Q1 2022 Compass Inc Earnings Call
To Robert.
Okay.
Thank you rich and thank you to everyone joining our earnings call today, I hope, everyone is safe and well.
Today, we are sharing our financial results for the first quarter of 2022, and our outlook for the rest of 2022.
Where we get into the numbers in our view of the market I want to take this opportunity to say I'm. So thankful for continuing the journey growing this amazing business with our outstanding team of <unk> employees and over 27000 World class agents.
Through their hard work, we are now the number one brokerage in the United States based on sales volume in 2021.
We achieved the number one ranking in less than 10 years displacing longtime incumbent brokerages. Some that had been in the business for more than a century.
What makes us even more exciting is that we became the number one brokerage with considerably fewer agents than our competition and covering significantly less geography.
About half the population of the United States.
We have entered these difficult times as the number one agency in the United States and we plan on coming out of this turbo time, even stronger.
Our momentum for 2021 continues into the first quarter as we achieved strong Q1 financial results.
We beat the upper end of our first quarter revenue guidance by generated $1 4 billion in revenue.
We also beat our expectations for adjusted EBITDA coming in at a loss of $97 million.
Chris an anchor brand our CFO will go through the numbers in more detail in a few minutes.
And turbulent times like these our cash position is an increasingly top priority I am pleased to report our balance sheet is strong and we ended March 2022 with $476 million in cash and we have access to a $350 million credit facility.
We have virtually no debt.
As we said on our last financial results call.
Our revenue increases with seasonality in Q2, and Q3, resulting in expected positive EBITDA, which fortifies our cash position.
We have a number of levers we can pull to manage our cash outlays, including the rate of expansion.
Piece of M&A.
And recruiting investments.
This means we can regulate and control cash as necessary.
While these real estate market, while the real estate market outlook is uncertain.
We have modeled out various negative industry scenarios and in all cases, we believe we will have significant liquidity, while still gaining market share.
We are managing the business to ensure we will not require additional capital.
To further emphasize the points.
We are managing the business to ensure we will not require additional capital.
We have been actively engaged in assessing our strategic roadmap.
Slow the rate of investment based on our priorities.
We will do more with less.
We will continue to drive cost efficiencies as we adjust our cost structure.
We believe this will strengthen the company even more.
I see this time as a tremendous opportunity our past investments have given us a significant technology lead over the rest of the industry in these economic conditions give us an even wider mode.
Most importantly, we have significant leverage to reduce spending and still continuing to strengthen Columbus and our cash position as we drive to positive free cash flow.
We have proven throughout our history that we can be nimble.
Pivot and adapt quickly quickly being nimble is in our DNA.
While current market conditions are having an effect on second quarter revenue.
It does not alter how we feel about our plans for the future.
We are committed as an organization to do what it takes to ensure that we continue to drive towards being free cash flow positive in 2023 with adjusted EBITDA margin of 10% in 2025, and 8% to 9% free cash flow conversion.
Okay.
We are committed to driving margin expansion from the cost side of the business and we will continue to take market share because of our superior position in the market.
Yes.
For example over time, we have already driven down the cost to serve our agents since.
Since 2018, we have reduced the average cost of serve and agents by 35%.
You are targeting a further 9% reduction in cost to serve per agent in 2022.
As we apply technology, we will lower our cost to serve even further.
We will drive cost down more aggressively on all aspects of our business in order to achieve our objectives. We will continue to invest in strengthening the compass platform, but understand we will have to prioritize investment dollars.
We remain confident that we are a long term market share gainer, because we have the top agents and the top technology platform and residential real estate.
I believe that if the real estate market experienced a prolonged downturn agents will be even more interested in coming to campus. This will help <unk> gain even more market share.
Agents are kind of encompass and steam because we are helping them grow their business, which in turn collectively grows the campus business.
We are able to significantly increase our we were able to significantly increase our market share to six 1% in the first quarter of 2022, and five 8% on an LTM basis.
Our market share increased from five 6% market share in the fourth quarter as a result of the increase in the number of agents, we have added and the productivity of the compass platform is driven.
Even with these market share gains are six 1% market share in the quarter. It means there is significant share of the market left to be earned for compass.
As I mentioned earlier, we operate in geographies that cover less than half of the U S population, which gives us more opportunity to grow.
We will also grow as we add agents in the markets in which we already operate.
Adding in historically proven productivity gains gives us the confidence that's why we can continue to gain market share.
Yes.
I would like to highlight the five agent related Kpis that we discussed last quarter.
Focus on these kpis, each and every day to drive market share gains, while also delivering operational efficiencies that move us toward our margin goals.
First <unk>.
Recruitment.
We recruited as much gross commission in Q1 2022, as we did in Q1 2021.
We did so with substantially improved economics.
Fewer incentives, while improving non-GAAP <unk> as a percentage of revenue.
Yeah.
In Q1, 2022, 63% of the <unk> team to come to US told us. They did so for a less favorable split then at their previous brokerage.
Why would an agent take less lids joined compass quite simply they believe they can grow their business better encompass here a specific reasons why.
They are there.
They're coming to companies because of our growing stature in the market.
Winning agents want to be with a winning company.
They are coming to compass for our outstanding expanding network, which increases their ability to give and receive client referrals, which earned them conditions.
They are coming to us for our advanced compass platform, which saves them time and money our platform helps them grow their business and reduce their expenses on assistant support and.
And third party tools and services.
Ultimately agents are small business owners looking to increase their profits I believe in these turbine times more agents will look to strengthen their business by coming to campus.
Second agent retention.
Our strong technology platform the strength of the <unk> brand and the large amounts of <unk> coming from our network are clear drivers are our ability to successfully recruit agents.
They are also <unk>, our industry, leading ability to retain agents.
As mentioned last quarter, our principal agent retention rates have consistently been above 90% and an industry that averages 60% retention.
Yeah.
Third technology adoption.
Further agent adoption of the <unk> platform is key is a key focus in 2022 adoption drives retention and revenue.
Technology is a key driver of the agent productivity and margin in the future.
We launched two new professional coaching program in the first quarter 2022.
One third of our agents opted into the program and for 10 weeks. They spent three hours a week being trained on ways to grow their business using the commerce platform.
The goal of these programs is to demonstrate to our agents. The main tools available to them in the platform and to train them on housing incorporate proven ways of using them in their daily workflows.
One area, we empathize with the likely to sell tool.
This AI powered <unk> software tool is particularly important in this low inventory environment.
We are surfacing over 14000 likely to sell recommendations per week to our agents in some cases.
He's likely to sell recommendations surface clients that agents may not have spoken to in some time.
In other words.
We are converting cold and warm client leads into active clients.
And we have a significant technology advantage, which will allow us to increase monetization from our powerful <unk> platform with limited R&D investment from our competitors the moat around our business continues to widen as we move further away from the rest of the industry.
Fourth lowering our cost to serve our agents.
As we mentioned on our last earnings call.
Now that we are close to being able to support the whole transaction on our platform. We're spending more time developing ways to use our software and technology to lower the cost to serve our agents and improve our margins.
This will drive even more leverage from our tech spending.
No one else in the industry is even trying to do this at scale.
We are focused on delivering high leverage on cost by driving automation and standardization that allows us to serve many more customers with the same number of people.
We are using two key levers to accelerate cost of serve improvements to.
The first is people.
We are simplifying our organizational design to remove management layers and to improve the customer experience with fewer points of contact.
Fifth.
The adjacent services.
As you know we have just begun to build our adjacent services business. So it is still in the early stages of development and represent a small fraction of our revenue today about 1%.
As a result the <unk>.
<unk> sharp downturn of the refi business that others are having to contend with is not having a material impact on our financials.
We continue to see strong attach rates for our title and escrow services.
I am excited about our recent acquisition of consumers title, which gives us license coverage and all of California's 58 counties in active operations in three California markets. It's.
It's great to have another first rate title and escrow team joined the Compass family and we continue to increase our mortgage footprint by adding market and loan officers.
We believe there is a company that has the best and increasing profitability for agents will be the winner in the real estate industry.
Built the <unk> platform, having looked at everything to agents spend to operate and grow their business as a result.
Listen to our agents and Burns. We now believe we are the best in the industry and driving agent sales up while driving their operating costs down this benefits the agents, which in turn drives profits for compass.
Revenue growth may slow due to market due to the market environments, but we are confident that our market share will continue to grow as we attract more agents.
Increase their productivity and cover more of the United States.
It is the reason that <unk> come to campus stay at Compass and why they are outperforming the industry year after year.
They become part of companies because they believe that they can grow their business here faster than anywhere else. As a result, we have more than tripled. The total number of agents since Q4 2018.
And we added nearly 400 average principal edens and approximately 1100 average total agents in the first quarter of 2022, just as we had planned.
I have enormous faith in the campus.
I have enormous space.
And the combination of the ability to navigate all kinds of market environments as they have done brilliantly in the past and they are doing so again in this market.
Our employees continue to develop and deliver the most comprehensive agent focused platform in the history of the United States.
We remain committed to driving growth in revenue and delivering positive adjusted EBITDA and free cash flow to our investors.
We will achieve this by providing our agents with the tools and the technology platform they need to be more productive, which will drive more profitable revenue for compass.
On a final notes because many of you have already seen in the press release earlier today, we're making some leadership changes over the coming months.
Greg Hart will be taken on an expanded role as our chief operating officer.
His new role Greg will add leadership of the operations organization. She was current oversight of the company's product organization, bringing more closely together the teams that work with the customers. Each day with the organization are working to build tools and platforms to make customers more successful.
Greg started encompass two years ago. After 23 years at Amazon, where among other roles. He led the creation and launch of Echo and Alexa manage million retail businesses and led prime video globally.
Alongside Chief Technology Officer, just throws he is overseeing the development of campuses integrated technology platform designed to help agents grow their businesses.
Additionally, Christian has decided to leave campus in September I'd.
I'd like to thank her for the incredible leadership and her impact at Compass.
Chris has an incredible impact at Columbus, and helping us to grow the business deliver on our path to profitability and guidance to Covid and the IPO.
Her work formed the foundation for the 2025 margin targets and put us on a strong financial footing.
Chris and his leadership over the past four years is a key reason I believe we are well prepared to continue to grow outperformed the industry and take share while delivering on our commitments to profitability and cash flow.
Regardless of market conditions.
Kristin has had a long passionate start and lead her own company and as a founder and CEO I understand that passion and fully support her with.
Retained one of the worlds, leading search firms to find our next CFO and Christian will partner with us on that search.
I'll now pass it over to Kristin.
Thank you Robert.
These past four years of companies have been an incredible journey managing the company through outstanding growth to become the number one brokers in the U S.
<unk> on our commitment to profitability effectively managing the business through Covid and guiding the company through the IPO.
As Robert mentioned I have long had a passion discharge in late May on company and that conviction has only gotten stronger in my time here I come back.
I intend to launch my own investment plans building on my 20 year career as an investor prior to combat.
It is wear to work at a company that aligns had a powerful mission with unbounded market opportunity.
It's been a privilege to work with Robert and our talented executive team, who pushed me and the company to move further and faster every day.
Now in September and look forward to partnering with Robert and the Compass team on a smooth transition plan that will allow companies to continue to deliver for our agents our employees and our investors.
Now, let's turn to our Q1 results.
We delivered strong first quarter results that exceeded our expectations, beating our guidance range for both revenue and adjusted EBITDA, We continue to gain market share and add more agents and transaction to the platform despite inventory at record lows in the market.
Our first quarter revenue was $1 4 billion up 25% compared to Q1 2021, as we beat our guidance range of $1.28 billion to $136 billion.
Q1, 2022 transactions grew 18% to just over 47000, and our gross transaction volume was $54 billion up 23% compared to prior year.
Growth in CTV reflects strength in both units and our average sales price.
Note that this transaction and CTV growth was achieved despite inventory being down over 20% across the industry in Q1, 'twenty two versus the prior period.
Transactions per principal agent were three eight in the quarter down from $4. One transactions in Q1 of 2021. This is not surprising since inventory for the first quarter with historically low combined with the late start to the spring season. Despite this our agents captured six 1% market share in the quarter at <unk>.
90 basis points year over year.
Right now the market is highly competitive for agents that they work with sellers and buyers to win listings and closed transactions in today's competitive market. The best agents tend to win and I firmly believe the best agents are contracts agents.
Our adjusted EBITDA loss was $97 million as we beat our guidance range of a loss of $100 million to $110 million. This loss was larger than prior year. As a result of two key factors first our revenue in Q1 2021 had the benefit of a robust post COVID-19 market, while in Q1 2022, we.
Saw a return to more normal seasonal trend.
Second our expense base increase in Q1, 2022 compared to a year ago, driven by the annualized <unk> of investments, we made last year to drive profitable growth and our long term, namely in our platform adjacent services and our new expansion markets are.
Our non-GAAP operating costs have remained relatively stable in recent quarters with Q1, Opex flat with the fourth quarter.
During the first quarter of 2022, we incurred a GAAP net loss of $188 million compared to a net loss of $212 million in the prior year.
Included in GAAP net loss is stock based compensation of $64 million in Q1, 2022 compared to $168 million in Q1 2021.
The higher expense a year ago as it related to a onetime acceleration of stock based compensation expense in connection with our IPO.
Now before getting to our guidance I wanted to discuss what we're seeing in the market.
The macroeconomic and geopolitical environments are applying a significant amount of pressure to our economy record inflation the unprecedented pace of mortgage rate increases a conflict in Ukraine supply chain delays continued COVID-19 outbreaks and significant stock market declines have all contributed to a difficult environment. The first six weeks of.
Second quarter have resulted in tougher times across all industries. These.
These headwinds along with constrained inventory contributed to a slower start to the second quarter than we expected as a result, our Q2 revenue outlook was affected as you will see in our second quarter guidance.
Despite uncertainty in the current macro environment, we still expect market growth in our markets in 2022 as a result of strong continued demand and.
And historically low inventory that is driving prices higher.
Home prices would have to reverse their current upper trend in fall dramatically to turn market was negative we do not believe this will occur, particularly with prices in our markets continuing to increase.
I wanted to be explicit that we are actively managing our expenses and our prudent with our cash with ample cash on our balance sheet as of the end of March and a $350 million credit facility, we do not see the need for additional capital to fund our current business plan. We believe we will have more than enough liquidity and can still continue to gain market share in.
2022, we remain committed to getting to positive free cash flow in 2023, and 8% to 9% free cash flow margins in 2025, as we move towards our target of 10% adjusted EBITDA margins.
And we have the control to quickly ratchet up or down our cash investment into a number of different levers as we demonstrated in the early days of the Covid pandemic.
We found savings by slowing M&A slowing expansion into new markets, and allocating resources and prioritizing our investments as needed.
Welcome the opportunity to accelerate some of the cost savings initiatives that were already planned for 2023 as we March toward our 2025 target. This is a unique moment for us to execute on these initiatives sooner than we had originally planned.
Now, let me turn to guidance.
As a result of the global economic and political uncertainty and in spite of our first quarter beat on both revenue and adjusted EBITDA. We believe it is prudent to take a measured approach to our full year 2022 outlook at this time.
Turning to our second quarter 2022 guidance, we expect revenue of $2 billion to $2 2 billion and an adjusted EBITDA range of breakeven to $40 million the revenue guidance.
<unk>, which is below our original expectations reflects the dynamic macro backdrop in which we are operating the business we.
We believe our first quarter revenue number received some benefit from the pull forward of transactions as consumers sought to finalize deals at lower rates. When it became clear that mortgage rates were increasing at a record pace. In early Q2, we saw a short term market shock as consumers, we're orienting themselves to the new higher cost of purchasing a home.
Hmm.
Simply put the purchasing power of the average buyer has decreased.
However, we have already seen an increase in pending transactions that we expect to close before the end of the quarter.
Think of buyers and sellers, finding a new equilibrium as price expectations align.
Our Q2 guide was also impacted by the extremely low inventory levels in California, which makes up a significant portion of our revenue.
But there is some positive data points indicative of a healthier market in the remainder of the year.
The California Association of Realtors reported in April that inventory has already started to unlock and there are similar reports of increasing inventory across the country. In addition, new home delivery, which has been delayed due to supply chain issues and is expected to increase later in the year, which should also add inventory across our markets.
And mortgage applications increased for the second week in a row last week homebuyers continue to show signs they will not be deterred by the current interest rate environment.
Given the trends, we're seeing in our second quarter and the broader macro uncertainty we feel it is prudent to lower our full year 'twenty two guidance numbers at this time.
As a result, our current outlook for 2022 is revenue of $7 6 billion to $8 billion.
Down from our prior outlook of seven 9% to $8 $1 billion.
This revenue range reflects year over year growth of 18, 5% to 25%.
And our model the top end of our revenue range assumes a 7% market growth rate in our markets. While the bottom end of the range assumes a 1% market growth rate.
For 2022, we expect adjusted EBITDA to be at least breakeven, reflecting a reduction to our prior expectations of $40 million adjusted EBITDA and free cash flow continued to be our top financial priorities and we are committed to managing the expenses in our business to ensure that we can deliver profitability in 2020.
But the reality of the current market conditions and uncertain outlook across companies and industries as we head into the second half of the year means who want to be conservative as 2022 continues to unfold. We believe we will have more insight into the direction of the market and can adjust accordingly.
Yeah.
Overall, we are pleased with the continued improvement in our financial profile since the IPO.
Spike macro uncertainty, we believe we will continue to grow our agent base increase our market share and continue our path to profitability. We remain committed to our path to our 2025 targets and are laser focused on continuing to deliver solid results in 2022 through strong financial discipline, we remain committed.
To generating free cash flow in 2023 and beyond.
With that let me turn it back to the operator to start the Q&A portion of the call.
Yes.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
First question comes from the line of Trevor Young with Barclays. Your line is open.
Great. Thanks first one for Robert I guess, just a bigger picture one looking at the potentially softer transaction environment, the macro worries rising interest rates and so forth.
In that environment do you see an opportunity to actually lean in and see some more markets and take even more share go out to the new markets get those founder agents that maybe werent looking to make a move previously how do you balance that potential share gains in this disruption versus preserving cash.
Yes look I think.
No cash out to be the priority preserving cash and so I get that.
There is a more significant downturn, we would pause.
Spansion and would still we still benefit from the markets.
In our existing markets.
Tremendous market share to gain in our key markets and the same reasons why they found interest in new markets would be particularly attracted to joined compass, yes.
Prolonged downturn agents in existing markets would have the same.
Lou I'm thinking back on them.
But cash will definitely be the priority, but we would be able to take advantage of acquiring agents more efficient in our existing markets and more cost effectively.
Effectively as well yeah, there's a real advantage that the table is set.
With the competitive landscape right now because capital isn't going to be funding.
New competitor so the table is really sad and.
The investment has also set.
Within the competitive landscape. So I think that's a prolonged downturn will just distance the degree.
To which our.
Platform's value proposition will exist in two years two years from now relative to the competition that there'll be more valuable because we're still investing in the platform. While the competitive set really doesn't even have wanted to start investing in.
That's really don't have Ryan.
And with that just an additional comment we were pretty aggressive in terms of our expansion plan last year.
The expanded over the last year to roughly 27 markets and so we we don't necessarily need to expand into new markets in order to be able to continue to bring agents onto the platform and to continue to gain meaningful share there.
As a good opportunity this year for us to just look to really further penetrate those markets that we moved into over the course of the last year. So this is actually not too different from our original plan to look to leverage the investment in the infrastructure, we have in our existing markets.
April to drive profitable growth by just going deeper in the markets, where we already have operations.
That's really clear thanks, and then just on adjacent services I think one of the slides alluded to compass affiliated home insurance I know, we're still early stages in mortgage launch, but anything you can share there on timing for home insurance product I think Robert on the last call you alluded to maybe another adjacency launching before year end, but not.
Sure if that was insurance or something else.
Home insurance is the third product that were valid and very closely we don't have definitive plans, but yes, youre correct thats the necessary product but.
Where we were kind of considering launching later this year.
And would that possibly be like a JV type model.
What we're looking at a few different scenarios.
Great. Thank you.
Your next question comes from the line of Justin <unk> with <unk> capital markets. Your line is open.
Hi, Thanks for taking the questions.
First.
Can you dive a little deeper into the program to get more agents using the compass platform more to kind of get those.
Gains that you see them more time to spend on the platform.
More on the programs that are driving adoption of the of the.
The platform or are that are driving the recruitment of new agents just to make sure I understand.
Yeah, not not the recruitment so as agents that are already got it yes.
Yeah.
Absolutely.
This has been our biggest new initiative of the year, it's coaching for agents.
I would describe it I think the historical.
<unk>.
Historical strategy was training agents on how to use tools. So your ingredient.
Common coming for an hour boom when our CRM.
And then we learned the hard way that no one wants to learn the tools they want to learn how to grow their business and it just so happens that tools can be the strategy to grow the business. So instead of just spend an hour or two to lose your AUM.
The message is learn how to grow your appealing for all business or learn how to acquire.
Acquired.
New restrooms and tight inventory market and then it just so happens that the entire way that we we train them is within the context of our tools and so that's just like a high level.
The shift in our strategy and how we think about it we've created a team called a customer success team, which is led by <unk>.
Some of our best real estate sales managers and coaches that we already had in the company and they are scaling in the training across all of our different markets and all of our agents and they both national and regional training.
Hold it.
The company's 10 by 10, where they it's been 10 weeks.
Oh over three different types of trainings or an hour for each training the theres one training that is.
That is.
<unk> learning the actual tools one training that is about.
How they're going to repeat and referral business.
And a better relationship with your clients.
Yeah, and then Theres one regional training.
But the.
The current dream is called Compass core that we have expanded from 10 by 10.
And one third of our agents are currently doing in one hour a week to 10 week program.
But this is one of the things that we're most excited volume you can see in the data that the items that go through the program are using the tools more and.
We also have the historic relationship that ease of use our tool, but you have more grow their business more.
And so we're really excited to see the results.
Of this new focus.
Yes, that's great real thorough thanks for the answer there.
And then second if I may.
You mentioned.
Total transaction value of kind of went up that part of the reason that transactions per agent went down.
Cause low inventory, even as you go.
<unk> market share should we expect that trend to continue so recruitment of strong end.
The embedded kind of market share growth and market share gains in your guidance, but deals per agent.
Be at similar levels that we saw in <unk>.
Yeah.
So.
As we look at transactions per principal agent, we generally look at it on an on an LTM basis.
And if you look at how that number has trended over the last few years you see it move from 12 and a half to roughly 17, two just around 20.
Over the last three years I think it was right right around 20, and 2021 and if you look at that on an LTM basis. We're still we're still right. There I think there are a few things that are that sort of contributed to the transactions per principal agent.
Decline.
First you have to remember last quarter Q1 of 2021 had a stronger sort of cool that post COVID-19 market embedded in it.
In addition, we just saw a slower start to the spring selling season this year than we generally do.
And so we generally see and what we've seen in prior years and then we've seen lower inventory here. So I think what you saw in Q1, what was extraordinary I wouldn't I wouldn't expect for that number to two continued to decline I think there were a number of factors that went into sort of contributing.
To that and if we look at the number you know was it it was I think $4 one a year ago. It's three eight this quarter. So you know not not really that meaningful of a decline as.
As we look at the LTM transaction for principal agent number we do expect to see that tick up slightly.
Most of the year.
Alright, that's helpful. Thank you very much for taking the question.
Your next question comes from the line of Ryan Mckechnie with Zelman and Associates. Your line is open.
Hey, thanks very much.
Kurt just to parlay a little on the first question, you're asked about balancing kind of the cash versus expansion.
I guess, maybe just to get a little finer point on the agent count side of things I guess, either within the <unk> results or maybe even near term kind of <unk> outlook.
As the market shifts that we're seeing thus far.
Already altering any any plans around agent adds a recruitment generally or were those comments more about.
Just kind of staying prudent.
Having that as a lever to pull.
If the market shifts more dramatically.
Okay.
The comments are more about.
How we will.
How we can respond and react.
In Q2.
Or extended more meaningful downturn in the market.
The first few months of the year as you can see from our results were positive.
Just with interest rates increasing.
Faster rates over a four week period than anytime in the history of United States.
Just really wanted to be we want to prepare and look at multiple scenarios to be cautious.
The comments were more about what would happen in an extended downturn the levers that we have at play.
That said we are.
We are moderating our.
Our expansion outlook.
But we're not moderating our hiring outlook. So it's much more profitable recruiting is in.
In existing markets, where theres still of course, the demand to come to campus and the opportunity.
And given what we've seen over the last.
With these with Intuit hike and just the uncertainty in the second half of the year. We just think it is prudent to focus on more profitable growth.
Over expansion and as Chris mentioned, we expanded so much. So many markets over 20 March last year, we earned the luxury to be able to take that.
That approach and still meet our meet our goals.
Perfect. Thanks, very much and one on the <unk> expense.
I think this quarter up 20 basis points year over year, I know thats modest maybe maybe help us square the near term trend in <unk> as a percent of revenue.
Relative to the long term targets.
Expecting over time to have better leverage there. So I guess should we think that 2022 in total to be a year that see some better leverage.
<unk> revenue versus 21 or should we think that that's.
Over time, as we get closer to 'twenty fives, maybe some more of that leverage comes through.
<unk>.
Yeah on that question.
We did see a 20 basis point.
Increase in <unk> as a percentage of revenue as you mentioned, but actually if you look at the.
The brokerage splits we actually saw a 36 basis point improvement there. So I think that that's the piece that's probably most most critical when youre looking at that at that calculation. There are a few different things that go into it. The other factor that is meaningful there is the pace of our adjacent services growth.
And so as we continue to grow that adjacent services business that will really supercharge, our ability to improve that margin as we move towards those 2025 margin targets. So we will see some progress this year.
But I think you asked about adjacent services business gets to.
To be have a bigger scale as they move through 'twenty, three and 'twenty four you'll probably see bigger movements.
There as a result of that that piece in particular.
Got it that's helpful. Thank you very much.
Your next question comes from the line of Mike <unk> of Goldman Sachs. Your line is open.
Hey, good afternoon. Thanks for the question I just have two.
First when you just talk a little bit more about.
Your expectations for market share for the rest of the year.
The company clearly has a lot of market share momentum.
But it sounds like it might be balanced by some things like the California inventory tightness and maybe.
The pace of eight injections I just wondering if you could just clarify that all the follow up.
We expect to continue to gain market share and.
As Chris alluded to in her section of the earnings call.
We're starting to see real bright spots in California around market inventory and the market dynamic.
Although more uncertain in terms of how it will play out of course most of the year.
We are seeing some real bright spot price is strong.
And there are not a we're.
We have not seen anyone suggest that prices will be down year over year Vas.
Vas mentioned that we generally look at our price increases of between 10% to 13%.
The price increases this year are consistent with what they looked like in the first few months of last year.
Terms of inventory.
We're seeing more inventory come online northern California, but in other markets as well.
In terms of demand, yes of course, it's much more expensive to buy a home and therefore, the affordability issues, but the demand relative to the inventory is still.
Just wanted to support not just the price, but also units.
People are adjusting to this current environment, but again the demand we still see is there.
It's worth noting that our guidance includes a range of market growth from 1% to 7% for the year.
And that reflects double digit price growth and negative mid single digit decline in units.
But even at zero percent market growth, we have 18% top line growth.
Yes.
But even a finer point on our outlook for the year, even if there is no market growth no new agents and no new markets and no growth into Union mortgage we would expect to generate 15% top line growth.
And so you know.
Given that you know.
We do we do believe that we're going to continue to gain market share.
Great. Thank you Robert that's very helpful.
And separately it was encouraging to hear about that.
Cutting completion of the end to end platform.
Could you just talk a little bit about how you are expecting certain kpis or financial metrics to.
To potentially change once that's why.
Does that increase productivity on the agent side or perhaps lower level.
That's been funding thank you.
Yes.
There is an immediate.
Keep your eye and a more.
More.
Medium term, one that's where that will empower the most immediate one is NPS of agents driven driven by the productivity gains they get in lowering the time that it takes for them to do their jobs.
The most valuable asset for an agent is time time until deals and.
And time is interesting.
No agent, saying that they are at the time of the day to do their job.
And when you put everything in one place and then they don't have to log into.
11 different software providers do their job and the data flows all the way from beginning to end and do you want to write the lithium address a different time for listing presentation to a term for CMA different times, where the brochure and time to get to you that every time.
The open house, App and the digital AD and so on but it's all flows all the way through the entire experience people get their time back and so that leads to MTS in NPS.
Would that would that really helps with is agents coming on at lower incentives and Thats really the key driver of why.
Agents are our Q1.
Yeah, Yeah AD is.
You know it is consistent with the prior year, but with better economics higher.
Here on the margin side, and then lower incentives is because of MTS that that is the that is the driver. The primary driver of them. Yes is the platform the platform is.
The rollout is completed through all of our different markets already in some of our markets today, but as that finishes in all the markets, we can get that addressed which will lower the incentives.
And create more profitable growth.
On the more medium term keeping my opportunity is lowering our cost to serve because it will it.
It makes it easier for us to deliver our agent services through the platform, which will which empowers standardization optimization and ultimately.
<unk> allows us to bring some some key roles to lower cost countries.
Which is which.
Obviously, we will have an impact.
But that's really what I the way I would describe the short term keep guy in the more medium term.
And then if you think about.
How do we expect for the advantage of our platform to manifest itself in our financials.
In its most basic form right it should make our retention.
I easier as we have agents have their workflow embedded into our platform.
And so I think there you could see an improvement in terms of the commissions and other line and when it comes to recruit then we believe that this will this enhanced value proposition will allow us to recruit agents at more attractive economics and that impact you should see both in commissions and other and in our sales and marketing line.
<unk>.
Great. Thank you Christian and thank you Robert I appreciate the thoughts.
Your next question comes from the line of Jason <unk> with Oppenheimer. Your line is open.
Thanks, just one question so Robert you talked about.
We can potentially getting flushed out.
If we do go to a more extended.
Kind of.
Recession.
On top of.
Yes.
What is the slowing industry already.
When you talk about that.
You mean, specifically other brokerage firms technology providers that.
Others are using just maybe go into a little more detail on who do you think of the week and that kind of wash out that ultimately benefit commerzbank.
Yeah.
Yeah.
C.
The market being bad enough to wash out a bunch of traditional brokerage firms.
I think also you spoken from side, though that it would reduce the spend not investments.
But the spend on third party tools that they would offer their agents non investment because of the investment will be building their own tools.
And so I think it will reduce the spend on third party tools that would give her agents.
And that would be sort of I think the real impact that we're going to see are on third party Standalone third party software to agents.
I don't think we're going to see.
New ones come in and I think the ones that are there.
Aren't going to.
To be able to have the.
Same financial future. They would have they would have otherwise so they're all going to pull back and invest less in creating more integration and.
A more complete solutions for the agents that they that they provide their solutions to either directly or through brokerage firms. That's one the bigger the biggest one though is is really the disruptive brokerage firm models.
The largest real estate pure article came out today and it said that a.
One of the well known disruptive British Remodels went out of business on Tuesday of this past week.
I think.
I think they're going to be up I think in the last couple of years.
A lot of.
Ideas have come into the space.
To disrupt different parts of the.
The value chain in the brokerage firm model and I think that we're going to see many of those companies.
On the other side.
A.
A meaningful downturn.
And even if they're not there yet.
On the other side there'll be.
Yeah.
They will not have the they will not have the capital.
To give them the resources to be able to make the investments that they would've wanted to make to have the impact. They would have wanted to make on the on the industry. So so they would just have a much smaller presence in the overall ecosystem than they would have otherwise had.
And then just real quick with the depressed equity price, how does that play into agent retention as.
As far as either new agents or existing additive right.
I'm glad you brought that up.
We.
You remember we mentioned in our last call in January that well.
Less than 1% of our agents were getting the equity that we are bringing on.
We intend to sunset that overtime to be virtually nothing and it hasn't it hasn't had an impact in our recruiting so as on recruiting side.
On the <unk>.
On the retention side Q1 retention this.
This past quarter was.
1% within the within where it was the prior year and so.
With all the turmoil that's happened over the course of this past year for it to be within 1% I think reflects the strength of the company.
Thank you.
There are no further questions I will turn the call back to Christian for closing remarks.
Thank you all for your time on the call today, we look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for joining you may now disconnect.
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