Compass, Inc. Q4 FY2025 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to the Compass, Inc. 2025 Q4 Earnings Call. I would now like to turn our call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass Fourth Quarter 2025 Earnings Call. Joining us today will be Robert Reffkin, our Founder and CEO; and Scott Wahlers, our Chief Financial Officer. In 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 fourth quarter 2025 earnings release posted on our Investor Relations website. Any discussion regarding organic revenue, organic OpEx, organic transactions or organic GTV excludes activity from businesses we acquired since October 1, 2024. We will make 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 first quarter of 2026, the recently closed Anywhere transaction and full year 2026 and beyond, including comments related to 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 the most recent annual report on Form 10-K filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, February 26. We expressly disclaim any obligation to update this information. I will now turn the call over to Robert Reffkin. Robert?

Good afternoon, and thank you for joining us for our fourth quarter conference call. I am thrilled to speak with you today for the first time as CEO and Chairman of our newly combined company, which serves 340,000 real estate professionals and over 2,000 franchise broker owners across 120 countries and territories. On today's call, I will be discussing 5 topics. First, I will provide a quick recap of our record Q4 and 2025 results. Second, I'll discuss the historic Rocket Redfin partnership we just announced and how it significantly expands home seller choice and provides extraordinary value to our real estate professionals. Third, I'll touch on our 4 sustainable financial advantages. Fourth, an update on our integration and cost synergy efforts. And I'll end by touching on AI and why I believe it will become a structural tailwind for our business. Starting with our Q4 results. In Q4, Compass delivered record fourth quarter revenue of $1.7 billion, delivered record fourth quarter adjusted EBITDA of $58 million. Both our revenue and adjusted EBITDA came in above the high end of our guide. We also delivered record fourth quarter adjusted EBITDA margin, delivered the best organic principal agent recruiting quarter for Q4 as we added 830 principal agents. The Compass platform hit a Q4 record of 20 average weekly sessions per agent. We grew our Q4 title and escrow revenue to record levels. We grew our mortgage JV earnings to record Q4 levels. And lastly, we grew our title and escrow attach in our legacy markets to all-time highs in Q4. 2025 was also a record year for Compass as we generated approximately $7 billion in revenue, surpassing our prior peak of $6.4 billion in 2021 when the housing market was approximately 50% above current levels of annualized home sales. We generated adjusted EBITDA of $293 million, which was the highest ever in our history, and we produced operating cash flow of $217 million, which is also an all-time high for the company. None of these results would have been possible without each and every member of the Compass team. I want to sincerely thank the entire team for their maniacal execution and unwavering hard work in what has been, by any objective measure, one of the toughest housing markets in a generation. Now let me touch on the unprecedented step we took today to ensure home seller choice through our partnership with Rocket Redfin. At Compass, we firmly believe that home sellers deserve the right to freely market their home when, where and how they want. We also believe that home sellers should also have the right to publicly market their listings without negative insights such as days on market and price drop history, amongst others. Currently, however, the Zillow ban forces home sellers to give them their listings within 24 hours of publicly marketing a property even if they don't want to be on Zillow and places negative insights such as days on market and price drop history on all listings. This is just wrong. Home sellers should have the freedom to publicly market their home wherever and however they want without the fear of being banned off a platform. The Rocket Redfin partnership we announced today stands up for home seller choice as it provides homeowners the flexibility in how they introduce their homes to the market and does not subject homeowners to any negative insights for listings off Zillow. There are 4 highly accretive pillars to this partnership. First, our agents will have the opportunity to receive 1.2 million high-intent leads from redfin.com and Rocket Mortgage over the course of our 3-year strategic alliance. The partnership is also structured in a way to provide us with an increase in lead flow in each of the 3 years with potential upside in year 3, depending on conversion rates. Second, our unique inventory will be on redfin.com, with all leads on these listings routed directly to our listing agents across all of our brands, including but not limited to, @properties, Better Homes and Gardens Real Estate, CENTURY 21, Christie's International Real Estate, Coldwell Banker, Compass, Corcoran, ERA and Sotheby's International Realty. This will supercharge the amount of unique inventory publicly marketed on redfin.com in our brokerage websites because more homeowners will choose to become sellers. For example, homeowners who are reluctant to put their homes for sale for fear of negative insights or due to the time of the year, before the fall market in the winter, over the summer, will now have access to 60 million monthly active users without the risk of days on market or price drop history. And their coming to listings will be prioritized on Redfin. This will bring more inventory to the market because it eliminates the artificial barrier that home sellers have to list their home, such as days on market price drop history. Keep in mind, only 4 million people buy homes a year. So 60 million consumers reflects 15x the amount of buyers that are buying a year. Third, with this partnership, we are reclaiming the digital yard sign for our agents and our brokerage brands as our agents' names and their brokerage affiliation will be prominently displayed on each unique listing. This benefit cannot be understated as it will significantly expand consumer awareness of our agents and our 9 brokerage brands. Fourth, we believe the partnership will make home buying more affordable by increasing the amount of inventory on the market that otherwise would not be there and by offering homebuyers 1 percentage point off their mortgage rate in year 1 or of the 6,000 in lender-paid credits through Rocket Mortgage. Now I would like to discuss the 4 sustainable financial advantages we are focused on going forward, including a higher-than-industry revenue per transaction, a leading cost to serve position in the industry, an expanding LTV per agent; and lastly, lower customer acquisition costs. Starting with our higher-than-industry revenue per transaction. We expect to achieve this by becoming the leader in delivering value-added services for real estate professionals through platform-driven attach as opposed to just the traditional channels used by other brokerages. This includes current services such as title and escrow, mortgage, home insurance, home warranty and moving services, but also potential future services we may consider such as solar, home security and other agent services such as property marketing, business spend, digital ads, property videos, 3D renderings, real estate sign production, open house brochures, photography and more. With an incremental TAM of more than $150 billion from these value-added services, Compass' potential revenue per transaction could be multiples above the industry average, creating a sustainable financial advantage relative to our competitors. Our second sustainable financial advantage will be to have the lowest cost to serve position in the industry. Since 2021, we have already reduced our cost to serve per transaction at Compass by over 30%, driven by platform improvements, process optimization, offshoring and AI. However, with anywhere, we see significant opportunity to lower our cost to serve further as we, one, build a best-in-class centralized services operation that will be the most efficient in the industry; two, offshore more back-end operations; and three, leverage AI to automate workflows and expand self-service tools on the platform. As early proof of how AI can help lower our combined cost to serve in the 5 short months since we rolled out an enterprise-wide AI learning effort at Compass, the team has already identified potential annualized efficiencies in the vicinity of $20 million, 2% of our Compass OpEx, which should allow us to limit OpEx growth as the business grows. At Anywhere, approximately 2/3 of all documents in their brokerage business are already processed through AI-driven automation. Anywhere's AI-based document assignment engine already operates at 89% accuracy and will continue to learn from the largest transaction data set in the industry. Furthermore, Anywhere is also extending their capabilities through agentic AI, including automation of wire claims to accelerate resolution and help agents get paid faster, which lowers cost, but also improves the agent experience. By doing all of the above and ultimately establishing the lowest cost to serve position in the industry, we believe we will be able to drive better brokerage incremental margins than in the past, which should serve us well, particularly as industry volumes begin to normalize. Our third sustainable financial advantage will be our expanding LTV per agent as we bring more than 340,000 of our real estate professionals onto one connected platform. By connecting our franchise broker owners and real estate professionals through one seamless platform, we will scale our best-in-class listing tools, coaching, innovative marketing programs and AI capabilities to help grow their business and help them make more money by better serving their clients. As we scale our offerings in a tech-forward manner, we believe we'll be able to drive better agent and franchise retention, higher agent and franchise productivity, higher attach on value-added services, improved agent outcomes and lower recruiting costs. Our fourth sustainable financial advantage will be our declining cost of customer acquisition as we execute on our strategy to become the #1 destination for buyers to find real estate professionals and homes for sale. As awareness around our unique inventory grows via the Rocket Redfin partnership, we believe more and more homebuyers will seek out our agents listings and our agents for their advice. This will lower our customer acquisition cost as our share of voice in the market increases and should provide our agents with incremental business opportunities. So bringing it all together, by combining our 4 sustainable financial advantages with what will continue to be a maniacal focus on OpEx and cost synergies, we believe we will build a more durable business model where adjusted EBITDA grows faster than revenue growth in the future. Now let me provide an update on our integration efforts and cost synergy targets. First, on integration. I want to start by saying how pleased I am by how well both our management teams are working together. Since close, we've made great progress by deploying best practices in integration, including establishing a transformation office that will be the single control tower to ensure we are achieving our targets, setting a clear roadmap to create a more efficient organization across each of our business units and quickly creating clarity around the organization spans and layers. Additionally, in the 6.5 weeks since closing the transaction, I've had the opportunity to spend time with countless employees, franchise broker owners, real estate professionals across all of Anywhere's 6 brands in many, many markets. Two themes have emerged from my conversations. First, there is broad-based excitement to be a part of the transformation our companies are going through. And second, the agents and broker owners are really excited to get access to the technology platform. This excitement is bearing itself out in the numbers as well as Anywhere's GCI retention rate in its top 2 quartile of agents, representing 91% of Anywhere's own broker GCI over the trailing 12-month period, hit the highest level ever recorded in the month of January. Now shifting over to our cost synergies. On our Q3 earnings call back in November, we stated a target of realizing $150 million in synergies in the first year and $300 million in net cost synergies over 3 years. I'm pleased to say that since close, just the 6.5 weeks since close, we have actioned approximately $175 million in cost synergies. Based on the pace at which the team is moving as well as their ability to collaborate and share data, I am making a CEO commitment to action $250 million of cost synergies in the first year. Additionally, as we spent more time working together as a collective team, we have increased confidence in our cost synergy opportunity. As such, I'm now making a CEO commitment to action $400 million in net cost synergies over 3 years. I look forward to updating you on our progress against our improved goals in the coming quarters. Now I want to end by talking about the 3 components of our business that not only protect us from the threats of AI, but strengthen our business in the context of AI. The first is our proprietary data. The second is trust. I want to be clear. Compass isn't in the business of brokering information. It's in the business of brokering trust. And we believe trust will become even more valuable in a world with AI. And third is the positive network effects driven by our 340,000 agents, which strengthens our platform. Starting with proprietary data. We all know that AI is less of a threat for companies with proprietary data. And we all know that the Zillow ban and approximately 40% of MLSs have restricted rules that force brokerages to make their proprietary data public. With the Rocket Redfin partnership and the efforts I expect Compass and Rocket to take, I'm confident that MLSs and Zillow will no longer be in a position to force brokerages to make their proprietary data public. We currently already have more than 20,000 MAKE ME SELL listings that are only available at Compass. And with the Rocket Redfin partnership, we believe we will have a large number of Coming Soon in Private Exclusive listings that will help grow our proprietary data. Our second pillar is trust. Compass is not a traditional SaaS company as we operate in the high trust advisory business. This distinction is significant. AI can replicate software features, but we don't believe it can replicate trusted human judgment in a highly emotional, high-stakes, high-ticket transaction. Buying a home is not like any other purchase. It's one of the most significant and complicated transactions in people's lives. Buying a home is also much more than just searching for a property. A buyer seeks out a real estate professional because they know they will need the expertise and emotional support when negotiating and navigating the purchase of a home. They seek out a real estate professional, not just for information that is already available online, but for information on what's going to happen in the future, such as when the neighbor, a few doors over might be ready for the next move because their kids just graduated college. They seek out a professional to serve as the last line of defense during a walk-through at the closing when the agent they are working with spots uneven floors or smells a wet basement and helps them negotiate a seller credit. I've been reading the same AI reports as everyone else. The reports that are addressing what could happen in a potential future for real estate. The quick summary is my AI agent will sell my house to your AI agent. They will do the best job, and no one else is needed in the transaction process. In our 13 years with Compass, I've seen a lot of things. I remember in the beginning, the biggest pain points for people were fake rental listings. We started off in the rental space. You would see a listing; it was fake. You reach out to the agent, they tell you they can show you the listing, and then last minute switch it up and say the listing is gone, but I have something else to show you. AI will do that on steroids. The writers in some of these reports assume that real estate is clean and fair and that everyone is playing nice. But in real life, you have thousands of fake AI agents generating fake listings to bait you. Hundreds of fake AI agents will give AI agents false lowball bids to try and get them to price drop. Fake AI agents will list fake listings to try and change comp prices to get higher prices. It's going to get wild. I think the value of Compass will skyrocket in that world. The only solution will be closed networks of trust. People think Compass' core is brokering information. It's not. It's brokering trust. And in the very near future, unless you have a great agent that is real, transacting with agents that are network-deemed trustworthy, you will not be able to transact safely. The MLS data will be corrupted. Open sites will be filled with noise. Private listings and private networks with real people will be the only trusted source. I just don't see a meaningful amount of buyers letting a bot negotiate with the seller's agent. If that were the case, then you would already be seeing people buying homes based off estimates. You see people selling homes based off these estimates, and they're not doing that. Real estate is highly personal, and the value of a home isn't solely determined based on the generic data and facts about the home. The value is driven by a buyer's and seller's personal connection to the home. In this world, Compass' value proposition will strengthen as we build a highly trusted environment for buyers, sellers and agents to own and manage their data with uncompromising privacy. And so for the same reasons that the Internet did not replace agents, that actually increased consumers' use of them over the past 20 years, we believe that the winners of the future will not be the companies that simply have AI, but those that use it to amplify trusted agents at scale like Compass. Our third and final pillar is the positive network effects of our 340,000 real estate professionals that strengthen our platform. This network serves as a large continuous positive feedback loop for our platform. We believe as agentic AI becomes more common, the platforms with the most domain experts actively training and interacting with the system will win. Our agents are encoding real-world localized transactional logic into our platform every single day, creating a network effect that cannot be replicated by horizontal AI tools or legacy brokerages. At Compass, we are using AI to eliminate friction, allowing our agents to focus on winning and closing clients and by fully integrating it into the agent workflow to maximize productivity. By giving 340,000 real estate professionals countless hours back every week, allowing them to focus on winning listings, advising clients and closing deals, we are going to help them to close more transactions. When evaluating Compass through this lens, we believe we possess the exact pillars to thrive in the world of agentic AI. With that, I will now hand it over to Scott.

Thanks, Robert. Q4 was a landmark quarter for Compass, setting all-time Q4 records, both financially and operationally. Revenue reached $1.7 billion, a 23% increase year-over-year, beating the high end of our guidance. Even on an organic basis, excluding M&A, we grew 11.3%. For the 19th consecutive quarter, every quarter since our IPO, Compass outperformed the market, including during Q4 with organic transactions up 5.6% versus a 1% market increase. Quarterly principal agent retention was a solid 96.8%. During the quarter, we added 830 principal agents, which was a fourth quarter record despite not being able to recruit any of the Anywhere agents due to the pending merger during Q4. Note that because Anywhere does not have the same agent count methodology for principal agents as Compass does, we do not intend to provide principal agent count starting in Q1, but we will continue to provide total agent counts. Gross transaction value was $65.6 billion in the fourth quarter, an increase of 21.6% from a year ago, reflecting a 19.7% increase in total transactions, combined with an increase in average selling price of about 2%. The increase in our average selling price was closer to 5% on an organic basis. However, our acquisitions over the past year primarily operate in markets with lower average selling prices compared to our organic average selling price, which brings down the overall average. Our commissions and other related expense as a percentage of revenue was 81.5% for the quarter compared to Q4 of last year at 82.5% or an improvement of over 100 basis points year-over-year, primarily driven by the impact of our January 2025 acquisition of Christie's International Real Estate, which has more favorable margins. Excluding M&A, our commissions and other related expense as a percentage of revenue improved 13 basis points for the quarter versus a year ago. This is due to a positive impact from higher-margin new development and title revenue, partially offset by about 10 basis points attributable to the impact of geo mix on the brokerage business. Our total non-GAAP operating expenses were $259 million in Q4, an increase from $224 million of OpEx in the year ago period, which was largely driven by M&A, including the OpEx we assumed from the January 2025 acquisition of Christie's International Real Estate and a number of other brokerage and title companies we acquired this year. Excluding the impact of M&A, our non-GAAP OpEx was up only about 1%. I'd like to also point out that even on a full year basis, when excluding the additional OpEx assumed from M&A, our organic OpEx was only up 1% over 2024. We have demonstrated discipline to manage organic OpEx growth to within 3% to 4% annually. And this past year, we greatly exceeded that goal. Adjusted EBITDA was $58.3 million, a strong improvement of 249% from adjusted EBITDA of $16.7 million a year ago. Adjusted EBITDA exceeded the high end of our original guidance range by 19% and also represented a record level of adjusted EBITDA for any fourth quarter period. Adjusted EBITDA benefited from the higher revenue, better gross margins and a continued strong discipline on operating expenses. During the fourth quarter, we incurred $10.6 million of transaction expenses related to the announced merger with Anywhere, primarily legal fees and investment banking fees, which is shown in the Anywhere merger transaction and integration expense line on the P&L and is excluded from our non-GAAP operating expenses for purposes of calculating adjusted EBITDA. You'll see the expenses on this line jump in Q1 as we recognize the expenses in connection with the closing of the transaction and additional expenses throughout 2026 as we drive our integration efforts, which I'll touch on a little later. Stock-based compensation expense in the quarter was $57.5 million and in line with our guidance. As a reminder, during our Q1 results last year, we explained that our stock-based compensation levels would be elevated during the second, third and fourth quarters of 2025 due to a change in our methodology for granting employee equity and the accounting rules related to that change. These higher-priced awards will start to vest out at the end of Q1, and you'll begin to see a step down beginning in Q2 of 2026 on the base Compass business. This decline is expected to be partially offset with some levels of incremental expense coming through from the Anywhere employee base. We'll provide more details next quarter as we finalize this impact. But as you consider your models, you should expect that stock-based compensation on a consolidated basis will not exceed $50 million in any future quarter beginning in Q2 of this year. That said, as part of the change of control severance provisions for some of the former Anywhere executives, there will be an incremental one-time charge for stock-based compensation recorded in Q1. GAAP net loss was $42.6 million in Q4 compared to GAAP net loss of $40.5 million a year ago. However, excluding the $10.6 million in deal-related expenses from the Anywhere transaction, GAAP net loss would have been $32 million, an $8.5 million improvement compared to the year ago period. Our basic weighted average share count for the fourth quarter was 572 million, which was in line with our prior guidance. As for cash, we generated $42.2 million in free cash flow in the fourth quarter, which represented the eighth consecutive quarter of positive free cash flow generation. We ended the fourth quarter with $199 million of cash and cash equivalents on the balance sheet. On January 7, 2026, we completed the issuance of $1 billion in convertible notes at a highly attractive coupon of just 0.25 percentage point, which was used to pay off Anywhere's revolver of $500 million at the closing. Using the 0.25% coupon on the convertible debt to pay off Anywhere's revolver at higher interest rates provided for immediate annualized cash interest savings of $25 million. The convertible debt offering has a conversion price of $15.98 per share and was structured with a cap call derivative instrument to protect shareholders from dilution up to a conversion price of $23.68 per share. After considering the cost of the capped call and the related issuance costs, the net proceeds received on the fundraise were $880 million. We have moved aggressively on synergies. In just 7 weeks, we have already actioned $175 million of our cost synergy target. The heavy lifting of headcount and vendor consolidation is already underway. Some of the remaining synergies will involve deeper operational integration, which naturally takes longer to execute. However, the progress to date in such a short period of time following the close of the transaction certainly derisks our ability to attain our full cost synergy goals and provides early proof points on what we can deliver together as a combined company. It is important to distinguish between actions taken and the timing of the realization of these actions in the financial statements and where the benefit will be realized in the financial statements. On the timing point, some of these actions taken to date had an immediate effect such as day 1 personnel reductions. Other actions have terms ranging over the next 3, 6 or 9 months as the case of certain personnel reductions with associated retention periods or vendor contracts with varying end dates. And some new operating leases that we entered into to consolidate space or move to smaller square footage don't take effect until the fourth quarter of this year or early 2027. Additionally, because these actions were completed at various points throughout the first quarter, including this week, there will only be a modest benefit to Q1. To help with your models on the bookends, you could plan for $5 million of realization in Q1 of 2026 and $44 million of realization in Q4 of 2026 with some level of quarterly increases between those 2 data points. The $44 million to be realized in Q4 of 2026 represents 25% of the $175 million already actioned. In the aggregate, this would result in about $100 million realized in 2026. These cost synergies will be realized either as reduced operating expenses in the P&L or reduced capitalization to the balance sheet. In either case, they will benefit free cash flow. Historically, Anywhere has capitalized a large amount of technology labor to its balance sheet, approximately $80 million in 2025. And as part of our cost synergy work, a significant portion of the projects that have been subject to capitalization in the past will be cut as we shift the technology focus to the Compass platform. Therefore, of the roughly $100 million in synergies to be realized in 2026 that I just referenced, I'd assume slightly more than half will be reflected as reduced CapEx in 2026 and the remaining will be reflected as reduced OpEx in 2026. Since our cost synergies were just actioned in the last 6.5 weeks, these are still directional estimates. But next quarter, I'll be able to provide you a better distribution of how the synergies will be reflected in our financials. As a last point on this topic, note that there will be costs to achieve these action synergies during Q1 and in future quarters, which will include in the merger transaction and integration line in the P&L, which will be excluded from adjusted EBITDA but will impact cash flow. For modeling purposes as a placeholder, you could assume up to 50% of action synergies for an estimate of the costs to achieve. Turning to financial guidance for Q1, which now includes the impact of the Anywhere transaction. For the first quarter of 2026, we expect consolidated revenue, including the revenue from the Anywhere transaction in the range of $2.55 billion to $2.75 billion. While Q1 is the seasonally lightest quarter, we've observed softness in specific markets in January and particularly February due to the extreme winter weather and record snowfall across most of the country. Per NAR, January existing home sales in the U.S. of 3.9 million units were down 4.4% from last January, with Winter Storm Fern being a callout in their release as many closings were delayed. This is also supported by MBA's data point that mortgage purchase applications fell 14% in the final week of January and the first week of February as much of the country was snowed in. Furthermore, Q1 is our toughest year-over-year comparison in 2026 as we grew total revenue by 29% and organic revenue grew by 15% in Q1 of last year. To be clear, we believe these are short-term weather-driven timing issues. The structural health of the housing market remains sound. With mortgage rates at 3-year lows, stable financial markets and positive year-over-year inventory growth, we are optimistic heading into the spring selling season. For Q1 revenue guidance, keep in mind that while the revenue from the Anywhere transaction is included in Q1, the first 8 days of the quarter are excluded as we closed the transaction on January 9. We expect consolidated adjusted EBITDA to be in the range of $15 million to $35 million. Since Q1 is the first quarter that will include Anywhere's results, I'll provide some color on the contributions to the adjusted EBITDA line. However, we're quickly integrating this transaction. So going forward, we won't be providing guidance for actual results on a separate company basis. Breaking down the consolidated adjusted EBITDA guide for Q1, essentially all of the contribution is expected to come from Compass, whereas the contribution to the adjusted EBITDA guidance in Q1 from the Anywhere entities is negative. If you further unpack the Anywhere portion of the adjusted EBITDA guide, there are a few items that you should take into consideration. First, consistent with Anywhere's public comments on its Q3 2025 earnings, Anywhere saw an elevated level of expense related to its employees' long-term incentive plan, or LTIP. Anywhere's LTIP is comprised of cash settled RSUs, which require mark-to-market accounting through its P&L. The run-up in Anywhere's stock price, especially at the time of the September 22 announcement of the transaction, drove higher operating expenses in its Q3 period. Anywhere's continued stock appreciation through the January 9, 2026 closing date will also drive higher OpEx from the LTIP in Q1 as these awards continue to vest in future periods. Second, Anywhere disclosed during its Q3 earnings release that it experienced a significant spike in health care benefit costs in Q3 and that higher level of expense continued through Q4 and is expected to be the new baseline in 2026. Third, as a result of the purchase accounting for the Anywhere transaction, we're required to reset the straight-line rent calculations of the Anywhere office leases for GAAP accounting purposes over the remaining lease periods following January 9, which has the effect of increasing the amount of GAAP rent expense we'll recognize post-acquisition by about $4 million to $5 million per quarter going forward or $16 million to $20 million on the full year. While this doesn't change the cash commitments of the office leases, it's a normal purchase accounting adjustment that increases GAAP rent expense. When you add up the expenses for these 3 items, the LTIP, the health care costs and the GAAP rent item compared to the Q1 period of last year, it amounts to an incremental expense in the range of $15 million to $20 million in the first quarter guide for the Anywhere component or $17.5 million at the midpoint. So adjusting for these items, our adjusted EBITDA guidance for Q1 would have been $32.5 million to $47.5 million. We expect our weighted average share count for the first quarter to be between 720 million to 730 million shares. This includes the impact of the 167 million shares that we issued in January for the Anywhere transaction. For OpEx, while we are not providing a specific range for the full year at this time as we're completing the purchase accounting process, to provide some direction for your models, be sure to consider in your baseline the standard inflation assumption we use of 3% to 4% on both the historical Compass and Anywhere OpEx, an incremental $20 million of annualized OpEx from the wraparound effect of midyear 2025 M&A and also the $16 million to $20 million increase that I referenced earlier in GAAP operating lease expenses as a result of the purchase accounting reset. Of course, these items will be offset by the net cost synergies that we realized in the year. We'll provide additional updates on OpEx next quarter after we finalize our purchase accounting for the transaction. Finally, a few thoughts on cash balances and debt levels. As you think about cash levels, note that Compass ended the year with $199 million of cash. And as a frame of reference, Anywhere's cash as of year-end was $139 million. Additionally, January cash activity reflects $880 million of net proceeds from the convertible debt issuance, partially offset by $500 million used to repay Anywhere's revolver and approximately $175 million of day 1 transaction cash outflows. Note that transaction costs and the cash used for cost to achieve will run through the operating cash flow line. Additionally, payments for Anywhere's annual employee bonus and LTIP programs are scheduled for payout in the first quarter and will also come through the operating cash flow line. As a result, we will report materially negative free cash flow in Q1. We will return to free cash flow positive in future quarters, excluding the impact of any one-time items for the transaction and the cost to achieve our cost synergies. And finally, regarding debt levels. We now have long-term debt of $3.15 billion, which includes the $1 billion of newly issued convertible debt plus $2.15 billion of Anywhere's 4 tranches of notes that we assumed as part of the closing of the transaction. We don't expect to prepay any of the debt in advance of at least April of 2027 due to the nature of the call provisions on the 2 tranches of debt with the highest interest rates. For clarity, when I refer to the $3.15 billion of debt, I'm specifically excluding the securitization facilities for Anywhere's Cartus business and Compass' Concierge activity as these securitization facilities are more operational in nature. Also, as a reminder, in November 2025, we replaced our revolving credit facility with a new facility that originally had a capacity of $250 million. That capacity automatically increased to $0.5 billion at the time of the closing of the Anywhere transaction in January and remains fully undrawn at this time.

Your first question comes from the line of Dae Lee with JPMorgan. Your question comes from Jason Helfstein with Oppenheimer.

Thank you for the information. It definitely takes some time to digest it, but I appreciate it. When we've spoken to individuals who are skeptical about your exclusive strategy, they've raised concerns that if Zillow can get all other brokerages to work with them exclusively, it could upset the balance. It seems like you're getting Redfin to partner with you, which might address that concern. Could you elaborate on whether there's anything you perceive now that could hinder the effectiveness of the three-phase marketing strategy now that you're collaborating with Redfin? Also, how should we consider the economic implications for Redfin in relation to this agreement? Is there anything you can disclose?

Absolutely. Regarding your first question about potential obstacles to the exclusive strategy, it's fundamentally about homeowner choice. If you're asking whether anything could hinder homeowners' choices or permanently restrict them, I don't believe that will happen. Homeowners' choice will prevail over platform control because it’s the seller’s home, not the platform's. Our goal is to provide sellers with as many options as possible for marketing their homes on their terms. Since our last launch, we introduced the option for undisclosed addresses. As you know, certain portals ban listings if the address is shared externally for more than 24 hours. Our agents suggested allowing undisclosed addresses so that the portal can't enforce the ban if they don’t know the address. This is just one of many initiatives designed to enhance seller choice. Sellers want more choices, not fewer, and the feedback on this new option has been overwhelmingly positive. It not only helps avoid bans from dominant portals but also offers sellers privacy while seeking public exposure without the associated risks. Different situations, such as a divorce, might lead someone to market their home publicly without revealing the address. More choices provide significant value in various circumstances. Economically, I've had more than five agents reach out to me during this call, expressing interest in joining Compass due to the leads we can offer. We have 1.2 million leads from Rocket Mortgage and Redfin that will benefit our agents across all brands in our network, enhancing their reasons to remain with us and attracting new agents. Moreover, we have an exclusive partnership that allows our listing agents to approach sellers by highlighting the uniqueness of their homes. For example, if a seller wants $3 million for their property, but an agent believes it's worth $2.7 million, they can showcase our partnership with Redfin, which allows them to market the listing to 60 million buyers without any days on market or negative insights. This is transformative and will alter how homes are bought and sold, providing our agents and brand networks a distinct advantage in their discussions with sellers. As a result, we anticipate a growth in listings and an increase in buyer engagement directly directed to listing agents, greatly benefiting them. Additionally, listings will be given priority on Redfin, demonstrating that we are committed to providing agents with more choices and fighting against restrictions from dominant platforms. While other companies are banning agents and penalizing them for not surrendering their content, we advocate for their rights. This is an important moment in which we are working to ensure agents can market effectively and fulfill their commitments to their sellers. Regarding financial specifics, we are not disclosing that at this time but may provide more details in future quarters. However, you can estimate the potential impact of the 1.2 million leads based on your calculations.

Your next question comes from the line of Dae Lee with JPMorgan.

I apologize for the disconnection earlier. Regarding the topic, I agree that real estate is both personal and emotional. As we consider how consumers benefit from increased transparency and self-service tools, how do you envision assisting your agents in showcasing their value proposition related to these personal and emotional aspects? Do you believe you can provide them with a unique AI-enabled advantage that persuades consumers to accept those rates while maintaining robust per transaction economics? Additionally, for Scott, about the combined entity, how should we approach the commission as a percentage of revenue on a blended basis in 2026? What level of free cash flow conversion can we anticipate on a normalized basis?

First on AI and value, I want to mention that technology has evolved significantly over the past 20 years, much like how the Internet has transformed usage patterns. Year after year, people are utilizing the Internet more than ever before. This increase can be attributed to the emergence of fake accounts, listings, and postings that have proliferated online. Trust in news has diminished over time, but I personally find sources like Bloomberg to be credible. As we see more technology and AI, it's likely that trust will further decline, leading to more instances of fake content in our industry, such as fake documentation, reviews, and identities. This is where agents play an essential role; they help navigate the noise and ensure the information presented is accurate, which is crucial for such significant transactions. People are willing to pay for the certainty and confidence that comes from having a dedicated advocate, and I believe this will continue to be valued. We view AI as a tool to enhance agent intelligence, and we are integrating it throughout our platform to enable faster, more efficient service in innovative ways. Real estate is a process, not just a transaction. While technology can facilitate events, the personal touch of finding someone, building relationships, and managing details like staging and repairs remains irreplaceable by AI. You will still make decisions on photos and their presentation, and your judgment will now be even more valuable amidst the noise created by technology.

Yes, I'll address your question on the gross margin. While we don't have a gross margin line in our P&L, we discuss it in a simplified manner to indicate the remaining difference after deducting commissions from revenue. Based on that, you can certainly expect gross margin to increase in the future on a consolidated level, thanks to the franchise and title business from Anywhere, which doesn't incur direct commission expenses. Moreover, if we focus solely on the brokerage business, margins are anticipated to rise as the margins for the Anywhere-owned brokerage are superior to those on the Compass side. A way to approximate this is by reviewing the pro forma financials included in the 8-K we filed when we announced the transaction; you can find some estimates there. Additionally, moving forward, we will provide segment disclosures for the combined business, distinguishing between the owned brokerage and the franchise business, as well as the integrated services businesses, including title and the Cartus Relocation facility. You can expect clearer information on this next quarter. It’s a bit premature for me to provide exact numbers right now since we're still assembling that data. Regarding cash flow, a conversion rate of 70% to 80% from EBITDA to free cash flow is still a useful guideline. We've typically been at the high end of that range, but it could shift towards the lower end due to interest expenses affecting that transition. I should mention that, as noted in my prepared remarks, several expenses related to this transaction will occur in this quarter, particularly in Q1 and for the entire year. Therefore, we will be experiencing negative free cash flow for the first quarter, which should be assessed on a normalized basis after excluding the $175 million I mentioned for transaction expenses and costs associated with achieving synergies. Looking ahead, I believe that a 70% to 80% adjustment for interest is a reasonable expectation for the flow-through effect.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

I really appreciate the question. Maybe Robert, one for you. I think that there's 2 ways that you could have taken the projects with strategy. Obviously, you settled on the strategy of kind of syndicating the prime exclusive to Redfin not get in exchange for lead, I think another direction you could have taken the strategy would have been to syndicate the time it closes on the compass.com exclusively and try to build traffic into the O&O real estate portal and then develop leads over time that way. Can you maybe just help us understand why you went with kind of this deal over the one that was proposed?

Thank you for your question. At Compass International Holdings, we have nine fantastic sites that we're developing to connect with our listing platform. This platform encompasses everything from initial contact to cash and closing, serving our real estate professionals, buyers, and sellers, along with key buy-side and sell-side flows. We are actively building and investing in this, and I anticipate these sites will attract increasing traffic over time. During the three-year agreement, we have a valuable opportunity to partner with one of the leading companies in our field. The Rocket Redfin partnership demonstrates that another major player in the industry shares our perspective on home seller choice, which is especially significant in the current market. Having a company of Rocket's size and capabilities advocating for home seller choice alongside us is advantageous since we won’t be alone in this effort. While there are other large brokerages, having Rocket's substantial resources will help advocate for the necessary changes in the market. It's important to highlight that, by this time next year, we expect to have around 200,000 listings publicly available on our sites, enhancing consumer access. In 2018, approximately 90% of our listings began as publicly searchable listings on our site for about 11 days, allowing consumers to easily find them, prior to the implementation of the Clear Cooperation rule from NAR, which requires any public marketing of a listing to be submitted to the MLS within 24 hours, preventing us from leveraging our advantages. Now, with Compass International Holdings and the nine brands we are working with, we share over 700,000 listings. If we could operate as we did prior to the restrictions, eliminating the Clear Cooperation rule and the Zillow ban—both obstacles we face—then we would be able to showcase hundreds of thousands of listings on our sites. This is crucial for driving consumer traffic and demand for both our sellers and agents. We're working to achieve this despite limitations but expect that the MLSs will be less inclined to enforce these restrictive rules when partnered with Redfin and Rocket. This stems from two key reasons: we have greater resources now, and continuing to enforce these restrictions undermines the moral narrative that claims to prioritize transparency and fair housing. For example, when we provide our public listings to Rocket Redfin, which can be viewed by 60 million people, what message does it send if the MLS fines our agents $5,000 for this marketing? This raises questions about whether the MLS is acting in the interest of fair housing or merely to protect its business model. The existing practice of penalizing agents for marketing listings outside the MLS in favor of a singular, less competitive option is outdated. This situation ultimately enhances the visibility of the dominant portal, and we will see how these dynamics evolve in the near future.

Your next question comes from the line of Ryan McKeveny with Zelman.

Congrats on the results. So on the strategic alliance with Rocket Redfin, I guess first question actually is partially about Anywhere, but ties to the alliance. So what's the status of integration of Private Exclusives or Coming Soon from the Anywhere side of things, whether company-owned or franchised into kind of the existing Compass platform? Is that already integrated? If not, what's the timeline for that? And then similarly, what should we think about the timeline for either the Coming Soons that will show up on Redfin versus Private Exclusives showing up on Redfin? And will that initially be kind of Compass, what I'll call, Compass stand-alone? Or will that be across the Anywhere business as well?

We are launching our technology across all the owned brokerages in our brand network in July. That’s when they will be able to share and access all of the inventory in various ways, similar to what Compass has done before. For franchise broker owners, we will launch in January. We have strategies to speed this up, and I believe we will offer a way by the end of next month for anyone to create Coming Soons or Private Exclusives on the platform. This feature will be available next month, and they will also have the option to list it on Redfin. I expect that over 95 percent of our Coming Soons and Private Exclusives will be posted on Redfin. However, the decision rests with the seller and the agent because we value choice, though there is really no reason not to take advantage of that additional exposure.

Got it. That makes sense. And I guess on the comments about embedding Rocket Mortgage into the Compass International Holdings platform, I guess, what does this mean for guaranteed rate affinity OriginPoint side of the business? Any thoughts or anything we should know about on that side of things?

Yes. I view guaranteed rate as our in-person partner since they are located in our offices. In contrast, Rocket Mortgage serves as our digital partner. Guaranteed rate has excellent loan officers and builds strong local partnerships during sales meetings, while Rocket Mortgage supports us online. Ultimately, this partnership aims to expand mortgage options for homebuyers.

Your next question comes from the line of Benjamin Black with Deutsche Bank.

This is Jeff on behalf of Ben. I just wanted to follow up regarding the alliance and the options available for home sellers once their Coming Soon listing is on Redfin. Are you planning to implement this nationwide, or will you be concentrating on the 60% of MLSs that are already receptive to it? Could you provide more details on whether this will be more regional and what options will be available for sellers?

Thank you for the question. I am really excited about our collaboration with Northwest MLS and Justin Haag, the CEO, as we work to provide listings to Redfin, which is based in their headquarters. Whenever our individual agents face fines for acting in the best interest of their clients at their clients' request, we will communicate that to Rocket. We will express our intent to share listings that benefit the seller, the agent, and Rocket, as well as enhance exposure on redfin.com. I believe that these developments signal a shift in how MLSs have traditionally limited agents and sellers in marketing their homes. By imposing restrictions, they not only limit the agents and home sellers but also potentially restrict Rocket.

Your next question comes from the line of Michael Ng with Goldman Sachs.

First, Robert, I was wondering if you could talk a little bit about the listing agent referral program and how that would play out in success? Does that translate into market share gains, who ends up ultimately kind of footing the referral fee? Does that come out of the buy-side agents pocket? And does that show up in the commission rate? And then second, as a follow-up on the Compass Rocket partnership. That's great to see. Is the relationship exclusive? Or could other brokerages that want to pursue Coming Soon or Private Exclusive strategy also strike a similar partnership with Rocket?

I'll begin with the second question. The relationship is exclusive. Regarding the first question about the new listing agent referral program we launched, it provides agents with the option to be the sole recipient of buyer inquiries regarding their listings, which some agents prefer. They also have the option to allow someone else to receive the inquiries if they aren't able to respond promptly or if they're on vacation. The goal of the second version is this: as a listing agent, you receive an inquiry, and if you don't answer the phone within a specified time frame—whether it's 10 minutes, 5 minutes, or 15 minutes—you can designate that it will go to someone on your team, someone in the company, or a predetermined number of buyers you prefer to work with. You can adjust the time frame and the group of people depending on your circumstances, such as being on vacation, during late hours, or after 5:00 on Fridays when you're spending time with family. We're aiming to offer as much flexibility as possible so agents can specify when they want to handle inquiries and who they want to direct them to. To recognize those listing agents who do allow inquiries to be redirected, a 10% referral fee will be paid back to them by the buyer agents. Additionally, Compass has the standard referral fee structure in place.

Your next question comes from the line of Matt Bouley with Barclays.

You have Elizabeth Langan on for Matt today. You gave helpful color on the cost synergy side, but I was wondering if you could touch specifically on the revenue synergy side, just generally how you're thinking about the potential for the combined company as a whole? And then if you had any details or comments around how you're thinking about the future of the title or the franchise business as well?

Yes. We're really kind of focused, as you can tell from our comments and our trajectory on the cost synergies. We're focusing most heavily right now on the cost synergies, less so on the revenue. I think that will come over time. But like one item that I'd call out on the revenue synergies that comes across on the title side is really the scale of having the 2 title entities together. So between what Compass does on title, what the Anywhere side does on title, we're in the $450 million to $500 million of title revenue here. It's quite large and upwards of about 40 different service areas throughout the country. And so there's areas where Compass Brokerage had brokerage operations before, but we didn't have any local title operations to attach title onto that brokerage transaction. Now with the different service areas we're picking up through the Anywhere transaction, we do. And vice versa, there's areas where Anywhere had brokerage operations, Compass has title that can be used. So that will effectively provide some lift on title. But that's one example of some of the opportunities out there that at this point in time, we're really kind of focused heads down on the cost synergies, which is going to give us great lift to free cash flow generation and the ability for us to start to pay down that debt.

And with that, I will now turn the call back over to Compass' Founder and CEO, Robert Reffkin, to close this out. Robert?

Thank you, everyone, for joining our call today. I just want to end by thanking all of our employees, all of our agents for all their incredible hard work. And together, we really did something special. We delivered the strongest fourth quarter in our history, the strongest year in our history, and I look forward to building upon our strong momentum in 2026 together with the Anywhere team. And with that, have a great rest of your day.

That concludes our call today. You may now disconnect.