Q2 2024 Compass Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Compass Incorporated Q2 2024 financial results call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, just hit star followed by the number one again.

Aaron: Ladies and gentlemen, thank you for standing by. My name is Aaron and I will be your conference operator for today. At this time, I would like to welcome everyone to the Compass Incorporated Q2 2024 Financial Results Call.

Operator: Thank you. I would now like to turn our call over to Richard Simonelli, Senior Vice President of Investor Relations. Please go ahead.

Richard Simonelli: Thank you, operator. And good afternoon, everyone. And thank you for joining the Compass second quarter earnings call. Joining us today will be Robert Reffkin, our founder and chief executive officer, and Kalani Reelitz, our Chief Financial Officer. In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our second quarter 2024 earnings release, which we posted on our investor relations site earlier today.

Speaker Change: Joining us today will be Robert Raskin, our founder and Chief Executive Officer, and Colombia re lifts, our chief financial Officer discussing our company's performance, we will refer to some non-GAAP measures you can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our second quarter 2024 earnings release.

Speaker Change: Which we posted on our Investor Relations site earlier today, 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 third quarter of 2024, and full year 2024, including comments related to our.

Richard Simonelli: We will be making forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risk and uncertainties. These statements include our guidance for the third quarter of 2024 and full year 2024, including comments related to our operating expenses and free cash flow, as well as our expectations for operational achievement. Our actual results may differ materially from these statements.

Speaker Change: Operating expenses and free cash flow as well as our expectations for operational achievements.

Speaker Change: 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 also available on our Investor Relations website.

Richard Simonelli: You can find more information about risks and 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, also available on our investor relations website. You should not place undue reliance on any forward-looking statements, and all information in this presentation today is as of today, July 31st. We expressly disclaim any obligation to update this information. I'll now turn the call over to Robert Reffkin. Robert?

Should not place undue reliance on any forward looking statements all information in this presentation today is that.

Speaker Change: Today July 31.

Speaker Change: We expressly disclaim any obligation to update this information.

Speaker Change: I'll now turn the call over to Robert Revkin Robert.

Robert L. Reffkin: Please join us today for our second quarter 2024 results conference call. Today, I will discuss our second quarter results, our 30-30 vision to strengthen our structural advantages, an update on the impact of the NAR settlement, and finally, I will discuss our continued commitment to reduce stock-based compensation and equity dilution. So let's start with our second quarter results.

Robert L. Reffkin: Joining us today for our second quarter 2024 results conference call today, I will discuss our second quarter results, our 30, <unk> vision to strengthen our structural advantages.

Speaker Change: Update on the impact of the <unk> settlement and finally, I will discuss our continued commitment to reduce stock based compensation and equity dilution.

Speaker Change: So let's start with our second quarter results.

Robert L. Reffkin: I'm pleased to say that we had the best performance we have ever had as a company. We achieved an all-time high gap net income of positive $20.7 million. This compares to a net loss of $47.8 million a year ago. We generated an all-time high adjusted EBITDA of $77.4 million, which is more than double adjusted EBITDA in Q2 2023. For the second quarter in a row, and for four of the last five quarters, Compass generated positive free cash flow. We generated $40.4 million in free cash flow, which includes the impact of the $28.8 million antitrust litigation settlement payment. So $69.2 million, excluding the cost of the settlement.

Speaker Change: I'm pleased to say that we had the best performance, we've ever had as a company.

Speaker Change: We achieved our all time high GAAP net income of positive $27 million.

Speaker Change: This compares to a net loss of $47 8 million a year ago.

Speaker Change: We generated our all time high adjusted EBITDA of $77 4 million, which is more than double adjusted EBITDA in Q2 2023.

Speaker Change: For the second quarter in a row and for four of the last five quarters <unk> generated positive free cash flow.

Speaker Change: We generated $40 4 million and free cash flow, which includes the impact of the $28 8 million antitrust litigation settlement payment.

Speaker Change: So $69 $2 million, excluding the cost of the settlement.

Robert L. Reffkin: We grew revenue significantly. In Q2 2024, we generated $1.7 billion in revenue, an increase of 14% year over year, 9% of which was organic growth. Transactions increased by 11.4% a year ago, as transactions in the overall market declined by 3.3% during the same period.

Speaker Change: We grew revenue significantly.

Speaker Change: In Q2, 2024, we generated $1 7 billion in revenue an increase of 14% year over year, 9% of which was organic growth.

Speaker Change: Transactions increased by 11, 4% a year ago as transaction in the overall market declined by three 3% during the same period.

Robert L. Reffkin: So Compass transactions increased 14.7% more than the market, and for additional color, 7% of our transactions that close in the quarter were likely to sell AI recommendations in the Compass CRM from the prior 12 months. As a reminder, these leads historically convert to listings at an 8% rate, more than a typical lead generation source.

Speaker Change: Comp transactions increased 14, 7% more than the market.

Speaker Change: As additional color.

Speaker Change: 7% of our transaction that closed in the quarter were likely to sell AI recommendation in the campus CRM from the prior 12 months.

Speaker Change: As a reminder, these leaves historically convert to lifting at an 8% rate more than a typical lead generation sources.

Robert L. Reffkin: We grew market share significantly. In Q2 2024, our quarterly market share was 5.13 percent, an increase of 50 basis points year over year and 37 base points on a sequential basis compared to Q1 2024. We reduced our OPEX in the second quarter to $217.4 million, an improvement of $20.9 million from Q2 2023, OPEX of $238.3 million. Reducing Our Objects with Platform Investments

Speaker Change: We grew market share significantly.

Speaker Change: In Q2, 2024, our quarterly market share was $5, one 3% an increase of 50 basis points year over year, and 37 basis points on a sequential basis compared to Q1 2024.

Speaker Change: We reduced our opex in the second quarter to $217 4 million an improvement of $20 9 million from Q2, 2023, Opex of 23 or $238 3 million.

Speaker Change: Reducing our opex with platform investments.

Robert L. Reffkin: An example of this was our Transactions Operations Team. We were able to reduce the cost of this team by 22% in 2023 compared to 2022 thanks to the Compass platform tools we developed to process transactions. From the first half of 2024, we are down 14% compared to the first half of 2023. However, we grew our cash balance, and our balance sheet is strong. We ended Q2 2024 with $185.8 million in cash and cash equivalents and no outstanding draws on our $350 million revolving credit facility.

Speaker Change: An example of this was our transactions operations team.

Speaker Change: We were able to reduce the cost of this team by 22% in 2023 compared to 2022, thanks to the compass platform tools, we developed to process transactions.

Speaker Change: From the first half of 2024 were down 14% compared to the first half of 2023.

Speaker Change: We grew our cash balance and our balance sheet is strong. We ended Q2 2024 with $185 $8 million in cash and cash equivalents and no outstanding draws on our $350 million revolving credit facility.

Robert L. Reffkin: Our cash balance increased from last quarter and from the prior year end despite the $28 million antitrust litigation settlement payments and the cash used in the acquisitions of Lateran Bloom and Parks Real Estate. We continue to seek accretive strategic acquisitions as inbound inquiries from brokerages continue to be robust. In the second quarter of 2024, we closed two transactions, which added over 2,000 principal agents. We further increased our presence in the Southeast with the acquisition of Ladder and Bloom, the number one agency in Louisiana with nearly a 15 percent market share in New Orleans. In Tennessee, we acquired Parks Real Estate.

Speaker Change: Our cash balance increased from last quarter and from the prior year and despite the $28 million antitrust litigation settlement payments and the cash used in acquisitions of ladder in bloom and parts of real estate.

Speaker Change: We continue to seek accretive strategic acquisitions as inbound inquiries from brokerage has continued to be robust.

Speaker Change: In the second quarter of 2024, we closed two transactions, which added over 2000 principal agents.

Speaker Change: We further increase our presence in the southeast with the acquisition of ladder and boom. The number one agency in Louisiana with nearly 15% market share in New Orleans in.

Speaker Change: In Tennessee, we acquired parks real estate when combined with our existing operations in Tennessee, We now have over 20% market share in Nashville, and are the number one agency in Tennessee.

Robert L. Reffkin: When combined with our existing operations in Tennessee, we now have over 20% market share in Nashville and are the number one agency in Tennessee. We also continue to hire principal agents organically. We hired 543 principal agents in the quarter.

Speaker Change: We also continued to higher principal agents organically.

Speaker Change: We hired 543 principal agents organically in the quarter.

Robert L. Reffkin: At the end of Q2 2024, the number of Prince Edward Agents at Compass was 16,997 compared to 13,698 in Q2 2023, an increase of 24% year over year. We also continued the trend of strong agent retention, with 97.3% quarterly principal agent retention in Q2 2024. Our title and escrow business continues to strengthen, and we finished Q2 with our highest ever attach rate.

Speaker Change: At the end of Q2 2024, the number of principal Eaton's outcome. This was 16997 compared to 13698 in Q2 2023, an increase of 24% year over year.

Speaker Change: We also continued the trend of strong agent retention with 97, 3% quarterly principal agent retention in Q2 2024.

Speaker Change: Our title and escrow business continues to strengthen we finished Q2 with our highest ever attach rates.

Robert L. Reffkin: Moreover, since January of 2024, we have improved our attach rate by six percentage points. Additionally, we have integrated six of our seven key title and escrow partners into our Compass platform, and we'll have all seven partners integrated into the platform by the end of Q3. And finally, over the next 18 months, we are focused on launching title operations across all of our most mature transaction-rich markets, including the San Francisco Bay Area market, New York City, Seattle, Houston, Boston, Chicago, and Austin.

Speaker Change: Moreover, since January of 2024, we improved our attach rate six percentage points. Additionally, we have integrated fixed of our 17th title and escrow partners into our commerce platform and we will have all seven partners integrate into the platform by the end of Q3.

Speaker Change: And finally over the next 18 months, we're focused on launching title operations across all of our most mature transaction rich markets, including the San Francisco Bay area market, New York City, Seattle, Houston, Boston, Chicago and Austin.

Robert L. Reffkin: We now want to talk about our vision for the future, which we are calling our 3030 Vision, to realize on average 30% market share in our top 30 cities by 2026. Our 30-30 vision unlocks our complementary and compounding inventory-based structural advantages that make Compass a compelling company for agents, homebuyers, home sellers, employees, and investors. We are the only brokerage firm that has combined these advantages into one cohesive offering that rests on our technology platform.

Speaker Change: I now want to talk about our vision for the future.

Speaker Change: Which we're calling our 30 30 vision.

Speaker Change: To realize on average 30% market share in our top 30 cities achieved in 2026.

Speaker Change: Our 30 30 vision unlocks are complementary and compounding inventory based structural advantages that may conduct a compelling company for agents homebuyers home sellers employees and investors. We are the only brokerage firm that had combined these advantages into one cohesive offering that rests on our technology.

Speaker Change: Allergy platform. Most importantly, we believe our structural advantages result in clear financial advantages.

Robert L. Reffkin: Most importantly, we believe our structural advantages result in clear financial advantages. Today, I'd like to share with you the sources of our structural advantages, the impact of our structural advantages to date, and what we are doing to strengthen our structural advantages going forward.

Robert L. Reffkin: There is no other brokerage firm that has the combination of these attributes, and few brokerages have even one. Our first structural advantage is the integrated nature of our end-to-end platform. The Compass platform is unrivaled in its ability to drive agent productivity and brokerage company operating efficiencies. We offer the only contact-to-close platform, where an agent can go from first contact with a new client to closing and to commission collection all in one place.

Speaker Change: Today I'd like to share with you the sources of our structural advantages the impact of our structural damage to date and what we are doing to strengthen our structural advantages going forward.

Speaker Change: The sources of our structural advantages come from the following four attributes there is no. Other brokerage firm that has the combination of these attributes and few brokerages have even one.

Robert L. Reffkin: And where employees can execute the key employee-to-agent functions like transaction management support, marketing support, and title and escrow support for the agent, all through the same platform that the agent is using. Our second structural advantage is our national scale.

Speaker Change: Our first structural advantage is the integrated nature of our end to end platform.

Speaker Change: The compass platform is unrivaled in its ability to drive agent productivity and brokerage company operating efficiencies we offer the only contact a closed platform where an agent can go from first contact with the new clients to closing into Commission collection, all in one place and where employees can execute.

Speaker Change: The key importing to agent functions like transaction management supports marketing support and title and escrow support for the agents all through the same platform as the agents using.

Robert L. Reffkin: With over 33,000 agents across the United States, we are able to build upon our technological differentiation and continue to invest by amortizing the cost of our investment over more agents. This is something that smaller brokerages are unable to do. Our third structural advantage is our top agent network. Per Realtrend, more top agents work at Compass than any other brokerage firm. In fact, Compass has 50% more top agents than the next largest brokerage firm, per Realtrend. We have the best agent-to-agent client referral network in the country, and Compass's Find an Agent tool helps drive agent-to-agent client referrals.

Speaker Change: Our second structural advantage is our national scale.

Speaker Change: With over 33000 agents across the United States, we are able to build upon our technology differentiation and continue to invest by amortizing the cost of our investment over more agents. This is something that's smaller brokerages are unable to do.

Speaker Change: Our third structural advantage is our top agent network <unk>.

Speaker Change: <unk> trends more top agents work at Columbus than any other brokerage firm in fact, <unk> has 50% more top agents is the next largest brokerage firms per real terms.

Speaker Change: We have the best agent to agent client referral network in the country encompasses find an agent tool helps drive agents to agents client referrals.

Robert L. Reffkin: Our average agent derives 17.5% of their business from agent referrals. Referrals not only result in more revenue for Compass but act as a recruiting and retention flywheel. Our fourth structural advantage is our depth and breadth of inventory. At Compass, we take advantage of our inventory position to create better financial outcomes for sellers, and therefore agents, and therefore companies. The foundation of every entity's success in real estate is access to inventory. The source of success for all players in the industry, whether MLSs, aggregators, buyer agents, or listing agents, is access to inventory. Without inventory, agents have nothing to help their clients sell or buy.

Speaker Change: Our average agent derived 17, 5% of their business from agent referrals.

Speaker Change: It will not only result in more revenue per company, but act as our recruiting and retention flywheel.

Speaker Change: Our fourth structural advantage is our depth and breadth of inventory as companies at Compass, we take the advantage.

Speaker Change: You take advantage of our inventory position to create better financial outcomes for sellers, and therefore agents and therefore compass.

Speaker Change: The foundation of every entity success in real estate is access to inventory.

Speaker Change: The source of success for all players in the industry, whether MLS data aggregators buyer agents or listing agents is access to inventory.

Speaker Change: Inventory agents have nothing to help their clients sell or buy and the MLS and aggregate. It had nothing to list lithium data is valuable and belongs to our listing agents. We believe that in any market, where <unk> has a number one market share we have a clear path over the near term to have more publicly searchable listing.

Robert L. Reffkin: And the MLS and aggregators have nothing to list. Lifting data is valuable and belongs to our lifting agency. We believe that in any market where Compass has number-one market share, we have a clear path over the near term to have more publicly searchable listings than any other public site, which will send a signal to the consumer that they need to search Compass.com. The combined effect of each of our four structural advantages is greater than the sum of the parts.

Speaker Change: <unk> than any other public site, which will send a signal to the consumer that they need a search <unk> dot com.

Speaker Change: The combined effect of each of our core structural advantages is bigger than the sum of the parts all companies constituent agents sellers buyers encompass can re powerful benefits from this combination of attributes for agent that means helping them generate more revenue and less time with low.

Robert L. Reffkin: All Compass constituents, agents, sellers, buyers, and Compass, can reap the powerful benefits of this combination of attributes. For agents, that means helping them generate more revenue in less time with lower third-party costs to operate their business. For sellers, it means selling their homes for more money and in less time with less cost to market or prepare their houses for sale. For buyers, it means helping them access the most inventory to find the best house for them at the best price in the least amount of time.

Speaker Change: Your third party costs to operate our business.

Speaker Change: Our sellers and maintain their homes for more money and less time with web com to market, we're prepared their house for sale for.

Speaker Change: For buyers.

Speaker Change: Helping them access the most inventory kind of desktops for them at the best price and the least amount of time.

Robert L. Reffkin: For Compass, it means growing brokerage and integrated services revenue while creating a lower cost to serve agents. A lower cost to serve agents than any traditional brokerage firm. We have three key initiatives to strengthen our structural advantages, and we expect them to drive search traffic, lead agent recruiting, agent retention, gross margin improvement, and market share gain. The first initiative is creating the largest inventory of homes for sale in the country.

Speaker Change: For compass and means growing brokerage and integrated revenue.

Speaker Change: While integrate services revenue, while creating a lower cost to serve.

Speaker Change: In a lower cost to serve agents in any traditional brokerage firm.

Speaker Change: We have three key initiatives to strengthen our structural advantages and we expect them to drive search traffic lead agent recruiting agent retention gross margin improvement and market share gains.

Speaker Change: The first initiative is creating the largest inventory of homes for sale in the country.

Robert L. Reffkin: As previously mentioned, our 30-30 vision is to have, on average, 30% market share in our top 30 cities in 2026. We plan to add, on top of our active inventory, a larger pool of passive inventory. Think of passive inventory as homeowners who have a price in mind that they would accept for their home but haven't listed it on the open market. Agents may know these prices for some of their clients. But the challenge is that information doesn't live in one central place for the entire agent network of agents to access.

Speaker Change: As previously mentioned, our 30 30 vision it to have on average 30% market share in our top 30 cities in 2026.

Speaker Change: We plan to add on top of our active inventory a larger pool of passive inventory.

Speaker Change: I think a passive inventory as homeowners who have a price in mind that they would accept for their home then haven't listed in the open market agents.

Speaker Change: Agents may know these prices for some of their clients for.

Speaker Change: Where the challenge is that information doesn't live in one central place for the entire Aten networks of agents to access.

Robert L. Reffkin: However, since Compass is the only platform that combines where agents search listings and their CRM contacts in the same place, we have the unique ability to add aspirational, make-me-move prices to the almost 100 million contacts that currently reside in the Compass CRM. We own with only 1 million single-family homes on the market today.

Speaker Change: However, since it is the only platform that combines where agent search listing and their CRM contacts in the same place we have the unique ability to add aspirational make me move prices to be almost 100 million contacts that currently reside in the campus CRM.

Robert L. Reffkin: I expect that in 2025, Compass will have a combined off-MOS and make-me-move inventory that is many times more than the publicly searchable active market. This will further make clear to buyers that they need to work with a Compass agent to see the market. As of this week, our agents are able to add make-me-move prices to their clients in their Compass CRM. The second initiative is making Compass the required destination for real estate.

Speaker Change: We own with only 1 million single family homes on the market today I expect that in 2025 campus will have a combined off MLS and make me move inventory.

Speaker Change: That is many times more than a publicly searchable active market. This will further make clear to buyer that they need to work with a compass agents to see the market.

Speaker Change: As of this week, our agents are evil to add make me move prices to their clients and their campus CRM.

Speaker Change: The second initiative is making companies through required destination for real estate. Our goal is to make it clear that cumbent agents incumbent Dot com had more inventory than third party site, sending a strong signal to buyers that if you aren't working with the Congress agents foreign source income this youre not seeing all of the inventory.

Robert L. Reffkin: Our goal is to make it clear that Compass agents and Compass.com have more inventory than third-party sites, sending a strong signal to buyers that if you aren't working with Compass agents or aren't searching Compass, you are not seeing all the inventory. With more web traffic comes more leads we can send to our agents. Transactions that result from leads that are given to our agents at approximately a 50% margin. Our third initiative is launching the Compass Client Dashboard.

Speaker Change: More web traffic comes more leads we can turn to our agents' transactions that results from leads that are given to our agents.

Speaker Change: Add approximately a 50% margin.

Speaker Change: Our third initiative is launching the pump has claimed dashboard.

Robert L. Reffkin: Only Compass can provide a true end-to-end experience for agents and clients because Only Compass offers all the products and features agents and clients need in one platform. Launching in six months, the Client Dashboard will put all the key agent-to-client interactions in one place, including agent-client communication, transaction timeline, tasks, documents, CMA valuations, listing marketing, listing insights, buyer search results, offers and negotiations, buyer tours, open house feedback, title Over time, we plan to incorporate the key service providers' interactions into the Client Dashboard as well, such as loan officers, home inspectors, home appraisers, photographers, videographers, home insurance, and home security providers, as well as ongoing home improvement vendors.

Speaker Change: Only <unk> can provide a true end to end experience for agents and clients because only Congress offers all of the products and features agent and client need in one platform.

Speaker Change: Launching in six months.

Speaker Change: Brian Dashboard will put all the key agent to client interactions in one place, including agent client communication transaction timeline Tac documents.

Speaker Change: Valuations lifting marketing listing insight buyers search results offers in negotiations buyer tours open house feedback title and escrow and more.

Speaker Change: Over time, we plan to incorporate the key service providers.

Speaker Change: Interaction into the client dashboard as well.

Speaker Change: Such as loan officers home inspectors home Appraisers photographers Videographers home insurance and home security providers as well as ongoing home improvement vendors.

Robert L. Reffkin: With these three initiatives, I expect Compass to be in a place where any agent is at an undeniable advantage by being a Compass agent, and any home buyer or home seller is at an undeniable advantage by being a Compass client, all within 2025. Ultimately, these structural advantages drive our KPIs. Cash Flow Generation and Shareholder Value Creation. Moving on to the NAR settlement. Compass entered into a nationwide settlement agreement covering all of the felicide antitrust claims against us, and that settlement has been preliminary approved by the court.

Speaker Change: With these three initiatives.

Speaker Change: I expect <unk> to be in a place where any agent.

Speaker Change: Add an undeniable advantage by being a campus agents and any homebuyer or home seller is that an undeniable advantage by being a come with clients.

Speaker Change: All within 2025.

Speaker Change: Ultimately these structural advantages drive our kpis.

Speaker Change: Cash flow generation and shareholder value creation.

Speaker Change: Moving on to the <unk> settlement.

Speaker Change: <unk> entered into a nationwide settlement agreement covering all of the sulfide antitrust claims against us and that settlement.

Speaker Change: It has been preliminary approved by the court.

Robert L. Reffkin: We expect final approval of our settlement in late October 2024. It has been four and a half months since the announcement of the NAR settlement, and we have not seen a noticeable change from before the settlement in either the percentage of sellers that offer a buyer's agent commission or the average commission amount they are paying the buyer's agent. To be clear, the fears many had about commissions going down or buyer compensation disappearing simply have not materialized. For the month of May and June, in the markets generating the majority of our revenue, more than 99% of new listings on the MLS, not just Compass listings, included offers to pay the buyer agent. Furthermore, About 96% of new listings on the MLS during that time period included offers to pay 2% or more, and more than 80% are operating to pay 2.5% or more.

Speaker Change: We expect final approval of our settlement in late October 2024.

Speaker Change: It has been four and a half months since the announcement of the <unk> settlement and we have not seen a noticeable change from before the settlement in either the percentage of sellers that offer a buyer's agent Commission or in the average commission amount they are paying the buyer's agents.

Speaker Change: To be clear the fears many had about commissions going down or buyer compensation disappearing.

Speaker Change: Has simply not materialized.

Speaker Change: Over the months of May and June and.

Speaker Change: In our markets generating the majority of our revenue more than 99% of the new listings on the MLR not just comeback lifting included offers to pay the buyer agents.

Speaker Change: Furthermore, about 96% of new listings on the MLS during that time period.

Speaker Change: Included offers to pay 2% or more.

Speaker Change: And more than 80%.

Speaker Change: And more than 80% are offering to pay two 5% or more.

Robert L. Reffkin: We do not expect the actual rule change requiring a buyer-presentation agreement on August 17 to impact commissions to buyer agents for three reasons. First, as seen from the data, after the unprecedented press attacking agent commissions, which we saw as the biggest risk, and the subsequent unprecedented questions from sellers about whether or not they should pay buyer commissions, the data clearly shows that sellers continue to value them. Incentivizing the Buyer Agent. Second, after August 17th, the seller will continue to determine the buyer-agent condition. And we don't believe the seller will be influenced by the buyer representation agreement since the buyer agreement is shared only with the buyer.

Speaker Change: We do not expect the actual rule change requiring a by arbitration agreements on August 17th to impact the commission to buyer agents for three reasons first as seen from the data after the unprecedented press attacking agent commissions, which we saw as the biggest risks and the subsequent unprecedented questions from sellers.

Speaker Change: About whether or not they should pay by our commissions the data clearly shows.

Speaker Change: That sellers continue to value.

Speaker Change: Incentivising the buyer agent.

Speaker Change: <unk>.

Speaker Change: After August 17, the seller will continue to determine the buyer agent Commission.

Speaker Change: And we don't believe the seller will be influenced by the buyer of estate reputation agreements since the buyer agreement is shared only with the buyer.

Robert L. Reffkin: Third, buyer representation agreements have already been required in half the states Compass operates in, and we have not seen them impact commissions, and this has been for many, many years before the NARA settlement. Now, on to stock-based... Over the last two years, we created in our DNA the muscle to bring down annualized operating expenses by close to $600 million while still growing our business. As we move forward, we will continue to identify opportunities to create shareholder value.

Speaker Change: Third buyer reputation agreement have already been required and half the states Congress operate them and we are not seeing them impact conditions and this has been for many many years before the <unk> settlement.

Speaker Change: Now onto stock based comp.

Speaker Change: Over the last two years, we created in our DNA the muscle to bring down annualized operating expenses by close to $600 million.

Speaker Change: While still growing our business as we move forward, we continue to identify opportunities to create shareholder value.

Robert L. Reffkin: We fully recognize that OPEX is not the only cost we have under our control. And over the past few years, we have significantly reduced the annual dollar amounts of stock-based compensation with six straight quarters of decreases.

Speaker Change: We fully recognize that opex is not the only costs, we have in our control and over the past few years, we have significantly reduced the annual dollar amount of stock based compensation with six straight quarters of decreases.

Robert L. Reffkin: Importantly, our stock-based compensation expense is expected to be about $130 million for 2024, which is over $100 million less, or 44% less, than the $234 million we reported just two years ago in 2022. I am committed to reducing dilution from stock-based compensation and increasing free cash flow and free cash flow per share. Kalani will provide more detail on what we've done to date and what we plan to do in his prepared remarks. In closing, we see the industry consolidating around the winner. Compass has been the number one brokerage for three consecutive years.

Speaker Change: Importantly, our stock based compensation.

Speaker Change: <unk> is expected to be about $130 million for 2024, which is over $100 million less or 44% less than the $234 million. We reported just two years ago in 2022.

Speaker Change: And our stock based comp expense in Q2 was the lowest in our history as a public company.

Speaker Change: I am committed to reducing dilution from stock based comp and increasing free cash flow and free cash flow per share <unk>.

Speaker Change: <unk> will provide more detail on what we've done to date and where we plan to do in his prepared remarks.

Speaker Change: In closing, we see the industry consolidating around the winners companies is the number one brokerage re consecutive years.

Robert L. Reffkin: We are delivering excellent financial results, and we have a strong balance sheet given the fiscal responsibility we have exhibited by moving to being pre-cash flow positive with no draw on our credit facility, no convertible debt, and ample liquidity allowed through our revolver. I want to end by thanking the entire Compass team of employees and agents. I see their commitment to making Compass successful with their incredible dedication and determination. I will now pass it over to Kalani.

Speaker Change: We are delivering excellent financial results and we have a strong balance sheet given the fiscal responsibility we have exhibited by moving to being free cash flow positive with no draw on our credit facility no convertible debt and ample liquidity allowed through to our revolver.

Speaker Change: I want to end by thanking the entire <unk> team of employees and agents.

Speaker Change: Their commitment to make encompass successful with their incredible dedication and determination.

Speaker Change: I will now pass it over declining.

Kalani Reelitz: Thank you, Robert. Before I go into details of our Q2 performance, I wanted to start my prepared remarks by acknowledging and thanking our Head of IR, Richard Simonelli. As many of you know, Rich is moving on from Compass, but he leaves Compass in a much better place than when we started. Rich is a professional's professional, a pro's pro, and has helped Robert and I tell the Compass story through some of the most exciting and turbulent times at & Co. Rich, thank you personally, and from all of us on the Compass team, thank you for all the great work. Now, before I get into the results for the quarter, I want to add to Robert's comments about achieving a 30% market share in the top 30 cities. Let me share how we're going to get there.

Richardson Nally: Thank you Robert but before I go into the details of our Q2 performance I wanted to start my prepared remarks by acknowledging and thanking our head of IR Richardson Nally as many of you know which is moving on from Compass believes compass in a much better place than when we started.

Speaker Change: Rich as the professionals professional approach pro and has helped Robert and I tell the compass story through some of the most exciting and turbulent times in company's history.

Robert L. Reffkin: Rich. Thank you personally and from all of US have the compass team. Thank you for all the great work you've done.

Speaker Change: Now before I get into the results for the quarter I want to add to Robert's comments about achieving a 30% market share in the top 30 cities, let me share how we're going to get there it will be through a mix of organic growth and accretive M&A. We believe many of the $1 4 million prospective agents can grow their business and improve their quality of life by Joe.

Kalani Reelitz: It will do so through a mix of organic growth and creative M&A. We believe many of the 1.4 million prospective agents can grow their business and improve their quality of life by joining. Compass gives agents a comprehensive offering of technology, people, and network that no one else can offer. This is why the pace of brokerage firms seeking to join Compass has increased during the downturn. We've capitalized on this by making strategic, accretive acquisitions. We are being very selective.

Robert L. Reffkin: Unencumbered.

Robert L. Reffkin: Compass gives agents a comprehensive offering of technology people and network that no one else has.

Robert L. Reffkin: This is why the pace of brokerage firms seeking to joined Compass has increased during the downturn.

Robert L. Reffkin: We have capitalized on this by making strategic accretive acquisitions, we are being very selective we're interested in and talking through premium blue chip local and regional brokerages. However, the financials have to make sense.

Kalani Reelitz: We're interested in and talking to premium, blue chip, local, and regional brokers. However, the financials have to make it. These acquisitions become more attractive when we build in the benefits of synergies, including lowering the overall operating costs for our agents by leveraging the Compass platform, including our technology, real estate footprint, and back office processes that already exist. In 2023, we added three brokerages in Arizona, California, and Texas.

Robert L. Reffkin: These acquisitions become more attractive when we build and the benefits of synergies, including lowering the overall operating cost for our agents by leveraging the <unk> platform, including our technology real estate footprint and back office processes that already exists.

Kalani Reelitz: And in 2024, we added two brokerages in Louisiana. Now, let me provide you with some details on our operations for the quarter. In the second quarter, we processed 60,390 transactions, an increase of 11.4% from a year ago, which compares very favorably to the 3.3% decline in transactions for the entire residential real estate market in the second quarter, as reported by the National Association of Real Estate Advisors. Our market share for Q2 2024 was 5.13%, up 50 basis points year-over-year and up 37 basis points sequentially from Q1 of 2024.

Robert L. Reffkin: In 2023, we added three brokerages in Arizona, California, and Texas and in 2024, we added two brokerages in Louisiana in Tennessee.

Kalani Reelitz: As of June 30th, 2024, we had 16,997 principal agents, compared to 13,698 as of June 30th, an increase of $3,299 year-over-year, or $2,800. This increase was driven by 2,375 principal agents that we acquired through the Ladder & Bloom acquisition in Louisiana and the Parks Real Estate acquisition in. Additionally, on an organic basis, our team recruited 543 principal agents in the second quarter, which was Our quarterly retention rate in the second quarter was 97.2%.

Robert L. Reffkin: Now let me provide you with some detail on our operations for the quarter.

Robert L. Reffkin: In the second quarter, we processed 6300, 90 transactions an increase of 11, 4% from a year ago, which compares very favorably to the three 3% decline in transactions for the entire residential real estate market in the second quarter as reported by the National Association of Realtors.

Robert L. Reffkin: Our market share for Q2, 2024 was five 3% up 50 basis points year over year and up 37 basis points sequentially from Q1 of 2024.

Robert L. Reffkin: As of June 32024, we had 16997 principal agents compared to 13698 as of June 32023, an increase of 3299 year over year or 24%.

Robert L. Reffkin: This increase was driven by 2000 and 375 principal agents that we acquired through the latter remove acquisition in Louisiana, and the parks real estate acquisition in Tennessee.

Robert L. Reffkin: Additionally, on an organic basis, our team recruited 543 principal agent from the second quarter, which was a strong recruiting quarter for us our quarterly retention in the second quarter was 97, 3%.

Kalani Reelitz: Turning to our financial results for the quarter, our second quarter revenue was $1.7 billion, an increase of 14% from the year-ago period, which was at the high end of our guidance range of $1.6 billion to $1.7 billion. Gross transaction value was $65 billion in the second quarter, an increase of 14% from a year ago, reflecting an 11% increase in total transactions combined with an increase in average selling. Our commission expense as a percent of revenue was 82.6%, an increase of 70 basis points from Q2 of last year.

Robert L. Reffkin: Turning to our financial results for the quarter, our second quarter revenue was $1 7 billion, an increase of 14% from the year ago period, which was at the high end of our guidance range of $1 6 billion to $1 7 billion.

Robert L. Reffkin: Gross transaction value was 65 billion in the second quarter, an increase of 14% from a year ago, reflecting the 11% increase in total transactions combined with an increase in average selling price.

Robert L. Reffkin: Our commission expense as a percent of revenue was 82, 6% an increase of 70 basis points from Q2 of last year, while we continue to see the long term structural tailwind related to Compass expense Commission expense in the quarter about two thirds of the increase in commission expense as a percent of revenue is attributable to changes in genomics and.

Kalani Reelitz: While we continue to see the long-term structural tailwinds related to Compass' commission expense, in the quarter, about two-thirds of the increase in commission expense as a percent of revenue is attributable to changes in geomix in the markets in which we operate and from brokerage acquisitions we closed since the year-ago period that were made in markets with lower average splits than our overall brokerage business. Our total non-GAAP operating expenses, excluding commissions and other related expenses, were $217 million for the second quarter.

Robert L. Reffkin: The markets in which we operate and from brokerage acquisitions, we closed since the year ago period that were made in markets with lower average splits in our overall brokerage rate.

Robert L. Reffkin: Our total non-GAAP operating expenses, excluding commission and other related expenses were $270 million for the second quarter. This reflects a reduction in expenses of $21 million or 9% from Q2, a year ago, even after considering the added expenses, we assumed related to each of the two brokerage acquisitions, we completed in Q3 of 2023.

Kalani Reelitz: This reflects a reduction in expenses of $21 million, or 9% from Q2 a year ago. Even after considering the added expenses we assumed related to each of the two brokerage acquisitions we completed in Q3 of 2023, The Florida title acquisition this past January and the two brokerage acquisitions we closed this past quarter. As a reminder, the non-GAAP operating expenses we refer to are expenses that we exclude from the calculation of adjusted EBITDA, including stock-based compensation and depreciation and amortization.

Robert L. Reffkin: The Florida title acquisition this past January and two brokerage acquisitions, we closed this past quarter.

Robert L. Reffkin: As a reminder, non-GAAP operating expenses, we referred to amidst expenses that were excluded from the calculation of adjusted EBITDA, including stock based compensation and depreciation and amortization and as always we've included a table on page 12, and 13 in our Q2 investor deck that reconcile these amounts to our GAAP operating expense.

Kalani Reelitz: And as always, we've included tables on pages 12 and 13 in our Q2 Investor Dex that reconcile these amounts to our GAAP operating expenses. Our adjusted EBITDA for the second quarter was $77 million, which was slightly better than the high end of our guidance range of $55 million to $75 million. This adjusted EBITDA level reflects an improvement of 157% over the year-ago results. And importantly, it reflects a new company record as the highest level of adjusted EBITDA we have reported.

Robert L. Reffkin: Our adjusted EBITDA for the second quarter was $77 million, which was slightly better than the high end of our guidance range of $55 million to $75 million. This adjusted EBITDA level reflects an improvement of 157% over the year ago results and importantly, it reflects a new company record as the highest level of adjusted EBITDA, We reported at the company.

Kalani Reelitz: In addition to a new all-time record of adjusted EBITDA, we also achieved a new record as it relates to GAAP net income. During the second quarter, our GAAP net income was $20.7 million, which is the first time in the company's history that we are reporting a quarter with positive GAAP earnings.

Robert L. Reffkin: In addition to a new all time record of adjusted EBITDA. We also achieved a new record as it relates to GAAP net income during the second quarter. Our GAAP net income was $20 7 million, which is the first time in the company's history that we are reporting a quarter with positive GAAP earnings. This is an incredible milestone for us as it validates that at the right levels of.

Kalani Reelitz: This is an incredible milestone for us as it validates that at the right levels of operating expenses, the financial model works. It's important to note that the achievement of positive GATT and Net Income was made possible by our relentless focus on reducing our operating expenses, but it was also assisted by reducing some of the expense lines traditionally excluded from the calculation of adjustments. Most notably, stock-based compensation expense was $31 million during the second quarter, which reflects a 21% reduction from a year ago and reflects the lowest level of stock-based compensation expense that we've reported.

Robert L. Reffkin: And expenses the financial model works it's.

Robert L. Reffkin: It is important to note that the achievement of positive GAAP net income was made possible by our relentless focus on reducing our operating expenses, but was also assisted by reducing some of the expense lines traditionally excluded from the calculation of adjusted EBITDA.

Robert L. Reffkin: Most notably stock based compensation expense was $31 million during the second quarter, which reflects a reduction of 21% from a year ago and reflects the lowest level of stock based compensation expense that we reported as a public company.

Kalani Reelitz: As Robert mentioned, we are constantly focused on creating value for our shareholders. We have put a focus on bringing down stock-based compensation with the same approach and discipline that allowed us to successfully reduce our operating expenses by nearly $600 million. It's important to highlight that we've already accomplished several action items over the last 18 months to manage stock compensation. First, we sunsetted our agent equity program in December 22, which allowed agents to convert a portion of their cash commission into Compass equity.

Robert L. Reffkin: As Robert mentioned, we are constantly focused on creating value for our shareholders. We have put a focus on bringing down stock based compensation with the same approach and discipline that allowed us to successfully reduce our operating expenses by nearly $600 million.

Robert L. Reffkin: It's important to highlight that we've already accomplished several action items over the last 18 months to manage stock compensation first we sunset our agent equity program in December of 'twenty, two which allows agents to convert a portion of their cash commission into compas equity.

Kalani Reelitz: Second, we eliminated the use of equity as an incentive to recruit agents in the third quarter of 2022, around the same time that we eliminated the use of cash as a sign on recruiting incentives for agents. Third, we greatly reduced the workforce over several reductions in force during 2022 and 2023, including a reduction in the size of our product and engineering team, which consumes the largest portion of our employee-based equity.

Robert L. Reffkin: Second we eliminated the use of equity as an incentive to recruit agents in the third quarter of 2022 around the same time that we eliminated the use of cash as a sign on recruiting incentives for agents.

Robert L. Reffkin: Third we greatly reduced the workforce over the several reductions in force during 2022, and 2023, including reduction in the size of our product and engineering team, which consumes the largest portion of our employee based equity grants.

Kalani Reelitz: And fourth, we've shifted a considerable amount of labor to low-cost, offshore markets through the use of contractors. In addition to this helping to reduce cash expenses, this also reduces the use of equity as we don't issue equity to contractors.

Robert L. Reffkin: And fourth we've shifted a considerable amount of labor to low cost offshore market through the use of contractors. In addition to this helping to reduce cash expenses. This also reduces the use of equity as we don't issue equity to contractors.

Kalani Reelitz: These measures have resulted in a significant reduction in our stock-based compensation expense, and in 2022, our stock-based compensation expense was $234 million. In 2023, our stock-based compensation was reduced by $76 million, or 32%, to $158 million, and we expect our stock-based compensation will be reduced to approximately $130 million for the full year of 2024. This will reflect a 44% reduction of 44%, or over $100 million, for the first two years since 2024. Going forward, we will continue to offshore work through our low-cost labor efforts, where OPEX is reduced, and equity compensation is not utilized.

Robert L. Reffkin: These measures have resulted in significant reduction in our stock based compensation expense and a 2022, our stock based compensation expense was $234 million in 2023 year stock based compensation reduced by $76 million or 32% to $158 million and we expect our stock based compensation were reduced to approximately $130 million.

Robert L. Reffkin: For the full year of 2024, this will reflect a reduction of 44% or over $100 million for the first two years since 2022.

Robert L. Reffkin: Going forward, we will continue to offshore work through our low cost labor efforts, where opex is reducing equity compensation is not utilized also stock compensation will gradually reduce as the higher priced shares issued at the time of our IPO will burst out over the next one to two years since the stock based compensation expense is determined.

Kalani Reelitz: Also, stock compensation will gradually reduce as the higher-priced shares issued at the time of our IPO best out over the next one to two years since the stock-based compensation expense is determined based on the share price at the time of grant. In addition to the reduction in stock-based compensation expense, we are focused on minimizing dilution in other ways as well. One example of this is the way we net settle employee RRUs when they vest.

Robert L. Reffkin: Based on the share price at the time of grant and.

Robert L. Reffkin: In addition to the reduction in stock based compensation expense, we are focused on minimizing Ms. Minimizing dilution in other ways as well. One example of this is the way we net settled employee or issues when they vest through this net settlement compass base, the cash for employee payroll withholding taxes in withholds an equal amount of shares at the time of vesting the share hold back from taxes.

Kalani Reelitz: Through this net settlement, Compass pays the cash for employees' payroll, withholding taxes, and withholds an equal amount of shares at the time of vesting. The share holdback from taxes reduces dilution from stock compensation by about 40% and effectively operates like a regular share buyback program during the year.

Robert L. Reffkin: From Texas reduces dilution from stock compensation by about 40% at effectively operates like a regular share buyback program during the year.

Kalani Reelitz: Further, any issuance of equity for M&A going forward will continue to be made through a strict framework that applies to accretive deals at favorable multiples that grow revenue and EBITDA and ultimately shareholder value. While we believe stock-based compensation is an important tool to align the actions of our team members to the outcomes of Compass, we also understand it represents a real cost. In the exact same way we delivered operating expense reductions, Robert, myself, and our full management team are focused on action plans to continue to bring down stock-based compensation.

Robert L. Reffkin: Further any issuance of equity for M&A going forward will continue to be made through a strict framework that allows that applies to accretive deals at favorable multiples that grow revenue and EBITDA and ultimately shareholder value.

Robert L. Reffkin: While we believe stock based compensation is an important tool to align the actions of our team members to the outcomes of Compass. We also understand that represents a real costs in the exact same way, we delivered operating expenses expense reductions Robert myself and our full management team are focused with action plans to continue to bring down stock based compensation.

Kalani Reelitz: As the housing market recovers and revenue growth occurs, we do not believe there is a need to materially increase the absolute dollar amount of stock-based compensation. As we have done with our OPEX efforts, we look forward to showing progress on this commitment and upcoming earnings. Turning back to our financial results, free cash flow during the second quarter was positive $40.4 million. As previously disclosed, the first payment of our class action legal settlement was made in the second quarter, which reduces cash flow in the quarter by $29 million.

Robert L. Reffkin: As the housing market recovers and revenue growth occurs we do not believe there is a need to materially increase the absolute dollar amount of stock based compensation in the future.

Robert L. Reffkin: As we have done with our Opex efforts, we look forward to showing progress on this commitment in upcoming earnings calls.

Speaker Change: Turning back to our financial results free cash flow during the second quarter was positive $44 million as previously disclosed the first payment of our class action legal settlement was made in the second quarter, which reduced the cash flow in the quarter by $29 million, excluding the effect of that payment free cash flow would have been $69 million, which would have.

Kalani Reelitz: Excluding the effect of that payment, free cash flow would have been $69 million, which would have meant an improvement of 36% over the free cash flow of $51 million in Q2 of last year. As a reminder, and consistent with my comments last year, it's important to note that our positive cash flow in the first half of 2024 is partially due to a couple of timing items that will have offsetting effects later in the year.

Speaker Change: An improvement of 36% over the free cash flow of $51 million in Q2 of last year.

Speaker Change: As a reminder, and consistent with my comments last year, it's important to note that our positive cash flow in the first half of 2024th partially due to a couple of timing items that will have offsetting effects later in the year first many of these fees that are many of the fees that are build to our agents occur at the beginning of the calendar year. So our cash flow in the early part of the year was aided by timing of <unk>.

Kalani Reelitz: First, many of these fees that are, many of the fees that are billed to our agents occur 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 an offsetting effect later in the year. Second, we tend to see seasonal impacts on working capital that are favorable in the first two quarters of the year, when cash collections from our brokerage commissions are higher at the end of these quarters, each of these quarters, compared to the beginning. The opposite is generally true in Q3, and especially in Q4, when seasonality impacts working capital in a negative way.

Speaker Change: The fees are paid and it will have an offsetting effect later in the year.

Speaker Change: Second we tend to see seasonal impacts to working capital that are favorable in the first two quarters of year when cash collections from our brokerage commissions are higher at the end of these quarter each of these quarters compared to the beginning of this quarter.

Speaker Change: The opposite is generally true in Q3, and especially in Q4 when seasonality impacts working capital in a negative way these timing items shouldnt be neutral for the full year, but can create choppiness for individual quarters within the year, we expect to be free cash flow positive for the full year, even after considering the $29 million legal settlement payment made in Q2.

Kalani Reelitz: These timing items should be neutral for the full year but can create choppiness for individual quarters within the year. We expect to be free cash flow positive for the full year, even after considering the $29 million legal settlement payment made in. However, we expect that free cash flow will be only slightly positive in Q3, and free cash flow will be negative in Q4. We ended the second quarter with $186 million of cash and cash equivalents on our balance sheet, and we have no outstanding draws on our revolving line of credit.

Speaker Change: However, we expect that free cash flow will be only slightly positive in Q3 and free cash flow will be negative in Q4.

Speaker Change: We ended the second quarter with $186 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.

Kalani Reelitz: We believe we are well positioned to react to continued market volatility. Now turning to our financial guide. For Q3 of 2024, we expect revenue in the range of $1.425 billion to $1.525 billion, and we expect adjusted EBITDA to be in the range of $30 million to. The midpoints of each of these revenue and adjusted EBITDA ranges reflect increases of 10% and 83% compared to Q3 of last year. Let me provide a few additional data points as it relates to financial modeling you may be doing for the second half.

Speaker Change: Now turning to our financial guidance for.

Speaker Change: For Q3 of 2024, we expect revenue in the range of $1 45 billion to 155 billion and we expect adjusted EBITDA to be in the range of $30 million to $50 million the midpoint of the each of these revenue and adjusted EBITDA ranges reflect increases of 10% and 83% compared to Q3 of last year.

Speaker Change: Let me provide a few additional data points as it relates to financial modeling you may be doing for the second half of 2024.

Kalani Reelitz: First, consider our commissions as a percent of revenue for Q2, which was 82.6%. We would expect this margin to remain around this level for the balance of the year, which reflects the integration of our recent M&A transactions at a commission rate higher than our core brokerage. Second, as it relates to OPEX, we have updated our OPEX range for the year 2024 from $876 million to $896 million. As we laid out last quarter, this range starts with our core company OPEX of $850 million and adds $15 million for 2023 M&A OPEX, $12 million of OPEX for the ladder and bloom acquisition that closed in April, and an additional $9 million for the balance of 2024 from the parks entities that we just acquired.

Speaker Change: Consider that our commissions as a percent of revenue for Q2 was 82, 6%. We would expect this margin to remain around this level for the balance of the year, which reflects the integration of our recent M&A transactions that our commission rates that are higher than our core brokerage.

Speaker Change: As it relates to Opex, we have updated our opex range for the year 2024 of 876 million to $896 million as we laid out last quarter. This range starts with our core company opex of $850 million in ads and $15 million for 2023, M&A Opex $12 million of Opex for ladder in blue.

Speaker Change: Acquisition that closed in April and an additional $9 million for the balance of 2024 from the parks entities that we just acquired in May for.

Kalani Reelitz: For modeling purposes, you should expect an additional sequential increase in OPEX in Q3 and Q4 as the partial quarter impact of our Q2 acquisitions of Ladder and Bloom and Parks contribute to a full quarter's worth of OPEX in Q3 and Q4. Finally, as I stated earlier, we are reiterating our expectation to be free cash flow positive for the full year. However, on a quarterly basis, we expect free cash flow to be marginally positive in Q3 and negative in Q4 due to seasonality. As I wrap up my prepared remarks, I'd just like to recap some of the highlights that we discussed that made the second quarter such a standout.

Speaker Change: For modeling purpose, you should expect an additional sequential increase the opex in Q3, and Q4 as the partial quarter impact of our Q2 acquisition of ladder and boom in parks contribute to a full quarter's worth of Opex in Q3 and Q4.

Speaker Change: Finally, as I stated earlier, we are reiterating our expectation to be free cash flow positive for the full year. However on a quarterly basis, we expect free cash flow to be marginally positive in Q3 and negative Q4, given the seasonality of our business.

Speaker Change: As I wrap up my prepared remarks, I'd, just like to recap some of the highlights that we've made that made the second quarter such a standout.

Kalani Reelitz: First, we grew revenue by 14% versus a year ago, with market share increasing 50 basis points to over 5%. Additionally, we delivered an 11% increase in transaction volume from a year ago compared to a 3% decline in transaction volume for the overall industry. The number of our principal agents increased by 24% versus a year ago, an increase of nearly 3,300 principal agents. We achieved an additional OPEX reduction of $21 million versus Q2 of last year, or $83.6 million on an annualized basis, even after considering the additional OPEX assumed for recent acquisitions.

Speaker Change: First we grew revenue by 14% versus a year ago with market share, increasing 50 basis points to over 5%.

Speaker Change: We delivered an 11% increase in transaction volume from a year ago compared to a 3% decline in transaction volume for the overall industry.

Speaker Change: A number of our principal agents increased by 24% versus a year ago, an increase of nearly 3300 principal agents.

Speaker Change: We achieved an additional opex reduction of $21 million versus Q2 of last year or $883 6 million on an annualized basis, even after considering the additional opex assumed for recent acquisitions, we delivered a new record level of adjusted EBITDA of $77 million, despite revenue being down by $250 million compared to Q2.

Kalani Reelitz: We delivered a new record level of adjusted EBITDA of $77 million despite revenue being down by $250 million compared to Q2 of 2021, which was a quarter of our prior adjusted EBITDA record. We completed two M&A transactions through which we became the number one brokerage by sales volume in the Nashville and New Orleans markets. We produced over $40 million of free cash flow and increased our cash position despite paying out over $28 million in legal settlement. And finally, we reported a gap net income of $21 million, which marks the first time as a public company that we've ever reported positive gap net income.

Speaker Change: A 2021, which was a quarter of our prior adjusted EBITDA record.

Speaker Change: We completed two M&A transactions through which we became the number one brokerage by sales volume in the Nashville, and New Orleans Margaret.

Speaker Change: We reduced over 40 million, we produced over $40 million of free cash flow and increased our cash position despite paying out over 28 9 million.

Speaker Change: Million in legal settlement and finally, we reported GAAP net income of $21 million, which marks the first time as a public company that we've ever reported positive GAAP net income.

Operator: Results like these wouldn't happen without the incredibly hard work and dedication of our team members, and I'd like to say thank you again to our agents and employees for all that you do. I would now like to turn the call over to the operators to begin Q&A. Thank you. Ladies and gentlemen, at this time, I would like to remind everyone that in order to ask a question, please press the star followed by the number one on your telephone keypad.

Speaker Change: Results like these don't happen without the incredibly hard work and dedication of our team members and I'd like to say, thank you again to our agents and employees for all that you do for Columbus, I would now like to turn the call over to the operator to begin Q&A.

Operator: We'll pause for just a moment to compile the Q&A roster. Our first question for today comes from the line of Matthew Bouley with Barclays. Your line is live. Good afternoon, everyone.

Speaker Change: Thank you, ladies and gentlemen at this time I would like to remind everyone that in order to ask a question. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Speaker Change: Our first question for today comes from the line of Matthew Bouley with Barclays. Your line is live.

Matthew Adrien Bouley: Thank you for taking the questions. I'll ask about the 30-30 strategy, you know, understanding the wide array of competitive advantages that you have supporting recruiting and retention. You know, the question is kind of mechanically speaking, getting to a 30% share in your top 30 markets. I know you mentioned it would be a combination of organic and M&A. So from a starting point, I guess, where are you today in those markets? And is there kind of a clear pipeline around M&A to get you there?

Matthew Adrien Bouley: Good afternoon, everyone. Thank you for taking the questions I'll ask around the 30% 30 strategy.

Speaker Change: Understanding the wide array of.

Matthew Adrien Bouley: Competitive advantages that you have supporting recruiting and retention.

Matthew Adrien Bouley: The question is kind of mechanically speaking getting to a 30% share in your top 30, Merck markets. I know you mentioned it would be a combination of organic and M&A. So from a starting point I guess, where are you today in those markets.

Speaker Change: And is there kind of a clear pipeline around M&A to get you there or should we think kind of returning to a few years ago that there could be some.

Matthew Adrien Bouley: Or should we think, you know, kind of returning to a few years ago that there could be some, you know, kind of uptick in competition to kind of go after some of the agents you may need around that organic share gain piece? Thank you.

Speaker Change: Kind of uptick in competition to kind of go after some of the agents you may need.

Speaker Change: Around that organic share gain piece. Thank you.

Speaker Change: Is it on the or.

Robert L. Reffkin: On the organic side, we don't expect to be going back to the old days of cash incentives and equity incentives. That's not needed given the strength of the platform. And we are seeing an increased interest in coming to Compass, I think. Historically, there's been an unbalance, a desire for agents to be part of small and boutique companies. I think the NAR settlement has helped accelerate the understanding of the benefits of being part of a bigger company.

Speaker Change: On the organic side.

Speaker Change: We don't expect to be going back to the old days of.

Speaker Change: Cash incentives and equity incentives, that's not needed in the strength of the platform.

Speaker Change: We and we are seeing an increased interest in coming to come to us I think.

Speaker Change: Historically.

Speaker Change: There is an.

Speaker Change: On balance a desire for agents to be part of small and boutiques I think when the <unk> settlement has helped accelerate.

Speaker Change: As the understanding of the benefits of being part of a bigger company.

Speaker Change: And not just agents are seeing that brokerage Ceos are seeing that as well.

Robert L. Reffkin: And not just agents are seeing that, but CEOs are seeing that as well. And so, yes, it'll be a mix of organic and brokerage M&A, and the M&A, as Kalani said, will be a very disciplined framework to make sure that it's always accretive on the E-DOM multiple basis before the benefit of cost synergies. And so it becomes even more accretive when you include the cost synergies. Gotcha. Okay. Well, thank you for addressing that. Super helpful.

Speaker Change: And so yes, there'll be a mix of organic and in brokerage.

Speaker Change: M&A and the M&A and as <unk> said, we will have a very disciplined framework to make sure that it's always.

Speaker Change: Accretive.

Speaker Change: Multiple basis before the benefit of cost synergies.

<unk>: And so it becomes even more accretive when you include the cost synergies.

Matthew Adrien Bouley: Maybe secondly, just kind of zooming into the market, obviously, interest rates have come down a bit. I, you know, kind of look at some of the high-level data with, you know, Mortgage Bankers Association, et cetera, which maybe has not fully reflected that move in rates yet. Kind of what are you seeing around availability of inventory coming back online? I'm also curious.

Speaker Change: Gotcha, Okay, well, thank you for addressing that Super helpful.

Speaker Change: Maybe secondly, just kind of zooming into the <unk>.

Speaker Change: The market, obviously interest rates have come down a bit.

Speaker Change: You kind of look at some of the high level data with.

Speaker Change: Mortgage bankers Association et cetera is maybe not fully reflected that move in rates yet.

Speaker Change: Kind of what are you seeing around availability of inventory coming back online I am also curious if that if that nor settlement great color. There around what it is and is not doing around commission rates, but it is it creating any uncertainty in terms of transactions that may be getting pushed to the right. So yeah, just kind of overall mark.

Robert L. Reffkin: If that, if that NARS settlement, great color around what it is and is not doing around commission rates, but is it creating any uncertainty in terms of transactions? That may be getting pushed to the right.

Robert L. Reffkin: So, yeah, just kind of overall market color and then some sort of what you're seeing around how the settlement may actually impact the market. Yeah, so let's do the latter part first; I think it's a little more straightforward. The NAR settlement has not, from anything I've seen, impacted buyer or seller desires to transact. It has, however, impacted certain agents' desires to be in the business. And those aren't really Compass agents, but I think newer agents, people that don't have as much experience and that haven't really been committed or that were going to start joining the industry may decide not to because of the headlines, but it's not impacting transactions.

Speaker Change: Color and then sort of what youre seeing around how the settlement may be actually impacting the market. Thank you.

Speaker Change: Okay.

Speaker Change: Ladder.

Speaker Change: It's a little more straightforward.

Robert L. Reffkin: It's just, I think, impacting certain agents and their desire or fear about the industry. But the fear for agents that are actually in the business that are professionals, I would tell you, when I go around all the different offices; I travel regularly to offices across the country, there are more agents that think that this will help their business than hurt their business. And when I say business, I mean revenue, their money.

Speaker Change: <unk> settlement has not.

Speaker Change: Impacted.

Speaker Change: Anything I've seen buyer or seller desire to transact.

Speaker Change: It has impacted.

Speaker Change: Certain agents desire to be in the business and those arent really compensate them, but I think newer agents people then.

Speaker Change: That don't have as much experience and that hasn't really been committed or that we're going to start being joined at the industry may decide not to because of the headlines.

Speaker Change: But it is not impacting transactions.

Speaker Change: Just I think impacting certain certain agents and their desire.

Speaker Change: Fear around the industry, but the fear for items that are actually in the business that are professionals.

Speaker Change: I would tell you when I go around.

Speaker Change: A different offices on travel.

Speaker Change: Regularly to options across the country.

Speaker Change: There are more agents I think that this will help their business then hurt the business and I say this I mean revenue their money.

Robert L. Reffkin: And in the beginning, people were concerned, but now that people are actually practicing and out there with buyer appreciation agreements. Remember, some of the MLSs have already made the buyer appreciation agreements, and they've amended them earlier. Not everyone's waiting until August 17th.

Speaker Change: And.

Speaker Change: And.

Speaker Change: In the beginning people were concerned but now that people are actually practicing in out there with fire safety agreements I remember some of the Msas have already made the biopsies your agreements.

Speaker Change: They landed them earlier not everyone's busy until August 17.

Robert L. Reffkin: So there are data points that are out there in terms of what's happened to the overall real estate market. It has been somewhat of a confusing market. However, I'm modestly optimistic about the fall. This last quarter, we saw an existing home sale, seasonally adjusted annual rate of home sales, average of $4.05 million. That compares to $4.09 million for the full year last year.

Speaker Change: There are data points that are out there.

Speaker Change: In terms of what's happened to overall real estate market.

Speaker Change:

Speaker Change: It has been somewhat of a confusing market.

Speaker Change: However, I'm modestly optimistic about the fall.

Speaker Change: This last quarter, we saw Ed.

Speaker Change: Existing home sale.

Speaker Change: Seasonally adjusted annual rate of home sales average of 4.05 million that compares to four point in your mind for the full year last year. So what that means is this last quarter was actually worse on a seasonally adjusted annual rate of home sales and all of last year and last year. We know it was the lowest level of the transaction took 1990, 5% to eight years ago.

Robert L. Reffkin: So what that means is this last quarter was actually worse for the seasonally adjusted annual rate of home sales than all last year. And last year, we know was the lowest level of transactions since 1995, 28 years ago. And the population now is more than 20% larger than it was back then.

Speaker Change: The population now has more than 20% larger than it was back then so clearly measurable.

Robert L. Reffkin: So clearly, the market is depressed. But it's also on the upside, creating pent-up demand. The must-move market has been moving, which we believe is around $4 million. But the want-to-move market has been continuing to build up demand. I think what's happening in Q2, while it was down 3% year-over-year, I think it's all around mortgage rates. The consumer, and buyers, they react more to the change in mortgage rates than the absolute mortgage rates themselves. And so, the mortgage rate, you know, last fall, it went up 100 base points, and that's why it stopped the market; it went from 7 to 8.

Speaker Change: The market is depressed is also on the upside clean pent up demand there is a new market has been moving.

Speaker Change: You can believe is around $4 million, but they want to move market.

Speaker Change: It has been continuing to build up demand I think what's happened what happened in Q2, why it was down 3% year over year.

Speaker Change: It's all around mortgage rates.

Speaker Change: The consumer buyers they react more to the change in mortgage rates and the absolute mortgage rates itself.

Speaker Change: So the mortgage rate in in last fall. It went up 100 basis points and Thats why I stopped the market grew 7% to eight.

Speaker Change: This.

Robert L. Reffkin: Last quarter, or this spring, we started off with a boom because mortgages started up at six and a half, but then they went up to seven and a half. So it went up 100 base points. And again, it's not just the absolute rate; it's the change in the rate. What we just saw in June, as data came out today, is that pending transactions were actually up three and a half percent year-over-year.

Speaker Change: Last quarter or this spring, we start off with a boom because of that mortgage startup now within it went up to seven five so it went up 100 basis points and again, it's not just the absolute rate is the change in the rate will.

Speaker Change: What we just saw in June data came out today is that the the the pending transactions were actually up three 9% year over year.

Robert L. Reffkin: And so we actually see June as a reversal of the trend, which makes sense because, not closed, but on a pending, more real-time basis. And that makes sense because, June versus April, mortgage rates went down from seven and a half back to seven. And now, because of what's happening in the broader market, mortgage rates just hit 6.7 percent. And so what will the fall look like? I continue to believe it's more about what..., you know, what's going to happen with mortgage rates.

Speaker Change: And so we actually think June is a reversal of the trend.

Speaker Change: On a not closed on a pending more real time basis and that makes sense because June versus April mortgage rates went down from seven half back back to two seven and now because of what's happening in the broader market mortgage rates just sits at $6 7 million.

Speaker Change: And so what will the fall look like I continue to believe it's more about what.

Speaker Change: Whats going to happen mortgage rates, if you believe that.

Robert L. Reffkin: If you believe that this fall will have a lowering of the Fed Funds rate, then in a subsequent lowering of mortgage rates going not just to 6.7 where they are right now but below 6.5, anywhere in this 6.7 to below range, I think we're going to see an increase year over year, particularly given that last year was defined by 7 going to 8% mortgage rates, the highest mortgage rates that we've had in over 20 years. In terms of inventory, yes, we have single family inventories of 40% year over year, and total inventories of 23%. That's still, and it sounds optimistic, but it's still, relative to 2019, it's 33% less. And so we're still below pre-pandemic levels.

Speaker Change: This fall, we will have a lowering of the fed funds rate than subs.

Speaker Change: Subsequent lowering of mortgage rates going not just to $6 seven where they are now but below $6 five.

Speaker Change: Anywhere in this $6 seven to below range I think we're going to see an increase year over year, particularly given that last year was defined by seven going to 8% mortgage rates. The highest margins that we've had over 20 years in terms of inventory, yes, we have a single family inventories up 40% year over year total inventories up 22% that still.

Speaker Change: And the sound optimistic but until relative to 2019 was 33% less.

Speaker Change: So we're still below the pre pandemic levels.

Robert L. Reffkin: And lastly, to note on price, prices are up 3.5%. And so when I say it's confusing, you have more inventory, there are some more sellers, which is great. And almost every week this year, inventory has grown.

Speaker Change: And last thing to note I'd say is on price.

Speaker Change: Prices are up three 5% and so on.

Speaker Change: When I say, it's confusing.

Speaker Change: You have more inventories to more sellers, which is great and.

Speaker Change: Every week this year inventory has grown.

Robert L. Reffkin: And so that's good because if you can't buy, we can't sell. And so it's good that we have more inventory going into this fall. But it's also confusing because the existing home sales numbers have been so low for the last couple of months. I, I, I, I, no.

Speaker Change: And so that's good because you can buy when you can sell and.

Speaker Change: So good that we have more inventory going into this fall.

Speaker Change: It's also confusing because the existing home sales numbers have been so low last couple of months.

Speaker Change: No.

Robert L. Reffkin: The fact that the actual price is 3.5% higher is a data point that there are more buyers than sellers. All right, it's, it's. It'd be hard for there to be... fewer Buyers and Sellers and have the price of homes be at an all-time high, which is what they are at right now. Well, thanks for addressing everything I asked and good luck. Thank you. Our next question is from the line of Jason Helfstein with Oppenheimer. Your line is live.

Speaker Change: The fact that more that the actual price at three 9% up is a data point.

Speaker Change: That there is more buyers and sellers right.

Speaker Change: If.

Speaker Change: It would be hard for there to be.

Speaker Change: Less buyers and sellers and have have the price of homes.

Speaker Change: All time high which is what they are at right now.

Speaker Change: Yeah.

Speaker Change: Got it well thanks for addressing everything I asked and good luck guys.

Jason Stuart Helfstein: Thank you. Our next question is from the line of Jason Palestine with Oppenheimer. Your line is <unk>.

Jason Stuart Helfstein: Thanks, everyone, just a bunch of questions around M&A. So Robert, what's the primary reason an agency sells a company? Do you expect further emergence? I don't have any capital constraints for M&A from a cash standpoint, and Erna, and then just Kalani, just how.

Jason Stuart Helfstein: Thanks, everyone, just just a bunch of questions around.

Jason Stuart Helfstein: M&A so Robert what's the primary reason and agency <unk>.

Jason Stuart Helfstein: Do you expect further M&A. This year do you have any capital constraints for M&A from a cash standpoint.

Speaker Change: When you look at 100% earn out deals and then just decline.

Robert L. Reffkin: I don't think you gave it out, but what was Act on Transactions. You gave it for revenue, but I don't... So the primary reason that CEOs are selling to Compass. I remember these CEOs. They're great people, they're great entrepreneurs, they work really, really hard.

Speaker Change: Keeping I don't think you gave it out but what was the.

Speaker Change: Acquisitions impact on transaction transaction growth you gave us a revenue, but I don't think per transaction effects.

Speaker Change: So the primary reason that Ceos are.

Speaker Change: Our selling into context.

Speaker Change: Remember these deals they're great people, they're great entrepreneurs. They work really really hard many of them are family businesses, even if they're not saying we're doing this is there they treat their companies as families and day care as much about their agents like here in mind, and so with the call that when I'm, calling people know what I'm, saying is I'm speaking first and foremost to what compass will come.

Robert L. Reffkin: Many of them are family businesses. Even if they're not family businesses, they treat their companies as family, and they care as much about their agency as I care about mine. And so, when I'm calling people now, what I'm saying is, I speak first and foremost about Compass and what coming together can do for their agency. At the top of the list, what I say is, would you be interested? And so, you know, there's someone that may not even know that well at all.

Speaker Change: Together can do for their agents at the top of the list what I say is would you be interested.

Speaker Change: There is someone that may not even know that well at all.

Robert L. Reffkin: It's as an I think I have an opportunity to give your agents our technology and our private exclusives, which are the off MLS inventory, the unique inventory. And any CEO who hears that in a market where we have market share shows a level of interest. I actually don't start with, "Let's merge."

Speaker Change: I think I have an opportunity to give your agents our technology and our <unk>.

Speaker Change: Private exclusives, which are the MLS.

Speaker Change: <unk> inventory the unique inventory.

Speaker Change: Any CEO, who here is that in a market, where we have market share shows a level of interest.

Speaker Change: I actually don't start with but merge it just more of just the overall completion, if there's a way for us to give your agents our technology and our.

Robert L. Reffkin: It's just more of just the overall conversation. If there's a way for us to give your agents our technology in our off-MLS, private, exclusive listings, would you be interested? And then from there, we have a broader conversation about many different ways that we can achieve their objectives of helping their agents in what's been in the market for now, almost three years, with a lot of pain that meets their personal financial life goals. I mean, they being the CEO, in terms of the multiple, we're aspiring to multiples that are, on average, four times EBITDA, and again, that's pre-syner So after post synergies, that number goes down significantly. But I'll let Kalani discuss more of the questions around capital. Yeah, thanks, Robert, and Jason.

Speaker Change: R R.

Speaker Change: Yes.

Speaker Change: Private exclusive listings, but would you be interested and then from there we have a broader conversation about many different ways that we can achieve their objectives.

Speaker Change: <unk>.

Speaker Change: Of helping their agents in what's been in the market for now almost three years of a lot of pain.

Speaker Change: That means there.

Speaker Change: Their personal financial.

Speaker Change: Light goals I mean, they've been the CEO.

Speaker Change: In terms of the multiple we were aspiring to multiples that are.

Speaker Change: On average we target four times EBITDA, that's pre synergy.

Speaker Change: So after post synergies that number goes down.

Speaker Change: Significantly.

Kalana: But I'll, let kalana and discuss a bit more of a question around capital.

Robert L. Reffkin: Thanks for the question. Look, I would, I would say it's right around just north of two thirds of our transaction counts came from M&A. Just a reminder, the recent acquisitions of Parks and Lateran Bloom and even some of the 2023 have a bit lower, at times, significantly lower ASP. And so that's, that's how you square the math.

Kalana: Yes, Thanks Robert.

Kalana: Thanks for the question.

Speaker Change #100: Look I would its rhetoric, just north of two thirds.

Kalana: Of our transaction counts came from M&A, just a reminder.

Kalana: The recent acquisitions of.

Speaker Change: Parks and lateral bloom and even some of the 2023 are a bit lower.

Kalana: At times significantly lower Asps.

Kalana: And so that's how you square the math there.

Kalana: Yes.

Speaker Change: Thank you.

Kalani Reelitz: Thanks for your questions. Our next question comes from the line of Bernie McTernan with Needleham & Company. Your line is live.

Speaker Change: Thanks for your questions.

Speaker Change: Our next question comes from the line of Bernie Mccarren with Needham <unk> Company. Your line is live.

Bernard Jerome McTernan: Great, thanks for the questions. Maybe just to start on the 30 for 30, just to level the playing field, what is your current market share in those top 30 markets? And maybe how much of the overall GTV does it represent and just trying to get some framework in terms of how big of a revenue step up this could be if you're able to reach this. Hey, Robert, I think you might be on mute. Let me let me start. Yeah. Go ahead, Robert. It's on average.

Bernard Jerome McTernan: Great. Thanks for taking questions, maybe just to start on the 30 for 30 just to.

Bernard Jerome McTernan: To level set what is your current market share in those top 30 markets.

Speaker Change: And maybe how much of the overall GTP does it represent and just trying to get some framework in terms of how big of a.

Speaker Change: Revenue step up this can be if we're able to reach this goal.

Speaker Change: Robert I think you might be on mute, let me start.

Robert L. Reffkin: Yes sure.

Robert L. Reffkin: First, it's on average. It's not it's not getting to that number in every market, but having an average margin market share of volume, not units, closed in in our top 30 markets. We do have more than 30% market share in some markets today. We also have more than 20% market share in many markets today. And we're in between 10% to 20% in many more. So I would say we're more than halfway there, but just marginally. And the structural advantages; they aren't just advantages for Compass.

Robert L. Reffkin: I think there was an average.

Robert L. Reffkin: The first is on average it's not.

Robert L. Reffkin: It's not getting to that number in every market, but having on average there is a market share of volume that you announced.

Robert L. Reffkin: Those.

Robert L. Reffkin: In our in our top 30 markets.

Robert L. Reffkin: And we do have more in terms of market share in some markets today, we have more than claims in march or in many markets today.

Robert L. Reffkin: And we're in.

Robert L. Reffkin: Between 10.

Robert L. Reffkin: 2000 and.

Robert L. Reffkin: And most of them anymore, and so I would say we're more than halfway there.

Robert L. Reffkin: This was marginally.

Speaker Change: And.

Speaker Change: But.

Speaker Change: The structural advantages they arent just advantages.

Robert L. Reffkin: And every one of these advantages is advantageous for agents as well. And so the client dashboard, that's obviously for agents and their clients. Having more inventory, like, you know, what we've dealt with in the last three years, is one of the key issues for agents. There's not enough inventory. So we're, you know, we are creating a platform that can go to agents and say, we can help you better serve your clients because we can give you better access to inventory, not just the on MLS inventory, the off MLS inventory, the make and move inventory, which we launched this week, and more, and making all of that searchable on the platform, along with all of your clients' contacts, all of your clients in your CRM, their addresses, And all those addresses; they have a profile, the number of beds, the neighborhood, et cetera.

Speaker Change: Compass.

Speaker Change: Every one of these vendors or vendors for agents as well.

Speaker Change: And so client dashboard and that's obviously for agents and their clients having more inventory.

Speaker Change: We dealt with in the last three years is when they are key issues for us.

Speaker Change: Is there just not enough inventory so we are creating a platform.

Speaker Change: They can go to even say we can we can help you better serve your clients because we.

Speaker Change: We can give you a better access to inventory.

Speaker Change: Not just be on MLS inventory, the optimal inventory to make me move inventory, which we launched this week.

Speaker Change: And more and making all of that searchable into the platform along with all of your clients contacts.

Speaker Change: All of your clients and your ceramic <unk> addressed it and so we have got $100 million.

Speaker Change: Addresses in our contacts from our CRM and all of those addresses their they have a profile number of beds neighborhood et cetera.

Robert L. Reffkin: And so allowing agents to be able to search for that, we're moving to a world where the Compass platform helps with plaintiff agents, the benefit of being part of a bigger company that has the platform. And I believe that as this all comes out, and this isn't all coming out in a year, two years; this is all in a matter of months, as these things are coming out, I think it's going to dramatically accelerate our ability to bring on agents organically, and dramatically accelerate our ability to engage with CEOs of brokerage firms because they see the benefits in it for them.

Speaker Change: In sum, allowing agents to be able to search that we're moving to a world where the compass platform public planes and agents the benefits of being part of a bigger company that have the platform and I believe that as this all comes out in this isn't all coming out in a year. Two years. This is all a matter of months as these things are coming up.

Speaker Change: I think it's going to dramatically accelerate our ability to bring on agents organically and dramatically accelerate our ability to.

Speaker Change: Aligning with Ceos of brokerage firms because they see the benefits in it for them.

Robert L. Reffkin: And then, Robert, I know you partially answered it in a previous question, but just, you know, trying to think about, understand that right now there might not be a significant, or there isn't a significant impact or material impact from the NAR settlement. But do you think there will be, will there be any change? Like, if it is, you know, once we hit August 17th, does that, does that change anything? Or do you really think no?

Speaker Change: Understood and then Robert I know you partially answered it in a previous question, but just yes.

Robert L. Reffkin: Trying to think about.

Robert L. Reffkin: Understand that right now there might not be a cigna or there isn't a significant impact or a material impact from the settlement.

Speaker Change: But do you think there will be will there be any change I guess if it is once we hit August 17th does that does that change anything or do you really think now it's.

Robert L. Reffkin: is going to be over. I think, you know, again, from the transaction side, the buyer, it's not, buyers and sellers. I don't think the buyer and teller are even... It's not top of mind anymore.

Speaker Change: It's just kind of be overblown in stone.

Speaker Change: I think from a transaction side, but it's not new buyers and sellers.

Speaker Change: I don't think the buyer and seller or even.

Robert L. Reffkin: And there's not going to be any national headlines on August 17 saying, you know, anything around this, even if there was, it would be a fraction of what happened after the NAR settlement. And so I don't think it's going to change transactions, A. B. I don't think it's going to change the kind of buyer-seller mindset around, you know, what I said, around how they think about paying different parties. And we've already, remember, half our markets have already been using buyer-purchase agreements.

Speaker Change: It's not top of mind anymore.

Speaker Change #112: And there's not going to be like national headlines on August 17th day, who.

Speaker Change: Around this and if there was it would be a fraction of what happens after the <unk> settlement.

Speaker Change: And so I don't think its going to change transactions AB I don't think is going to change the.

Speaker Change: Buyer seller mindset around what I.

Speaker Change: Around how they think about pain different parties.

Robert L. Reffkin: The change in some of those markets is doing it a little earlier. But you should also know that there are a number of states that are coming out with viewpoints, with, with, with, their regulators coming out and saying that it should not, that it's too early to have a bioretention agreement before the showing, and that it should be before negotiation and offered, but not before showing. So I think time will still tell if, in some of these markets, the states will even allow it to be that early.

Speaker Change: And we have already a member and half our markets already have been using virus disagreements that the change in some of those market is doing it a little earlier, but you should also know that there are number of states that are coming out.

Speaker Change: With new claims with.

Speaker Change: With <unk>.

Speaker Change: With their with their regulators coming out and saying that it should not.

Speaker Change #101: That is too early to tell by retention agreements before the that's showing and that it should be before negotiation and offer the nonrecourse, Sean. So I think time will tell even if in some of these markets. If the things will even allow us to be that early but again I don't see there being a change.

Robert L. Reffkin: But again, I don't see there being... Yeah, Bernie, I would add just internally, though, we're using this opportunity to continue to train our agents, to continue to show the agents the tools we have to trade value. So in the end, I don't think there's a ton, macro-wise, but I think internally it's a good opportunity for us to continue to show and train on value. Thank you. Our next question is from the line of Soham Bhonsle with BTIG. Your line is live. Hey guys, good evening.

Speaker Change: Got it thanks, Bernie Bernie I would just I would add just didn't turn internally though.

Speaker Change #106: We're using this opportunity to continue to train our agents to continue to show the agents with tools, we have to trade value. So in the end I don't think theres a ton macro but I think internally. It's a good it's a good opportunity for us to continue to show and train on value.

Helane: Got it thanks Helane.

Speaker Change: Thank you our.

Speaker Change: Our next question is from the line of <unk> <unk> with <unk>. Your line is live.

Soham Bhonsle: Robert, just following up on that last question, I guess it doesn't sound like you're concerned about commission rates, but I think there's still a fair amount of debate amongst investors. So, you know, maybe just talk about some of the contingency planning that you have done in this situation where there is pressure. And if you could just focus specifically on, you know, commission split on your side and how you sort of intend to defend that line going forward, if we were to see split pressure.

Speaker Change: Hey, guys good evening.

Speaker Change #167: Robert just following up on that last question I guess it doesn't sound like you're concerned about commission rates, but I think there's still a fair amount of debate amongst investors. So maybe just talk about some of the contingency planning that you have done in this situation, where there is pressure and if you could just focus specifically on commission split on your side and how you sort.

Speaker Change: We intend to defend that line going forward, if we were to see us blood pressure.

Soham Bhonsle: Well, I think on the split side, that's in relation to the overall market, competitive dynamics, and the value that you provide relative to that. In my view, on the competitive dynamics, I don't think splits can go much lower. And so I think that pressure, it's hard for me to see that.

Speaker Change: Well I think on the split.

Speaker Change #108: That bounce.

Speaker Change #140: In relation to the overall market competitive dynamics and good value that you provide relative to that in my view is on the competitive dynamics I don't think splits can go much lower and so I think that pressure.

Speaker Change #109: It's hard to move through that.

Robert L. Reffkin: You know, that's creating more pressure, and I think the value that we're providing is going to increase dramatically because of the things I said earlier in the call, the structural damage that we're giving to the agents. In terms of, you know, in terms of what I know that investors have had, there are some investors, actually, there are many investors, by the way, that aren't worried about this anymore. But yeah, but there are some that say, "OK, what can happen on August 17th and afterwards?"

Speaker Change: Well create more pressure.

Speaker Change: And I think our the value that we're providing is going to accrue some adequate because I think as I said earlier on the call the structural damage that would go into that.

Speaker Change #118: The agents.

Speaker Change: Hum.

Speaker Change: In terms of.

Speaker Change: In terms of what.

Speaker Change: Know that investors have had there are some investors actually but there are many investors by the way that.

Speaker Change #160: That arent worried about this anymore, but yes, but there are some that say, okay. What will happen on August 17, and afterwards.

Robert L. Reffkin: Again, my belief is that the buyer decision agreement doesn't change the conversation that a listing agent has with the seller. And so the listing agent The seller is going to sit down and listen again. We're going to talk about... how much the seller wants to incentivize the buyer. On August 17th versus the week before that conversation, it is going to have to be the same framework. And so I don't see how it's going to change what the seller does.

Speaker Change #160: Again, my belief is that the biopsies agreement doesn't change the conversations that are listening in and have the seller and to the listing agents.

Speaker Change #171: The stettler the seller is going to sit down and listen to them, we're going to talk about.

Speaker Change: How much the seller wants to incentivize the biogen.

Speaker Change: On August 17th versus the week before that conversation.

Speaker Change #102: Is it going to be the same framework and so I don't see how it's going to change with the seller does what it does is it unless the buyer agent actually negotiate for themselves right. So when I say the best agents are actually happy with us because the best way to sustain Oh now I can actually negotiate for myself now I can.

Robert L. Reffkin: What it does is it lets the buyer agent actually negotiate for themselves? Right, so when I say like the best agents are actually happy with this, because the best agent is saying, Oh, now I can actually negotiate for myself. Now I can, you know, I don't, before that, the buyer agents were actually historically just taking whatever the listing agent negotiated for them. It's actually kind of interesting.

Speaker Change #102: Before the buyer even as we're actually historically, just taking whatever the lithia made a negotiated point is actually kind of interesting and now.

Robert L. Reffkin: And now, the best buyer agents, many of them come to mind, who I meet across the country, are asking their buyers for more than what the listing agent was negotiating on their behalf historically. And so, yeah, time will tell, but I can see things going flat, I can see them maybe going down modestly, but I haven't seen that yet. You can all see it going up, and time will tell. Got it, okay? And then curious on the Make Me Move tool.

Amit: The best buy items, many of them come to mind Amit.

Amit: Need across the country, they're asking their buyers for more than what the listing agent negotiated on their behalf historically.

Amit: And so time will tell but I can see I can see things being flat I can see that maybe come down modestly but I.

Amit: You can also be going up and time will tell.

Amit: Got it Okay, and then curious on the make me move tool it sounds like a pretty interesting way to source some unique inventory.

Robert L. Reffkin: Sounds like a pretty interesting way to source some unique inventory. But I'll try to understand this a little bit. So if the seller indicates that they're interested in selling, and there's a buyer in your system that sort of raises their hand, will that inventory remain just on the Compass platform, or do you intend to sort of market that home on the MLS as well to get sort of broader syndication over time?

Speaker Change #166: I'm just trying to understand this a little bit so if the seller indicates that they are interested in selling.

Amit: Buyer in your system that sort of raises their hand.

Amit: Inventory remained just on the compass platform or do you intend to sort of market that home on the MLS as well to get sort of a broader syndication overtime.

Robert L. Reffkin: Yeah, all right. So, let me try to be very clear here. We have 100 million people and more than 100 million contacts in our CRM. I went out to all the agents this week, and I gave them a challenge. I said, go to your clients and ask them if they want to list their home. Ask them if they want to sell it active, ask them if they want a private sale. If they say no, say, "Is there a price that you would sell at? Is there an original price that you would sell at?"

Speaker Change #113: Yes, alright, so let me try to be very clear here. We are a 100 million people in a more of a 100 million contacts in our CRM I went out to all the agents. This week and I gave them a challenge I said go to your clients and ask them. If they want to list their home as an anchor and absolutely want to price because if they say no.

Amit: I'll say is there a price that you would tell US is there an aspirational price that you would sell at my wife as an example would never sell their homes, but it went out there is a price everyone has a price right. So this is if nothing else is an opportunity to get our agents in front of clients to engage to build relationships.

Robert L. Reffkin: My wife, as an example, would never sell her home, but when asked, there is a price. Everyone has a price, right? So this is, if nothing else, an opportunity to get our agents in front of clients to engage, to build relationships, and build business. But at a minimum, finding out that price and putting it in the crumpet CRM. And so it's just only internal, the only person the only person will know the make and move price is the agent that put it in. However, what we're building over the month ahead is the ability, and this was number one. Remember how we say everything that we do comes from our agents?

Speaker Change: Billed business, but at a minimum.

Speaker Change: Finding out that price and put it in the comp at CRM.

Speaker Change: And so.

Speaker Change #175: It's just only which only internal the only the only first of all no that <unk> price is the agent that put it in there.

Speaker Change #103: However, what we're building.

Amit: Over the months ahead is the ability in this was the number one and remember how we say everything that we do is comes from our agents the number one request.

Robert L. Reffkin: The number one request voted up by our agents in the history of Compass is this idea, and that's why we're working on it, is when you're searching for, let's just call it, a five bedroom penthouse in San Francisco, can we not just have what's available on the MLS but what's a private exclusive, which is off MLS? Can you also, because Compass, this is what the agent put in this request, because our CRM is in the same place where people search, it's the same platform, and Likely to Sell has the addresses of all these contacts, can you make it so the third line would be in my CRM? So, let's say, Robert's CRM, I have 3,000 contacts on average.

Amit: Voted on by our agents and the history is this idea and that's why we're working on it is linear searching and let's just call. It five bedroom penthouse San Francisco.

Robert L. Reffkin: There are two people, let's say, that have a five-bedroom penthouse in San Francisco. So that would be the third line of what's available. And then the fourth line, there are only five lines; the fourth line is the other agents at Compass. It will show 17 other agents, as an example, who have people in their contacts who have five bedrooms in San Francisco that are penthouses. I will not know the names of those people or their actual addresses. I will only have a confidential reference number.

Amit: On.

Speaker Change #170: Can we not just have what's available on the MLR.

Amit: Private exquisite too with the private exclusive which is the optimal one.

Speaker Change #169: Can you also because <unk>. This is the agent could in this request because our CRM is in the same place where people searches the same platform and likely to sell has the addresses.

Speaker Change #169: Of all the contacts can you make it so the third line would be in <unk> CRM.

Robert L. Reffkin: Robert Robert CRM, I have 3000 contracts on average.

Speaker Change #116: There are two people, let's say.

Speaker Change #114: Have a five bedroom penthouse.

Amit: So.

Amit: San Francisco, so that would be the third line of what's available and then the fourth line, they're only pipelines the fourth line or the.

Amit: The other agents that Compass will show 17 other agents as an example, who they have.

Amit: People in their contacts who has five bedrooms.

Amit: In San Francisco that are penthouses, I will not know the names the names of those people or their actual addresses that will only have a confidential reference number so I can say, hey, Jane Hey, John.

Robert L. Reffkin: So I can say, hey, Jane, hey, John, I have a buyer who wants to spend $10 million on a five-bedroom penthouse in San Francisco. It looks like you have two contacts. Here are their reference numbers. Would they want to buy? We have top agents that do this already, but it's one-on-one, it's off-platform. We're making it; we're just taking the real estate world and bringing it to the platform. And then the fifth and last line is for what's in those contacts in my CRM and in the other agents' CRM, adding the make-to-move prices.

Amit: I have a buyer who wants them $10 million on a <unk> veteran penthouse and San Francisco.

Speaker Change #159: It looks like you have to contact here or there reference numbers would they want to buy we have top agents that do this today already but it's one on one as a platform we're making it we're just taking the real estate world and bring into the platform and the fifth and last line is for whats in those contacts in my CRM in the other even CRM.

Speaker Change #164: Adding them into new prices. So it gives you even a better signal of would these people be willing to sell and at what price and so that that is what when I started making the prices that is how they will be surfaced in every other than the agent mix.

Robert L. Reffkin: So it gives even a better signal of whether these people would be willing to sell and at what price. And so that is what, when I say make-to-move prices, that is how they will be sold in every search than the agent may. Okay, so it sounds exclusive to the platform. And then just on this last one, Kalani, as we think about the 30 for 30 strategy and fully appreciate that you're not in all markets across the US, do you have a sense for what that sort of translates to market share in, say, a normalized 5 million existing home sales kind of environment if you were to sort of achieve those levels? Thanks. Yeah, sure, Soham.

Speaker Change #107: Okay. So it sounds exclusive to the platform and then just.

Speaker Change #107: And then just last one colony.

Speaker Change #110: We think about the 30% to 30 strategy and fully appreciating that you're not in all markets across the U S.

Speaker Change #134: Do you have a sense for what that sort of translates to market share and call. It sort of a normalized 5 million existing home sales kind of environment. If you were to sort of achieve those levels.

Amit: Thanks.

Soham Bhonsle: You know, as Robert mentioned, we're probably, you know, we're probably half of the way there already, and so I don't know that I'll estimate an exact number, but obviously, we're at five. We just reported five plus this quarter, so, you know, somewhere in the high single digits, low teens would be kind of the math estimate, but, you know, it will depend on markets. Like Robert said, the goal here is really about driving inventory and our structural advantages to make sure that we are advantaging our agents, and so it'll depend on the markets and how fast we get there, but that's how I think about it at this point. Great, thanks a lot.

Speaker Change #105: Yeah sure so.

Speaker Change #176: As Robert mentioned, we're probably we're probably half after the way Theyre already.

Speaker Change #120: And so I don't know that I will estimate an exact number but obviously we're at five we just reported five plus this quarter. So somewhere in the high single digits low teens would be would be kind of the math estimate, but it will depend on markets like Robert said that the goal here is really about driving inventory in a structural.

Speaker Change #168: Just to make sure that we are advancing our agents and so it will depend on the markets and how fast we get there, but that's how I think about it at this point.

Speaker Change #165: Great. Thanks, a lot guys.

Kalani Reelitz: Thank you for your questions. Our next question is from the line of Michael Ng with Goldman Sachs. Your line is live. Hey, good afternoon. Thanks for the questions. I just have two.

Speaker Change #123: Thank you for your questions. Our next question is from the line of Michael Inc. With Goldman Sachs. Your line is live.

Speaker Change #161: Hey, good afternoon, and thanks for the question I just have two.

Michael Ng: First, this one's for Kalani. On the commissions and expenses point, 82.6. Around that level for the rest of the year. Is that something that is, you know, just higher for the year given the M&A, and does it normalize down lower? Or is that a level of commissions that should be sustained higher even beyond 2024? And then I have a separate follow-up. Sure, yeah, sure.

Michael Ng: First one is for Connie.

Speaker Change #117: On the commissions on expenses point 82 six.

Michael Ng: Around that level for the rest of the year is that something that is just higher for the year, given the M&A and does it normalize down lower.

Speaker Change #145: Or is that a level of commission that should be sustained higher even beyond <unk>.

Speaker Change #185: 2024, and then I have a separate follow up.

Kalani Reelitz: So as it relates to gross margin commissions, I think we mentioned, right, we saw that 70 basis point decline, about two-thirds of it is driven mainly by the market mix, as well as M&A related. I think for the year, you know, we see it relatively kind of consistent with this quarter. You know, I do, and we are actively working, and I think there's a lot of tailwinds as it relates to real estate. So, I think it's more of a period of time to answer your question directly.

Speaker Change #173: Sure, Yes, sure so as it relates to gross margin and commissions I think we mentioned we saw that 70 basis point decline about two thirds of it is driven mainly by the market mix as well as the M&A related I think for the year, we see it relatively kind of consistent to this quarter.

Speaker Change #117: I do I do think and we are actively working.

Speaker Change #117: I think theres a lot of tailwind as it relates to gross margins. So I think it's more of a period of time to answer your question directly I think as you think about some of the tailwind we have organic recruiting team is bringing on about five to 600 agents per quarter. These are agents kind of in that top 50%, but not at the top 10% right. So the the economics of our.

Kalani Reelitz: I think as you think about, you know, some of the tailwinds we have. Our organic recruiting team is bringing on about 5 to 600 agents per quarter. These are agents kind of in that top 50%, but not at the top 10%, right? So the economics of our agents that we're bringing on are beneficial to our overall fleet, and we'll continue to do that. The team's doing a really good job there, 540 plus this quarter.

Speaker Change #117: That we're bringing on are beneficial to our overall fleet.

Kalani Reelitz: Additionally, we are seeing, and we'll continue to see for a little bit more some of the incentives that we, you know, we stopped incentives in the 2nd half of 22 as the incentive burns off. We'll see some tailwinds there.

Speaker Change #117: And we will continue to do that the team has done a really good job. There 540, plus this quarter. Additionally, we are seeing and will continue to see for a little bit more some of the incentives that we we stopped incentives in the second half of 'twenty two as incentive Burns off we will see some tailwind there and then lastly, you will see us continue to talk about our opportunity.

Kalani Reelitz: And then lastly, you'll see us continue to talk about our opportunity to grow the reach and depth of our integrated services, particularly title and escrow. Our T&E business has abnormally favorable impacts on our gross margin. And so, as we grow and continue to grow, and I think we have a really aggressive growth plan to be kind of on par with our peers as that continues, you'll see significant gross gross margin improvement from that as well.

Speaker Change #117: To grow our reach and depth of our integrated services, particularly title and escrow TNA.

Speaker Change #117: <unk> business has abnormally favorable impacts on our gross margin and so as we grow and continue to grow and I think we haven't really aggressive growth plan to be kind of on par with our peers as that continues youll see significant growth gross margin improvement from that as well. So I do think it's more of a period of time as we lap some of the M&A.

Kalani Reelitz: So, I do think it's more of a period of time as we go through some of the M&A and go through some of the kind of market dynamics, but overall, I think we are well positioned to grow our Creighton.

Speaker Change #117: And lap some of the kind of the market dynamics, but overall I think we are well positioned to grow our commission.

Speaker Change #105: Okay.

Michael Ng: Great. Thank you, Kalani. And I just had a follow-up on the passive inventory, Make Me Move. Could you just talk a little bit about how that fits within, I guess, the confines of, like, the NAR's clear cooperation policy and why that may or may not apply? Thank you. Yeah, so first, I think clear cooperation will end. Now, And it's a top priority of mine, a top focus, speaking with a lot of MLS leaders and others in the industry. It has already been effectively eliminated in a number of the largest MLSs by allowing the restrictions to no longer be restrictive and, Yeah, and so... Even if it wasn't true.

Speaker Change #105: Great. Thank you Lonnie and I just had a follow up on the passive inventory make me move.

Speaker Change #115: Could you just talk a little bit about how that fits within.

Speaker Change #111: The confines of like the Danny ours clear cooperation policy.

Speaker Change #137: Why that may or may not apply thank you.

Speaker Change #192: Yes, So first I think clear cooperation will end.

Speaker Change #105: Yes.

Speaker Change #105: Now.

Speaker Change #105: And it's a top priority of mine and Tom focused speaking with them a lot of MLS leaders.

Speaker Change #105: <unk> and others in the industry it has already been.

Speaker Change #105: Effectively.

Speaker Change #105: Eliminated in a number of the largest msas.

Speaker Change #105: Bye.

Speaker Change #105: <unk>.

Speaker Change #105: The restrictions to no longer be restricted.

Speaker Change #105: And.

Speaker Change #105: And so.

Speaker Change #105: But even if it wasn't.

Robert L. Reffkin: Um, what career cooperation is. I believe queer cooperation is anti-homosexual. I believe that. I believe that too much of the way the system works today isn't for the homeowner. And, and, and so. What? I'll give you a couple examples.

Speaker Change #105: The clear.

Speaker Change #105: Clear cooperation is.

Speaker Change #105:

Speaker Change #122: I believe clear collaboration is Andy homeowner.

Speaker Change #122: I believe that.

Speaker Change #122: I believe that.

Speaker Change #122: Too much of the way the system works today.

Speaker Change #122: For the homeowner.

Speaker Change #122: And and and so.

Speaker Change #132: What I'll give you a couple examples.

Robert L. Reffkin: Days on the market is the killer value. Price drop history is a killer value. The reason why private exclusives at Compass are so popular is because they do not have days on the market when they go up; they do not have price drop history. When you go to the Mercedes-Benz lot or any other luxury good store, you don't see on every Mercedes-Benz the price drop or the days on market.

Speaker Change #119: Days on market is the killer value price drop history of the killer value. The reason why private exclusives that companies are so popular is because they do not have days on market. When they go updating on our price dropped the history. When you go to Mercedes Benz <unk> or any other electric you don't see on every Mercedes Benz the price drop or the days on market.

Robert L. Reffkin: And so there are some markets where we have over 20% of the market, where the majority of our listings come on as Compass Priorities or First. Because those homeowners want to be able to test the market without that, what do you call, negative marketing. Now, the aggregators in the United States have negative marketing, price drop history, days on market, AVMs, these valuation estimates, crime, all these kinds of things. These are things that in many other markets in the world don't exist. So, if you go into Australia, REA, which is owned by News Corp, there's no negative insights of any kind.

Speaker Change #144: And so there are some markets, where we have over 20% of the market share where the majority of our listings come on as a combo trial with <unk>.

Speaker Change #143: Because those homeowners they want to be able to test the market with.

Speaker Change #119: And without that and what do you call negative marketing now the aggregators in the United States have negative marketing price stock was three days on market.

Speaker Change #119: These valuation estimates crime all these kinds of things. These are things that in many other markets in the world that don't exist. So you go into Australia.

Speaker Change #119: <unk>, which is owned by news Corp.

Speaker Change #121: No negative inside of any kind.

Robert L. Reffkin: And so I'm sharing all this because it helps highlight why it is actually pretty easy in the construct of the United States system, which took inventory, gave it to aggregators to put negative insights on to get more buyers searching. Why it's so easy to go to homeowners and say, we can protect you from those negative insights through these different tools. We can test the market privately or test the market without having negative insights on them.

Speaker Change #121: And so I am sharing all of this because it helps highlight.

Speaker Change #121: Why it is actually pretty easy in the concept of the United States system, which took inventory gave it to aggregators for negative insights on to get more buyers searching quite so easy to go to homeowners.

Speaker Change #190: We can protect you from those negative insights.

Speaker Change #121: Through these different tools <unk> test the market privately.

Speaker Change #121: Or test the market without having the negative insights on them.

Robert L. Reffkin: And clear cooperation, what it's doing, the problem with it is it's forcing homeowners into negative insights. It's saying anyone who has an agent, anyone who has an agent, after one day of public marketing with no negative insights on a place like Comcast or through your agents, you have to put it in the MLS. And then it goes into the system, which the homeowner doesn't have a choice about.

Speaker Change #121: And clear cooperation what is doing well is it the problem with it is it forcing homeowners into negative insights there isn't.

Speaker Change #196: Anyone who hasn't agents any one.

Speaker Change #195: As the agents after one day of public marketing, where it with no negative insights on on a place they can miss or through your agents you have to put it in the MLS and English in the system, which the homeowner doesn't have choice and so as you as we're now this is a top priority for us.

Robert L. Reffkin: And so now this is a top priority for us, and we're talking with leaders in the industry. I'm very confident that Clear Corporation will go away as it is currently known. And even if it were not, the make-the-move prices, because they're not publicized, and they're only searchable in CRM when you're talking to your agent, that's why, even in the context of clear cooperation, it's not an issue. Great. Thank you for all the calls, Robert.

Speaker Change #121: And we're talking with leaders in the industry.

Speaker Change #126: Very confident they are clear confirmation will will go away as it is currently known and even if it were not to make the move prices.

Speaker Change #136: Because theyre not public marketing.

Speaker Change #147: And they are only search willing to CRM when youre talking to your agent that's why it even in the context of clear collaboration is not an issue.

Speaker Change #198: Great. Thank you for all the Colorado, that's really helpful.

Robert L. Reffkin: That's really helpful. Thank you. Our next question is from the line of Ryan McKeveny with Zellman and Associates. Your line is live. Ryan McKeveny, your line is live, are you there? Yeah, sorry about that guys, I was on mute.

Speaker Change #199: Thank you. Our next question is from the line of Brian Mckechnie with Zelman and Associates. Your line is live.

Speaker Change #199: Okay.

Speaker Change #201: [noise] line of Ryan Mcevilly. Your line is live for you there.

Ryan McKeveny: Yes, sorry about that guys I was on mute.

Ryan McKeveny: Nice job in the quarter; thanks for taking the questions. Kalani, I just wanted to come back to you on the revenue less B&O margin. So I think your commentary was confidence; over time, there can be some leverage there. I know you called out the ancillaries, and that makes a lot of sense. Anything you can share more on the opportunity for margin improvement on agent economics over time? Would that be something that maybe just comes from the mix of agents? Geography obviously plays a role.

Ryan McKeveny: Nice job on the quarter. Thanks for taking our questions just wanted to come back to you on the.

Speaker Change #129: Revenue less margin.

Speaker Change #138: So I think your commentary was.

Speaker Change #128: And so over time, there can be some leverage there I know you called out the ancillary and that makes a lot of sense and anything you can share more on the opportunity for margin improvement on the agent economics over time would that be something that may be just comes from the mix of agents.

Speaker Change #130: Geography, obviously plays a role.

Speaker Change #142: But as you expand all of these new products and offerings.

Speaker Change #127: Their quote unquote upsell potential to agents.

Speaker Change #146: Just curious how you bridge that gap to it.

Speaker Change #135: To get to margin improvement on P&L over time. Thank you.

Kalani Reelitz: Yeah, sure, Ryan. I'll start, Robert. If you have anything to add, A few things, just noting again that the headwinds we're seeing currently are more around mix, right? And so it's not kind of structural on an agent-for-agent basis; it's just a mix. And so that's why I have confidence that we have some opportunity to continue to move our economy. I think, you know, every time we're renegotiating deals, we're taking folks off of some of the incentive plans that we were on prior.

Ryan: Yes sure Ryan.

Speaker Change #125: I'll start Robert if you have anything to add.

Speaker Change #131: A few things just just noting again that the headwinds. We're seeing currently are more around mix right and so it's not kind of structural on an agent for agent basis is just the mix and so that's why I have confidence that we have some opportunity to continue to move our economics I think every every.

Speaker Change #139: Every time, we are renegotiating deals, where we're bringing folks off of some of the incentive plans that were on in the prior and I think as you hear us today, where we're really confident and excited about the structural advantages, we're talking about and when we have those those are the kind of conversations where we are having with agents. How we can help agents. So it's not.

Kalani Reelitz: And I think, you know, as you hear us today, we're really confident and excited about those structural advantages we're talking about. And when we have those, those are the kind of conversations we have with agents about how we can help agents. So it's not just, you know, commission, but how do we make sure that they're making the most money when we can do that? We obviously can have better, more productive conversations.

Speaker Change #148: Just commissioned but how do we make sure that theyre, making the most money when we can do that we obviously have to have better more productive conversation. So I do think the short term is more around resetting the mix I think there is opportunity as we bring more agents on to bring kind of fill out the portfolio. If you will which will which will improve our commission rates and then.

Robert L. Reffkin: So I do think the short-term focus is more around resetting the mix. I think there is an opportunity as we bring more agents on to bring, kind of, fill out the portfolio, if you will, which will improve our commission rates. And then I think individually, our teams are working every day really hard to make sure we're showing the value of Compass. And that position does well for continued economic growth. Yeah, I'll just add to what Kalani said. I think, you know, we have the benefit of hiring agents at a better margin, you have the benefit of more T&E, which is helping margin, but I think what we're seeing is our acquisitions in markets with lower I think over time, there'll be an M&A strategy that will be more balanced, and so it won't hurt us, and I think unbalanced it will even help us.

Speaker Change #148: Individually our teams are working every day really hard to make sure we're showing the value of compass.

Speaker Change #148: And that positions us well for continued economic improvement.

Speaker Change #148: Improvement.

Speaker Change #149: Yeah, I'll just add to what <unk> said I think we have the benefit of hiring agents and.

Speaker Change #150: Better margin the benefit of more <unk>.

Speaker Change #151: Helping margin, but I think what we've seen is our.

Speaker Change #150: Sure.

Speaker Change #150: Really are our acquisitions of market in markets with lower splits.

Speaker Change #150: Has offset the kinds of things that was just mentioning.

Speaker Change #150: I think over time, we will.

Speaker Change #150: It will be there'll be an M&A strategy that will be more balanced and so it won't hurt us I think gone down so that you can help us.

Speaker Change #150: I think its I think thats, one Dodge the M&A strategy and in the markets, where I referenced those transactions those are some of the lowest.

Robert L. Reffkin: I think that's one, just the M&A strategy, and the markets where I referenced those transactions, those are some of the lower, you know, the most, um, more challenged split markets that we're in, uh, to, you know, that's why I referenced it on the call. We're going to be expanding T&E to a number of, you know, all of our largest cities over the course of the next And there are multiple hundreds of base points per transaction when you add T&E.

Speaker Change #150: The most.

Speaker Change #150: Some of the more challenged split markets that we're in.

Speaker Change #150: To his right.

Speaker Change #150: I referenced on the call.

Speaker Change #154: We're going to be expanding too many two number to all of our largest cities over the course next 18 months ending with multiple one hundreds of basis points per transaction. When do you. When you add when you add <unk> and so expanding G&A.

Robert L. Reffkin: And so expanding T&E, we're in seven markets now, but there are many more markets to go to. And then three, I believe with the things that we just mentioned on the call coming to fruition, that there will be an undeniable advantage for every agent. It has an advantage at Compass, and their clients do as well. And I believe that will help with the, you know,

Speaker Change #150: In seven markets now, but there is many more markets to go to.

And then three.

Speaker Change #150: But I believe with the things that we just mentioned on the call it coming to fruition that there'll be an undeniable advantage to every.

Speaker Change #150: Every agent.

Speaker Change #158: It has an advantage of compass and their clients to as well and I believe that will help with me.

Robert L. Reffkin: The Margin Conversation. Hey, all of that, right, Ryan. I would just add, I forgot to add, I also think if you look at our total kind of the economics of the agent, which includes marketing, which includes some of the prior stock comp, but if you look at those total agent economics, we are actually improving over time. That's part of the cost, op-ex, etc. So, I think on the commission side, everything Robert and I just said, I would also point us to that total kind of company dollar that the agent has in that economy. We are improving that with each of the steps we've made over the last 2 to 3 years. That's already a metric that's improving. Got it that, and Robert.

Speaker Change #152: B <unk>.

Speaker Change #152: The margin conversations.

Speaker Change #152: Yeah, Hey.

Speaker Change #156: All of that right now Brian I would just add I forgot that I also think if you look so we're talking about commissions. If we look at our total kind of the economics of the agent, which includes marketing which includes some of the prior stock comp, but if you look at the total agent economics, we are actually improving over time as part of the cost Opex et.

Speaker Change #157: Cetera, So I think on the commission side everything Robert and I, Just said I would also point us to that total company dollar that the agent hasn't that economics, we are improving that with each of the steps. We have made over the last two to three years Thats already a metric that's improving.

Speaker Change #153: Got it that makes a lot of sense. Thanks for all that color and Robert I guess.

Robert L. Reffkin: The listing side of things is obviously getting a lot of attention; the "make me move" is very interesting. I guess, in the here and now today, you know, it seems what's happening is that Compass agents are having success winning listings, let's call it at a faster rate than peers, and ultimately that translates to share games. In February, you had made a comment that I think you said, Yeah, I remember earlier in the year we saw on the platform because the traditional brokerage doesn't know when their agents are having listing presentation conversations with their clients and when it's happening. But the listing presentations come through the Compass platform, which we build, not third-party platforms that we know, as well as the CMAs, the Comparative Market Analysis, and the market reports. And so we can see.

Speaker Change #155: Listing side of things is obviously getting a lot of attention that make me move is very interesting I guess in the here and now today.

Speaker Change #163: It seems what's happening is encompass agents are having success winning listings, let's call it at a faster rate than peers and ultimately that translates to two share gains.

Speaker Change #162: In February you had made a comment that I think you said the seller activity on your platform was up something like 40% year over year and at that time inventory in new listings have just started to rise so kind of an indication that seemingly compas agents were having early signs of success as listings overall started to expand.

Speaker Change #172: I guess any any updates you can share on just the amount of seller activity youre seeing on the platform today or just those trends generally in listings taken by compensations versus versus agents overall. Thank you.

Speaker Change #172: Yes, I remember earlier in the year.

We saw on the platform because.

Patricia: Patricia brokerage just didnt know when their agents.

Patricia: Doesn't know systematically through our platform and their agents are.

Speaker Change #177: How many age of their agents are having listing presentation conversations with their clients and when its happening with <unk>.

Speaker Change #178: <unk> presentations come through the <unk> platform, which we build and our third party platform. So we know as well as the CMA has done.

Speaker Change #178: Comparative market analysis, the market reports and.

Speaker Change #178: So we can see.

Robert L. Reffkin: We can see the full pipeline of an agent's activity, from first contact on the buy side and the sell side, all the way through. And so, yeah, early in the year, we could tell that listing presentation competitions were up directionally by 40%, and then, as I mentioned earlier on the call, the actual inventory is now up 40%, and so we do have that insight. I don't have an updated view of that number on listing presentations going, now going into the fall.

Speaker Change #178: We can see the full pipeline of an agent activity from first contact.

Speaker Change #178: Buy side and the sell side all the way through and so yeah early in the year, we can tell.

Speaker Change #179: The listing presentation commentary sort of directional and 40% and then as I mentioned earlier on the call actual inventory is now 40%.

Speaker Change #179: So it's.

Speaker Change #180: We do have the insight I don't have an updated view of that that number.

Speaker Change #180: On lifting presentations going now going into the fall.

Robert L. Reffkin: And so I don't, I don't have that, but what we do have, is that what I shared earlier on the call that are likely to sell recommendations in our CRM whenever you go in and there's a button in your CRM that says, You know, LTF, likely to sell, and it's a recommendation that for anyone that's in your contact database, when the average agent has around 3,000 people, and, you know, their address is attached to these, it's a recommendation of if they're highly likely to sell or medium likely to sell, and if they're not one of those two things, it's not a recommendation. It's looking at, it's a weighted model looking at a bunch of factors.

Speaker Change #180: So I don't I don't have that but what do we do have.

Speaker Change #180: And what I shared earlier on the call that are likely to sell recommendations to our in our CRM whenever you go in in Asia.

Speaker Change #180: But in your services.

Lasalle: Lts likely Lasalle and it's a recommendation that.

Lasalle: For anyone Thats in your contact database from the average agent has around 3000 people.

Lasalle: The address is attached to these it's a recommendation of.

Lasalle: Highly likely sell or medium <unk>.

Lasalle: And if they are not one of those two things it's not a recommendation.

Speaker Change #182: It's looking at it's a weighted model looking at a bunch of factors. Some key ones are details about the property veterans vascular footage or time since the last sale.

Robert L. Reffkin: Some key ones are, you know, details about the property, the veteran's past square footage, or time since the last sale, and frequency of past transactions for the platform, home value appreciation, or people moving data, percent of owners, renters, how often they move.

Speaker Change #182: And frequency of past transactions for the platform home value appreciation or are people moving data what percent of owners renters, how can they move and so it's based on those types of factors and.

Robert L. Reffkin: And so it's based on those types of factors. And what we saw is that of the Compass transactions that closed in Q2, 7% of those addresses were recommended through Compass as likely to sell in the prior 12 months. And so when we look at the likelihood of sales, we're actually not seeing an increase in the number of likelihood of sales necessarily going forward versus what we've seen in the past.

Speaker Change #182: And what we saw is of the Columbus transactions that closed in Q2.

Speaker Change #182: It was 7% of.

Speaker Change #183: Those addresses were recommended through the Kansas likely to sell in the prior 12 months.

Speaker Change #183: No.

Speaker Change #184: When we look at the likelihood of cells, we're actually not seeing an increase in the number of likely to cells necessarily going forward versus what we've seen in the past and that's an indication that I think it will that the market I don't think we can see a big boom in the inventory I don't think its I don't think it declining either.

Robert L. Reffkin: And so that's an indication that I think we're not going to see a big boom in new inventory, but I don't think it's, I don't think it's declining either. I think inventory in the fall will have to be more due to buyers coming to the market versus new sellers. And we have a final question today from the line of Ben Black with Deutsche Bank. Your line is live. Hi, this is Jeff Siner. I'm for Ben.

Speaker Change #184: Inventory in the fall.

Speaker Change #184: Actual inventory will have to be more buyers come into the market versus new sellers.

Yeah.

Speaker Change #186: Got it very helpful. Thank you guys.

Hasan Black: Our final question today is from the line has been black with Deutsche Bank. Your line is open.

Ben Black: Thanks. Thanks for speaking with me and, Just one quick one on you mentioning inventories, structural advantages, a lot of talk about that, and you mentioned the, you know, the clear cooperation policy potentially going away and, and maybe some of the NAI rules that are about to go into effect. Does any of that allow you to lean into it?

Hasan Black: Hi, This is Jeff <unk> on for Ben Thanks for Sneaking me in.

Hasan Black: Yes.

Jeff: Just one quick one on you mentioned inventory as structural advantage a lot of talk on that.

You mentioned.

Speaker Change #189: Declare cooperation policy potentially going away in and maybe some of the <unk>.

Speaker Change #191: NII rules that are about to go into effect, if any of that allow you to lean into it.

Robert L. Reffkin: Kind of a private exclusive in a bigger way and maybe more broadly. Will any of that potentially push the industry to more of a decentralized listing structure? It's a really good question.

Kind of private exclusive in a bigger way and maybe more broadly.

Speaker Change #191: Will any of that potential to push the industry to more of a decentralized listing structure.

Robert L. Reffkin: It's a question that a lot of MLS leaders are asking. You know, which is if agents aren't forced to put listings in the MLS, which I believe that that is not an inevitable situation that they can't be forced because that's not the world that we live in. And, you know, And the DOJ, publicly, and this is all public, but they're actively looking for queer cooperation, right? And so, they reopened that case. Again, I think it will go away. And there are another, one of the judges recently reopened a case from, I believe it's Top Asian Network, on queer cooperation.

Speaker Change #193: Well, it's a really good question.

Speaker Change #193: A question that a lot of MLS leaders are asking.

Speaker Change #193: On.

Speaker Change #194: Which is if agents aren't forced to put listings in the MLS which I believe that that is not.

Speaker Change #194: That's inevitable that they can't be forced because that's not the world that we live in.

Speaker Change #194: Yeah.

Speaker Change #197: And the Doj publicly and this is all public but they are actively looking at critical operations right. So.

Speaker Change #197: Yes, they reopen that case, so again I think it will go away and there are.

Speaker Change #197: Another.

Speaker Change #200: One of the judges recently reopened the case from I believe it's top Asian network on payer coverage. There is a lot going around the payer operations and at the heart of it is forcing people.

Robert L. Reffkin: There's a lot going on around queer cooperation, and at the heart of it is, are you forcing people? And when you have to, and that's a problem, when you're forcing someone to do something.

Speaker Change #197: When you have.

Speaker Change #202: That's a problem when you're forcing someone to do something and so I believe the forcing mechanism will go away, but it will be fine, but not from an MLP standpoint, we find because we already have data points.

Robert L. Reffkin: And so I believe the forcing mechanism will go away, but it will be fine, from an MLS standpoint, it will be fine because we already have data points. There is no clear cooperation in the state of Massachusetts or in MLS-PIM, which is, it's broker-owned under NAR, and that's Massachusetts. There is no clear cooperation in Marin, Napa, Sonoma County, which is Beres, and there are a number of other examples, and things work just fine.

Speaker Change #203: There is no clear cooperation in the state.

Speaker Change #203: In <unk> 10, which is its broker owners are.

Speaker Change #203: <unk> announced Massachusetts.

Speaker Change #203: No clear cooperation in Marin Napa, Sonoma County, which is there is.

Speaker Change #203: And there are a number of other examples.

Speaker Change #203: Things were just fine and so I think there is a fear of from some stakeholders. So like what will happen with how decentralized will again.

Robert L. Reffkin: And so I think there's a fear from some stakeholders of what will happen, how decentralized it will get. What it will mean is, I believe, that the vast majority of inventory will end up coming to a centralized place, but it probably won't, it probably won't be like instant, and there are reasons for homeowners for it not to be instant. There are many homeowners that believe that it's not always the case, that foreseeing marketing into the MLS isn't always in their favor. So what if they're a CO? What if they're getting married? What if they're getting divorced? What if they're a celebrity?

Speaker Change #203: What it will mean is that.

Speaker Change #203: I believe is that the vast majority of inventory will end up coming into a centralized place.

Speaker Change #203: But.

It probably not as much will be.

Speaker Change #203: <unk>.

Speaker Change #203: And there are reasons for homeowners for it not to be instance, there are many homeowners that.

Speaker Change #204: We believe.

Speaker Change #204: That it's not always that.

Speaker Change #205: Foreseeing marketing into the MLS isn't always in their favor Mr. What is their CEO as theyre getting married and divorced.

Speaker Change #205: Celebrity what if.

Robert L. Reffkin: What if, you know, what if they want to test the market and the aspirational price? You know, what if they're, you know, they need to develop the property for and paint it and stage it. They want to test the market beforehand before the days of market disruption. There are so many reasons why people want choice.

Speaker Change #206: What if they want to test the market and the aspirational price.

Speaker Change #206: What if there they need to develop the property for in patient in stage. It they want to test the market beforehand before that the days of market restarts. It there are so many reasons why people.

Robert L. Reffkin: And so I think that choice will happen, but when the choice happens, we already have the data points that the system will still work because there are many MLSs that don't have clear cooperation. But I do believe that Compass will be able to show that where there's more inventory on Compass.com as well as more inventory for our agents than any other public site. Great. Thank you. That's very helpful.

Speaker Change #207: Want choice and so I think that choice will happen when the choice happening we already have the data points that the system will still work.

Speaker Change #207: There are many mlps that don't have cleared preparation.

Speaker Change #208: But I do believe.

Speaker Change #209: That campus will be able to show that where there is more inventory on <unk> dot com.

Speaker Change #209: As well as more inventory for our agents than any other public sites.

Speaker Change #210: Great. Thank you that's very helpful.

Robert L. Reffkin: Thank you for your question, and ladies and gentlemen, that will end today's Q&A session. I'd like to turn the call back over to Robert Reffkin for closing remarks. Well, first of all, thank you for joining our call today. As you can tell, I'm very excited about where we are and where we are going as a company. Our excellent financial results in the midst of a very difficult market really demonstrate that we are on the right track to prevail. And when the market does return to normal, we will be well positioned to capitalize.

Speaker Change #210: Thank you for your question and ladies and gentlemen that we'll end today's Q&A session I would like to turn the call back over to Robert Revkin for closing remarks.

Operator: I just want to say how grateful I am to all the amazing agents, all the amazing employees who have persevered through difficult times and always had their eyes on delivering great results for their clients and for the company, and say thank you. Thank you for joining this call. Thank you, ladies and gentlemen. That does conclude today's call. Thank you for joining us. You may now disconnect. Have a great day.

Speaker Change #210: Yes.

Speaker Change #211: Well first of all thank you for joining our call today.

Robert L. Reffkin: As you can tell I'm very excited by where we are and where we're going as a company are excellent financial results.

Results.

Robert L. Reffkin: In the midst of a very difficult market.

Robert L. Reffkin: Really demonstrate that we're on the right track to prevail and when the market does return to normal we will be well positioned to capitalize on just wanted to say how grateful I am to all the amazing agents, all amazing employees, who have persevered through difficult times.

Robert L. Reffkin: <unk> all read with their eyes on delivering great results for their clients and for the company and say. Thank you. Thank you for joining this call.

Speaker Change #212: Thank you ladies and gentlemen, this does conclude today's call. Thank you for joining you may now disconnect and have a great day.

Speaker Change #212: Yeah.

Speaker Change #212: Yeah.

Speaker Change #212: Yeah.