Compass, Inc.

Good day and welcome to the Compass Second Quarter 2021 Earnings Conference Call. My name is Kathryn and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Jen Barrett, Vice President of Investor Relations, you may begin your conference.

Good afternoon and thank you to everyone for joining Compass' Second Quarter Earnings Call. Today's review of our actual financials will address the continuing operations of Compass, and certain items are presented on a non-GAAP basis. The reconciliations between GAAP and non-GAAP measures for both our second quarter and year-to-date financials, as well as our guidance, are included at the back of the earnings release and the shareholder letter. Please also see our disclosure on forward-looking statements, which reflects Compass's current view of future financials which may be materially different from our actual performance for reasons that we cite in our Forum 10Q and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and the impact on the housing market and the global economy. Joining us today will be Robert Refkin, Compass' founder, chairman, and chief executive officer, and Kristen Ankerberg, Compass' chief financial officer. Robert will provide a brief overview of Compass' quarter and a discussion of our strategy, and then Kristen will cover the financial results and outlook in more detail. With that, I would like to turn the call over to Robert.

Robert Vinson Thank you, Ben, and thanks to everyone for joining the call. We are excited to be back with you today to talk about Compass and our second quarter results. Thanks to our agents and employees' hard work throughout the quarter, we were able to deliver record results in terms of transactions, gross transaction value, revenue, and adjusted EBITDA. I can confidently say we are in the strongest position we have ever been in as a company. On the financial side, we delivered all-time record quarterly revenue of nearly $2 billion, which is up 186% year-over-year. Non-GAAP commission and other transaction-related expenses as a percentage of revenue improved by 100 basis points year-over-year, better than the 80 basis point improvement we saw in the first quarter. Adjusted EBITDA for the quarter was a positive $71 million. And if you look at our trailing four quarters, we generated $44 million of adjusted EBITDA. In the second quarter, our national market share almost doubled from the prior year, as share increased to 6.2%, up from 3.3%, primarily driven by our agents growing their transaction counts in our increase in the Compass agent base. The strong housing market was certainly a tailwind, but we outperformed the industry by a wide margin. Year over year, our transaction growth was 140% compared to industry transaction growth of 32%. Due to a combination of our agent's ongoing outperformance, the strength of the housing market, and the impact our platform is having as an accelerant to business growth, We now believe that we'll be profitable on an adjusted EBITDA basis for the full fiscal year 2022, a year earlier than we previously expected. We are particularly excited that this financial success was driven by Compass making agents more productive on the platform. On average, each of our principal agents closed 6.2 deals in the quarter, a new record. This is up 93% year over year, and compares to industry transaction growth of 32%. The combination of our agent's outperformance on the number of transactions completed and the 19% increase in home prices drove GTV to a record $77 billion in the quarter, up 186% year-over-year. GTV for principal agent was $7.2 million, up 130% year-over-year. Our agents recorded over 65,000 transactions on the Compass platform in the second quarter, and we beat our prior record by over 18,000 transactions. Our agents make up roughly 1.5% of real estate agents in the U.S., but represent over 6% of the industry's market share. This quarter, our principal agent count increased to over 10,600. with retention rates that continue to lead the industry at above 90%. I am pleased to say that our principal agent retention in Q2 2021 was higher than the prior quarter and higher than the prior year. This is particularly important to us as retention is the primary indicator of the value our customers feel they are getting from our platform. We are well positioned in the upper end of the market where price increases have outpaced the broader market, and we will continue to expand our footprint into upper and mid-tier markets throughout the course of the year. We launched 15 new markets in 2Q, including Indianapolis, Charlotte, and Minneapolis, bringing our total market count to 62, covering approximately 45% of the U.S. population. The rate of new market launches is expected to slow in the second half of 2021 as we saw an opportunity to accelerate expansion in the first half of the year that was originally planned for the back half of the year. Now, let's move to our platform and how it powers our sustainable financial advantage relative to incumbents. I know that many of you see us as just a brokerage. And I am proud that our team has made us the fastest growing brokerage in the United States. But our strategy at Compass is to be much more than a brokerage. Over time, you will see how our platform powers a larger number of adjacent services with an above industry average attached, creating a long-term sustainable financial advantage for Compass relative to others in the industry. The size and nature of this opportunity is made possible because of our unique approach to creating the first end-to-end integrated technology platform for real estate agents. No traditional brokerage firms are making the necessary technology investments to empower their agents to service the entirety of their client needs and facilitate the entirety of the transaction end-to-end in one platform the way Compass has invested in over the past seven years. With a product and engineering team consisting of more than 1,000 people, Compass has a technology team that is by far larger than any traditional brokerage firm. Given our success today, by next summer, we expect to be the first company to provide agents with a platform that will allow them to facilitate the full transaction in one place without having to pay for or log on to any third-party real estate software. From first client contact to property marketing for sellers and property search for buyers to CRM to offer management to transaction management and closing, the whole transaction process will be connected to an integrated experience built on a single code base across both mobile and web. Unlike Compass, the technology offerings of traditional brokerages include a collection of disconnected third-party tools that don't speak to each other. and that prevents them from fully integrating value-added adjacent services in the natural workflow of the transaction. Compass's approach to building an integrated platform gives the company a competitive advantage in easily connecting more value-added services over time into their transaction experience. We already have multiple adjacent services to attach to the transaction running through our platform, such as traditional services like title and escrow, And in Q2, we announced our mortgage AD with guaranteed rate. In addition to more traditional adjacent services like home insurance, home warranty, home security, and movement services, we also see a clear path to facilitating and monetizing dozens of additional adjacent services that are uniquely enabled by our platform, including property marketing spend, agent business spend, and client spend, positioning companies to have a share of all real estate spend. Digital ads, property videos, 3D renderings, real estate sign production, open house brochures, listings, photography, client 15 programs for past buyers and sellers are just some of the many examples of these type of opportunities where third parties are seeking access to our agents. Currently, agents spend billions of dollars on these types of services and we can make them easier to access more convenient and more cost effective for agents and their clients by having everything centralized in one location through the compass platform with the incremental tan provided by the addition of these value-added services Compass's potential revenue per transaction will be multiples above the industry average, creating a sustainable financial advantage relative to incumbents. As I mentioned, last month we announced OriginPoint, our mortgage JV with guaranteed rates. We are excited to bring our best-in-class agents, high-quality transaction funnel, and technological expertise to OriginPoint. Our goal is to be in business in multiple states this year and expand nationwide by year-end 2022. We aim for an attached rate at or above industry averages of eligible transactions in three to five years with profitability for the JV on an adjusted EBITDA basis expected in 2022. Turning to the housing market, we believe there are incredibly strong fundamentals and we see continued strength in the future. This is not just an after effect of the pandemic. Consumer demand among home buyers remains high, while interest rates remain near historic lows. Yes, 7.5 million Americans have already moved, but millions more are looking. Remember, when you hear about 10 offers being put on home, only one is chosen, meaning nine buyers are still on the market. Continued expectations of hybrid work environments will continue to spur demand. where people are using their homes more than ever before, and it continues to lead people to look for new primary and second homes that help them better optimize their hybrid work lifestyle. Moreover, millennials are entering their home buying years, which will further sustain demand, and COVID has resulted in significant pinch of demand from the international buyer. In many of our key markets, like Florida and New York and California, buyers from places like Canada, Latin America, Asia, and Europe have been unable to travel to the U.S. for over a year now. And that demand from those buyers is significant. All this is just to be optimistic in our outlook for the residential housing market this year and next. That said, The more lasting impact from COVID may be on the acceleration in digital adoption, which looks like a permanent shift. And we've seen it play out across many industries, including media streaming, food delivery, and of course, real estate. Customers want the same high level of service, but more digital interaction, better suited to their lifestyle. In real estate, the winners will be the agents who can best utilize technology to transform the client experience and the brokerage firms that can best help agents to utilize technology. This has been Compass's focus since our inception. The Compass platform, which is unique in the industry, is the result of more than seven years of engineering work and more than $600 million in investments. all in the support of being the company that best helps agents use technology to realize their entrepreneurial potential. Over the last 10 years, technology has continued to empower agents to serve more clients and more transactions each year. This is a secular trend and one that Compass has been on for years and where we continue to lead the industry. This can be seen in the transactions per average principal agent, which increased from 10 in 2018 to 13 in 2019 to 17 in 2022, and with one age 2021 over one age 2022, reflecting a further increase of 68%. With digital adoption, in real estate still in its relative infancy, I've never felt more confident that Compass is the best positioned company in our industry to help agents use technology, to use software, to continually increase the number and quality of transactions they can complete each year for clients, making Compass the best place for agents to grow their business. I am now going to hand it over to Kristin, who is going to go through the financials in more detail. But I just want to say once again how pleased I am with the performance this quarter and how thankful I am to the 25,000 people at Compass that have worked so hard to create such incredible results. With that, let me turn the floor over to Kristin, and I'll be back at the end to answer Q&A.