Compass, Inc.

and welcome to the Compass, Inc. Third Quarter 2023 Earnings Call. I would now like to welcome Richard Seminelli, Vice President, Investor Relations, to begin the call. Richard, over to you.

Thank you, Operator, and good afternoon, and thank you for joining the Compass Third Quarter 2023 Earnings Call today. Joining us will be Robert Refkin, our Founder and Chief Executive Officer, Greg Hart, our Chief Operating Officer, and Kalani Relitz, 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 third quarter 2020 fee earnings release posted on our investor relations website. We will make forward look at statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties and These statements include our guidance for the fourth quarter and full year 2023 and comments related to our operating expenses and cash flow levels, as well as our expectations for operational achievements. 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 on our most recent annual report on Form 10-K. and also our quarterly reports on Form 10Q filed with the SEC and available on our investor relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, November 6, 2023. We expressly disclaim any obligation to update this information.

I will now turn the call over to Robert Refkin. Robert? Thank you, Rich, and thank you, everyone, for joining us today for our third quarter results conference call. We achieved strong financial results in line with our guidance in a quarter that has seen mortgage rates increase over 100 basis points to 8%. I am pleased to share that in the third quarter, we grew quarterly market share 26 basis points year over year. We grew principal agents by 4% year over year and 3% sequentially. We had above 98% principal agent retention for the quarter, which is the second highest agent retention level since we went public. We launched several new exciting features on our technology platform that improved agent productivity and led to retention and recruitment. We moved closer to achieving our goal of bringing our operating expenses down to a run rate of $900 million in the fourth quarter and In the midst of a rapidly deteriorating market, we delivered positive free cash flow for the second quarter in a row. Kalani and Greg will walk you through the details later on this call, but I want to focus on the bigger picture. This downturn has given us opportunity to analyze every aspect of our business and look for efficiencies to ensure that everything we are doing is dedicated towards delivering profitable, top-line growth. We approach every day obsessively looking for ways to smartly lower costs and increase the productivity and revenue of our agents. We have worked hard to position Compass to be able to ride out this period of macroeconomic uncertainty and position Compass for even greater success when the market recovery begins. We are working from a position of strength. As the number one brokerage by sales volume in the United States over the past two years, we have built an amazing business with the best agents serviced by a highly dedicated team of professionals at Compass that is later focused on delivering excellence at every level. Although the market has not improved over the past year, Compass is a much stronger company with a lower cost base, higher principal agent retention, a revitalized post-pandemic culture, enhanced technology platform, and a larger agent-to-agent client referral network. I am proud of the fact that our team has thoughtfully and skillfully been able to reduce OpEx run rate by approximately $550 million since the second quarter of 2022. We said we would do it and we did it. We expect to achieve our target 900 million OpEx run rate as we exit Q4 as planned. This is more than a half billion dollars of expense cutting while still growing the number of agents, improving agent retention, and adding important new features to our technology platform. Our technology is clearly making a difference for agents. We have included a slide in our investor deck with quotes from agents who left Compass and came back and cited technology as the reason. With their permission, we have also included their phone numbers so you can call them directly. The reason we believe these agents' opinions are so important is is that they are doing a direct comparison of the current state of technology and the industry. And as you will see, Compass is the clear winner by far. Here are a few examples. First quote. We missed the Compass technology. I've tried to make it work, but life is so much harder now, so much less efficient, and my costs of doing business have increased. Property searching with clients without collections felt like going back in time five years. Next quote. Collections allows me to work with three to five times the amount of buyers at any given point in time that I otherwise would not have the bandwidth to take on. Last quote, you never realize how valuable the Compass platform is until you don't have it anymore. This is such a huge advantage to being at Compass. While I had indicated on prior calls that we would hold our OpEx at $900 million in 2024 and 2025, Given that 2024 could look a lot like 2023, we believe we should continue to drive more efficiency in the business and are targeting $850 million in 2024 annualized non-GAAP operating expenses, the bottom of our previously stated range of $850 million to $950 million. By continuing our expense reduction program, we are building in the potential for more free cash flow in 2024. But with the uncertainty surrounding 2024, if market conditions get worse, we are getting out ahead of a continued downturn. I am happy to report that other firms are recognizing Compass's leadership and strength. In the last two months, we have seen an increase in inbound inquiries of brokerages looking to join Compass with our strong culture, technology platform, and agent-to-agent client referral network being leading reasons. We are looking to make accretive transactions that will help us position for the inevitable market improvements that will come in the future. When you add companies and revenue, you are adding operating expenses as well. We are not going to pass up on accretive acquisitions just to beat the OpEx number. We acquired really often in DPT in September, marquee brokerages in their respective markets, because those acquisitions were the right thing to do for the business as they further strengthen our position in Texas and California. Closed M&A activity as approximately 14 million of annual hot packs in 2024. Clearly the Compass value proposition relative to competitors is strengthening. Agents are coming to and seeing at Compass during an unprecedented period of industry uncertainty. In Q3, We grew our average principal agent count by more than 400 agents versus the prior quarter. We also are experiencing over 98% principal agent retention in the third quarter, our second highest retention level since we went public. This proves that our cost reductions are not compromising the agent experience. At the same time, we have been able to deliver a number of technology advances such as Prince Performance Tracker, Compass AI, and OneClick Title and Escrow. We are actually in our technology mode while the vast majority of our competitors continue to not invest. I would like to take a moment to address the Sitzer Burnett class action lawsuit against NAR and several brokerages. As you know, Compass was not named in that lawsuit, but we were named in a new lawsuit last week. that was filed by the same lawyers who represent the Fisher Burnett plaintiffs, as well as a second case in Illinois, which is a copy of the case already filed against NAR and other brokerages some time ago. Obviously, we have been closely watching the proceedings as we do with all things related to the residential real estate industry. We will respond accordingly to the complaints filed against us. I am not going to comment on the cases in this call or future calls. While there has been an enormous amount of speculation as to what this will mean for commissions, there are a few reasons why I feel confident that Compass is positioned well. First, there is a market precedent for the changes being proposed in these lawsuits as it relates to how commissions are displayed and shared with consumers and ultimately commission rates. The Northwest MLS, which covers all of Seattle, and the majority of the state of Washington, including 83% of the population, made these changes in October 2019. And as of the end of 2022, the average Washington Realtor Commission rate is 5.3%, with 2.67% going to the listing agents and the remaining 2.63% going to the buyers agents. That aligns with the national average. So we have evidence in a major U.S. market of what this change will look like. that gives us confidence. Secondly, we believe we are positioned well because we have a combination of some of the most productive agents and the only end-to-end technology platform in our industry. Our agents are able to use the company technology platform with their clients and deliver tangible value to clients through it, which will be a major advantage should things shift. For example, our collections product, is a tool that makes the home buying experience easier for the buyer. It is like a Pinterest board for real estate that provides buyers with a portfolio of properties that are automatically updated with new prices and statuses where it's easy to share and communicate. When we launch our client portal in 2024, which will be a consumer interface for clients to manage their entire buying and selling process online through their agents, The bond between agent and buyer will be strengthened further as we provide the client one location to access everything related to their purchase. Given these products are unique to Compass, we are well positioned relative to others. Thirdly, we currently have agents that successfully ask their buyers to sign buyer broker agreements in order to work with them. We're in the process of launching training to all of our agents to empower them to successfully get buyer broker agreements signed with their buyers. Lastly, we operate largely in the luxury segment where we think buyers will still want the help of an advisor through their home buying journey. Overall, these are some of the reasons why we believe we are well positioned and prepared for any of these industry changes. So looking ahead to the future. We will continue to take a disciplined approach to our operating expenses and run our business efficiently while still investing in our agents, platform, and growth. We are confident that this approach ensures we can build upon our competitive advantage with the only proprietary end-to-end technology platform for agents in the industry. When the market improves in the future, we believe the company will be well positioned to generate substantial free cash flow over the long term. I remain incredibly excited about the future and I want to end by thanking the entire Compass team of employees and agents. Their incredible dedication has allowed us to make it through these difficult times with the confidence that we have a strong foundation for future success. I'll now turn it over to Greg.