Ladies and gentlemen, thank you for standing by and welcome to the Compass Inc. First Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rich Simonelli, Vice President of Investor Relations, you may begin your conference.

Thank you, operator, and good afternoon, everybody. Thank you for joining the Compass's First Quarter 2022 Earnings 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 first quarter financials, as well as our near-term guidance and long-term targets are included at the back of our Q1 earnings release, as well as the presentation posted on our website. 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-K and other SEC filings. Joining us today will be Robert Reffkin, Founder, Chairman of Compass and Chief Executive Officer; and Kristen Ankerbrandt our CFO. Robert will provide a brief overview of Compass' results and a discussion of our strategy and then Kristen will cover the financial results and outlook in more detail. Now I'll turn the call over to Robert.

Thank you, Rich, and thank you to everyone joining our earnings call today. I hope everyone is safe and well. Today we are sharing our financial results for the first quarter of 2022 and our outlook for the rest of 2022. Before we get into the numbers and our view of the market, I want to take this opportunity to say I am so thankful for continuing the journey, growing this amazing business with our outstanding team of Compass employees and over 27,000 world-class agents. Through their hard work we are now the number one brokerage in the United States, based on sales volume in 2021. We achieved the number one ranking in less than 10 years, displacing long time incumbent brokerages, some that have been in the business for more than a century. What makes this even more exciting is that, we became the number one brokerage with considerably fewer agents than our competition and covering significantly less geography, about half the population of the United States. We have entered these difficult times as the number one agency in the United States and we plan on coming out of this turbulent time even stronger. Our momentum for 2021 continues into the first quarter, as we achieved strong Q1 financial results. We beat the upper end of our first quarter revenue guidance by generating $1.4 billion in revenue. We also beat our expectations for adjusted EBITDA coming in at a loss of $97 million. Kristen Ankerbrandt our CFO will go through the numbers in more detail in a few minutes. In turbulent times like these, our cash position is an increasingly top priority. I am pleased to report our balance sheet is strong and we ended March 2022 with $476 million in cash and we have access to a $350…

Thank you, Robert. These past four years at Compass have been an incredible journey, managing the company through outstanding growth to become the number one brokers in the US delivering on our commitment to profitability, effectively managing the business through COVID and guiding the company through the IPO. As Robert mentioned, I have long had a passion to start and lead my own company and that conviction has only gotten stronger in my time here at Compass. I intend to launch my own investment funds, building on my 20-year career as an investor prior to Compass. It is rare to work at a company that aligns such a powerful mission, with unbounded market opportunity. It's been a privilege to work with Robert and our talented executive team, who pushed me and the company to move further and faster every day. Between now and September, I look forward to partnering with Robert and the Compass team on a smooth transition plan, that will allow Compass to continue to deliver for our agents, our employees and our investors. Now, let's turn to our Q1 results. We delivered strong first quarter results that exceeded our expectations, beating our guidance range for both revenue and adjusted EBITDA. We continue to gain market share and add more agents and transactions to the platform, despite inventory at record lows in the market. Our first quarter revenue was $1.4 billion, up 25% compared to Q1 2021, as we beat our guidance range of $1.28 billion to $1.36 billion. Q1 2022 transactions grew 18% to just over 47,000 and our gross transaction volume was $54 billion, up 23% compared to prior year. The growth in GTV, reflects strength in both units and our average sales price. Note, that this transaction and GTV growth was achieved despite inventory being…

[Operator Instructions] Your first question comes from the line of Trevor Young with Barclays. Your line is open.

Great, thanks. First one for Robert. I guess just a bigger picture one. Looking at the potentially softer transaction environment, the macro worries rising interest rates and so forth. In that environment, do you see an opportunity to actually lean in and seed some more markets and take even more share, go out to the new markets, get those founder agents that maybe weren't looking to make a move previously? How do you balance that potential share gains amid this disruption versus preserving cash?

Yes. Look, I think the cash has to be the priority, preserving cash. And so, if there is a more significant downturn, we would pause expansion. And we still benefit from the market, in our existing markets. There's a tremendous market share to gain in our existing markets and the same reasons why founding agents in new markets would be particularly attracted to join Compass in a prolonged downturn. Agents in existing markets would have the same -- we would have the same impact on them. But, yes, cash would definitely be the priority, but we would be able to take advantage of acquiring agents more efficiently in our existing markets and more cost effectively. As well, there's a real advantage that the table is set with the competitive landscape right now, because capital isn't going to be funding new competitors. So the table is really set and the investment is also set within the competitive landscape. So I think a prolonged downturn will just distance the degree to which our platform's value proposition will exist in two years -- one to two years from now relative to the competition. It will be more valuable, because we're still investing in the platform while the competitive set really doesn't even have one to start investing in.

That's really helpful.

Yes, Trevor, I might weigh in with just an additional comment. We were pretty aggressive in terms of our expansion plan last year, so expanded over the last year to roughly 27 markets. And so we don't necessarily need to expand into new markets in order to be able to continue to bring agents onto the platform and to continue to gain meaningful share. There's a good opportunity this year for us to just look to really further penetrate those markets that we moved into over the course of the last year. So this is actually not so different from our original plan to look to leverage the investment, the infrastructure we have in our existing markets and be able to drive profitable growth by just going deeper in the markets where we already have operations.

That's really clear. Thanks. And then just on adjacent services, I think one of the slides alluded to a Compass affiliated home insurance. I know we're still early stages in mortgage launch, but anything you can share there on timing for home insurance products. I think Robert on the last call you alluded to maybe another adjacency launching before year-end, but not sure if that was insurance or something else?

Yes. Home insurance is the third product that we're evaluating very closely. We don't have definitive plans, but yes, yes, you're correct. That's the third product that we are currently considering launching later this year.

And would that possibly be like a JV type model?

We're looking at a few different scenarios

Great. Thank you.

Your next question comes from the line of Justin Ages with Berenberg Capital Markets. Your line is open.

Hi. Thanks for taking my question. First, can you dive a little deeper into the programs to get more agents using the Compass platform more to kind of get those gains that you see the more time agent spend on the platform?

More on the programs that are driving adoption of the platform or that are driving the recruitment of new agents? Just to make sure I understand.

Yes, not the recruitment. So as agents that are already done now having…

Absolutely. Absolutely. Yes. This has been our biggest new initiative of the year, it's coaching for agents. The way I would describe it, I think, the historical strategy was training agents on how to use tools. So you're an agent, hey, do -- come forth and how we learn our CRM. And then we learned the hard way that no one wants to learn new tools, they want to learn how to grow their business. And it just so happens that tools can be a strategy to grow your business. So instead of come spend an hour or two to learn our CRM the message is learn how to grow your business or learn how to acquire new listings in a tight inventory market. And then it just so happens that the entire way that we train it is within the context of our tools. And so that's just like a high level shift in strategy and how we think about it. We created a team called a Customer Success Team, which is led by some of our best real estate sales managers and coaches that we already had in the company. And they're scaling the training across all of our different markets and all of our agents and there's both national and regional training. We called it the Compass 10/10 where there have been 10 weeks over three different types of trainings of an hour for each training. There's one training that is about learning the actual tools, one training that is about how to grow your repeating business and better relationships with your clients. Yes, and then there's one regional training, but the current training is called Compass Core that we have expanded from 10/10. And one-third of our agents are currently doing it one hour a week. It's a 10-week program. But this is one of the things that we're most excited about and we can see in the data that agents that go through the program are using the tools more and we also have the historical relationship that agents that use our tool. The tool is more to grow their business more. And so we're really excited to see the results of this new focus.

Yes, that's great. Real thorough. Thanks for the answer there. And then second, if I may, you mentioned a total transaction value kind of went up that part of the reason that transaction for agent went down was because of low inventory even as you gained market share. Should we expect that trend to continue? So recruitment is strong and the embedded kind of market share growth and market share gains in your guidance, but deals per agent to be at similar levels that we saw in 1Q?

So as we look at transactions per principal agent, we generally look at it on an LTM basis. And if you look at how that number has trended over the last few years you see it move from 12.5 to roughly 17 to just around 20 over the last three years. I think it was right around 2020 in 2021. And if you look at that on an LTM basis we're still right there. I think there are a few things that sort of contributed to the transactions per principal agent decline. First you have to remember last quarter -- Q1 of 2021 had a stronger sort of post-COVID market embedded in it. In addition, we just saw a slower start to the spring selling season this year than we generally do -- that we generally see and what we've seen in prior years. And then we've seen lower inventory here. So I think what you saw in Q1 was extraordinary. I wouldn't expect for that number to continue to decline. I think there were a number of factors that went into sort of contributing to that. And if we look at the number it was, I think, 4.1 a year ago. It's 3.8 this quarter. So not really that meaningful of a decline. As we look at the LTM transaction per principal agent number we do expect to see that tick up slightly as we move through the year.

All right. That’s helpful. Thank you very much for taking the question.

Your next question comes from the line of Ryan McKeveny with Zelman & Associates. Your line is open.

Hi. Thanks very much. Robert just to parlay a little on the first question you were asked about balancing, kind of, the cash versus expansion. And I guess maybe just to get a little finer point on the agent count side of things. I guess within the 1Q results or maybe the near-term kind of 2Q outlook is the market shift that we're seeing thus far already altering any plans around agent adds or recruitment generally? Or were those comments more about just kind of staying prudent and having that as a lever to pull if the market shifts more dramatically?

It's -- the comments are more about how we will -- how we can respond and react to a deep or extended more meaningful downturn in the market. In the first few months of the year as you can see from our results were positive. It just -- with interest rates increasing at a faster rate over a four-week period than any time in the history of the United States we just really want to be -- we want to prepare and look at multiple scenarios to be cautious. So the comments were more about what would happen in an extended downturn the levers that we have at play. That said, we are moderating our expansion outlook, but we're not moderating our hiring outlook. So it's just much more profitable recruiting as in existing markets where there's still of course the demand to come to Compass an opportunity. And given what we've seen over the last -- with the -- with insured hike and just the uncertainty in the second half of the year we just think it is prudent to focus on more profitable growth over expansion. And as Kristen mentioned we expanded so much in so many markets over 20 markets last year. We've earned the luxury to be able to take that approach and still meet our goals.

Perfect. Thanks very much. And one on the C&O expense I think this quarter up 20 basis points year-over-year. I know that's modest but maybe help us square the near-term trend in C&O as a percent of revenue relative to the long-term targets. I know we're expecting over time to have better leverage there. So I guess, should we think that 2022 in total could be a year that sees some better leverage C&O percent of revenue versus 2021? Or should we think that that's more over time as we get closer to 2025 maybe some more of that leverage comes through?

Yes. On that question, we did see a 20 basis point increase in C&O as a percentage of revenue as you mentioned. But actually, if you look at the brokerage split, we actually saw a 36 basis point improvement there. So I think, that's the piece that's probably most critical when you're looking at that calculation. There are a few different things that go into it. The other factor that is meaningful, there is the pace of our adjacent services growth. And so as we continue to grow that adjacent services business that will really supercharge our ability to improve that margin as we move towards those 2025 margin targets. So we will see some progress this year, but I think you -- as that adjacent services business gets to be of a bigger scale as we move through 2023 and 2024, you'll probably see bigger movements there as a result of that piece in particular.

Got it. That's helpful. Thank you very much.

Your next question comes from the line of Mike Ng with Goldman Sachs. Your line is open.

Hey, good afternoon. Thanks for the question. I just have two. First, could you just talk a little bit more about your expectations for market share for the rest of the year? The company clearly has a lot of market share momentum, but it sounds like it might be balanced by some things, like the California inventory tightness and maybe the pace of agent additions. I'm just wondering, if you could just clarify that a little bit and I have a follow-up.

Yes. We expect to continue to gain market share and as Kristen alluded to in her section of the earnings call. We're starting to see real bright spots in California around unlock inventory. And the market dynamic, although more uncertain in terms of how we play out of course, the rest of the year, we are seeing some real bright spots. Price is strong. And there are not -- we are not seeing anyone suggest that prices will be down year-over-year. There are -- the estimates that we generally look at are price increases of between 10% to 13%. And the price increases this year are consistent with what they look like in the first few months of last year. In terms of inventory, we're seeing more inventory come online not just in California, but in other markets as well. In terms of demand, yes, of course, it's much more expensive to buy a home and there are affordability issues, but the demand relative to inventory is still -- it's so strong to support, of course, not just the price, but also units. I think people are adjusting to this current environment. But again, the demand, we still see is there. I think, it's worth noting that, our guidance includes a range of market growth from 1% to 7% for the year, and that reflects double-digit price growth and negative mid-single-digit decline in units. But even at 0% market growth, we have 18% top line growth. Yes. And to put even a finer point on our outlook for the year even, if there is no market growth no new agents and no new markets and no growth in T&E and mortgage, we would expect to generate 15% top line growth. And so given that we do believe that we're going to continue to gain market share.

Great. Thank you. Robert. That's very helpful. And separately, it was encouraging to hear about the upcoming completion of the end-to-end platform. Could you just talk a little bit about, how you're expecting certain KPIs or financial metrics to potentially change once that's live? Whether that's increased productivity on the agent side or perhaps lower levels of investment spending? Thank you.

Yes. The -- there is an immediate KPI and then, a more medium-term one that's where -- that will empower the most. The immediate one is NPS of agents, driven by the productivity gains they get in, lowering the time that it takes for them to do their jobs. The most valuable asset for an agent is time. Time kills deals. And time is just -- no agents say that they have enough time in the day to do their job. And we put everything in one place, they don't have to log into 11 different software providers to their job. And the data flows all the way from beginning to end. And you don't have to write the listing address a different time for a listing presentation different time for CMA, a different time for the brochure different time to get paid, a different time for the open house app and the digital ad and so on, but it all flows all the way through the entire experience, you just get their time back. And so that leads to NPS. And NPS what that really helps with is agents coming on at lower incentives. And that's really the key driver of why agents are -- our Q1 add is consistent with the prior year but with better economics higher on the margin side and then lower incentives is because of NPS. That is the driver and the primary driver of the NPS is the platform. So the platform is -- as the rollout is completed through all our different markets, already in some of our markets today, but as it finishes in all the markets we can get that NPS which will lower the incentives and create more profitable growth. On the more medium-term KPI opportunity is lowering our cost to serve, because it makes it easier for us to deliver our agent services through the platform which empowers standardization, optimization and ultimately allows us to bring some key roles to lower-cost countries which is -- which obviously will have a P&L impact. But that's really the way I would describe the kind of short-term KPI and the more medium-term. - Chief Financial Officer: And then if you think about, how we expect for the advantage of our platform to manifest itself in the financials I mean -- and its most basic form right should make retention easier as we have agents have their workflow embedded into our platform. And so I think there you could see an improvement in terms of the commissions and other lines. And when it comes to recruitment we believe that this will -- this enhanced value proposition will allow us to recruit agents at more attractive economics. And that impact you should see both in commissions and other and in the sales and marketing line.

Great. Thank you, Kristen. Thank you, Robert. I appreciate your thoughts.

Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is open.

Thanks. Just one question, so Rob you talked about, kind of weak hands potentially getting flushed out, if we do go through a more extended kind of recession, on top of just what is a slowing industry already. When you talk about that, do you mean specifically other brokerage firms? Is it technology providers that others are using? Just maybe go into a little more detail on who do you think are the weak hands that kind of wash out that ultimately benefit Compass? Thanks.

Yes. I don't see the market being bad enough to wash out a bunch of traditional brokerage firms. I think talking from the side of that it would reduce the spend, not investments but the spend on third party tools that they would offer their agents, not investment, because they're not investment will be building their own tools. And so, I think it will reduce the spend on third party tools that they would give to their agents. And that would be -- so I think the real impact that we're going to see are on third -- stand-alone third party soft providers to agents. I don't think we're going to see new ones come in, and I think the ones that are there aren't going to be able to have the same financial future they would have -- it would have otherwise. So they're all going to pull back and invest less in creating more integration and more complete solutions for the agents that they provide their solutions to either directly or through broker terms. That's one. The biggest one though is really the disruptive brokerage firm models. It's the largest -- Real Estate Periodical came out today and it said that one of the well-known disruptive brokers remodels went out of business on Tuesday of this past week. I think they're going to be -- I think in the last couple of years, a lot of ideas have come into the space to disrupt different parts of the value chain in the brokerage firm model. And I think that we're going to see many of those companies not on the other side of a meaningful downturn. And even if they're not -- and if they are on the side, there'll be -- they will not have the capital to give them the resources to be able to make the investments that they would have wanted to make to have the impact they would have wanted to make on the industry. So, they would just have a much smaller presence in the overall ecosystem than they would have otherwise had.

And then just real quick with the depressed equity price, how does that play into agent retention as far as either new agents or existing agents? Thanks.

I'm glad you brought that up. You remember, we mentioned in the last call, in January that less than 9% of our agents were getting the equity that we are bringing on. We intend to sunset that over time to be virtually nothing and it hasn't had an impact in our recruiting that's on the recruiting side. On the retention side, Q1 retention this past quarter was 1% within where it was the prior year. And so, if -- with all the turmoil that's happened over the course of this past year for it to be within 1%, I think reflects the strength of the company.

Thanks.

There are no further questions. I'll turn the call back to Kristen for closing remarks.

Thank you all for your time on the call today. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for joining. You may now disconnect.