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00:05 Good day, ladies and gentlemen, and welcome to the Compass Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Berl and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

00:23 [indiscernible] Vice President of Investor Relations, you may begin your conference..

00:28 Thank you, operator and good afternoon, and thank you for joining Compass’ fourth quarter and full-year 2021 earnings conference call. Today's review of our actual financials will address the continuing operations of Compass and certain items are presented on a non-GAAP basis.

The reconciliations between GAAP and non-GAAP measures for both our fourth quarter and full year financials, as well as our near-term guidance and long-term targets are included at the back of the earnings release and on the presentation, we posted just recently on our website this evening.

01:02 Please also see our disclosure on forward-looking statements which reflects Compass' current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-Q and other SEC filings including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and the impact on the housing market and the global economy.

01:27 Joining us today will be Robert Reffkin, Compass' Founder, Chairman and Chief Executive Officer; and Kristen Ankerbrandt, Compass' Chief Financial Officer. Robert will provide a brief overview of Compass' quarter and a discussion of our strategy and then Kristen will cover the financial results and outlook in more detail.

01:48 I would like to now turn the call over to Robert Reffkin.

Robert?.

one, agent recruiting; two, agent retention; three, technology adoption; four, lowering our cost to serve; and five, growing our adjacent service businesses. 07:59 So first, agent recruiting. We continue to be successful with recruiting agents. We grew the total number of agents from 7,400 in Q4 2018 by a multiple of 3.5 times to 26,300 in Q4 2021.

We expect to add a similar number of agents in 2022, as we did in 2021. Higher productivity not splits is why new agents join Compass and our splits are improving. In the fourth quarter of 2021, 62% of agents who came to Compass told us that they did so for a less favorable split than at the previous brokerage firm.

08:42 In the fourth quarter of 2021, we recruited agents who reported historical annual revenue consistent with our prior record recruiting quarter in Q4 2019, but with 31% fewer incentives and 50 basis points better commission economics to Compass. The payback period on our average incentive contract is now less than 12 months.

We also are winding down the use of equity to recruit agents. In January, for example, less than 9% of the agents we recruited received equity. 60% of commission revenue comes from principal agents that make more than 1 million a year at Compass.

Compared to the national average of 14% which is a key reason why our average splits are higher than some of the industry. 09:36 We have demonstrated that our model can succeed at all market levels and we'll continue to shift our agent mix away from agents that command the highest splits.

Given that the difference in split between the highest producing cohorts and lower producing ones it can be as high as 900 basis points we expect significant margin benefit to results as our agent mix normalizes to more closely resemble the industries. We provide more information on this on Page 13 of the Investor Presentation.

10:08 We improved commissions as a percentage of revenue by 130 basis points in 2021 versus 2020, and we model approximately 250 basis points of margin improvement by 2025 resulting from a combination of our agents, cohorts maturing and agent mix normalizing. We provide more information on this on Pages 14 and 19 of the Investor Presentation.

10:34 Second, agent retention. Our strong technology platform, the strength of the Compass brand and the attraction of Compass referrals are near drivers of our ability to successfully recruit agents and our key to the industry leading agent retention that we have.

Our principal agent retention rates are consistently above 90% in an industry to averages 68% retention. And our retention rates have strengthened since the IPO. 11:08 These retention rates stay strong over time including well after our agents come off their initial contracts.

And our three oldest markets New York City, Washington DC and Boston, the percentage of agents off their initial contracts are 77%, 83% and 75% respectively. And the agent retention is 95%, 95% and 93% respectively. I want to rearticulate that, in the case of, let's say the 95% agent retention.

The 5% that is reduced to get to 95% is including the burden of people that retire, people that are asked to leave or people had move industries altogether, reflecting a very high integrity number. See Page 9 of our presentation for more detail. 12:03 On to number three, technology adoption.

A key area of focus for me in 2022 is agent technology adoption. Our technology is a key driver of agent productivity and is only -- is going to be the key driver of improvement and operating efficiency and margin in the future.

By this summer, Compass agents won't have to leave the Compass platform or pay for third-party real estate software to complete a transaction. This stands in stark contrast to the industry we're still [indiscernible] altogether, a large number of third-party solutions and where tech adoption is low.

12:43 In the 2021 study, covering 75% of our agent teams, we found that the top quartile of agents who use our technology platform the most through their business 2.5 times more in those who use at least.

When you consider that most of an agent today is in the field, it is impressive for the top 25% of our agent teams use our platform 2 hours and 14 minutes per day, in multi-agent teams are using it 4 hours and 3 minutes per day. This drives revenue, operational efficiency and margin, which is why we want to drive further adoption of our platform.

13:25 In 2022 we launched Compass core focused on coaching agents on how to grow their business with the compass technology platform. In Q1, we've seen nearly 7,000 agents engaged in the program and the feedback has been nothing short of outstanding.

A primary example of how we connect our coaching investments with business outcomes for agents is the likely to sell AI tool, which is particularly important in this low inventory environment.

The likely to sell tool uses advanced AI to evaluate attributes of the home, the market and the owner to recommend the most likely to sell prospects from the agents CRM. In 2021, 151 million gross commission revenue was from liftings that are likely to sell tool recommended to our agents before the liftings was creative.

We expect this number to exceed $400 million in 2022. 14:24 Fourth, lowering our cost to serve our agents. Now that we are close to being able to support the whole transaction on our platform.

The next job on the technology and operational efficiency road map is to use our own technology platform to lower the cost to serve our agents, which will drive even more leverage from our tech spending. No one else in the industry is even trying to do this at scale.

We look forward to the next few quarters this year when we can share with you metrics proving that using the technology ourselves to serve agents is lowering our cost to serve and increasing our and services attach. 15:04 And finally, number five, adjacent services.

The winner in the space will be the company that can best monetize the real estate transaction. A clear path to achieve this results is to integrate adjacent services into the transaction flow. At $140 billion annually, the market opportunity in adjacent services is larger than $100 billion in commissions generated in the whole industry each year.

Agents play a key role in helping their clients with navigating the adjacent services landscape. For example, the majority of the mortgages in the U.S. results from an agent referral. 15:45 To be clear, all of our adjacent revenue is still nascent and only 1% of 2021 revenue because we just began.

Our Q4 annualized revenue run rate was $85 million, which has already helped our margins. But more importantly, our initial uptake rates are very promising. We have already seen strong attach rates for our Title & Escrow services. It's average for KVS Title business quickly grew from 19% in acquisition in Q1 2021 to 39% in Q4 2021.

You can see Page 16 of the investor presentation for more detail. 16:28 We now offer Title & Escrow in nine states and in Washington DC, up from just two at the start of 2021. We plan to grow our T&E business in our existing markets and plan to expand into additional markets in 2022.

Also in 2021, we launched our mortgage business with a joint venture in mortgage with guaranteed rates. I am happy to say that we underwrote our first mortgage in December in the Chicago market. We expect to offer mortgages in the majority of our markets by the end of 2022.

17:00 In summary, we are committed to driving growth in revenue, EBITDA and cash flow, by giving our agents the technology platform and tools, they need to be more productive and to drive more profitable revenue for Compass. We have a significant technology advantage.

It is also not lost on us, that recent developments in the public and private capital markets particularly with growth companies and real estate companies should lead to less innovation capital for potential competitors and therefore widening our competitive moat. 17:38 I will now hand the call over to Kristen..

17:43 Thank you, Robert. We are proud of our 2021 results and we exceeded our expectations. We achieved growth at scale, while improving our margin profile.

This shows that we can successfully and aggressively add new agents, help them grow their business through our platform, and launch new adjacent services businesses, all while driving profitability on an adjusted EBITDA basis and prioritizing our path to free cash flow and EBITDA margins.

18:11 For the full year 2021, our revenue grew 73% year-over-year to $6.4 billion. Over the past three years, we grew revenue at a 94% CAGR and market share at a 50% CAGR. Our market share grew to 5.6% in 2021, up from 1.1% just three years ago. We expect to continue to rapidly take share. At the same time, we've dramatically improved adjusted EBITDA.

In 2019, our adjusted EBITDA loss was $325 million. This improved to a loss of $156 million in 2020 and reach positive adjusted EBITDA of $2 million for the full year 2021. This exceeds our most recent guidance for a $5 million to $25 million loss for 2021.

19:01 In 2021, we incurred a GAAP net loss of $494 million compared to a net loss of $270 million a year ago. The increased GAAP loss was primarily driven by a year-over-year increase of $343 million and non-cash stock-based compensation expense due to a change in the GAAP accounting for RSUs.

Consistent with most companies when they go public, our RSUs contained a condition that did not allow for the recognition of expense until our IPO. As a result, we started recording non-cash stock-based compensation at the time of our IPO and this trend will continue in the future.

19:42 Our balance sheet is strong with $618 million in cash at the end of 2021 and an untapped $350 million revolver. If a downturn occurs at some point in the next five years, we believe we will benefit as strong agents look for a place to expand their business and other brokerages find it harder to compete.

20:03 Turning to the fourth quarter of 2021, we generated revenue of $1.612 billion, growing 31% over the prior year and ahead of the midpoint of our guidance range. The two-year revenue CAGR comparing revenue in Q4 2019 to Q4 2021 was 56% and shows a return to a more normalized seasonality for the business in line with our expectations.

20:28 Adjusted EBITDA for the quarter was a loss of $51 million ahead of our guidance of a loss of $55 million to $75 million. Commissions as a percentage of revenue improved by 130 basis points year-over-year. Transactions grew 20% in line with our expectations.

Last year’s seasonality was skewed by COVID because the brief market pause in 2Q 2020 pushed transactions into the seasonally weaker fourth and first quarters. Thus, creating an abnormal comp for Q4 2021 that will continue into Q1 of ’22. 21:03 Now let me turn to guidance.

First and foremost, I want to reiterate Robert’s perspective that our expectations for ‘22 and beyond reflect our focus on improving profitability and free cash flow. As Robert mentioned earlier, while we operate in a cyclical industry, we expect to continue to gain market share regardless of market cycles.

While we foresee strong market growth for the rest of 2022, this is a factor that we can't control. What we can control is market share and managing our spending and we are laser focused on both. 21:38 Now I will talk specifically about our ‘22 guidance and our longer-term guidance.

First, I want to spend a moment on the outlook for industry growth and 2022 real estate experts have a wide range of estimates for annual growth in the residential real estate market, ranging from low-single digits to an excess of 20%.

As Robert mentioned, demand is strong, but inventory is tight and that will likely slow the rate of growth in transactions in Q1 relative to last year. With limited inventory, there is strong upward pressure on price.

For one to conclude that the market will decline that would mean a significant decline in transactions to offset the aforementioned price increases a scenario that we view to be highly unlikely. 22:23 Also keep in mind that we operate in the upper end of the market, a price points of 750,000 and $1,000 in higher.

This segment of the market is less sensitive to interest rates and continues to see strong demand driving prices higher in the face of limited inventory.

We believe that these higher prices will unlock inventory, but since we can't predict human behavior, including what the Fed will decide on interest rates, we see the benefits of taking a measured approach to our outlook at this time. 22:54 Our current outlook for 2022 revenue is $7.9 billion to $8.1 billion, or 25% growth year-over-year.

This is mostly driven by factors that we control and initiatives that we have executed consistently to date. These are the factors that drive our market share gains. We model that we could grow revenue in 2022 by 18% to 20% through market share gains in ‘21 and ’22, independent of growth in the real estate market.

We have also assume some market growth in our revenue outlook. 23:29 The components of the market share drivers include the annualization of our 2021 cohort of agents that joined Compass last year, annual revenue from agents that will join Compass in 2022 and the productivity uplift for agents, all of which Robert already discussed.

Now the best indicator of our ability to continue to gain share is our principal agent count, which we expect to increase by 2,600 to 2,800 principal agents on a net basis, in line with 2021 levels. Regardless of market conditions, we will achieve that objective.

24:06 Robert referenced the investor presentation in his remarks, in particular, I refer you to Slides 3, 4 and 5 that demonstrate we are significantly growing transactions and GTV per agent as our agents outpace the average agents in the industry by 2.5 times to 3.5 times. For 2022, we expect adjusted EBITDA to be at least $40 million.

EBITDA and free cash flow are our top financial priorities. To be 100% clear, while this EBITDA expectation reflects the benefits of improving economics with our agents and leverage against our tech spend going forward. We also have discretion to manage certain expenses, which we will do to deliver $40 million of EBITDA.

That said, we see a number of scenarios in which this $40 million number could be higher. As 2022 unfolds, we believe we will have more insight into the direction of the market. 25:04 Turning to our first quarter ‘22 guidance.

As you think about updating your models for the quarterly distribution of our ‘22 guidance, keep in mind that seasonality plays a big factor in our quarterly revenue. Q1 is always the weakest revenue quarter for the entire industry, as fewer homes are listed during the December holiday season.

Q4 is higher than Q1, and Q2 and Q3 are the highest quarters. While the COVID pandemic altered the typical quarterly patterns in 2020 and 2021, the seasonality patterns are normalizing as we started to see in Q3 and Q4 of 2021. As a result users, you should expect to see our Q1 revenue approximate between 16.25% and 16.75% of our full year revenue.

25:53 While Compass’ quarterly revenue distribution follows a pattern as reported through NAR, the percentage of Compass’ revenue in the first quarter average 100 basis points, 200 basis points below the NAR sales volume in the last three years.

The main reason is that our revenue growth throughout the year as we continue to add agents to our platform. Now, this will soften some of the normal seasonality trends you typically see in the industry and has the effect of further reducing the first quarter revenue distribution for Compass compared to the industry.

Please refer to Page 20 of our investor deck for more details. 26:30 As for the quarterly distribution of our expenses, you should expect the commissions expense line to move closely in sync with the quarterly distribution of revenue.

However, the other operating expense lines will trend sequentially upward throughout the year as the size and scale of our agent base and our service offerings grow.

While you should expect to see operating leverage as our business gets more and more efficient, many of the expenses included within sales and marketing ops and support, R&D, and G&A do not move in line with the seasonal quarterly fluctuations of our revenue.

27:01 You can see this sequential upward trend in 2021 and you should expect this to continue in 2022. We've included a table on Slide 31 of the investor deck that shows this quarterly trend of non-GAAP operating expenses during 2021 for quick reference.

Based on this trend, you should expect to see our Q1 2022 non-GAAP operating expenses increase, albeit at a very modest level versus the prior sequential quarter of Q4 2021. 27:32 Using the assumptions above, we expect an adjusted EBITDA loss in Q1 of ‘22 of $100 million to $110 million.

This represents the return to normal seasonality in the real estate industry combined with strategic investments we made in 2021 to drive long-term profitability. These include continued investment in our platform, which drives Compass’ outperformance relative to the industry, launching high margin adjacent services.

expansion into 25 new MSA markets in 2021 and supporting 7,000 new agents and post-COVID hiring throughout the rest of the business. 28:14 As promised at the Q2 2021 earnings call, we remain committed to adjusted EBITDA profitability for the year, with fiscal year ‘22 guidance of at least $40 million in EBITDA.

We expect to see substantial positive EBITDA for the remainder of the year as seasonality returns to normal and investment is moderated. Based on our margin maturity curves, tech adoption trends and splits we are comfortable providing a view on long-term adjusted EBITDA and free cash flow margin targets.

28:50 For 2025, we expect to grow adjusted EBITDA to a minimum of $1.2 billion for an adjusted EBITDA margin of at least 10% and to grow free cash flow margins to 8% to 9%. We have a comprehensive plan to achieve these margins by continuing to deliver improvements in our cost structure and operating leverage consistent with what we've already done.

29:12 Page 19 of our investor deck shows an illustrative outline of our plan to achieve 10% EBITDA margins in 2025. While the exact path to 10% could vary somewhat from what we present here. We are confident that we can achieve our goal.

I want to be clear that while we remain optimistic about our revenue growth prospects, we are also prepared to manage our expenses as necessary to deliver on our specific 2022 and 2025 EBITDA and cash flow goals. 29:44 As you can see, the largest levers will be in commissions and other, sales and marketing and R&D.

We expect to see 450 basis points of improvement in the commissions and other lines, 250 basis points of that 450 basis points will come from recruiting more up and coming agents and also improving agent economics, which we have done at a rate of 100 basis points per year historically.

Another 200 basis points will come from growth in adjacent services. 30:12 We expect 200 basis points of improvement will come into sales and marketing line. This is a steep discount to the operating leverage we have seen in this line historically and reflects the recent strength we've seen in our recruiting efforts.

In the fourth quarter, we had a record recruiting quarter paired with record low customer acquisition costs, a trend we expect to continue into 2022. And finally, we expect an additional 130 basis points will come in the R&D line, as we see more leverage going forward relative to the accelerated tech investment over the past three years.

30:48 We are very pleased with the continued improvement in our financial profile since the IPO. We've grown the business ahead of our expectations and cross the line to adjusted EBITDA profitability this year with a path to at least $40 million and adjusted EBITDA in 2022 and 10% adjusted EBITDA margins in 2025.

And we are committed to generating free cash flow in 2023 and beyond. We believe that our business is in the best position it's ever been. This is not just borne out by our strong execution over the past several quarters, but also in the investment we've made to drive profitability in our business.

31:28 Our economics are improving as we continue to attract and retain top agents, launch new markets and capture market share. Our adjacent services businesses are nascent but present a significant opportunity to drive profitability per transaction.

We are a long-term market share gainer because we have the leading platform in the industry, harnessing the power of the most productive agents at scale to drive a sustainable financial advantage. Most importantly, we have the commitment and the conviction to achieve our 2025 EBITDA and free cash flow targets.

32:04 With that, let me turn it back to the operator to start the Q&A portion of the call..

32:12 Thank you very much, and thank you, Brent (ph). [Operator Instructions] And with that, we'll go first to Mike Ng with Goldman Sachs..

32:28 Hey. Good afternoon. Thank you very much for the question and thank you for all the additional detail in the slides today. That was very helpful. I just had a question about the path of revenue less commission margin improvement over the next several years. You guys called out agent tier mix and split improvements.

And I was wondering if you could just provide a little bit more color on the drivers of each of those items. Is it simply expansion into less competitive markets and better initial contracts and are you able to drive that because of a better recognition of your platform like what's really helping that improvement there? Thank you..

33:12 Yeah. So there is two things. One is just the agents cohort maturing. If you look at Page 12 in the deck, it highlights that we've historically improved 100 basis points a year for each -- for every respective cohort -- over the last week cohorts.

And then secondly, we are not only hiring agents that more attractive split, which you can see in Page 12 each year, but as we -- higher in agent mix that reflects the mix of the industry, not just for a very aggressive folks on higher agents, then you have massive margin improvement.

33:55 So specifically, if you look at Page 13, 60% of the agents that Compass hires are generating above $1 million in revenue. When you look at the market overall is expected at 14%.

And where agents then are generating below $150,000 in annual revenue, it's 4% for us, well for the industry is 34%, that the delta in split for agents at Compass between 150,000 and 1 million is 900 basis points.

And so when we look at the opportunity if we did reflect the full markets that is 584 basis points of margin improvement, but we're assuming that we only get a third of that over the medium term.

And so if the agent mix again third event which is under 90 basis points plus assuming another 60 basis points of improvement, but just the existing agent cohort maturing..

34:49 Great. Thanks, Robert. That's really helpful. And if I could just have a follow-up on the really strong attach rates for Title in DC, pre-deal and since you guys acquired it.

Maybe you can talk a little bit about how the flow or the go-to-market for that Title business changed once you acquired it that was able to drive that pickup in attach rates? Thank you..

35:14 Hi, Mike. It's Kristen. I'll take that one. So we were obviously very excited to bring KVS on to our platform in the first quarter of 2021. It was a service that our agents already really love them. We're utilizing quite a bit, as you can see in the attach rates.

As we were integrating KVS into our platform, we just simply had a more concentrated effort both and enjoying some of the referral benefits of our agents in that market, talking about KVS, talking about the quality of the service.

And then we have also been working with the KVS team to help them market themselves more effectively to our broader set of agents. I will say, that Team at KVS, they're very strong operators and I think together, we've really formed quite a powerhouse as you can see in the increase in attach rates in a very short period of time..

36:16 The only thing that I would add to that is that the success we have realized to date is buy and large excludes the platform driven success that we'll realize in the future because if you take our R&D over the course of the last five years, 99% of it has been focused on agent productivity and that's why we have industry-leading agent retention rates, that's why we continue to grow our agents business faster than the market, excluding the benefits of team information, excluding the benefit of price year after year after year, which you can see in the investor deck and that's why we continue to hire agents at a very high pace and have a 71% and NPS score.

But we are now moving in our R&D spend to focus on lowering our cost to serve agents, but also into adjacent services and so there are a number of how many shares that we're going to implement over the course of the next year by driving the recommendation and the integrated experience through the platform that should drive it out even further..

37:25 Great. Thank you very much. Those are very helpful..

37:30 Thank you. We'll go next now to Mayank Tandon with Needham..

37:33 Thank you. Good evening. Congrats Robert and Kristen on the quarter. I wanted to just start Robert with market share goals. I think during the IPO, you had identified market share expansion opportunities.

Could you sort of talk about where you are today versus what your goals were back then like where are you running relative to those expectations? Are you able to identify the markets that you're really targeting for launching in 2022?.

38:00 Yeah. So look, our market share went from less than 1% market share five years ago to 5.6% market share this past year and we exceeded our original goals along those lines. We have a lot of detail on market share by market and by cohort that were the market launch.

And you can see you consistently gain market share across our markets and I think there is a question that some people may have had, can you gain market share in lower price point markets or in some the suburbs and I think the goal of that disclosure today is help highway -- regard whether it's a high price point market or a sub $300,000 ASP market like Philadelphia or big city or a small suburb that we're gaining market share in the market after market.

And so we feel really good about where we are and I think only other point that I mentioned is we launch more markets last year than we had in our original IPO model. And so we're seeing, not just the -- more success on market share by market, but also more markets launched..

39:17 That's helpful, Robert.

And then sort of a similar question on the adjacent services, when I look back again during the IPO, I think you'd identified several post transaction services on the adjacent services side that you were planning to launch and I just wanted to get a sense on timeline and how does M&A fit into that to be able to scale those services over time?.

39:45 Maybe I'll highlight where we are on the timeline and then, Kristen can highlight on the M&A side. So we originally -- in the IPO, we said we're going to launch mortgage in 2022.

So we've actually accelerated that launch, albeit only one market, but we're proud that we did accelerate it and by the end of this year, we should have mortgage in the majority of our markets. We are exploring the launch of another major adjacent service this year, but we haven't made a commitment to that.

The [Multiple Speakers] opportunity is Title and mortgage. And so we really want to focus on that, but there is the next best opportunity which we're exploring..

40:30 All right. And I think as we look ahead in terms of the full scope of adjacent services that where we could expand our business Title & Escrow and mortgage were the largest opportunities and Title & Escrow at $35 billion, mortgage at $50 billion.

So those are the places, where we wanted to focus our efforts to start and we use different strategies for that right. Title & Escrow, we have done a dual-pronged strategy where we have done some organic expansion and some M&A and you saw the results of the acquisition that we did in Washington DC.

For mortgage, we decided to form a joint venture with guaranteed rate, a leading mortgage provider and that is off to a very good start so far. As we look ahead, we'll look to for each adjacent services will look to utilize the strategy that we think is best suited to that particular strategy.

I don't know that we need to own necessarily all of the services, I think there are some good partnership opportunities that are out there as well, but I wouldn't be surprised if you saw us form another JV or utilize M&A for some of those different adjacent services that we plan to launch over the next several years..

41:54 That's a very helpful. Thank you so much for taking my question. Congrats again on the quarter..

41:59 Thank you..

42:02 Thank you. We go next out to Brian Nowak at Morgan Stanley..

42:08 Thank you taking my question. Asking Robert just about as you look across the entire company of all of your processes with agents and your integration of ancillary services.

Can you give us example of one or two areas where you – you really see a lot of learning for to -- to improve execution maybe it's agent attach, maybe it's agent interaction like where do you sort of see the area to really improve the way you execute to drive structurally faster growth than maybe what you've guided to here?.

42:41 There is a lot of opportunity, but let me give you one clear example. What we have currently 700 amazing employees that are paying -- the process that pay for agents every single day. There are significant ways to help automate -- 200 of those roles we can automate it almost completely and allow them to do more high value work.

And for the other roles, there 500 roles.

We believe that we can do by integrating the transaction management all the forms, disclosures, the eSignature everything in one place with compliant for the client and for the agent and Compass where they don't have to go to multiple places to process the payment that they can go to one that should be able to make them more than twice as productive over the course of the next year.

43:45 So that's an example where it will drive agents happiness and NPS because they'll pay agents faster and more consistently accurately. It will also provide more transparency into the payment process, that will also make agents happier because the entire transaction of the payment will be in the same platform.

And it will also drives employee happiness because it will be simpler for them. Yeah. And there are ROAs, which we look forward to discussing in future quarters that the -- those specific people can help drive attach of some of the key parts of the transaction around Titles specifically [indiscernible]..

44:22 Okay. Thanks..

44:25 Here we also -- we're taking -- we've launched something called contract to close where you take a portion of the responsibility of the transaction process and files, off of the agents back and they pay for it. And so as a three years ago, this was just a -- is only a call center, now it's a call center or with revenue.

And if we can, we believe that over the course of the next few years, we can have revenue growth at a much faster rate from contract to close adoption across the country relative to the increased expense actually turn this entire functions into a profit center..

45:06 Thank you. We will go next now to Jason Helfstein with Oppenheimer..

45:14 Thanks. Can I just -- for the 2025 guidance, can you give us maybe a sense of like what the range of attach rates you might be assuming for adjacency.

I mean, if you want to break them down step by a product, but just kind of what, what type of attach rate you need to kind of get to that target? And the second, we've gotten a number of questions, you've got over 600 million in cash on the balance sheet, obviously, you're guiding to material improved cash flow position over the next 12 months, 18 months, there were some acquisitions this year.

How should investors think about capital deployment? So, are there additional kind of earn-outs, or commitments that you have to honor over the next few years and relative to additional acquisition you might want to do relative to the necessary very cash position because a number of investors think you should do a buyback so maybe help, as I understand, just how you're thinking about like cash deployment over the next 18 months, 24 months? Thank you..

08 Now, it's important to note here, the bulk of this is, the bulk of this is really driven by T&E.

We've got a good track record in a very short period of time of having grown that business and a really nice path to good growth in 2022 as part of our -- as part of our plan, but we also as Robert alluded to earlier, we expect to be able to launch some additional adjacent services, and so those the attach rates there will likely be below what I talked about is achievable for Title & Escrow there in order to develop those -- to develop this kind of or deliver this kind of margin improvement.

47:45 We feel really confident about our ability to deliver those attach rates even just looking at the KVS case study, the Washington DC case study alone.

I think that shows that we've taken the secret sauce we have here at Compass in terms of being able to really drive adoption of our tools and services among our agents and we're able to really translate that to Title & Escrow shortly. We'll be able to give you more data on mortgage.

And we think we'll be able to do that across a number of adjacent services. 48:19 Now in terms of capital deployment going forward, if you look at, where we have deployed our cash in the past. We of course have ongoing CapEx that's related to our market expansions. We did a lot of market expansion in 2021, 25 MSAs.

We think going forward, 2022 and beyond we'll return to a more normalized level of eight to 10 MSA markets per year. So you should see that portion of the cash outflow come down slightly.

We do utilize M&A from time to time and that's been a real focus in our Title & Escrow strategy of course as of late we'll continue to look for opportunities there where it makes sense, we remain very disciplined on price, when it comes to M&A, but for us, we see an opportunity to take what can be a solid business and turn it into a great business, just based on our ability to drive outsized attach with our agents.

49:26 I know you had a question, specifically around ongoing earn-out commitments related to M&A and the total amount outstanding today is probably less than $15 million over the course of the next several years. So hopefully that helps to dimensionalize that a bit for you..

49:45 Thank you..

49:45 Sure..

49:49 Thank you. We go next now to Trevor Young at Barclays..

49:52 Great. Thanks. Robert, I think you noted that by summer time agents can support the entire transaction without using third-party software as well as kind of already seeing some of that R&D pivot more towards or reducing brokerage OpEx and given potentially overall Compass OpEx.

When do we see that pivot on R&D deleverage, is that at that summer kind of pivot point when everything can be done in the Compass software or is there still more kind of improvement there? Just trying to get a sense when we go from an investment cycle on R&D to returning to leverage?.

50:26 Yeah. I think we will start seeing it over the course of this year. It was their starts as early as summer, there are couple of factors that we could think through, but definitely, at some point this year, we will start doing it. Again, it's important to note that, the agent productivity platform is really focused on the agent.

it’s not on reducing the cost to serve and I would say last year 95% plus of our time was focus on that.

And the key outstanding items are really transaction management completing the full transaction flow on the Compass platform, a little bit of stuff on team functionality and a little bit of work on search in a couple of key markets, but that allows us, where I'd say this year, the first half of the year -- so I would say around 80% of the focus is on the completing the platform and the remaining 20% on primarily lowering the cost to serve and entering the world of adjacent service platform attach.

The goal would be next year, if we can be as successful as our -- as we would expect this year, the goal will be next year that the half of the ever is on lowering the cost to serve and adjacent service attach. 51:58 And again like I mentioned earlier, lowering the cost to serve, we're calling the effort service desk.

It really also drives target agent outcomes as well because the deliver some of the core agent services whether it's agent payments, lifting marketing, agent marketing, brand marketing through the platform as opposed to in one and one ways that is more onerous..

52:28 That's really helpful. Thanks.

And then just quickly on Compass Concierge just any update there and your ability to monetize that?.

52:38 We haven't changed our monetization philosophy around Concierge yet, but it's something we continue to look at as there are a number of vendors who would be happy to compensate for participation in the program, but we haven’t just hasn't been the area of focus..

53:01 Great. Thank you..

53:06 Thank you. We will take our last question this afternoon from Justin Ages with Berenberg Capital Markets..

53:11 Hi. Thanks for taking the question and nice quarter. The question or two on the agent productivity. So one of the things that you've shown in the report that you related the production uplift from when you get more agents, using your platform.

So can you talk about any steps that you're taking to actually increase the number of teams that are using that, it just seems like it an easy way to boost the overall Compass kind of profile?.

53:42 Absolutely.

So this has been the key focus of mine so far this year and it's really a key focus for the company, because the bands we have is and as we've been invested hundreds and millions of dollars in R&D to build a platform that drives agent productivity, but just doing the lenders and get everyone to [indiscernible], you think a lot of company like Salesforce and they have the massive number of implementation partners to help drive adoption and so we don't take for -- that's just a CRM.

The CRM is 15% of our overall platform. And so it is -- there is a lot to learn that can be intimidating.

Yeah, what we are doing is, we are partnering with the country's best real estate coaches, externally coaches like Brian Buffini and Tom Ferry, Steve Shull and [indiscernible] and several others and we are also -- we have launched internal coaching with some of our gas sales managers that have been coaching agents for decades in this way.

And we're coaching them through the platform. And so instead of so -- endures how every day you should make X amount of calls, X amount of emails, X amount of prospecting in an open-ended way.

It's more a go to the Compass platform, click on the likely to sell button and then do a bulk email from likely to sell to your client to, if you're going to see renewals that are likely to sell or create an action plan in Compass that is a 12 month action plan that will -- that where every month it tells you what you should do with your service plans.

55:25 Yeah. And so that has been very, very, very successful and it's probably been the most positive NPS driver that we have seen in the company's history. And it really connects us from the business of real estate to the future of technology in a very cohesive way.

So that's half of it, the other half is, we have -- in the same way, there is a genius bar at Apple.

We have an incredible group of people called agent experienced managers, who are helping to on board and re-onboard and train on these tools and they're just going above and beyond at in this period of time because it's a unique period of time where things are slow enough in January and February before the busy spring market, where agents have the time to learn the tools and to adopt and some of those behavior changes..

56:19 Great. That's really comprehensive. Thanks, Robert. Thanks for taking the question..

56:24 Thank you..

56:26 And ladies and gentlemen, that is all the time we have for questions this afternoon Mrs. Ankerbrandt, I'll hand the conference back to you for any closing or additional comments..

56:34 All right. Thank you, operator and thanks to everyone who joined the call today. We look forward to speaking to a number of you over the coming weeks. Thank you..

56:46 And thank you. Ladies and gentlemen, that will conclude today's fourth quarter and year 2021 earnings conference call for Compass Incorporated. I'd like to thank you all for joining us and wish you all a great afternoon. Good bye..