Compass Inc. Q1 2023 Earnings Call
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[music].
Good afternoon. My name is Robyn that'll be your conference operator today at this time I would like to welcome everyone to the Compass, Inc. First quarter 2000 twenty-three earnings conference call. All lines had been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this.
Time simply press star followed by the number one on your telephone keypad.
I would like to withdraw your question again press the star one. Thank you Richard <unk>, Vice President of Investor Relations you May begin your conference.
Thank you operator, and good afternoon, and thank you everyone for joining the Compass first quarter of 2023 earnings call.
Joining us today will be Robert rescue, our founder and Chief Executive Officer, Greg Heart, Our Chief operating officer, and <unk>, Our Chief Financial Officer and.
In discussing our company's performance, we will refer to some non-GAAP measures and you can find the reconciliation of these non-GAAP measures to most directly carpet that measures in our first quarter 2000 twenty-three earnings release that just went out.
And in the case of free cash flow and the presentation can.
Each are posted on our Investor Relations website.
Will be make it forward looking statements that are based on our current expectations for cats and assumptions that involve risks and uncertainties. These statements include our guidance for the second quarter of 2023 and comments related to our continued operating expenses are actual results may differ material from these.
Statements you can find more information about risks uncertainties and other factors that could affect our results on our most recent annual report filed on Form 10-K, and quarterly report filed on Form 10-Q filed with the SEC and also all available on our Investor Relations website, you should not place any.
[noise] do reliance on any forward looking statements and all information in this presentation today or as of today's date may 9th 2023 weeks.
We expressly disclaim any obligation to update this information so without further Ado I'll now turn the call over to Robert Revkin.
Sure.
Thank you for joining us today for our first quarter results conference call we.
We achieve strong financial results for Q1, 2023, and revenue and adjusted EBITDA were better than both our guidance and consensus estimates.
<unk> revenue was just over $957 million in Q1 2023.
Transactions outfit, the industry down, 24% compared to 26% for the market.
In the midst of a very difficult real estate market, we improved market share and splits.
Each of the last two quarters, we have grown quarterly market share over the prior quarter.
We also improved are non-GAAP commissions expense as a percentage of revenue.
Approximately 27 basis points from Q1 of last year to 81.4%.
When excluding the impact of the Asian equity program, which we sunset in 2022.
Adjusted EBITDA with negative 67 million four Q1 2023. This is an improvement of nearly $30 million compared to Q1 2022, despite revenue being down $440 million in the same period.
We ended the first quarter with $364 million in cash and cash equivalents insignificantly slowed our use of cash in Q1.
We expect to be free time, so positive in each of the three remaining quarters of 2023 and for the full year as we continue to execute on our plan.
This demonstrates are aggressive stance on cough discipline and that the reset of operating expense levels throughout 2022, and continuing into 2023 isn't working.
In a moment <unk> walk you through the details of our financials.
At these levels, we are still able to focus on the future growth of the business and we expect to generate significant carpet as market conditions improve.
Here are some examples.
We continue to grow our Eden base or average even count grew 6% year over year in Q1, 2023 and over 1000 agents have come to come to since August for no cash or equity sign up bonuses.
And the majority of these agents have told us.
<unk> more than their previous brokerage.
Demonstrate that agents come to campus for the benefit of the technology platform.
<unk> network of clients and strong culture, ultimately, allowing them to be the best and most profitable agents that can be.
We continue to invest meaningfully in the platform to ensure that we maintain our significant technology advantage, having invested over $1 billion in the platform today.
As you know we offer the only proprietary and and technology platform for agents in the country and it is our belief that for the real estate industry similar to other industries and and digital platforms are the best way to monetize transactions and the most scalable way to empower the <unk>.
Professionals execute those transactions.
We are adding features to the platform to enhance the revenue and profitability of these transactions.
We know from experience that <unk> are more inclined to use our services when they are directly in the platform, increasing both our tax rate and or take rate per transaction.
Excited to announce W successfully integrated title in escrow services directly into the Compass platform.
Industry first experience that aims cannot find any ross.
Our agents in southern California denounced seamlessly ordered title and escrow from our own affiliates directly from the tools they already use everyday and the compass platform.
We expect to continue to rule out this valuable feature across our entire title network coverage area over the course of the next 12 months.
We expect our entitlement extra integration to accelerate our path to industry attach race and financial performance and look forward to sharing additional metrics over the coming quarters.
Looking ahead for the remainder of 2023, we remain consciously optimistic until we gain more certainty from the.
Predictable macroeconomic environment and future actions benefit.
Well, we have seen some positive signs with more foot traffic. It open houses and the return of multiple offers image order remains low and there are still upward pressure on prices.
Steady mortgage rates have been helpful a future declining rates.
You would likely see more transactions.
Most importantly, the market performance in Q1, and what we already are seeing for Q2.
Adds to our confidence that we have set the right office targets to generate positive free cash flow and 2023.
I want to emphasize two important points as it relates to our backs.
First.
Markets should work and beyond twenty-five percent down we are prepared to take additional steps to reset opex levels lower.
Keep in mind. The most recent estimates for the year from non Fannie Mae into MBA are for a decline in the range of 12.6% down to 22.5% down.
Number two.
As I had previously said, we're confident that we've set the right opex targets range of $850 million to $960 million.
We have taken permanent action non tampered or temporary ones, we expect to stay within this range over the next two to three years.
We will be judged at $900 billion annualized by year end and.
Our management team is committed to actually and continued efficiencies with a goal of operating in towards the mid point of our Opex range over the next couple of years, even as the market improves to more normalised levels.
As a result, when the market improve in the future, we will be well positioned for generating significant long term profits.
Is the number one real estate brokerage by sales volumes for the past two years in the United States. We have built a highly desireable company for attracting and retaining the best in the industry.
We provide.
Agents with a powerful brands and unparalleled proprietary technology platform and an inspiring culture, where agents are supported by incredible people and technology to grow their business.
The best agents are able to shine and difficult markets in the first quarter.
Our agents and employees deliver.
We're going to continue to be laser focused on what we can control.
And remain diligent in our desire to achieve positive free cash flow in 2023.
I remain incredibly excited about the future and I want to end by thanking the entire <unk> of <unk>.
Lloyd and agents.
They are incredible dedication and you difficult times has allowed US historic 2023 with the confidence that we have a strong foundation for future success.
I will now turn it over to Greg.
Thank you Robert.
We have just experienced two of the worst quarters and residential real estate in the past 20 years.
This backdrop compass continued to outperform or.
Market share for Q1, 2023 was 4.5% up 17 basis points versus Q4, 2022 and up sequentially for the second quarter in a row.
And the first quarter, we processed nearly 36000 transactions a decline of 24% from a year ago, which compares favorably to the 26 per cent decline in transactions for the entire residential real estate market in the first quarter as reported by <unk>.
Agents are leaving the business the industry has lost nearly 75000 agents since October 2022.
In this environment.
Lower recruiting volume in January and February install a more agents retiring or leaving the industry altogether as well.
<unk> performance improved in March for.
Q1 2023.
Average number of principal agents increased to 13515 principal agents.
6% year over year.
Our principal agent attention for Q1 2023 with 96%.
One of the things we are really excited about the number of agents returning to campus after going to another agency called.
Call them wind back.
These agents are telling us that they cannot live without the comprehensive comforts technology platform and immigrated search marketing CRM and business tracker capabilities. It provides.
We also hear that their clients love Ah collections tool, which automatically delivers new listings in real time to agents and their clients.
See the newest lifting and feathers see how the market is moving.
Both are able to collaborate with our agents can real time.
We are also pleased with the Compass culture is a key factor in attracting and retaining agents, which is a testament to our entire team.
In March we expanded our footprint.
Being Arizona by acquiring launch real estate launched.
Launch at the Premier luxury brokerage with approximately 300 agents.
Gives us a strong foundation and a top U S market and key referral locations to compensate gypped.
Let me see enormous potential for growth and synergies as we grow our network critter.
Critically we were able to add launch without any upfront cash or equity consideration.
Going forward.
We intend to be opportunistic and our approach to adding to our agent base via M&A, while you can.
Deal structures that allow us to utilize the minimum upfront cash and limit equity dilution.
Our agents coming to complex.
Power of our platform, our culture, our brand and our.
Referral network.
In fact, the majority of agents who joined company.
August 2022.
When we stopped using cash or equity side on incentives.
Told us their joining for a lower split than they received from their prior brokerage.
The majority of the agents come at a comfort to also tell us that one of the primary reasons, they're doing so before our technology platform.
These agents are attracted by the depth and breadth of competence integrated technology platform and believe that can help them run their business more efficiently and help them close more transactions.
There's a lot of interest from agents in AI right now as well.
The leading tech enabled brokerage, we started investing in AI technology and implementing in our platform years ago.
One of the key ways with Compass Leverages AI is through are likely to sell recommendations, which we launched back in 2020.
This tool to.
To predict which contacts and an agent database are most likely to sell their homes in the next 12 months, allowing compensations to engage with the right people at the right time and generate more business more efficiently.
Since launching in 2020, we have handed out millions of recommendations that'd be attributed more than $100 million annual incremental revenue to these recommendations over each of the last two years.
In addition to likely to sell the compass platform Leverages AI to surface to the most relevant suggestions to the top of lifting search suggest similar homes on a listing agents.
Helped select the most similar properties for comparative market analysis.
To generate image overlay copy in our video studio.
And to categorize images for quick comparison abstained type room in search and comparative market analysis.
We are currently evaluating the possibility of using GPT like models to save agents time and tasks such as writing lifting description, creating marketing collateral and automating outreach with clients.
We have seen tremendous interest in this technology from our agents.
A real estate coaching team does that some of the most well attended sessions ever focused on chat GPT technology and embedding it in the agent sore throat.
Similarly, we see a lot of opportunities for AI to improve our own staff productivity.
From our engineering teams to a transaction operations teams and more.
We also believe that we'll see an outsize return on our investments because of our integrated platform.
Tools can build upon and enhance.
As Robert mentioned, we are enjoying early positive returns and feedback from our rollout the integration of title in escrow into our technology platform for agents in Southern California.
Totally agent to come I think positively on how easy it is to use this feature.
Since we launched the integration, we're seeing that more than one third of addressable title in escrow orders had been initiated through the platform.
More than 50% of those agents are new customers, who are using <unk> title and that's gonna services.
First time.
We are very encouraged by the early positive results and plan to rule out. This platform feature wherever we offer title in escrow in the United States over the next 12 months.
I'm proud of the team and excited for our future we have taken a major strides in the transformation of campus, while operating in an unprecedented market environment.
I will now turn it over to our CFO colonial lights.
Thanks, Greg today, I'm going to review, our first quarter financial results in more detail and then I'll provide an update on our guidance expectations for the second quarter.
As I shared with you on our Investor call last quarter and the myths of this historical low housing market, we're controlling what we can control, namely our cost base and our ability to attract and retain the best agents.
As our Q1 results show a strong focus on controlling our cost base allowed us to exceed our expectations on adjusted EBITDA and free cash flow.
During the first quarter, we implemented act additional actions that further reduce our cost base.
Our actions taken we have reduced our run rate expense and at the middle of our 2000 twenty-three Opex range we.
We will have reduced opex by $550 million from the second quarter of 2022.
As we sit here today, we exit Q1 with the new cost base and we remained disciplining focused on our operating expense and is Robert mentioned, we are committed to permanently maintaining our new cost structure.
Turning to our financial results first quarter revenue $957 million exceeding the high end of our revenue guidance range of $850 million to $950 million. Please.
As compared to 1.4 billion of revenue in the prior year period, representing a 31% reduction year on year.
Gross transaction value was $36 6 billion in the first quarter decline of 32% from a year ago, reflecting a 24% reduction in total transactions as well as a decrease in average selling price of about 10%.
Or non-GAAP commissioned an expense as a percent of revenue improve by approximately 27 basis points from Q1 of last year to 81.4% when excluding the impact of the agent equity program on the year ago period.
As previously announced 2022 was the last year, we offer the agent equity program, which a lot of our agents to exchange a portion of their cash commission for equity.
Age 16 of the queue and Investor deck include additional details on the agent equity programs impact on the commission like.
We will continue to see this differential through each quarter in 2023 until we anniversary the sunset of the agent equity program and Q1 of 2024.
Our total non-GAAP operating expenses, excluding commissions for $243 million for the first quarter or $973 million on an annualized basis.
As we've talked about previously many of our noncommissioned based operating expenses are somewhat fixed in nature and have historically increase sequentially from quarter to quarter as opposed to bearing in line with revenue.
However, due to.
To our cost reduction initiatives implemented over the past year, the $243 million a opex for the fourth quarter reflects a $120 million reduction from Opex from an opex a $363 million in the same period a year ago.
As a reference point the non-GAAP operating expenses, we refer to include the expense categories of sales and marketing operations and support research and development and G&A.
And exclude stock based compensation expenses and other expenses that are included from adjusted EBITDA.
We've included cables on pages 14, and 15 in our queue on Investor reconcile these amounts.
Our adjusted EBITDA for the first quarter with a loss of $67 $1 million, which favorably exceeded our guidance range of a loss of $70 million to $90 million that we provide in February .
As a result of managing our operating expenses in line with expectations. The favorable revenue in Q1 had a direct impact to adjusted EBITDA as well.
Or non-GAAP net loss for the first quarter was $150 million compared to a loss of $188 million in the same period a year ago.
Included in the gap net loss for the quarter of non-cash charges, which include included $45 million of non-cash stock based compensation expense and 25 million of depreciation and amortization expense.
Additionally, during the first quarter, we incurred a restructuring charge of $10 million, which primarily reflects severance and related termination benefits from employees impacted by previously announced reduction in force in January 2023, and to a lesser extent some exit costs related to certain of our operating leases.
Consistent with prior quarters included in the press release issued today with a schedule that reconciles GAAP net loss to adjusted EBITDA.
Free cash flow during the first quarter was negative $59 million, which compares favorably to negative $132 million of free cash flow a year ago, driven in part by the improvement and adjusted EBITDA lower capital expense and other favorable changes in working capital.
We have $364 million of cash and cash equivalents on our balance sheet at the end of March which includes an additional drawdown of $75 million from a revolving credit facility that we made during the quarter.
We took this additional drive out in March following the collapse of Silicon Valley Bank and signature Bank I dunno out of an abundance of caution given the unprecedented market conditions at the time.
We've seen additional collapsed first Republic, a week ago, the actions of the fed seem to avoiding expanses impact on the banking system as a result of the relative stability scene. Following the initial fall out of SBB. We have since paid back. This additional 75 million drawdown in April and we're back to the 150 million level that we drew down in Q4 of last year.
The proceeds from that dropdown remained unused and primarily invested in the treasury bill to minimize the interest costs, which is approximately two per cent on the net basis and inexpensive form of capital we.
We expect to pay down these funds once we have generated sufficient free cash flow.
Now turning to our financial guidance Ah results from Q1 confirmed that are operating expense discipline creates meaningful performance improvement.
As we look forward to cue to continue to see mixed signals in the market and will sons from some trends have improved we've also seen some additional market risks.
For Q2 of 2023, we expect revenue in the range of $145 billion to $1.6 billion in positive adjusted EBITDA of 30 million to $50 million.
We do expect to revenue lift from the impact of net new agent additions over the last year. However, similar to Q1, we anticipate this will be offset by mixed drag, particularly from California, which is our largest market excuse at which.
<unk> record sales in the first half of last year.
Importantly, we are on schedule to be free cash flow positive in Q2, given our continued cough discipline and assuming transaction stay in line with industry expectations for the year, we remain on schedule to be free cash flow positive for the full year with all remaining quarter is expected to be free cash flow positive.
Additionally, we are reaffirming our expectation for our full year non-GAAP operating expenses to be in the range of $850 million to $950 million, we expect to be at the high end of this range on an annualized basis by the June quarter at the midpoint of this range by year end.
For the last year, we've spoken about our commitment to reduce our cost base and have proven that commitment through our results.
We are even more committed today through our cost discipline as we maintain our operating expense levels over the next couple of years.
Thank you again to our agents and team members for all that you do for a compass I would now like to turn the call over to the operator to begin Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of Jason Health scheme from Oppenheimer and company. Your line is open.
Thanks.
I'll ask the questions first.
Just on the.
On the macro.
You and I apologize multitasking multi call, so and you're always prepared Morris, but I mean do you have are you meaningfully changing your kind of all your expectations for the macro that underlines the model or is that basically unchanged, which way do you.
Previously talked about and then the second question.
As you think about rolling Ah Tideland escrow system wide, how do you think that bad that positively impacting.
See you know margin banks.
Oh I'll start and then I'll pass on to <unk> now, we're not changing our view of.
What we expect for volume to be this year are still in that cold, 15% to 20% down range.
In terms of the macro we're not out of the woods yet.
Market can still demonstrate volatility.
Choppy Rosa had likely but we saw an early spring market more foot traffic. It open houses multiple offers are bag more buyers and sellers.
Amongst all of our markets. So this is not a demand issue buyers have accepted six per cent mortgage rates as a new normal we've been pretty steadily in the mid sixties for quite some time.
Relatively speaking [laughter] in terms of price pressure down around 1% year over year, but sequentially over the last three months, that's been up each month and prices generally increased further in the spring market.
The the issue we have if you talk to any agent in the country is there's just not enough inventory their.
The reason why is 30% of homeowners are locked and mortgage rates at 3% or below 72% of homeowners are locked in a mortgage rates at 4% or below 85% of homeowners are locked in a mortgage rates are five per cent below and if you have a three per cent mortgage rates you consider that a financial asset and you don't want to lose it so you'll see some people that.
I'd have to move there instead of selling their home they actually renting it out and so.
At.
We.
We're cautiously optimistic.
But I think the real change in the.
The transaction curve will result, when mortgage rates come down to somewhere between 5% to 5.5%.
Range, not only will we get a lot more demands, but even more importantly for industry.
Unlock a tremendous amount of inventory.
And that's that's the moment that where we are.
Looking forward to in until then we're just continuing to keep our Costello and we'll keep them low even through that period.
The Delta will be EBITDA that we can share with our investors.
But in terms of.
Your second question around attach rates have been on <unk>.
Yeah, Jason Thanks for the question I mean overall I think we're we're really excited about our ancillary businesses as we think about the impact of margin as we scale. Those businesses. We do expect margin lift primarily probably about 100 150 basis points at maturity and it's really driven by those businesses TNA mortgage et cetera.
Kind of operating at about 25% to 30% margins. So obviously as they grow in scale the lift our general margin. So we're really excited about what it does for our agents, but also on the margin line.
Just to clarify that.
Mortgage will sell off down below whereas.
Teeny is gonna show up in that revenue is gonna show up in revenue correct.
Correct Yep correct overall, though as we think about and we're kind of relentlessly focused on profit margin overall I think.
Mortgage will show up below TNA will show up on kind of a commission line, but ultimately all get us to increase the operating margin.
Thank you.
And your next question comes from the line or Bernie Mac Turner from Needham and company. Your line is open.
Great. Thank you for taking the question [noise].
Maybe the starting just following up on Craig's common time on a I, let me see how much you spend a lot of time and money building technology tools for agents had.
How do you view January .
I'll stick to your positioning versus the <unk>. Your comments before I think you have a large headstart or leave it relative to the rest of the industry is in general.
Hey, I got an increase that are narrow the gap in your view.
Okay. Great question. Thank you Bernie.
So as the leading technology enabled brokerage and the number one brokerage in the U S are.
Our agents have been benefiting from our investments in AI for a number of years. So it's not a new area for us.
Think that that's something that many of our competitors can say.
Second I think that are really critical point is that.
Is really dependent on data to drive that the performance that is the nature of AI and so are integrated end to end platform provides more touch points that we can apply ice.
To improve the tools that are agencies.
And because it's integrated and and the and the delivers more data to help us enhance the performance of those tools, which in turn drives more usage as agents feel better result, and that in turn generates more data to improve our AI models until I think we're pretty unique in this regard other brokerages that don't offer their agents and and an integrated platform.
Are not going to benefit from that virtuous cycle. So we believe that will enhance our competitive differentiation overtime and and certainly already I already has with what we're doing with likely to sell.
Got it [noise].
Really helpful.
<unk>.
I think the guidance implies gross margins.
We're going to step down a little bit sequentially. If there's any thoughts in terms of how that commission rates should.
Options for trend throughout the year.
Yeah, Yeah Bernie Thanks for the question I think generally speaking you know on a on an apples to apples basis and first quarter. We had our commission go off about 30 basis points. We're gonna continue on an apples to apples see improvement obviously driven by some of the myths shift that we are working through some of the incentive burning off so we expect.
An apples to apples kind of like for like business. The margin to increase what's what is going to drag and we talked about it is the agent.
Equity program and so that is going to be a kind of an overhang for us. This year as we made the decision to stop that at the end of the year 2022. So that's the the overhang, but we will continue to see on a like for like basis margin expansion.
Got it and then.
For me Uhm.
Ancient talent I know.
There's different ways of looking at ancient grew up we just look at <unk> at average principal ancient ads.
<unk> been trending down do you think.
When do you think like the low 0.4 for agent had ads.
In your view.
So a great question Bernie.
A couple of things that I would just reiterate that I mentioned in the scripted remarks number one we continued to grow principal agents, you know about 6% year over year in Q1. Despite the fact that we're seeing lots of agents will be industry. Some of the trends that are impacting agents more broadly are also impacting our agents as well and so we've seen two trends happen.
At an accelerated rate in Q1 relative to what we've seen in the past the first more of our solo principal agents. The compass are deciding to join other teams here. It's complex. So the business isn't leaving cutbacks, but we no longer count them and our principal agent account when they do that second we're seeing more people.
Simple agents retiring and becoming referral directors of comfort. So these are agents, who want to continue to refer clients to other agents your compass.
Great business for companies, who are no longer actively closing transactions themselves and let me no longer includes my principal agent count until those are two things that we saw more of an Q1 than we've seen historically couple of other points that I'd want to highlight as well one.
<unk> attention and that is 6% in Q1, I think most businesses would kill for that level of loyalty from their customers second.
Second in terms of agents that did lead compass. The majority of the agent to Latin luxury to the principal easy to West campus in Q1 made under $250000 in gross condition had come last year and so these are much less productive agents in our average age. It so given the downturn many of them are likely to leaving the industry also.
<unk>.
Third and perhaps to your question.
Recruiting momentum pick up the quarter went on and we've seen that trend continue since the end of Q1.
And to provide a little additional contacts in Q1, our principal agents added kirst strategic growth manager. So those are the folks that recruit agents to join companies. So effectively the productivity measured for that organization that was at the same level that it was in Q1 2022.
Even though in Q1 2022, we were still using signing on incentives.
Cash equity kind of incentives and so on.
Productivity with the same even though we're not using cash or equity sign on incentive but with the cost reductions that we had to implement over the course of 2022 and then in January 2023, I currently have about half the number of strategic growth managers that we had a year ago and so we need to add more recruiters to build that theme backup, which we recognize and we're doing that.
Now until my hope is that this quarter is the low point for that we do not have a formal forward looking guidance on our agent account, but but that is my hope based on what we are seeing.
Yeah, and I would just <unk>.
Total number of agents matter, but really it's a proxy for market share in our market share grew sequentially over both the last two quarters and these are the most too challenging quarters in real estate and years upon years.
There is a scene in real estate that in a challenging market. The best agents gained market share and the challenging market. The worst agents lead the business and the best agent to keep your business and I think our market share proved that we are a company of.
The best agents.
And your next question comes from the line of Matthew Bailey from Barclays. Your line is open.
Hey, good evening, everyone. Thanks for taking the questions. So so the comment that you could maintain opex and the 850 to 950 range you know over the next couple of years, even if the market recovers.
Just curious how do you think about you know to what degree are their variable expenses in there that would have to come back with a better market and how would you think about sort of fixed cost inflation and what the results would be you know what what's the implication to any additional fixed cost reductions you would have to make in order to.
To maintain in that range is the market recovers. Thank you.
Yeah, Matthew Escalante.
Look I think the incredibly hard work that the teams done over the last year.
Not temporary right and we built a new operating structure I think we're confident that we've set the right targeted at 850 to 950 range and I think we expect to mentioning stay in that range I think.
We we as a management team are committed to taking actions to continue continued to look at efficiencies I know, we've talked about operating models to look at in.
And other types of labor.
Low cost labor opportunities I think we'll continue to look for efficiency I think part of our job is to really make sure that we are driving efficiency every year to fuel our growth and so.
There is a variable from from how we operate in operating systems to looking at real estate to looking at continuing to look at vendors will continue to have that continue efficiencies and that should help offset and hopefully feel the growth that we're talking about so I think we're pretty confident that we are going to be set right and that that target range over the next couple of <unk>.
<unk>, and that's really where the space of that the.
The out years, just drive tremendous value for us.
Got it okay that that's helpful. Thank you for that and then I.
Zooming into the near term the other comment you made that you expect to be free cash flow positive in the next three quarters.
And please correct me if I got any of these numbers wrong, obviously Q for you know seasonally you you would think of as tougher to be free cash flow positive I I think based on the comment you made that you'd be at 900 million run right by Q4.
Maybe you'd have something like a 60 million dollar opex tailwind year over year, and I think he had a free cash.
Usage of of 130 million in queue for 22, so not that there are too many numbers around but just any any help on the bridge there and kind of what gives the confidence in positive free cash flow in Q4.
Yep, Matthew upstate with quantity.
I think first off first of all I think part of us were guiding EBITDA and Q2.
Right around $30 million to $50 million and.
And so as a result, we expect to be positive free cash flow for us for the full year.
I'd remind kind of all of US I guess that Q2, and Q3 are our best quarters on and improving cost basis. So the.
So as we expect revenue to be higher than Q1 and Q4. We're also as you mentioned and kind of sequentially going improving our opex quarter by quarter, and then I think lastly, as we step back and look at it in total I think we're we're controlling the opex and focused on there I think the speed that the market.
Recovers that is really the variable.
Right now, we see markets at 15% to 20%.
And so at that level, even even further decline actually will still be free cash flow positive.
I think when you think about that revenue do you think about the cost coming down we're also doing.
A lot of things on the cash flow side M&A.
As well as the incentives that we are not no longer up offering are going to be a bit of the bridge between the kind of this year and last year as well.
Got it makes sense alright, thanks for calling and good luck.
And your next question comes from a line of Ryan Macavity from gentlemen Associates. Your line is open.
Hey, Thank you and congrats on the results and progress.
I wanted to dig in on launch real estate. So you referenced the deal structure without upfront considerations. So wanted to dig into a little on that.
Does that imply it's more of like an earn out structure over time or more of a franchise type agreement or something else and and I guess, just aside from maybe a unique or different deal structure.
Does that alter the way that business will float through the P&L at all or just the volume that flows from launch ultimately.
Finally, there's obviously in business.
I'll start in the first half.
Half of the question I'll pass on funding for the second.
But there are some some companies that were the entrepreneurs.
That are running and want to get all the upside upfront some companies wanted to have a <unk>.
Typical burnout structure were half could be upfront and how it could be an urn ounce spread over multiple years now this is a structure.
Nothing upfront.
And in the out years.
Agreed upon multiple applied we've already agreed on upfront it'll be applied to future years EBITDA.
And it will be used.
Using consideration.
At that time at that at that valuation and so it's a way to kind of win win for both parties. It differs the expense for us for a couple of years.
And it gives the entrepreneur more upset.
Mhm.
Connie.
Yep, Robert the only thing I would add it just answer Ryan it should it will flow through the normal course of our P&L as Robert Medicine is this more of the timing of when our consideration goes out but it should it shouldn't impact the piano in a different way than we're used to.
Okay perfect Super helpful. And then and then within the ancillary is the.
T any integration encouraging for sure but.
But I'm also curious on origin point.
Any status updates or milestones you've either achieved are pushing towards and also on the mortgage side. You know there has been some commentary in the industry that there's been some tightening within the jumbo mortgage market given some of the banking turmoil I guess I'm curious if you're seeing that if there's been any impact on kind of buyer.
Or seller activity with with your agents or just any kind of commentary on if you are seeing it.
Impact at the consumer level from some of the banking dynamics that have been going up thank you.
We're excited by the long term potential of our mortgage business in a form of origin point again into a joint venture between Congress and guaranteed rates.
We expect to be covering the majority of our markets by the end of this year.
And they are going very well so far in terms of jumbo mortgages.
Mmm first Republic was giving the biggest discounts on mortgage rates.
In exchange for getting assets, we're getting deposits from from clients and that they are pulling back from that for obvious reasons and this is creating an opportunity for some of the other banks that are out there.
Retail providing.
Better than attractive fairly attractive rates, but they're not at the scene discounts to conventional mortgages as first Republic.
It is an opportunity for origin point because it makes it gives.
More.
It is easier for us to be competitive.
In that context is first Republic really was giving the biggest discounts on the market.
And it was kind of a race to the bottom in that perspective.
Got it very helpful. Thank you.
And your next question comes from a line of Lloyd Walmsley from UBS. Your line is open.
Thanks.
Scottsdale deal with launch sounds like it's more of just a longer term earn asked structure than than truly asset light I guess asset light for now.
How do you think about just the the potential to do more pure kind of licensing a referral type deals is that is that something you're working on now contemplating in the near term or is that more medium to longer term, where we might see something like that.
Yeah, we're looking at other ways to have an asset le <unk>.
Structure is not the top priority at this time they are different ways to do it.
The the focus right now has been bringing our cost down for all the obvious reasons, we feel good about that.
Then.
Creating more profit per transaction was adjacent services.
And ensuring that our agents have the support they need to grow their business.
But after those types of areas.
We will we will be thinking more on acid at late ways to expand.
Okay, and then and then just any update on the progress since finishing up the platform stuff as you move further and further into.
The new dashboard and things you grow that I think in the fall I count as.
Performing as we head into this more peak season.
Yeah, it's performing quite well you never done with any platform. So we continued to improve business tracker in our end to end transaction management.
Also focused on a bunch of other areas based on feedback from our agents, but we're seeing increasing usage, even though the market is not nearly as busy as it was a year ago and so that's a real sign given that agents don't spend time doing anything that doesn't grow their businesses that need help that more effectively that everything we're doing is providing real value.
We're also hearing more and more as we mentioned scripted portion of the remarks that agents are coming to campus for the technology and so we're seeing really good usage and really good feedback from agent put all those points.
Yeah, We survey our agents on the number one reason the economy and it's far and away technology.
As well as the number one reason they stay in the number one reason when they leave why they come back.
And I didn't get you know for any one that just wants to validate that's called and he said of agents that came in the last six months and ask them why they came I'd be shocked if.
Anything less than 90 per cent of it and said that the <unk>.
Number one reason they came wasn't technology.
Alright, thank you.
And in terms of the <unk>.
Jason service attach we we believe that we will have above average into your tax rates are title of escrow ultimately.
Mortgage because.
Duration per platform and we look forward to sharing the very yeah. The the the positive signs that we have right now we look forward to sharing more in detail.
In the quarters ahead on house driving attached.
And there are no further questions at this time I will now turn the call back over to our CEO Robert Revkin for some final closing remarks.
And I just wanted to thank everyone for joining the call in again I want to thank all of the employees and agents Acarpous.
It's been a challenging 12 months behind us, but I believe that the Golden age of campus is ahead of us and I look forward to building the future real estate with everyone take care bye.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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