Compass(COMP) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, and market risk disclosures Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Compass, Inc., including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, acquisitions, debt, commitments, stock-based compensation, and other financial details for the periods ended June 30, 2024, and December 31, 2023 Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets show an increase in total assets from $1,160.3 million at December 31, 2023, to $1,215.2 million at June 30, 2024, primarily driven by increases in cash and cash equivalents, accounts receivable, and goodwill. Total liabilities also increased from $728.3 million to $813.5 million, mainly due to higher commissions payable and accrued expenses | Metric | June 30, 2024 (Millions) | December 31, 2023 (Millions) | | :------------------------------------- | :----------------------- | :--------------------------- | | Assets | | | | Cash and cash equivalents | $185.8 | $166.9 | | Accounts receivable, net | $56.8 | $36.6 | | Compass Concierge receivables, net | $33.2 | $24.0 | | Total current assets | $320.5 | $282.0 | | Goodwill | $234.6 | $209.8 | | Total assets | $1,215.2 | $1,160.3 | | Liabilities | | | | Commissions payable | $106.5 | $59.6 | | Accrued expenses and other current liabilities | $134.0 | $90.8 | | Total current liabilities | $385.8 | $292.5 | | Total liabilities | $813.5 | $728.3 | | Stockholders' Equity | | | | Total stockholders' equity | $401.7 | $432.0 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2024, Compass, Inc. reported a net income of $20.7 million, a significant improvement from a net loss of $47.8 million in the prior-year period. Revenue increased by 13.8% to $1,700.6 million, while total operating expenses grew at a slower rate, leading to income from operations of $21.3 million compared to a loss of $44.6 million previously | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue | $1,700.6 | $1,494.0 | $2,754.7 | $2,451.2 | | Total operating expenses | $1,679.3 | $1,538.6 | $2,865.5 | $2,644.2 | | Income (loss) from operations | $21.3 | $(44.6) | $(110.8) | $(193.0) | | Net income (loss) attributable to Compass, Inc. | $20.7 | $(47.8) | $(112.2) | $(198.2) | | Net income (loss) per share, basic | $0.04 | $(0.10) | $(0.23) | $(0.44) | | Net income (loss) per share, diluted | $0.04 | $(0.10) | $(0.23) | $(0.44) | Condensed Consolidated Statements of Stockholders' Equity The Condensed Consolidated Statements of Stockholders' Equity show a decrease in total stockholders' equity from $432.0 million at December 31, 2023, to $401.7 million at June 30, 2024, primarily due to a net loss of $112.2 million for the six months ended June 30, 2024, partially offset by increases in additional paid-in capital from stock-based compensation and common stock issuances | Metric | December 31, 2023 (Millions) | June 30, 2024 (Millions) | | :------------------------------------- | :--------------------------- | :----------------------- | | Total Stockholders' Equity | $432.0 | $401.7 | | Net loss (six months ended June 30, 2024) | N/A | $(112.2) | | Additional Paid-in Capital (six months ended June 30, 2024) | N/A | $81.9 | | Common Shares Outstanding (June 30, 2024) | 484,893,266 | 501,172,106 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, Compass, Inc. generated $53.6 million in net cash from operating activities, a significant improvement from a net cash outflow of $2.2 million in the prior-year period. Investing activities used $26.5 million, mainly for acquisitions and capital expenditures, while financing activities used $8.2 million, primarily due to taxes paid on equity awards and acquisition-related payments | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by (used in) operating activities | $53.6 | $(2.2) | | Net cash used in investing activities | $(26.5) | $(6.1) | | Net cash used in financing activities | $(8.2) | $(18.2) | | Net increase (decrease) in cash and cash equivalents | $18.9 | $(26.5) | | Cash and cash equivalents at end of period | $185.8 | $335.4 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's financial statements, covering its business model as a residential real estate platform, significant accounting policies, recent acquisitions, fair value measurements, debt facilities, legal proceedings, equity structure, stock-based compensation, income taxes, and per-share calculations. Key updates include recent acquisitions expanding brokerage and title services, a $57.5 million settlement for antitrust lawsuits, and ongoing restructuring activities 1. Business and Basis of Presentation Compass, Inc. operates an end-to-end platform for residential real estate agents, leveraging cloud-based software, data, AI, and machine learning. The company primarily generates revenue from commissions paid by clients through its independent contractor agents, with a smaller portion from adjacent services like title and escrow. Macroeconomic conditions, including rising interest rates, have adversely impacted the U.S. residential real estate market, leading to continued operating losses and negative cash flows in certain periods, though the company believes it has sufficient liquidity for the next twelve months - Compass provides an end-to-end platform empowering residential real estate agents with cloud-based software, proprietary data, analytics, AI, and machine learning for CRM, marketing, and client service[27] - The company's primary revenue source is commissions from agents' clients at the time of home transactions, with integrated services like title and escrow contributing a smaller portion[28] - Macroeconomic conditions, including rising inflation and mortgage interest rates, have slowed the U.S. residential real estate market, adversely impacting the company's business and leading to continued operating losses and negative cash flows in certain periods[32][33] - As of June 30, 2024, the company held $185.8 million in cash and cash equivalents and had $295.1 million available under its Revolving Credit Facility, believing it has sufficient liquidity for the next twelve months and beyond[34] 2. Summary of Significant Accounting Policies This section outlines Compass's significant accounting policies, including the use of estimates in financial reporting, the acquisition method for business combinations, and the measurement of stock-based compensation. It also details recent accounting pronouncements, such as ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), which are being evaluated for their impact on future disclosures - The preparation of financial statements requires management to make judgments and estimates, particularly for valuation of common stock, acquired intangibles, contingent consideration, and income taxes[35] - Business combinations are accounted for using the acquisition method, allocating purchase consideration to acquired assets and liabilities at fair value, with any excess recorded as goodwill[36] - Stock-based compensation expense for awards like stock options (valued using Black-Scholes) and RSUs (valued at grant date fair value) is recognized over the service period[37][38][40] - The company is evaluating the impact of new accounting pronouncements: ASU 2023-09 (Income Taxes) effective for fiscal years beginning after December 15, 2024, and ASU 2023-07 (Segment Reporting) effective for annual periods beginning January 1, 2024[42] 3. Acquisitions During the first half of 2024, Compass completed acquisitions of two residential real estate brokerages (Latter & Blum Holdings, LLC and Parks Village Nashville, LLC) and a title insurance and escrow settlement services company to expand its market presence. The total consideration for these acquisitions included $22.0 million in Class A common stock, $18.0 million in cash, and additional contingent payments, resulting in the recognition of $24.8 million in goodwill - During the six months ended June 30, 2024, Compass acquired Latter & Blum Holdings, LLC, Parks Village Nashville, LLC, and a title insurance/escrow company to expand its brokerage and title/escrow presence[43] - Total consideration for 2024 acquisitions included $22.0 million in Class A common stock, $18.0 million cash, $9.8 million in future cash/stock, and an estimated $7.4 million in contingent Class A common stock/cash[43][44] - The acquisitions resulted in the recognition of $28.7 million in customer relationships, $2.4 million in trademark intangibles, and $24.8 million in goodwill[45] | Metric | 2024 (Millions) | 2023 (Millions) | | :------------------------------------------ | :-------------- | :-------------- | | Opening balance of contingent consideration | $19.5 | $18.2 | | Acquisitions (contingent consideration) | $7.4 | $8.8 | | Payments (contingent consideration) | $(0.4) | $(1.2) | | Changes in fair value (contingent consideration) | $0.4 | $0.6 | | Closing balance of contingent consideration | $26.9 | $17.6 | 4. Fair Value of Financial Assets and Liabilities Compass's financial instruments primarily consist of Level 1 cash and cash equivalents, valued using quoted prices in active markets. The company's only Level 3 financial instruments are contingent consideration liabilities related to acquisitions, which are valued using unobservable inputs like forecasted future business results - Cash and cash equivalents ($185.8 million as of June 30, 2024) are classified as Level 1 financial instruments, valued using quoted prices in active markets[50] - Contingent consideration liabilities ($26.9 million as of June 30, 2024) are the company's only Level 3 financial instruments, with fair value estimated using unobservable inputs such as forecasted future results of acquired businesses[51][52] | Contingent Consideration (Millions) | June 30, 2024 | December 31, 2023 | | :---------------------------------- | :------------ | :---------------- | | Accrued expenses and other current liabilities | $3.4 | $4.5 | | Other non-current liabilities | $23.5 | $16.4 | | Total contingent consideration | $26.9 | $20.9 | 5. Debt Compass maintains a $75.0 million Concierge Credit Facility, primarily used for its Compass Concierge Program, with an interest rate of 8.25% as of June 30, 2024, and a maturity in January 2026. Additionally, the company has a $350.0 million Revolving Credit Facility, with no outstanding borrowings as of June 30, 2024, but $54.9 million in outstanding letters of credit. Both facilities include customary covenants, which the company was in compliance with as of June 30, 2024 - The Concierge Facility provides a $75.0 million revolving credit facility, solely for the Compass Concierge Program, with an interest rate of 8.25% as of June 30, 2024, and principal payable in January 2026[53] - The Revolving Credit Facility offers $350.0 million, with no outstanding borrowings as of June 30, 2024, but $54.9 million in outstanding letters of credit, maturing in March 2026[56][58] - Both debt facilities contain financial and non-financial covenants, including a liquidity requirement of at least $150.0 million and minimum consolidated revenue thresholds, with Compass being in compliance as of June 30, 2024[54][59] 6. Commitments and Contingencies Compass is involved in several legal proceedings, most notably eight putative class action lawsuits and one individual lawsuit (Antitrust Lawsuits) alleging violations of the Sherman Act related to real estate commissions. The company entered into a settlement agreement on March 21, 2024, to resolve nationwide claims for $57.5 million, with 50% paid by June 30, 2024, and the remainder due in Q2 2025. Additionally, Compass is contingently liable for $54.9 million under letters of credit and $270.0 million in escrow and trust deposits - Compass is a defendant in eight putative class action lawsuits and one individual lawsuit (Antitrust Lawsuits) alleging violations of Section 1 of the Sherman Act related to inflated buyer broker commission payments[63][64] - On March 21, 2024, Compass settled the Gibson and Umpa cases and similar nationwide claims for $57.5 million, with 50% paid by June 30, 2024, and the remaining 50% expected in Q2 2025; the settlement is subject to final court approval[66][70] - The company recognized an expense of $57.5 million within General and administrative expense during the three months ended March 31, 2024, for the proposed settlement[70] - As of June 30, 2024, Compass was contingently liable for $54.9 million under irrevocable letters of credit and administered $270.0 million in escrow and trust deposits, which are not company assets[72][73] 7. Preferred Stock and Common Stock Compass's authorized capital stock includes 12.5 billion shares of Class A common stock (one vote per share), 1.25 billion shares of Class B common stock (non-voting), and 100 million shares of Class C common stock (twenty votes per share). As of June 30, 2024, 501,172,106 shares of common stock were issued and outstanding, with Class C shares convertible to Class A under certain conditions. The company also completed a strategic transaction in August 2023, receiving $32.3 million cash for 9.0 million Class A shares, with a contingent payment liability that was released in Q2 2024 - Compass's capital structure includes Class A (one vote), Class B (non-voting), and Class C (twenty votes) common stock, with Class C convertible to Class A[76][77][78] | Common Stock Class | Authorized Shares | June 30, 2024 Shares Issued | June 30, 2024 Shares Outstanding | | :----------------- | :---------------- | :-------------------------- | :------------------------------- | | Class A | 12,500,000,000 | 481,834,469 | 481,834,469 | | Class B | 1,250,000,000 | — | — | | Class C | 100,000,000 | 19,337,637 | 19,337,637 | | Total | 13,850,000,000 | 501,172,106 | 501,172,106 | - In August 2023, Compass received $32.3 million cash for 9.0 million Class A shares in a strategic transaction; a contingent payment liability of up to $5.5 million was released during Q2 2024 as the volume-weighted stock price target was met[79] 8. Stock-Based Compensation Compass operates the 2021 Equity Incentive Plan (2021 Plan) and the 2021 Employee Stock Purchase Plan (ESPP), with 61.0 million shares available for future grants under the 2021 Plan and 18.4 million under the ESPP as of June 30, 2024. Total stock-based compensation expense for the six months ended June 30, 2024, was $63.8 million, a decrease from $83.9 million in the prior-year period, partly due to the discontinuation of the Agent Equity Program in 2023 - The 2021 Equity Incentive Plan had 61.0 million shares available for future grants as of June 30, 2024, after an annual increase of 24.2 million shares on January 1, 2024[81] - The 2021 Employee Stock Purchase Plan (ESPP) had 18.4 million shares of Class A common stock available for grant as of June 30, 2024, with 0.4 million shares issued during the six months ended June 30, 2024[82] | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Total stock-based compensation expense | $63.8 | $83.9 | | Unrecognized stock-based compensation expense (June 30, 2024) | $151.6 | N/A | | Weighted-average period for recognition | 1.9 years | N/A | - The Agent Equity Program was discontinued following the issuance of 14.1 million RSUs in January 2023 related to the 2022 program, contributing to the decline in stock-based compensation expense in 2024[87] 9. Income Taxes Compass recognized an income tax benefit of $0.4 million for the six months ended June 30, 2024, primarily from a partial reduction in the valuation allowance related to deferred tax liabilities from acquisitions, offset by state income tax expense and current tax expense from Indian operations. The company continues to maintain a full valuation allowance on all domestic net deferred tax assets - Compass recognized an income tax benefit of $0.1 million for Q2 2024 and $0.4 million for the six months ended June 30, 2024, primarily due to a partial reduction in the valuation allowance from acquisition-related deferred tax liabilities[90] - The company maintains a full valuation allowance on all domestic net deferred tax assets due to factors including estimated future taxable income and historic profitability[90] 10. Net Income (Loss) Per Share Attributable to Compass, Inc. Net income (loss) per share is computed using the two-class method, with identical per-share results for Class A, B, and C common stock due to similar rights. For the three months ended June 30, 2024, basic and diluted EPS were $0.04, a significant improvement from a loss of $0.10 in the prior-year period. For the six months ended June 30, 2024, basic and diluted EPS were a loss of $0.23, an improvement from a loss of $0.44 in the prior-year period | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Compass, Inc. | $20.7 million | $(47.8) million | $(112.2) million | $(198.2) million | | Basic EPS | $0.04 | $(0.10) | $(0.23) | $(0.44) | | Diluted EPS | $0.04 | $(0.10) | $(0.23) | $(0.44) | | Weighted-average shares, basic | 498,664,877 | 460,960,349 | 494,332,571 | 455,538,666 | | Weighted-average shares, diluted | 509,884,022 | 460,960,349 | 494,332,571 | 455,538,666 | - Certain participating securities, including outstanding stock options and RSUs, were excluded from diluted EPS calculation for periods with net losses as their inclusion would have been anti-dilutive[95] 11. Compass Concierge Receivables and Allowance for Credit Losses The Compass Concierge Program, which includes Concierge Classic (ceased new payments in 2022) and Concierge Capital (third-party underwritten loans), provides home improvement services or loans to sellers, with repayment due upon home sale, listing termination, or one year. Concierge Receivables are stated net of an estimated allowance for credit losses (ACL). As of June 30, 2024, 98% of outstanding receivables were related to unsold properties, and the ACL decreased to $11.1 million from $13.2 million at the beginning of the period - The Compass Concierge Program offers home improvement services (Concierge Classic, largely ceased new payments in 2022) and third-party underwritten loans (Concierge Capital) to home sellers[96][97] - Repayment for Concierge services/loans is due upon the earlier of a successful home sale, listing agreement termination, or one year from funding[98] - As of June 30, 2024, approximately 98% of outstanding Concierge Receivables were related to unsold properties, which carry a higher credit risk[100] | Metric | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :---------------------- | :---------------------------------------- | :-------------------------------------- | | Beginning of period ACL | $13.2 | $13.2 | | Allowances | $0.1 | $0.2 | | Net write-offs | $(2.2) | $(2.3) | | End of period ACL | $11.1 | $11.1 | 12. Restructuring Activities Since 2022, Compass has undertaken restructuring activities, including workforce reductions, winding down Modus Technologies, Inc., and terminating operating leases, to improve organizational alignment, drive cost efficiencies, and move towards profitability. For the six months ended June 30, 2024, total restructuring-related expenses were $7.6 million, significantly lower than $31.3 million in the prior-year period, primarily due to reduced lease termination costs and accelerated depreciation - Since 2022, Compass has implemented restructuring actions, including workforce reductions, winding down Modus Technologies, Inc., and lease terminations, to improve organizational structure and achieve cost efficiencies[103] | Restructuring Costs (Millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Severance related personnel costs | $0.0 | $0.0 | $0.0 | $8.9 | | Lease termination costs | $4.3 | $15.9 | $5.8 | $17.1 | | Accelerated depreciation | $0.9 | $1.4 | $1.8 | $5.3 | | Total expense | $5.2 | $17.3 | $7.6 | $31.3 | | Estimated Future Lease Payments (Millions) | Remaining 2024 | 2025 | 2026 | 2027 | Thereafter | Total | | :--------------------------------------- | :------------- | :--- | :--- | :--- | :--------- | :---- | | Payment Due by Period | $10.9 | $11.5 | $7.0 | $5.8 | $7.3 | $42.5 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Compass's financial condition and operational results, highlighting a significant improvement in net income and Adjusted EBITDA for the three and six months ended June 30, 2024, driven by increased agent count, transaction volume, and cost reduction initiatives. It also discusses the impact of macroeconomic conditions on the real estate market, key business metrics, liquidity, and critical accounting policies OVERVIEW The MD&A section provides an overview of Compass, Inc.'s financial condition and results of operations, covering company description, recent developments, operational highlights, and the impact of seasonality and macroeconomic conditions. It also includes analysis of financial statement line items, key business metrics, non-GAAP measures, liquidity, capital resources, and critical accounting estimates - The MD&A provides a comprehensive understanding of Compass's results, financial condition, and changes, supplementing the condensed consolidated financial statements[110] - Key topics covered include company and business model description, operational highlights, impact of seasonality and macroeconomic conditions, analysis of financial line items, key business metrics, non-GAAP measures, liquidity, capital resources, and critical accounting estimates[110] INTRODUCTION Compass, Inc. operates an end-to-end platform for residential real estate agents, leveraging technology, data, and AI to enhance service delivery and agent productivity. The company's revenue is primarily commission-based, with integrated services as a growing segment. Operational highlights for Q2 2024 include an increase to over 33,000 agents, a 24.1% rise in principal agents, and a 14.5% increase in Gross Transaction Value to $65.0 billion, despite ongoing macroeconomic challenges in the U.S. residential real estate market - Compass provides an end-to-end platform for residential real estate agents, integrating cloud-based software, proprietary data, analytics, AI, and machine learning to simplify workflows and deliver high-value recommendations[112] - The company's business model aligns with agent success, attracting and retaining high-performing independent contractor agents, with revenue primarily from commissions and a growing focus on integrated services[113][114] - As of June 30, 2024, Compass had over 33,000 agents, with the Number of Principal Agents increasing by 24.1% year-over-year to 16,997[114][115] | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | YoY Change | | :---------------------- | :------------------------------- | :------------------------------- | :--------- | | Total Transactions | 60,390 | 54,207 | +11.4% | | Gross Transaction Value | $65.0 billion | $56.8 billion | +14.5% | | U.S. Market Share | 5.1% | 4.6% | +0.5 pp | - The U.S. residential real estate market continues to face a slowdown due to macroeconomic conditions like rising inflation and mortgage interest rates, impacting consumer demand and home affordability[120] RESULTS OF OPERATIONS Compass, Inc. reported a significant improvement in its financial performance for the three and six months ended June 30, 2024. Revenue increased by 13.8% and 12.4% respectively, driven by agent growth and transaction volume. The company achieved income from operations of $21.3 million for the three-month period, reversing a prior-year loss, and reduced its operating loss for the six-month period. This improvement was supported by a slower growth in operating expenses, particularly a decrease in sales and marketing, restructuring costs, and general and administrative expenses (excluding a litigation charge) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2023 (Millions) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue | $1,700.6 | $1,494.0 | $2,754.7 | $2,451.2 | | Income (loss) from operations | $21.3 | $(44.6) | $(110.8) | $(193.0) | | Net income (loss) attributable to Compass, Inc. | $20.7 | $(47.8) | $(112.2) | $(198.2) | | Total operating expenses | $1,679.3 | $1,538.6 | $2,865.5 | $2,644.2 | | Commissions and other related expense (% of revenue) | 82.6% | 81.9% | 82.3% | 82.2% | | Sales and marketing (% of revenue) | 5.6% | 7.6% | 6.8% | 9.3% | | General and administrative (% of revenue) | 1.3% | 2.3% | 3.8% | 2.8% | | Restructuring costs | $4.3 | $15.9 | $5.8 | $26.0 | | Depreciation and amortization | $21.4 | $22.3 | $42.2 | $47.2 | | Investment income, net | $1.4 | $2.5 | $2.5 | $5.4 | | Interest expense | $(1.6) | $(4.1) | $(3.1) | $(7.3) | | Income tax benefit | $0.1 | $0.0 | $0.4 | $0.0 | | Equity in loss of unconsolidated entity | $(0.4) | $(0.7) | $(1.2) | $(2.2) | - Revenue increased by 13.8% for the three months and 12.4% for the six months ended June 30, 2024, primarily due to an increase in agents and transaction volume, with acquisitions contributing 4.8% and 4.3% respectively[125] - Sales and marketing expense decreased by 16.2% for the three months and 17.6% for the six months ended June 30, 2024, excluding stock-based compensation, primarily due to lower agent marketing costs and incentives[127] - General and administrative expense for the six months ended June 30, 2024, included a $57.5 million charge related to the Antitrust Lawsuits settlement[131] KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES Compass uses key business metrics like Total Transactions, Gross Transaction Value, and Number of Principal Agents to assess platform scale and agent success. For Q2 2024, Total Transactions increased by 11.4% to 60,390, Gross Transaction Value rose by 14.5% to $65.0 billion, and the Number of Principal Agents grew by 24.1% to 16,997. The company also reports Adjusted EBITDA, a non-GAAP measure, which significantly improved to $77.4 million for Q2 2024, up from $30.1 million in the prior year, reflecting cost reduction initiatives and revenue growth | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Transactions | 60,390 | 54,207 | 98,839 | 90,093 | | Gross Transaction Value (in billions) | $65.0 | $56.8 | $105.1 | $93.4 | | Number of Principal Agents | 16,997 | 13,698 | 16,997 | 13,698 | | Net income (loss) attributable to Compass, Inc. (in millions) | $20.7 | $(47.8) | $(112.2) | $(198.2) | | Adjusted EBITDA (in millions) | $77.4 | $30.1 | $57.3 | $(37.0) | | Adjusted EBITDA margin | 4.6% | 2.0% | 2.1% | (1.5%) | - Total Transactions increased by 11.4% for the three months and 9.7% for the six months ended June 30, 2024, primarily due to acquired brokerages operating in markets with lower average selling prices[142] - Gross Transaction Value increased by 14.5% for the three months and 12.5% for the six months ended June 30, 2024, driven by an increase in the number of agents on the platform[143] - Adjusted EBITDA significantly improved to $77.4 million for the three months and $57.3 million for the six months ended June 30, 2024, from $30.1 million and $(37.0) million respectively in the prior year, due to cost reduction initiatives and increased revenue[148] LIQUIDITY AND CAPITAL RESOURCES Compass's liquidity position as of June 30, 2024, included $185.8 million in cash and cash equivalents and access to a $350.0 million Revolving Credit Facility. Despite historical negative cash flows from operations and an accumulated deficit of $2.6 billion, the company believes it has sufficient liquidity for the next 12 months and beyond, supported by improved operating cash flows of $53.6 million for the six months ended June 30, 2024. Future capital requirements depend on agent growth, market expansion, and integrated service investments - As of June 30, 2024, Compass had $185.8 million in cash and cash equivalents and an accumulated deficit of $2.6 billion[153] - The company expects continued operating losses and negative cash flows in certain periods due to the U.S. residential real estate market slowdown but believes existing cash, the Concierge Facility, and the Revolving Credit Facility will provide sufficient liquidity for at least the next 12 months[154] | Cash Flow Activity (Millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $53.6 | $(2.2) | | Net cash used in investing activities | $(26.5) | $(6.1) | | Net cash used in financing activities | $(8.2) | $(18.2) | | Net increase (decrease) in cash and cash equivalents | $18.9 | $(26.5) | - Off-balance sheet arrangements include $270.0 million in escrow and trust deposits as of June 30, 2024, for which the company is contingently liable[163] CRITICAL ACCOUNTING ESTIMATES AND POLICIES Compass's financial statements rely on critical accounting estimates and policies that require significant management judgment and assumptions, including those related to asset and liability valuations, revenue and expense recognition, and disclosures. There have been no material changes to these critical accounting policies and estimates since the 2023 Form 10-K - The preparation of financial statements requires management to make judgments, estimates, and assumptions affecting reported amounts of assets, liabilities, revenue, and expenses[164] - There have been no material changes to the critical accounting policies and estimates disclosed in the 2023 Form 10-K[165] RECENT ACCOUNTING PRONOUNCEMENTS This section refers to Note 2 of the condensed consolidated financial statements for details on recently adopted accounting pronouncements and those issued but not yet adopted - Information regarding recently adopted accounting pronouncements and those issued but not yet adopted is detailed in Note 2 to the condensed consolidated financial statements[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk Compass's primary market risk exposure stems from potential changes in interest rates. While its cash and cash equivalents are short-term and carry minimal interest rate risk, the Concierge Facility and Revolving Credit Facility are subject to floating interest rates. A 100-basis point change in market interest rates is not expected to materially impact interest expense due to current outstanding balances. The company has limited foreign currency exchange risk due to minimal international operations - Compass's primary market risk exposure is from potential changes in interest rates, though its short-term cash and cash equivalents carry minimal risk[167][168] - The Concierge Facility (outstanding $27.3 million) bears interest at term SOFR plus 2.75%, and the Revolving Credit Facility (no outstanding borrowings) bears interest at SOFR plus 1.50%[169] - A 100-basis point change in market interest rates over a twelve-month period is not expected to result in a material change to interest expense[169] - The company does not face significant foreign currency exchange risk due to limited operations in India and minimal foreign currency balances[170] Item 4. Controls and Procedures Compass's disclosure controls and procedures were deemed effective at a reasonable assurance level as of June 30, 2024, ensuring timely and accurate reporting. There were no material changes in internal control over financial reporting during the quarter. Management acknowledges the inherent limitations of any control system, which can only provide reasonable, not absolute, assurance against errors or fraud - As of June 30, 2024, the Chief Executive Officer and Chief Financial Officer concluded that Compass's disclosure controls and procedures were effective at the reasonable assurance level[172] - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2024[173] - Management acknowledges that control systems have inherent limitations and can only provide reasonable assurance, not absolute, against all errors and fraud[173] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section incorporates by reference the information on legal proceedings detailed in Note 6 to the condensed consolidated financial statements, which primarily discusses the ongoing antitrust lawsuits and the company's settlement agreement - Information regarding legal proceedings is incorporated by reference from Note 6 to the condensed consolidated financial statements[174] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's 2023 Form 10-K. It advises readers to review the comprehensive risk factors in the 2023 Form 10-K, while also acknowledging the potential for new or currently immaterial risks to adversely affect the business - There have been no material changes to the risk factors set forth in the 2023 Form 10-K[175] - The company acknowledges that additional unknown or currently immaterial risks could materially adversely affect its business, financial condition, and operating results[175] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities From April 1 to August 2, 2024, Compass issued 5,156,850 shares of Class A common stock, valued at $21.5 million, in unregistered sales related to two acquisitions and an earnout payment from a prior acquisition. The company estimates it may issue up to an additional 3.4 million shares for future earnout payments, reserving the right to pay in cash. These issuances were exempt from registration under Section 3(a)(9) and Section 4(a)(2) of the Securities Act - From April 1 to August 2, 2024, Compass issued 5,156,850 shares of Class A common stock, totaling $21.5 million, for two acquisitions and a prior earnout payment[176] - The company estimates it may issue up to an additional 3.4 million shares for future earnout payments, with the option to pay in cash[176] - These unregistered sales were exempt from registration under Section 3(a)(9) and Section 4(a)(2) of the Securities Act[176] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[177] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures[177] Item 5. Other Information Several key executives and a director at Compass, including CEO Robert Reffkin, General Counsel Brad Serwin, Chief Accounting Officer Scott Wahlers, and Directors Pamela Thomas-Graham and Allan Leinwand, adopted Rule 10b5-1 trading arrangements in May 2024. These plans are for the sale of common stock at various limit prices, with termination dates ranging from August 2025 to August 2026 - CEO Robert Reffkin adopted a Rule 10b5-1 trading arrangement on May 10, 2024, for the sale of up to 10,500,000 shares of common stock, ending December 31, 2025[178] - General Counsel Brad Serwin adopted a Rule 10b5-1 trading arrangement on May 10, 2024, for the sale of up to 243,982 shares, ending August 10, 2026[178] - Chief Accounting Officer Scott Wahlers adopted a Rule 10b5-1 trading arrangement on May 17, 2024, for the sale of up to 591,922 shares, ending August 14, 2026[179] - Directors Pamela Thomas-Graham and Allan Leinwand also adopted Rule 10b5-1 trading arrangements in May 2024 for the sale of 239,216 and 40,394 shares, respectively[179] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2), and various Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[181] - Certifications in Exhibits 32.1 and 32.2 are furnished to accompany the Form 10-Q and are not deemed 'filed' for Section 18 of the Exchange Act[181]