Q3 2023 Compass Inc Earnings Call

Thank you for standing by and welcome to the Compass, Inc. Third quarter 2023 earnings call.

Speaker 1: Thank you for standing by and welcome to the Compass Inc. Third quarter, 2023 earnings.

Speaker 1: I would now like to welcome Richard Seminelli, Vice President Investor Relations, to begin the call. Richard, over to you. Richard Seminelli, Vice President Investor Relations, To begin the call.

I would now like to welcome Richard Seven Alley, Vice President Investor Relations to begin the call Richard over to you.

Speaker 2: Thank you, operator, and good afternoon and thank you for joining the Compass third quarter 2023 earnings call today. Joining us will be Robert Refkin, our founder and chief executive officer, Greg Hart, our chief operating officer, and Kalani Rielitz, our chief financial officer.

Thank you operator, and good afternoon, and thank you for joining the company's third quarter 2023 earnings call today, joining us will be Robert Revkin, our founder and Chief Executive Officer, Greg Hart, Our Chief operating Officer, and Columbia, <unk>, Our Chief Financial Officer.

Speaker 2: In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter, 2023 earnings release, posted on our investor relations website.

Discussing our company's performance, we will refer to some non-GAAP measures you can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2020 earnings release posted on our Investor Relations website.

Speaker 2: We will make for looking statements that are based on our current expectations for cast and assumptions and involve risks and uncertainties and these statements include our guidance for the fourth quarter and full year 2023 and comments related to our operating expenses and cash levels as well as our expectations for operational achievement.

We will make forward looking statements that are based on our current expectations forecasts and assumptions and involve risks and uncertainties. These statements include our guidance for the fourth quarter and full year 2023, and comments related to our operating expenses and cash flow levels as well as our expectations for.

<unk> achievements, our actual results may differ material Lee 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 on Form 10-K.

Speaker 2: Our actual results may differ materially 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 on Form 10-K .

Speaker 2: And also our quarterly reports on form 10Q filed with the SEC and available on our investor relations website. You should not place undue reliance on any forward-looking statement.

And also our quarterly reports on Form 10-Q filed with the SEC and available on our Investor Relations website, you should not place undue reliance on any forward looking statements.

Speaker 2: All information in this presentation is as of today's date, November 6, 2023. We expressly disclaim any obligation to update this information. I will now turn the call over to Robert. Robert.

All information in this presentation is as of today's date November six 2023, we expressly disclaim any obligation to update this information I will now turn the call over to Robert <unk> Robert.

Speaker 3: Thank you, Rich, and thank you everyone for joining us today for our third quarter results conference call. We achieved strong financial results in line with our guidance in a quarter that has seen mortgage rates increase over 100 basis points to 8%.

Thank you rich and thank you everyone for joining us today for our third quarter results Conference call. We achieved strong financial results in line with our guidance in a quarter that has seen mortgage rates increased over 100 basis points to 8%.

Speaker 3: I am pleased to share that in the third quarter, we grew quarterly market share 26 basis points a year over year.

I'm pleased to share that in the third quarter, we grew quarterly market share of 26 basis points year over year.

Speaker 3: We grew principal agents by 4% year over year and 3% sequentially.

We grew principal agents by 4% year over year and 3% sequentially.

Speaker 3: We had above 98% principal agent retention for the quarter, which is the second highest agent retention level essentially when public.

Had above 98% principal agent retention for the quarter, which is the second highest Egypt retention levels. Since we went public we launched several new exciting features on our technology platform that improve agent productivity.

Speaker 3: We launched several new exciting features on our technology platform that improved agent productivity and led to retention and recruitment. We moved closer to achieving our goal of bringing our operating expenses down to a run rate of 900M dollars in the fourth quarter. And in the midst of a rapidly deteriorating market, we delivered positive free cash flow for the second quarter in a row.

Two retention and recruitment we move closer to achieving our goal of bringing our operating expenses down to a run rate of $900 million in the fourth quarter and in the midst of a rapidly deteriorating market. We delivered positive free cash flow for the second quarter in a row.

Colombian Greg will walk you through the details later on this call, but I wanted to focus on the bigger picture.

Speaker 3: Kalani and Greg will walk you through the details later on this call, but I want to focus on the bigger picture.

This downturn has given us opportunity to analyze every aspect of our business and look for efficiencies to ensure that everything we are doing is dedicated towards delivering profitable topline growth.

Speaker 3: This downturn has given us opportunity to analyze every aspect of our business and look for efficiencies to ensure that everything we are doing is dedicated towards delivering profitable top line growth. We approach every day, obsessively looking for ways to smartly lower costs and increase the productivity and revenue of our agent.

We approach everyday obsessively looking for ways to slightly lower costs and increase their productivity and revenue of our agents. We have worked hard to position <unk> to be able to ride out this period of macroeconomic uncertainty and position compass for even greater success when the market recovery begins.

Speaker 3: We have worked hard to position Compass to be able to ride out this period of macroeconomic uncertainty and position Compass for even greater success when the market recovery begins.

Speaker 3: We are working from a position of strength. At the number one brokerage by sales volume in the United States, over the past two years, we have built an amazing business with the best agents service by a highly dedicated team of professionals at Compass that is leader focused, undelivering excellence at every level. Although the market has not improved,

We are working from a position of strength.

The number one brokerage by sales volume in the United States over the past two years, we have built an amazing business with the best agents serviced by our highly dedicated team of professionals at Columbus that is laser focused on delivering excellence at every level.

Although the market has not improved over the past year.

Speaker 3: Compass is a much stronger company with a lower cost base, higher principal agent retention, a revitalized post-pandemic culture, enhanced technology platform, and a larger agent-to-agent client referral network.

<unk> is a much stronger company with a lower cost base higher principal agent retention.

Vitalize post pandemic culture enhanced technology platform in a larger agent to agent client referral networks.

I am proud of the fact that our team is thoughtfully and skillfully been able to reduce opex run rates by approximately $550 million since the second quarter of 2022.

Speaker 3: I am proud of the fact that our team has thoughtfully and skillfully been able to reduce OPEX run rates by approximately $550 million since the second quarter of 2022.

What we said we would do it and we did it.

Speaker 3: We expect to achieve our target 900 million OPEX run rate as we exit you for as planned.

We expect to achieve our target of 900 million Opex run rates as we exited Q4 as planned.

Speaker 3: This is more than a half billion dollars of expense cutting while still growing the number of agents, improving eating retention, and adding important new features to our technology platform.

This is more than a $5 billion of expense cutting while still growing the number of agents proving agent retention and adding important new features to our technology platform.

Okay.

Speaker 3: Our technology is clearly making a difference for agents. We have included a slide in our investor deck with quotes from agents who left Compass and came back and cited technology as the...

Our technology is clearly, making a difference for agents. We have included a slide in our investor deck with quotes from agents left compass and came back inside technology as the reason.

Speaker 3: With their permission, we have also included their phone numbers so you can call them directly. The reason we believe these agents' opinions are so important is that they are doing a direct comparison of the current state of technology in the industry. And as you will see, Cumbiz is the clear winner by far. Here are a few examples.

With their permission. We have also included their phone numbers. So you can call them directly. The reason we believe these agents opinions are so important is that they are doing a direct comparison of the current state of technology in the industry and as you will see Congress is the clear winner by far here.

Here are a few examples.

First quote.

Speaker 3: We missed the Compass technology. I've tried to make it work, but life is so much harder now. So much less efficient in my cost of doing business have increased.

We missed the compass technology.

To make it work, but life is so much harder now so much less efficient than my cost of doing business have increased.

Speaker 3: Property searching with clients without collections felt like going back in time five years.

Property searching with clients without collections.

Like going back in time five years.

Next quote collections allows me to work with three to five times the amount of buyers at any given point in time that otherwise would not have the bandwidth to take on.

Speaker 3: Next quote, collections allows me to work with three to five time amount of buyers at any given point in time that I otherwise would not have the ban list to take on.

Speaker 3: Last quote, you never realize how valuable the compass platform is until you don't have it anymore. It is such a huge advantage to be in a compass.

Last quote.

You'd never realized how valuable the compass platform is until you don't have it anymore, because there's such a huge advantage to being at compass.

Speaker 3: While I had indicated on prior calls that we would hold our opex at $900 billion in 2024-2025,

While I had indicated on prior calls that we would hold our opex at $900 million in 'twenty 'twenty four 'twenty five.

Speaker 3: given that 2024 could look a lot like 2023.

Given that 'twenty two 'twenty four could look a lot like 2023.

We believe we should continue to drive more efficiencies in the business and are targeting $850 million in 2024 annualized non-GAAP operating expenses the bottom of our previously stated range of $850 million to $950 million.

Speaker 3: We believe we should continue to drive more efficiencies in the business and are targeting $850 million in 2024 annualized non-GAAP operating expenses. The bottom of our previously stated range of $850 million to $950 million.

By continuing our.

Speaker 3: By continuing our expense reduction program, we are building in the potential for more free cash flow in 2024.

<unk> reduction program.

We are building in the potential for more free cash flow in 2024.

But with the uncertainty surrounding 24, if market conditions get worse, we're getting out ahead of a continued downturn.

Speaker 3: But with the uncertainty surrounding 24, if market conditions get worse, we are getting out ahead of a continued down.

Speaker 3: I am happy to report that other firms are recognizing Compass's leadership and strength. In the last two months, we have seen an increase in inbound increase of brokerages looking to join Compass with our strong culture, technology platform, and agent to agent client referral network being leading reasons. We are looking to make...

I am happy to report that other firms are recognizing congresses leadership and strength in the last two months, we have seen an increase in inbound inquiries of brokerage is looking to join campus with our strong culture technology platform and agent to Egypt client referral network being leading reasons.

We are looking to make accretive transactions that will help.

Speaker 3: a position for the inevitable market improvement that will come in the future.

US positioned for the inevitable market improvements that will come in the future when.

Speaker 3: When you add companies and revenue, you are adding operating spending as well. You're not going to pass up on creative acquisitions just to be the OPEX number. We acquired really often in DPG in September , Marquis Brogge's in their respective markets because those acquisitions were the right thing to do for the business as they further strengthen our position in Texas and California.

When you add companies and revenue you are adding operating expenses as well.

We're not going to pass up on accretive acquisitions, just to beat the Opex number.

We acquired really often in dbg as a timber marquee brokerages in their respective markets because those acquisitions were the right thing to do for the business as they further strengthen our position in Texas and California.

Speaker 3: Closed M&A activity has approximately 14 million of annual op-ex in 2020.

Closed M&A activity added approximately $14 million of annual Opex in 2024.

Speaker 3: Clearly the Compass value proposition well to the competitors is strengthening. Agents are coming to Insana Compass during an unprecedented period of industry uncertainty.

Clearly the company's value proposition relative to competitors is strengthening.

Things are coming to and Stena campus during an unprecedented period of industry uncertainty.

In Q3, we grew our average principal agent count by more than 400 agents versus the prior quarter.

Speaker 3: In Q3, we grew our average principal agent count by more than 400 agents versus the prior quarter. We also experienced, are experiencing over 98% principal agent retention in the third quarter, our second highest retention level since we went public.

We also experienced they are experiencing over 98% principal agent retention in the third quarter, our second highest retention levels since we went public.

This proves that our cost reductions are not compromising the agent experience.

Speaker 3: This proves that our cost reductions are not compromising the agent experience.

Speaker 3: At the same time, we have been able to deliver a number of technology advances, such as Performance Tracker, Compass AI, and One-Click Title and Escrow. So we're actually spinning our technology mode while the vast majority of our competitors continue to not invest.

At the same time, we have been able to deliver a number of technology advances such as principal performance tracker compass, AI and one click title and escrow. So we're actually span neurotechnology mode. While the vast majority of our competitors continue to not invest.

Speaker 3: I would like to take a moment to address the Sitzer-Burnett class action lawsuit voted against NAR and several programs.

I would like to take a moment to address the sister Barnett class action lawsuit voted against nor in several brokerages.

Speaker 3: As you know, Cumpis was not named in that lawsuit, but we were named in a new lawsuit last week. That was filed by the same lawyers who repented the Cicero Burnett plaintiffs, as well as a second case in Illinois, which is a copy of the case already filed against NAR and other broggers some time ago.

As you know compass was not named in that lawsuit, but we were named in a new lawsuit last week that was filed by the same lawyers, who represented the sister Barnett plaintiffs as well as a second case in Illinois, which is a copy of the case already filed against <unk> and other brokerage as some time ago.

Speaker 3: Obviously, we have been closely watching the proceedings as we do with all things related to the residential wheel take interest.

Obviously, we have been closely watching the proceedings as we do with all things related to the residential real estate industry. We.

Speaker 3: We will respond accordingly to the complaints filed against us. I am not going to comment on the cases in this call or future calls.

We will respond accordingly to the complaints filed against us.

I am not going to comment on the cases and if you're in this call for future calls.

Well there has been an enormous amount of speculation as to what this will mean for commissions. There are few reasons why I feel confidence that companies is positioned well.

Speaker 3: Well, there has been an enormous amount of speculation as to what this will mean for commissions. There are a few reasons why I felt confident that Compass is positioned well.

First first.

Speaker 3: First, first, there is a more gift of precedent for the Chamber to be proposed in these lawsuits as it relates to how commissions are displayed and shared with consumers and ultimately commission rates.

Mark the precedent for the changes being proposed in these lawsuits as it relates to how commissions are displayed and shared with consumers and ultimately commission rates.

Speaker 3: The Northwest MLS, which covers all of Seattle and the majority of the state of Washington, including 83% of the population, made these changes in October 2019.

The northwest MLS, which covers all of Seattle and the majority of the state of Washington, including 83% of the population made these changes in October 2019.

Speaker 3: And as of the end of point, point two, the average Washington real-letter commission rate.

And as of the end of 2022, the average Washington Real their commission rate.

Is five 3% with 267% going to the list agents and the remaining $2 60 per cent go into the buyers' agents.

Speaker 3: is 5.3%. With 2.67% going to the list agent, and the remaining 2.6% going to the buyer's agent.

Speaker 3: That aligns with the national average. So we have evidence in a major US market of what this change will look like that gives us confidence.

That aligns with the National average so we have evidence in a major U S market of what this change will look like that gives us confidence.

Secondly, we believe we are positioned well because we have a combination of some of the most productive agents and the only end to end technology platform in our industry.

Speaker 3: Secondly, we believe we are positions well because we have a combination of some of the most productive agents and the only end-to-end technology platform in our industry.

Speaker 3: Our agents are able to use the Compass Technology platform with their clients and deliver tangible value to clients doing it.

Our agents are able to use the compass technology platform with their clients and deliver tangible value to claims to it.

Speaker 3: which will be a major advantage should things shift. For example, our collections product is a tool that makes the home buying experience easier for the buyer. It is like a dangerous board for real estate that provides buyers with a portfolio of properties that are automatically updated with new prices and statuses, which is easy to share and communicate.

Which will be a major advantage shifting shifts.

Examples are.

Collections product is a tool that makes it the home buying experience easier for the buyer. It is like a pinterest board for real estate that provides buyers with a portfolio of properties that are automatically updated with new prices prices in status is where it's easy to share and communicate.

When we launch our client portal in 2024, which will be a consumer interface for clients to manage their entire buying and selling process online to their agents the bond between Egypt and buyer.

Speaker 3: When we launch our client portal in 2024, which will be a consumer interface for clients to manage their entire buying and selling process online through their agents, the bond between agents and buyer.

We will be strengthened further as we provide the clients one location to access everything related to their purchase.

Speaker 3: will be strengthened further as we provide the client one location to access everything related to their purchase.

Speaker 3: Given these products are unique to compass, we are well positioned relative to others.

These products are unique to campus, we are well positioned relative to others.

Certainly.

We currently have agents that successfully after buyers designed by a broker agreements in order to work with them. We're in the process of launching training to all of our agents to empower them to successfully get buyer broker agreement signed with their buyers.

Speaker 3: We currently have agents that successfully ask their buyers to sign buyer broker agreements in the order to work with them. We're in the process of launching training to all of our agents to empower them to successfully get buyer broker agreements signed with their buyer.

Lastly, we operate largely in the luxury segment, where we think buyers will still want to help someone to help or an advisor do their home buying journey.

Speaker 3: Lastly, we operate largely in the luxury segment. We think buyers will still want the help of an advisor through their home buying journey.

Overall these are some of the reasons why we believe we are well positioned and prepared for any of these industry changes.

Speaker 3: Overall, these are some of the reasons why we believe we are well positioned and prepared for any of these industry teams.

So looking ahead to the future we will continue to take a disciplined approach to our operating expenses and run our business efficiently, while still investing in our agents platform and growth we.

Speaker 3: So looking ahead to the future, we will continue to take a disciplined approach to our operating expenses and run our business efficiently while still investing in our agents, platform and growth. We are confident that this approach ensures we can build upon our competitive advantage with the only proprietary end-to-end technology platform for agents in the industry.

We are confident that this approach ensures we can build upon our competitive advantage with the only proprietary end to end technology platform for agents in the industry.

Speaker 3: When the market improves in the future, we believe the company will be well positioned to generate substantial free cash flow over the long.

When the market improves in the future. We believe the company will be well positioned to generate substantial free cash flow over the long term.

Speaker 3: I remain incredibly excited about the future. And I want to end by thanking the entire Compass team of employees and engineers.

I remain incredibly excited about the future I want to end by thanking the entire compass team of employees and agents. They are incredible dedication has allowed us to make it through these difficult times with a confidence that we have a strong foundation for future success I'll now turn it over to Greg.

Speaker 3: Their incredible dedication has allowed us to make it through these difficult times with the confidence that we have a strong foundation for future success. I'll now turn over to great.

Thank you Robert.

Speaker 2: Thank you Robert. I echo your sentiment about the great team at Compass and want to also recognize our amazing agents who are working hard every day in a very difficult market to help their clients buy and sell home.

So your sentiment about the great team at Compass and want to also recognize our amazing agents, who are working hard every day in a very difficult market to help their clients buy and sell homes.

In the third quarter.

Speaker 4: In the third quarter, we processed over 48,000 transactions.

We processed over 48000 transactions a decline of 12% from a year ago, which compares favorably to the 20% decline in transactions.

Speaker 4: at the client of 12% from a year ago, which compares favorably to the 20% decline in transactions for the entire residential real estate market and the third quarter, as reported by the National Association of Realtz.

Entire residential real estate market in the third quarter as reported by the National Association of Realtors.

Speaker 4: Our market share for Q3 2023 was 4.4%.

Our market share for Q3 2023 was four 4%.

Up 26 basis points year over year versus Q3 2022.

Speaker 4: Up 26 basis points year over year, versus Q3 2022.

The majority of agents tell us the compass platform as the number one reason for coming to compass and that contributed to another strong quarter of agent additions for Q3 2023, our average number of principal agents increased to 14055 principal agents up 4% year over year and up.

Speaker 4: The majority of agents tell us the Compass platform is their number one reason for coming to Compass, and that contributed to another strong quarter of agent additions. For Q3 2023, our average number of principal agents increased to 14,055 principal agents. Up 4% year of the year, and up 3% quarter over quarter.

<unk>, 3% quarter over quarter.

Speaker 4: Our technology platform, brand, and agent network also contribute to our strong agent retention as agents continue to stay at Compass at very high rates.

Our technology platform brands and agent network also contribute to our strong agent retention.

<unk> continued to stay at Compass at very high rates for Q3, we saw over 90% annualized retention of principal agents.

Robert mentioned Q3 was our second highest quarterly retention rate of principal agents as a public company.

Speaker 4: And of the principal agents who did leave composing Q3, more than 8% of that attrition came from agents who are least productive in terms of both transaction account and gross transaction volume.

And of the principal agents, who do believe compass in Q3 more than 80% of that attrition came from agents, who are least productive in terms of both transaction count and gross transaction volume.

And some agents have decided to leave the industry entirely during this prolonged market downturn.

Speaker 4: And some agents have decided to leave the industry entirely during this prolonged market down.

Speaker 4: In addition to our agent recruiting efforts, we completed two strategic acquisitions during the third quarter of brokerages in Texas and in California. Realty Austin, the number one independent brokerage in Texas, expands our presence in Austin and San Antonio nearly doubling our agent and transaction count in those markets. Well, VPP as a well respected brokerage with a specific architectural focus that complement the compass well.

In addition to our agent recruiting efforts, we completed two strategic acquisitions during the third quarter of brokerages in Texas and in California Realty Austin, The number one independent brokerage in Texas expands our presence in Austin, and San Antonio nearly doubling our agent and transaction count in those markets.

While DPP as a well respected brokerage with a specific architectural focus that complements comp as well.

Going forward, we will continue to be opportunistic in our approach to adding to our agent base selective M&A for <unk>.

Speaker 4: Going forward, we will continue to be opportunistic, now our approach to adding to our agent base to be a selective M&A for pursuing deals structures that allow us to minimize upfront cash and limit equity dilution.

<unk> deal structures that allow us to minimize upfront cash and limit equity dilution.

Speaker 4: We are proud of the fact that the majority of the agents coming to Compass tell us that one of the primary reasons they are doing so is for the platform.

We are proud of the fact that the majority of the agents come into Compass tell us that one of the primary reasons. They are doing so as for the platform.

Speaker 4: We continue to invest to make this platform better and to launch new products into our platform such as Performance Tracker, Compass AI, and one click Title NX CREO.

We continue to invest to make this platform better and to launch new products into our platform such as performance tracker Compass, AI and one click title and escrow.

Speaker 4: Each of these products are generating way of reviews from agents and positive early adoption.

Each of these products are generating rave reviews from agents and positive early adoption.

Speaker 4: Looking forward, we will continue to build more sophisticated team workflow functionality and also plan to launch the first phase of our Compass client dashboard in 2024. We envision this as the single destination for both buyers and sellers for everything home before, during and after the TransDex.

Looking forward, we will continue to build more sophisticated team workflow functionality and also plan to launch the first phase of our compass client dashboard in 2024.

We envision this is the single destination for both buyers and sellers for everything home before during and after the transaction.

Our title and escrow business is generating positive adjusted EBITDA and increasing attach rates. After a successful launch of title and escrow integration and the compass platform in Southern California.

Speaker 4: Our title and escrow business is generating positive adjusted EDA docs and increasing attach rates after our successful launch of title and escrow integration in the Compass platform in Southern California. We are now rolling this feature out in Philadelphia, Southern New Jersey, and the Washington, D.C. area, including Maryland and Virginia, as planned.

We are now rolling this feature out in Philadelphia, Southern New Jersey, and Washington, D C area, including Maryland, and Virginia as planned.

Okay.

Speaker 4: As you know, we've been leveraging artificial intelligence across our platform since 2020. Always for the express purpose of enhancing our agent's workflow efficiency and client service. We've done this through features like our likely to sell recommendation.

As you know we've been leveraging artificial intelligence across our platform since 2020.

Always for the express purpose of enhancing our agent workflow efficiency and client service.

We've done this through features like are likely to sell recommendations.

Speaker 4: For suggestions, similar homes, our CMA generation tool, and in our video studio.

Search suggestions similar homes, our CMA generation tool and in our video studio.

Speaker 4: Recently, we further enhanced that offering by integrating the chat GPT API into Compass AI, which has already proved to be a game changer for our agent.

Recently, we further enhanced that offering by integrating chat GPT API into compass AI.

As already proved to be a game changer for our agents.

For those of you who have used AI you know this technology is seemingly unlimited potential.

Speaker 4: For those of you who have used AI, you know this technology has seemingly unlimited potential. But it is only as good as the data and nuance to context from which it draws.

But it is only as good as the data and nuanced context from which it draws.

Compensate is custom built to support real estate agents and over time will be supercharged by a vast amount of proprietary complex data drawn from our hundreds of thousands of transactions, which is a major competitive advantages over other brokerages.

Speaker 4: Compass AI is custom built to support real estate agents. And over time, we'll be supercharged by a vast amount of proprietary compass data drawn from our hundreds of thousands of transactions, which is a major competitive advantage over other brokerages.

Right now Compass AI is already augmented with smart real estate specific system prompts as well as context taken directly from our proprietary platform dataset.

Speaker 4: Right now, Compass AI is already augmented with SMART, real estate-specific system prompts, as well as context taken directly from proprietary platform data set. In the future, Compass AI is poised to become a personalized solution, trained on proprietary data, and customizable by our agent users.

Then the future compensate <unk> is poised to become a personalized solution trains and proprietary data and customizable by our agent users.

Speaker 4: This is a significant advantage for Compass agents compared to agents at other brokerages, specifically use general purpose solutions or otherwise search public databases for best practice.

This is a significant advantage for compensation compared to agents at other brokerages, we typically use general purpose solutions or otherwise search public databases for best practices.

We can create natural integration points for compass AI directly into our agents platform workflows, rather than just as a standalone isolated tool the more agents use our platform the stronger the machine learning algorithms will be delivering better results for agents and producing a virtuous cycle.

Speaker 4: We can create natural integration points for Compass AI directly into our agents' platform workflows rather than just as a standalone, isolated tool. The more agents use our platform, the stronger the machine learning algorithms will be, delivering better results for agents and producing a virtuous cycle.

The agent response has been fantastic with thousands of agents have already integrated compensate into their workflow and our coaching classes featuring compass AI typically have thousands of agents in attendance.

Speaker 4: The agent response has been fantastic. The thousands of agents have already integrated Compass AI into their workflow, and our coaching classes featuring Compass AI typically have thousands of agents in attendance. I can't wait to share the next round of improvements.

Can't wait to share the next round of improvements.

Speaker 4: This has been a challenging market for almost a year and a half. It has gone on longer than expected and immediate relief is not in sight. In response, we've removed roughly 550Million dollars in operating expenses from our business in the last 18 months. And as Robert mentioned, we are continuing to drive our expenses downward.

This has been a challenging market for almost a year and a half that has gone on longer than expected and immediate relief is not an insight.

In response, we've removed roughly $550 million in operating expenses from our business in the last 18 months and as Robert mentioned, we are continuing to drive our expenses downward.

I'm working with an exceptionally strong team dedicated to looking for operating efficiencies in every corner of the business. Our leaders are United in our focus on finding ways to improve our processes and lower our costs.

Speaker 4: I'm working with an exceptionally strong team dedicated to looking for operating efficiencies in every corner of the business.

Speaker 4: Our leaders are united in a focus on finding ways to improve our processes and lower our costs.

Our agents and our employees continue to demonstrate that they are the best in the industry, which is why compass is the number one brokerage in the country.

Speaker 4: Our agents and our employees continue to demonstrate that they are the best in the industry, which is why Compass is the number one brokerage in the country. I will now turn it over to our CEO .

I will now turn it over to our CFO Columbia <unk>.

Thanks, Greg Today, I'll review, our third quarter financial results in more detail and then I'll provide an update on our guidance expectation for the fourth quarter.

Speaker 5: Thanks, Greg. Today I'll review our third quarter financial results in more detail and then I'll provide an update on our guidance expectations.

Speaker 5: As a recurring theme we've been sharing with you over the past year, we continue to focus on controlling what we can control, namely our cost-based and our ability to attract and retain the best.

As a reoccurring theme, we've been sharing with you over the past year, we continue to focus on controlling what we can control, namely our cost base and our ability to attract and retain the best agents.

Speaker 5: The results of these efforts has allowed us to report another quarter of positive adjusted EBITDA and positive free cash flow, despite this extremely challenging.

As a result of these efforts has allowed us to report another quarter of positive adjusted EBITDA and positive free cash flow despite the extremely challenging market.

Speaker 5: In particular, our Q3 results reflect the fifth quarter in a row that we reduced our operating expense.

In particular, our Q3 results reflect the fifth quarter in a row that we've reduced our operating expenses over the prior quarter.

Speaker 5: Our third quarter revenue was $1.34 billion, falling slightly below the midpoint of our guidance range of $1.3 to $1.4 billion, reflecting pressure from mortgage rates that have continued to rise since the time we put out our Q3 guidance back in August .

Our third quarter revenue was $1 34 billion falling slightly below the midpoint of our guidance range of $1 three to $1 4 billion, reflecting pressure from mortgage rates that have continued to rise since the time, we put out our Q3 guidance back in August.

Speaker 5: Our Q3 revenue reflects a decline of 10% from the year ago period of $1.49 billion.

Our Q3 revenue reflects a decline of 10% from a year ago period of $1 49 billion.

Gross transaction volume was $50 9 billion in the third quarter, a decline of 11% from a year ago, reflecting a 12% reduction in total transaction, partly offset by an increase in average selling price.

Speaker 5: Gross transaction volume was 50.9 billion in the third quarter of the client of 11% from a year ago. Reflecting a 12% reduction in total transaction, partly offset by an increase in average sailing.

The decline in our transactions of 12% from a year ago period compares favorably to the decline in transactions in the overall market of 20%.

Speaker 5: The decline in our transaction, the 12% from a year ago period, compares favorably to the decline in transactions in the overall market.

Speaker 5: Our non-GAP commission expensive a percent of revenue with 81.97% and increase at 50 basis points from Q3 of last year when excluding the impact of the age and equity program on the year.

Our non-GAAP Commission expense as a percent of revenue was 80, 197% an increase of 50 basis points from Q3 of last year when excluding the impact of the agent equity program on a year ago period.

Speaker 5: As a reminder, 2022 was the last year we offered the Agents Equity Program, which allowed our agents to exchange a portion of their cash commissions for it.

As a reminder, 2022 was the last year, we offer the agent equity program, which allowed our agents to exchange a portion of their cash commissions for equity.

Speaker 5: Page 15 of the Q3 Investor Deck includes additional details on the Aging Equity Program's impact on the Commission line in the prior year.

Page 15 of the Q3 Investor deck includes additional details on the agent equity program impact on the commission line in the prior year periods.

Speaker 5: You will continue to see this differential through each quarter in 2023 until we anniversary the sunset of the Agent Equity Program in Q1 of 20-

You will continue to see this differential through each quarter in 2023 until we anniversary the sunset of the agent equity program in Q1 of 2024.

Speaker 5: Our total non-GAP operating expenses, excluding commissions and other related expenses, were $219 million for the third quarter.

Our total non-GAAP operating expenses, excluding commissions and other related expenses were $219 million for the third quarter.

Speaker 5: Our operating expense in the quarter benefited by a one-time credit of $7.2 million related to a favorable change in the way we provisioned for certain state franchise taxes, resulting in a tax refund for taxes paid in prior years.

Our operating expense in the quarter benefited by a onetime credit of $7 2 million related to a favorable change in the way we provision for certain state franchise taxes, resulting in a tax refund for taxes paid in prior years.

Speaker 5: Adjusting for this one-time credit are operating expense in the quarter would have been $226 million or $904 million on an annualized

Resting for this onetime credit our operating expense in the quarter would have been $226 million or $904 million on an annualized basis.

As we've talked about previously many of our non commission based operating expenses are somewhat fixed in nature and have historically increased sequentially from quarter to quarter as opposed to bearing in line with revenue.

Speaker 5: As we talked about previously, many of our non-commissioned based operating expenses are somewhat fixed in nature and have historically increased sequentially from quarter to quarter as opposed to varying in line with revenue.

Speaker 5: However, due to our cost reduction initiatives implemented over the past year, the 226 million of op-ex for the third quarter reflects a $140 million reduction from op-ex of $366 million in the second quarter of last year, which was the quarter we began our cost reduction.

However, due to our cost reduction initiatives implemented over the past year, the $226 million of Opex for the third quarter reflects a $140 million reduction from Opex of $366 million in the second quarter of last year, which was the quarter, we began our cost reduction initiatives.

On an annualized basis, which reflects a reduction of over $550 million.

Speaker 5: On an annualized basis, which reflects a reduction of over 550 million dollars.

Our management team remains disciplined focus on our operating expenses and as Robert and Greg mentioned, we are focused on maintaining our operating discipline that allows us to sustain our new cost base.

Speaker 5: Our management team remains disciplined and focused on our operating expenses and is Robert and Greg mentioned. We are focused on maintaining our operating discipline that allows us to sustain our and we are focused on maintaining our operating discipline that allows us to sustain our operating

Speaker 5: At the reference point, the non-GAB operating expenses we refer to include the expense category, the sales and marketing, operation and support, research and development and GNA, and exclude stock-based compensation expense and other expenses that are excluded from adjustity.

As a reference point the non-GAAP operating expenses, we referred to include the expense category of the sales and marketing operation and support research and development and G&A and exclude stock based compensation expense and other expenses that are excluded from adjusted EBITDA.

We have included tables on pages 13, and 14 in our Q3 investor deck that reconciled these amounts.

Speaker 5: We've included tables on pages 13 and 14 and our Q3 investor deck that reconciled these.

Speaker 5: Our adjusted even up for the third quarter was $21.28 million. Slightly below the midpoint of our guidance range, reflecting the challenging market conditions.

Our adjusted EBITDA for the third quarter was $21 8 million slightly below the midpoint of our guidance range, reflecting the challenging market conditions.

Speaker 5: Our GapNet loss for the third quarter was $39 million compared to a loss of $154 million in the same period of the year.

Our GAAP net loss for the third quarter was $39 million compared to a loss of $154 million in the same period a year ago include.

Speaker 5: included in the Gapnet loss for the quarter are non-cash charges, which included 38 million of non-cash stock-based compensation expense, and 21 million of depreciation and amortization.

Included in the GAAP net loss for the quarter are noncash charges, which included $38 million of noncash stock based compensation expense and $21 million of depreciation and amortization expense.

Speaker 5: Free cash flow during the third quarter with a positive $12.2 million, which compared favorably to negative $69.1 million of the free cash flow in the year- to a quarter.

Free cash flow during the third quarter with a positive $12 $2 million, which compared favorably to negative $69 $1 million of free cash flow in the year ago quarter.

Speaker 5: Driven primarily by the improvement in adjusted EBITDA, lower capital expenditures, and other payroll changes in working capital.

Driven primarily by the improvement in adjusted EBITDA, lower capital expenditures and other favorable changes in working capital.

Speaker 5: In particular, capital expenditures were just 2.8 million in the current quarter compared to 15.5 million a year ago, driven by our cost cutting measures and the intentional slowing of expansion to new markets and new

In particular capital expenditures were just $2 $8 million in the current quarter compared to $15 5 million a year ago, driven by our cost cutting measures and the intentional slowing of expansion to new markets and new offices.

Speaker 5: We have meaningfully improved our free cash will position compared to last year. When comparing the first nine months of 2023 to the same period of 2022, our free cash will improve by $235 million on $1.1 billion less revenue.

We have meaningfully improved our free cash flow position compared to last year when comparing the first nine months of 2023 to the same period of 2022, our free cash flow improved by $235 million on $1 $1 billion less revenue.

Speaker 5: While CASCO can be impacted by the timing of CAS collections from transaction closing and the payment of CAS to our agents and vendors and the timing of our payroll cycles in relation to the calendar quarter end, the magnitude of improvement in three CASCO is directly attributed to the impact of our cost.

While cash flow can be impacted by the timing of cash collections from transaction closing and the payment of cash to our agents and vendors and the timing of our payroll cycles in relation to the calendar quarter and the magnitude of improvement in free cash flow is directly attributed to.

The impact of our cost discipline over the past year.

We had $220 million of cash and cash equivalent on our balance sheet at the end of September which reflects the previously disclosed payback of $150 million of our revolver draw in July also during the quarter. We completed the acquisition of certain assets of a Canadian real estate prop tech entity called properly, which we've accounted for as a financing transaction whereby reversed.

Speaker 5: We had 220 million of cash and cash equivalent on our balance sheet at the end of September , which reflects the previously disclosed payback of 150 million of our revolver draw in July . Also during the quarter, we completed the acquisition of certain assets of a Canadian real estate project entity called Properly, which we've accounted for the financial transaction, whereby we received cash of 32 million in exchange for nine million shares of compass stock. For an effective issue and surprise, it's $3.62 per cent.

<unk> cash of $32 million in exchange for 9 million shares of company stock or an effective issuance price of $3 62 per share.

Speaker 5: We thought this transaction was an effective way to add strength to our balance sheet given the challenging macroeconomic environment ahead of.

We thought this transaction was an effective way to add strength to our balance sheet given the challenging macroeconomic environment ahead of us.

We have access to liquidity of over $500 million with the cash on our balance sheet and the capacity on our revolving credit facility and therefore, we believe we are well positioned to react to continued market challenges.

Speaker 5: We have access to liquidity of over $500 million to the cash on our balance sheet and the capacity on a revolving credit facility. And therefore, we believe we are well positioned to react to continued market challenges.

Now turning to our financial guidance.

Our results for the first three quarters of 2023 confirm that our operating expense discipline creates meaningful performance improvement and as we look forward to Q4, we continue to see market risks.

Speaker 5: Our results for the first three quarters of 2023 confirm that our operating expense discipline creates a meaningful performance improvement. And as we look forward to Q4, we continue to see market risk.

Speaker 5: For Q4 2023, we expect revenue in the range of $1.1 billion to $1.2 billion. And we have reaffirming our expectation that our op-EX will be in the range of $850 to $950 million with the Q4 run rate around the midpoint of $900 million.

For Q4 of 2023, we expect revenue in the range of $1 1 billion to $1 2 billion.

And we are reaffirming our expectation that our opex will be in the range of $850 to $950 million with a Q4 run rate around the midpoint of $900 million.

Speaker 5: excluding the impact of the additional effects we expect in Q4 from our two adjusted even positive pro-credits acquisition completed at the end of

Excluding the impact of the additional Opex, we expect in Q4 from our two adjusted EBITDA positive brokerage acquisition completed at the end of September.

Speaker 5: The FX from those two deals is expectably just shy of 4 million.

The opex from those two deals is expected to be just shy of $4 million per quarter.

Despite our cost control and discipline given the revenue softness driven by continued market pressure in the second half of 'twenty. Three we expect adjusted EBITDA to be in the range of negative $35 million to negative $20 million in the fourth quarter.

Speaker 5: Despite our cost control and discipline given the revenue softness driven by continued market pressure in the second half of 23 We expect adjusted EBITDA to be in the range of a negative 35 million to negative 20 million in the fourth

Speaker 5: We anticipate pre-cash flow to trend in line with adjusted EBITDA and be negative in the fourth quarter as well. And as a result, what we have made significant improvement in our pre-cash flow and cash position, we do not anticipate being pre-cash flow positive for the full year.

We anticipate free cash flow to trend in line with adjusted EBITDA and be negative in the fourth quarter as well and as a result, while we have made significant improvement in our free cash flow and cash position, we do not anticipate being free cash flow positive for the full year 2023.

Speaker 5: As we've discussed in the past, the conversion of adjusted e-bid out of free cash flow is seasonally stronger in the earlier quarters of the year and seasonally weaker in the later quarter.

As we've discussed in the past the conversion of adjusted EBITDA to free cash flow is seasonally stronger in the earlier quarters of the year and seasonally weaker in the later quarters of the year.

As Robert mentioned, our commitment to cost discipline has driven significant improvement in our free cash flow compared to the same periods last year. It is clear to us that our strong commitment to cost control is working and led directly to our adjusted EBITDA results in Q3, despite declining revenue.

Speaker 5: As Robert mentioned, our commitment to COT discipline has driven significant improvement in our free cash flow compared to the same period's life.

Speaker 5: It is clear to us that our strong commitment to cost control is working and led directly to our adjusted EBITDA results in Q3 despite declining revenue.

Speaker 5: We remain committed to our cost discipline to drive favorable results in 2024.

We remain committed to our cost discipline to drive favorable results in 2024 and beyond.

As I finish my prepared remarks November marks the end of my first year here at Compass the market conditions over the last year have truly challenged our agents and our teams the commitment of our agents and team members to support each other and provide world class service to our clients has been nothing short of inspiring we are a significantly stronger company today than when.

Speaker 6: As I finish my prepared remarks, November marks the end of my first year here.

Speaker 6: The market conditions over the last year have truly challenged our agents and our

Speaker 6: The commitment of our agents and team members to support each other and provide world-class service to our clients has been nothing short of inspire.

Speaker 5: We are a significantly stronger company today than when I started a year ago. We are well positioned to create tremendous value for our employees, agents, and shareholders going poor.

I started a year ago, and we are well positioned to create tremendous value for our employees agents and shareholders going forward. Thank.

Speaker 6: Thank you again to our agents and team members for all that you do for Compass. I would now like to turn the call over to the Operators to begin Q&A.

Thank you again to our agents and team members for all that you do for companies I would now like to turn the call over to the operator to begin Q&A.

Okay.

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.

Speaker 1: At this time, I'd like to remind everyone in order to ask questions, press start then the number one on your telephone keypad. We'll pause for just a moment to come.

We'll pause for just a moment to compile any questions.

Again, if you'd like to ask a question. Please press star one on your telephone keypad now.

Speaker 7: Again, if you'd like to ask a question, please press start one on your telephone keypad now.

Our first question comes from the line of Folha Basel.

<unk>. Please go ahead.

Hey, guys. Good evening, thanks for taking our questions.

Speaker 8: robert i guess first one for you uh... so i know you're not coming on on the lawsuits but just thinking through the potential impact it still seems pretty unclear to us but you know let's just say hypothetically that by side commissions do come under pressure in the future

Robert I guess first one for you so I know youre not coming on the lawsuits, but just thinking through it on a potential impact it still seems pretty unclear to us, but let's just say hypothetically that buy side commissions do come under pressure in the future.

Speaker 8: You know, how does that change, I guess, compass's ability to hold, you know, uphold the 80-20 split model longer term? Right. Do you think you have to adjust splits higher to maybe entice ages that want to keep more of their commissions going forward? Or do you think you can still make the pitch based on the values that you provide, you know, on the end-pan platform?

How does that change I guess Congress has the ability to hold up hold the 80 20 split model longer term or do you think you have to adjust splits hires maybe entice agents that want to keep more of their commissions going forward or do you think you can still make the patch based on the value that you provide on the end to end platform. Thanks.

Speaker 3: Yeah, yeah, first thanks for asking the question. I mean, a few things. One, I don't think there's any evidence to suggest that they'll be pressure on the commission. When you look at the state of Washington.

Yes, thanks for asking the question.

A few things one I don't think theres any evidence to suggest that there'll be pressure on the commission.

When you look at the state of Washington.

Speaker 3: And it is to what I mentioned earlier in the Northwest M.L.S., which covers 80% of the state.

In addition to what I mentioned earlier.

The northwest MLR, which covers 80% of the <unk>.

State.

Speaker 3: In 2019, they discontinued requiring sellers to make a minimum offer of loan sound costs

In 2019, they discontinued requiring sellers to make a minimum offer of compensation.

Since that point in time.

<unk> 99, 7% 90, 975% of sellers in those markets continue to offer compensation to buyer brokers and 95% of time these fees exceed 2% to the buy side as quoted by the Wall Street Journal is I. Just think one is that there's no evidence from any market that it would.

Speaker 3: 99.7% of sellers in those markets continue to offer compensation to buyer brokers in 95% of the time. These fee is exceed 2% to the buyer's side. That's quoted by the Wall Street Journal. So I just think one, there's no evidence from any market that it would

Create pressure on commissions also.

Speaker 3: create pressure on commissions. Also, there are likely thousands of agents in the country that are

There are likely thousands of agents in the country.

That.

Or.

Speaker 3: that already require to work with a buyer. They personally decide that they're going to ask that buyer to sign a buyer broker agreement. And in that buyer broker agreement, they will negotiate independently, of course, what the commission is that they require. And let's just say hypothetically, it says.

That already require to work with a buyer personally decided theyre going to asset buyers to sign a buyer.

Roker agreement and in that fire broke agreement they will negotiate independently of course, what the commission is that they require and let's just say hypothetically it says.

Speaker 3: 2.5%. Then what would happen if the stellar contributes to that stem, the buyer doesn't do anything, if the seller doesn't contribute anything, the buyer has to do 2.5%. But that's already a practice that exists out there in the world. And so what I mentioned early on the call is we're going to train how to do that in a compliant way to our agents across the country. And I think the actual effect of it will be two things.

<unk>, 5%.

And then what would happen at the stellar to contribute two absent the buyer does have to do anything of the seller doesn't contribute anything to buyers to do two 9%, but that's already a patches that exists out there in the world and so what I mentioned earlier on the call is we're going to train how to do that in a compliant way.

Two our agents across the country and I think the actual effective it will be two things one it.

Speaker 3: one it it has the potential to to further professionalize the industry because agents that don't know how to sell their value will leave the business and he said you know that's all that I will get the back required by broker uh... agreements uh... and of course when that agreement is in there their value and their accommodation will will be will be clearly outlined

It has the potential.

To further professionalize the industry because agents that don't know how to sell their value will leave the business and it is they do notice how the guy who will get the bulk of the required by a broker.

<unk>.

And of course, when that agreement in isn't there their values and their compensation will will.

We will be we'll be clearly outlined.

The second thing that it will do it.

Speaker 3: is it will force compass and other companies?

They will force encompass and other companies to create a buyer presentation at the same level that we've treated listing presentations arguably the most important thing a brokerage firm can given Egypt is the lithium presentation, that's where agent goes into listing appointment is the moment of truth, where the E.

Speaker 3: to create a buyer presentation at the same level that we create listing presentation.

Speaker 3: Arguably the most important thing a brokerage firm can give an agent is the listing presentation. That's where the agent goes in to list an appointment. It's the moment of truth where the agent says, here's why you want to work with me and here's why you want to work with the company. Yeah, all the different reasons on both fronts.

And says here's why you want to work with me and here's what you want to work with the company.

The different reasons on both fronts.

Speaker 3: And that's the moment where you either, you know, get the list you know you don't, that's where you negotiate with the agent independently negotiate the commission.

That's the moment, where you either get the listing or you don't that's where you can negotiate with the agent independently negotiates the commission.

And that.

Speaker 3: and that is considered very valuable for an agent. Almost any agent that is going to move companies wants to see what would the listing presentation look like before they move.

That is considered very valuable for an agent any almost any agent that is going to move companies want to see what would the lithium presentation look like before they move.

Speaker 3: So, now we're going to create a, we are, we're launching over the next week, our buyer agreement. So, when you need the buyer, sorry, your buyer presentation walks through all the reasons why you want to work with me as your buyer agent. But also I want to work with compass as your buyer brokerage, because we have collections, which, which is you saw in the quotes multiple agency. That's that's the reason why they came back to compass because we have.

So now we're going to create.

We are launching over the next week or buyer.

<unk>. So when you made the buyer or you buy your presentation walk the walk.

Thanks to all of the reasons why you want to work with me as at your buyer agent, but also with compass as Youre buyer brokerage because we have collections.

As we saw in the quotes multiple even say that.

That's the reason why they came back to campus because we have.

Off market listings and coming soon and the largest network of top agents across the country in the major markets and Thats because of number one in every in.

Speaker 3: off-market listings and coming soon and the largest network of top agents across the country in the major markets in the country because they're number one in every in more top markets in the country than anyone else. And so the reason I bring that up

And more top markets of the country than anyone else and so the reason I bring that up is now Columbus is going to and other brokers are going to create an even stronger reason why you need to be affiliated with a top brokerage firms because we have a buyer presentation that helps you communicate your value in that important moment to buyers just like we have for sellers.

Speaker 3: is now come this is going to and other bookers are going to create an even

Speaker 3: stronger reason why you need to be affiliated with a top brokerage firm because we have a buyer presentation to help you communicate your value in that important moment to buyers just like we have for sellers. So as we think about, you know, the split that

So as we think about.

The split that.

Speaker 3: Robert Firms, Agree on with Agents, I think it will just reinforce that value.

Brokerage firms.

Agree on with agents I think I'll, just reinforce that value.

Got it thank you.

Speaker 8: Got it. Thank you. And then second one, I guess, Kalani, the 850 expense target. I just want to make sure I understand. So first, is the 850 now the target for 2024 and 2025, given that you were looking to stay flat in both those years previously? And then can you just talk about some of these specific actions that will get you to the new run rate? Thanks.

And then second one I guess client the 850 expense target I just want to make sure I understand so first is the <unk> hundred 50 now the target for 2024 and 2025 given that you were looking to stay flat in both those years previously and then can you just talk about some of the specific actions that will get you to the new run rate. Thanks.

Speaker 6: A few things, I think.

Yeah sure. Thanks, Sarah.

A few things I think.

<unk>.

Speaker 5: We definitely are targeting 850 for 2024. And I think, as you mentioned consistently, we want to make sure we are working the drive even more efficiency to maintain that level in 2025.

We definitely are targeting $8 50 for 2024, and I think as you mentioned consistently we want to make sure. We are working to drive even more efficiency to maintain that level. In 2025, we think there's just a ton of and tremendous value.

Speaker 5: if we are able to do that. I think, you know, as we think about, you know, where we're going, we're going to continue to drive operating efficiencies. I think, you know, one of the things for the last year and a half is we've created a real operating discipline across the company to really drive out efficiency and cost savings. You know, we will continue to look to take advantage of our platform and scale. We'll continue to focus on low cost labor to drive a cost to service down. We'll continue to look at extracting savings from vendors. And so we'll just continue to drive that operating discipline so we can allow our cost-based flex with both the market, but also just to make sure, you know, one of the things we continue to learn, you know, where we can be more efficient. And I think not only to react to the market, but also just to allow ourselves to continue to drive more value, more EBITOM or cash flow, you know, we won't stop making sure we are servicing.

We are able to do that I think as we think about where we're going we're going to contribute to continuing to drive operating efficiencies I think one of the things over the last year and a half as we've created a real operating discipline across the company.

Really drive efficiency and cost savings, we will continue to look to take advantage of our platform and scale will continue to focus on low cost labor to drive.

Driver cost of service down we'll continue to look at extracting savings from vendors and so we will just continue to.

To drive the operating discipline.

So we can allow our cost base to flex with both the market, but also just to make sure you know one of the things we continue to learn where we can be more efficient and I think not only to react to the market, but also just to allow ourselves to continue to drive more value more EBITDA more cash flow, we won't stop making sure we are servicing.

Speaker 5: our agents with the best service, but also the most.

Our agents with the best service, but also the most efficiently.

I guess just a quick follow up on that then move from 900 to 850 like what's the Delta what's the biggest delta that's getting you there.

Speaker 8: I guess just a quick follow-up, then move from 900 to 850, like what's the delta? What's the biggest delta that's getting you there?

Yes, so a.

Speaker 5: Yep. So a few things. One, I think we continue to look at our operating models. So we continue to look at kind of how we lower the cost per transaction. We do that through just our operating model, some of the low-cost labor. We continue to think we have tremendous opportunities with vendors, especially now as the market sits. And so a lot of the same actions we've taken will continue to drive, we continue to learn more, and we'll continue to push on those.

A few things one I think we.

We continue to look at our operating model. So we continue to look at kind of how we lowered the transact the cost per transaction.

We do that through just our operating model from our low cost labor continue to think we have tremendous opportunities with vendors, especially now as the market sets and so a lot of the same action.

Actions, we've taken will continue to drive retaining learn more and more we're continuing to push on those.

Alright, great. Thanks, a lot.

Our next question comes from the line of Bernie Mcternan with Needham <unk> Company. Please go ahead.

Speaker 1: Our next question comes from the line of Bernie McTernan with Needham & Company.

Speaker 9: Great, thanks for taking the questions. Maybe just to start, revenue guidance for 4Q flat to up. Just given the macro, can you talk about some of the moving pieces and then maybe how the brokerage acquisitions impacts revenue growth?

Thanks for taking the questions, maybe just to start revenue guidance for <unk> flat to up.

Just given the macro can you talk about some of the moving pieces and then maybe how the brokerage acquisitions impacts revenue growth in the fourth quarter.

Maybe I'll just give just some.

Speaker 3: Maybe I'll just give just some high level contacts and we're seeing the market and I'll let Connie go into more detail.

High level context, and where we're seeing the market electronic go into more detail.

Speaker 3: I think we have modestly less inventory, so 4% less inventory than we did a year ago when it was already record low inventory, but it's not getting worse. So the week over week is really following last year now.

I think.

Yes, we have modestly less inventory so the 4% less inventory than we did a year ago and is already record low inventory, but it's not getting worse. So the week over week is really following last year now.

Speaker 3: In terms of pricing, prices still higher than a year ago, and recently at all time high.

In terms of pricing and prices still higher than a year ago and as recently at an all time high and in terms of demand demand at 8% mortgage rates definitely slowed.

Speaker 3: And in terms of demand, demand at 8% mortgage rates.

Speaker 3: definitely slowed down. And I would say it was almost, instead of being more buyers and sellers, it almost felt like for, you know, for the first time in many, many months, it was as many buyers and sellers. It was almost a balanced market, although a depressed.

Slow down and I would say is almost instead of being more buyers and sellers almost satellites.

For the first time in many many months it was as many buyers and sellers. So it's almost a balanced market.

First one I think it was the mortgage rates going down 70 basis points over the last week is a very very good thing for compass and for the market. There is a lot of evidence out there that consumers respond more to the change in the mortgage rates more than the absolute number.

Speaker 3: I think with the mortgage rates going down 70 base points over the last week, it's a very, very good thing for Compass and for the market. There's a lot of evidence out there that consumers respond more to the change in the mortgage rates, more than the absolute number.

And so.

Speaker 3: And so, 8% at this moment in time is almost a great marketing, is almost a great marketing to buyers, say, 7.4% is very attractive.

8% at this moment of time is almost a great marketing is almost right marketing to buyers to say, 7.4% is very attractive.

Speaker 3: And so, hopefully, you know, hopefully things stay around these levels, but the good news is.

And so the.

Hopefully.

Hopefully things will stay around these levels.

But the good news is thus.

Speaker 3: The fall market is not falling off a cliff. And we are seeing in contract listings over the recent weeks either at or above the prior weeks, or the same levels the prior weeks, prior year. And we're all holding tight to hope that the mortgage rate outlook is reasonable. But with that, Connie, maybe we can be more detail on the.

Thus fall market is not falling off a cliff.

And we are seeing in contract listings.

Over over the recent weeks either at or above the prior weeks or the same level as the prior weeks prior year.

And we're all holding tight to hope that the mortgage rate outlook is is reasonable but would that decline maybe more detail on the Q4.

Speaker 6: Yeah, the only thing I'd add is just to remind very little of the equation, right? I think market first, which Robert said is slightly down, but obviously lapping Q4 last year, which was historically low, added to that agent ads, which as you heard Greg mentioned, we continue to add agents, and so the lift from there will be additive, and then obviously our M&A. We haven't provided formal guidance on the lift there, but those are the three big components to the...

Yeah. The only thing I'd add is just just to remind everybody.

The equation right I think market market first which as Robert said is slightly down, but obviously lapping.

Q4 of last year, which was historically low added to that agent adds which as you heard Greg mentioned, we continue to add agents into the lift from there will be additive and then obviously our M&A. We won't we haven't provided formal guidance on the lift there, but but those are the three big kind of component to the equation.

Okay.

Understood and then just on the agent adds.

Speaker 9: understood and then just on the the agent ads Does any color in terms of how organic agent ads are tracking verse? You know be acquired once from brokerages. I guess asking the same question in a different way like

Just any color in terms of how organic agent adds are tracking versus the acquired ones from brokerages I guess asking the same question a different way if I could.

Speaker 4: Yes, good question, Bernie. So agent ads organically in Q3 were actually almost identical to what we did in Q2.

Yes, good question Bernie.

Agent adds organically in Q3, we're actually almost identical to what we did in Q2.

Speaker 4: And I just remind you and everybody on the call about the way that we report our average principal agent count is calculated by taking the end of month average for each month in the quarter and then just dividing by three.

I'd, just remind you and everybody on the call about the way that we report our average principal agent count is calculated by taking the end of month average for each month in the quarter and then just dividing by three.

Speaker 4: And so then a month total, rather for each month and then dividing by three. And we closed the realty Austin DPP deals in September . So those...

And so again above total rather for each month and then dividing by three.

We closed the Realty Austin DPP deals in September so those the impact of those on our average principal agent count to be Theres, a little bit because its really only about a third of the actual total principal agents that they have we're going to be reflected in Q3.

Speaker 4: The impact of those on our average principal agent count is diluted a little bit because it's really only a third of the actual total principal agents that they have are going to be reflected in Q3.

Speaker 4: But we had a strong quarter from an agent recruiting perspective in Q3. Normally, Q2 is our best agent recruiting quarter. It's historically been that. But this year, we saw Q3 be almost identical, slightly above Q2 on an organic basis. And then you'll see in Q4, you know, the full impact of the two acquisitions flow through in the numbers, and so we're expecting to see, you know, healthy growth in Q4 as well.

But we had a strong quarter from an agent recruiting perspective in Q3 normally Q2 is our best agent recruiting quarter, it's historically done that.

But this year, we saw Q3 be almost identical at slightly above Q2 on an organic basis, and then youll see in Q4.

The full impact of the two acquisitions flow through in the numbers and so we're expecting to see healthy growth in Q4 as well.

Understood. Thank you all.

Our next question comes from the line of Mike <unk> with Goldman Sachs. Please go ahead.

Speaker 1: Our next question comes from a line of Mike Nish with Goldman Sachs. Please go ahead.

Speaker 10: Hey, good afternoon. Thanks for the question. I just have two. First, I was just wondering if you could talk a little bit about Compass's GTV and market share performance.

Hey, good afternoon. Thanks for the question I just have two.

First I was just wondering if you could talk a little bit about <unk>.

<unk> market share performance.

Speaker 10: in the context of whether geography contributed to it or the acquisition.

In the context of weather.

Whether it's geography contributed to it or the or the acquisitions.

Speaker 10: either on a year-over-year or quarter-on-quarter basis. And then second, I was just wondering if you could talk a little bit about Compass's mix of buy-side versus sell-side transactions, is that evenly split, and are there any factors to consider as you think about things that impact that split, whether by market or brokerage size or target customer, otherwise.

Either on a year over year or quarter on quarter basis, and then second.

Second I was just wondering if you could talk a little bit about.

<unk> mix of buy side versus sell side transactions is that evenly split.

And are there any factors to consider as you think about.

Yes.

Impact that split whether by market, our brokerage size or our customer otherwise. Thank you.

Speaker 4: I'll speak to the market share. One of the things that we've seen for the last three years is that our Q3 market share tends to be sequentially lower than Q2. Q3 was up year over year, a little bit down sequentially. We've seen that the last three years in a row. We believe that's primarily just

I'll speak to Mike. This is Greg I'll speak to the market share one of the things that we've seen for the last three years is that our Q3 market share tends to be sequentially lower than Q2.

So Q3 was up year over year, a little bit down sequentially. We have seen that the last three years in a row, we believe thats, primarily just geo mix across the entire country the markets the company again.

Speaker 4: geomixed across the entire country. You know, the markets that companies in, you know, playing a smaller role in overall transactions in Q3 versus the rest of the country than they do in Q2. And so we believe that's one of the factors that's playing out in our market share in the quarter. In terms of buy side versus sell side, they're pretty evenly split. I'll defer to Robert, I think he had some thoughts he wanted to share on that.

Playing a smaller role in overall transactions in Q3 versus the rest of the country than they do in Q2.

And so we believe that that's one of the factors.

Laying out in our market share in the quarter.

Terms of.

Buy side versus sell side.

Theyre pretty evenly split.

Further Robert So the key Hudson plots you wanted to share on that.

Yes, I'm pretty sure that we're.

Speaker 3: Yeah, I'm pretty sure that we're around 55% buy-side versus sell-side. It has changed over time as the markets change, but that's the most recent number that I have.

Around 55%.

Side versus sell side.

It has changed over time as markets change.

The most recent number that I have.

Great. Thanks, Greg Thanks, Robert.

Okay.

Our next question comes from the line of Matthew Bouley with Barclays. Please go ahead.

Speaker 1: next question comes from the line of Mappy Booley with Parklays.

Speaker 11: Hey, good evening everyone. Thank you for taking the questions. I wanted to touch on commission splits. I think even excluding the equity comp adjustments, it looked like they went, the splits went 50 basis points or so in favor of the agent this quarter. I'm curious if there's any anything driving that any mix in there to be aware of and if this is the direction of commission splits that we should assume kind of as we model 2024. thank you.

Hey, good evening, everyone. Thank you for taking the questions.

I wanted to touch on commission splits I think.

Even excluding the equity comp adjustments it looked like they went the splits when 50 basis points or so in favor of the agent. This quarter I'm curious if there's any anything driving that any mix in there to be aware of and if this is the direction of commission splits that we should assume.

Kind of as we model 2024, thank you.

Yes.

Speaker 6: Yeah, thanks very much, Colony. Just take a couple things I think when we think of.

Yeah. Thanks, Matt it's just.

Just a couple of things I think when we think of I think about our Q3 margin.

Speaker 5: Think about our Q3 margin. You're right. It's a favorable kind of year over year, driven mainly by by 2 big buckets. 1st Q3 of last year was 1 of the.

Youre right its a favorable kind of year over year.

Driven mainly by by two Big buckets first Q3 of last year was one of the.

Speaker 5: The two best margin percentage quarters in our history. So we're facing tough prior comps. I think second, you know, we did see year over year margin change primarily due to mix shift both regional mix shift as well as production mix shift.

The two best margin percentage quarters in our history. So we're facing a tough prior year comps I think second we.

Did see year over year margin change, primarily due to mix shift both regional mix shift as well as production mix shift.

Speaker 6: And then also some impact from select number of agent split changes. So, those are the two big kind of in-quarter drivers. I think as you, as we think about and go forward, you know, we continue to believe we have opportunity in our commission space. Again, just a reminder, both in mix. So, you know, we continue to drive the overall book of our agents through the top 50%. Obviously, the bottom side of that has better economic.

And then also some impact from select number of agents split changes. So those are the two big kind of in quarter drivers I think as you as we think about and go forward. We continue to believe we have opportunity in our commission space again, just a reminder, voting in mix. So we continue to drive.

The overall book of our agents through the top 50%, obviously the bottom side of that has better economics, we continue to think that we.

Speaker 6: We continue to think that we can drive also incentives as they come off. If you think about the last three or four years as we recruited, I think we stopped

We can drive also incentives as they come off if you think about the last three or four years as we recruited we I think we stopped about a year ago with incentives and so those those burn off and improve and then obviously if you think about total I think we have some more opportunity on adjacent services. So I think this quarter has popping in some.

Speaker 6: about a year ago with incentives. And so those burn off and improve. And then obviously if you think about total, I think we have some more opportunity on adjacent services. So I think this quarter has topping and some mix more than anything, but it shouldn't be indicative of future.

Mix more than anything, but it shouldn't be indicative of.

Future modeling.

Speaker 3: Yeah, I just want to dial down that point that this should not be indicative of the future. You know, this is always an area of focus, but the bigger areas of focus over the last year are bringing our expenses down in a number of ways, and we are very focused on this to ensure that it's not a trend that we see in the future.

Yes, I just wanted to die down debt oriented this is not be indicative of the future.

This is always an area of focus but the bigger areas of focus over the last year, we're bringing our expenses down.

A number of ways and we.

We are very focused on this to ensure that it's not a trend that we see in the future.

Got it okay Super helpful. Thank you for that detail and then.

Back on the topic of commissions.

Speaker 11: You know, certainly the kind of worry out there is that there would be additional changes compelled, you know, beyond what happened in the Northwest MLS there, you know, for example, a scenario where homebuyers kind of have to pay their agent out of pocket as one possibility. So, you know, from from your perspective, and really great color around all the proactive efforts efforts you're making, you know, you mentioned something around kind of consolidation.

Certainly the kind of worry out there is that there would be additional changes compelled.

Beyond what happened in the northwest MLS there.

For example, a scenario where homebuyers kind of have to pay their agents out of pocket.

One possibility so from from your perspective.

Really great color around all the proactive effort efforts Youre, making you mentioned something around kind of consolidation.

Speaker 11: I mean, so Robert, I mean, is this the type of thing where you are hearing from acquisition targets out there? Do you find that this is the type of thing that could, you know, drive?

So Robert I mean is this the type of thing where you are hearing from acquisition targets out there that do you find that this is the type of thing that could drive.

Speaker 11: brokerages to want to join Compass and just kind of what's your thoughts on how that kind of overall industry, you know, market and consolidation may take shape?

Brokerages to want to join Compass, and just kind of whats your thoughts on how that kind of overall industry market and consolidation may take shape here.

Speaker 3: Yeah, yeah, so you have one that's on a reiterate that there's no evidence today that the commissions will be under pressure. And also want to make the point that for the likely thousands of agents out there doesn't that I know personally that only work with buyers where they highlight with the commission that they

Yes, so when I sort of reiterate that there's no evidence to date that.

Commissions will be under pressure.

And also want to.

You make the point that for the likely thousands of agents out there it doesn't dino personally.

That only work of buyers where they highlight.

The commission that they.

Speaker 3: that they command independently. And there's a fire broker agreement there.

Did they command independently.

And there is a buyer broker agreement there.

Any of those agents are not worried about this present about this.

Speaker 3: any of those agents are not worried about this lawsuit in any way at all, because it's not going to change anything for them. They're going to sign the same buyer broker agreement in two years, three years, four years they have for the last two, three, four years, and it's going to outline what they charge independently. And so I just use that as an example to

Lawsuit in any way at all because it's not gonna change anything for them, they're going to sign the same buyer broker agreement in two years three years four years. They have for the last two or three or four years, and it's gonna outline what they charge independently and so I view that as an example, too.

Speaker 3: Um, you know, just reiterate that there is an evidence that commissions, particularly for any good agents, maybe for the worst agents. Yes. For any good agents, we really focus and the best agents here compass that it won't create pressure. Um, on the. Your question around.

Just reiterate that there isn't evidenced that.

Commissions, particularly for any good agents, maybe for the worst agents, yes for any good agents, we really focus.

Best agents here at Compass that it will create pressure.

Sure.

On the your question around.

What's happened I think in the real estate industry and why there is an unprecedented number of brokerage firms.

Speaker 3: What's happening, I think, in the real estate industry and why there's an unprecedented number of brokerage firm CEOs that are open to selling, I think that they are

That are.

That are open to selling I think that.

I think that they are.

I think.

For the average brokerage firms CEO.

They can be exhausted financially because of the real estate market has been difficult.

Speaker 3: They can be exhausted financially because of the real scene market has been different.

Speaker 3: I think the average brokerage firm CO can be exhausted culturally because their agents and their employees haven't come back to the office with the same energy and the same presence as they did before the pandemic.

I think the average brokerage from Seo can be exhausted culturally because their agents and their employees.

Haven't come back to the office with the same energy and the same presence as they did before the pandemic.

Speaker 3: I think that they are exhausted competitively as they increasingly see that this the Compass technology platform that we have built with one and a half billion dollars of investment behind it and a greater than 500 person team technology team still making it better every single day that they won't be able to rebuild what Compass has. And then I think to your point

Think that they are exhausted competitively.

As they increasingly see that this technology platform that we have built.

With $1 5 billion of investment behind it.

And.

A greater than 500 person team.

All of the teams still.

Making it better every single day that they won't be able to rebuild what compass has.

And then I think to your point.

The.

Speaker 3: The unknown around what the trials will lead to and the headache around them of just, you know, lawyers and litigation, it has, I think, led to more people saying, is this, this really what I.

The unknown around.

What.

The trials will lead to and the headache around them objects.

Lawyers and litigation.

It has I think led to more people, saying is this is this really what I.

Speaker 3: Is this really one I want to sign up for for next couple of years? And so I think it has contributed to adding an additional layer of exhaustion that makes people re-evaluate. Is this a good time to double down or is it a good time to partner with Compass?

It is really what I want to sign up for the next couple of years.

And so I think it's it has contributed to.

Two adding an additional layer of exhaustion.

That makes people reevaluate.

Is this a good time to double down or is it a good time to partner with compass.

Got it well thank you for that Robert Thanks, everyone and good luck.

Thank you.

Okay.

Speaker 1: Our next question comes from the line of Jason Helstein with Oppenheimer & Company.

Our next question comes from the line of Jason <unk> with Oppenheimer and company.

Go ahead.

Hey, Thanks. This is Chad on for Jason quick one for me Robert could you, maybe just talk about what new product or feature launch you're most excited about for 2020 for either either to increase agent productivity or consumer conversion.

Speaker 12: Hey, thanks. This is Chad on for Jason. Quick one for me. Robert, could you maybe just talk about what new product or feature launch you're most excited about for 2024, you know, either to increase agent productivity or consumer conversion? Can I give two?

Can I give too.

Alright, well.

One would be.

It would be solving the majority of team functionality requests that have come from our agents says agents are really small business owners and many of them working.

Speaker 3: It would be solving the majority of team functionality requests that have come from our agents as agents.

Speaker 3: are a really small business owners and many of them work in.

Speaker 3: Uh, in teams with highly complex multi party workflows. Yeah, and we have done a level of that, but I think over, of course, 24, we will do it to level that.

In teams with highly complex multi party workflows.

And we have done their level of that.

But I think over a course of 2004, we will do it to a level that.

Speaker 3: satisfies the majority of the key agent team needs and I'm really excited about that.

Satisfies the majority of the key agent team needs and I'm really excited about that.

Speaker 3: The second is the client dashboard. It will, there'll be a client dashboard over time for buyers, another one for sellers, another one for multiple homeowners. It will be the one-stop shop for everything home. We'll have the time, the transaction timeline there. All of the tools that we built for agents,

The second is the client dashboard.

It will there'll be a client dashboard over time for buyers. Another one for sellers not only for multiple homeowners. It will be the one stop shop for everything home will have the time the transaction timeline there.

All of the tools that we built for agents.

<unk>.

Speaker 3: where you can send a CMA or a tour sheet or a collection to a client who all live in one place.

Where you can send a CMA or tour sheets or collections declined low live in one place.

Speaker 3: Um, and so, uh, if you send it by email, it will be in 1 place for them before, during and after the transaction for the client. And we believe will be a repeat and referral gold line with the agents branding on front and center in the client dashboard and will reinforce.

And so.

It is what the Senate by email it will be in one place for them before during and after the transaction for the client and we believe will be.

Repeat and referral of global and with the agents branding on front and center in the client dashboard.

Reinforce the relationship.

Speaker 3: the relationship as the real estate advisor with their client, strengthen the relationship, which is really important in this time to show your value. And those are the two things I'm most excited about.

The real estate advisor with the with their their clients straighten the relationship which is really important in this time to show your value.

And that's why those are two things I'm most excited about.

Thanks.

And.

Speaker 3: And, you know, in completing title in an escrow integration to platform in every market, as well as number.

Completing entitled.

And it's true integration of the platform in every market as well as number three.

Our next question comes from the line of Lloyd Walmsley with UBS. Please go ahead.

Speaker 1: Our next question comes from the line of Lloyd Wamsley with UBS. Please go ahead.

Speaker 10: Thanks. In terms of just the operating costs, are there, you know, are there plans perhaps on the shelf where if, if we don't see any relief in mortgage rates, like, if they just keep marching forward.

Thanks.

In terms of just the operating costs are there.

Are there plans, perhaps on the shelf, where if we don't see any relief in mortgage rates like if they just keep marching forward.

Speaker 13: Where you where you can take more operating costs out of the business to ensure you remain at pre cash flow positive. I think none of it. Well, I speak for myself. I did not think race to be where they are today a year ago. So, if we keep seeing the March up higher, what. You know, what do you guys contemplate?

Where are you where you can take more operating costs out of the business to ensure you remain at free cash flow.

Positive I think none of it will speak for myself I did not think rates would be where they are today a year ago.

So if we keep seeing in March up higher.

What are you guys contemplate.

Reacting and then I guess going back to the industry structure question.

Speaker 13: reacting. And then I guess going back to the industry structure question,

<unk>.

How do you think are full.

Speaker 13: you know, how do you think a full, you know, an injunction from the judge in the Sitcher case preventing, you know, sellers from paying buyers at all? Like, is that, would that surprise you? And if the industry moved in that direction, you know, do you think that would be more, perhaps more problematic than, than what, you know, the case study we're looking at in, in the Seattle region where it's simply, they're not required to offer.

An injunction from the judge in the <unk> case, preventing.

Sellers from paying buyers at all because that would that surprise you and if the industry moves in that direction do you think that would be more.

Perhaps more problematic than then the.

The case study, we're looking at and in the Seattle region, where it's simply they are not required to offer.

Speaker 3: Maybe I'll start with the 2nd and then I'll pass on to Connie for the 1st part of your question.

Maybe I'll sensation, maybe I'll start with the second and then I'll pass on to <unk> for the first part of your question.

Speaker 3: So that the settlements that Reelogy and REMAX had.

So the settlements that religion can relax had.

Still allow sellers to pay a buyer condition just doesn't make it a requirement.

Speaker 3: still allow sellers to pay a buyer commission. It just doesn't make it a requirement. And to.

And to my understanding.

Speaker 3: The requirement was only a penny, and so that's why when you take a penny to zero, which I believe is what they said on just bring the penny to a zero.

Yeah the requirement.

It was only a penny.

And so that's why when you take a penny to zero, which I believe.

Is what they said on spring depending to zero.

That's why the market norm prevails, because taking a pain to zero when change market norm.

Speaker 3: That's why the market norm prevailed, because taking a paying to zero wouldn't change the market norm, which kind of highlights, you know.

Which kind of highlights.

What's going on here and the different people have different motivations.

Speaker 3: What's going on here and the different people's different motivations, but bringing is a penny to zero is what they settled on. And that brings you to Washington state. Um, or the Northwest is 80% of the population.

But bringing us a penny to a zero is what they settled on and that brings you to Washington State.

The northwest MLS was 80% of the population.

Speaker 3: They're not allowing sellers to pay the buyer commission. They'd be really challenging for buyers, because right now...

No not allowing sellers to.

To pay to buy our commission be really challenging for buyers because right now.

Speaker 3: because then they would not be able to finance it in the mortgage. And so it actually increased costs for buyers, to my knowledge. But again, there isn't.

Because then they would not be able to finance it in the mortgage and so it actually create increased costs for buyers to my knowledge.

But again there isn't.

Speaker 3: evidence that that is going to be the clear path versus what has been settled on. And again, for the agents who are

Other than that.

<unk> is going to be the clear path versus what has been settled on and again for the agents who are.

Speaker 3: You know how to successfully get by a broker agreements, which outline their commission. It shouldn't be a risk for those people, which is why we're making training along those lines, a key priority for our agents to empower them.

Do you know how to our success.

Successfully get via broker agreements, which outlined their commission it shouldnt be a risk for those people, which is why we're making training along those lines a key priority for our agents to empower them.

But with that Kony.

Speaker 6: Yeah, sure. Thanks, Lloyd. Lloyd, I think, and we mentioned, I think, you know, we...

Sure. Thanks, a lot.

But I think and we mentioned I think.

<unk>.

Speaker 5: Um, we've we've had what we've seen our success is being able to look ahead and making sure that our op ex.

We've had.

We've seen our success is being able to look ahead and making sure that our opex is as ahead of market conditions. I think that's again for two things. We wanted to make sure. We are ahead of market conditions also to make sure we're maximizing.

Speaker 6: is ahead of market conditions. I think that's again for two things. One, to make sure we are ahead of market conditions, also to make sure we're maximizing.

Speaker 6: profit and value. I think as we think about our path to 900 down to 850, I think we do have room if we need to. We'll continue to monitor, you know, where we go is going to be kind of a continued story of our operational efficiencies we've already extracted as part of it. So I think about lowering costs per transaction, so looking at continued efficiencies in our kind of transaction based cost. Obviously, if the market continues, you know, looking at variable cost as revenue decline.

Profit in value I think as we think about our path to 900 down to a 50 I think we do have room, if we need to we'll continue to monitor where we go is going to be kind of a continued story of our operational efficiencies we've already.

Extracted as part of it so I think about low cost lowering cost per transaction. So looking at continued efficiencies in our kind of transaction based costs. Obviously, if the market continues you are looking at variable cost as revenue declines low cost labor, we've done a tremendous job so far but I think we still have opportunity I think about our back office.

Our efforts and continuing to look at low cost labor and efficiencies there as well as our technology, we've done Greg and team.

Really nice job of ensuring that we have a great portfolio, but doing it with low cost labor and then vendors I think we will continue to rationalize we'll continue to look at lower usage licensing et cetera, and then and obviously procurements and lowering rates. So I think we have a bunch of.

Speaker 6: opportunities at our disposal, and we'll continue to monitor it. But again, I think we're doing it both to make sure we react to the market, but also just to continue to drive profit, to continue to drive free cash flow. The more we can optimize through, you know, our kind of discipline of efficiencies, I think the more profit we're focused on. So, I hope that helps.

Opportunities at our disposal and we'll continue to monitor it but again I think we're doing it both to make sure we react to the market, but also just to continue to drive profit to continue to drive free cash flow.

Speaker 11: Again, I think we're doing it both to make sure we react to the market, but also just to continue to drive profit, to continue to drive free cash flow. The more we can optimize through our kind of discipline of efficiencies, I think the more profit we're focused on. I hope that helps. All right. Thank you. Our next question comes from a line of Ryan McEvany with Zellman in Associates. Please go ahead. Thanks a lot, guys. Two questions that are kind of...

The more we can optimize through our kind of discipline of efficiencies I think the more profit we are focused on so I hope that helps.

Okay.

Alright, thank you.

Our next question comes from the line of Ryan Mckenna.

Speaker 1: Our next question comes from the line of Ryan McEvaney with Zellman & Associates. Please go ahead. Thank you.

With Zelman and associates. Please go ahead.

Hey, Thanks, a lot guys.

Two questions that are kind of the same so I'll ask them at the same time.

Speaker 11: questions that are kind of the same so I'll ask them at the same time. So on the client dashboard.

So on the on the client dashboard.

Speaker 11: and on the T&E side, you know, both seem very interesting opportunities to expand those. I guess, you know, we'll, in both cases, will that require much incremental investment or expense to kind of get where you want to go, let's say, on the dashboard or, you know, with the T&E integrations into more markets, or...

And on the T&D side.

<unk> seen some very interesting opportunities to expand those.

Yes.

In both cases will that require much incremental investment or expense to kind of get where you want to go let's say on the dashboard or with the TNT integration into more markets or more.

Speaker 11: maybe on the T&E side, is that more of driving revenue opportunity without adding much cost?

Maybe on the T&D side is that more of driving revenue opportunity without adding much cost and same.

Same thing on the client dashboard is there much incremental tech spend or whatever expenses. They are the need to.

Speaker 11: incremental tech spend or whatever expenses they are that need to, you know,

Get that to the point of launch an expansion into next year.

Speaker 3: Yeah, I'm going to pass it on to Greg to answer that. Um, no, there's no incremental tech spend, but also I thought it'd be helpful. And Greg is really spearheading a compass. A. I. If you can, is maybe you can chat about why and I know I've heard from you say that that's 1 of the areas you're most excited by. Maybe just share why that is.

Yes, I'm going to pass it on to Greg to answer that.

Uh huh.

No there was no incremental tech and it also I thought it would be helpful and Craig is really spearheading Columbus AI. If you can just maybe you can chat about.

Why do I have heard from us.

That's one of the areas you're most excited by maybe just sure why that is.

Speaker 4: Sure. So first, just to answer the question, no, there's no incremental expense. We're not increasing the investment in technology to be able to, you know, either integrate T&E into the platform or to work on client dashboard or Compass AI for that matter. You know, we've continued over time to reduce.

Sure. So first just to answer the question no. There is no incremental expense, we're not increasing the investment in technology to be able to.

They're integrating into the platform or to work on client dashboard or compensate for that matter.

We've continued over time to reduce our investment in technology, both on an absolute basis, but also obviously as a percentage of revenue yet we still feel very confident in our ability even with.

Speaker 4: our investment in technology both on an absolute basis but also obviously it's a percentage of revenue that you get we still feel very confident our ability even with you know less investment in the area to continue to build for our agents. Composite IA to great example of that and we certainly believe that we're in a different position than any of our competitors with respect to our ongoing investments.

Less investment in that area to continue to build for our agents couple of Ci is a great example of that and we certainly believe that we are in a different position than any of our competitors with respect to our ongoing investment in tech being a much more impactful one for us than anybody else is doing in this space.

Speaker 4: in tech being a much more impactful one for us than what anybody else is doing in the space.

Speaker 4: In terms of Compass AI, you know, Robert mentioned that one of the reasons that I am a big believer in the impact that Compass AI has already had, but will also have for our agents, is that it takes some of the tasks that agents do all the time,

In terms of Compass AI, Robert mentioned that.

One of the reasons that I am a big believer in the impact that <unk>.

Has already has had but we'll also have for our agents is that it takes some of the tasks that do all the time.

Speaker 4: and it makes them much much much easier. So it doesn't do their job for them completely, but it does, you know, 80 to 90 percent of the job in one second. Writing a listing description, creating a marketing email, creating a social post, you know, you can use Kempis AI, you know, type in, you know, a few things that you want to do for a new listing, you know, give me a new listing.

And it makes them much much much easier.

So it doesn't do their job for them completely but it does 80% to 90% of the job in one second writing a list and description, creating a marketing email.

Creating a social posts you can use chemicals AI type in a few things that you want to do for our new listening listening at 123 main street three bedroom.

Speaker 4: 123 Main Street, three bedroom, you know, faces west, third floor, and it'll immediately come back to you with a with a great description. You can then tweak it or you can.

Cases west third floor.

And then nearly come back to you with a with a great description you can tweak it or you can use the pumps to refine what gives you.

Speaker 4: use the prompt to refine what the AI gives you. When we've done coaching sessions and training sessions on Compass AI with agents, we'll have thousands of agents in attendance. They're by far our best attended training sessions that we've ever had. And agents rave about it. It's a huge.

When we've done coaching sessions and training sessions on compensate with agents will have thousands of agents in attendance by far our best attended training sessions that we've ever had.

And agents rave about it its a huge time saver for them.

Speaker 4: time-saving for them and it's also one of those things that gets them over the cold start problem when they're sitting down to do that and so

So one of those things that gets them over the the cold start problem, when they're sitting down to do that and so one of the best things about all the investment we've made in our technology platform to date is that gives us a lot of surface area to use AI across until Compass. AI is the latest example of that and some of them something that we're continuing to be.

Speaker 4: You know, one of the best things about all the investment we've made in our technology platform today is it gives us a lot of surface area to use AI.

Speaker 4: And so Compass AI is probably the best example of that, and something that we're continuing to be excited about expanding over time, but that won't require any incremental investment to do so.

I read about expanding over time.

Acquire any incremental investment to do so.

Great. Thank you very much.

Our final question comes from the line of Matthew cost with Morgan Stanley. Please go ahead.

Speaker 1: The final question comes from the line of Matthew Koss with Morgan.

Hi, everybody. Thanks for squeezing me in here I guess, you had a pretty clear roadmap that you've laid out for the market that we're in.

Speaker 8: Hi, everybody. Thanks for squeezing me in here. I guess, you know, you've had a pretty clear roadmap that you've laid out for the market that we're in, where, you know, transaction volume is really, really low, you know, prices have not gone down, and you're managing costs, you know, as much as you can. I think you've been being clear about your goals there. What

Transaction volume is really really low.

Mrs have not gone down and Youre managing costs.

As much as you can and I think you've been you've been clear about your goals there what.

Speaker 14: happens if we tip into a recession scenario.

Happen, if we tipped into a recession scenario from here do you look to cut costs. Even further you've already taken a lot of cost out of the model you can kind of stay on the path that you're on and then at what point do you lean back in to be investing.

Speaker 15: do you look to cut costs even further? You've already taken a lot of costs out of the model. You kind of stay on the path that you're on. And then at what point do you lean back in, you know, to reinvesting? You know, because obviously, you know, if we do end up in that scenario, then that's kind of the darkest moment before things start to recover. Thank you. Well, Alec, I think

Because obviously, if we do end up in that scenario, then that's kind of the darkest moment before things start to recover.

Well I think.

There's a lot of this.

There's a lot of.

The number of people that would say that.

Speaker 3: The number of people that would say that if a recession would be good for the real estate in at some levels, the recession at some level would be good for the real estate market because

Session would be good for the real estate at some levels a recession at some level would be good for the real estate market because it's it would lead to the fed lowering rates, which would bring down.

Speaker 3: it would lead to the Fed lowering rates, which would bring down, obviously, the mortgage rate. And that is the biggest thing that's governing the transaction volume in the country, where 60% of homeowners are locked in at 4% mortgage rates or below.

Obviously, the mortgage rate and that's the that is the biggest thing that governing the the transaction volume in the country, where 60% of homeowners are locked in at 4% mortgage rates are below.

Speaker 3: And so, you know, rolling somebody before into age just two months or three into eight is just too much.

And so rolling something food for into Asia, as two months or three into Adas just too much by the way that's a better number now but it was nine months ago nine months ago. It was 70% was locked in at for so it looks like over the last.

Speaker 3: By the way, it's a better number now than it was 9 months ago. 9 months ago, it was 70% was locked in at 4. so it looks like over the last 9 months, it moved from 70% to 6% that have that significant rate lock issue. So, yeah, I think a modest recession would be.

The last nine months.

It moved from 70% to 6% that have that significant.

Rate lock issue.

So, yes, I think a modest recession would be.

Speaker 3: helpful to the mortgage rate, a deeper one would be more, could potentially be more problematic. And in terms of when do we turn the investment back on, I think it's important to be clear.

It's helpful to the mortgage rate of deeper win would be more it.

Could could potentially be more problematic.

And in terms of when do we turn the investment back on I think it's important to be clear.

Speaker 16: that we believe it had.

We believe that.

Speaker 3: This isn't a temporary moment where we're going to just bring expenses back when the market comes back. This is, you know, we are thinking of this as the new normal for a cost base, of course, increasing with inflation over time. But we're even at these levels, we have a technology team that's over 500 people strong, which is likely larger than every other traditional brokerage firm in the industry combined.

This isn't a temporary moment or are they going to just bring expenses back when the market is back this is.

We're thinking of this as the new normal.

Or a cost base of course increasingly with inflation over time.

But we're even at these levels we have.

Technology, that's over 500 people strong which is likely larger than every other traditional brokerage industry combined.

Speaker 3: are the value that we create?

Our the value that we create and it's.

Speaker 3: it's all relative to our competitors. And I think the distance between us and our competition has widened every year over the last three years. And so for that reason, we don't need to put on massive dollars to invest.

It's all relative to our competitors and I think the distance between us and our competition has widened every year over the last three years and so for that reason, we don't need to put on massive dollars to invest.

We can just continue being the company at these new levels.

Speaker 17: We can just continue being the company at these new levels and taking advantage of efficiencies to be able to earn the right to invest by creating more profit over time. But I don't think that's gonna be the area of focus as in creating more investment right now. Great, thank you.

<unk> taken advantage of.

<unk> efficiencies.

To be able to earn the right to invest by recruiting more profit over time.

But I don't think thats going to be the area of focus is in creating more investment right now.

Okay.

Great. Thank you.

Okay.

I would now like to turn the call over to Robert Raskin for closing remarks.

Okay.

Speaker 3: Thank you everyone for joining today's call. I just want to take these final moments of the call to thank all of the COMPAS employees and all of the COMPAS agents for their hard work and commitment to making COMPAS the number one real estate brokerage by sales volume in the United States for the second year in a row. In a difficult market, I want to thank all of you.

Thank you everyone for joining today's call I just wanted to take these final moments of the call to thank all of the countless employees and all of the Columbus agents for their hard work and commitment to make encompassed the number one real estate brokerage by sales volume in the United States for the second year in a row in a difficult market.

Speaker 3: Our agents continue to outperform, and I just want to say thank you. We continue to successfully manage our expenses down and are prepared for the uncertainty of 2024. Eventually, the real estate market will come back, and when it does, I am incredibly confident that Compass is well-positioned for incredible success. Thank you, everyone. Bye.

Or even continue to outperform and I just wanted to say. Thank you. We continue to successfully manage our expenses down and are prepared for the uncertainty of 'twenty 'twenty four eventually the real estate market will come back and when it does.

Incredibly confident that <unk> is well positioned for incredible success. Thank you everyone bye.

I'd like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's call and you may now disconnect.

Speaker 1: I'd like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's call and you may now...

Yes.

Yeah.

Thank you.

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