Compass(COMP) - 2021 Q1 - Quarterly Report

FORM 10-Q This document is the Quarterly Report on Form 10-Q for Compass, Inc., providing financial and operational information for the specified period Filing Information This section details Compass, Inc.'s Form 10-Q filing specifics, including SEC file number, incorporation state, and stock exchange listing, for the quarter ended March 31, 2021 - The report is a Quarterly Report on Form 10-Q for the period ended March 31, 2021[2] Filing Details | Detail | Value | | :----- | :---- | | Commission File Number | 001-40291 | | Registrant Name | COMPASS, INC. | | State of Incorporation | Delaware | | Trading Symbol | COMP | | Exchange Registered | The New York Stock Exchange | | Filer Status | Non-accelerated filer | | Shell Company | No | | Common Stock Outstanding (as of May 10, 2021) | 393,973,089 shares | Index to Condensed Consolidated Financial Statements This section provides an index to the unaudited condensed consolidated financial statements and related disclosures for the reporting period Special Note Regarding Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, market growth, and potential impacts of the COVID-19 pandemic[12] - Key forward-looking statements include expectations on future financial performance, macroeconomic conditions, U.S. residential real estate market conditions, the effects of COVID-19, business plan management, market opportunity, agent platform usage, expansion into new markets, development of adjacent services, agent attraction and retention, seasonal/cyclical trends, third-party relationships, intellectual property, competition, regulatory compliance, and economic trends[13] - Readers are cautioned not to rely on forward-looking statements as predictions of future events, as actual results could differ materially due to various risks and uncertainties, including those detailed in 'Risk Factors'[14][15] PART I. FINANCIAL INFORMATION This part presents the core financial statements and management's discussion and analysis for the company's operations ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents Compass, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with accompanying notes - The financial statements are unaudited and prepared in accordance with U.S. GAAP, including all necessary adjustments for fair presentation of interim periods[33][34] - The results for the three months ended March 31, 2021, are not necessarily indicative of the operating results expected for the full year 2021 or any future period[35] Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over a specific reporting period Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit This section outlines changes in the company's convertible preferred stock and stockholders' deficit over the reporting period Condensed Consolidated Statements of Cash Flows This section reports the cash generated and used by the company's operating, investing, and financing activities Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section offers management's perspective on Compass, Inc.'s financial condition and operational results for the quarter ended March 31, 2021, including key metrics and liquidity - The discussion should be read in conjunction with the condensed consolidated financial statements and notes, and contains forward-looking statements[125] INTRODUCTION This section provides an overview of the company and the context for the financial discussion RESULTS OF OPERATIONS This section analyzes the company's revenue, expenses, and overall financial performance for the reporting period KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES This section presents key operational metrics and non-GAAP financial measures used by management to evaluate performance LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's ability to meet its short-term obligations and fund its long-term growth initiatives CRITICAL ACCOUNTING ESTIMATES AND POLICIES This section outlines the significant judgments and assumptions used in preparing the company's financial statements RECENT ACCOUNTING PRONOUNCEMENTS This section details the impact of recently issued accounting standards on the company's financial reporting ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details Compass, Inc.'s exposure to market risks, primarily interest rate fluctuations on cash and debt, and limited foreign currency risk - The company's market risk exposure primarily stems from potential changes in interest rates[220] - Cash and cash equivalents ($329.6 million as of March 31, 2021) are in short-term interest-earning instruments, limiting material exposure to interest rate changes[221] - Debt facilities (Concierge Facility and Revolving Credit Facility) are subject to LIBOR-based interest rates, but a 100-basis point change would not materially impact interest expense given current outstanding balances[222] - Foreign currency exchange risk is not significant due to limited operations in India and minimal foreign currency balances[224] Interest Rate Risk This section analyzes the company's exposure to fluctuations in interest rates and their potential impact on financial performance Foreign Currency Exchange Risk This section assesses the company's exposure to changes in foreign currency exchange rates and their financial implications ITEM 4. CONTROLS AND PROCEDURES This section reports that Compass, Inc.'s disclosure controls were ineffective as of March 31, 2021, due to material weaknesses in internal control over financial reporting, with remediation ongoing - As of March 31, 2021, disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting[228] - Material weaknesses include insufficient oversight of internal control activities, lack of formal accounting policies and procedures, and ineffective IT general controls[229][296] - Remediation plans are underway, involving hiring additional personnel with public company experience, implementing new financial systems, and evolving accounting processes[231][299] - Despite the material weaknesses, management concluded that the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[228] Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's controls designed to ensure timely and accurate public disclosures Previously Reported Material Weaknesses This section details the significant deficiencies in internal control over financial reporting identified in prior periods Remediation Plans This section outlines the company's strategies and actions to address and resolve identified material weaknesses Changes in Internal Control over Financial Reporting This section reports any changes in the company's internal control over financial reporting during the quarter PART II. OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings and risk factors ITEM 1. LEGAL PROCEEDINGS This section details ongoing legal proceedings, including lawsuits by Avi Dorfman and Realogy Holdings Corp., with uncertain outcomes and unestimable potential losses - The company is involved in legal proceedings, including a lawsuit by Avi Dorfman and RentJolt, Inc. seeking compensation for services and contributions to the company's formation, with a trial date set for September 2021[76][340] - Another significant lawsuit involves Realogy Holdings Corp. alleging various violations of New York and California state law related to unfair competition and defamation[77] - The company is unable to predict the outcome or reasonably estimate the possible loss or range of loss for these actions[80] ITEM 1A. RISK FACTORS This section outlines significant risks to Compass, Inc.'s business, including economic conditions, agent retention, rapid growth challenges, historical losses, competition, and legal/regulatory compliance - The company's success is highly dependent on general economic conditions and the health of the U.S. real estate industry, which are subject to seasonal and cyclical trends and external factors[238][240] - Key operational risks include the ability to attract, retain, and increase agent utilization of its platform, the need for continuous innovation and expansion of its technology platform, and the potential for rapid growth to decline[241][242][249] - Financial risks include a history of net losses and anticipated increases in operating expenses, with no guarantee of achieving or sustaining profitability[245][246] - The COVID-19 pandemic has materially affected the business and its full impact remains uncertain, potentially affecting financial condition, results of operations, and cash flows[250][255] - The company faces intense competition from traditional brokerages and technology companies, and its ability to compete depends on attracting and retaining agents, product innovation, and brand strength[252][253][254] - Legal and regulatory risks include potential reclassification of independent contractors as employees, compliance with various federal and state laws (e.g., RESPA), anti-corruption laws, and evolving internet laws[344][345][351][356] - Intellectual property risks involve the inability to protect trade secrets, trademarks, and copyrights, and potential infringement claims from third parties[358][364] - Risks related to stock ownership include the multi-class structure concentrating voting power with the CEO, potential stock price volatility, and the need for additional capital[369][378][382] Summary of Risk Factors This section provides a high-level overview of the principal risks and uncertainties affecting the company's business Risks Related to Our Business and Operations This section details risks inherent to the company's core business model, operational processes, and market environment Risks Related to Our Legal and Regulatory Environment This section addresses risks arising from compliance with laws, regulations, and potential legal actions affecting the company Risks Related to Our Intellectual Property This section discusses risks associated with protecting the company's intellectual property and potential infringement claims Risks Related to Ownership of Our Class A Common Stock This section outlines risks pertinent to investors holding the company's Class A Common Stock, including market and governance factors ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details Compass, Inc.'s unregistered equity sales from January to April 2021 and the use of $449.7 million net proceeds from its April 2021 IPO - From January 1, 2021, to April 1, 2021, the company issued 1,888,660 stock options and 18,088,710 restricted stock units (RSUs) under its 2012 Stock Incentive Plan[398][399] - 4,679,240 shares of Class A common stock and 31,250 shares of Class B common stock were issued upon exercise of stock options[398][399] - 258,560 shares of Class A common stock were issued for acquisitions, and 15,920,450 shares of Class A common stock were issued upon conversion of Series D convertible preferred stock[400][401] - The IPO, completed in April 2021, generated $449.7 million in net proceeds (after underwriting discount, before offering costs)[403] - IPO proceeds are intended for working capital, general corporate purposes (R&D, sales & marketing, G&A, capital expenditures), and potential acquisitions or investments in technologies/businesses[403] Unregistered Sales of Equity Securities This section reports on equity securities issued by the company without registration under the Securities Act of 1933 Use of Proceeds This section details how the company utilized the net proceeds obtained from its recent Initial Public Offering ITEM 6. EXHIBITS. This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, equity plans, and officer certifications - Exhibits include corporate governance documents such as the Restated Certificate of Incorporation and Restated Bylaws[405] - Equity-related exhibits include the 2021 Equity Incentive Plan and the 2021 Employee Stock Purchase Plan[405][406] - Certifications from the Principal Executive Officer and Principal Financial Officer are included, as required by the Sarbanes-Oxley Act[406][407] - The filing also contains Inline XBRL documents for interactive data[407][408] SIGNATURES This part contains the official certifications and signatures of the company's principal executive and financial officers Signatures This section contains the official signatures of Compass, Inc.'s Chairman, CEO, and CFO, certifying the Form 10-Q filing as of May 13, 2021 - The report is signed by Robert Reffkin, Chairman and Chief Executive Officer (Principal Executive Officer), and Kristen Ankerbrandt, Chief Financial Officer (Principal Financial Officer)[412] - The filing date of the report is May 13, 2021[412]