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. Vice President of Investor Relations, you may begin your conference.

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. 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. I would like to now turn the call over to Robert Reffkin. Robert?

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 be 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. 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. 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 provides 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. As we have discussed before, we also see a path to long-term EBITDA margins that are more than double the 10% level. We walk through our medium-term margin drivers on Page 19 of the Investor Presentation I just referenced. Kristen Ankerbrandt, our CFO will discuss our financial results and expectations later in the call. But I want to share what we expect to deliver in 2022 first. We respect that all constituents will make their own assumptions about near-term market growth rates. But let me share with you what we are seeing from our unique vantage point, given the markets we serve and agents we have. While inventories are tight, demand has remained extremely strong into 2022 as evidenced by prices continuing to increase in 2022 above and beyond a year where home prices increased by 19%. We foresee strong market growth for the rest of this year. For perspective, even if prices are flat for the rest of the year, given that 19% home price improvement we saw in 2021 and the continued momentum we are continuing to see in 2022, there is a strong level of embedded growth for the rest of 2022. And actually, the supply-demand dynamics we see in the market every day suggest that prices will continue to increase even further in 2022. As we see the benefits of being prudent, the 2022 revenue expectations we provided today do assume some market growth moderation, but they also reflect the modeled impact of Compass market share gains due to three factors. One, the annualized impact of the 2021 agent recruits that have already joined Compass; two, strong visibility on new 2022 agent recruits; and three, a low-single digit increase in agent team productivity. In other words, we expect to continue to gain market share and significantly outperform the market regardless of how fast the market grows. We have a multi-year track record of rapidly gaining share by adding agents and increasing their productivity. Our market share was 1.1% three years ago, 4% in 2020, and 5.6% in 2021, that reflects an increase of 40% year-over-year and a 50% three-year CAGR. Despite our strong gains, our 5.6% market share remains relatively small and we model that it will grow meaningfully from here. In markets in which we have operated for more than five years, our market share averages over 20%, which shows what we can achieve. In summary, what we see in the market every day makes us optimistic about revenue growth, but we have cut certain assumptions to arrive at the 2022 revenue expectation we presented today. We are also committed to managing our business to achieve our 2022 and long-term EBITDA goals. Our splits are improving and by summer, our agents will be able to service the entire real estate transaction on the Compass platform, which drives agent productivity. As we turn our product development attention toward lowering the cost to serve our agents and integrating adjacent services to drive margin, we expect to get more leverage against our tech spending. We also have discretion to manage certain expenses going forward, and we'll do so. I want to get specific on our five agent-related KPIs that we focus on every day, which are also driving operating efficiency improvements in our key to driving toward our margin goals. These KPIs are: one, agent recruiting; two, agent retention; three, technology adoption; four, lowering our cost to serve; and five, growing our adjacent service businesses. So first, agent recruiting. We continue to be successful with recruiting agents. We grew the total number of agents from 7,400 in Q4 2018 by a multiple of 3.5 times to 26,300 in Q4 2021. We expect to add a similar number of agents in 2022 as we did in 2021. Higher productivity not splits is why new agents join Compass, and our splits are improving. In the fourth quarter of 2021, 62% of agents who came to Compass told us that they did so for a less favorable split than at their previous brokerage firm. In the fourth quarter of 2021, we recruited agents who reported historical annual revenue consistent with our prior record recruiting quarter in Q4 2019, but with 31% fewer incentives and 50 basis points better commission economics to Compass. The payback period on our average incentive contract is now less than 12 months. We also are winding down the use of equity to recruit agents. In January, for example, less than 9% of the agents we recruited received equity. 60% of commission revenue comes from principal agents that make more than $1 million a year at Compass compared to the national average of 14%, which is a key reason why our average splits are higher than some of the industry. We have demonstrated that our model can succeed at all market levels and we'll continue to shift our agent mix away from agents that command the highest splits. Given that the difference in split between the highest producing cohorts and lower producing ones can be as high as 900 basis points, we expect significant margin benefit to results as our agent mix normalizes to more closely resemble the industries. We improved commissions as a percentage of revenue by 130 basis points in 2021 versus 2020, and we model approximately 250 basis points of margin improvement by 2025 resulting from a combination of our agents' cohorts maturing and agent mix normalizing. Second, agent retention. Our strong technology platform, the strength of the Compass brand and the attraction of Compass referrals are near drivers of our ability to successfully recruit agents and our key to the industry-leading agent retention that we have. Our principal agent retention rates are consistently above 90% in an industry that averages 68% retention. And our retention rates have strengthened since the IPO. These retention rates stay strong over time, including well after our agents come off their initial contracts. In our three oldest markets of New York City, Washington DC, and Boston, the percentage of agents off their initial contracts are 77%, 83%, and 75% respectively. And the agent retention is 95%, 95%, and 93% respectively. I want to rearticulate that, in the case of, let's say, the 95% agent retention. The 5% that is reduced to get to 95% includes the burden of people that retire, people that are asked to leave, or people that move industries altogether, reflecting a very high integrity number. On to number three, technology adoption. A key area of focus for me in 2022 is agent technology adoption. Our technology is a key driver of agent productivity and is going to be the key driver of improvement and operating efficiency and margin in the future. By this summer, Compass agents won't have to leave the Compass platform or pay for third-party real estate software to complete a transaction. This stands in stark contrast to the industry where there are still a large number of third-party solutions and where tech adoption is low. In the 2021 study, covering 75% of our agent teams, we found that the top quartile of agents who use our technology platform the most generate 2.5 times more than those who use it the least. When you consider that most of an agent's day is in the field, it is impressive that the top 25% of our agent teams use our platform for 2 hours and 14 minutes per day, while multi-agent teams are using it for 4 hours and 3 minutes per day. This drives revenue, operational efficiency, and margin, which is why we want to drive further adoption of our platform. In 2022, we launched Compass Core, focused on coaching agents on how to grow their business with the Compass technology platform. In Q1, we've seen nearly 7,000 agents engaged in the program, and the feedback has been nothing short of outstanding. A primary example of how we connect our coaching investments with business outcomes for agents is the “Likely to Sell” AI tool, which is particularly important in this low inventory environment. The “Likely to Sell” tool uses advanced AI to evaluate attributes of the home, the market, and the owner to recommend the most likely to sell prospects from the agent's CRM. In 2021, $151 million of gross commission revenue was from listings that the “Likely to Sell” tool recommended to our agents before the listings were created. We expect this number to exceed $400 million in 2022. Fourth, lowering our cost to serve our agents. Now that we are close to being able to support the whole transaction on our platform. The next job on the technology and operational efficiency roadmap is to use our own technology platform to lower the cost to serve our agents, which will drive even more leverage from our tech spending. No one else in the industry is even trying to do this at scale. We look forward to the next few quarters this year when we can share with you metrics proving that using the technology ourselves to serve agents is lowering our cost to serve and increasing our services attach. And finally, number five, adjacent services. The winner in the space will be the company that can best monetize the real estate transaction. A clear path to achieve these results is to integrate adjacent services into the transaction flow. At $140 billion annually, the market opportunity in adjacent services is larger than the $100 billion in commissions generated in the whole industry each year. Agents play a key role in helping their clients navigate the adjacent services landscape. For example, the majority of mortgages in the U.S. result from an agent referral. To be clear, all of our adjacent revenue is still nascent and only 1% of 2021 revenue because we just began. Our Q4 annualized revenue run rate was $85 million, which has already helped our margins. But more importantly, our initial uptake rates are very promising. We have already seen strong attach rates for our Title & Escrow services. Its average for KVS Title business quickly grew from 19% in acquisition in Q1 2021 to 39% in Q4 2021. We now offer Title & Escrow in nine states and in Washington DC, up from just two at the start of 2021. We plan to grow our T&E business in our existing markets and plan to expand into additional markets in 2022. Also, in 2021, we launched our mortgage business with a joint venture in mortgage with guaranteed rates. I am happy to say that we underwrote our first mortgage in December in the Chicago market. We expect to offer mortgages in the majority of our markets by the end of 2022. In summary, we are committed to driving growth in revenue, EBITDA and cash flow by giving our agents the technology platform and tools they need to be more productive and to drive more profitable revenue for Compass. We have a significant technology advantage. It is also not lost on us that recent developments in the public and private capital markets, particularly with growth companies and real estate companies, should lead to less innovation capital for potential competitors and therefore widen our competitive moat.

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. 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 reached 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. 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 in 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. Our balance sheet is strong with $618 million in cash at the end of 2021 and an untapped $350 million revolver. If a downturn occurs at some point in the next five years, we believe we will benefit as strong agents look for a place to expand their business and other brokerages find it harder to compete. Turning to the fourth quarter of 2021, we generated revenue of $1.612 billion, growing 31% over the prior year and ahead of the midpoint of our guidance range. The two-year revenue CAGR comparing revenue in Q4 2019 to Q4 2021 was 56% and shows a return to a more normalized seasonality for the business in line with our expectations. Adjusted EBITDA for the quarter was a loss of $51 million ahead of our guidance of a loss of $55 million to $75 million. Commissions as a percentage of revenue improved by 130 basis points year-over-year. Transactions grew 20% in line with our expectations. Last year’s seasonality was skewed by COVID because the brief market pause in 2Q 2020 pushed transactions into the seasonally weaker fourth and first quarters, thus creating an abnormal comp for Q4 2021 that will continue into Q1 of ’22. Now let me turn to guidance. First and foremost, I want to reiterate Robert’s perspective that our expectations for ‘22 and beyond reflect our focus on improving profitability and free cash flow. As Robert mentioned earlier, while we operate in a cyclical industry, we expect to continue to gain market share regardless of market cycles. While we foresee strong market growth for the rest of 2022, this is a factor that we can't control. What we can control is market share and managing our spending and we are laser-focused on both. Now I will talk specifically about our ‘22 guidance and our longer-term guidance. First, I want to spend a moment on the outlook for industry growth and 2022 real estate experts have a wide range of estimates for annual growth in the residential real estate market, ranging from low-single digits to an excess of 20%. As Robert mentioned, demand is strong, but inventory is tight and that will likely slow the rate of growth in transactions in Q1 relative to last year. With limited inventory, there is strong upward pressure on price. For one to conclude that the market will decline, that would mean a significant decline in transactions to offset the aforementioned price increases, a scenario that we view to be highly unlikely. Also, keep in mind that we operate in the upper end of the market, a price point of $750,000 and $1,000 and higher. This segment of the market is less sensitive to interest rates and continues to see strong demand driving prices higher in the face of limited inventory. We believe that these higher prices will unlock inventory, but since we can't predict human behavior, including what the Fed will decide on interest rates, we see the benefits of taking a measured approach to our outlook at this time. Our current outlook for 2022 revenue is $7.9 billion to $8.1 billion, or 25% growth year-over-year. This is mostly driven by factors that we control and initiatives that we have executed consistently to date. These are the factors that drive our market share gains. We model that we could grow revenue in 2022 by 18% to 20% through market share gains in ‘21 and ’22, independent of growth in the real estate market. We have also assumed some market growth in our revenue outlook. The components of the market share drivers include the annualization of our 2021 cohort of agents that joined Compass last year, annual revenue from agents that will join Compass in 2022 and the productivity uplift for agents, all of which Robert already discussed. Now the best indicator of our ability to continue to gain share is our principal agent count, which we expect to increase by 2,600 to 2,800 principal agents on a net basis, in line with 2021 levels. Regardless of market conditions, we will achieve that objective. Robert referenced the investor presentation in his remarks, in particular, I refer you to Slides 3, 4, and 5 that demonstrate we are significantly growing transactions and GTV per agent as our agents outpace the average agents in the industry by 2.5 times to 3.5 times. For 2022, we expect adjusted EBITDA to be at least $40 million. EBITDA and free cash flow are our top financial priorities. To be 100% clear, while this EBITDA expectation reflects the benefits of improving economics with our agents and leverage against our tech spend going forward, we also have discretion to manage certain expenses, which we will do to deliver $40 million of EBITDA. That said, we see a number of scenarios in which this $40 million number could be higher. As 2022 unfolds, we believe we will have more insight into the direction of the market.

Turning to our first quarter '22 guidance. As you think about updating your models for the quarterly distribution of our '22 guidance, keep in mind that seasonality plays a big factor in our quarterly revenue. Q1 is always the weakest revenue quarter for the entire industry, as fewer homes are listed during the December holiday season. Q4 is higher than Q1, and Q2 and Q3 are the highest quarters. While the COVID pandemic altered the typical quarterly patterns in 2020 and 2021, the seasonality patterns are normalizing as we started to see in Q3 and Q4 of 2021. As a result, you should expect to see our Q1 revenue approximate between 16.25% and 16.75% of our full-year revenue. While Compass’ quarterly revenue distribution follows a pattern as reported through NAR, the percentage of Compass’ revenue in the first quarter averages 100 basis points to 200 basis points below the NAR sales volume in the last three years. The main reason is our revenue growth throughout the year as we continue to add agents to our platform. Now, this will soften some of the normal seasonality trends you typically see in the industry and has the effect of further reducing the first quarter revenue distribution for Compass compared to the industry. Please refer to Page 20 of our investor deck for more details. As for the quarterly distribution of our expenses, you should expect the commissions expense line to move closely in sync with the quarterly distribution of revenue. However, the other operating expense lines will trend sequentially upward throughout the year as the size and scale of our agent base and our service offerings grow. While you should expect to see operating leverage as our business gets more and more efficient, many of the expenses included within sales and marketing ops and support, R&D, and G&A do not move in line with the seasonal quarterly fluctuations of our revenue. You can see this sequential upward trend in 2021, and you should expect this to continue in 2022. We've included a table on Slide 31 of the investor deck that shows this quarterly trend of non-GAAP operating expenses during 2021 for quick reference. Based on this trend, you should expect to see our Q1 2022 non-GAAP operating expenses increase, albeit at a very modest level versus the prior sequential quarter of Q4 2021. Using the assumptions above, we expect an adjusted EBITDA loss in Q1 of '22 of $100 million to $110 million. This represents the return to normal seasonality in the real estate industry combined with strategic investments we made in 2021 to drive long-term profitability. These include continued investment in our platform, which drives Compass’ outperformance relative to the industry, launching high-margin adjacent services, expansion into 25 new MSA markets in 2021 and supporting 7,000 new agents and post-COVID hiring throughout the rest of the business. As promised at the Q2 2021 earnings call, we remain committed to adjusted EBITDA profitability for the year, with fiscal year '22 guidance of at least $40 million in EBITDA. We expect to see substantial positive EBITDA for the remainder of the year as seasonality returns to normal and investment is moderated. Based on our margin maturity curves, tech adoption trends, and splits, we are comfortable providing a view on long-term adjusted EBITDA and free cash flow margin targets. For 2025, we expect to grow adjusted EBITDA to a minimum of $1.2 billion for an adjusted EBITDA margin of at least 10% and to grow free cash flow margins to 8% to 9%. We have a comprehensive plan to achieve these margins by continuing to deliver improvements in our cost structure and operating leverage consistent with what we've already done. Page 19 of our investor deck shows an illustrative outline of our plan to achieve 10% EBITDA margins in 2025. While the exact path to 10% could vary somewhat from what we present here. We are confident that we can achieve our goal. I want to be clear that while we remain optimistic about our revenue growth prospects, we are also prepared to manage our expenses as necessary to deliver on our specific 2022 and 2025 EBITDA and cash flow goals. As you can see, the largest levers will be in commissions and other, sales and marketing and R&D. We expect to see 450 basis points of improvement in the commissions and other lines; 250 basis points of that 450 basis points will come from recruiting more up-and-coming agents and also improving agent economics, which we have done at a rate of 100 basis points per year historically. Another 200 basis points will come from growth in adjacent services. We expect 200 basis points of improvement will come into the sales and marketing line. This is a steep discount to the operating leverage we have seen in this line historically and reflects the recent strength we've seen in our recruiting efforts. In the fourth quarter, we had a record recruiting quarter paired with record low customer acquisition costs, a trend we expect to continue into 2022. And finally, we expect an additional 130 basis points will come in the R&D line, as we see more leverage going forward relative to the accelerated tech investment over the past three years. We are very pleased with the continued improvement in our financial profile since the IPO. We've grown the business ahead of our expectations and crossed the line to adjusted EBITDA profitability this year with a path to at least $40 million and adjusted EBITDA in 2022 and 10% adjusted EBITDA margins in 2025. We are committed to generating free cash flow in 2023 and beyond. We believe that our business is in the best position it has ever been. This is not just borne out by our strong execution over the past several quarters but also in the investment we've made to drive profitability in our business. Our economics are improving as we continue to attract and retain top agents, launch new markets and capture market share. Our adjacent services businesses are nascent but present a significant opportunity to drive profitability per transaction. We are a long-term market share gainer because we have the leading platform in the industry, harnessing the power of the most productive agents at scale to drive a sustainable financial advantage. Most importantly, we have the commitment and the conviction to achieve our 2025 EBITDA and free cash flow targets.

Thank you very much, and thank you, Brent. We'll go first to Mike Ng with Goldman Sachs.

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.

Yeah. So there are 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 respective cohort over the last weak cohorts. And then secondly, we are not only hiring agents that command more attractive splits, which you can see in Page 12 each year, but we are hiring an agent mix that reflects the mix of the industry, not just a very aggressive focus on higher agents, and then you have massive margin improvement.

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.

Hi, Mike. It's Kristen. I'll take that one. So we were obviously very excited to bring KVS onto our platform in the first quarter of 2021. It was a service that our agents already really loved and were 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 in enjoying some of the referral benefits of our agents in that market, talking about KVS, and talking about the quality of the service. 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 the team at KVS, they are 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.

The only thing that I would add to that is that the success we have realized to date largely 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% 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 initiatives 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.

Great. Thank you very much. Those are very helpful.

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

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?

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 we consistently gain market share across our markets. 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 of the suburbs? I think the goal of that disclosure today is to help highlight how we are gaining market share in the market after market, whether it's a high price point market or a sub-$300,000 ASP market like Philadelphia or a big city or a small suburb. We feel really good about where we are, and I think the only other point that I mentioned is we launched more markets last year than we had in our original IPO model. And so we're seeing not just more success on market share by market, but also more markets launched.

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?

I will provide an update on our timeline, and then Kristen can cover the M&A aspect. Initially, during the IPO, we announced plans to launch mortgage services in 2022. We have expedited this launch in one market, which we are pleased about. By the end of this year, we expect to have mortgage services available in most of our markets. We are also considering launching another significant adjacent service this year, although we have not yet committed to it. Our primary focus is on Title and mortgage, but we are exploring other strong opportunities as well.

All right. And I think as we look ahead in terms of the full scope of adjacent services, where we could expand our business Title & Escrow and mortgage are our largest opportunities, and Title & Escrow is 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. Title & Escrow, we have done a dual-pronged strategy where we have pursued 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 utilize the strategy that we think is best suited to that particular service. 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.

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

Thank you.

Thank you. We will go next out to Brian Nowak at Morgan Stanley.

Thank you for 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 an example of one or two areas where you really see a lot of learning to improve execution? Maybe it's agent attach, maybe it's agent interaction. 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?

There is a lot of opportunities, 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 around 200 of those roles we can automate it almost completely and allow them to do more high-value work. And for the other roles, the 500 roles, we believe that we can do by integrating the transaction management, all the forms, disclosures, the eSignature, everything in one place with compliance for the client and for the agent and Compass. They don't have to go to multiple places to process the payment; then they can go to one, which should make them more than twice as productive over the course of the next year. 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 drive employee happiness because it will be simpler for them. We have launched a service called contract to close that takes some of the transaction process responsibilities off the agents, with them covering the cost. Three years ago, this was merely a call center, but now it generates revenue. We believe that in the coming years, we can achieve significantly faster revenue growth from the adoption of contract to close nationwide, which will offset increased expenses and turn this entire operation into a profit center.

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

Thanks. For the 2025 guidance, could you provide insight into the range of attach rates you might be considering for adjacency? If you could break it down by product, that would be helpful to understand what attach rate is necessary to meet that target. Additionally, we've received several questions regarding your balance sheet, which shows over $600 million in cash. You are anticipating significantly improved cash flow in the next 12 to 18 months. Considering there were some acquisitions this year, how should investors view your plans for capital deployment? Are there any earn-outs or commitments you need to fulfill in the coming years that impact your cash position, especially since many investors are suggesting a buyback? Please clarify your approach to cash deployment over the next 18 to 24 months. Thank you.

Hey, Jason. Nice to talk to you. In terms of the attach rates, when we look at the 200 basis points or so that we expect margin improvement, we think that is achievable with the attach rates in the 12% to 15% range, and that would be of addressable transactions. 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. Now, it's important to note here that the bulk of this is 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 plot, but we also, as Robert alluded to earlier, expect to be able to launch some additional adjacent services, and those attach rates will likely be below what I talked about being achievable for Title & Escrow in order to deliver this kind of margin improvement. 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 translate that to Title & Escrow shortly. We'll be able to give you more data on mortgage. And we think we'll be able to do that across a number of adjacent services. Now in terms of capital deployment going forward, if you look at where we have deployed our cash in the past. We of course have ongoing CapEx that's related to our market expansions. We did a lot of market expansion in 2021, 25 MSAs. We think going forward, 2022 and beyond, we'll return to a more normalized level of eight to 10 MSA markets per year. So you should see that portion of the cash outflow come down slightly. We do utilize M&A from time to time, and that's been a real focus in our Title & Escrow strategy, of course. As of late, we'll continue to look for opportunities there where it makes sense, and we remain very disciplined on price when it comes to M&A. But for us, we see an opportunity to take what can be a solid business and turn it into a great business based on our ability to drive outsized attach with our agents. I know you had a question specifically around ongoing earn-out commitments related to M&A, and the total amount outstanding today is probably less than $15 million over the course of the next several years. So hopefully that helps to dimensionalize that a bit for you.

Thank you.

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

Great. Thanks. Robert, I think you noted that by summertime 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 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?

I believe we will begin to see progress this year, starting as early as summer. There are a few factors to consider, but we will definitely start making strides at some point this year. It's crucial to emphasize that the agent productivity platform is primarily aimed at enhancing the agent's experience rather than solely focused on reducing service costs. Last year, we dedicated over 95% of our efforts to that aspect. The key remaining tasks include transaction management, finalizing the complete transaction flow on the Compass platform, adding some features related to team functionality, and making improvements to search capabilities in select markets. I would estimate that in the first half of this year, about 80% of our focus will be on completing the platform, and the remaining 20% will be on primarily reducing service costs and expanding into adjacent service platforms. Our objective for next year, if we achieve the success we anticipate this year, will be to have half of our efforts dedicated to lowering service costs and expanding service offerings. As mentioned earlier, this cost-reduction initiative is referred to as the service desk, which also aims to enhance agent outcomes by providing essential agent services—such as payment processing, listing marketing, and brand marketing—through the platform instead of relying on traditional one-on-one methods that are more burdensome.

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

We haven't changed our monetization philosophy around Concierge yet, but it's something we continue to evaluate as there are several vendors who would be willing to provide compensation for participation in the program, although that hasn’t been our primary focus.

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

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’s an easy way to boost the overall Compass kind of profile?

Absolutely. This has been my main focus this year, and it’s a top priority for the company. We've invested hundreds of millions of dollars in research and development to create a platform that enhances agent productivity, but it's essential to get lenders and everyone else to adopt it. If you look at companies like Salesforce, they have numerous implementation partners that help drive adoption, and we recognize the significance of this—not just for a CRM, which only represents 15% of our overall platform. To facilitate this, we are collaborating with some of the best real estate coaches in the country, such as Brian Buffini, Tom Ferry, and Steve Shull, among others. Additionally, we are initiating internal coaching through our sales managers who have decades of experience mentoring agents. We’re guiding agents on how to use the platform effectively. Instead of recommending vague goals like making a certain number of calls or emails each day, we suggest using the Compass platform to identify likely sellers and then engaging with them through bulk emails. Agents can also create a 12-month action plan within Compass detailing what steps to take each month regarding their service plans. This approach has been very successful and has likely driven the highest net promoter score we have ever seen in the company's history, aligning our real estate business with future technology seamlessly. On the other hand, similar to the genius bar at Apple, we have a dedicated team of agent experience managers who assist with onboarding, retraining, and educating agents on these tools. They are going above and beyond during this unique period, especially in January and February, when the market is slower, giving agents the opportunity to learn and adopt these crucial behavior changes. Thank you.

Thank you. 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.

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.

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. Goodbye.