Q1 2025 Compass Inc Earnings Call
Ladies and gentlemen, thank you for joining us and welcome to accomplish.
<unk> first quarter 2025 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question. Please raise your hand using the bar at the bottom of your screen and please unmeet yourself when speaking.
Speaker Change: If you have dialed in to today's call. Please press star nine to raise your hand and star six two on mute I will now hand, the conference over to Compas as head of Investor Relations <unk>. Please go ahead.
Compas: Thank you very much operator, and good afternoon, everybody and thank you for joining the conference first quarter 2025 earnings call.
Robert Raskin: Joining us today will be Robert Raskin, our founder and CEO and Columbia, <unk>, Our Chief Financial Officer.
Robert Raskin: 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 first quarter of 2025 earnings release posted on our Investor Relations website.
Robert Raskin: We will make forward looking statements that are based on our current expectations forecasts and assumptions and involve risks and uncertainties.
Robert Raskin: These statements include our guidance for the second quarter of 2025, and full year 2025, including comments related to our expected financial results operating expenses and free cash flow as well as our expectations for operational achievements.
Robert Raskin: Our actual results may differ materially from these statements.
Robert Raskin: You can find more information about risks uncertainties and other factors that could affect our results and our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC and available on our Investor Relations website.
Robert Raskin: You should not place undue reliance on any forward looking statements. All information in this presentation is as of today's date may eight we expressly disclaim any obligation to update this information.
Robert Raskin: Abigation to update this information. I will now turn the call over to Robert Reffkin. Robert?
Robert Reffkin: Thank you for joining us today for our first quarter conference call. I'm pleased to share that in the first quarter, the gap between Compass and the industry continued to widen.
Robert Reffkin: In Q1, we produced record-adjusted EBITDA, increased market share to record levels.
Robert Reffkin: through Agent Calendar Record Levels, through the title and escrow business to record levels, retain agents at industry leading levels, extended our unique inventory advantage and generated another order of positive free cash flow.
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Revenue in the first quarter increased by 28.7% year over year.
Total transactions and organic transactions increased by 27.8%
Robert Reffkin: and 7.3% year-rerespectively. As compared to the overall market, Richard's actions decreased by 2.1%.
Robert Reffkin: So this means, Compass's total transaction count outpaced the market by close to 30% and 9% of the company's organic transaction count outpaced the market by 9%
Robert Reffkin: In Q1 2025, we generated Record Q1 Adjust Eda of 16 million, up from the negative 20 million in the year ago quarter.
Robert Reffkin: Both are Q1 revenue and adjusted EBDA, came within our stated guidance ranges.
Robert Reffkin: In the quarter, we also successfully recruited 700 gross principal agents organically to Thomas, which is up 35% year-over-year and represents one of our highest recruiting supporters for principals.
Robert Reffkin: Our recruiting results this quarter illustrate that composites value proposition is resonating better than ever in the marketplace.
Robert Reffkin: Quarterly Principal Agent Retention Group by 30 base points year over year, to solid 96.6% in Q1.
Robert Reffkin: Momentum in our title and escrow business was strong, with attached rates of 695
Robert Reffkin: And during the quarter, we also closed the Christie's International Real Estate Acquisition, which as a reminder allows us to empower a completely new segment of the market.
Robert Reffkin: Namely independent brokerages and broker owner entrepreneurs across both the U.S. and international markets.
Robert Reffkin: Kalani will touch on our progress on synergies in the business, but I'm excited to share that in the two-and-a-half months since close, we have already announced that four new affiliates have joined the network. And I am pleased to report that our financial results and integration efforts are tracking ahead of plan.
Robert Reffkin: Revenue less commissions in other related expenses as a percentage of revenue in the fourth quarter was 18.4%, which is above the 17.5% reported in Q4 and above the 18.2%
Robert Reffkin: non-GAAP Optics was $235 million in Q1, which includes part of the Christie's International Acquisition. But more importantly, we remain on track to achieve organic Optics School of 3-4% growth for the year.
Robert Reffkin: Our ability to control optics even while delivering significant top-line growth illustrates that optics management has become a core competency of compass.
Robert Reffkin: And as we've said previously, our office discipline is not temporary and is a permanent part of our strategy.
Robert Reffkin: Now before I dive into our long-term strategy, I would like to address NARS' decision to maintain clear preparation in late March.
Robert Reffkin: First, we continue to strongly and unequivocally believe in homeowner choice. I don't know a homeowner who would say they want NAR, the MLS, or a portal to tell them how they must market their home.
Robert Reffkin: Amidst all the negative narratives and the scare tactics. The one thing you aren't going to hear is the voice of the party that is impacted the most here, the homeowner. So let me share the voice of the homeowner.
Robert Reffkin: After hearing about the benefits of pre-marketing, which include testing price, no days on market, no price drops history, building a buyer interest list, no algorithmic valuations lower than a list price on the listing page, no leads diverted to third party agents that don't know the property.
The Question Homeowners Ask Us
Robert Reffkin: is what is the downside? And so what is the downside?
There is no downside.
Robert Reffkin: The worst thing that happens is a homeowner gets an offer and they have an opportunity to turn it down and go to the public sites.
Robert Reffkin: with a benefit of price discovery from pre-marketing. That's the downside, which means there is no downside. You don't have to take an offer. You can always just reject the offer and go to the public sites with a benefit of pre-marketing.
Robert Reffkin: and that's the reason why nearly half of our clients in Q1, nearly 20,000 homeowners, those to go through the Compass 3 phase marketing strategy, because there is no downside, it's just that simple.
Robert Reffkin: Second, I want to make clear that under NARS updated policy as well as Zillow's new policy, office exclusives, or what we have termed them as compass private exclusives are still permitted.
Robert Reffkin: Third, Compass was founded to help agents grow their business and better serve their clients. And the Compass three phase marketing strategy helps agents grow their business and better serve their clients. And that's why it will only continue to grow over time.
Speaker Change: Lastly, it's important to recognize that Compass didn't make up the concept of private exclusives. Homeowners have been asking agents across pro-grudges and across markets for off-MLS options for decades.
Robert Reffkin: Compass just responded to homeowner demand in a national, systematic, tech-forward way and made off MLS marketing options available to all homeowners through the Compass platform.
Robert Reffkin: Again, this isn't about what Compass wants, it's about the homeowners want, homeowners want more choice, not less choice, and Compass believes in homeowner choice. It's hard for me to see a scenario where over time choice doesn't win.
Robert Reffkin: However, portals and MLSs are now using their dominance to discourage sellers from testing off MLS marketing options.
Robert Reffkin: Similar to how incumbent another industry, such as cable and music, try to raise switching costs.
Robert Reffkin: In both industries, the incumbents tried to block change by making it harder to leave, but that strategy only made consumers more aware of their dissatisfaction and sped up the shift of their platforms.
The same is now happening in real estate.
Robert Reffkin: MLS's and portals are raising friction to discourage homeowners and from marketing off MLS.
Robert Reffkin: But that resistance is increasing the migration to off MLS alternatives because it's making listing agents increasingly question the risks of MLS exposure for their clients.
Robert Reffkin: which are days on market, Christophe history, diverted buyer inquiries, valuation estimates less than the value of the house, and ultimately, this is creating less trust with the people that give these platforms their inventory.
Robert Reffkin: Agents aren't stupid. If you need to find them and ban them to keep them on your platform, then clearly there's something wrong with your platform.
Robert Reffkin: As a result, I expect over the next year to see more private listings than ever before, which are all mixed-and-compices inventory-banage.
Robert Reffkin: Now I'd like to wrap up my comments with an overview of our long-term strategy.
Robert Reffkin: At its core, our strategy remains unchanged and includes person-formos controlling our organic objects at 3% to 4% annual growth, even as transactions recover from 4 million existing home sales for the past two years back to the 5.4 to 5.6 million mid-cycle level.
Robert Reffkin: We believe Compass is one of the best ways for public market investors to participate in that recovery.
Robert Reffkin: Secondly, Compass will continue to outgrow the market by adding agents organically by executing accretive M&A and by using the Compass platform to enhance agent productivity.
Robert Reffkin: Starting with organic growth, we believe there's a long runway of incredibly talented agents that we'd love to see at Compass.
Robert Reffkin: On M&A, with roughly 80% of the U.S. markets generating less than $10 billion in GTV last year, and only 22 burglarages generating more than $10 billion in GTV, there is a significant amount of fragmentation that exists in the perforage market today.
Robert Reffkin: Our M&A pipeline remains healthy today, and as a reminder, we continue to target burglars within the four to six times EBITDA multi-arrange.
Robert Reffkin: Next, we will expand margins by increasing the attack of Title S. Green Mortgage, while also growing the Christy's International Real Estate Affiliate Business Long-Term.
Robert Reffkin: with a longer-term opportunity to stack other higher margin-revenue streams such as home insurance, home warranty, moving services, home improvement, leads in data.
Robert Reffkin: In our teeny business, we are seeing evidence that we can more than double our unit economics.
Robert Reffkin: Herb Brokish transaction as we integrate the business further into our platform using features such as one click title.
Robert Reffkin: Here are some illustrative unit economics to consider. First, our teeny business can generate $5,000 of revenue per transaction compared to the $25,000 of revenue per transaction for a
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Robert Reffkin: The given that we are targeting an adjusted EBITDA margin of 25 to 30 percent on each teeny transaction long term, the adjusted EBITDA contribution can actually be in line with that of a brokerage transaction over time despite the lower revenue contribution.
Robert Reffkin: Fed another way, attaching a teeny transaction to Berger's transaction can almost double our unit economics.
Robert Reffkin: Second, in addition to attaching more T&E, we also operate a mortgage JV with guaranteed rate. We are longer term, we are targeting adjusted E-Dum margins in the 25% range at scale.
Robert Reffkin: Operating our mortgage business through a JV structure means that we don't recognize any revenue in the P&O, but the bottom line contribution can in many cases be higher than the TNA transactions because of how much revenue we earn per transaction.
Robert Reffkin: Lastly, our affiliate opportunity is a new long-tailed opportunity that we believe can help us both expand into new markets in a capillight manner and be highly accreted to our Jeff Deedham Martins as we expand the network.
Robert Reffkin: As we stated last quarter, we believe we can more than 5X the number of domestic Christie's International Real Estate affiliates over time. And as a reminder, the business generates a 30 to 35% adjusted EBITDA margin for us.
Robert Reffkin: and so bringing it all together, we believe that by sticking to our core strategy alone, we can generate hundreds and hundreds of millions in adjusted EBIDAM's free cash flow for our shareholders over time. And our results over the last few quarters are showing this ramp.
Robert Reffkin: Also, as we have discussed in the past, we believe we can leverage our structural advantages to create increasing network effects that drive our strategy and includes our platform, our national scale, our network of top agents, and depth of inventory in local markets.
Robert Reffkin: Now, let me hand over to Kalani to go through our financials in more detail.
Kalani: Thank you, Robert. Summarizing our financial results for the quarter, our first quarter revenue was 1.36 billion, an increase of 28.7% from the year ago period.
Speaker Change: While M&A contributed to the year over your growth in revenue, even excluding M&A, revenue increased 14.6% on an organic basis.
Speaker Change: Despite the strong year over your growth, our revenue was near the low end of our revenue guidance for the quarter which reflects some slowdown we saw in the latter half of March that we believe was due to market uncertainty driven by tariff discussions at the time.
Speaker Change: Of note, existing home sales in March per NAR were at their lowest levels of any March since 2009.
Speaker Change: And due to the seasonality of our business, the month of March always represents the largest revenue month of the first quarter. So this market volatility had a more outsized impact on a realized revenue compared to the expectations we put out in mid-February.
Speaker Change: All rights reserved. Copyright © 2014, New Thinking Allowed Foundation All rights reserved.
Speaker Change: Transactions for the quarter increase 27.8% or 7.3% on an organic basis, which compares very favorably to the overall market where transactions decline by 2.1%.
Speaker Change: This outperformance to the industry has also reflected in our market share, which was 6% in the quarter, an increase of 125 basis points from the year ago period, and a 95 basis point increase from Q4.
Speaker Change: Gross Transaction Value is $52 billion in the first quarter, an increase of 30.7% from a year ago. Reflecting the 28% increase in total transactions combined with a slight increase in average selling price of about 2.5%.
Speaker Change: Robert Sellingpriced was higher by 10% on an organic basis, but the latter in bloom in parts of acquisitions in 2024.
Speaker Change: and the Christie's International Real Estate Acquisition earlier this year all have lower average selling prices compared to our organic businesses which reduced the overall increase in average selling price.
Speaker Change: Our commission and other related expenses as a percent of revenue was 81.6% and improvement at 24 basis points compared to Q1 of last year at 81.8%.
Speaker Change: Consistent with our comments last quarter, we expected the acquisition of Christie's International Real Estate to favorably impact this metric which is reflected in the results.
Speaker Change: Excluding M&A, our commissions and other related expenses of the percent of revenue increased 38 basis points.
Speaker Change: We are okay with this trade off today, given that our highest producing agents are also taking share in the current environment. But over the long term, we also remain focused on recruiting the up and coming agents that come at a much better split than our highest producing agents.
Thank you for joining us. Thank you. Thank you.
Speaker Change: Our total non-GAAP operating expenses were 235 million in Q1, an increase from 211 million of OPEX in the year ago period, which was driven by M&A, including the OPEX we assumed from the January 13, 2025 acquisition of Christie's International Real Estate.
Speaker Change: and the acquisition of Latter-in-Bloom and Parks Real Estate in the second quarter of 2024.
Speaker Change: It's worth repeating that we remain maniacally focused on keeping our annual organic op-ex growth to three to four percent, excluding the impact of M&A. And based on our Q1 results, we are tracking in line with this goal.
Speaker Change: We are also making good progress on our integration work with Christie's International Real Estate Acquisition, and we're tracking ahead of our stated synergy goals when we announced this transaction.
Speaker Change: I'm very pleased with how well the respective teams are working together in such a short time frame since the January closing for what has been the largest acquisition we've done.
Speaker Change: When modeling op-x for the year, keep in mind that the Christie's International Real Estate acquisition was completed on January 13th, so only half a month of January's op-x is reflected in Q1.
Thank you.
Speaker Change: also as a reminder, while much of our optics is somewhat fixed in nature, there is some seasonality related to the timing of our annual employee compensation cycles.
Speaker Change: and the timing of when agent marketing expenses are incurred, such that we tend to see a slight step up in op-x for Q2 compared to Q1.
Thank you. Thank you. Thank you.
Speaker Change: Our adjusted EBITDA for the first quarter was a new record for us as it was the first time we've ever achieved positive adjusted EBITDA in the first quarter of any year.
Speaker Change: Adjusted EBITDA was 15.6 million, which was within our guidance range of 11 to 25 million dollars and a strong improvement from the loss of 20.1 million a year ago.
Speaker Change: Gapnet loss was 51 million in Q1 compared to the Gapnet loss of 133 million a year ago, which includes the 57.5 million charge for the settlement of our anti-trust litigation in the year ago period.
Thank you.
Speaker Change: As a reminder, the non-GAAP operating results submit certain expenses that we exclude from the calculation of adjusted EBITDA, which are reconciled to our GAP operating results on pages 12 and 13 in our Q1 investor deck.
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Speaker Change: We generated $19.5 million in free cash flow in the first quarter, which was not only an improvement over the $5.9 million of free cash flow from Q1, 2024, but also a new record level of free cash flow for the first quarter.
Speaker Change: It's important to note that for the last two quarters, our free cash flow exceeded adjusted EBITDA levels, which is not typical. Some favorable timing of working capital changes helped with these cash flow results, and we'd expect to give back some of the favorability in Q2.
Speaker Change: Also as a reminder, we have the second half of our class action settlement payment doing Q2 and the amount of approximately 29 million which will negatively impact free cash flow.
and many more. Thank you. Thank you.
Speaker Change: We ended the first quarter with 127 million of cash and cash equivalents on our balance sheet and 50 million outstanding on our revolver [inaudible]
Speaker Change: The decrease in cash this quarter was largely due to the cash portion of the purchase price for the Christie's International Real Estate acquisition of about 150 million, which was funded by cash on hand along with a 50 million draw on our revolver.
Speaker Change: Our weighted average share count for the first quarter was 550 million, which was in line with our guidance. As a reminder, the increase in our share count during the quarter was largely the result of 38.5 million shares, which represents the minimum number of shares that will be issued in connection with the Christie's International real estate acquisition.
Speaker Change: When the equity component of the purchase price and related color adjustments is finalized in Q1 of 2026.
Speaker Change: Turning now to financial guidance. For Q2 of 2025, we expect revenue in the range of 2 billion to 2.15 billion, and expect adjusted EBIDAD to be in the range of 115 to 135 million.
Speaker Change: The revenue guide does take into consideration some of the short-term volatility in revenue growth we discussed towards the back half of March.
Speaker Change: and while we have factored in some of the volatility experience in Q1, in the Q2 guide, it's important to know that we still expect strong year-to-year growth and believe we will continue to all pace the overall market based on our forecast and external forecasters such as MBA.
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Speaker Change: Also, consider the LMB and parks acquisition occurred in April and May of 2024, respectively. So as of Q2, we have fully anniversary those acquisition dates.
Speaker Change: As it relates to op-ex, last quarter we stated that we're targeting a range of 1.005 billion to 1.03 billion in total op-ex for 2025.
Speaker Change: which included the incremental op-EX from the January 2025 acquisition of Christie's International Real Estate.
Speaker Change: Since then, we required Washington buying properties and a title company in Texas that will collectively add op-x of about 12 million dollars, resulting in an updated full-year range of 1.017 to 1.042 billion.
Speaker Change: Importantly, we expect our organic, like-for-like op-ex to grow in the 3-4% range in line with our stated goal.
[inaudible]
Speaker Change: We expect our weighted average share count for the second quarter to be between 560 to 563 million shares.
Speaker Change: As the last point on guidance, we expect our stock-based compensation expense to be in the 55 million range for the second quarter, which is an increase from the 30.4 million level from Q1.
Speaker Change: The increase is driven by the accounting rules for stock-based compensation, and importantly, it does not change the anticipated dilution, which is expected to continue to approximate the 1% of additional dilution per quarter we've been guiding to. [inaudible]
Speaker Change: To expand on this a little further as a reminder in 2022, we changed our method for employee equity grants to minimize the number of shares used from our authorized pool at the time when our stock price was down significantly.
Speaker Change: This resulted in no change to how we compensate our employee.
Speaker Change: and no difference in the time periods the shares vest to the employees, but it allowed us to issue fewer shares of product.
[inaudible]
Speaker Change: However, now that our share price has recovered nicely we have reverted back to our prior method of annual grants and in Q2 we plan to grant the remaining share commitments for the prior years under our changed methodology.
Speaker Change: All that said, the accounting rules require us to set the amount of stock-based compensation based on the stock price at the time of grants, not at the time of commitment.
Speaker Change: and therefore there is a timing difference between when the shares over these past couple of years were committed to when the stock was below $4, which is what drives delusion.
Speaker Change: Versus, when they're being granted at higher price points as high as $9 per share recently and that is what drives the stock-based compensation.
So again, to recap this.
Speaker Change: We've been guiding that the quarterly dilution for employee stock compensation has about 1% of the outstanding and that will continue at those levels despite the increase you'll see in stock based compensation lines.
Speaker Change: Importantly, and I want to make sure we're crystal clear here, while the company's stock-based compensation levels are generally indicators of delusion that is in the case here since this step up in stock-based compensation is more of an accounting practice related item.
Speaker Change: We expect to see the quarterly stock base compensation at this new level for the balance of 2025 and it will step down in 2026 and again in 2027 as these awards that were granted with a higher stock price best out.
Speaker Change: Over the longer term, we expect to manage stock based compensation at closer to the $100 million level annually.
Speaker Change: As Robert started the call, Compass continues to execute against our strategy and our record results confirm that we are focused on the right strategic priorities and are executing our strategies with excellence.
Speaker Change: Our record results are the clear results of the hard work of our incredible agents and the dedication of our team members who work tirelessly to deliver our mission.
Speaker Change: Thank you to our agents and employees for all you do for Compass.
Speaker Change: I would now like to turn the call over to the operator to begin Q&A.
and many more. Thank you. Thank you.
Speaker Change: We will now begin the question and answer session. Please limit yourself to one question and one follow-up.
Speaker Change: If you would like to ask a question, please raise your hand now using the bar at the bottom of your screen, and please unmute yourself when speaking. If you have dialed in to today's call, please press star 9 to raise your hand and star 6 to unmute. Please stand by while we compile the Q&A roster.
Speaker Change: Your first question comes from the line of Chris Kuntarich from UBS. Your line is open, please go ahead.
and many more. Thank you. Thank you.
Great, thanks for taking the question. I'm just going...
Speaker Change: Let's start on the one key revenue. Could you just help us think about what revenue or what was revenue growth tracking to ahead of the disruption in the latter half of March?
Speaker Change: and then as we think about the two-few guide, what is revenue growth tracking in April ? Yeah.
Speaker Change: We'll start there. Thanks. I'll start it and I'll pass on to you, Kalani.
Speaker Change: Well, it's not a surprise that there's volatility in March and April . The talk of tariffs impacted March, the actual tariffs impacted April . We saw the S&P 500 down almost 17 percent.
Speaker Change: and NASA down more than 20% through the first week of April in March was also the lowest March on record in terms of transactions since 2009.
Speaker Change: I think overall what I believe we will see is this year to look a lot like last year.
Speaker Change: prices will be relatively flat because we have more inventory, almost 3% more inventory of single family homes than this time last year that.
Speaker Change: More and more inventory reduces the pressure on prices and so we're seeing prices relatively flat in units it looks like we'll be just modestly up, but I'll pass it on to you.
Yeah, thanks Robert. Thanks, Chris, for the question.
I think when you...
Speaker Change: When you look at Q1, I think we were probably tracking close to the midpoint of our guide and then we saw some of the volatility there. I think as we think about Q2 and April , I think April is tracking at our expectations when we look at kind of the midpoint of our Q2 guide. We're showing some really strong growth expectations. Our Q2 guide is a little lower.
Speaker Change: Thank you one, but I think the factors are what you would expect. I think we have built in some of the volatility impacts that we have seen in March into April and in April . We've had dayfall adjustment of Easter in April , which actually has an impact on just activity. And then Q2 was a much tougher comp year over year than Q1.
Speaker Change: and then finally, as expected, we anniversary ladder and bloom in our parks acquisition. So overall, we're seeing April at our expectations and again continue to see and expect us to outpace the market and win market share through Q2.
Speaker Change: That's helpful. As we think about the disruption in the back half of March, my sense is that what you're talking about is people are putting themselves on pause when they're planning on completing a home purchase.
Speaker Change: Are you seeing any of those purchases? How should we be thinking about the share of purchases that were completed?
Sofar, through April .
Speaker Change: and kind of, are there other case studies to look back when there were points of significant market disruption here, when a part of a month or a full month has been disrupted here, how long it typically takes for some of those transactions to end up getting completed? Thanks.
Yeah, what my view is that-
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Speaker Change: The loss was a temporary loss of transactions, not a permanent one. And so I would expect the full year transactions to be in line with what it would have looked like otherwise, just a deferral, that is if assuming we see stability in the markets.
Speaker Change: and no more surprises like we saw with the talk of terrorists and the actual tariffs.
Speaker Change: But to answer a question, I think it's more of a deferral demand, not an elimination of demand.
Speaker Change: I also would expect our agents to continue to gain share from agents outside of Compass, our transactions, our agents' group transactions, as mentioned earlier 9%.
Speaker Change: Faster than the market, or more than the market, and we expect that to continue.
helpful. Thank you.
Speaker Change: Hi, this is Steve Romanov for Jason. So apologies if this has been asked already as we're juggling several calls at once. Could you just, if possible, level set for investors what's the latest with NAR's clear cooperation policy and is your sort of legal standing for lack of a better term of the three phase marketing strategy still intact? Thanks.
Speaker Change: Thank you. I appreciate the legal standing because they're not laws, nor is not the government, they're not elected officials. I appreciate that. The CCP is
Ongoing, Bernard added one layer of flexibility to expand choice.
Speaker Change: It's worth noting, as mentioned on the call earlier, three-phase marking strategy works under CCP and all of the current rules, private exclusives coming tunes, then moving to the MLS
Speaker Change: as I mentioned earlier in my prepared remarks, homeowners are looking for more choice.
They're not looking for less choice.
and Compass Support's Homeowner Choice.
Speaker Change: went into Compass 5 exclusive, it's coming soon, there's no days on market, there's no price job history, and so it protects homeowners.
Speaker Change: with their, you know, from that risk. And again, you know, homeowners should have the choice on how to market their private property. It's their home, it's their private property. It's often the most valuable asset and
Speaker Change: Thank you. Your next question comes from the line of Bernie McTernan from Needham & Company. Your line is open, please go ahead.
Bernie Mcternan: Great. Thanks for your question. And Robert, just to follow up on that.
Speaker Change: So I get the point that Refaith marketing is shown in-
Speaker Change: It's still a priority, but are you okay with your houses or with inventory not being available on Zillow or just, you know, what the response has been for me, and it's just trying to, you know, as the things are still being worked on the industry, what's happening real time.
Thank you for watching!
Yes, again, this is about choice for his control.
Speaker Change: Dan's for homeowner choice, and so homeowners have a choice on how to market their home. You can market your home three phase with a three phase marketing strategy. You can market it without the three phase marketing strategy. You can market it with a three phase marketing strategy where it goes to Zoro and everyone else. You can market it in a different way. What is the homeowner's choice? [inaudible]
Speaker Change: and so this is about choice, again, verse control, and I don't know a homeowner who wants to know our then last sort of portal to tell them how to market their home.
Speaker Change: got it, understood. And post these, these are changes. Has there been any change in the organic recruiting effort for the company? I'm assuming that three-phase marketing was a big push and not trivet and just want to see pages are still responding to that value proposition.
Thank you very much.
Aye.
I think
Thank you.
I think you can see that...
The percentage of-
homeowners working with their agents.
Speaker Change: to mark at their home, having elected to use the cumbersome face, Marty Shragig and C.
Speaker Change: that from those numbers, that the demand continues to be strong. I think what I would say are, you know, top agents, luxury agents, it resonates more with them, because clearly, um, oh.
Speaker Change: If the benefits of testing price pre-marketing, the higher up the price point, the more it tends to resonate, although it resonates across price points more in the luxury segment. So I think we continue to see.
Speaker Change: to see that attraction. And look, I'm pleased to see other brokerages. Right now, you know the names of them, other great national brokerages with national presence, offering choice and following compasses, position.
that homeowner should have.
Speaker Change: More options than one option. And so free marketing and testing price through alternative listing methods has been adopted and there have been announcements from other major broker firms along those lines of the last two months. I think that's a good thing for homeowner choice.
Yeah.
Bernie Mcternan: Yeah, Bernie, I would also add everything Robert said I would also add just we expect we saw 700 or organic agent ads this quarter.
Bernie Mcternan: as we've said, we expect six to seven, you know, seven plus hundred. We continue to see momentum there. The reasons have not changed. Our platform, our technology continues.
Bernie Mcternan: to be the strongest asset for agent recruiting. We see a ton of momentum there. Our inventory strategy, the depth of inventory, the three-phase marketing. We continue to hear a lot of strong stories there, helping recruiting. And then I also, I think it's important to note that we are seeing competitors struggle to create value for agents. And that's beginning to be a trend. A number of large brokers are cutting costs. Smaller brokers are lacking the tools and resource to invest while in while the tap.
Bernie Mcternan: I think we're making sure and agents are seeing that Compass is investing in agents launching new technology, new tools, acquiring companies and advancing our strategy around that inventory. So I think we are seeing continued favorable trends that we saw in Q4 and Q1 and that hasn't stopped in Q2.
Speaker Change: Understood. And one more if I could just a quick one, the clarification on optics. Clonnie, I know you mentioned now, seasonality, 2Qs normally higher than 3Q. Should 2Q be that number that we can kind of run rate for the rest of the year, should we expect an additional step up from seasonality in the second half. Thank you.
Speaker Change: Yeah, yeah, Q2 is probably the right proxy. Overall, I think we guided to, Bernard McTernan, we guided to kind of annualize, but that's probably the right proxy generally, just because Q2 has the compensation level changes in Q2. So I would use Q2, but kind of...
Speaker Change: Be able to force through the annual guidance that we have to kind of smooth out the remaining quarters.
Great. Thank you.
and many more. Thank you. Thank you.
Speaker Change: Thank you. Your next question comes from the line of Michael Ng from Goldman Sachs. Your line is now open. Please go ahead.
Michael Ng: Good afternoon. Thank you very much for the questions. First, I wanted to ask about the principal agents and agent recruitment. I certainly appreciate the disclosures around the gross ads as a result of Christie's and the organic ads.
Michael Ng: I was wondering if you could just talk a little bit about churn trends in the quarter, and if there is anything unusual that you would point to that may have caused churn in the quarter, whether the environment or the deal itself.
Speaker Change: and then second, one for Robert, just on the three phase marketing strategy as you roll this out over the next.
Speaker Change: You know, a couple of months and a year. I was wondering if you could talk a little bit about, you know, what your yard to take for success of the strategy is, whether that's agent recruitment or, you know, compass market share gains would just love to hear a little bit more about that. Thank you.
Robert Reffkin: I'll start with the first question and I'll pass on to Connie for the second. Look, Compass exists to make agents more successful. If we cannot make agents more successful, we have no reason to exist. We're here to help agents realize they're entrepreneurial potential.
Robert Reffkin: The compass three-phase margants, Mr. Hedges, does that. The unintended consequence of...
Robert Reffkin: NAR rules, rules like CCP are agents all look the same.
Robert Reffkin: On their own listings, their names are almost invisible on third-party sites.
Robert Reffkin: If they put a photo, if their headshot is in their photo, or their signs in a photo, or a video, that they put in the M.S., they also take it down to make them indiscible.
Robert Reffkin: They can't watermark their own photos, the NMLS watermarks it. And so with the cumbersome phase marking strategy, it helps them differentiate. Instead of a one-size-fits
All-World, we're every agent.
works with their cellar and just puts it in the MLS.
Robert Reffkin: and that's their marketing plan. We have a three phase marketing plan with a lot of different benefits and strategies within each phase if you choose to use it.
Robert Reffkin: They wait weeks to put it into the MLS. The second we sign this listing agreement, we can put it in as a private exclusive, and are starting feedback on how the home is positioned.
This is a tool, there's an agent that said. [inaudible]
Speaker Change: Morton Ptonyton said, the answer to every client objection is private exclusives. Oh, you want to list it at $5 million to compressing $4.5? Hey, well, let's test price privately as a private exclusives. So.
Speaker Change: What success looks like is that our agents continue to have an edge.
Speaker Change: that our agents continue to differentiate, that our agents continue to outperform as we saw last quarter, and that our agents continue to get more listings as we can see in the data, and they continue to sell those listings at more attractive terms for the seller.
Speaker Change: So that's what success looks like, and because it's creating that success is why it will continue despite organized real estate's deep desire to restrict them and their home owners from having choice.
Thank you.
Kalani? Yep.
Speaker Change: Yeah, thanks, Michael. Just on your question on Turn. Look, I think you've heard it. We're pleased with the 700 gross Asian ads, particularly in Q1, just showing the power of our platform and inventory strategy. I think my favorite sub metric there is with Christie's International Real Estate, we've added agents instead of turns. That's the real positive.
Speaker Change: The turn we saw in Q1 was right in line with our historical levels when we...
Speaker Change: When we look at it, I think just just recall that Q1 is typically when we go through our renewal process beginning of the year so we typically see the highest amount of churn in first quarter but to be completely transparent we we were kind of laying on top of each other quarter one last year quarter one this year on churn so no significant change.
Great. Thanks, Robert. Thanks, Colony.
and many others. Thank you. Thank you.
Speaker Change: As a reminder, if you would like to ask a question, please raise your hand now using the bar at the bottom of your screen and please unmute yourself when speaking. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute.
Speaker Change: Your next question comes from the line of Elizabeth Langen from Barclays. Your line is open, please go ahead.
Speaker Change: Elizabeth, your line is now open. You can unmute yourself using the...
Speaker Change: Bar at the bottom of the screen or by pressing star 9.
Hi.
Are you guys willing to hear me?
We are able to hear you can go ahead.
and many more. Thank you. Thank you.
Speaker Change: Okay, great. Thank you very much. This is Elizabeth on for Matt today. I did have a couple questions actually about the private exclusive listings. I know that that's kind of been a topic on the call so far, but I was wondering if you could talk about how agents are actually using it. Are you seeing people, you know, kind of actually. [inaudible] I'm sorry.
Speaker Change: Get those offers while they're marketing it privately or you still seeing people kind of migrate to the public listings after going to that three-phase marketing.
Yeah.
Organized Real Estate,
Speaker Change: and I organized real estate which are entities that use agents listings to you.
Speaker Change: Crane Market Power to charge agents' dues or to take their listings and...
Speaker Change: monetize the homeowner's listings, do referrals, and selling leads. Organize real estate would have you believe that the only reason why people do private services is double in deals.
Speaker Change: The majority of our transactions that close as a private exclusive are co-wrote with an agent at another broker term.
Till dispute that fact, we-
Speaker Change: And we encourage that. We want to cover it. We cover it with everyone.
Speaker Change: 94% of our listings, including the Wistings to Start Office, Compass Pri order exclusives, are get to the MLS and the portal sites, phase three.
Speaker Change: Highlight is, it's not the one phase market strategy. It's the three phase market strategy. The goal is to get to the third phase.
Thanks for watching!
The Private Exclusives.
Speaker Change: When it's a private exclusive, NAR is now allowing us, which is great, to be able to share one-on-one our private exclusive with the agents at other companies.
And so, um...
Speaker Change: I would expect that the vast majority of our customers are shared with other brokerages one-on-one, and we launched a digital book, and it's also a print one, but in our office to help dispute the...
Speaker Change: the claim that this is about doubling deals, and we're inviting any agent from other aerobic firms to come over and look at our listings. Again, we want a co-brop with everyone.
Speaker Change: Contrary to what it may look like from the outside CCP,
Speaker Change: If you can ask any agent, how long can you do a private listing? They'll say as long as you want. But then you asked them a question, how long can you publicly market a listing that's not MLS? They'll say one day.
Speaker Change: So, clear cooperation is not a rule against private listings. That's the marketing campaign they use. It means that's the marketing campaign of NAR.
in any way outside of the MOAS.
Speaker Change: and so, the rule does make it hard to cooperate with agents outside of MLS, and their rules with days on market price drop history, not letting an agent have their face in their own photos, not letting them begin their own videos, not being able to own their own photos.
the
but the goal is not to double-end deals and to
Speaker Change: Do Inside Deals. The goal is to give homeowners an alternative marketing method outside of just a single MLS. MLS is a great marketing tool. It's a wonderful marketing tool.
Speaker Change: and I'd say half the MLS's give flexibility, that is... [inaudible]
Speaker Change: The three-phase marketing strategy is a way to get out from under the thumb of these rules that are anti-homeowner, which are closed by saying
Speaker Change: Clear cooperation does not have any restrictions for developers or homebuilders. Developers and homebuilders, the smartest, most sophisticated, and the most profit-driven people in real estate, they've been carved out of clear cooperation the entire time.
Speaker Change: And so that's not fair, that's not right. And so that's really what success looks like in addition to giving our agents an edge that they can get to their clients. What success looks like is...
Speaker Change: It, home, individual homeowners are able to have all the marketing flexibility that a big developer and billion dollar home builder would have.
Thank you. Thank you very much.
Thank you.
Thank you. I had-
You have a follow-up? Go ahead.
Speaker Change: Yes, I did have a follow-up. I wanted to touch on market share, obviously you've seen it move higher into this quarter, but kind of in the context of, you know, M&A and, you know, expanding your platform, you know, through transactions. How are you thinking about it?
Speaker Change: Given the context of today's market, are you seeing, you know, kind of interesting things come up or, you know, like, reasonable pricing just given all of the uncertainty or things kind of pulled down a little bit.
Good, Kalani, I'll let you answer that question [inaudible]
Kalani: Yeah, sure Elizabeth, thanks for the question. You know, overall market share, we're, we're obviously pleased, six, six percent in the, in the quarter and significant increased quarter of a quarter year over year. I, you know, we expect to see that continued market share gains both organically and then through, through acquisition and, you know, I think, I think we're seeing a market where the best agents are, are winning more listings and we continue to see our top agents produce and, and [inaudible]
Kalani: So, frankly, I think we'll see a continued trend similar to the last few quarters in market share based on both our productivity of our agents, our organic agent ads as well as our eminent activity.
Thank you.
Speaker Change: Thank you. There are no further questions at this time. I will now turn the call back to Robert Reffkin for closing remarks.
Speaker Change: Well, thank you everyone for joining our call today. I want to end by thanking all of our employees and agents for their hard work. As you can see from our Q1 results, Compass is continuing to outperform the market and reusing our platform to give our agents an edge in the industry.
Speaker Change: We have a long runway for growth and we look forward to updating everyone on our progress. Thank you and have a great rest of your day.
Thank you.
Speaker Change: This concludes today's call. Thank you for attending. You may now disconnect.