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

Good afternoon and thank you everyone for joining Compass' 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 as well as our guidance are included at the back of the earnings release and the shareholders' letter. Please also see our disclosure on forward-looking statements which reflects Compass' 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 the impact on the housing market and the global economy. Joining us today will be Robert Reffkin, Compass' Founder, Chairman and Chief Executive Officer; and Kristen Ankerbrandt, 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.

Thank you, Ben and thanks to everyone for joining the call. We're excited to be back with you today to talk about Compass in 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've accelerated our top and bottom line more than expected. We accelerated our path to adjusting 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 & Escrow business in nine states, plus Washington DC, up from three at our IPO. And we're launching more 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 turbulent seen by alternative models, looking to replace the traditional agents 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 -- that's helped agents realize their entrepreneurial potential because that's the company that will win. I believe Compass with our 1,500 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 agent save time, grow their business and serve their clients' best. That's the secret sauce…

Thanks, Robert. I'm excited to share our third quarter results. We delivered an outstanding third quarter where we met and in several areas exceeded our expectations and guidance. This is the third quarter in a row where we've done just that. Our year-over-year results were strong, proving again, that Compass can compete effectively in a variety of macro environments. And we're excited to yet again, raise our full year revenue and EBITDA guidance. Here are some of the financial highlights for the quarter. Revenue grew 47% to $1.74 billion. Our non-GAAP C&O margin improved by 180 basis points year-over-year. We generated positive adjusted EBITDA of $12 million exceeding our guidance and $45 million of adjusted EBITDA on an LTM basis. And at quarter-end, we had $791 million of cash and an untapped $350 million revolver, giving us significant flexibility to execute our plan. Our $1.74 billion of revenue was at the high end of our guided range, despite a difficult comp in the prior year, when revenues were up 80%. Last quarter, we talked about looking at two-year CAGR to normalize for the unusual seasonal trends we saw in 2020. This quarter, our two-year CAGR was 62%, in line with the two-year CAGR of 65% we saw in 2Q, 2021. What drove the revenue in Q3? It was the combination of more agents and more markets, more transaction, higher average transaction values and a stable commission rate. We continue to drive transaction growth for our agents outpacing industry growth by 37 percentage points. We saw transactions per principal agent grow 3% year-over-year to 5.4%, in line with our expectations. It's worth noting that transactions per principal agent was impacted by the large number of new agents who came onto the platform in the quarter and who have not yet ramped…

Thank you very much and thank you Ben. [Operator Instructions] We will take our first question this afternoon from Ross Sandler with Barclays.

Hey, guys. Kristen, I think you just said that you expect transaction growth 20% year-on-year in the fourth quarter. Just want to clarify that. And can you also just talk about the linearity that you're seeing -- that would put you at about 57,000, I believe for the fourth quarter. So what's the linearity that you're seeing across your largest markets? And if we get something like higher sold caps, do you expect that to be a net positive, or how should we think about something like that playing out in terms of your business? And the second question is on T&E. You said mid single digit penetration of total. So I think we're probably twice that on the coverage zone. So, how quickly do you guys expect that to get up to where you are in Soquel, which I think is north of 40% at this point, what else do you have to put in place to get at least the coverage zone cranked up? Thanks a lot.

Sure. Thanks Ross. Good to talk to you. So, yes, you are correct. We are expecting year-over-year transaction growth of about 20%. And as indicated in our guidance, we have seen -- we are starting to see a return to more normal seasonality following, quite a different 2020, as a result of COVID. We started to see a little bit of that return in Q3, and we expect to see a mid single digit decline in revenues, sequentially in Q4. And so, our transactions will likely come down as a result of that as well. In terms of your second question on T&E, we have -- at this point, we're looking at that attach rate as an attach rate across all of our transactions in the U.S., so that's really a measure of the total transactions in our base that have Title & Escrow services attached. Over time, we expect to grow that in a few different ways. First, we'll look to further penetrate the markets where we already have a presence, right? We talked about having a presence in nine states for our Title & Escrow business. We we're at different levels of penetration across those different states. So, we'll continue to look to penetrate those markets further. We'll also look to expand our Title & Escrow services into new states. And we'll -- we've got plans to do that through the course of the remainder of this year into 2022. And then, of course, we're also launching our mortgage business at the end of this year. And we'll expect to see real momentum there starting in 2022. And so, we look at that adjacent services attach rates across both Title & Escrow and mortgage and across all of our transactions. It will take us some time to get to the attach rates that we saw with our Chartwell [ph] business in Southern California. But we think that those rates or industry average rates are achievable within -- certainly the next three to five years. We think there's a possibility we can do even better than that over time.

Next question, please operator.

Thank you. We'll take your next question now from Jason Helfstein of Oppenheimer.

Thanks. I'll ask two. So how do you incentivize your agents to push your Title & Escrow and mortgage versus alternatives, giving kind of retro [ph] rules? And then secondly, there's obviously been numerous technical factors that have weighed on the stock as you get past the lock up during these blackout. I mean, the stock can not get more support. I mean, are you willing to consider a buyback or a more aggressive OpEx reductions? And maybe kind of just give us your perspective there? Thanks.

I'll answer the first question. I'll let Kristen answer the second. Yeah. So, of course, there are retro rules that we follow and the entire industry follows where you can't economically incentivize an agent for referring title or mortgage to their clients or anything that any other product or service that's required to make the transaction complete. And so, we follow that. And so, we have to be able to compete by having the best title officers, the best loan officers you'd go in the good old fashioned way with the best service. And what's unique about -- what we are building is it is a platform. It is going to integrate the actual title and mortgage solution through the agent workflow. It will be embedded in the workflow and integrate into the workflow and making it easier for the agent and their clients to complete the transaction. And so, good old fashion, again, a better service on the human side, but also on the software side.

And in terms of your second question, Jason, we -- look, we remain very confident in our strategy here. So, what we're focused on first and foremost is execution. Even if -- we see some of the technical challenges that, that you're pointing to, and of course, we'll be open to evaluating different options there. But at this point, we don't have any plans or any commitments to a buyback or any similar strategy right now. We're really focused on executing our strategy. But we are open-minded and always evaluating different alternatives.

Thank you.

Operator, next question please.

Thank you. We will take our next question now from Daniel Adam of Loop Capital Markets.

Hi. Good afternoon. Thanks for taking my question. Just one for me. You noted that your October market share was tracking well above what you saw in Q3. Can you quantify how much above? And was your share in October tracking above or below the 6.2% you saw in the second quarter? Thanks.

Yeah. I think just taking a step back first, I just want to reiterate the Q3 market share, sequential decline over Q2 is not part of any long-term trend. As Kristen mentioned in October, it was up from that Q3 level. Yeah. We don't share the -- those month to month members, but it wasn't meaningful. Also I think it's worth noting that historically we have seen the third quarter relative to the second quarter market share decline in the past and due to that -- due to seasonality. In this circumstance really being driven by the low end, taking off relative to the high end in the third quarter. What we see in the market is that there is -- there's a sense of buyer urgency in the low end as rates were rising to get ahead of that rate increase. We're comforted that our business did what we said it would do, or we thought it would do in the third quarter. And you can actually see -- if you look at other kind of brokerages, the higher they are in the luxury space that they saw similar trends and the lower people are -- in the more people are in the low end space that they saw the opposite trend. So, you can really see that it was driven by -- there's incredible momentum in the low end in this quarter.

Okay. Great. That makes sense. Thank you.

[Operator Instructions] And we do have a follow-up question now from Jason Helfstein of Oppenheimer.

Hey, I figured why not? Does it get easier to hire agents if the market slows, just philosophically maybe talk about that? Thanks.

Yeah. No. It absolutely does. It's one of the benefits of us going market. When things are incredibly busy, agents don't have the time to have a conversation, or they're too busy with their clients, which of course is their priority. So they don't have time to learn about it -- about Compass and so -- what we can provide with our platform. And so, that's definitely one of the benefits. It's also worth noting though, that we've seen extraordinary levels of retention. One thing we didn't mention on the call is that retention the last two quarters were the highest it has been in the past two years. And so, we have strong indication that agents are seeing value from the platform, and they continue to want to -- they continue to see this is the place where they can best grow their business, save time and best serve their clients.

Thank you.

[Operator Instructions]

Okay. Operator -- sorry. If there are no more questions, we'd like to thank everyone for coming and please reach out and have a great day.

Thank you everybody. Ladies and gentlemen, that will conclude today's call.