00:05 Good day, ladies and gentlemen, and welcome to the Compass Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Berl and I'll 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. 00:23 [indiscernible] Vice President of Investor Relations, you may begin your conference.

00:28 Thank you, operator and good afternoon, and thank you for joining Compass’ fourth quarter and full-year 2021 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 fourth quarter and full year financials, as well as our near-term guidance and long-term targets are included at the back of the earnings release and on the presentation, we posted just recently on our website this evening. 01:02 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. 01:27 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. 01:48 I would like to now turn the call over to Robert Reffkin. Robert?

01:53 Thank you and welcome to everyone joining our earnings call today. I hope everyone is safe and well. Today, we are sharing our financial results for the fourth quarter, the full-year of 2021 and our outlook for 2022 and beyond. I couldn't be more excited or more thankful to building this business with our outstanding team of Compass employees and 26,000 world-class agents. We are executing on our plan to drive strong revenue growth by being the best company in the world and empowering real estate agents to grow their business. 02:29 Moreover, the management team and I are committed to executing our plan to deliver strong EBITDA and free cash flow. We recognize that free cash flow is the ultimate arbiter of financial success and value creation. I want to be explicit about our financial priorities. We are committed to increasing profitability and prioritizing free cash flow in 2022 and beyond. We expect to be free cash flow positive in 2023 and we are committed to reaching by 2025, the medium-term 10% adjusted EBITDA margin goal that we set at the IPO. 03:06 This would imply more than $1.2 billion in adjusted EBITDA by 2025. We also expect that free cash flow will be 8% to 9% of revenue by 2025. We will do this as we continue to develop the most differentiated productivity enhancing technology for our agents and to significantly grow market share. We have added a presentation in our Investor Relations site that walks through our margin path in more detail and provide some new insights on the KPIs and model drivers. We did this to provide more transparency on margin drivers and other questions we receive about our business model. We will reference this in our remarks today. 03:51 As we have discussed before,…

17:43 Thank you, Robert. We are proud of our 2021 results and we exceeded our expectations. We achieved growth at scale, while improving our margin profile. This shows that we can successfully and aggressively add new agents, help them grow their business through our platform, and launch new adjacent services businesses, all while driving profitability on an adjusted EBITDA basis and prioritizing our path to free cash flow and EBITDA margins. 18:11 For the full year 2021, our revenue grew 73% year-over-year to $6.4 billion. Over the past three years, we grew revenue at a 94% CAGR and market share at a 50% CAGR. Our market share grew to 5.6% in 2021, up from 1.1% just three years ago. We expect to continue to rapidly take share. At the same time, we've dramatically improved adjusted EBITDA. In 2019, our adjusted EBITDA loss was $325 million. This improved to a loss of $156 million in 2020 and reach positive adjusted EBITDA of $2 million for the full year 2021. This exceeds our most recent guidance for a $5 million to $25 million loss for 2021. 19:01 In 2021, we incurred a GAAP net loss of $494 million compared to a net loss of $270 million a year ago. The increased GAAP loss was primarily driven by a year-over-year increase of $343 million and non-cash stock-based compensation expense due to a change in the GAAP accounting for RSUs. Consistent with most companies when they go public, our RSUs contained a condition that did not allow for the recognition of expense until our IPO. As a result, we started recording non-cash stock-based compensation at the time of our IPO and this trend will continue in the future. 19:42 Our balance sheet is strong with $618 million in cash at the end of 2021…

32:12 Thank you very much, and thank you, Brent (ph). [Operator Instructions] And with that, we'll go first to Mike Ng with Goldman Sachs.

32:28 Hey. Good afternoon. Thank you very much for the question and thank you for all the additional detail in the slides today. That was very helpful. I just had a question about the path of revenue less commission margin improvement over the next several years. You guys called out agent tier mix and split improvements. And I was wondering if you could just provide a little bit more color on the drivers of each of those items. Is it simply expansion into less competitive markets and better initial contracts and are you able to drive that because of a better recognition of your platform like what's really helping that improvement there? Thank you.

33:12 Yeah. So there is two things. One is just the agents cohort maturing. If you look at Page 12 in the deck, it highlights that we've historically improved 100 basis points a year for each -- for every respective cohort -- over the last week cohorts. And then secondly, we are not only hiring agents that more attractive split, which you can see in Page 12 each year, but as we -- higher in agent mix that reflects the mix of the industry, not just for a very aggressive folks on higher agents, then you have massive margin improvement. 33:55 So specifically, if you look at Page 13, 60% of the agents that Compass hires are generating above $1 million in revenue. When you look at the market overall is expected at 14%. And where agents then are generating below $150,000 in annual revenue, it's 4% for us, well for the industry is 34%, that the delta in split for agents at Compass between 150,000 and 1 million is 900 basis points. And so when we look at the opportunity if we did reflect the full markets that is 584 basis points of margin improvement, but we're assuming that we only get a third of that over the medium term. And so if the agent mix again third event which is under 90 basis points plus assuming another 60 basis points of improvement, but just the existing agent cohort maturing.

34:49 Great. Thanks, Robert. That's really helpful. And if I could just have a follow-up on the really strong attach rates for Title in DC, pre-deal and since you guys acquired it. Maybe you can talk a little bit about how the flow or the go-to-market for that Title business changed once you acquired it that was able to drive that pickup in attach rates? Thank you.

35:14 Hi, Mike. It's Kristen. I'll take that one. So we were obviously very excited to bring KVS on to our platform in the first quarter of 2021. It was a service that our agents already really love them. We're utilizing quite a bit, as you can see in the attach rates. As we were integrating KVS into our platform, we just simply had a more concentrated effort both and enjoying some of the referral benefits of our agents in that market, talking about KVS, talking about the quality of the service. And then we have also been working with the KVS team to help them market themselves more effectively to our broader set of agents. I will say, that Team at KVS, they're very strong operators and I think together, we've really formed quite a powerhouse as you can see in the increase in attach rates in a very short period of time.

36:16 The only thing that I would add to that is that the success we have realized to date is buy and large excludes the platform driven success that we'll realize in the future because if you take our R&D over the course of the last five years, 99% of it has been focused on agent productivity and that's why we have industry-leading agent retention rates, that's why we continue to grow our agents business faster than the market, excluding the benefits of team information, excluding the benefit of price year after year after year, which you can see in the investor deck and that's why we continue to hire agents at a very high pace and have a 71% and NPS score. But we are now moving in our R&D spend to focus on lowering our cost to serve agents, but also into adjacent services and so there are a number of how many shares that we're going to implement over the course of the next year by driving the recommendation and the integrated experience through the platform that should drive it out even further.

37:25 Great. Thank you very much. Those are very helpful.

37:30 Thank you. We'll go next now to Mayank Tandon with Needham.

37:33 Thank you. Good evening. Congrats Robert and Kristen on the quarter. I wanted to just start Robert with market share goals. I think during the IPO, you had identified market share expansion opportunities. Could you sort of talk about where you are today versus what your goals were back then like where are you running relative to those expectations? Are you able to identify the markets that you're really targeting for launching in 2022?

38:00 Yeah. So look, our market share went from less than 1% market share five years ago to 5.6% market share this past year and we exceeded our original goals along those lines. We have a lot of detail on market share by market and by cohort that were the market launch. And you can see you consistently gain market share across our markets and I think there is a question that some people may have had, can you gain market share in lower price point markets or in some the suburbs and I think the goal of that disclosure today is help highway -- regard whether it's a high price point market or a sub $300,000 ASP market like Philadelphia or big city or a small suburb that we're gaining market share in the market after market. And so we feel really good about where we are and I think only other point that I mentioned is we launch more markets last year than we had in our original IPO model. And so we're seeing, not just the -- more success on market share by market, but also more markets launched.

39:17 That's helpful, Robert. And then sort of a similar question on the adjacent services, when I look back again during the IPO, I think you'd identified several post transaction services on the adjacent services side that you were planning to launch and I just wanted to get a sense on timeline and how does M&A fit into that to be able to scale those services over time?

39:45 Maybe I'll highlight where we are on the timeline and then, Kristen can highlight on the M&A side. So we originally -- in the IPO, we said we're going to launch mortgage in 2022. So we've actually accelerated that launch, albeit only one market, but we're proud that we did accelerate it and by the end of this year, we should have mortgage in the majority of our markets. We are exploring the launch of another major adjacent service this year, but we haven't made a commitment to that. The [Multiple Speakers] opportunity is Title and mortgage. And so we really want to focus on that, but there is the next best opportunity which we're exploring.

40:30 All right. And I think as we look ahead in terms of the full scope of adjacent services that where we could expand our business Title & Escrow and mortgage were the largest opportunities and Title & Escrow at $35 billion, mortgage at $50 billion. So those are the places, where we wanted to focus our efforts to start and we use different strategies for that right. Title & Escrow, we have done a dual-pronged strategy where we have done some organic expansion and some M&A and you saw the results of the acquisition that we did in Washington DC. For mortgage, we decided to form a joint venture with guaranteed rate, a leading mortgage provider and that is off to a very good start so far. As we look ahead, we'll look to for each adjacent services will look to utilize the strategy that we think is best suited to that particular strategy. I don't know that we need to own necessarily all of the services, I think there are some good partnership opportunities that are out there as well, but I wouldn't be surprised if you saw us form another JV or utilize M&A for some of those different adjacent services that we plan to launch over the next several years.

41:54 That's a very helpful. Thank you so much for taking my question. Congrats again on the quarter.

41:59 Thank you.

42:02 Thank you. We go next out to Brian Nowak at Morgan Stanley.

42:08 Thank you taking my question. Asking Robert just about as you look across the entire company of all of your processes with agents and your integration of ancillary services. Can you give us example of one or two areas where you – you really see a lot of learning for to -- to improve execution maybe it's agent attach, maybe it's agent interaction like where do you sort of see the area to really improve the way you execute to drive structurally faster growth than maybe what you've guided to here?

42:41 There is a lot of opportunity, but let me give you one clear example. What we have currently 700 amazing employees that are paying -- the process that pay for agents every single day. There are significant ways to help automate -- 200 of those roles we can automate it almost completely and allow them to do more high value work. And for the other roles, there 500 roles. We believe that we can do by integrating the transaction management all the forms, disclosures, the eSignature everything in one place with compliant for the client and for the agent and Compass where they don't have to go to multiple places to process the payment that they can go to one that should be able to make them more than twice as productive over the course of the next year. 43:45 So that's an example where it will drive agents happiness and NPS because they'll pay agents faster and more consistently accurately. It will also provide more transparency into the payment process, that will also make agents happier because the entire transaction of the payment will be in the same platform. And it will also drives employee happiness because it will be simpler for them. Yeah. And there are ROAs, which we look forward to discussing in future quarters that the -- those specific people can help drive attach of some of the key parts of the transaction around Titles specifically [indiscernible].

44:22 Okay. Thanks.

44:25 Here we also -- we're taking -- we've launched something called contract to close where you take a portion of the responsibility of the transaction process and files, off of the agents back and they pay for it. And so as a three years ago, this was just a -- is only a call center, now it's a call center or with revenue. And if we can, we believe that over the course of the next few years, we can have revenue growth at a much faster rate from contract to close adoption across the country relative to the increased expense actually turn this entire functions into a profit center.

45:06 Thank you. We will go next now to Jason Helfstein with Oppenheimer.

45:14 Thanks. Can I just -- for the 2025 guidance, can you give us maybe a sense of like what the range of attach rates you might be assuming for adjacency. I mean, if you want to break them down step by a product, but just kind of what, what type of attach rate you need to kind of get to that target? And the second, we've gotten a number of questions, you've got over 600 million in cash on the balance sheet, obviously, you're guiding to material improved cash flow position over the next 12 months, 18 months, there were some acquisitions this year. How should investors think about capital deployment? So, are there additional kind of earn-outs, or commitments that you have to honor over the next few years and relative to additional acquisition you might want to do relative to the necessary very cash position because a number of investors think you should do a buyback so maybe help, as I understand, just how you're thinking about like cash deployment over the next 18 months, 24 months? Thank you.

46:26 Hey, Jason. Nice to talk to you. In terms of the attach rates, so when we look at the 200 basis points or so that we expect margin improvement that we expect to come from adjacent services and we think that is achievable with the attach rates in the 12% to 15% range and that would be of addressable transaction. So I would think of that as essentially half of our total transactions because some can easily be attached to sell side, some can easily be attached to buy side, and our sell-side buy-side mix is about 50-50. 47: 08 Now, it's important to note here, the bulk of this is, the bulk of this is really driven by T&E. We've got a good track record in a very short period of time of having grown that business and a really nice path to good growth in 2022 as part of our -- as part of our plan, but we also as Robert alluded to earlier, we expect to be able to launch some additional adjacent services, and so those the attach rates there will likely be below what I talked about is achievable for Title & Escrow there in order to develop those -- to develop this kind of or deliver this kind of margin improvement. 47:45 We feel really confident about our ability to deliver those attach rates even just looking at the KVS case study, the Washington DC case study alone. I think that shows that we've taken the secret sauce we have here at Compass in terms of being able to really drive adoption of our tools and services among our agents and we're able to really translate that to Title & Escrow shortly. We'll be able to give you more data on mortgage. And…

49:45 Thank you.

49:45 Sure.

49:49 Thank you. We go next now to Trevor Young at Barclays.

49:52 Great. Thanks. Robert, I think you noted that by summer time agents can support the entire transaction without using third-party software as well as kind of already seeing some of that R&D pivot more towards or reducing brokerage OpEx and given potentially overall Compass OpEx. When do we see that pivot on R&D deleverage, is that at that summer kind of pivot point when everything can be done in the Compass software or is there still more kind of improvement there? Just trying to get a sense when we go from an investment cycle on R&D to returning to leverage?

50:26 Yeah. I think we will start seeing it over the course of this year. It was their starts as early as summer, there are couple of factors that we could think through, but definitely, at some point this year, we will start doing it. Again, it's important to note that, the agent productivity platform is really focused on the agent. it’s not on reducing the cost to serve and I would say last year 95% plus of our time was focus on that. And the key outstanding items are really transaction management completing the full transaction flow on the Compass platform, a little bit of stuff on team functionality and a little bit of work on search in a couple of key markets, but that allows us, where I'd say this year, the first half of the year -- so I would say around 80% of the focus is on the completing the platform and the remaining 20% on primarily lowering the cost to serve and entering the world of adjacent service platform attach. The goal would be next year, if we can be as successful as our -- as we would expect this year, the goal will be next year that the half of the ever is on lowering the cost to serve and adjacent service attach. 51:58 And again like I mentioned earlier, lowering the cost to serve, we're calling the effort service desk. It really also drives target agent outcomes as well because the deliver some of the core agent services whether it's agent payments, lifting marketing, agent marketing, brand marketing through the platform as opposed to in one and one ways that is more onerous.

52:28 That's really helpful. Thanks. And then just quickly on Compass Concierge just any update there and your ability to monetize that?

52:38 We haven't changed our monetization philosophy around Concierge yet, but it's something we continue to look at as there are a number of vendors who would be happy to compensate for participation in the program, but we haven’t just hasn't been the area of focus.

53:01 Great. Thank you.

53:06 Thank you. We will take our last question this afternoon from Justin Ages with Berenberg Capital Markets.

53:11 Hi. Thanks for taking the question and nice quarter. The question or two on the agent productivity. So one of the things that you've shown in the report that you related the production uplift from when you get more agents, using your platform. So can you talk about any steps that you're taking to actually increase the number of teams that are using that, it just seems like it an easy way to boost the overall Compass kind of profile?

53:42 Absolutely. So this has been the key focus of mine so far this year and it's really a key focus for the company, because the bands we have is and as we've been invested hundreds and millions of dollars in R&D to build a platform that drives agent productivity, but just doing the lenders and get everyone to [indiscernible], you think a lot of company like Salesforce and they have the massive number of implementation partners to help drive adoption and so we don't take for -- that's just a CRM. The CRM is 15% of our overall platform. And so it is -- there is a lot to learn that can be intimidating. Yeah, what we are doing is, we are partnering with the country's best real estate coaches, externally coaches like Brian Buffini and Tom Ferry, Steve Shull and [indiscernible] and several others and we are also -- we have launched internal coaching with some of our gas sales managers that have been coaching agents for decades in this way. And we're coaching them through the platform. And so instead of so -- endures how every day you should make X amount of calls, X amount of emails, X amount of prospecting in an open-ended way. It's more a go to the Compass platform, click on the likely to sell button and then do a bulk email from likely to sell to your client to, if you're going to see renewals that are likely to sell or create an action plan in Compass that is a 12 month action plan that will -- that where every month it tells you what you should do with your service plans. 55:25 Yeah. And so that has been very, very, very successful and it's probably been the most positive NPS driver that we have seen in the company's history. And it really connects us from the business of real estate to the future of technology in a very cohesive way. So that's half of it, the other half is, we have -- in the same way, there is a genius bar at Apple. We have an incredible group of people called agent experienced managers, who are helping to on board and re-onboard and train on these tools and they're just going above and beyond at in this period of time because it's a unique period of time where things are slow enough in January and February before the busy spring market, where agents have the time to learn the tools and to adopt and some of those behavior changes.

56:19 Great. That's really comprehensive. Thanks, Robert. Thanks for taking the question.

56:24 Thank you.

56:26 And ladies and gentlemen, that is all the time we have for questions this afternoon Mrs. Ankerbrandt, I'll hand the conference back to you for any closing or additional comments.

56:34 All right. Thank you, operator and thanks to everyone who joined the call today. We look forward to speaking to a number of you over the coming weeks. Thank you.

56:46 And thank you. Ladies and gentlemen, that will conclude today's fourth quarter and year 2021 earnings conference call for Compass Incorporated. I'd like to thank you all for joining us and wish you all a great afternoon. Good bye.