. Thank you so much for taking my question. Congrats again on the quarter. Thank you.

That's very helpful. Thank you so much for taking my question Congrats again on the quarter.

Thank you.

Thank you and we'll go next to Brian Nowak at Morgan Stanley .

Thanks for taking my question.

Speaker 1: Thanks for my question. Asking Robert just about as you as you look across the the entire company of all of your processes with agents and your integration of ancillary services. Can you give us examples of one or two areas where you really see a lot of learning to improve execution?

Asking Robert just about as you look across the.

The entire company of all of your processes with agents in your on your integration of ancillary services can you give us examples of one or two areas, where you really see a lot of low hanging fruit to improve execution.

Speaker 1: You know, uh, maybe it's agent attached, maybe it's agent interaction. Like where do you sort of see the area to really improve the way you execute to drive structurally faster growth than maybe what you've got to do here.

Maybe it's Asia attach maybe its agent interaction like where do you sort of see the area to really improve the way you execute to drive structurally faster growth than maybe even what you've guided to here.

Okay.

Speaker 5: There's a lot of opportunity, but let me give you one clear example. We have currently 700.

There is a lot of opportunity, but let me give you one one clear example.

We have currently has 700.

Speaker 5: amazing employees that are paying the process to pay for agents every single day.

Amazing employees that are.

Their team the process the pay for agents every single day.

Speaker 5: There are significant ways to automate, you know, for 200 of those roles, we can automate it almost completely and allow them to do more high value work. And for the other 500 roles, we believe that we can do, by integrating the transaction management, all the forms.

There are significant ways to help automate.

Two two for 200 of those rules, we can automate it almost completely and allow them to do more high value works.

And for the other rules.

500 rules, we believe that we can do by integrating the transaction management all the forms disclosures.

Speaker 5: disclosures, the e-signature, everything in one place with compliance.

The esignature everything in one place with compliance.

Speaker 5: for the client and for the agent and Compass where they don't have to go to multiple different places to

For the client and for the agent encompass where they don't have to go to multiple places to two possible payment. They can go to one.

Speaker 5: to cost of attainment, it can go to one, that that should be able to make them more than twice as productive over the course of the next year.

That should be able to make them more than twice as productive over the course of the next year.

Speaker 5: So that's an example where it will drive agents.

That's an example, where it will drive agents happiness, and NPS, because they'll page and sponsor.

Speaker 5: happiness in NPS because they'll pay agents faster and more consistently accurately. It will also provide more transparency into the payment process that will also make agents happier because the entire transaction of the payment will be in the same platform.

And more consistently and accurately.

It will also provide more transparency into the payment process that will also make agents happier because though.

Higher transaction of the payment will be in the in the same platform.

Speaker 5: And it will also drive employee happiness because it will be simpler for them. And there are ways.

And it will also drive employee happiness, because it will be simpler for them.

And there are ways, which.

Speaker 5: which we look forward to discussing in future quarters, that those specific people can help drive attach of some of the key.

We look forward to discussing in future quarters that the those.

Vic people can help drive attach of some of the key the key parts of the transaction around titles, specifically talents with Switzerland.

Speaker 5: the key parts of the transaction around titles, specifically.

Okay. Thanks.

Okay.

Speaker 5: We also were taking, we launched something called contract to close, where you take a portion of the responsibility of

We also will take <unk>, we've launched something called contract to close where you take a portion.

Of the responsibility.

Speaker 5: of the transaction process and files off of the agents back and they pay for it. And so, as of three years ago, this was just a, it was only a cost center. Now it's a cost center with revenue. And if we can, we believe that over the course of the next few years, we can have revenue growth at a much faster rate from contract to close adoption across the country, relative to the increased expense to actually turn this entire function into profit.

Of the transaction process and vials.

Off of the agents back and they pay for it and so.

Is it three years ago. This was just a.

It was only a cost center now.

Comp center with revenue and if we can we believe that over the course of the next few years, we can have revenue growth at a much faster rate from contract to close adoption across the country relative to the increased expense actually turn this entire function into a profit center.

Speaker 5: Thank you. We'll go next now to Jason Helstein with Oppenheimer.

And thank you we'll go next to Jason <unk> with Oppenheimer.

Okay.

Speaker 6: Thanks. Can I just do so? For the 2025 guidance, can you give us maybe a sense of what the range of attach rates you might be assuming for adjacency? I mean, if you want to break them down specifically by product, but just a sense of what we might be to

So for the 2025 guidance can you give us maybe it sounded like what the range of attach rates you might be assuming.

For adjacency I mean, if you want to break them down significant byproduct, but just a sense of kind of what.

Speaker 6: what type of attach rate you need to kind of get to that target. And the second, we've gotten a number of questions and replies just, you know, you've got over $600 million in cash on the balance sheet. Obviously, you're guiding to............

What type of attach rate you need.

To get to that target in the second we've got a number of questions.

You've got over $600 million of cash on the balance sheet, obviously youre guiding to materially improve.

Speaker 6: cash flow position over the next 12, 18 months. There were some acquisitions this year. How should investors think about capital deployment? So are there additional kind of earnouts or commitments that you have to honor over the next few years and relative to additional acquisitions you might want to do, relative to the necessary cash position because

Cash.

Cash flow position over the next 18 months.

There were some acquisitions this year, how should investors think about capital deployment.

Are there additional kind of earn outs or commitments that you have to honor over the next few years.

And.

Relative to additional acquisitions, you might want to do.

Five two.

<unk> cash position because.

Speaker 6: A number of investors think you should do a buyback. So maybe help us all understand just how you're thinking about cash deployment over the next 18, 24 months. Goodnight.

A number of investors, saying you should do a buyback so maybe help.

So I understand just how youre thinking about like cash deployment over the next.

18 to 24 months.

Hey, Jason Nathan Nathan to talk to you.

Speaker 2: Hey, Jason, nice to talk to you in terms of the attached rates. So when we, when we look at the 200 basis points or so that we expect margin improvement that we expect to come.

In terms of the attach rate so when we when we look at the 200 basis points or so that we expect margin improvement that we expect to come from.

Speaker 2: from adjacent services. And we think that is achievable with attach rates in the 12% to 15% range. And that would be of addressable transactions. So I would think of that as essentially half of our total transactions, because some can easily be attached to sell side, some can easily be attached to buy side. And our sell side, buy side mix is about 50-50. Now, it's important to note here the bulk of this is just the mechanical value of this equation coming out of the 10% range between 2%. But as soon as you print it out, you might want to use special

Adjacent services, we think that is achievable with attach rates in the 12% to 15% range.

That would be of addressable transaction, so I would think of that as.

Essentially half of our total transactions because some can easily be attached to sell side. Some can easily be attached to buy side and our sell side buy side mix is about 50 50, and it's important to note here the bulk of this is.

Speaker 2: The bulk of this is really driven by T&E. We've got a good track record in a very short period of time of having grown that business and a really nice path to good growth in 2022 as part of our plan. But we also, as Robert alluded to earlier, we expect to be able to launch a new market.

The bulk of this is it's really driven by <unk>. We've got a good track record in a very short period of time of having grown that business in a really nice.

Our path to two good growth in 2022 as part of our as part of our plan but.

But we also as Robert alluded to earlier, we expect to be able to launch some additional adjacent services and so those the attach rates there will likely be built.

Speaker 2: some additional adjacent services. And so those, the attach rates there will likely be below what I talked about is achievable for Title and ESCO there in order to develop those, to develop this kind of, or deliver this kind of margin improvement.

Below what I talked about is achievable for title and escrow there in order to develop those to develop this kind of deliver this kind of margin improvement.

Speaker 2: We feel really confident about our ability to deliver those attach rates, even just looking at the KVS case study, the Washington, D.C. case study alone. I think that shows that we've taken the secret sauce we have here at Compass in terms of being able to really drive adoption of our tools and services among our agents and we're able to really translate that to Title and escrow. Shortly, we'll be able to give you more data on mortgage and we think we'll be able to do that across a number of adjacent services.

We feel really confident about our ability to deliver those attach rates, even just looking at the caveats case study the Washington D. C. K study alone I think that shows that we've taken the secret sauce, we have here at compass in terms of being able to really drive adoption of our tools and services.

Our agents and we're able to.

Really translate that to title and escrow shortly we will be able to give you more data on mortgage and we think we'll be able to do that across a number of adjacent services now.

Speaker 2: Now in terms of capital deployment going forward, if you look at where we have deployed our cash in the past, we of course have ongoing CapEx that's related to our market expansions. We did a lot of market expansion in 2021, 25 MSAs. What do you think going forward?

Now in terms of capital deployment going forward, if you look at where where we have deployed our cash in the past we of course have our ongoing capex that's related to our market expansion. We did a lot of market expansion and in 2021 'twenty.

Five Msas, we think going forward 2022, and beyond will return to a more normalized level of eight to 10.

Speaker 2: 2022 and beyond will return to a more normalized level of 8 to 10.

Speaker 2: MSA markets per year. So you should see you know that that portion of the cash outflow come down slightly. We do utilize M&A from time to time and that's been a real focus in the title in our title and escrow strategy of course as of late. We'll continue to look for opportunities there where it makes sense. We remain very disciplined on price.

MSA markets per year. So you should see that that portion of the cash outflow come down slightly.

We do utilize M&A from time to time, and that's been a real focus and the title and our title and escrow strategy of course as of late we will continue to look for opportunities there where it makes sense. We remained very disciplined on price when it comes to M&A.

Speaker 2: when it comes to M&A. But for us, we see an opportunity to take what can be a solid business and turn it into a great business just based on our ability to drive outside the patch with our agents.

But for US we see an opportunity to take what can be a solid business and turned it into a great business just based on our ability to drive outsized attached with our agents I know you had a question specifically around ongoing earn out commitments related to M&A and the total amount outstanding today is probably less.

Speaker 2: I know you had a question specifically around ongoing earn-out commitments related to M&A, and the total amount outstanding today is probably less than $50 million over the course of the next several years. So hopefully that helps to dimensionalize it a bit for you.

And $50 million over the course of the next several years. So hopefully that helps you dimensionalize it a bit for you.

Thank you.

Sure.

Thank you we'll go next now to Trevor young with Barclays.

Speaker 7: Great, thanks. Robert, I think you noted that by summertime, agents can support the entire transaction without using third-party software, as well as kind of already seeing some of that R&D pivot more towards reducing brokerage off-backs and even potentially overall compass off-back.

Great. Thanks, Robert I think you've noted that by summertime agents can support the entire transaction without using third party software as well as kind of already seeing some of that R&D pivot more towards reducing brokerage opex and even potentially overall compass opex.

Speaker 7: When do we see that pivot on R&D deleverage? Is it at that summer kind of pivot point when everything can be done in the Compass software, or is there still more kind of improvement there? Just trying to get a sense when we go from an investment cycle on R&D to returning to leverage.

When do we see that pivot on RMB deleverage as it is at at that summer kind of pivot point when everything can be done in the compass software or is there still more kind of improvement there just trying to get a sense. When we go from an investment cycle on R&D to return returning to leverage.

Speaker 5: Yeah, I think we will, we will start seeing it over the course of this year. You know, whether it starts as early as. Summer, I think there are a couple of factors that we could think through, but definitely at some point this year, we will start seeing.

Yes look I think we will we will start seeing it over the course of this year.

Whether they're starts as early as.

Summer.

I think there are couple of factors lead us to think through but definitely at some point. This year, we will start seeing them.

But again, it's important to note that the agent productivity platform.

Speaker 5: Again, it's important to note that the agent productivity platform is really focused on the agent, it's not on reducing the cost of serve. And I'd say Last year 95 plus percent of our time was focused on that. Yeah.

Really focused on the agent is not on reducing the cost to serve and I'd say.

Last year 95, plus percent of our time was focused on that.

Yeah.

Speaker 5: And the key outstanding items are really transaction management, completing the full transaction flow on the compass platform, a little bit of stuff on team functionality, and a little bit of work on search in a couple of key markets.

And the key outstanding items are really transaction management.

Completing the full transaction flow on the <unk> platform, a little bit of stuff on teen functionality and a little bit of work on search and a couple of key markets.

Speaker 5: But that allows us for, I'd say this year, the first half of the year, it's

But that allows us for let's say this year the first half of the year.

Speaker 5: I would say around 80% of the focus is on the completing the platform.

But I would say around 80% of the focus is on completing the platform.

Speaker 5: and the remaining 20% on primarily lowering the cost of serve and entering the world of adjacent service platform attached.

And the remaining 20% on primarily lowering the cost to serve and entering the world of adjacent service pack.

From a charge.

Speaker 5: But the goal would be next year if we can be as successful as we'd expect this year. The goal would be next year that half of the effort is on lowering the cost of serve.

But the.

The goal would be next year, if we can be successful.

As we would expect this year the Golby next year.

<unk>.

<unk>.

Half of that half of the effort is on lowering the cost of serve and.

Speaker 5: and adjacent service attached. And again, like I mentioned earlier, lowering the cost of serve, we're calling the effort service desk, it really also drives positive agent outcomes as well, because it allows us to deliver some of the core agent services, whether it's agent payments, listing marketing, agent marketing, brand marketing through the platform, as opposed to in one-on-one ways that are more onerous.

Adjacent services attach and again like I mentioned earlier lowering the cost of serve regarding the efforts service desk. It really it really also drive positive patient outcomes as well because it allows.

It allows us to deliver some of the core agent services, whether it's agent payments lifting marketing agent marketing.

Brand marketing through the platform as opposed to.

And in one on one ways that are more.

More owners.

That's really helpful. Thanks, and then just quickly on encompass concierge is just any update there and your ability to monetize that.

Speaker 7: That's really helpful. Thanks. And then just quickly on Compass Concierge, just any update there and your ability to monetize that.

Speaker 5: We haven't changed our monetization philosophy around concierge yet. But it's something that we continue to look at as there are a number of vendors who would be happy to compensate for participation in the program. But it just hasn't been the area of focus.

We haven't changed our.

Our monetization.

Our philosophy around currency or as yet.

But it's something that we continue to look at.

There are a number of vendors who would be happy to.

Compensate for for participation in the program.

But we have and it just hasn't been the area of focus.

Great. Thank you.

Thank you we'll take our last question. This afternoon from Justin <unk> with <unk> capital markets.

Speaker 5: Thank you. We'll take our last question this afternoon from Justin Ages with Baringburg Capital Market.

Speaker 4: Hi, thanks for taking the question and nice quarter. The question or two on agent productivity. So one of the things that you've shown in the report that you released is the production uplift from when you get more agents using your platform. So can you talk about any steps that you're taking to actually increase the number of teams that are using that? It just seems like an easy way to boost the overall Compass kind of profile.

Hi, Thanks for taking the question and nice quarter.

Question or two on <unk>.

Agent productivity, so one of the things that you've shown in the.

The report that you really does.

Production uplift from when you get more agents using your platform. So can you talk about any steps that you're taking to actually increase the number of teams that are using that it just seems like an easy way to boost the overall company.

Profile.

Speaker 5: You know, absolutely. So this has been the key focus of mine so far this year, and it's really a key focus for the company.

Absolutely.

Yes. So this is Ben.

The key focus of mine so far this year and it's really a key focus for the company.

Speaker 5: Because the advantage we have is we've invested hundreds of millions of dollars in R&D to build a platform that drives agent productivity. But just building a loan doesn't get everyone to use it. I think about a company like Salesforce and they have

Because advantage we have is that the.

Hundreds of millions of dollars in R&D to build a platform.

<unk> agent productivity, but.

Just doing the loan doesn't get everyone's either think about a company like salesforce and they have.

Speaker 5: a massive number of implementation partners to help drive adoption. And so we don't take for granted that's just a CRM. A CRM is...

Massive number of implemented implementation partners to help drive adoption and so we don't take for granted.

That's just the CRM CRM is.

Speaker 5: 15% of our overall platform. And so it is, it is, there's a lot to learn that can be intimidating. Yeah. What we are doing is we are partnering with the country's best real estate coaches.

15% of our overall platform and so it is it is there.

There's a lot to learn that can be intimidating.

What we are doing is we are partnering with the country's best real estate coaches.

Speaker 5: uh externally coaches like Brian Buffini and Tom Ferry and Sue Schall and Chirag Zaha and several others and we are also we have launched internal coaching.

Externally coaches like Brian Buffini, and Tom variances Shaul and Suraj.

And several others and we are also.

We have launched internal growth with some of our sales managers that have been coaching.

Speaker 5: With some of our best sales managers that have been coaching agents for decades in this way, and we're coaching them through. Through the platform, and so instead of.

Agents for decades in this way and we're coaching them through through the platform.

So instead of.

Speaker 5: instead of saying here's how every day you should make X amount of calls, X amount of emails, X amount of prospecting in the open-ended way, it's more go to the Compass platform, click on the Likely to Sell button, and then do a bulk email from Likely to Sell to your client, to the people in your sphere of influence that are likely to sell or create an action plan.

Instead of saying.

Here's how everyday you should make X amount of calls X amount of emails X amount of prospecting.

And the open ended way, it's more of a go to the commerce platform click onto likely to sell button.

And then do a bulk email from likely to sell to your client to people and just your minerals that are likely to sell or create an action plan to encompass that has a 12 month action plan that will that we're every month. It tells you what you should do with your sort of influence.

Speaker 5: that is a 12-month action plan that will network every month. It tells you what you should do with your sphere of influence. And so that has been very, very, very successful. And it's probably been the most positive NPS driver that we have seen in the company's history. And it really connects us from the business of real estate.

And so that has been very very very successful.

Probably been the most positive NPS driver that we have seen in the company's history.

And it really connects us from the business of real estate.

Speaker 5: to the future of technology in a very cohesive way.

To the to the future of technology in it.

Very cohesive way so that's half of it the other half as we have done the same way there is a genius bar Apple we have an incredible group of people called agency experienced managers, who are helping to onboard and re onboard and train on these tools.

Speaker 5: So that's half of it. The other half is we have in the same way, there's a Genius Bar at Apple. We have an incredible group of people called Agent Experience Managers.

Speaker 5: who are helping to onboard and re-onboard and train on these tools. And they're just going above and beyond in this period of time, because it's a unique period of time where things are slow enough.

Just going above and beyond.

In this period of time, because it's a unique period of time, where things are slow enough in in January and February before the busy spring market, where eight until the time to learn the tools and two to adopt some of those behavior changes.

Speaker 5: in January and February before the busy spring market.

Speaker 5: where agents have the time to learn the tools and to adopt some of those behavior changes. Great, that's really great.

Great that's really comprehensive thanks, Robert Thanks for taking the question.

Thank you.

Yeah.

Speaker 5: And ladies and gentlemen, that is all the time we have for questions this afternoon. Ms. Anchor-Brant, I'll hand the conference back to you for any closing or additional comments.

And ladies and gentlemen that is all the time, we have for questions. This afternoon. This anchor Brent I'll hand, the conference back to you for any closing or additional comments.

Speaker 2: All right, thank you, operator, and thanks to everyone who joined the call today. We look forward to speaking to a number of you over the coming weeks. Thank you.

Alright, Thank you operator, and thanks to everyone who joined the call today.

We look forward to speaking to a number of you over the coming the coming weeks. Thank you.

And thank you, ladies and gentlemen that will conclude today's fourth quarter and year 2021 earnings conference call for accomplished incorporated.

Speaker 5: Thank you ladies and gentlemen that will conclude today's fourth quarter and year 2021 earnings conference call for Compass Incorporated. I thank you all for joining us and wish you all a great afternoon. Goodbye.

You all for joining us and wish you all a great afternoon.

Yeah.

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