Q4 2023 Compass Inc Earnings Call

Operator: Thank you for standing by, and welcome to the Compass, Inc. Q4 2023 earnings call. I would now like to welcome Richard Ciminelli, VP of Investor Relations, to begin the call. Richard, over to you.

Thank you for standing by and welcome to the Compass, Inc. Q4, 2023 earnings call I would now like to welcome Richard Simonelli, VP Investor Relations to begin the call Richard over to you.

Richard Ciminelli: Thank you very much, Operator, and good afternoon, everybody, and thank you for joining the Compass Fourth Quarter and Full Year 2023 Earnings Call. Joining us today will be Robert Refkin, our Founder and Chief Executive Officer, and Kalani Relitz, our Chief Financial Officer. When discussing our company's performance today, we will refer to some non-GAAP measures. You can find the reconciliation of these gap measures to the most directly comparable gap measures in our fourth quarter earnings release that was posted on our investor relations website a few minutes ago. We will be making forward-looking statements that are based on our current expectations, forecasts, and assumptions that involve risks and uncertainty. These statements include our guidance for the first quarter of 2024 and comments related to our operating expenses and free cash flow for the full year of 2024 as well as our expectations for operational achievement.

Thank you very much operator, and good afternoon, everybody and thank you for joining the company's fourth quarter and full year 2023 earnings call.

Joining us today will be Robert Raskin, our founder and Chief Executive Officer, Nick Galotti relax, our Chief Financial Officer.

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

Minutes ago.

We'll be making forward looking statements that are based on our current expectations forecasts and assumptions that involve risks and uncertainties. These statements include our guidance for the first quarter of 2024.

Comments related to our operating expenses and free cash flow for the full year of 2024 as well as our expectations for operational achievements. 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 in our most recent annual report on form.

Richard Ciminelli: 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 in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC and available on our investor relations website, and Upplace, Undo, Reliance, Senate, or any of these four looking states. All information in this presentation is as of today's date, February 27, 2024. We expressly disclaim any obligation to update this information. So I'll now turn the call over to Robert Refkin, our CEO. Robert.

Okay.

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 of these forward looking statements. All information in this presentation is as of today's date February 27 2024.

We expressly disclaim any obligation to update this information so now I'll turn the call over to Robert Raskin, Our CEO Robert.

Yeah.

Robert Refkin: Thank you, Rich, and thank you for joining us today for our fourth quarter and full year 2023 results conference call. Before I get into our Q4 and 2023 results, I want to begin with the big picture, why I am optimistic about Compass and what we can accomplish over the next several years. I am incredibly excited about the opportunity we have to take advantage of our $1.5 billion investment in our technology platform and scale as the market comes back. Assuming we continue to add net agents annually, maintain or modestly improve our agent economics, and keep our $600 million of cost savings with minimal inflationary growth of 3% to 4%, we believe that Compass will generate hundreds and hundreds of millions of dollars in EBITDA and free cash flow as the market recovers I want to be clear that our target OPEX for 2024 is a reset of OPEX, not a temporary reduction of expenses. Importantly, our future success is not reliant on new product offerings or expanding into new markets.

Thank you rich and thank you for joining us today for our fourth quarter and full year 2023 results conference call before I get into our Q4 and in 2020 results I wanted to begin with the Big picture why I am optimistic about compass and what we can accomplish over the next several years.

Yeah.

I am incredibly excited about the opportunity we have to take advantage of our one 5 billion dollar investment in our technology platform and scale as the market comes back.

Assuming we continue to add net agents annually maintain or modestly improve our agent economics, and keep our $600 million of cost savings with minimal minimal inflationary growth of 3% to 4%. We believe that Congress will generate hundreds and hundreds of millions of dollars in EBITDA and free cash flow.

As the market recovers to a more normalized mid cycle home sales level of five three to $5 5 million annual home sales.

I want to be clear that our target opex for 2020 four is the reset of opex not a temporary reduction of expenses importantly.

Our future success is not reliant on new product offerings are expanding into new markets. We have already built an unrivaled technology platform that attracts and retains the best agents, while allowing us to uniquely scale compared to our competitors.

Robert Refkin: We have already built an unrivaled technology platform that attracts and retains the best agents while allowing us to uniquely scale compared to our competitors. Even at these new OPEX levels, we continue to invest in agent growth, increasing market share, expanding our technology advantage with approximately $100 million in annual R&D, and continue our integrated services expansion. We have successfully navigated two consecutive years of very large declines in industry-wide transactions. U.S. home sales dropped 18% year-over-year in 2022 and declined 19% year-over-year in 2023, resulting in the lowest level of home sales since 1995, and the population in the U.S. is 27% larger now than in 1995. Despite these massive headwinds, we have positioned Compass for significant upside when the market begins to recover. So let's look at the results.

Even at these new Opex levels, we continue to invest in agent growth <unk>.

Increasing market share expanding our technology advantage with approximately $100 million in annual R&D and continuing our integrated services expansion.

We have successfully navigated two consecutive years.

Very large declines in industry wide transactions U S home sales dropped 18% year over year in 2022 and declined 19% year over year in 2023, resulting in the lowest level of home sales since 1995.

And the population in the U S is 27% larger now than in 1995.

Despite these massive headwinds we have positioned <unk> for significant upside when the market begins to recover.

So let's look at the results.

Robert Refkin: In the fourth quarter of 2023, we achieved solid financial results that are in line with our guidance with $1.1 billion of revenue and an adjusted EBITDA of negative $23.7 million. We achieved our 2023 target range of $850 million to $950 million in non-GAAP operating expenses. I'm pleased to announce we ended the year below our midpoint goal. During this time, we took aggressive action on what we could control by reducing our annualized non-GAAP operating expense by a run rate of nearly $600 million in Q2 2022. As a result, in 2023, we were able to achieve a $266 million improvement in our operating cash flow and a $325 million improvement in free cash flow, even as revenue declined by $1.1 billion in 2023 compared to 2022.

In the fourth quarter of 2023, we achieved solid financial results.

That are in line with our guidance with $1 1 billion of revenue and adjusted EBITDA of negative $23 7 million.

We achieved our 2023 target range of $850 million to $950 million in non-GAAP operating expenses.

I am pleased to announce we ended the year below our midpoint goal. During this time, we took aggressive action on what we can control by reducing our annualized non-GAAP operating expense by run rate of nearly $600 million from Q2 2022.

As a result in 2023, we have been able to achieve a $266 million improvement.

In our operating cash flow in a $325 million improvement in free cash flow, even as revenue declined by $1 1 billion in 2023 compared to 2022.

Robert Refkin: Overall, I am very pleased with the progress we've made on our agent economics. Will commissions as a percentage of revenue improve by four basis points in 2023 compared to 2022 after adjusting for the agent equity program in the prior year? This improvement was negatively impacted by about 10 basis points from M&A activity in 2023, which had lower splits than our base business, and therefore, our commissions as a percentage of revenue actually improved 14 basis points, winding-adjusted for the M&A activity in 2023. Additionally, during 2023, we prioritized reducing Asian cash incentives, which are included in the sales and marketing line of our P&L, and therefore, the improvement is not reflected in the commission line. The reduction to our cash incentives accounts for an additional 43 basis points of improvement for an aggregate of 57 basis points of improvement in total agent economics. 57 basis points of improvement in total agent economics. As a reminder,

Overall I am very pleased with the progress we've made on our agent economics.

Our commissions as a percentage of revenue improved by four basis points in 2020.

Compared to 2022 after adjusting for the agent equity program in the prior year.

This improvement was negatively impacted by about 10 basis points from M&A activity in 2020, three which had lower splits in our base business and therefore, our commissions as a percentage of revenue actually improved 14 basis points.

When adjusting for the M&A activity in 2023.

Additionally, during 2023, we prioritized reducing ease in Cas cash incentives, which are included in the sales and marketing line of our P&L and therefore, the improvement is not reflected in the commissions line.

The reduction to our cash incentives account for an additional 43 basis points improvement for an aggregate of 57 basis points of improvement in total agent economics.

57 basis points of improvement in total agent economics.

As a reminder.

Robert Refkin: On our Q2 call last year in August, I said we expected EXIT 2023 Top X to be $900 million at run rate and are committed to a path we have outlined to maintain our OPEX at 900 million dollars in 2024 and are focused on maintaining that level in 2025. I am pleased to say that we outperformed on the targeted Q4 2023 $900 million OPEX run rate, coming in at $894 million, and that we expect to outperform our full year 2024 $900 million OPEX commitment as we are now guiding to a full year 2024 OPEX midpoint of $865 million. Importantly, we are still committed to maintaining 2025 OPEX at $900 million or below. One of the questions I am asked is, how do you know this is the right OpEx level?

On our Q2 call last year in August I said, we expect exit 2023.

Capex to be $900 million.

At a run rate level and are committed to a path we have outlined to maintain our opex at $900 million in 2024, and our focus on maintaining that level in 2025.

I am pleased to say that we outperformed on the targeted Q4 2023 $900 million Opex run rate coming in at $894 million.

And that we expect to outperform our full year 2024 $900 million Opex commitment as we are now guiding to a full year 2024, opex midpoint of $865 million.

Importantly.

We are still committed to maintaining 2025, opex and $900 million or below.

One of the questions I am asked is how do you know this is the right opex level.

Robert Refkin: If our target... 2024 $865 million OPEX would have been our OPEX for the whole year of 2023, we would have generated positive EBITDA and positive free cash flow in 2023, a year that saw the lowest level of transactions since 1995. It's important to note that at these new Lopex levels, we are still able to invest in the future growth of the business, including approximately $100 million a year in R&D. I want to be clear that we have not compromised the agent experience.

If our target <unk>.

2020 for $865 million Opex would have been.

Our opex for the full year of 2023, we would have generated positive EBITDA and positive free cash flow in 2023, a year that saw the lowest level of transactions since 1995.

It's important to note that at these new Opex levels, we were still able to invest in the future growth of the business, including approximately $100 million a year in R&D.

I want to be clear.

That we have not compromised the agent experience.

Robert Refkin: Anyone can cut expenses, but to do so without harming our agents is important to us. As you will see from the following highlights, Agents continue to come to Compass and Justia Compass, and our technology platform is now the major reason, as it makes agents more productive and allows Compass to lower costs. We have recruited more than 2,000 principal agents without cash or equity sign-on incentives since eliminating those incentives in August 2022.

Anyone can cut expenses, but to do so without harming our agents is important to us.

As you will see from the following highlights agents continue to come to campus.

And to stay at Compass.

And our technology platform is now the major reason as.

As it makes agents more productive.

Allows <unk> to lower costs.

We have recruited more than 2000 principal agents without cash or equity sign on incentives.

Eliminating those incentives in August 2022.

Robert Refkin: We grew the average number of principal agents by 7.7% in Q4 2023 versus Q4 2022. Additionally, we continue the trend of strong agent retention, achieving 97% principal agent retention in Q4 2023. We grew quarterly market share both year over year and quarter over quarter in Q4 2023 by 9 and 10 base points, respectively. Agents had a strong year executing transactions. On a transaction percentage basis, Compass Agents outperformed the entire US residential real estate market in Q4 2023 and for the full year of 2023. Compass transactions declined 4.9% in Q4 2023 versus Q4 2022, which compares favorably to the 9.2% decline in transactions for the industry. For the full year of 2023 compared to 2022, Compass transactions were down 15.5% compared to a decline of 18.7% for the entire U.S. residential market.

We grew the average number of principal agents by seven 7% in Q4, 2023 first Q4 2022.

We continued the trend of strong agent retention.

Achieving 97% principal agent retention in Q4 2023.

We grew quarterly market share both.

Year over year and quarter over quarter in Q4, 2023 by nine and 10 basis points respectively.

<unk> agent had a strong year executing transactions.

On a transaction percentage basis, Columbus agents outperformed the entire U S residential real estate market in Q4, 2023 and for the full year of 2023.

<unk> transactions declined four 9% in Q4 2023 versus Q4, 2022, which compares favorably to the nine 2% decline in transactions for the industry for.

For the full year of 2023 compared to 2022 companies transactions were down 15, 5% compared to a decline of 18, 7% for the entire U S residential market.

Robert Refkin: In 2023, we will continue to grow our technology advantage by adding 103 features to our platform, including Performance Tracker, Compass AI enhancements, and one-click title and escrow, which increases attach rates for this higher-margin title and escrow business. Given the investments made in the transaction management side of our platform, our nearly 400-person transaction operations agent payments team reduced the processing cost of our brokerage transactions by 22% in 2023 compared to 2022, while improving accuracy and time to pay, a great example of how we didn't sacrifice the aging experience. We expect to bring these costs down by 23% more this year with further platform investments. Kalani Relitz, our Chief Financial Officer, will walk you through all the financial details later on in this call, but I want to take a moment to talk about Kalani and his contribution to Compass on the operations side. Kalani's prior experience as the Chief Operations Officer and Chief Financial Officer for the Americas at Christian Wakefield has been exceptionally helpful to me and my leadership team.

In 2023, we continue to grow our technology advantage by adding 103 features to our platform, including performance tracker, Columbus, AI enhancements and one click title and escrow, which increases attach rates for this higher margin title and escrow business.

Given the investments made in the transaction management side of our platform. Our nearly 400 person transaction operations, Egypt payments team reduced the processing cost of our brokerage transactions by 22% in 2023 compared to 2022, while improving accuracy and time today.

A great example of how we didnt sacrifice the agent experience.

We expect to bring these costs down 23% more this year with further platform investments.

Cumani realists, our Chief Financial Officer will walk you through all the financial details later on in this call, but I want to take a moment to talk about <unk> and its contribution to campus on the operations side.

Colombia has prior experience as the Chief operations Officer, and Chief Financial Officer for the Americas at Cushman Wakefield has been exceptionally helpful to me and my leadership team.

Robert Refkin: His experience running both finance and day-to-day operations in the commercial real estate brokerage space provides us additional real-time industry expertise as we continue to maximize operating efficiencies, remain disciplined on cost, and continue to build out world-class operating platforms to drive meaningful value for agents and shareholders. We recruited over 1,000 new principal agents in 2023. When asked what the top reason for joining Compass was, over 80% point to our Compass technology platform, which makes them more productive. More importantly, I don't believe there is another major real estate brokerage where more than 20% of agents that joined in the last year would point to the technology offering as the number one reason to join.

His experience running both finance and day to day operations and the commercial real estate brokerage space provides us additional real time industry expertise as we continue to maximize operating efficiencies remain disciplined on cost and continue to build out world class.

Operating platforms to drive meaningful value for agents and shareholders.

We recruited over 1000, new principal agents in 2023 when asked what the top reason for joining compass was.

Over 80% pointing to our compass technology platform, which makes them more productive.

More importantly, I don't believe there is another major real estate brokerage were more than 20% of agents that joined in the last year with point to the technology offering as the number one reason to join.

Robert Refkin: Beyond our ability to recruit and retain the best agents, our platform is incredibly scalable and provides a sustainable financial advantage. In fact, that's a big part of our value thesis. Adding agents to the platform has virtually no incremental cost, so we can add thousands of new agents with very minimal additional support costs. This is a significant point of distinction from the way a traditional brokerage firm's costs ebb and flow with age and number. In tough times, they cut costs, and in good times, they add them back. This is because their support costs are people, and those costs don't scale because they grow literally as they add age.

Beyond our ability to recruit and retain the best agents. Our platform is incredibly scalable and provides a sustainable financial advantage.

In fact, that's a big part of our value thesis.

Adding agents to the platform has virtually no incremental costs. So we can add thousands of new agents with very minimal additional support costs.

<unk> is a significant point of distinction from the way a traditional brokerage firms comps ebb and flow with agent counts.

In tough times, they cut off and in good times, they add them back.

This is because their support our people and those costs don't scale, because they grow literally as they add agents.

Robert Refkin: This is a point of differentiation for Compass and a major competitive advantage as the market recovery unfolds. At Compass, we believe in the combination of high technology and high touch to build strong relationships between our agents and their buyers and sellers. To further strengthen that bond in 2024, we plan to build upon our highly successful buyer collections tool and deliver the first phase of our Compass Client Dashboard for both buyers and sellers. We envision this as the single destination for everything home before, during, and after the transaction for our agent's client.

This is a point of differentiation for <unk> and a major competitive advantage as the market recovery unfolds.

At <unk>, we believe in the combination of high Tech and high touch to build strong relationships between our agents and their buyers and sellers.

To further strengthen that bond in 2024, we plan to build upon our highly successful buyer collection store and deliver the first phase of our compass client dashboard for both buyers and sellers.

We envision this as a single destination for everything home before during and after the transaction for our agents clients.

Robert Refkin: I look forward to providing more insight into the impact this product will have on our agents and their clients in upcoming calls. In 2023, despite strong market headwinds, we will continue to benefit from our ongoing investment in integrated services such as title and escrow and mortgage. In 2023, our portfolio of title and escrow businesses delivered all-time Compass high attached rates and drove year-over-year improvements in EBITDA margins. We're continuing our focus on growing our footprint for title and escrow and recently purchased an attorney's key title in Fort Lauderdale, Florida, giving us a strong foundation to build this service offering in Florida. The 4 million existing home sales for 2023 represented a 30 year low.

I look forward to providing more insight into the impact this product will have on our agents and their clients in upcoming calls.

In 2023, despite strong market headwinds, we continued to benefit from our ongoing investment in integrated services, such as title and escrow and mortgage.

In 2023, our portfolio of title and escrow business has delivered all time company high attach rates.

And drove year over year improvement in EBITDA margins.

We're continuing our focus on growing our footprint for title and escrow and recently purchased attorneys key title in Fort Lauderdale, Florida, giving us a strong foundation to build this service offering in Florida.

The 4 million existing home sales for 2023 represented a 30 year low.

Robert Refkin: When you add a nearly two-year compression of both supply and demand driven by a massive and rapid increase in mortgage rates, there will be an eventual return to a mid-cycle range of $5.3 million to $5.5 million annual resale transactions in time. I am consciously optimistic about 2024. While most real estate analysts are calling for transactions to increase in 2024, which we agree with, for budgeting purposes, we are conservatively planning for flat transactions year over year. We are seeing some positive signs as we enter the new year. For example,

When you add a nearly two year compression of both supply and demand driven by a massive and rapid increase in mortgage rates. There will be an event an eventual return to a mid cycle range of $5 3 million to $5 5 million annual resale transactions in time.

I am cautiously optimistic about 2024.

While most real estate analysts are calling for transactions to increase in 2024, which we agree with for budgeting purposes. We are conservatively planning for flat transactions year over year.

We are seeing some positive signs as we enter the new year.

Yeah.

For example, our.

Robert Refkin: Our revenue in January was up 14% compared to January 2023, and up 9% when adjusting for the extra business day this year. This compares favorably to existing home sale transactions during the same period declining 1.7% and the median existing home sales price increasing 5.1%, reflecting a 3.4% increase in transaction volume against Compass's 14% increase in revenue. 2023 was defined by sellers sitting on the sidelines, but we are seeing more sellers and more buyers so far in 2024. On our platform, we can see approximately 42% more seller-related activity in January 2024 compared to January 2023, which leads us to conclude that more sellers were evaluating selling their homes with a Compass agent this January. We can also see the number of home tours our agents organized for buyers was up 13% in January compared to the same period in the prior year. As you know, there have been a number of lawsuits against Compass and others in the industry. We continue to closely monitor all things related to the residential real estate industry and will respond accordingly to the complaints filed against us. However, I am not going to comment on the cases in this call or future calls.

Our revenue in January was up 14% compared to January 2023.

And up 9% when adjusting for the extra business day this year.

This compares favorably to existing home sale transactions during the same period declining one 7% and median existing home sales price increasing five 1%.

Reflecting three 4% increase in transaction volume against <unk>, 14% increase in revenue.

2023 was defined by sellers sitting on the sidelines, but we are seeing more sellers and more buyers so far in 2024.

On our platform, we can see approximately 42% more seller related activity in January 2024, compared to January 2023, which leads us to conclude more sellers, we are evaluating selling their homes with the compass agent. This January.

We can also see the number of home tours are agents organized for buyers was up 13% in January compared to the same period.

The prior year.

As you know there have been a number of lawsuits faced encompass and others in the industry. We continue to closely monitor all things related to the residential real estate industry and will respond accordingly to the complaint filed against us.

I am not going to comment on the cases in this call or our future goals.

Robert Refkin: While still early in the process, there has been a lot of speculation as to how these lawsuits will affect how the industry operates going forward. We are actively engaged in helping our agents demonstrate their value as buyer agents. We have been sharing best practices from agents at Compass. We specialize in representing buyers for illustration for illustration and inspiration in clothing.

While still early in the process there has been a lot of speculation as to how these lawsuits will affect.

How the industry operates going forward, we are actively engaged with helping our agents to demonstrate their value as buyer agents. We have been sharing best practices from agents at Columbus specialized unrepresented buyers for illustration for illustration administration.

In closing.

Robert Refkin: I want to thank the entire Compass team of employees and agents. It is inspiring to me to see their commitment to making Compass a success with their incredible dedication and determination. It has allowed us to make it through these difficult times with the confidence that we have a strong foundation for future success. I am very proud of the fact that, while reducing operating expenses and in the midst of this unprecedented period of industry uncertainty, we have been able to invest in growth and position the company for future financial success. The Compass value proposition relative to competitors is strengthening as we continue to support our agents with excellent people in the field, our cutting-edge technology platform, our amazing referral network, our extremely positive and supportive culture, and our strong brand as the number one brokerage by sales volume each of the last two years. We will stay focused on continuing to strengthen our existing business and take full advantage of the market as it eventually returns to a more normal level. I will now turn it over to Kalani.

I want to thank the entire compass team of employees and agents.

It is inspiring to me to see their commitment to make encompass a success.

With their incredible dedication and determination.

It has allowed us to make it through these difficult times with the confidence that we have a strong foundation for future success.

I'm very proud of the fact.

And while reducing operating expenses and in the midst of this unprecedented period of industry uncertainty, we have been able to invest in growth and to position the company for future financial success.

The company's value proposition relative to competitors is strengthening as we continue to support our agents with excellent people in the field, our cutting edge technology platform. Our amazing referral networks are extremely positive and supportive culture and our strong brands as the number one brokerage by sales volume each of them.

Last two years.

We will stay focused on continuing to strengthen our existing business and take full advantage of the market as it eventually returns to more normal levels.

I will now turn it over took lonnie.

Kalani Relitz: Thank you, Robert. I am extremely proud to be a part of a great team of people working with the best agents in the industry. Before getting into the financials, I wanted to give you some details on our operation. In the fourth quarter, we processed 40,621 transactions, a decline of 4.9% from a year ago, which compares favorably to the 9.2% decline in transactions for the entire residential real estate market in the fourth quarter, as reported by the National Association of Realtors. Our market share for Q4 2023 was 4.41%, up nine basis points year-over-year For Q4 2023, our average number of principal agents increased to 14,689, which is an increase of 7.7% year over year and up 4.5% quarter over quarter. In the fourth quarter, we managed out approximately 50 principal agents and 400 total agents, each with an average GCI of less than $10,000, which had the additional benefit of freeing up resources for the rest of our producing agents.

Thank you Robert I am extremely proud to be a part of a great team of people working with the best agents in the industry.

Before getting into the financials I wanted to give you some details on our operations.

In the fourth quarter, Reprocessed 40621 transactions a decline of four 9% from a year ago, which compares favorably to the nine 2% decline in transactions for the entire residential real estate market in the fourth quarter as reported by the National Association of Realtors.

Our market share for Q3, Q4, 2003 was $4 four 1% up nine basis points year over year versus Q4, 2022, and up 10 basis points sequentially from Q3 2023.

For Q4 2023, our average number of principal agents increased to 14689, which is an increase of seven 7% year over year and up four 5% quarter over quarter.

In the fourth quarter, we managed out approximately 50 principal agents and 400 total agents each with an average GCI of less than $10000, which had the additional benefit of freeing up resources for the rest of our producing agents.

Kalani Relitz: As Robert mentioned, we are focused on bringing in successful agents that produce results. Since the elimination of cash and equity sign-on incentives in August of 2022, we have recruited more than 2,000 agents, and agent retention remains high as a principal agent quarterly retention was 97 percent, a number we have consistently reached since becoming a public company in April 2021. Our title and escrow businesses generated positive adjusted EBITDA in 2023, and attach rates continue to increase, benefiting from the successful launch of T&E integration in the Compass platform in Southern California. We have completed the rollout of T&E integration in Philadelphia, Southern New Jersey, and the Washington, D.C. area, including Maryland and Virginia, as planned.

As Robert mentioned, we are focused on bringing in successful agents that produce results since the elimination of cash and equity side on incentives in August of 2022, we have recruited more than 2000 agents.

Agent retention remains high as our principal agent quarterly retention was 97% a number we have consistently reached since becoming a public company in April 2021.

Our title and escrow businesses generated positive adjusted EBITDA in 2023 and attach rates continue to increase.

Benefiting from the successful launch of TNT integration and the Compass platform in Southern California.

We have completed the rollout of the TNT integration and Philadelphia, Southern New Jersey, and the Washington, D C area, including Maryland, and Virginia as planned by.

Kalani Relitz: By the end of Q3, we plan to roll out this integration feature to all the markets where we currently offer title and escrow services, including in our newest title and escrow market, Florida. One of the ways we will look to grow EBITDA margin in the business will be through integrated services such as title, escrow, and mortgage. We will continue to look for opportunities like our recent acquisition of an attorney's key title. Let me now turn to our fourth quarter and full year financial results and our guidance for the first quarter. Our fourth-quarter revenue was $1.1 billion, which was at the low end of our guidance range of $1.1 billion to $1.2 billion, reflecting continued pressure from mortgage rates since the time we put out our Q4 guidance back in November.

By the end of Q3, we plan to rollout this integration feature to all the markets, where we currently offer title and escrow services, including at our newest title and escrow market, Florida.

One of the ways, we will look to grow EBITDA margin in the business will be through integrated services, such as title and escrow and mortgage we will continue to look for opportunities like our recent acquisition of attorneys key titles in Florida.

Let me now turn to our fourth quarter and full year financial results and our guidance for the first quarter.

Our fourth quarter revenue was $1 1 billion, which was at the low end of our guidance range of $1 1 billion to $1 2 billion, reflecting continued pressure from mortgage rates since the time, we put out our Q4 guidance back in November.

Kalani Relitz: Our Q4 revenue is down 1% for the year-ago period, and gross transaction value was $41.8 billion in the fourth quarter, a decline of 1.6% from a year ago. Reflecting a 4.9% reduction in total transactions, partly offset by an increase in average selling prices, our non-GAAP commission expense as a percent of revenue is 81.7%, an increase of nine basis points from Q4 of last year when excluding the impact of the age and equity program on the year-ago period.

Our Q4 revenue was down 1% for the year ago period, and gross transaction value value was $4 one.

$41 8 billion in the fourth quarter, a decline of one 6% from a year ago.

Reflecting a four 9% reduction in total transactions, partly offset by an increase in average selling price.

Our non-GAAP Commission expense as a percent of revenue was 81, 7% an increase of nine basis points from Q4 of last year when excluding the impact of agent equity program on a year ago period.

Kalani Relitz: As a reminder, 2022 was the last year we offered the Agent Equity Program, which allowed our agents to exchange a portion of their cash commission for equity. Page 15 of the Q4 Investor Deck includes additional details on the Agent Equity Program's impact on the commission line in the prior year period. Q4 2023 is the last quarter.

As a reminder, 2022 of the last year, we offered the agent equity program, which allows our agents to exchange a portion of their cash Commission core equity page 15 of the Q4 Investor deck includes additional details on the agent equity program impact on the commission line in the prior year periods.

Q4, 2023 of the last quarter, you will see this differential as we have now lapped the sunset of the agent equity program.

Kalani Relitz: You will see this differential as we have now lapped the sunset of the agent. For the full year of 2023, our commission rate as a percent of revenue improved by four basis points compared to 2022, which was masked by a drag of about 10 basis points due to 2023 brokerage acquisitions that were made in markets with lower splits than our overall average brokered brokered. So adjusting for this M&A drag, our true commission rate improvement improved by 14 basis points. As Robert mentioned earlier, we have made meaningful progress in improving agent economics. During 2023, we prioritize reducing agent cash incentives, such as marketing. Since these incentives are included in the sales and marketing line as a component of OPEX, we have extracted them to demonstrate, and they accounted for an additional 43 basis points of improved economics for the full year of 2023 compared to 2022, or an aggregate improvement of 57 basis points in overall Asian economics. Our total non-GAAP operating expense, excluding commissions and other related expenses, was $224 million for the fourth quarter, or $894 million on an annualized basis.

For the full year of 2020 through our commission rate as a percent of revenue improved by four basis points compared to 2022, which was masked by a by a drag of about 10 basis points due to 2023 brokerage acquisitions that were made in markets with lower splits that our overall average broker brokerage split.

So adjusting for this M&A drag our true commission rate improvement improved by 14 basis points.

As Robert mentioned earlier, we have made meaningful progress in improving agent economics during 2023, and we prioritize reducing agent cash incentives such as marketing expenses. Since these incentives are included in the sales and marketing line as a component of Opex, we've extracted them to demonstrate and they accounted for an additional 43 basis points of improved economics for the <unk>.

Full year 2023, compared to 2022 or an aggregate improvement of 57 basis points and overall economics.

Our total non-GAAP operating expense, excluding commissions and other related expenses were $224 million for the fourth quarter or $894 million on an annualized basis.

Kalani Relitz: As we've talked about previously, many of our non-commissioned operating expenses are somewhat fixed in nature and have historically increased sequentially from quarter to quarter, as opposed to varying in line with revenue. However, due to our cost reduction initiatives implemented over the past 18 months, the $224 million of OPEX for the fourth quarter reflects a $142 million reduction from OPEX of $366 million in the second quarter of last year, which was the quarter we began our cost reduction initiatives, and this reflects a decline of over $570 million on an annualized basis. Our management team remains disciplined and focused on operating expenses, and as Robert mentioned, we're focused on maintaining our operating discipline that allows us to sustain our new costs. As a reference point, the non-GAAP operating expenses we refer to include the expense categories of sales and marketing, operations and support, R&D, and G&A and exclude stock-based compensation expense and other expenses that are excluded from adjusted EBITDA.

As we've talked about previously in 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 varying in line with revenue.

However, due to our cost reduction initiatives implemented over the past 18 months with $224 million of Opex for the fourth quarter reflects a $142 million reduction from opex of $366 million in the second quarter of last year.

Was the quarter, we began our cost reduction initiatives and this reflects a decline of over $570 million on an annualized basis.

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

As a reference point the non-GAAP operating expenses, we referred to include the expense categories of sales and marketing operations and support R&D and G&A and excludes stock based compensation expense and other expenses that are excluded from adjusted EBITDA.

Kalani Relitz: We've included tables on pages 13 and 14 in our Q4 Investor Deck that reconcile these amounts to our GAAP operating costs. Our adjusted EBITDA for the fourth quarter was a negative $23.7 million, within our guidance range of negative $20 million to negative $35 million. Our gap net loss for the fourth quarter was $83.7 million compared to a loss of $158.1 million in the same period a year ago and includes non-cash charges such as $36 million of non-cash stock-based compensation expense and $22 million of depreciation and amortization.

We've included tables on page 13, and 14 in our Q4 investor deck that reconciled these amounts to our GAAP operating expenses.

Our adjusted EBITDA for the fourth quarter was a negative $23 7 million within our guidance range of negative $20 million to negative $35 million.

Our GAAP net loss for the fourth quarter with $83 7 million compared to a loss of $158 1 million in the same period, a year ago and include noncash charges, such as 36 million of noncash stock based compensation expense and 22 million of depreciation and amortization expense.

Kalani Relitz: Pre-cash flow during the fourth quarter was negative $41 million, which compares favorably to negative $131 million of pre-cash flow in the year-ago quarter, driven primarily by the improvement in adjusted EBITDA, lower capital expenditures, and other favorable changes in working capital. In particular, capital expenditures were just $2 million in the current quarter, compared to $13 million a year ago, driven by our cost-cutting measures and the intentional slowing of expansion to new markets and new offices. We have meaningfully improved our free cash flow position compared to last year. When comparing the full year of 2023 to the year-ago period, our free cash flow improved by $325 million on $1.1 billion less revenue. While cash flow in any period can be impacted by the timing of cash collections from transactions and the timing of payments to our agents, vendors, and employees in relation to each quarter end, the magnitude of the improvement in free cash flow over the past year is directly attributable to the impact of our costs. We had $167 million of cash and cash equivalents on our balance sheet at the end of December, and we had no outstanding balances on our revolving line of credit.

Free cash flow during the fourth quarter was negative 41 million, which compares favorably to negative $131 million of free cash flow in the year ago quarter, driven primarily by the improvement in adjusted EBITDA lower capital expenditures and other favorable changes in working capital in particular capital expenditures were just $2 million in the current quarter compared to $13 million.

A year ago, driven by our cost cutting measures and the intentional slowing of expansion to new markets and new offices.

We have meaningfully improved our free cash flow position compared to last year when comparing the full year of 2023 to the year ago period, our free cash flow improved by $325 million or $1 1 billion less revenue.

While cash cash flow in any period can be impacted by the timing of cash collections from transactions and the timing of payments to our agents vendors and employees in relation to each quarter and the magnitude of the improvement in free cash flow over the past year is directly attributable to the impact of our cost discipline.

We had $167 million of cash and cash equivalents on our balance sheet at the end of December and we have no outstanding balances on our revolving line of credit.

Kalani Relitz: We believe we are well positioned to react to continued market challenges. Now, turning to our financial guidance. Our results from 2023 confirm that our Operating Expense Discipline creates meaningful performance improvements. We will continue this approach, and although the market is expected to increase modestly in 2024, we will be managing our business and our cost levels, assuming a flat level of transactions compared to 2023. For Q1 of 2024, we expect revenue in the range of $975 million to $1,075,000,000, and we expect adjusted EBITDA to be in the range of negative $22 million to negative $40 million.

We believe we are well positioned to react to continued market challenges.

Now turning to our financial guidance.

Our results from 2023 confirmed that our operating expense discipline creates meaningful performance improvement. We will continue this approach and although the market is expected to increase modestly in 2024, we will be managing our business at our cost levels, assuming a flat level of transactions compared to 2023.

For Q1 of 'twenty four we expect revenue in the range of $975 million to $1 $75 million and we expect adjusted EBITDA to be in the range of negative $22 million to negative $40 million.

Kalani Relitz: For the full year of 2024, we are targeting a non-GAAP OPEX level between $855 million and $875 million, with a midpoint of $865 million, which includes the additional OPEX assumed by the brokerage acquisitions completed at the end of September and the Florida-based title and escrow acquisition we recently completed in Q1. As Robert mentioned, our commitment to cost discipline has driven a significant improvement in our free cash flow compared to the same period last year. We remain committed to continuing our cost discipline to drive favorable results in 2024 and beyond. As a result, we expect to be free cash flow positive for the full year 2020. Thank you again to our agents and team members for all you do for Compass. I would now like to turn the call back over to the operator to begin Q&A. The floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.

For the full year of 2024, we are targeting a non-GAAP opex level between 855 million to $8 seven $875 million with a midpoint of $865 million, which includes the additional opex assumed by the brokerage acquisitions completed at the end of September and the Florida based put on escrow acquisition. We recently completed in Q1.

As Robert mentioned, our commitment to cost discipline has driven significant improvement in our free cash flow compared to the same periods last year. We remain committed to continue our cost discipline to drive favorable results in 2024 and beyond as a result, we expect to be free cash flow positive for the full year 2024.

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

The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.

We will now take a moment to compile our roster.

Our first question comes from the line of <unk> Basel with DTI. Please go ahead.

Hey, guys good evening hope you're doing well.

Operator: We'll now take a moment to Gampala Ross. Our first question comes from the line of Soham Bhonsle with BTIG. Please go ahead. Hey guys, good evening. Hope you're doing well.

Robert maybe just the first one is for you I wanted to get your thoughts on what seems to be sort of the core concern here and some of the statement of interest rate, which is this idea around buyers being able to negotiate their commission on their own right.

Robert Refkin: Robert, maybe this one's the first one for you. You know, I wanted to get your thoughts on what seems to be sort of the core concern here and sort of the statement of interest, which is this idea around, you know, buyers being able to negotiate their commission on their own, right? Specifically, you know, what are your thoughts on sort of the broader rollout of buyer aging agreements, which could allow for sort of this clearer communication up front? And then, secondly, you know, the broader use of maybe seller concessions as a way to sort of offer, you know, upfront what the seller is willing to pay the other side. How do you think these two items, like do they help assuage some of the concerns out there today? Yeah, so, I think it's worth noting that at IncomeBiz, we had many agents that only worked with buyers before all this, that only worked with buyers with buyer representation agreements that clearly outlined compensation. As an example, the way that it works is it would outline, this is what I get paid, whatever percentage they negotiate independently.

Specifically what are your thoughts on sort of the broader rollout of buyer agent agreements right.

Which could allow us.

Clearer communication upfront and then secondly.

The broader use of maybe seller concessions as a way to sort of.

Offer upfront, what the sellers willing to pay the other side.

How do you think these two items like do they help assuage some of the concerns out there today.

Yes so.

I think it's worth noting that outcome income base, we had many agents that only worked with buyers before all this only works of buyers with buyer representation agreements that clearly outlines compensation.

As an example, the way that it works is you would outline this is what I get paid the whatever percentage they negotiate independently.

And to the extent the seller doesn't cover any portion of that you as a buyer you would make up the difference.

Robert Refkin: And to the extent the seller doesn't cover any portion of that, you as the buyer, you would make up the difference. We, with the help of those agents and our internal coaching and training arm, implemented the largest training program that Compass has ever executed, where we had over 20,000 of our agents go through training on the buyer representation agreements. And now that that is becoming the standard practice for agents going forward, do you think that is enough to sort of alleviate some of the concerns that, you know, the DOJ or these guys may have?

We with the help of those agents.

And our internal coaching and training arm.

We implemented the largest training program that compass has ever executed.

Where we had.

Over 20000 of our agents go through training on the buyer representation agreements.

And now that is becoming the standard practice for our agents going forward.

Do you think that is enough to sort of alleviate some of the concerns that the Doj or these guys may have.

Robert Refkin: From what I have seen of the successful use of those agreements within Compass, it alleviates my concern about any financial risk related to this topic. I just have not seen it. The way you would know, and the way I would know is that agents would be coming to the market complaining, coming to us complaining, and that has not happened. And then Kalani, I know there's some puts and takes here on the commission split line, but if I just sort of look at the non-GAAP number, first half versus the second half here, you know, at a high level, the first half was down, and the second half was kind of up, right? So I'm just wondering, is there sort of increased competition here for agents that is requiring them to maybe offer a bit more Can you just pour out a little bit of color there?

From what I have seen of the successful use of that those agreements with encompass.

It alleviates my concern.

On the on any financial risk related to.

On the topic.

I just have not seen I have not the way you would know and the way I would note as agents would be coming to the market complaining coming to us complaining.

And that has not happened.

Got it okay.

And then inclining I know Theres, some puts and takes around the commission split line, but if I just sort of look at the non-GAAP number first half versus the second half year at a high level. The first half was down and at the back half was kind of up right. So I'm. Just wondering is there sort of increased competition here for agents.

At these reclining to maybe offer a bit more or there are there any sort of other incentives that are being required to just keep agents on the platform can you just provide a little bit of color there.

Kalani Relitz: Yeah, sure. Hey, Soham. Thanks for the question. I think a few things overall related to gross profit. First, I think we have seen, and we continue to know kind of in the industry, when the market's the worst, the best create, and the best continue to produce, and they do have more favorable economics to them.

Yeah sure. So thanks for the question.

I think a few things overall related to gross profit first.

I think we have seen and we continue to know kind of in the industry. When the market's the worse the best creates and the best continued to produce.

And they do have more favorable economics to them I think that's one piece I think the other piece is just looking at.

Kalani Relitz: I think that's one. I think the other piece is just looking at the mix of folks as we bring in more. We are bringing more folks on at that kind of 50% level, which is better economics, but it takes time to add on. So, I think it's, I think it's not a, I think it's more of the timing of it. You know, keep in mind that in the second half, we had 8% rates. And so I think it was more of the production mix. There was a little mix in there as well, compared half to half, but, you know, more mix and I think more of that production.

The mix of folks as we brought more we are bringing more folks on at that kind of the 50% level, which is better economics, but it takes time to add on so I think it's I think it's not a I think it's more of the timing of it keep in mind second half rate, 8% rates and so I think there's more of a production mix there was a little geo mix.

In there as well compared half to half, but more mix and I think more of that production mix.

Kalani Relitz: Got it. And then just a quick one on the OPEX guide. Is that a fair way to think about it?

Got it and then just a quick one on the Opex Guide is a fair way to think about it Hey look 850 and sort of what you communicated last time, we're staying there, but the incremental $15 million or so to get to 865 is really acquisitions and all that sort of was there any core expense that that's increasing there as well. Thank you.

Kalani Relitz: Hey, look, $850 is sort of what you communicated last time. We're staying there, but the incremental, like $15 million or so to get this $865 is really acquisitions and all that sort, or is there any core expense that's increasing there as well? Thank you. Yeah. Yeah.

Kalani Relitz: So we have worked together, and I'm really proud of the team. There's been a lot of heavy lifting that has taken place. We've done most, if not all, the heavy lifting to get our organic SG&A and OPEX down to $850. The delta between $850 and $865 is purely the M&A that we closed in September of last year, second half, as well as the attorney key title in Florida that we did in Q1. That's the... All right, guys. Thanks a lot.

Yes.

We have worked and I'm really proud of the team. There is a lot of heavy lifting that has occurred we've done most if not all of the heavy lifting to get our organic SG&A and opex down to 850, the delta between $50 65 is purely the M&A that we've closed.

In September of last year second half as well as the attorneys key title in Florida that we did in Q1.

That's the bridge.

Alright, guys. Thanks, a lot.

Operator: Our next question comes from the line of Jason Helstein with Oppenheimer. Please go ahead. Your line is open, please go ahead. Hey, how are you guys? Hey, how's it going?

Our next question comes from the line of Jason How Stein with Oppenheimer. Please go ahead.

Your line is open. Please go ahead.

Hi, how are you guys.

Hey, How's it going Okay. I just wanted to ask a question just on the expense guide.

Operator: Just want to ask a question just on the expense guide. I mean, you've updated it, it's only $15 million from the last update. You're still going to positive free cash flow for 24. Having said that, you kind of didn't give us that before you said positive. I don't know what it was.

I mean, you've updated its only $15 million from the last update when you're still guiding to positive free cash flow for 'twenty or Kevin can you kind of give us that before is it positive.

What it was.

Robert Refkin: Is there something you're seeing that's giving you more confidence to lean into kind of expenses, or is it just like, This is kind of like where you shook out now that you have more visibility on the foliage, maybe just tie that back to what you're just broadly seeing. Yeah, maybe I'll start and let Lani add onto it. Yeah, look at this. We mentioned we brought down expenses by $600 million, and in Q3, we saw the second highest agent retention quarter as a public company. And we continue to bring on agents, and they're happy, and they continue to stay. And we see the benefits of the platform consistently for them and the company. And so I think we've realized that the strength of the company vis-a-vis its agents is very strong. I think that's what's given us the confidence to continue on this path of OPEX. But plenty of lead was taken here. Yeah, I think you hit the big rocks there, Robert.

Is there something you're seeing that's giving you more confidence to lean into kind of expenses or is it just right.

This is kind of like where you shook out now that you have more visibility on the full year of expenses, maybe just tie that back to what you just broadly seeing in the business. Thank you.

Okay.

I'll start and I'll, let rami add onto it.

Yes.

We mentioned he brought down expenses by $600 million.

And in.

In Q3, we saw the second highest agent retention.

Quarter end as a public company.

And we continue to bring on agents and they are happy and.

And they continue to stay and.

And we see the benefits of the platform consistently.

For for them in the company and so I think we we've realized that the strength of the company vis vis the Asians is.

Very strong I think is what's given us the confidence to continue on this path of Opex, but plenty out we've taken here.

Yes, I think you hit the big rocks that Robert I mean overall, we're affirming free cash flow for a few reasons one I think.

Kalani Relitz: I mean, overall, we're affirming free cash flow for a few reasons. One, I think, you know, we look at the market, we do see a kind of market flat to modestly improving. We've kind of proven our ability to bring costs down last year and continue with our guide. Our guide, as Robert mentioned, is preparing marks.

Looking at the market, we do see kind of market flat to modestly improving.

We've kind of proven our ability to bring cost down last year and continuing with our guide our guide as Robert mentioned in his prepared remarks. Our guide this year for Opex on on last year's revenue would allow us to be free cash flow positive in EBITDA positive and so Jason I think it's just the conviction of saying that we think the market is.

Kalani Relitz: Our guide this year for OPEX on last year's revenue would allow us to be free cash flow positive and EBITDA positive. And so, Jason, I think it's just conviction of seeing that we think the market is where it is. We've adjusted our costs, and I think we are driving that free cash flow as a result. And I think we feel good about where we are. We're not cutting to the bone.

Where it is.

Adjusted our cost.

And I think we are driving that free cash flow as a result, and I think we feel good about where we're at we're not cutting to the bone. We've made as Robert mentioned in our remarks, we've made a ton of investments already and so we have some more if we need to but I think we just feel good about where we're at and we've built a really scalable model and we're taking advantage of that.

Kalani Relitz: We've made, as Robert mentioned in our remarks, we've made a ton of investments already. And so we have some more if we need to. But I think we just feel good about where we are. And we've built a really scalable model, and we're taking advantage of it. Thank you, guys. Our next question comes from the line of Bernie McTernan with Needham & Company. Please go ahead.

Alright, Thank you guys.

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

Operator: Great, thanks for taking the question. Maybe just to follow up on OPEX. For Matt's right, it seems like you're pretty close to 865 for OPEX and 1Q.

Great. Thanks for taking the question, maybe just a follow up on Opex for Macerate. It seems like you are pretty close to the $8 65 for Opex and <unk> is there any seasonality we should be contemplating throughout the year or do you think it's pretty flat from here.

Kalani Relitz: Is there any seasonality we should be considering throughout the year, or do you think it's pretty flat from here? Yeah, Bernie, I think, you know, seasonality because of the model we've built, right, we're not linear with revenue, right? We're pretty, we're pretty stairsteps.

Yeah Bernie.

I think.

Seasonality because of the model we've built right, we're not a linear with revenue right, we're pretty we're pretty stair steps. So.

Kalani Relitz: So we shouldn't see a ton of seasonality, as I mentioned with Soham's question, we've done a ton of the heavy work, we're pretty much there at the 850 level organically, with obviously the M&A being added on. So I think what you're seeing is about right, which is the activity has been taken. And so you should, I don't expect a ton of seasonality, obviously, with Q2 being as big as it normally is, there might be very small amounts, but for the most part, you should think about it sequentially, not seasonality, understood.

We shouldnt see a ton of seasonality as I mentioned in <unk> question.

We've done a ton of the heavy work, where we're pretty much there at the $8 50 level organically with obviously the M&A being added on so I think what Youre seeing is about right, which is the activity has been taken and so you should I don't expect the policies analogy, obviously with Q2 being as big as it normally is there might be very small amounts, but but for the most part you should you should think about sequential.

Not seasonality.

Understood and then the comments of how how much seller activity was up.

Robert Refkin: And then the comments about how much seller activity was up early in the year. Is that purely market driven or anything that you guys are doing on the product and technology side to maybe drive additional share gains for sellers? I think there are two things that are happening.

Early in the year is that is that purely market driven or anything that you guys are doing on the on the product and technology side to maybe drive additional share gains of salaries.

Yes.

Got it.

I think there are.

Two things that are happening.

Robert Refkin: One is the market, and one is us. On the market side, The market was driving more inventory, and we had 7% more inventory in the market going into January than the prior year, and 5% more homes under contract. In February, we had 13% more inventory and 9% more homes under contract, so the trends continued. But on the market side, what's driving the trend isn't low mortgage rates that are reducing the amount of people that are locked out of some of the homes. What I believe is that people are tired of waiting. It's been over a year and a half since they've delayed and deferred their life from moving on.

One is the market and one is us.

On the market side.

The.

What's.

Driving more inventory and we had some similar inventory in the market.

It's going into January than prior year, and 5% more homes under contract in February we had 13% more.

Inventory and 9% of our homes under contract so the trends continue.

But on the market side, what's driving the trend.

It is in low mortgage rates that are reducing the amount of people that are locked us out of their homes.

What I believe is it just that people are tired of waiting.

It's been over a year and a half where they've delayed and deferred their life for moving on we call. The <unk> diapers diplomas Diamond's divorce death, and they're just tired of waiting so unlike last year just compare this year to last year. The difference is one there is another year of pent up demand to both the buy and sell but.

Robert Refkin: You know, we call it the 5Ds: diapers, diplomas, diamonds, divorce, death, and they're just tired of waiting. So unlike last year, just compare this year to last year; here are the differences. One, there's another year of pent-up demand to both buy and sell, but to move on with your life in a way that there wasn't last year because it's been an extra year. Mortgage rates aren't actually that much higher than they were this time last year. It's about 25 basis points higher.

You can move on with your life.

In a way that there wasn't last year, because it's been an extra year.

Mortgage rates arent actually that much higher than it was this time last year is about 25 basis points higher.

Robert Refkin: You have fewer people locked out of selling their homes. Going into last year, you had 72% of homeowners at 4% mortgage rates or below. Going into this year, you had 59% of homeowners at 4% mortgage rates or below. So you have fewer people with the lock-in effect.

You have.

You have less people locked out of selling their homes.

Into last year, you had 72% of homeowners at 4% mortgage rates are below go into this year, you had 59% of homeowners at 4% mortgage rates are below so you have less people with the lockett lock in effect.

And.

Robert Refkin: And, Yeah, and so I think those are some of the market's differentiators. Of course, you have an all-time high stock market, right? So people can sell and move into their new home, not caring as much about a low mortgage rate because they can use all cash.

Yes.

And.

And that's what I think those are some of the market was different in the market.

And of course, you have all time high stock market range. So people can sell and move into their new home not not carrying as much about our low mortgage rate because they can use all cash and of course, we're seeing more all cash.

Robert Refkin: Of course, we're seeing more all cash. For Compass specifically, what I think is driving more seller activity, and I believe we talked about this at the last earnings call, is we launched the Back to Basics Challenge, which is a 100-day challenge for those first 100 days of the new year to meet and speak with more of your clients in person. The number one way that agents grow their business is by meeting their clients in person and connecting. Whoever connects the most grows the most, we like to say.

For Compass, specifically, what I think is driving.

More seller activity.

And I believe we talked about this at the last earnings call as we launched the back to basics Challenge, which is a 100 day challenge for this first 100 days of the new year to meet and speak with more of your clients in person. The number one way that agents grow their business is by meeting.

Their clients in person and connecting whoever can extra most grows the most we like to say.

Robert Refkin: There's a big contest locally, nationally, with all types of awards, and we believe that this is what has allowed us to outperform a little bit more in January, but we believe it will continue to allow us to outperform. Yeah, Brian, if I could just add to the third piece of what, and this goes to what Compass is doing, we have done a good job. I'm really proud of our growth team.

And there is a big contest locally nationally with all types of awards and we believe that this is this is what is.

<unk> allowed us to outperform a little bit more.

In January but we believe it will continue to allow us to outperform.

Yes, Barry if I could just add to that the third piece of what and it goes to accomplish is doing as we have done a good job of improving part of our growth team. We've added net new agents, which is going to which is coming through as well. So those three parts of Robert just mentioned the market are kind of same store sales improvement through our back to basics and then the wrap around.

Kalani Relitz: We've added net new agents, which is going to, which is coming through as well. So those 3 parts that Robert just mentioned in the market are kind of same store sales improvement through our back to basics. And then the wraparound of our new agent ads in 23. Great. Thank you both. Again, the floor is now open for your questions. To ask a question at this time, simply press star followed by the number one on your telephone keypad.

Our new agent adds in 'twenty three in early 'twenty four.

Okay.

Great. Thank you both.

Again the floor is now open for your questions to ask a question at this time simply press star followed by the number one on your telephone keypad.

Operator: Our next question comes from the line of Ryan Mikoveny with Zellman & Associates. Please go ahead. Hi guys, thank you. So, Robert, one of the debates that's been percolating a bit in the industry and with investors is about the general value of buy-side agents to homebuyers but also how different brokerages innovate and differentiate. So I was hoping maybe you could talk to us about what you guys are doing at Compass to help your agents provide a strong value proposition to homebuying, excuse me, homebuying customers. I think you've talked about things like collections in the past. So maybe just what's the big picture about how Compass is helping its agents differentiate from others again when it comes to the buy-side of the equation? Thank you. Well, look, let's take a step back.

Our next question comes from the line of Ryan <unk> with Zelman and Associates. Please go ahead.

Hi, guys. Thank you so Robert one of the debates that's been percolating a bit in the industry and with investors is.

About the general value of buy side agents to homebuyers, but also how different brokerages innovate and differentiate so I was hoping maybe you could talk to US about what you guys are doing at compass to help your agents provide a strong value proposition Q home buying.

Excuse me home buying customers.

I think you've talked about things like collections in the past. So maybe just what's the big picture on how compass is helping its agents differentiate from others.

Again, when it comes to it to the buy side of the equation.

Yeah.

Well, let's take a step back one of the reasons that I think we are in the place we are.

Robert Refkin: One of the reasons that I think we are in the place we are, where not all buyers understand the value, is that, as an industry, we created listing presentations for sellers, but as an industry, we did not create buyer presentations for buyers. And as a result, we created a buyer presentation this past fall that our agents could give to buyers and outline the value proposition. On the sell side, when you go to the seller, hey, we have a national network. Here's how many agents we have. The majority of the time, a buyer comes to their agent, not from the internet. That's why that matters.

We're not all buyers understand the value.

Is that as an industry.

We created listing presentations for sellers, but as an industry, we did not create buyer presentations for buyers.

And as a result, we created a buyer presentation. This past fall that our agents can go to buyers and outlined the value propositions on the sell side.

We we have when you go to sell or Hey, we have a national network, Here's how many agents we have.

The majority of the time the buyer comes to their agent not from the Internet. That's why that matters, we have cumbersome Sears, where we front load the cost of staging to help make your home move in ready on the non non non does or some of the examples we have in our listing presentation now on our buyer presentation.

Robert Refkin: We have Convince Concierge, where we front load the cost of staging to help make your home move-in ready, on and on and on and on. Those are just some of the examples we have in our listing presentation. Now, in our buyer presentation, We have access to off-market inventory, one of the largest off-market listing databases in the country, which is great for you for access as a buyer. We have Collections, which is our flagship technology tool for any of our clients, which is a buyer tool. It's like a Pinterest board for all of the real estate that you are interested in, with real-time status updates. We can comment back and forth. You can add your spouse or your significant other, your mother, or your daughter.

We have access to off market inventory.

The largest market lifting databases in the country, which is great for you for access as a buyer we have collections, which is our flagship technology tools.

Many of our clients, which is a buyer.

Our buyer toll whereby it's.

It's like a Pinterest board for all of your real estate that you're interested in with real time status updates, we can comment back and forth you can add your sponsors significant either you or your mother, your daughter and you can all collaborate in one place.

Robert Refkin: And you can all collaborate in one place. We have digital tours, which persist. And so you can always go back to the things you've looked at.

We have digital tours, which which persist and so you can always go back to I think if you've looked at anything we could comment to make notes on them.

Robert Refkin: And we can comment and make notes on them, on and on and on, on buyer value. So I'm confident, because of our platform, our company, and, for certain, because of Collections. If we were nothing but Collections, our agent, and off-market inventory alone, we would provide buyers with more value than any other brokerage, for sure. And so now we're just outlining that, which is a great thing for Compass, and a great thing for our agents. And it will ultimately be a great thing for the industry as all agents start sharing and communicating their value to buyers in the same way we have for decades to sellers. In addition to that, as mentioned earlier. We launched the buyer representation agreement where, again, people independently negotiate what they charge. But, you know, there are those out there.

On and on and on the buy on the buyer value. So I'm confident because of our platform our company for certain.

Because of collections, if we were nothing but collections, our agents and off market inventory alone, we provide buyers with more value than any other brokerage Fisher.

And so now we're just outlining that which is a great thing for campus a great thing for agents.

And it will be ultimately a great thing for the industry as all agents start.

Sharing and communicating their value to buyers in the same way we have for decades to sellers.

In addition to that as mentioned earlier, we launched the buyer representation agreements where.

Again people independently negotiate what they charge, but there are those out there.

Robert Refkin: There are those out there that say commissions could increase as people act independently as buyers. Now, historically, there was only one person negotiating. There were sellers. Now you have a seller. Now you have sellers and buyer agents. So you have twice the negotiation. And so the time will tell. But there's nothing I've seen that makes me worry about this.

There are those out there to say commissions could increase as people independently as buyers now where historically there was only one person negotiating there are sellers now yet I'm salary just <unk>. So you have twice the negotiations and so on.

Jim will tell but.

But there's nothing I've seen that makes me.

About this.

Robert Refkin: I think the headlines seem to be bigger and more dramatic than the trendlines. That's very helpful, Rob. We'd appreciate that. And second question, you know, Sue, there was a lot of talk about the one click title and kind of the T&E expansion.

I think the headlines seem to be.

Bigger and more dramatic than the trend lines.

That's very helpful around would appreciate that.

And second question.

A lot of talk on one click title and kind of the <unk> expansion I guess, just any updates on origin point on the mortgage side.

Robert Refkin: I guess just any updates on origination points on the mortgage side, just in terms of the rollout or where things stand on that side of things. We can share that we continue to hire more loan officers. We continue to be in more markets. And this most recent month was one of our most successful months on record in terms of mortgage rate locks, which is an indication of future demand as it converts over the next one to two months. And we have more coverage of mortgage than we do in title and escrow in terms of the different markets that we're in. For its sake, I am showing no further questions at this time.

In terms of the rollout or where things stand on that side of things. Thank you.

We.

Sure.

We can share that.

We.

We continue to hire more loan officers, we continue to be.

In more markets.

And this most recent months was one of our most successful months on record in terms of mortgage rate locks, which is an indication of future future demand as it converts over the next one to two months.

But yeah. It has continued to be something that is important to the company.

And we have more coverage of mortgage than we do in title and escrow in terms of the different markets that we're in.

That's great. Thank you.

I am showing no further questions at this time I would now like to turn the call over to Robert Rapkin for closing remarks.

Robert Refkin: I would now like to turn the call over to Robert Refkin for closing remarks. Well, thank you all for joining today's call. I want to thank all of the Compass employees and agents for their hard work and commitment to making Compass the number one real estate brokerage by sales volume in the United States for two years in a row. In a difficult market, our agents continue to outperform the market. As we can, as we enter 2024, we continue to successfully manage our expenses down and navigate this unprecedented market. We believe that 2023 was the bottom of the downturn, and we are cautiously prepared for a better 2024. Eventually, the real estate market will get to higher levels of transactions in the mid cycle.

Well. Thank you all for joining today's call I want to thank all of the company's employees and agents for their hard work and commitment to making <unk>. The number one real estate brokerage by sales volume in the United States for two years in a row in a difficult market our agents continue to outperform the market.

As we can as we enter 2024, we continue to successfully manage our expenses down and navigate this unprecedented market. We believe that 2023 was the bottom of the downturn and we are constantly prepared for a better 2024.

Eventually the real estate market will get to more levels of transactions in the mid cycle and when it does I am confident that Congress is well positioned for success.

Robert Refkin: And when it does, I'm confident that Compass is well positioned for success. Thank you. This concludes today's call. You may now disconnect. Compass.

Thank you.

This concludes today's call you may now disconnect.

Yeah.

Okay.

Confident that Congress.