Ladies and gentlemen, thank you for standing by. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Compass Incorporated Q2 2024 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. Thank you. I would now like to turn our call over to Richard Simonelli, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone, and thank you for joining the Compass second quarter earnings call. Joining us today will be Robert Reffkin, our Founder and Chief Executive Officer; and Kalani Reelitz, our Chief Financial Officer. Discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our second quarter 2024 earnings release, which we posted on our Investor Relations site earlier today. We will be making forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. These statements include our guidance for the third quarter of 2024 and full year 2024, including comments related to our operating expenses and free cash flow as well as our expectations for operational achievements. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties, and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC also available on our Investor Relations website. You should not place undue reliance on any forward-looking statements, and all information in this presentation today is as of today, July 31. We expressly disclaim any obligation to update this information. I'll now turn the call over to Robert Reffkin. Robert?

Thank you for joining us today for our second quarter 2024 results conference call. Today, I will discuss our second quarter results, our 30-30 vision to strengthen our structural advantages, an update on the impact of the NAR settlement, and finally, I will discuss our continued commitment to reduce stock-based compensation and equity dilution. So let's start with our second quarter results. I'm pleased to say that we have the best performance we have ever had as a company. We achieved our all-time high GAAP net income of positive $20.7 million. This compares to a net loss of $47.8 million a year ago. We generated our all-time high adjusted EBITDA of $77.4 million, which is more than double adjusted EBITDA in Q2 2023. For the second quarter in a row and for four of the last five quarters, Compass generated positive free cash flow. We generated $40.4 million in free cash flow, which includes the impact of the $28.8 million antitrust litigation settlement payment, so $69.2 million excluding the cost of the settlement. We grew revenue significantly. In Q2 2024, we generated $1.7 billion in revenue, an increase of 14% year-over-year, 9% of which was organic growth. Transactions increased by 11.4% from a year ago as transactions in the overall market declined by 3.3% during the same period. So, Compass transactions increased 14.7%, more than the market. As additional color, 7% of our transactions that closed in the quarter were likely to sell AI recommendations from the Compass CRM from the prior 12 months. As a reminder, these leads historically convert to listings at an 8% rate, more than the typical lead generation sources. We grew market share significantly. In Q2 2024, our quarterly market share was 5.13%, an increase of 50 basis points year-over-year and 37 basis points on a sequential basis compared to Q1 2024. We reduced our OpEx in the second quarter to $217.4 million, an improvement of $20.9 million from Q2 2023 OpEx of $238.3 million, reducing our OpEx with platform investments. An example of this was our transaction operations team. We were able to reduce the cost of this team by 22% in 2023 compared to 2022, thanks to the Compass platform tools we developed to process transactions. From the first half of 2024, we are down 14% compared to the first half of 2023. We grew our cash balance and our balance sheet is strong. We ended Q2 2024 with $185.8 million in cash and cash equivalents and no outstanding draws on our $350 million revolving credit facility. Our cash balance increased from last quarter and from the prior year-end, despite the $28 million antitrust litigation settlement payments and the cash used in acquisitions of Latter & Blum and Parks Real Estate. We continue to seek accretive strategic acquisitions, as inbound interest from brokerages continues to be robust. In the second quarter of 2024, we closed two transactions, which added over 2,000 principal agents. We further increased our presence in the Southeast, with the acquisition of Latter & Blum, the number one agency in Louisiana with nearly 15% market share in New Orleans. In Tennessee, we acquired Parks Real Estate. When combined with our existing operations in Tennessee, we now command over 20% market share in Nashville and are the number one agency in Tennessee. We also continue to hire principal agents organically, hiring 543 principal agents organically in the quarter. At the end of Q2 2024, the number of principal agents at Compass was 16,997 compared to 13,698 in Q2 2023, an increase of 24% year-over-year. We also continued the trend of strong agent retention with 97.3% quarterly principal agent retention in Q2 2024. Our title and escrow business continues to strengthen. We finished Q2 with our highest ever attach rates. Moreover, since January of 2024, we improved our attach rate by six percentage points. Additionally, we have integrated six of our seven key title and escrow partners into our Compass platform and will have all seven partners integrated into the platform by the end of Q3. And finally, over the next 18 months, we are focused on launching title operations across all of our most mature transaction-rich markets including the San Francisco Bay Area, New York City, Seattle, Houston, Boston, Chicago, and Austin. I now want to talk about our vision for the future, which we are calling our 30-30 vision. Our goal is to achieve an average market share of 30% in our top 30 cities by 2026. Our 30-30 vision unlocks our complementary and compounding inventory-based structural advantages that make us a compelling company for agents, homebuyers, home sellers, employees, and investors. We are the only brokerage firm that has combined these advantages into one cohesive offering that rests on our technology platform. Most importantly, we believe our structural advantages result in clear financial advantages. Today, I'd like to share with you the sources of our structural advantages, the impact of our structural advantage to date, and what we are doing to strengthen our structural advantages going forward. The sources of our structural advantages come from the following four attributes. There is no other brokerage firm that has the combination of these attributes and few brokerages have even one. Our first structural advantage is the integrated nature of our end-to-end platform. The Compass platform is unrivaled in its ability to drive agent productivity and brokerage company operating efficiencies. We offer the only contact-to-close platform, where an agent can go from first contact with a new client to closing and commission collection all in one place, and where employees can execute key functions like transaction management support, marketing support, and title and escrow support for the agents; all through the same platform that the agent is using. Our second structural advantage is our national scale. With over 33,000 agents across the United States, we are able to build upon our technology differentiation and continue to invest by amortizing the cost of our investments over more agents. This is something that smaller brokerages are unable to do. Our third structural advantage is our top agent network. According to Real Trends, more top agents work at Compass than any other brokerage firm. In fact, Compass has 50% more top agents than the next largest brokerage firms, according to Real Trends. We have the best agent-to-agent client referral network in the country, and Compass' find an agent tool helps drive agent-to-agent client referrals. Our average agent derives 17.5% of their business from agent referrals. Referrals not only result in more revenue for Compass, but they also act as a recruiting and retention flywheel. Our fourth structural advantage is our depth and breadth of inventory. At Compass, we take advantage of our inventory position to create better financial outcomes for sellers and therefore for agents and consequently for Compass. The foundation of every entity's success in real estate is access to inventory. The source of success for all players in the industry—whether they are MLSs, aggregators, buyer agents, or listing agents—is access to inventory. Without inventory, agents have nothing to help their clients sell or buy, and the MLS and aggregators have nothing to list. Listing data is valuable and belongs to our listing agents. We believe that in any market where Compass has the number one market share, we have a clear path over the near term to have more publicly searchable listings than any other public sites, which will signal to the consumer that they need to search on Compass.com. The combined effect of each of our four structural advantages is bigger than the sum of the parts. All Compass constituents, including agents, sellers, buyers, and Compass itself, can reap the powerful benefits from this combination of attributes. For agents, that means helping them generate more revenue in less time with lower third-party costs to operate their business. For sellers, it means selling their homes for more money and in less time with lower costs to market or prepare their house for sale. For buyers, it means helping them access the most inventory to find the best house for them at the best price in the least amount of time. For Compass, it means growing integrated revenue while creating a lower cost to agents than any traditional brokerage firm. We have three key initiatives to strengthen our structural advantages, and we expect them to drive search traffic, leads, agent recruiting, agent retention, gross margin improvement, and market share gains. The first initiative is to create the largest inventory of homes for sale in the country. As previously mentioned, our 30-30 vision is to achieve an average market share of 30% in our top 30 cities by 2026. We plan to add, on top of our active inventory, a larger pool of passive inventory. Think of passive inventory as homeowners who have a price in mind that they would accept for their home but haven't listed it in the open market. Agents may know these prices for some of their clients, but the challenge is that information doesn't live in one central place for the entire agent network to access. However, since Compass is the only platform that combines where agents search listings and their CRM contacts in the same place, we have the unique ability to add aspirational 'make me move' prices to the almost 100 million contacts that currently reside in the Compass CRM. With only one million single-family homes on the market today, I expect that in 2025 Compass will have a combined off-MLS and 'make me move' inventory that is many times more than a publicly searchable active market. This will further make clear to buyers that they need to work with a Compass agent to see the market. As of this week, our agents are able to add 'make me move' prices to their clients in their Compass CRM. The second initiative is to make Compass the required destination for real estate. Our goal is to make it clear that Compass agents and Compass.com have more inventory than third-party sites, sending a strong signal to buyers that if they aren't working with Compass agents and aren't searching Compass, they're not seeing all the inventory. With more web traffic comes more leads, which we can send to our agents to increase transactions that result from leads given to our agents at approximately a 50% margin. Our third initiative is to launch the Compass Client dashboard. Only Compass can provide a true integrated experience for agents and clients because only Compass offers all the products and features agents and clients need in one platform. Launching in six months, the client dashboard will put all the key agent-to-client interactions in one place, including agent-client communication, transaction timeline, tax documentation, CMA, valuations, listing marketing, listing insights, buyer search results, offers and negotiations, buyer tours, open house feedback, title and escrow, and more. Over time, we plan to incorporate key service provider interactions into the client dashboard as well, such as loan officers, home inspectors, home appraisers, photographers, videographers, home insurance, and home security providers, as well as ongoing home improvement vendors. With these three initiatives, I expect Compass to be in a place where any agent is at an undeniable advantage by being a Compass agent and any homebuyer or home seller is at an undeniable advantage by being a Compass client, all within 2025. Ultimately, these structural advantages drive our KPIs, cash flow generation, and shareholder value creation. Moving on to the NAR settlement. Compass entered into a nationwide settlement agreement covering all of the sell-side insurance claims against us, and that settlement has been preliminarily approved by the court. We expect final approval of our settlement in late October 2024. It has been 4.5 months since the announcement of the NAR settlement, and we have not seen a noticeable change from before the settlements in either the percentage of sellers that offer a buyers' agent commission or in the average commission amount they are paying buyer's agents. To be clear, the fears many had about commission rates going down or buyer compensation disappearing have simply not materialized. Over the months of May and June in the markets generating the majority of our revenue, more than 99% of the new listings on the MLS—including Compass listings—included offers to pay the buyer agents. Furthermore, about 96% of new listings on the MLS during that time period included offers to pay 2% or more, and more than 80% are offering to pay 2.5% or more. We do not expect the actual rule change requiring a buyer representation agreement on August 17 to impact the commission to buyer agents for three reasons. First, as seen from the data after the unprecedented press attacking agent commissions, which we saw as the biggest risk and the subsequent unprecedented questions from sellers about whether or not they should pay buyer commissions, the data clearly shows that sellers continue to value incentivizing the buyer agents. Second, after August 17, the seller will continue to determine the buyer agent commission, and we don't believe the seller will be influenced by the Buyer's Representation Agreement since the buyer agreement is shared only with the buyer. Third, Buyer Representation Agreements have already been required in half the states where Compass operates, and we have not seen them impact commissions, and this has been the case for many years prior to the NAR settlement. Now on to stock-based compensation. Over the last two years, we have developed the muscle to bring down annualized operating expenses by close to $600 million while still growing our business. As we move forward, we continue to identify opportunities to create shareholder value. We fully recognize that OpEx is not the only cost we have in our control. Over the past few years, we have significantly reduced the annual dollar amount of stock-based compensation with six straight quarters of decreases. Importantly, our stock-based compensation expense is expected to be about $130 million for 2024, which is over $100 million less, or 44% less than the $234 million we reported just two years ago in 2022. Our stock-based comp expense in Q2 was the lowest in our history as a public company. I am committed to reducing dilution from stock-based comp and increasing free cash flow per share. Kalani will provide more detail on what we have done to date and what we plan to do in his prepared remarks. In closing, we see the industry consolidating around the winners. Compass is the number one brokerage for three consecutive years. We are delivering excellent financial results, and we have a strong balance sheet given the fiscal responsibility we have exhibited by moving to being free cash flow positive, with no draw on our credit facility, no convertible debt, and ample liquidity through our revolver. I want to thank the entire Compass team of employees and agents for their commitment to making Compass successful with their incredible dedication and determination. I will now pass it over to Kalani.

Thank you, Robert. Before I go into the details of our Q2 performance, I wanted to start my prepared remarks by acknowledging and thanking our Head of IR, Richard Simonelli. As many of you know, Rich is moving on from Compass, but leaves Compass in a much better place than when we started. Rich is a consummate professional and has helped Robert and me tell the Compass story through some of the most exciting and turbulent times in the company's history. Rich, thank you personally, and from all of us at the Compass team, thank you for all the great work you've done. Now, before I get into the results for the quarter, I want to add to Robert's comments about achieving a 30% market share in the top 30 cities. Let me share how we're going to get there. It will be through a mix of organic growth and accretive M&A. We believe many of the 1.4 million prospective agents can grow their business and improve their quality of life by joining Compass. Compass gives agents a comprehensive offering of technology, people, and a network that no one else has. This is why the pace of brokerage firms seeking to join Compass has increased during the downturn. We have capitalized on this by making strategic, accretive acquisitions. We are being very selective. We're interested in and talking to premium, blue-chip, local, and regional brokerages. However, the financials have to make sense. These acquisitions become more attractive when we build in the benefits of synergies, including lowering the overall operating costs for our agents by leveraging the Compass platform, including our technology, real estate footprint, and back-office processes that already exist. In 2023, we added three brokerages in Arizona, California, and Texas. And in 2024, we added two brokerages in Louisiana and Tennessee. Now, let me provide you with some detail on our operations for the quarter. In the second quarter, we processed 60,390 transactions, an increase of 11.4% from a year ago, which compares very favorably to the 3.3% decline in transactions for the entire residential real estate market in the second quarter as reported by the National Association of Realtors. Our market share for Q2 2024 was 5.13%, up 50 basis points year-over-year and up 37 basis points sequentially from Q1 of 2024. As of June 30, 2024, we had 16,997 principal agents compared to 13,698 as of June 30, 2023; an increase of 3,299 year-over-year or 24%. This increase was driven by 2,375 principal agents that we acquired through the Latter & Blum acquisition in Louisiana and the Parks Real Estate acquisition in Tennessee. Additionally, on an organic basis, our team recruited 543 principal agents in the second quarter, which was a strong recruiting quarter for us. Our quarterly retention in the second quarter was 97.3%. Turning to our financial results for the quarter. Our second quarter revenue was $1.7 billion, an increase of 14% from the year-ago period, which was at the high end of our guidance range of $1.6 billion to $1.7 billion. Gross transaction value was $65 billion in the second quarter, an increase of 14% from a year ago, reflecting the 11% increase in total transactions combined with an increase in average selling price. Our commission expense as a percent of revenue was 82.6%, an increase of 70 basis points from Q2 of last year. While we continue to see long-term structural tailwinds related to Compass' expense, commission expense in the quarter about two-thirds of the increase in commission expense as a percent of revenue is attributable to changes in geo mix in the markets in which we operate and from brokerage acquisitions we closed since the year-ago period that were made in markets with lower average splits than our overall brokerage rate. Our total non-GAAP operating expenses, excluding commission and other related expenses, were $217 million for the second quarter. This reflects a reduction in expenses of $21 million or 9% from Q2 a year ago. Even after considering the added expenses we assumed related to each of the two brokerage acquisitions we completed in Q3 of 2023 and the Florida Title acquisition this past January and two brokerage acquisitions we closed this past quarter. As a reminder, the non-GAAP operating expenses we refer to exclude expenses that we removed from the calculation of adjusted EBITDA, including stock-based compensation and depreciation and amortization. We have included tables on Pages 12 and 13 in our Q2 investor deck that reconcile these amounts to our GAAP operating expense. Our adjusted EBITDA for the second quarter was $77 million, which was slightly better than the high end of our guidance range of $55 million to $75 million. This adjusted EBITDA level reflects an improvement of 157% over the year-ago results and importantly, it reflects a new company record as the highest level of adjusted EBITDA we reported as a company. In addition to a new all-time record of adjusted EBITDA, we also achieved a new record in terms of GAAP net income. During the second quarter, our GAAP net income was $20.7 million, marking the first time in the company's history that we are reporting a quarter with positive GAAP earnings. This is an incredible milestone for us as it validates that at the right levels of operating expenses, the financial model works. It's important to note that the achievement of positive GAAP net income was made possible by our relentless focus on reducing operating expenses, but also aided by the reduction in some of the expense lines traditionally excluded from the calculation of adjusted EBITDA. Most notably, stock-based compensation expense was $31 million during the second quarter, which reflects a reduction of 21% from a year ago and is the lowest level of stock-based compensation expense that we reported as a public company. As Robert mentioned, we are always focused on creating value for our shareholders. We have focused on bringing down stock-based compensation with the same approach and discipline that allowed us to successfully reduce our operating expenses by nearly $600 million. It's important to highlight that we've already accomplished several action items over the last 18 months to manage stock compensation. First, we sunset our agent equity program in December of 2022, which allowed agents to convert a portion of their cash commission into Compass equity. Second, we eliminated the use of equity as an incentive to recruit agents in Q3 of 2022, around the same time that we eliminated the use of cash as a sign-on recruiting incentives for agents. Third, we significantly reduced the workforce over several reductions in force during 2022 and 2023, including a reduction in the size of our product and engineering team, which consumes the largest portion of our employee-based equity grants. Fourth, we've shifted a considerable amount of labor to low-cost offshore markets through the use of contractors. In addition to this helping to reduce cash expenses, we also reduce the use of equity as we don't issue equity to contractors. These measures have resulted in a significant reduction in our stock-based compensation expense. In 2022, our stock-based compensation expense was $234 million. In 2023, our stock-based compensation reduced by $76 million or 32% to $158 million and we expect our stock-based compensation will reduce to approximately $130 million for the full year of 2024. This reflects a reduction of 44% or over $100 million from the first two years since 2022. Going forward, we will continue to offshore work through our low-cost labor efforts where OpEx is reduced and equity compensation is not utilized. Also, stock compensation will gradually reduce as the higher-priced shares issued at the time of our IPO will vest over the next one to two years since the stock-based compensation expense is determined based on the share price at the time of grant. In addition to the reduction in stock-based compensation expense, we are focused on minimizing dilution in other ways as well. One example of this is the way we net settle employee RSUs when they vest. Through this net settlement, Compass pays the cash for employees' payroll withholding taxes and withholds an equal amount of shares at the time of vesting. This share holdback from taxes reduces dilution from stock compensation by about 40% and effectively operates like a regular share buyback program during the year. Further, any issuance of equity for M&A going forward will continue to be made through a strict framework that applies to accretive deals at favorable multiples that grow revenue and EBITDA and ultimately shareholder value. While we believe stock-based compensation is an important tool to align the actions of our team members with the outcomes of Compass, we also understand it represents a real cost. In the exact same way we delivered operating expense reductions, Robert, myself, and our full management team are focused on action plans to continue to bring down stock-based compensation. As the housing market recovers and revenue growth occurs, we do not believe there is a need to materially increase the absolute dollar amount of stock-based compensation in the future. As we have done with our OpEx efforts, we look forward to showing progress on this commitment in upcoming earnings calls. Turning back to our financial results. Free cash flow during the second quarter was positive $40.4 million. As previously disclosed, the first payment of our class action legal settlement was made in the second quarter, which reduced cash flow in the quarter by $29 million. Excluding the effect of that payment, free cash flow would have been $69 million, which would have meant an improvement of 36% over the free cash flow of $51 million in Q2 of last year. As a reminder, and consistent with my comments from last year, it's important to note that our positive cash flow in the first half of 2024 is partially due to a couple of timing items that will have offsetting effects later in the year. First, many of the fees billed to our agents occur at the beginning of the calendar year. So, our cash flow in the early part of the year is aided by the timing of when the fees are paid and they will have an offsetting effect later in the year. Second, we tend to see seasonal impacts to working capital that are favorable in the first two quarters of the year when cash collections from our brokerage commissions are higher at the end of each of these quarters compared to the beginning of these quarters. The opposite is generally true in Q3 and especially in Q4 when seasonality impacts working capital negatively. These timing items should be neutral for the full year but can create choppiness for individual quarters within the year. We expect to be free cash flow positive for the full year even after considering the $29 million legal settlement payment made in Q2. However, we expect that free cash flow will be only slightly positive in Q3 and free cash flow will be negative in Q4. We ended the second quarter with $186 million of cash and cash equivalents on our balance sheet and we have no outstanding draws on our revolving line of credit. We believe we are well-positioned to react to continued market challenges. Now turning to our financial guidance. For Q3 of 2024, we expect revenue in the range of $1.425 billion to $1.525 billion and we expect adjusted EBITDA to be in the range of $30 million to $50 million. The midpoint of each of these revenue and adjusted EBITDA ranges reflect increases of 10% and 83%, respectively, compared to Q3 last year. Let me provide a few additional data points as it relates to financial modeling you may be doing for the second half of 2024. First, consider our commissions as a percent of revenue for Q2 was 82.6%. We would expect this margin to remain around this level for the balance of the year, which reflects the integration of our recent M&A transactions that have commission rates that are higher than our overall brokerage. Second, as it relates to OpEx, we have updated our OpEx range for the year 2024 of $876 million to $896 million. As we laid out last quarter, this range starts with our core company OpEx of $850 million and adds in $15 million for 2023 M&A OpEx, $12 million of OpEx for the Latter & Blum acquisition that closed in April, and an additional $9 million for the balance of 2024 from the Parks entities that we just acquired in May. For modeling purposes, you should expect an additional sequential increase to OpEx in Q3 and Q4 as the partial quarter impact of our Q2 acquisition of Latter & Blum and Parks contribute to a full quarter's worth of OpEx in Q3 and Q4. Finally, as I stated earlier, we are reiterating our expectation to be free cash flow positive for the full year. However, on a quarterly basis, we expect free cash flow to be marginally positive in Q3 and negative in Q4, given the seasonality of our business. As I wrap up my prepared remarks, I'd just like to recap some of the highlights that made the second quarter such a standout. First, we grew revenue by 14% versus a year ago with market share increasing 50 basis points to over 5%. We delivered an 11% increase in transaction volume from a year ago compared to a 3% decline in transaction volume for the overall industry. The number of our principal agents increased by 24% versus a year ago, an increase of nearly 3,300 principal agents. We achieved an additional OpEx reduction of $21 million versus Q2 of last year, or $83.6 million on an annualized basis, even after considering the additional OpEx assumed for recent acquisitions. We delivered a new record level of adjusted EBITDA of $77 million despite revenue being down by $250 million compared to Q2 of 2021, which was a quarter of our prior adjusted EBITDA record. We completed two M&A transactions through which we became the number one brokerage by sales volume in the Nashville and New Orleans markets. We produced over $40 million of free cash flow and increased our cash position despite paying out over $28 million in legal settlements. Finally, we reported GAAP net income of $21 million, which marks the first time as a public company that we've ever reported positive GAAP net income. Results like these don't happen without the incredibly hard work and dedication of our team members, and I'd like to thank our agents and employees for all that you do for Compass. I would now like to turn the call over to the operator to begin Q&A.

Thank you. We'll pause for just a moment to compile the Q&A roster. Our first question for today comes from Matthew Bouley with Barclays. Your line is live.

Good afternoon, everyone. Thank you for taking the questions. I'll ask around the 30-30 strategy, understanding the wide array of competitive advantages that you have supporting recruiting and retention. The question is kind of mechanically speaking, getting to a 30% share in your top 30 markets. I know you mentioned it would be a combination of organic and M&A. So from a starting point, I guess, where are you today in those markets? And is there a clear pipeline around M&A to get you there? Or should we think returning to a few years ago that there could be some kind of uptick in competition to kind of go after some of the agents you may need around that organic share gain piece? Thank you.

On the organic side, we don't expect to be going back to the old days of cash incentives and equity incentives. That's not needed given the strength of the platform. We are seeing an increased interest in coming to Compass. I think historically, there has been a desire for agents to be part of small boutiques. I think when the NAR settlement has helped accelerate is the understanding of the benefits of being part of a bigger company. And not just agents are seeing that; brokerage CEOs are seeing that as well. So yes, it will be a mix of organic and brokerage M&A, and the M&A, as Kalani said, will be managed through a very disciplined framework to ensure that it's always accretive on an EBITDA multiple basis before the benefit of cost synergies. So it can be even more accretive when you include the cost synergies.

Thank you for addressing that; it’s very helpful. Moving on to the market, interest rates have decreased slightly. While looking at some high-level data from the Mortgage Bankers Association, it seems that we haven't yet fully seen the impact of this rate change. What are you observing regarding the return of inventory to the market? I'm also interested in the NAR settlement; you've provided great insights into its effects on commission rates, but is it causing any uncertainty that might delay transactions? I’d like to hear your overall perspective on the market and how the settlement might be influencing it. Thanks.

So, let's do the latter first; it's a little more straightforward. The NAR settlement has not impacted from anything I've seen buyer or seller desire to transact. It has impacted certain agents' desire to be in the business. And those aren't really Compass agents. But I think newer agents, people that don't have as much experience and that haven't really been committed or that were going to start joining the industry may decide not to because of the headlines, but it's not impacting transactions. It's just impacting certain agents and their desire or fear around the industry. But the fear for agents who are actually in the business and are professionals, I would tell you when I go around to the different offices—I travel regularly to offices across the country—there are more agents that think that this will help their business than hurt their business. When I say business, I mean revenue, their money. In the beginning, people were concerned, but now that people are actually practicing and out there with Buyer's Representation Agreements, remember some of the MLSs have already made the Buyer's Representation Agreements; they amended them earlier. Not everyone is waiting until August 17. So there are data points that are out there. In terms of what's happened in the overall real estate market, look it has been somewhat of a confusing market. However, I'm modestly optimistic about the fall. This last quarter, we saw existing home sale seasonally adjusted annual rate home sales average of 4.05 million. That compares to 4.09 million for the full year last year. So what that means is this last quarter was actually worse seasonally adjusted than all of last year. And last year we know it was the lowest level of transactions since 1995, 28 years ago. The population now is more than 20% larger than it was back then. So clearly the market is depressed, but it's also on the upside creating pent-up demand. There is—the must move market has been moving, which we kind of believe is around 4 million. But the want to move market has been continuing to build up demand. I think what happened in Q2 was down 3% year-over-year. I think it's all around mortgage rates. The consumer, buyers, they react more to the change in mortgage rates than the absolute mortgage rates itself. And so the mortgage rate last fall went up 100 basis points, and that's why it stopped the market; it went from 7% to 8%. The more we saw this last quarter or in the spring, we started off with a boom because that mortgage started up at 6% now but then it went up to 7.5%. So it went up 100 basis points. And again, it's not just the absolute rate; it's the change in the rate. What we just saw in June, the data came out today indicating that pending transactions were actually up 3.5% year-over-year. So we're actually seeing June as a reversal of trend, which makes it a more real-time basis. And that makes sense because June versus April, mortgages went down from 7.5% back to 7%. Now because of what's happening in the broader market, mortgage rates just hit 6.7%. And so what will the fall look like? I continue to believe it's more about what's going to happen in mortgage rates. If you believe that this fall will have a lowering of the fed funds rate, then in a subsequent lowering of mortgage rates going not just to 6.7% where they're right now, but below 6.5% anywhere in this kind of 6.7% to below range, I think we're going to see an increase year-over-year, particularly given that last year was defined by mortgage rates from 7% going to 8%—the highest mortgage rates that we've had in over 20 years. In terms of inventory, yes, we have single-family inventories up 40% year-over-year. Total inventory is up 23%. That sounds optimistic. But still relative to 2019, it's still 3% less. And last thing to note, I'd say prices are up 3.5%. So when I say it's confusing, we have more inventories so more sellers, which is great, but almost every week this year, inventory has grown. And so it's good because you can't buy what you can't sell. And so it's good that we have more inventory going into this fall. But it's also confusing, because the existing home sales numbers have been so low in the last couple of months. The fact that prices are still up 3.5% is an indication that there are more buyers than sellers. If it would be hard to have less buyers than sellers and have the price of homes at an all-time high, which is where they are at right now.

Got it. Well, thanks for addressing everything I asked. And good luck, guys.

Thank you. Our next question is from the line of Jason Helfstein with Oppenheimer. Your line is live.

Thanks, everyone. Just a bunch of questions around kind of M&A. So Robert, what's the primary reason an agency sells to Compass? Do you expect further M&A this year? Do you have any capital constraints for M&A from a cash standpoint potentially you look at 100% earn-out deals? And then just Kalani, housekeeping, I don't think you gave it out, but what was the acquisitions impact on transactions or transaction growth? You gave it for revenue, but I don't think for transactions. Thanks.

So the primary reason that CEOs are selling to Compass. Remember, these CEOs, they're great people; they're great entrepreneurs. They work really, really hard. Many of them run family businesses. Even if they're not family businesses, they treat their companies as families and they care as much about their agents as I care about mine. So, when I'm calling people now, I start with the opportunity to give their agents our technology and our private exclusives, which are the off-MLS inventory. Any CEO who hears that in a market where we have market share shows a level of interest. I actually don't start with the merger; it's just more of the overall conversation. If there's a way for us to give your agents our technology in our off-MLS private exclusive listings, would you be interested? And then from there, we have a broader conversation about many different ways that we can achieve their objectives of helping their agents in what's been a market characterized by pain for almost three years that meets their personal financial goals.

Yes. Thanks, Robert. Jason, thanks for the question. I would estimate that just north of two-thirds of our transaction counts came from M&A. Just a reminder, the recent acquisitions of Parks and Latter & Blum, and even some of the 2023 have lower average selling prices. This explains the math there.

Thanks for your question. Our next question comes from the line of Bernie McTernan with Needham & Company. Your line is live.

Great. Thanks for taking questions. Maybe just to start on the 30-30, just to level set, what is your current market share in those top 30 markets? And maybe how much of the overall GTV does it represent? And just trying to get some framework in terms of how big of a revenue step-up this could be if you're able to reach this goal?

Robert, I think you might be on mute. Let me start with, go ahead, Robert.

On average, it's on average. It's not about getting to that number in every market, but about having an average market share of volume—not units closed—in our top 30 markets. We do have more in terms of market share in some markets today. We have more than 20% market share in many markets today, and we're in between 10 to 20 in many more. So, I would say we're more than halfway there, but just marginally. The structural advantages aren’t just advantages for Compass; they benefit agents too. The client dashboard is obviously for agents and their clients. Having more inventory is key because we are creating a platform that agents can use to better serve their clients. I believe that as these tools are rolled out over the months ahead, it will dramatically accelerate our ability to bring on agents organically and align with CEOs of brokerage firms because they see the benefits.

Understood. And then Robert, I know you partially answered it in a previous question but just trying to think about—understand that right now there might not be a significant— or there isn't a significant impact or a material impact from the NAR settlement. But do you think there will be? Will there be any change like if it is like once we hit August 17, does that change anything? Or do you really think no, it’s just going to be overblown still?

I think from the transaction side, it's not—the buyers and sellers aren’t even—it's not top of mind anymore. And there isn't going to be national headlines on August 17 saying anything around this, and if there was, it wouldn’t be a fraction of what happened after the NAR settlement. I don't think it's going to change transactions. I don't believe the seller will be influenced by the Buyer's Representation Agreement since the buyer agreement is shared only with the buyer. And we’ve already seen Buyer Representation Agreements introduced in half of the states where Compass operates, and we have not seen them impact commissions, and this has been the case for many years before the NAR settlement.

Got it. Thanks.

Yes, Bernie, I would add just internally we're using it as an opportunity to continue to train our agents to show them the tools we have to deliver value. So in the end, I don't think there's a ton of macro impact, but I think internally it's a good opportunity for us to continue showing and training on value.

Thank you. Our next question is from the line of Soham Bhonsle with BTIG. Your line is live.

Hey guys, good evening. Robert, just following up on that last question, I guess it doesn't sound like you're concerned about commission rates. But I think there’s still a fair amount of debate amongst investors. So maybe just talk about some of the contingency planning that you have done in this situation where there is pressure. And if you could just focus specifically on commission split on your side and how you sort of intend to defend that line going forward if we were to see split pressure.

Well, look, I think on the split side that’s in relation to the overall market competitive dynamics and the value that you provide relative to that. My view is I don't think spreads can go much lower, so I think that pressure is hard to see that creating more pressure. The value that we're providing is going to increase dramatically. And I think I said earlier on the call, the advantage that we are providing to agents currently is significant. I know that there are some investors who are wary, but many investors are not worried about this anymore. Some are still asking, 'What could happen on August 17 and afterwards?' But the Buyer's Representation Agreement doesn’t change the conversation that a listing agent has with a seller. The listing agents work with sellers to negotiate pricing, and I don't see how this will change things.

Got it. Okay. And then I'm curious on the make me move tool. It sounds like a pretty interesting way to source some unique inventory. But I'm just trying to understand this a little bit. So if the seller indicates that they're interested in selling and there's a buyer in your system that sort of raises their hand, will that inventory remain just on the Compass platform? Or do you intend to sort of market that home on the MLS as well to get broader syndication over time?

Yes. So I'm going to try to be very clear here. We have 100 million people, or more than 100 million contacts in our CRM. I went out to all the agents this week and challenged them to engage with their clients to find out if they want to list their home. If they say no, I encourage agents to ask if there's a price they'd consider. Everyone has a price; it's part of the business. Therefore, if nothing else, this is an opportunity to get our agents in front of clients to build relationships and business. We want the make me move prices to only be internal; the only person who will know the price is the agent. What we're building is the ability for agents to merge their client contacts with listings in a way that hasn't been done before. It's just connecting the real estate world to the platform. That's how we'll do this.

Okay. So it sounds exclusive to the platform. And then just—and just last one Kalani, as we think about the 30-30 strategy and fully appreciating that you're not in all markets across the US, do you have a sense for what that sort of translates to market share in, call it sort of a normalized $5 million existing home sales kind of environment if you were to sort of achieve those levels? Thanks.

Yes. Sure, Soham. As Robert mentioned, we're probably half of the way there already. I don't know that I'll estimate an exact number but obviously, we're at 5; we just reported 5-plus this quarter. So somewhere in the high single-digits, low teens would be kind of the math estimate, but it will depend on markets. Like Robert said, the goal here is really about driving inventory and our structural advantages to ensure that we are helping our agents. So, it will depend on the markets and how fast we get there, but that's how I think about it at this point.

Great. Thanks a lot, guys.

Thank you for your questions. Our next question is from the line of Michael Ng with Goldman Sachs. Your line is live.

Hey. Good afternoon. Thanks for the question. I just have two. First, this one is for Kalani. On the commissions and expenses point, 82.6% around that level for the rest of the year. Is that something that is just higher for the year given the M&A? And does it normalize lower, or is that a sustainable level of commissions that should be sustained higher even beyond 2024? And then I have a separate follow-up.

Sure. Yes, sure. So as it relates to gross margin and commissions, I think we mentioned, right; we saw that 70 basis point decline, about two-thirds of it is driven mainly by the market mix as well as the M&A related. I think for the year, we see it relatively consistent to this quarter. I do think we are actively working to identify tailwinds as it relates to gross margin improvement. I think it is more of a period of time to answer your question directly—more about resetting the mix. However, as we continue to bring on agents at favorable rates while driving value, I think we’ll be well-positioned to see improvements.

Great. Thank you, Kalani. And I just had a follow-up on the passive inventory make me move. Could you just talk a little bit about how that fits within, I guess, the confines of like the NAR's clear cooperation policy and why that may or may not apply? Thank you.

Yes. So first I think clear cooperation will end. This is a top priority of mine and with many MLS leaders and others in the industry. It has already been effectively eliminated in a number of the largest MLSs by allowing the restrictions to no longer be enforced. Even if it wasn't, what clear cooperation is, I believe is anti-homeowner. It ties into too much of the way the system works today, which isn't in the homeowner's favor.

Great. Thank you for all the color, Robert. That's really helpful.

Thank you. Our final question today comes from the line of Ryan McKeveny with Zelman & Associates. Your line is live.

Yes. Sorry about that, guys. I was on mute. Nice job on the quarter. Thanks for taking the questions. Kalani, I just wanted to come back to you on the revenue less P&O margin. So, I think your commentary was confidence over time there can be some leverage there. I know you called out the ancillaries and that makes a lot of sense. Anything you can share more on the opportunity for margin improvement on the agent economics over time? Would that be something that maybe just comes from the mix of agents? Geography, obviously, plays a role. But as you expand all of these new products and offerings, is there upsell potential to agents? Just curious how you bridge that gap to get to margin improvement on C&O over time? Thank you.

Yes. Sure, Ryan. I'll start, Robert, if you have anything to add. A few things. Just noting again the headwinds we're seeing currently are more around mix, right? And so it's not kind of structural on an agent-for-agent basis. It's just a mix. And so that's why I have confidence that opportunity to continue to move our economics. I think every time we're renegotiating deals, we're bringing folks off of some of the incentive plans that we were on in the prior. When we can do that, we obviously can have better more productive conversations. So, I do think the short-term mix has headwinds currently, including M&A activity, but as we bring more agents on, the benefiting economics of those agents will provide a further positive influence on our margins over time.

Yes, I’ll just add to what Kalani said. I think we have the benefit of hiring agents at better margins, and the benefit of more T&E will help margins. But I think what we are seeing is that our acquisitions of markets with lower splits have offset the improvements in agent economics that we’ve seen, and I believe will continue to see through our strategic efforts.

And all of that right, Ryan. I would just add I also think if you look, so we’re talking about commissions. If we look at our total kind of the economics of the agent, which includes marketing, which includes some of the prior stock comp, right if you look at those total agent economics we are actually improving over time. That’s part of the cost OpEx etc. So I think, on the commission side, everything Robert and I just said, I would also point us to that total company dollar that the agent has in that economics.

Got it. That makes a lot of sense. Thanks for all that color. And Robert, I guess, the listing side of things is obviously getting a lot of attention. The make me move is very interesting. I guess in the here and now today, it seems what's happening is that Compass agents are having success winning listings, let's call it at a faster rate than peers. In February, you had made a comment that I think you said seller activity on your platform was up something like 40% year-over-year. And at that time, inventory and new listings had just started to rise. So kind of an indication that seemingly, Compass agents were having early signs of success as listings overall started to expand. I guess any updates you can share on just the amount of seller activity you're seeing on the platform today or just those trends generally in listings taken by Compass agents versus agents overall? Thank you.

Yeah. I remember earlier in the year, we saw on the platform that attritional brokerage doesn’t know when their agents—doesn’t know systematically through a platform how many of their agents are having listing presentation conversations with their clients and when it's happening. But listing presentations come to the Compass platform, which we built on a first-party system so we know as well as the CMAs, the comparative market analysis, and market reports. Therefore, what we saw is that the listing presentation conversations were up directionally around 40%. Now as I mentioned earlier, actual inventory is also up 40%. We do have that insight; I don't have an updated view of that number regarding listing presentations going into the fall. But what we do know is, of the Compass transactions that closed in Q2, it was 7% of those addresses were recommended through the Compass likely to sell in the prior 12 months. Overall, we’re not seeing a big boom in new inventory, but I also don’t believe it’s declining either.

Got it. Very helpful. Thank you, guys.

We have a final question today from the line of Ben Black with Deutsche Bank.

Hi. This is Jeff Steiner on for Ben. Thanks for squeezing me in. Just one quick one on you mentioning inventory as a structural advantage a lot talk on that. And you mentioned the clear cooperation policy potentially going away and maybe some of the NAR rules that are about to go into effect. Does any of that allow you to lean into kind of private exclusives in a bigger way? And maybe more broadly will any of that potentially push the industry to a more decentralized listing structure?

It's a really good question. It's a question that a lot of MLS leaders are asking, which is if agents aren't forced to put listings in the MLS, and I believe that is not—I believe that that's inevitable that they can't be forced because that's not the world we live in. The DOJ publicly, and this is public, but they're actively looking at clear cooperation. So we opened that case. I'm confident we'll see changes there. At the heart of it is are you forcing people to adhere to a system which is being pushed on individuals? So, I believe the forcing mechanism will go away, but it will be fine. There are many MLSs that don't have clear cooperation. Things will work just fine; the data points demonstrate that.

Great. Thank you. It was very helpful.

First of all, thank you for joining our call today. As you can tell, I'm very excited by where we are and where we are going as a company. Our excellent financial results in the midst of a very difficult market really demonstrate that we are on the right track to avail. When the market does return to normal, we will be well-positioned to capitalize. I just want to say how grateful I am to all the amazing agents and employees who have persevered through difficult times, consistently with their eyes on delivering outstanding results for their clients and for the company. Thank you for joining this call.

Thank you, ladies and gentlemen. That does conclude today's call. Thank you for joining. You may now disconnect. Have a great day.