Compass, Inc. Q4 FY2024 earnings call

• Robert Reffkin recognized the hard work of the Compass team over three years. In Q4, Compass widened the gap with the industry by increasing revenue, adjusted EBITDA, market share, agent count, title and escrow rates, retaining agents well, exceeding OpEx targets, extending inventory advantage, keeping stock comp below $130 million, and generating positive free cash flow. The playbook includes controlling organic OpEx at 3%-4% annual growth, growing market share through organic agent addition, accretive M&A, and enhancing agent productivity, and expanding margin via increasing mortgage and title attach and the Christie's International Real Estate Affiliate business. In 2025, expected outperformance with market structural change favoring Compass due to NAR rule changes. Compass has four structural advantages: end-to-end platform, national scale, network of top agents, and depth of inventory. The three-phase marketing strategy is resonating, with data showing pre-marketed listings have better outcomes like faster accepted offers and higher close prices.
• Kalani Reelitz summarized financials: Q4 revenue $1.38 billion, up 25.9% y/y; gross transaction value $54 billion, up 29.2% y/y; commissions and other related expenses as a percent of revenue 82.53%; total non-GAAP operating expenses $224.4 million, slight increase; adjusted EBITDA $16.7 million; GAAP net loss $40.5 million. Full year 2024 revenue $5.6 billion, up 15%; adjusted EBITDA $126 million; free cash flow $106 million. Q1 2025 revenue guidance $1.35 billion - $1.475 billion, adjusted EBITDA $11 - $25 million; OpEx target $1.005 billion - $1.03 billion; free cash flow positive for full year 2025. Weighted average share count for Q1 expected between 549 - 502 million shares. Stock-based compensation for Q1 expected to be about $31 million, in line with Q4.

In Q4 2024, adjusted EBITDA was $16.7 million (excluding $4.2 million in M&A transaction costs, it would have been $20.9 million). Revenue increased by 25.9% y/y. Total transactions and organic transactions increased by 24.1% and 15.5% y/y respectively. Successfully recruited 659 principal agents organically, with 96.9% retention. Full year 2024 saw net principal agent count grow by 3,069 agents (21% increase). Title and escrow business had record Q4 with T&E attached, attach rate improved by over 800 basis points, and profitability nearly quadrupled y/y. In 2025, expect similar TNE attach rate improvement to more than double adjusted EBITDA in this business y/y. Revenue less commissions and other related expenses as a percentage of revenue in Q4 was 17.47%, and expected to be higher in 2025.

• Q1 2025 revenue expected in range of $1.35 billion to $1.475 billion (includes Christie's International Real Estate acquisition). Adjusted EBITDA expected in range of $11 to $25 million. OpEx targeted at $1.005 billion to $1.03 billion (base OpEx growing 3%-4%, plus M&A OpEx). Full year 2025 expected to be free cash flow positive. Weighted average share count for Q1 expected between 549 - 502 million shares. Stock-based compensation for Q1 expected to be about $31 million, in line with Q4.

• Forward-looking statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties. Actual results may differ materially. Risks and uncertainties include those related to the housing market, M&A integration, competition, and changes in regulations. For example, the impact of NAR rules and MLS policies on the brokerage industry and Compass's operations could affect results. Also, the timing of working capital changes and seasonality can impact free cash flow conversion. The second NAR-related settlement payment of $29 million in Q2 2025 could affect cash flow.

Q: Hey. Thanks. So first, Robert, I really appreciate all the color around initiatives, exclusives, and coming soon. Are you starting to see in your metrics more agents wanting to join Compass because of this factor or potentially lower attribution? You did talk about retention being quite high, but just is it actually are these products starting to attract more agents yet? And then just also, do you expect to grow the number of, I guess, how do we think about growth in Christie's and app properties agents in 2025?

A: Actually, yeah. And I'll first of all, Jason, good to speak with you. Thanks for the question. On private exclusives and coming soons and impact on agents, I would say that their clients or if for buyers, buyers if a developer works with an agent or home builder, they often will say, can you show me what's off the MLS? They're the most sophisticated buyers and sellers in the industry. And so whether it's with a buyer, that's a developer or an individual buyer, who will say things like, please don't show me what everyone else can see. Show me what's something that's unique. And so agents are always looking for an edge because they want to give their clients an edge. And so yes, coming soons and private exclusives give an edge for agents to give to their buyers as well as an edge for their sellers. The edge for their sellers, you know, we've talked a lot about. It protects them from the negative insights such as days and marketing price drop history. It allows all the buyer inquiries to go to the listing agent they hired, not sold off as a third-party lead, the highest bidder. Again, just like the developers do, you're giving that edge that developers use for themselves to their seller. And so, yes, because Compass is able to give an edge to our buyer agents and seller agents, which they can pass on to their clients, we are finding this as now a top reason why agents want to come to Compass. I believe this year, Compass will be known as the company that protected homeowner value by giving the playbook that homeowners get themselves to the individual seller of homes. And that's something that really resonates with listing agents because they have a fiduciary duty to do it from the best interest of their sellers, and that fiduciary duty is being compromised by rules like Clear Cooperation that forces them to a one-size-fits-all approach as opposed to a one-size-fits-one approach. On Christie's International Real Estate, when you look at the large luxury brokerage in the affiliate space, they're five times our size. And we are giving guidance on how fast it's going to grow, but I can tell you that we already launched two new international markets and we have signed up a new domestic market. Sorry, you signed and should be announced in the next, I think, next month in March. And we're close to signing another. And so we feel that the momentum is moving in such a path that it's meeting, if not exceeding, our initial expectations. Kalani?

Q: Sure. So I think you basically helped us under the there's nine points of acquisition impact, nine hundred basis points. Should we think about a similar impact for the rest of 2025 as far as the tailwind from acquisitions?

A: Yeah. Okay. Thank you. Yeah. I think overall, when we think about acquisition volume, obviously, we're gonna finish the lapping of our parks in LMB, which is included in Q1. And then we'll have Christie's International Real Estate. I think we had mentioned there that it's around $500 million of overall revenue. I expect the gating of that to be consistent with kind of our legacy Compass with Q1 being the weakest quarter, Q2, Q3 being the strongest. So how I would think about the modeling of M&A, just...

Q: Hi, great. Thanks for taking the question. Can we just talk a bit about the really, the opportunity around Compass One and driving this three-phase marketing approach and doing it within the context of that 3% to 4% organic expense growth? Actually, we'd be thinking about your marketing expense and driving awareness around this potentially accelerate agent growth? I have a follow-up after that. Thanks.

A: And so at Compass, we don't have a corporate marketing. We because we have thirty plus thousand agents with, on average, three thousand people in their contact, so a hundred million people. Our agents are our natural way to market the message of Compass directly with their clients. So, you know, again, over a hundred million people or contacts that they have in their combined database. And our platform allows them a click of the button to send digital newsletters. I'm sure you've probably seen some of them. Social media post organic or paid social post again through the platform as well as postcards, mailers, brochures, and much more, even video. And so we put in Compass One, we marketing material through the platform, and we're in the process of up-leveling our Compass two-phase marketing material and the numbers that we outlined today about the about the 2.9% as well as the reduction in days on market as well as the reduction in price drops. We're adding that content in over the next week. So the agents can then share that with their clients in their sphere of influence. Now we do see value in doing something potentially at the corporate level that we're exploring. But first, we want to maximize the total value of doing it in a free way that aligns us with our agents where they can build their client relationship.

Q: Got it. That's helpful. And just on free cash flow, how should we be thinking about uses of it here? Could we potentially be thinking about share buybacks? Any sort of framework to be thinking about SBC as well for this year? Thanks.

A: Yeah. Hey, Chris. On overall free cash flow, we expect meaningful free cash flow creation in the year. As we think about our framework, we really have three buckets. The first is just fortifying our balance sheet. Right? Just making sure that we are prepared for the cyclical business that we are in. Second is investment back into our business. Our key focus from that perspective is gonna be on technology and deepening our inventory in our key markets through M&A and organic growth. And then our third bucket as we think through and see continued free cash flow will be shareholder return. And so as we think about free cash flow this year, it'll be focused on kind of the first two buckets, and looking at opportunities long term for shareholder value.

Q: Got it. And anything off that run rate for full year SBC to be thinking about?

A: I think Q1 will look very similar to Q4. And then we'll continue to maintain, you know, around those levels. There's some step-ups as we normally have for investments in our employees, but overall, we should be relatively the same.

Q: Great. Thanks for taking questions. Maybe just to start, is there a difference for commissions to agents based on private listings or coming soon? Or are they more likely to represent both sides of the transaction in areas that they're able to and it certainly just seems like from the anecdotes, they're more they're using it. They're leveraging to win listings. Just any commentary on the economics to agents with private listings are coming soon.

A: Yeah. And I think你're right. On the last point, it seems like you're hearing as well. Agents are saying that the Compass three-phase marketing strategy is helping them win listings. And, yeah, there are many people who would say it's one of the best listing tools that they've ever had because it meets, obviously, the seller demand. In terms of commissions, there's no different commission structure for a private exclusive versus coming soon versus an active listing. And I personally don't even know how much more listings are sold in-house or not. That is not the reason why we do this. The reason why we do things is because we want to give our agents an edge. And so how to give your agents an edge? You give them tools that their clients want. And this is just one of the greatest tools that you can give. And what's great about this tool as well is it doesn't cost more money. An agent can go to their clients and walk through the pre-phase marketing strategy. They're gonna sound more sophisticated. They're gonna sound like they have a plan. They're gonna sound professional. And it's not, hey, I'm gonna spend more money on an ad or on marketing dollars. And so their clients want someone who has a plan. This is a plan that is free. And it works uniquely within Compass because of our network of thirty-two thousand top agents where you can effectively access millions of buyers without the risk of portal sites和MLS exposure.

Q: Understood. Thanks, Robert. And for Kalani, with the acquisition just that just closed, you know, there's $25 million of franchise revenue, $25 million of title. Just wondering if we get an update on what the expected total non-commission revenue could be, either a percentage of total or just you know, an aggregate number of what we're up to right now in terms of that非commission revenue.

A: Yeah. So你're I think the you know, we won't give the pieces out, Bernie, but I do think we've given some of the information. I think overall, $500 million of revenue I think those pieces we gave out that你just mentioned are gonna we're gonna grow and have those post have some really good opportunities. But I think like, you can add just the continued growth there, but that's probably the bigger piece of the $500 million will be brokerage as well.

Q: Hey. Thank you. Congrats on the results, and thanks as always for the commentary. Guess a two-part question around growth expectations. First on the organic side, I guess using Q4 as an example, you know, about 670 gross agent ads dropping down to about 210 on a net basis. I guess I'm just curious on an organic basis, you know, what do you think is a reasonable run rate to think about going forward? Like, is Q4 a decent proxy? I know你called out kind of managing out non-producers. So presumably, not the best proxy for future quarters, but any commentary around just your thoughts on agent additions on an organic basis going forward? And then secondly, on the inorganic side, following the app properties and Christie's deal, obviously, a large and important transaction. I guess I'm curious, what about the pipeline of incremental M&A? You know, does the focus shift a bit to just the integration, drawing out synergies from that deal? Or could we expect to see further maybe smaller opportunities down the pike and yeah, just generally your view on incremental M&A going forward post the deal. Thank you.

A: Yeah. Hey, Ryan. It's Kalani. For the question. For agent ads, I think we've seen a ton of momentum. I'm really excited by the work the team's done. We are targeting and we should expect to add between 600 to 700 gross agents, and we should expect to maintain that industry-leading at 90% annualized or somewhere around 97.5% per quarter. And so I would suspect, you know, Q4, Q3 is a good proxy for gross net add or gross adds, I'm sorry. As we mentioned, Q4 had about 150, 175 non-producing agents that we cleaned up. So the 210 is probably a little understated. It is my guess. Overall, but I think you can use the gross as a proxy. I think we're seeing a ton of momentum. Agents are really coming over for technology, coming over for our depth of inventory and culture are kind of the big three reasons. And so I don't see that momentum stopping. In fact, I see it's only getting stronger with the team, and我do see our retention rate kind of holding strong there. So I think you can use Q3, but for the bit of the cleanup that we did for non-producing agents. And then on the M&A, I think we'll continue. We're working well with our Christie's International Real Estate partners to integrate driving synergies, achieving those $30 million. We'll continue to focus on that, but the pipeline remains strong. A lot of conversations, particularly as we think about the inventory advantage that we're building. And so we'll continue to see the opportunities there within our framework economically that makes a lot of sense for us. So I anticipate you'll hear more activity from us.

Q: Hey. Good afternoon. Thank you for the question. I just had one for Robert on the inventory strategy. I was wondering if you could just speak to if you look out to a couple of years, what does this look like in success for Compass? Is this about attracting more agents and gaining market share that way? Given private exclusives and coming soon is a tool that Compass is obviously doing very well in. Could you potentially get a license fee from cross-posting to real estate portals at some point down the road in perhaps charging for access while keeping the negative insights off those listings? Any thoughts there would be great. Thank you.

A: Yeah. Look, Michael. Any of the questions said coming from you, my own automotive loan, Goldman Sachs. Which for many years was known as the bank that you would go to if you want to sell a company and get an extra dollar because你ran the best process and the best, you know, people and tools to do so. So where's this look in the long run? In the long run, hopefully not too many years from now, every homeowner in the country knows you want to sell your most valuable asset, on the average person's life, that this company called Compass can help you maximize that value. That's what this is all about. And if we do that, of course, you can imagine all the wonderful, beautiful things that come with it. Because you can't buy what's not for sale. And, you know, that would of course, it would allow to more transactions, helping more not just sellers. Remember, every time you help a seller, you're also helping a buyer. And you become a place. If we are the place that's known to maximize the value of a home sale, clearly, the best real estate professionals would want to be there as well, and你're giving them an edge. So你的place that agents want to come to, they want to stay at more, it allows you to then, you know, take that success and reinvest it back in the platform so你're investing more in the future of your business than the market. And yeah, I would like to see this as a place where we have an impact on the industry such that agents are no longer being forced by a trade group and being told by a trade group how to market their clients' properties. I just don't think that's right. And we talked about on the call the trade group's business is a volume business. It's how do I make as much money from volume for agent dues. My estimate is the trade groups plus the MLS associations generate $2 billion of agent dues a year. There's real money there. A lot of people, six hundred MLSs. A lot of people that are making money off the agent. And I'm the one who these agents come to and say, why is it that the pain are? You know, why is it I can't watermark my own photos? Than the MLS watermarks it? Why is it I can't put in a listing description I'm the listing agent? So the buyer sees on the portal, that they know they can actually reach out to me to listen to. And look, ultimately, I just I'd close your question saying, I want the future of this industry not to be created by companies that are trying to devalue, discount, and displace and control the agents. Instead, to be created by the agent and the person who's at the center of the transaction, who was talking with the client every single day, the buyer and seller and saying, what are your needs? How can I meet them? They should be the ones that are creating the future of the industry and Compass is the company that will listen to them better than any company. And then build their ideas into reality.

Q: Hi. This is Jeff on for Ben. Thanks for taking my question. We're just wondering if you could give a little bit of color on how commission rates have trended for agents. I mean, you talked about kind of the difference between the underperforming and the high-performing agents, which seems like it might imply that you're seeing some more commission compression on the lower end side of the agent. Is there anything you can tell us just on how that's trended and maybe different mix or different geographies and where you're seeing more or less of an impact? Thank you.

A: We haven't looked at this in detail. However, what I can see anecdotally and from what我read, the top agents are outperforming the not saying gaining market share, but also on commission than the inexperienced agents. And it's similar to what I said on the call. Like, you know, why is it that in this industry, buyer agents regardless of their experience were getting paid the same from the listing agent commission paid to the buyer agent? Well, in another industry, would it be like that? Lawyers, one year in the business don't get paid. Lawyers tend the same as lawyers ten years in the business. So I think the structural change and that's why I know I spent some时间on the call. But I really believe that's the biggest thing happening right now. This industry of large brokerages and top agents has been held back by rules that, you know, would be claimed as leveling the playing field. But really, the main is, how do we get as many agents as possible? How out of the industry of almost 1.6 million agents were 70% of them didn't do one transaction last year? Because that's how all those stakeholders can make as much money being the NAR, the associations, and the MLS. And so with这些rules being pulled out, I just think these top agents are gonna thrive. It's gonna be incredible for them as well as large brokers, Compass as well as others. But Compass invested in a built $1.7 billion in tech platform, hundreds of millions of dollars in other stuff. So we have I think we will thrive more because we invest in more. But it's a great thing for agents, large brokers, and ultimately the consumer because the consumer wants an industry where more people are investing on their behalf. Not an industry where there's no incentive to invest on your behalf on their behalf. But, yeah, long story short is we're not seeing a change for the top agents.