Compass, Inc.

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

Good afternoon, and thank you to everyone for joining Compass's Third Quarter Earnings Conference 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 third quarter financials, as well as their guidance, are included at the back of the earnings release in the shareholder's letter. Please also see our disclosure on forward-looking statements, which reflects Compass's current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-Q and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the housing market and the global economy. Joining us today will be Robert Rafkin, Compass's founder, chairman, and chief executive officer, and Kristen Ankerbrandt, Compass's chief financial officer. Robert will provide a brief overview of Compass's 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.

Thank you, Ben, and thanks to everyone for joining the call. We're excited to be back with you today to talk about Compass and our outstanding third quarter results. Thanks to all the hard work by our agents and employees, we delivered another exceptional quarter. As a result, Compass is in the strongest position we've ever been in. And since going public, we've done everything we said we would do, and we've done it faster. We accelerated our top and bottom line more than expected. We accelerated our path to adjusted EBITDA profitability by a year. We expanded to 23 new markets year-to-date, more than double our pre-IPO pace. We expanded our title and escrow business to nine states plus Washington, D.C., up from three at our IPO. And we're launching mortgage a year sooner than we said we would. Our ability to exceed these operational and financial expectations is a direct result of our intense focus on the agent as our customer. Recent turbulence seen by alternative models looking to replace the traditional agent is an important reminder that the agent is not going away. The agent will continue to be at the center of the transaction, controlling $100 billion in annual commissions and being the primary source of referrals for an additional $140 billion in real estate related spends. The question is, who is going to be the company that best helps agents realize their entrepreneurial potential? because that's the company that will win. I believe Compass with our 1500-person technology team as well as a support organization dedicated to serving agents is the best in the world at listening to agent feedback and turning those ideas into software and services that help agents save time, grow their business, and serve their clients best. That's the secret sauce of Compass. We recognize that agents are one of the largest groups of underserved business owners in the country, so we built a model dedicated to agent success. We only succeed when agents succeed, and we put our money where our mouth is. In fact, no one in real estate is investing more in the success of real estate agents than Compass. At Compass, we've always been laser-focused on improving the traditional agent model rather than disrupting it. The market hasn't always agreed with us, but we've been consistent over the long term in our belief that technology can make agents even better at their jobs. 90% of home buyers and sellers rely on agents to help guide them through the real estate process. And the data shows that this is not changing anytime soon. Now, on to the quarterly results. On the financial side, we posted record third quarter revenue of nearly $1.75 billion. up 47% year-over-year and at the high end of our guidance. Adjusted EBITDA was a positive 12 million, exceeding our guidance. Notably, for the trailing four quarters, we generated $45 million of adjusted EBITDA. This is the second consecutive quarter we've had positive trailing four quarters of adjusted EBITDA, and we did it while continuing to invest in expansion into new and existing markets improving the Compass platform and growing our adjacent services business. These investments will continue into Q4 as we use the profits from our more mature markets to fuel these key growth drivers. The heart of Compass is our agents. In this quarter, we saw continued growth in our agent community in our biggest ever week of adding new principal agents. Our average principal agent count increased to just over 11,600. with 987 principal agents added during the third quarter alone. Those new principal agents represent a 214% increase over the new principal agents in 3Q 2020. More and more, agents are seeing the value of the Compass platform, enabling it to be a powerful recruiting and retention tool. Our experienced agents have seen it all in the business. They know that Compass is the only company making the necessary investments to meet their needs today and tomorrow. We saw this belief manifest itself once again in our principal agent retention metric, which remains above 90%. What was particularly pleasing to see, though, was that our agent retention improved year over year, even as non-GAAP C&O margin improved 180 basis points as well. Our agents recorded over 62,000 transactions on the Compass platform in the third quarter, and we beat our prior third quarter record by over 16,000 transactions. Despite all the talk and the press of a slowing real estate market, this was our second best quarter for transactions ever. On a year-over-year basis, transactions were up 36%, and we again outpaced the industry, which declined by 1%. Consistent with the step-down in revenue in last quarter's guidance, We saw transactions decline 5% from the second quarter, reflecting a return to more normal seasonality post-COVID. On average, each of our principal agents closed 5.4 deals in the quarter. Transactions per average principal agent was up 3% compared to the prior year, and it's continuing to outpace the industry where transactions were down 1%. The results this quarter show that Compass agents can continue to outpace the industry in a variety of economic cycles. Over the last few years, we have consistently increased this number from 12.8 in full year 2019 to 16.7 in 2020, and we expect it to be around 20 at the end of this year. The combination of our agents' performance on completed transactions and the 6% increase in average home prices drove GTV to a third quarter record of $69 billion in the quarter, up 45% year-over-year. We also expanded our footprint in mid-tier markets in the quarter. We launched five new markets, including Kansas City, Missouri, Hartford, Connecticut, and Durham, North Carolina, bringing our total market count to 67, covering approximately 47% of the US population. We will continue to expand our business both within existing markets and to new markets in future quarters. Now let's move to our adjacent services, which comprise 1% of revenue today, but will continue to be a bigger percentage of revenue each year. Adjacent services is accelerating as we continue to scale title and escrow and start writing mortgages in the near future. As I've said before, we are more than just a brokerage. Yes, I'm proud that we have built one of the fastest growing brokerages in the country, But our strategy at Compass is to be much more than that. And I believe the key to creating a long-term sustainable financial advantage is our platform. Unlike any other traditional brokerage, adjacent services will be fully integrated and embedded in the entirety of the agent workflow through the platform. As a result, Compass will be able to recommend the right products and services at the right point in the lifecycle of the transaction. The platform will serve as the foundation on top of which we will layer a myriad of new products and services that give us the capacity to increase value for agents, drive higher attach, and uniquely position us to capture more of the agent and client spend in the real estate ecosystem. The platform we're creating will serve agents in residential real estate transactions as well as the adjacent spend that surround those transactions. This is important for three reasons. First, These adjacent services will enhance our long-term profitability profile. Second, integrating these services into the platform will empower agents to deliver a more integrated, seamless experience to their clients, contributing to higher attach rates. And third, the best thing about the adjacent service business model is that there is little to no incremental customer acquisition costs for Compass because our agents already have the client relationship. We see a clear path to facilitating and monetizing a large number of adjacent services on our platform over the next few years. In T&E, since the close of the second quarter, we set up operations in Texas, Pennsylvania, New Jersey, and Colorado. And we are now covering half of our total transactions, which is where we said we would be by year end. Our land and expand strategy is well underway in these markets. We are growing attached. But keep in mind that in many of these markets, Our T&E business is still small and can't get served the full agent base. In mortgage, we currently are doing all the background work to get ready to launch, hiring loan officers, receiving regulatory approvals, and establishing warehouse lines of credit. We recruited loan officers and are expected and have also been approved to operate in six states. We're on track to write our first mortgages in the fourth quarter and can't wait to show you what we've put together. I'm now going to hand it over to Kristen. We'll 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 our outlook for what is still to come. And one plug before I leave. We're going to Austin, Texas next week for our annual agent conference. It's like the South by Southwest for real estate agents. Tune in if you want to see what it's like to be surrounded by thousands of passionate Compass agents who are excited to build the future of real estate. We'll be webcasting the main event on the afternoon of the 16th, where we'll be talking about the future product releases that we're going to give to our agents. We're all really excited about these products and hope you can see what we have in store for them. I'll be back at the end to answer Q&A, but now let me pass it on to Kristen to take the floor.