Compass, Inc.

Good day, everyone. Welcome to the Compass Incorporated 2026 Q2 Earnings Call Conference Call. All participants will be in the listen-only mode until the question-and-answer session begins. Following the presentation, we will conduct a question-and-answer session. This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn our call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass second quarter 2026 earnings call. Joining us today will be Robert Reffkin, our founder and CEO, and Scott Wahlers, our chief financial officer. In discussing our company's performance, we will refer to some non-GAAP measures and discuss some metrics on a non-GAAP performer basis. You can find the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and supplemental non-GAAP pro forma information for prior quarters in our second quarter 2026 earnings release posted on our investor relations website. We will also make forward looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. Robert Reffkin

Good afternoon and thank you for joining us for our second quarter conference call. On today's call, I will be discussing five topics. First, I will provide a quick recap of our record Q2 results. Second, I will share an update on our cost synergy targets and our technology rollout. Next, I'll touch on our partnership with Rocket Redfin and how we are infusing competition in residential real estate. I'll discuss how we are moving on the offense with AI. And I'll end by revisiting the long-term earnings potential of our business. Starting with our record Q2 results, where all my year-over-year and quarter-over-quarter comments will be against pro forma figures. In Q2, Compass delivered record revenue and record adjusted EBITDA above the high end of our guide. Thank you for joining us. which drove net debt to adjusted EBITDA on a trailing 12-month and pro forma basis to 3.3 times compared to the 4.2 times in Q1 of 2026. So this means over the past quarter, we have already lowered our net leverage ratio by roughly one turn. Assuming current 2026 consensus adjusted EBITDA estimates in our Q2 ending cash balance of $694 million, which would be conservative as we expect to generate free cash flow in the second half of the year. Our net debt to adjusted EBITDA ratio would move into the twos by the end of the year, illustrating the progress we continue to make on reducing our net leverage ratio even as we are at the bottom of the cycle. In our brokerage business, which includes the Caldwell Banker, Compass, Corcoran, and Sotheby's International Realty Brands, Transactions were up 7.4% year-over-year compared to the market, which was up 3.5% year-over-year. As a result, for 21 consecutive quarters spanning our entire history as a public company, our brokerage business has outperformed the market on an organic basis for the Compass standalone brand. And for the second consecutive quarter, including the Anywhere transaction, we have now outperformed the market as well. Additionally, brokerage gross transaction volumes, or GTV, was up approximately 16% year-over-year compared to the market that was up 6%. This reflects roughly 1,000 basis points of outperformance compared to the market, which is an acceleration compared to the roughly 600 basis points of outperformance we delivered in Q1 2026. We believe this outperformance is a reflection of the quality of our agents and exposure to the higher end of the market, which tends to be less rate sensitive. We believe the wealth effect created by a record stock market in a growing U.S. economy has been a driver of demand for our business and is helping offset the rise in interest rates. Recently, there has been much discussion regarding the Bay Area real estate boom, driven by the SpaceX IPO, the upcoming SpaceX lockup, and the potential IPOs for Anthropic and OpenAI. So we thought it would be helpful to provide some color on what we are seeing there, given our presence in that market. On a year-over-year basis in the Compass standalone brand, we are seeing revenue in the Bay Area up 19% year-over-year, in both July and August on a business day adjusted basis, which is relatively consistent to the up 20% we observed in June. This suggests the momentum coming out of June in the Bay Area is continuing. In franchise, GTV was up 11.7% year over year compared to the housing market volumes that were up 6%, reflecting 570 base points of outperformance. Our high-end brands, including the Corcoran and Sotheby's International Realty brands, continue to significantly outperform the company average. Integrated services revenue grew 7.7% year-over-year, with title and escrow revenue being the primary driver. Total T&E transactions grew by 7.6% year-over-year, with purchase transactions growing by 6% and refi transactions growing by 25% year-over-year. Our focus in 2026 into 2027 is to unify our T&E operations by migrating all T&E operations to the Compass's title production platform. Transitioning to one title production platform is expected to unlock additional efficiencies and expand incremental margins in the future. While we are making this transition, however, we will continue to optimize our attached efforts by scaling best practices from both organizations and expect our attached efforts to accelerate in 2027 as we deploy tools such as one-click title across our footprint. In mortgage, our JVs more than doubled profitability in the Q2 year-over-year period, primarily due to strong volume growth in disciplined expense management. Our focus in 2026 in mortgage is to drive operational efficiencies within our JV entities while also making progress on Attach by continuing to attract the best loan officers to the business. Now an update on our cost synergy and integration efforts. Starting with our cost synergies. As of July, we actioned our entire year one target of $300 million in net cost synergies five months ahead of plan. As such, we are now pacing above our $300 million target and expect our action net cost synergies to be $330 million by the end of year one. With our 2026 in-year realized net cost synergies to be $220 million compared to the $200 million that we previously stated. We expect to realize about $150 million of the $220 million through the P&L compared to $130 million previously stated, and we continue to expect the remaining $70 million to be realized as CapEx synergies later this year. Lastly, regarding our total action net synergy target of $500 million. While we are not changing our total target at this time, Given the accelerated pace at which we have been moving, it would be fair to assume that we will achieve the $500 million in cost synergies in less than three years, and that we will achieve more than $500 million in cost synergies in three years. As a reminder, approximately $420 million of the $500 million is expected to be realized through the P&L, and $80 million is expected to be realized as CapEx synergies. Next, on to our technology rollout. In July, we achieved a significant milestone as we made our newly branded home platform technology available to over 4,000 agents at Caldwell Banker, Corcoran, and Sotheby's International Realty in the pilot beta. Feedback since the rollout has been positive. with agents noting the ease of use on both mobile and desktop, the network effect benefits of the platform, particularly in the private exclusive phase, and the highly integrated nature of the platform. So far, the platform has received an 82% CSAT, or customer satisfaction score, which is generally considered to be a strong score in the software industry. By the end of September, nearly 50,000 new agents in the owned brokerage brands will have access to the platform, reflecting over 80,000 agents on the platform, including the Compass brokerage brand. All agents will have access to our private exclusives and coming soon inventory. Our 128,000 domestic franchise agents will begin to onboard in Q1 2027. I want to give a special thanks to our product and engineering team, our marketing team, and our coaching teams for the monumental effort in getting us to that point in record time. I cannot overstate the relentless execution and tireless commitment the team put into this to make sure that the agents have access to the platform ahead of the fall market. I am incredibly proud of the team. In all my years at the company, I have never seen the team come together to realize such a big and audacious goal. Thank you. Now, let me provide a few thoughts on our partnership with Rocket Redfin and how we are infusing competition in residential real estate. Starting with our Rocket Redfin partnership. Since launching Coming Soons on Redfin in late Q1, our agents have received more than 60,000 leads from Rocket Redfin, and Compass has delivered more than 20,000 Coming Soon listings to Redfin. Moreover, we want to share our first data point, highlighting the impact to consumer traffic resulting from the coming soon inventory on Compass.com. In Chicago, where we have the most coming soons of any market, the number of sessions on Compass.com in Chicago were up 111% year over year, outpacing the average sessions growth of 34% year over year on Compass.com, or by 77 percentage points. This reflects what happens when MLS rules let clients and their agents choose to market properties how they see fit, which in this case is through the local MLS, MRED. We expect more than 90% of MLSs to have rules that allow sellers to market both private exclusives and coming soon by the end of the year. The trend for seller choice is moving quickly. Moving on to how we are infusing competition in real estate. I believe in competition. Thank you for joining us. Many abuse their power by creating mandatory rules and they enforce with MLS fines up to $5,000 that every real estate professional and their sellers are expected to follow. Real estate professionals have no ability to push back because they need access to the MLS to do their job. That is because over the past 100 years, all real estate professionals have been conditioned to use the MLS to market a listing to other real estate professionals. So without access to the MLS, you can't access the listing data for your buyers. In almost all markets, agents have only one choice for multiple listing services, making that single MLS in that market a monopoly that agents need to use to do their jobs. Thank you so much for joining us. The MLS is controlled by a collection of our competitors who are running the board and they are telling us how we can and cannot compete. What other private business is told how to compete by a collection of their competitors? This is why the MLS system has been investigated or sued by the United States government over 100 times in the last 50 years. The MLS has been weaponized against the very customer that pays to get access to that service utility, namely the real estate agent and the real estate brokerages those agents associate with. Let me say that again. Real estate agents pay the MLS's money. Real estate agents give the MLS the result of their hard work. and their intellectual property. In exchange, the MLS tells the real estate agent how to compete and fines and punishes the agent if they compete too hard. This is anti-competitive. This is anti-consumer and it's illegal. Multiple listing services should have to compete for our business just as brokerages have to compete for agents and agents have to compete for their clients. Today, our agents compete relentlessly for every client. They compete at every kitchen table across the US every single day. Brokerages also compete fiercely on compensation, on technology, on coaching, on culture to attract and retain the industry's top professionals. Over the years, Compass has invested over $2 billion in technology to compete, to provide competitive technology offerings. Because of competition, Our real estate professionals cannot fine or punish other agents or tell them how to compete. And because of competition, we cannot fine or punish brokerages and agents or tell them how to compete. But most MLSs can. And most MLSs do because they have no competition. I am working to change that and bring competition to the MLSs so that they can compete for real estate professionals and succeed and those MLSs that do not compete fail. Similarly, the dominant portal once competed for the attention of the consumer, competed for listings, but over the past 20 years, it gained dominant market power and with it adopted restrictive rules that punish brokers and agents who are competing for those same consumers. Like MLSs, the dominant portal takes the hard work and intellectual property created by brokerages and agents without our permission and for free, takes it from the MLS and use it for lead diversion to make money on it time and time again. But if the dominant portal had to actually compete to get our listings, compete on price, compete on features, compete on value, they would have to completely change their business model or fail. If the dominant portal no longer got listings for free from the MLS, they would need to compete for those listings, resulting in listing agents getting their buyer inquiries and their name and brand back on their listings. So everything Compass has done in the past and everything it is doing today is designed to infuse competition into MLS and portals in real estate. Why? Because if multiple listing services and the dominant portal have to compete like real estate professionals and brokers have to compete every day, consumers and the agents that represent them win. If they have to compete for brokerages, brokerages win. This is why I am supporting multiple listing services and portals that compete for our real estate professionals, and I am working to inject competition in the MLS and portal ecosystem. A good example of how competition can create change is the Rocket Reffkin Partnership that was announced earlier this year. Less than a month after we announced the partnership, the dominant portal discontinued the restrictive ban on coming soons marketed outside of their platform and launched a coming soon product for agents and sellers on their own platform. Competition resulted in more choices for agents and more choices for the consumer. Another example is our recent announcement with several multiple listing services across the country that supports those that actually compete for real estate professionals. As a result, we have seen some of the largest MLSs in the country, including those in Chicago, Washington, D.C., Philadelphia, Southern California, Florida, and Nashville. They have begun to compete, including by offering more flexible rules that let home sellers and their agents determine where and how to market their own properties. MLSs that are expanding recognize that if they want to get agents in new markets to sign up to their MLS, they can't expand with more restrictive rules and fines. Instead, they need to compete with more marketing options and more marketing flexibility that helps listing agents and their sellers, as opposed to helping the dominant portal. If MLSs and portals had to compete just like we compete with over 80,000 brokers in the country, or how agents compete with the 1.5 million agents in the country, I am confident that our company will be able to create an incredible amount of value for all stakeholders, including our real estate professionals, their clients, our employees and our shareholders. Every month, we are seeing more and more MLSs competing in ways that help our clients, our agents and our company. Competition will empower the best agents and the best brokerages. Competition will naturally eliminate restrictive rules and empower the three-phase marketing strategy. Competition will unlock the full potential of the Compass business model. And competition is coming. Finally, We are also seeing several states encode into law a seller's right to market property how they see fit through seller opt-outs. Connecticut, New York, and Wisconsin now allow sellers to market their home privately with seller opt-outs. Over the past year, our three-phase marketing strategy has required similar seller disclosure that states are now putting in place, so we only see this as a big positive. Furthermore, Washington State has adopted laws that allow home sellers to publicly market their homes however they want, so long as the home is concurrently marketed to the general public and all other brokers. And our private exclusives and coming soons are marketed to the general public through our website. So as you can see, The trend at the state level is also one where the law is emphasizing that homeowners, the people who actually own the property for sale, get to choose how to market their properties, not multiple listing services or the dominant portal. Overall, all of these changes are well aligned with our three-phase marketing strategy, which continues to see an increase Thank you for joining us. Of note, 65% of our franchise network participated in a Redfin Coming Soon preview session in late June, with 40,000 of those agents already opting in to the Redfin direct listing tool. And by the end of Q3, we expect over 180,000 agents of our franchise and brokerage agents to have the ability to create Coming Soons. Now, Shifting to our AI strategy where we are moving on offense in two ways. One, reducing OpEx and two, increasing agent productivity. First, we are using AI to reduce OpEx as you would expect. In Q2, we began deploying FDEs or forward deployed engineers within business functions, including transaction management, legal and growth. to build automated AI workflows directly into day-to-day operations. To date, the team has identified a mix of roughly $8 million in savings and cost avoidance opportunities. Additionally, across the technology organization, 50% to 60% of all new code is now produced by AI, which is helping us ship code faster and more efficiently, 50% to 60%. Second, on agent productivity, We are rolling out tools to make our real estate professionals more efficient. In July, we demoed our AI assistant more broadly, which is an integrated assistant that helps agents orchestrate more than 90 of our platform tools simply through natural language prompts. Our earnings deck this quarter includes several direct testimonials from agents. And as you will see, early feedback is incredibly positive. Agents are citing the amount of time the AI assistant is saving them on everyday tasks such as client outreach and importantly, helping them unearth proprietary leads. User data indicates deeper engagement with the platform with a number of tools called per agent and number of conversations per agent up almost two times since our demo day. I want to end by revisiting The long-term earnings potential of our business as we discussed last quarter. As a reminder, our scenario analysis is not meant to be guidance and assumes no agent ads, no organic share take, no margin improvement, no improvement on T&E or mortgage attach, or any contribution from leads or other ancillary revenue. These are all incremental growth levers in our business beyond a housing recovery. and levers that we are beginning to pull as you can see from our Q2 results. Assuming the housing market remains flat at 4.1 million existing home sales, we would generate roughly $1 billion in adjusted EBITDA and $750 million in unlevered free cash flow. In the next scenario, which we've assumed as 4.8 million existing home sales for this analysis, We would generate $1.5 billion in adjusted EBITDA and $1 billion in unlevered free cash flow. At mid-cycle levels of 5.5 million home sales, we would generate $2 billion in adjusted EBITDA and $1.5 billion in unlevered free cash flow. And lastly, we also provided an upside scenario of 6 million home sales. We would generate $2.5 billion in adjusted EBITDA and roughly $2 billion in unlevered free cash flow. With that said, I will now hand it over to our CFO, Scott.