Q1 2024 Compass Inc Earnings Call
2024 financial results.
Speaker Change: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the Speakers' remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question press the Star one again. Thank you I would now like turn the call over to Richard Simonelli Senior Vice President Investor Relations. Please go ahead.
Operator: Thank you operator.
Richard Simonelli: Good afternoon to all of you. Thank you for joining the company's first quarter earnings call.
Richard Simonelli: Joining us today will be Robert Raskin, our founder and Chief Executive Officer, and Columbia, <unk>, Our Chief Financial Officer and.
Richard Simonelli: In discussing our company's performance, we will refer to some non-GAAP measures you'll find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our first quarter 2024 earnings release posted on our Investor Relations website.
Columbia: We will be making 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 second quarter of 2024, and full year 2024, including comments related to our operating expenses and free cash flow as well as our X.
Spectation for operational achievements, our actual results may differ materially from these statements.
Columbia: Can find out more information about risks uncertainties and other factors that could affect our results and 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.
Columbia: Should not place undue reliance on any forward looking statements all.
Speaker Change: All information in this presentation is as of today's date may eight and we expressly disclaim any obligation to update this information.
Speaker Change: I'll now turn the call over to Robert Rifkin.
Speaker Change: Robert.
Robert Rifkin: Thank you for joining us today for our first quarter 2024 results conference call.
Robert Rifkin: <unk> strong first quarter results with revenue towards the higher end of our guidance range and adjusted EBITDA that exceeded our guidance range and with our agents continuing to outperform the market.
Robert Rifkin: I am pleased to say that in Q1 2024.
Speaker Change: Historically challenged market and the slowest quarter of the year.
Speaker Change: <unk> generated positive free cash flow.
Speaker Change: This proves that our focus on cost reductions and cash generation, while still investing in agent growth in our proprietary technology platform are working.
Speaker Change: We grew revenue considerably.
Speaker Change: Q1, 2024, we generated an increase in revenue of 10% year over year as we increased transaction seven 1% from a year ago.
Speaker Change: This compares favorably to the three 5% decline in transactions for an entire market in the first quarter.
Speaker Change: We grew market share considerably.
Speaker Change: In Q1, 2024, our quarterly market share increased 26 basis points year over year, and 35 basis points on a sequential basis compared to Q4 2023.
Speaker Change: This is a testament to our agent productivity, which is further enhanced by a proprietary technology platform.
I: I assured repeatedly that accompanies has the best agents in the industry and they are demonstrating their skill and experience navigating this difficult market.
Speaker Change: We continue to grow our agent base considerably.
Speaker Change: Our principal agent Count has increased by nearly 1000 agents between Q1 2023 in Q1 2024.
Speaker Change: This is a seven 3% increase which is in stark contrast to industry trends.
Color Combos: The vast majority of agents that come to color combos tell us that the platform is the number one reason that they joined.
Originally we organically in Q1 2020 for them, we recruited 518 principal agents.
Speaker Change: The highest quarterly counts since we ceased using cash and equity sign on bonuses.
Speaker Change: Just last month in April.
Speaker Change: We added more than 1000 principal agents with our accretive acquisition of Lateran Bloom, the largest agency in the Gulf South and New Orleans.
Lateran Bloom: We are growing total agents faster than the market.
Lateran Bloom: At Compass, the number of total agents increased two 1% year over year.
Lateran Bloom: While our three largest public company competitors by Eaton counts reported decreases of 2%.
Decreases of 5% and decrease of 6% in the same period. Moreover, this includes a reduction of over 1000 non productive agents in the last two quarters as a reminder, Lateran Bloom is not in these numbers.
Lateran Bloom: Our balance sheet is strong.
Lateran Bloom: We ended Q1 with $165 million in cash and cash equivalents and no outstanding draws on our credit facility.
Speaker Change: We continue to drive cost improvements internally, we remain laser focused on driving efficiencies and reducing cost using technology.
Speaker Change: These improvements are also positively contributing to free cash flow.
We reduced our opex in the first quarter to $211 million, an increase of $32 million from Q1, 2023 Opex of $243 million. We also reduced opex sequentially from Q4, 2023 opex of $224 million.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: As always <unk>, our Chief Financial Officer will walk you through the financials later on this call.
Speaker Change: Moving on to the market.
Speaker Change: I still believe 2024 will be better than 2023, and 2025 will be better than 2024 with a mid cycle coming in 2026.
Speaker Change: My opinion is influenced by the following one inventory is up 33% from a year ago more inventory leads to more sales.
Two the percentage of all cash homebuyers is at the highest level in over two years with the stock market near an all time high homebuyers are less reliant on mortgages.
Speaker Change: Three the percentage of sellers with Forbes and mortgage rates or below is approaching 50% after dropping from approximately 75% at the peak and this way we believe in two years only approximately 25% of people may still have 4% mortgage rates are below nearly eliminate the biggest bottleneck to the mid cycle real estate market.
Speaker Change: Yes.
Speaker Change: And for.
Speaker Change: We now have over two years of pent up demand.
Assuming 2024 is just modestly better than 2023.
Speaker Change: This will end up being re year housing downturn, forcing many people to live and remain in homes that they don't want to be in.
Speaker Change: We believe when rates come down he will create a massive surge in transactions.
Speaker Change: The longer this lasts the stronger the market bounce back will be.
Speaker Change: As I mentioned on the last call.
Speaker Change: Assuming we continue to add net agents annually maintain or modestly improve our agent economics, and keep our $600 million of annual cost savings with minimal inflationary growth of 3% to 4% in 2025 and beyond we believe that is a formula for generating hundreds and hundreds of millions of dollars in <unk>.
Speaker Change: Adjusted EBITDA and free cash flow as the market recovers to a more normalized mid cycle annual home sales level of five 4% to $5 $6 million million homes.
Speaker Change: But in the meantime, as I mentioned on our last earnings call. We have considerably budgeted for a flat to year on transactions and have brought our opex to that level, we expect to be free cash flow positive in 2024.
Speaker Change: Even after the cost of the first payment related to a litigation settlement, which we agreed in February two and April 24, and which we expect to make.
Speaker Change: In the second quarter.
Speaker Change: The number one question, we're getting from investors is what is the settlement having on the business what effect is it having.
Speaker Change: To help with this question, let me share with you five facts as well as five beliefs Lester.
Speaker Change: Let's start with the facts.
Lester: One <unk>.
Lester: Buyers are using buyer agents now more than ever.
Lester: In 2023, 89% of buyers using agents.
Lester: Which is up from 75% just 20 years ago in 2003.
Lester: Okay.
unknown: Two buyer agreements are not new and they are already required in half of the states in which <unk> operates.
Compass agent: Thousands of Compass agents have been getting buyer representation agreement signed for years with no issue.
Compass agent: 390% of our agents have been trained and are prepared for the rules.
Speaker Change: Since the verdict, we have provided our agents with 57 national training sessions and hundreds of local training sessions with these efforts I've seen our agents transitioned from initially being worried to now being confidence.
Compass agent: For her.
Compass agent: <unk> real trends commissions were a five 5% in 2023.
Compass agent: That compares to five 1% just 20 years earlier in 2003.
Compass agent: Five.
Speaker Change: The industry has not seen a noticeable change in either the percentage of sellers that offer a buyer agent's commission nor in the average commission amount they are paying the buyer's agent.
Speaker Change: We reviewed the MLS data in the market generating the majority of our revenue since the announcement of the <unk> settlement on March 15th Here's what we found.
Speaker Change: More than 99%.
Speaker Change: Of new lithium since March.
Speaker Change: Included offers to pay the buyer agents.
Speaker Change: Furthermore.
Speaker Change: More than 96% of all listings included offers debate, 2% or more.
Speaker Change: And more than 67% are offering to pay two 5% or more.
Speaker Change: To date, we are not hearing from agents that any of these numbers are coming down.
Speaker Change: We believe.
Speaker Change: The sensational press has cost significantly more reaction.
Speaker Change: And what we expect to see from the actual rule changes.
Speaker Change: Specifically the headlines since the March 15th nor settlement.
Speaker Change: Have led to sellers asking if they need to pay a buyer agents.
Speaker Change: More than ever before.
Speaker Change: And the result of those conversations is that sellers sell to more than 99% of the time that it was still in their interest to provide a commission to buyers agents.
Speaker Change: Now here are some of our beliefs after conversations with hundreds of our agents across the country.
Speaker Change: One.
Speaker Change: We believe there'll be little impact on the professional full time agents.
Speaker Change: Encompass is composed of experienced fulltime agents with very strong repeat and referral business.
Speaker Change: <unk>.
Encompass: We believe that aliens will increasingly need to be able to sell their brokerages value proposition to.
Encompass: To communicate that to buyers.
Encompass: Compass has the best value proposition for buyers of any brokerage firm for example.
Compass agent: This has access to off market inventory through campus private exclusives and companies coming soon which is particularly important in a low inventory environment. Another example.
Compass agent: <unk> buyer technology tools like Compass collections like Compass digital tour sheets, like Compass, DNA and the client dashboard launching in less than a year.
Compass agent: Three.
Compass: We believe real estate agents are project managing a highly complex multi month process, where they can often be coordinating between over a dozen different parties loan officers title officers home inspectors home appraisers paint your stages photographers videographers agents on the other side and so on.
Speaker Change: We do not believe.
Speaker Change: This important role will be displaced or discounted.
Speaker Change: Sure.
Speaker Change: We believe the percentage of buyers and sellers that will use an agent will continue to be at the 90% level.
Speaker Change: Buying and selling a home is the biggest financial decision that most people make in their lifetime.
Speaker Change: However for decades people have been declaring that there'll be a decline in the use of the real estate agents.
Speaker Change: Last 20 years.
Internet: Since the rise of the Internet we've seen so many attempts to replace the agent such as for sale by owner companies and then you had the Aggregators and then the other Discounters then you had the eye buyers and then the power buyers.
Internet: Yet despite all of these attempts to disrupt the real estate agent.
Internet: Buyers and sellers are using agents more than ever before.
Internet: In the last 20 years, the percentage of buyers using an agent has increased from 75% in 2003% to 89% in 2023.
Speaker Change: And finally.
Speaker Change: We believe the vast majority of buyers and sellers.
Speaker Change: Prefer to pay for value.
Speaker Change: Over receiving a discount.
Speaker Change: Yeah.
Speaker Change: If saving money on commissions was the most important thing to seller.
Speaker Change: The majority of home sales would be for sale by owner.
Speaker Change: Obviously that is not the case in.
Speaker Change: In every market we know of.
Speaker Change: There are countless agents and brokerages that offer low commission rates.
Speaker Change: Counters are not new and have been operating in the market for decades. Many of these discount firms have either gone out of business or have not gained traction.
professional discounter: In fact, one of the largest public companies in residential real estate today is a professional discounter offering the majority of the country discounted commissions with salaried agents for decades.
professional discounter: This company can go to every seller and say we have more than 50 million visitors on our site a month.
Speaker Change: More internet exposure than every other brokerage firm in the country combined for your listing.
professional discounter: And we only charge 1%.
Speaker Change: However, after 20 years of offering discounts.
Speaker Change: They have only 0.8% market share.
Speaker Change: That is.
professional discounter: The proof that buyers and sellers are speaking with their checkbooks.
Speaker Change: And that they prefer professional advice over a discount.
Compass CEO: In closing I believe compass is approaching an inflection point, we have done the hard work, we have brought expenses down and continue to grow our agent count and inventory advantage.
Compass CEO: The market will inevitably come back and when the fed cuts rates will be in a position to thrive.
Speaker Change: I want to thank the entire compass team of employees and agents.
Compass CEO: See their commitment to making can be successful with their incredible dedication and determination. It has allowed us to be named the number one real estate brokerage by sales volume in the United States for three years in a row.
Speaker Change: And to have a strong foundation for the future.
Speaker Change: I will now pass it over to <unk>.
Speaker Change: Okay.
Robert: Thank you Robert before getting into the financials I wanted to give you some details on our operations.
Speaker Change: In the first quarter, we processed 38449 transactions an increase of seven 1% from a year ago, which compares favorably to the three 5% decline in transactions for the entire residential real estate market in the first quarter as reported by National Association of Realtors.
Speaker Change: Our market share for Q1, 2024 was 476% up 26 basis points year over year and up 35 basis points sequentially from Q4 2023.
Speaker Change: Historically, we disclosed our principal agent count as an average for each quarter, which reflects the average of the principal agent count as of the end of each of the three months in any given quarter we.
Speaker Change: We've been consistent with that since our IPO and the logic was to avoid the choppiness that can sometimes occur as a result of using a specific date at the end of the quarter versus an average across the quarter.
Speaker Change: However, the feedback we've received from many analysts and investors is that this was a confusing metric as a result on a go forward basis, we will disclose our principal agent count as of the last day of the quarter.
Speaker Change: On this basis as of March 31, 2000, 2024, we had 14591 principal agents compared to 13601 as of March 31 2023.
Speaker Change: An increase of 990 year over year or seven 3%.
Speaker Change: Our team recruited 518 principal agents in the first quarter, which was a strong recruiting quarter for us.
Speaker Change: Historically, the first quarter tends to be a higher than average quarter for attrition and we saw that again. This is Q1, our net principal agent count shows a net decline of 92 in Q1, but this number includes more than 100 principal agents, who exited that had no production in the prior 12 months and therefore their absence will have no impact.
Speaker Change: <unk> on our financials.
Speaker Change: Let me now turn to our first quarter financial results and our guidance for the second quarter.
Speaker Change: Our first quarter revenue was $1.05 billion, an increase of 10% from a year ago period.
Speaker Change: Which was towards the higher end of our guidance range of 975 million to 1.0 $75 billion gross transaction value was $40 1 billion in the first quarter, an increase of nine 6% from a year ago, reflecting the seven 1% increase in total transactions combined with the slight increase in average selling price.
Speaker Change: Our non-GAAP Commission expense as a percent of revenue was 81, 8% an increase of 39 basis points from Q1 of last year.
Speaker Change: The majority of this or about 25 of the 39 basis points is attributable to the acquisitions. We closed since the year ago period that were made in markets with lower average, but that our overall brokerage.
Speaker Change: Our total non-GAAP operating expenses, excluding commissions and other related expenses were $211 million for the first quarter. This reflects a reduction in expense of $32 million or 13% from Q1 a year ago.
Speaker Change: Even after considering the added expenses, we assumed related to each of the three brokerage acquisitions, we completed in 2023, and our Florida title acquisition. This past January.
Speaker Change: I'm very pleased that the continued cost discipline in place across the organization and we are committed to it as a management team is to become part of the culture of how we operate as a company.
Speaker Change: That said, it's important to note that Q1 Opex figure is the low watermark for Opex for the for the 2024 quarters. As there is some anticipated inflation to consider beginning in Q2 in particular related to the effect of compensation increases for our staff coming out of our annual performance cycle at the end of March the.
Speaker Change: The additional Opex, we assumed from latter on Bloom acquisition that closed in April and the seasonal increase in agent marketing expenses typically seen in the second quarter.
Speaker Change: As a reminder, the non-GAAP operating expenses, we referred to exclude certain expenses that exclude from the calculation of adjusted EBITDA, including stock compensation, depreciation and amortization and in this quarter to $57 $5 million charge related to the class action litigation settlement.
Speaker Change: We have included tables on page pages, 12, and 13 in our Q1 investor deck that reconciled these amounts to a GAAP operating expenses.
Speaker Change: Our adjusted EBITDA for the first quarter was a negative $20 1 million, which was slightly better than the favorable end of our guidance range of a negative 22 million to negative $40 million and an improvement of 70% over the adjusted EBITDA loss of $67 million a year ago.
Speaker Change: Our GAAP net loss for the first quarter was $133 million, which reflects the full charge of $57 5 billion settlement for the class action lawsuit that we previously disclosed.
Speaker Change: We took the full P&L charge. During Q1, however, we expect that half of this amount will be paid in cash in Q2 of 2024 and the other half in Q2 of 2025.
Speaker Change: Free cash flow for the first quarter was positive $5 9 million, which compares very favorably to negative $59 million of free cash flow in the year ago quarter. It is extremely rewarding to see the results of our efforts over the past two years that have allowed us to generate positive free cash flow in the first quarter, which is a seasonally weak quarter for them.
Speaker Change: Brokerage industry.
Speaker Change: As we consider full year performance, it's important to note that our positive cash flow in Q1 is partially due to a couple of timing items that will have offsetting effects later in the year first many of the fees that are builds our agents occurred at the beginning of the calendar year. So our cash flow in the early part of the year is aided by the timing of when the fees are paid and it will have.
Speaker Change: Offsetting effect later in the year.
Speaker Change: We tend to see seasonal impacts of working capital that are favorable in the first two quarters of the year when the cash collections from our brokerage commissions are higher at the end of each of these quarters compared to the beginning of these quarters. The opposite is generally true in Q3, and especially in Q4 when seasonality impacts working capital in a negative way.
Speaker Change: These two timing items should be neutral for the year, but can create choppiness for individual quarters within the year.
Speaker Change: Those listening to the call that our modeling cash flow for the year, you should not assume a similar conversion of adjusted EBITDA to free cash flow for the remaining quarters of 2024.
Compass CEO: With that said I have maintained since I started here at compass that we will be focused on free cash flow and over the last six quarters, our operations and finance teams are delivering on that relentless focus and the results are becoming more and more evident each quarter.
Speaker Change: We ended the first quarter with $166 million of cash and cash equivalents on our balance sheet and we have no outstanding draws on our revolving line of credit. We believe we are well positioned to react to continued market challenges.
Speaker Change: Now.
Speaker Change: Turning to our financial guidance for Q2 of 2024, we expect revenue in the range of $1 6 billion to $1 7 billion and we expect adjusted EBITDA to be in the range of $55 million to $75 million.
Speaker Change: Last quarter, we stated that for the full year of 2024, we are targeting a non-GAAP opex level between $8 55 to 875 with a midpoint of 865 as a reminder, the midpoint of this range equates to $850 million of the company's core Opex plus the additional $15 million of Opex from two acquisitions, we closed in September 2012.
Speaker Change: Three.
Speaker Change: We are maintaining that range for the current business, but our increase in the range.
Speaker Change: The total range by $12 million on both the low and high end to consider would be additional opex for the balance of 2024 that we assumed for the latter in Bloom acquisition that we just closed in April.
Speaker Change: We expect this acquisition to be accretive to adjusted EBITDA in 2024 of the additional opex needs to be considered.
Speaker Change: Additionally, we are reiterating our expectation to be free cash flow positive for the full year of 2024.
Speaker Change: I'll end by saying, Thank you again to our agents and team members for all that you do for Compass and I would now like to turn the call over to the operator to begin Q&A.
Operator: Thank you we will now begin the question and answer session.
Operator: You have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Operator: If you would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask your question and listening via loud speaker on your device. Please speak up your handset and ensure that your phone is not on mute when asking your question.
Operator: Again, Please press star one to join the queue.
Operator: Your first question comes from the line of Jason.
Operator: Jason.
Speaker Change: Stein of Oppenheimer. Please go ahead.
Robert: Thank you everybody two questions Robert just first.
Jason Stein: Can you give us your thoughts on second half.
Speaker Change: Just broad thoughts as we're all trying to work through our model.
Jack: Then Jack.
Jack: Secondly, it seemed like agent productivity improved in the quarter.
Jack: Was this culling less productive agents.
Jack: From kind of improvements in workflow or other factors or a combination of evolve. Thank you.
Jack: Yeah. So on the first question.
Jack: The the.
Speaker Change: The key constraint to transactions last year it wasn't buyer demand it was lack of inventory.
Speaker Change: And so what.
Speaker Change: What is making me more positive about this year than last year is more inventory like I mentioned in the call. There is 33% more inventory today than there was.
Speaker Change: At this time last year.
Speaker Change: It looks like we may have in the weeks ahead.
Speaker Change: More inventory.
Speaker Change: Coming to the market than anytime in the last three years and.
Speaker Change: And so that that to me. It leaves me feeling positive about the second half of course and mortgage rates do they go to eight plus do they stay where they are do they go to the fixes that will have us as big of an impact as inventory.
Speaker Change: But assuming that mortgage rates stay where they are right now I would expect the second half of the year to be better than last year. It was also keep in mind remember second half of last year was 8% mortgage rates. So you had lowered inventory.
Speaker Change: You had 8% mortgage rates for the first time in.
Speaker Change: Well over a decade.
Speaker Change: And it.
Speaker Change: It came in right in front of the fall market and so it's hard to see circumstances that could lead to it being worse than it was last year.
Speaker Change: Another way another way to say it is it's hard to see and not being better than it was last year.
Speaker Change: In terms of wire agents more productive.
Speaker Change: We mentioned on the last call we mentioned on this call as well that we bid on.
Speaker Change: Separating ways.
Speaker Change: With agents.
Speaker Change: <unk> agents that are not producing.
Speaker Change: Because they take away resources from our other agents.
Speaker Change: We have limited resources and we want to give it to agents that are that are producing.
Speaker Change: That that along with technology and coaching and training. We believe makes them more productive I think we mentioned in the last call and call before we have something called blip, we had something called a back to basics challenge. There was a 100 day challenge for the first 100 days of the year, where.
Speaker Change: We had National Awards local awards for.
Speaker Change: Sure.
Speaker Change: In total there are hundreds of different awards in categories.
Speaker Change: <unk> four agents that.
Speaker Change: Developed there.
Speaker Change: Repeat and referral business the most through in person connections.
They: There's two ways, we recommended how they would do that and they have to log in every in person interaction and the <unk> platform.
They: And and that we believe that also is contributing to the outperformance.
Speaker Change: Thank you.
Operator: Your next question comes from the line of <unk>. Please go ahead.
Speaker Change #100: Hey, guys good evening.
Robert: Robert first maybe on market share on the unit count side, I guess wondering if you could give us some more color.
Robert: There were certain markets or price points, where you think you took more share.
Robert: Who do you think you're sort of taking the share from today.
Robert: Yeah. So.
Robert: Yeah.
Speaker Change: So we will be taking okay. So let me start with.
Speaker Change #105: I think.
Speaker Change: In down markets. The best agents gained market share and the best brokerage has gained market share.
Speaker Change: It's been that way.
Speaker Change: Ever.
Speaker Change #107: And we are a company of top agents average comes agents sells more than the average agent in the country.
Speaker Change #103: And then and so I.
Speaker Change #110: I think they are gaining market share unbalanced from lower producers in.
Speaker Change #106: In the in the industry that are having a harder time competing.
Speaker Change #106: At the company level.
I: We are also gaining market share and I think the.
Speaker Change #109: The entities that are having a harder time.
Speaker Change #109: They are.
Speaker Change #112: The boutique brokerages.
Speaker Change #108: I think it's over.
Speaker Change #108: Over the last five years.
Speaker Change #108: Is.
Speaker Change: It is a.
Speaker Change #111: Brokerage firm is required to offer agents more than they were five years ago.
Speaker Change #113: More in terms of technology, and warrants with coaching and training and it's harder for a small firm to be able to stay competitive.
Speaker Change: Got it.
Speaker Change: And then declining on the Opex side, I think you said $8 50 at the core.
Speaker Change: With an acquisition as you won't get to get you to a 65 from the 2023 acquisition and now you're raising that midpoint I guess by 12 million. So thats 877 at the midpoint, but I guess I guess the question is what gets you to the low end of that guide right because you've kept the low end sort of still open. So I'm just wondering what gets you there and then I guess high.
Speaker Change: And the 887 I guess I guess is that just more M&A from here.
Speaker Change: Yes.
Speaker Change: Yes so.
Speaker Change: So yes.
Corey Davis: I think we think about opex in those two pieces right. The core <unk> and I think importantly, we are on track to deliver that and then the additive and accretive acquisitions I think to answer your question directly what gets us to the low end I think we've seen continued diligence rate cost for us and cost discipline as an ongoing muscle now it is a core car.
Speaker Change #104: Impotent fee and so we are continuously looking at new ways to cut cost to save costs to just quite frankly would be more efficient. So as I think about the lower end. It is just our continued focus and ability to pick out a drive more efficiencies.
Speaker Change #118: Everything from from looking at AI on marketing of robotics in our back office, we have a lean six Sigma team right. Those folks are working actively they can drive us to the bottom of that range I think the top end is probably even more acquisitions or.
Speaker Change #104: A bit of some agent expenses, if the if the market comes back and we see some of the small variable marketing expenses pop a little more.
Robert: Okay, and if I could just squeeze one more in Robert wanted to get your thoughts on the M&A environment out. There you know you touched on the boutiques and the challenges there so maybe.
Robert: Are you hearing more concern from them in what could develop going forward and sort of what's your appetite to continue to consolidate thank you.
Speaker Change #120: Yeah, I'll pass on declining but yeah.
Robert: And I'll speak to the brokerage firm owners, there is more interest in selling to campus than ever before and by a huge margin.
Speaker Change #117: Of course, there is a natural driver of difficult industry dynamics, whether market or.
Speaker Change #104: The broader dynamics that everyone's I addressed earlier.
Speaker Change #104: But.
Speaker Change #104: I think on top of that.
Speaker Change #104: The.
Brokerage owner: When I'm speaking to the brokerage owners.
brokerage owners: What I'm hearing from them say is when agents are coming to campus now they're seeing that they are coming for the technology and remember this is it took $1 $6 billion for us to build this.
Speaker Change #104: No.
unknown: I don't believe it will be built by another brokerage firm.
unknown: And.
Speaker Change #119: This the unintended consequence, one of them.
Speaker Change #119: And for unforeseen consequences.
brokerage homeowners: Discontinuing all equity and cash incentives to hire agents is that before brokerage homeowners would always say oh. The interest came from money the endgame for money when we stopped that than an agent left there.
Brokerage owner: Brokerage owner had to say Oh, well, there must actually be something better at compass.
Brokerage owner: And so now they do that now almost two years I think brokerage owners are realizing that we have a real competitive advantage of what we built that isn't just financial it's value is in terms of the value that we can provide agents they cannot but then secondly.
Brokerage owner: The impact of.
Speaker Change #115: I understand the value of the brokerage of the technology is.
brokerage owners: A lot of brokerage owners.
brokerage owners: They really care about the agents, we all do and.
brokerage owners: And they don't want.
Brokerage owner: Don't want to merge with or sell to a brokerage firm where they can look at their agents and I can say I promise you like is going to be better.
Speaker Change #122: But now with.
Brokerage owner: With the conviction around the platform also is going to market going on the market more broadly. They can look <unk> Trust me this feeling better for you and that really that really changes.
Speaker Change #123: The level of interest from brokerage owners, so I'll pass on declining.
Speaker Change #123: Yes, I would.
Speaker Change #124: I would just add a.
M&A speaker: A few things one is just that excitement we're seeing we're seeing the advantage being thing not only from M&A, but also organically as we mentioned or one of our highest growth quarters. So that advantages us organic inorganic I think from M&A.
We: We do believe M&A allows us to quickly move into new markets. You saw that in latter in Bloom. It also allows us to expand our presence in top markets and grow that inventory I think we we firmly believe that our ability to amortize our platform across more agents, our ability to drive continuing growth in inventory for us.
Speaker Change #126: Will lead to further margin expansion and value creation and I think.
Us: Look we are extremely pleased with the partners that we brought on over the last 12 to 18 months and I think Youll see US continue to review accretive deals that are favorable terms that compass going forward.
Us: Alright, guys. Thank you.
brokerage owners: Okay.
brokerage owners: Your next question comes from the line of Matthew Bouley from Barclays. Please go ahead.
Matthew Bouley: Good evening, you haven't you guys Lochia on for Matt. Thanks for taking my question.
Matthew Bouley: First off you know in your prepared remarks, you spoke to commissions at about five 5% level.
Matthew Bouley: Just curious looking ahead raise intestinal trend do you assume that this kind of stays the same and it's just the way that communicated in display that changes, whereas there may be risks that can compression.
Matthew Bouley: Thanks.
Matthew Bouley: Yes.
Matthew Bouley: Just given the sensitive nature of the topics, where we're not going to spend on it beyond what we said on the on the call.
brokerage owners: Earlier.
brokerage owners: Okay.
Speaker Change #131: And then on my second question could you speak to some of the cost efforts that you guys have been taking maybe assess like sluggish macro backdrop for SaaS is there risk that you might pause on some of these efforts and maybe rest your opex target. Thanks.
Speaker Change #132: Yeah. Thanks, <unk> for the question.
Speaker Change #132: Look I think I mentioned in the last question for Tom I think from from Opex and from cost. We started 12 to 18 months ago with a kind of a need to run cost programs that take cost out of our organization I think what it has built for us as a core competency around both cost and continuous improvement.
Tom: We have we've executed about 95% of our activity that's needed to achieve the $850 million of Opex that core Opex. We've talked about in 2020 for the remaining is really just timing items been contracts I think what's exciting about our cost and our efficiency efforts as we are starting to move from kind of a hard status quo.
Speaker Change #134: What's that were needed early early on in the market to more continuous improvement right. So we have a.
Speaker Change #136: We are looking at and they have actually implemented some AI from a marketing standpoint, we're looking at robotics and have automation in our back office, we have a lean six Sigma team, that's really driving process improvement and so what kind of continue to do this as a regular thing I think one it allows us to be agile if the market turns.
Speaker Change #136: Don't think it slows us down or we stopped I think you'd be sort of things that actually both cut costs would also make process improvements that we're making it easier for everybody.
Speaker Change #136: But it also.
Speaker Change #136: Good and bad times allows us to fuel our own growth and fund our own growth and so we'll continue with those types of things that we have to but we have to move harder faster I think we've proven our ability to be agile and it's something we think about almost every day.
Speaker Change #136: Great. Thank you best of luck.
Speaker Change #136: Again, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change #136: Your next question comes from the line of Ryan Mckenna <unk> of Zelman. Please go ahead.
Speaker Change #136: Hi, Thank you nice job on the quarter.
Speaker Change #136: I wanted to go back to letter in Bloom.
Ryan Mckenna: Obviously, great brokerage strong history and great leadership teams so congrats on that deal.
Ryan Mckenna: I guess my question is considering all the noise out there right now settlements litigation et cetera.
Ryan Mckenna: Just some more color on just kind of what gave you the confidence to make that acquisition now and maybe talk to US how you are.
Ryan Mckenna: Thinking about the risk reward of acquisitions going forward that would be kind of part one and the second aspect of it what I think is rather interesting about the deal as well as.
Speaker Change #140: The Gulf markets are obviously, much lower price significantly lower ASP.
Ryan Mckenna: And then a lot of your geographies so.
Ryan Mckenna: To some degree could we think of that.
Ryan Mckenna: The compass platform operating in the same ways as existing markets are there differences, we should be thinking about in terms of.
Speaker Change #139: The opportunity within a lower priced market for things like productivity.
Speaker Change #144: Any thoughts there would be helpful. Thank you.
Ryan Mckenna: Yeah.
Speaker Change #135: So on the let me start the second question you got a platform can work in the same way.
Speaker Change #142: And either they are great agents, there just like every other market that operate their business.
Speaker Change #141: With the same workflows as every other market is it the differences asps.
Speaker Change #152: But it will be the the tools and programs and offerings and platform that we have will help them create success and better serve their buyers and sellers just like every other market. So we feel good about that on the former.
Speaker Change #143: Question, what gave us confidence look it's a highly.
Speaker Change #143: We it is an accretive deal transaction.
Speaker Change #137: With one of the most respected name.
Speaker Change #137: Names in this space.
Speaker Change #145: And incredible leadership incredible culture.
Speaker Change #146: Very proud to.
Compass: Have them joined the Compass family.
Speaker Change #137: And.
Speaker Change #154: Consistent with what I shared in my prepared remarks.
Speaker Change #150: We don't view there being as much on.
Speaker Change #149: The facts are supporting that as much is happening as the headlines.
Speaker Change #137: And.
Speaker Change #137: And.
Speaker Change #138: That creates opportunity as well.
Agent: With our agent is a great option to coach them train them make them feel confident.
Agent: With other brokerage firms increased options and say, hey, let's come together and let's create success together.
Agent: And so.
Speaker Change #138: I see this for sure.
Speaker Change #138: More as an opportunity than a challenge its entire environment and I believe we'll look back a year from now and say that.
Speaker Change #138: There were.
Speaker Change #138: Tremendous positives that came out of it.
Speaker Change #138: That's very helpful.
Speaker Change #138: And apologies if I missed this one I think last quarter, you talked about expecting to launch the first phase of compass client dashboard in 'twenty four.
Speaker Change #138: Any any updates in that regard thank you.
Speaker Change #155: Yes, so we were launching our prerelease test in Q4.
Speaker Change #138: And.
Speaker Change #157: We're very excited thanks for asking about it I believe it can be a transformational moment for the company.
Speaker Change #138: Our agents for sure if you can give them a huge edge.
Speaker Change #138: And.
Speaker Change #160: It'll be great for clients and it will be the first thing 90.
Speaker Change #138: 5% of what we built you can go to Congress on competency as a consumer buyer seller.
Speaker Change #156: It's all for agents this will be something that.
Speaker Change #138: That the public will be able to see.
Speaker Change #147: The problem resolved is that agents are almost too good at their job they.
Speaker Change #162: They hide the clients from their pain.
Speaker Change #161: Because thats because were trying not to stress them out.
Speaker Change #148: And there's so much going on and so at the end of a transaction.
Agent: Does the buyer seller they really remember all of the Eden has done for them to remember all the phone calls all the emails all the tax how quickly the aten respond how early in the morning, how late at night to remember how many evaluation report CMA. They created they remember how many companies collections. They had how many tours they took them on how many open houses. They performed how many people came to US open houses they had to negotiate with.
Speaker Change #166: How many different people they had a scheduled appointments with how many people they negotiated on the day.
The buyer: Negotiate for on their behalf they don't even tell them all the time they are negotiate trying to make things happen.
Speaker Change #163: And so this what this will do is we'll put the majority of those events in a beautiful client dashboard that will.
Speaker Change #164: Almost be like a visible visual receipt of all of the agent has done for them.
Speaker Change #169: There'll be three different buckets, one the entire.
Agent: For this for our buyers and separately for sellers, but the first bucket you would call it timelines and task. So the entire process timeline remember we talked earlier about agents are actually project managers, managing a highly complex process across multiple months.
Speaker Change #170: Up to upwards of a dozen different people the entire profits will be there and again chart form.
unknown: Just like when merger investment bankers.
The buyer: You meet with people.
Speaker Change #167: When I was in investment banking, we have began charts the entire process and they would coordinate the lawyers and accountants.
The buyer: That will all be visual and this place with all the tasks and who does what.
Speaker Change #177: Are the documents so all the documents from the beginning middle to the end of the transaction living there one place lastly, it will be all of the things that the agent is currently sending to them by E mail will be living in there and that would be the all the digital tour sheets. The CMA is the campus collections.
Speaker Change #177: The lifting insights to open house report and feedback.
The buyer: And much more.
congress agents: But we're really excited by that again believe it will give congress agents, a huge edge and helping to communicate their value.
Speaker Change #158: And I believe it's the kind of thing that when buyers and sellers.
Speaker Change #158: And the transaction.
Speaker Change #159: And then for them it will be the kind of thing that will encourage them to even more referred our agents to their friends.
Robert: It's great to hear thank you Robert.
Robert: Okay.
Ben <unk>: Your next question comes from the line of Ben <unk> of Deutsche Bank. Please go ahead.
Robert: Hi, This is Jeff Steiner on for Ben Thanks for taking my question.
Robert: <unk>.
Jeff Steiner: Can you just kind of give an update on how you're thinking on the commission splits trends over the immediate to sort of long term just can.
Jeff Steiner: Given some of the moving parts like recent broker acquisition.
Jeff Steiner: The principal agent growth and then maybe sort of what's coming down the pike with with the regulatory front and the NAR settlement.
Speaker Change #165: Okay extent, maybe that that can create you can talk about increased training or increased red tape.
Speaker Change #165: Thoughts on how that's going.
Speaker Change #165: May or may not have an impact on kind of the commission split going forward.
Speaker Change #174: I'll, let <unk> answer more broadly but.
Speaker Change #174: I do believe.
I'll: That brokerage firms will be more valuable to agents because of the <unk> settlement.
I'll: Then.
I'll: Before.
Speaker Change #176: And here is why.
Speaker Change #178: This historically every almost every agent has a lifting presentation.
investment banker: Again, I'm, an investment banker I mean, I'm pinching myself and pitching the company what can I do for you what can the company do for you or the company has international and Borgwarner network. All those type of relationships everywhere and then you go into the evaluation and here's the prompts timeline and.
The agents: The agents have a lithium presentation, where when you go with the seller. They say here's why you want to look at me I've been in business for 10 years.
The seller: I do all of this in your neighborhood.
The seller: And here's my team then they go to the brokerage.
The agents: And the brokerage.
The agents: For December.
The brokerage: We have international exposure at.
Speaker Change #181: At <unk> we.
Speaker Change #175: Our we have more work.
We: We are where we are in number one and more top markets than any other brokerage firm in the country.
Speaker Change #183: And we have.
Speaker Change #182: For you as a seller we have listening in.
Speaker Change #191: Listen insights we have open house they have to give your feedback we have collections for valuations and CNA is in all the different tools, we have confidence kinds of years, we can frontload the concept staging to make her home move in ready so that because people today, one things they want to pick up their bags from New York go to Dallas and drop them and they don't want to renovate homes.
Lithium: And they also need that they don't have vision to see what the face will look like so you stage. It. So it looks so looks elegant and then it will sell for more money than last time and so those are some examples of in that lithium presentation, how you talked about.
Speaker Change #182: The company and those that those words, where it comes down to hear some of the tools and the National network.
National network: But when it comes to buyers historically, I'd say less than 5% of agents is much less than 1% of agents have a presentation for buyers I believe the reason why that is is because historically.
Speaker Change #187: Agents weren't asking for buyers to sign.
Speaker Change #187: As much.
Agents: The compensation agreement upfront and they were of course with seller, that's where the money is but now that's moving to buyers to.
Speaker Change #185: Two buyers as well as the virus reputation agreement, where it will include compensation in all of these agreements.
Speaker Change #195: And so that is making agents feel like they need to have a buyer presentation that says here's what we want to work with me and here's where I look at my company and that's why I referenced earlier well you want to work with me and my company because my company is a low inventory environment encompass has access to more unique inventory than almost any other.
Brokerage firm: Brokerage firm because of Congress coming soon is that come as private exclusives.
Brokerage firm: I can also help you is highly complicated process.
Speaker Change #196: Almost all the other brokerage firms.
Speaker Change #198: I have to say any links of listings from different sites beyond your text messaging Whatsapp and you will be very complicate here everything will be encompassed collections will make it really simple for you and by the way if you want your spouse or your daughter or your or your mom or dad to be on it everyone can be on and looking at exact same time, we can all comment is like a pinterest board.
Speaker Change #196: Sure.
The buyer: The buyer for the Bioprocess and of course digital tour sheets. So you know where you're going is on your phone after you've gone. It's all recorded in.
Client: In the digital tour sheet and some of the other tools like client dashboard, they're coming soon.
Brokerage firm: I say all that to highlight that.
unknown: Brokerages will be more valuable to agents going forward, because we need them not just for the seller conversation, but for the buyer conversation.
Speaker Change #193: And because of that I think it will empower brokerages.
Speaker Change #194: That have a good value proposition to buyers it will empower them.
Speaker Change #194: To charge a fair split.
Speaker Change #194: I'll pass on declining.
Brokerage firm: Yes.
Robert: All said Robert I think long term for all the reasons Robert said I do think as a brokerage we will provide more and more value to agents I think you should and we do expect margin over time to increase for all the reasons Robert mentioned plus the mix as we continue to recruit.
Robert: The right set of agents and balance that portfolio as well as our.
Brokerage firm: Our title and escrow and our overall integrated services continue to grow we think theres a tremendous opportunity. There. So I think long term, we see lots of tailwind I think as we think about short term, we're going to kind of see headwind and tailwind.
Speaker Change #207: Pretty cross each other out a little bit in the short term right.
Speaker Change #203: The headwinds for us.
M&A speaker: From a rate perspective in 'twenty four is going to be M&A. So the acquisitions that we did in September.
M&A speaker: And it includes Atlanta Bloom will have some impact if you think about the.
Speaker Change #199: The decline this quarter two thirds of it with M&A that will continue and then I think we do see some headwinds on just geographic mix for example.
Speaker Change #204: The other third the majority of the remaining.
Speaker Change #209: Drag on year over year is geographic mix really our east Coast New York.
Speaker Change #205: Being becoming a slightly smaller part of our portfolio and an offsetting some of the.
Speaker Change #197: With favorable margins there. So I think short term, we can expect kind of headwind the tailwind carts further out, but I definitely think over time and expect over time for margin to be accretive to us for all of those reasons as we drive more value for our agents.
Speaker Change #197: Great that was really helpful.
Speaker Change #197: Maybe quickly just in a similar vein given all of the.
Speaker Change #197: Kevin.
Robert: Other benefits Robert that you highlighted and maybe helping agent to navigate the regulatory landscape.
Kevin: Obviously, you guys have been acquisitive in the region.
Speaker Change #201: Some times do you think this.
Kevin: This regulation could almost be a drive of like industry consolidation.
Kevin: Going forward around the brokers, who maybe have the capabilities or the ability to offer.
Kevin: And provide that platform for agents to kind of succeed and sort.
Kevin: Under the new rules.
Speaker Change #208: Yes, it's hard for me to see a scenario where in the years to come there is not.
Speaker Change #212: Near record levels of industry consolidation.
Speaker Change #208: Okay very helpful. Thank you.
Speaker Change #208: Yeah.
BPI: And we have a follow up question from <unk> BPI.
BPI: Please go ahead.
BPI: Hey, guys. This is less of a question more just something that we've been thinking about and it's around the idea that look historically brokers. When you had a lifting that would go on the MLS and then you would then get syndicated to the portals out there but.
Speaker Change #210: But as we sort of go forward.
Power: Power I'm, just trying to think about the shift in power here because at the end of the day. The listing sits with the brokerage and you guys can decide sort of where you want to put that in if the MLS debatable right. What's the value of their long term right with agents continue to go to I don't know maybe you have a view there, but I'm just curious on your thoughts.
Power: Round.
Robert: You touched on Robert sort of off market listings, and maybe private listing services and things like that so I'm curious like.
Power: Where do you see that going is there an opportunity here for you to maybe even monetize some of the listings in a different way than you ever did before so just curious that the open ended question.
Power: Yes, So let me start by sharing why.
Power: Private.
Power: Exclusives.
Power: Our valuable for some sellers as well as coming soon so private exclusives.
Power: <unk> that their off market not searchable.
Power: In the public domain.
Power: One of the reasons why.
Power: Is days on market.
Speaker Change #221: Is the killer of value.
Speaker Change #219: The his seat.
unknown: Foreseeing sellers to show.
Speaker Change #222: Price drop history is the killer of value.
Speaker Change #213: Because if you are a seller you wanted to aspirational listed.
Speaker Change #213: Sure.
Speaker Change #213: For a number.
Speaker Change #217: And then you have the big buyers aren't there you do a price drop barstow and they are doing the price drop and the sharks come out.
Speaker Change #217: And so.
Speaker Change #214: We have a fiduciary responsibility to our sellers to help them maximize value.
Speaker Change #215: And private squeezes.
Speaker Change #220: R. R E allow you to test the market privately as opposed to publicly you could have pricing parties with your agents.
Speaker Change #220: When you bring them in and then you can test that you can test the market and pricing.
Speaker Change #216: Also you shouldn't have to sell your privacy.
Speaker Change #216: Sell your home.
Speaker Change #218: If you want to sell your home you shown facility to privacy.
Speaker Change #216: <unk>.
Power: Those are some of the reasons why.
Speaker Change #223: Hawaii private squeezes.
Power: Good for sellers.
Power: Soon.
Speaker Change #225: On the <unk>.
Power: And we see them along in certain markets.
Speaker Change #224: Less so in others, we're coming soon as do is they create tension so think about a movie trailer Loon shows a launch their first trailer three days before the first showing like people do with open houses.
Speaker Change #226: They launch maybe the first two months before the 15 second trailer then a month later with a 32nd trade within a week before you have a minute trailer then you get a line around the block for the movie coming soon right coming to strategy two months a month before with one photo then you add more photo add more content and more description and then.
Speaker Change #230: I think that tension create a line around the block for a home to get a lot of People's at open House.
Power: It also.
Speaker Change #228: If you look at some of the most sophisticated people in real estate developers they can sell a home off the floor plan.
Speaker Change #227: And what they do is they say hey, it's does not is not fully available yet, but here's a floor plans we want to come in I can show. It to you it's going to it's going to be as complete live in two months, but if you want to put an offer now you can create tension and so these are we is it.
unknown: <unk> agents.
professional marketers: It has to be professional marketers till maximize home value sales for our sellers that fiduciary responsibility.
professional marketers: Just wanted to share in that.
professional marketers: And.
Speaker Change #231: Yeah look I appreciate the question.
Speaker Change #231: Alright, thank you.
Operator: There are no further questions I will now turn the conference back over to the operator to asking for closing remarks.
Power: Okay.
Operator: Thank you for joining today's call.
Operator: In the midst of this difficult residential real estate market, we are aggressively taking control over what we can control and they'd come back stronger than ever. It is starting to show in our financial results I'm very passionate about what we're doing and hopefully as you can see.
Operator: One day, we will return to a normal market and the hard work, we've put in as agents and employees that Congress will lead to even greater success.
Operator: Thank you.
Operator: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.