Compass Inc

NYSE:COMP

Earnings Call Analysis

Compass Inc. Achieves Record Performance in Q2 2024

Compass Inc. had its best performance ever in Q2 2024, achieving a record GAAP net income of $20.7 million compared to a loss of $47.8 million the previous year. Revenue grew 14% year-over-year to $1.7 billion, driven by an 11.4% increase in transactions, despite a market decline of 3.3%. The adjusted EBITDA more than doubled to $77.4 million. Operational expenses were reduced by $21 million, and the company closed two strategic acquisitions. For Q3 2024, Compass expects revenue between $1.425 billion and $1.525 billion, with adjusted EBITDA ranging from $30 million to $50 million.

A Strong Quarter Marks New Heights

Compass, Inc. reported its most robust financial performance in history for Q2 2024, achieving a record GAAP net income of $20.7 million, a stark contrast to the net loss of $47.8 million reported the previous year. Adjusted EBITDA also reached an all-time high of $77.4 million, more than double the figure from Q2 2023. This exceptional performance highlights the company's resilience and strategic focus on operational efficiency.

Impressive Revenue Growth Driven by Market Share Expansion

In the second quarter, Compass generated revenue of $1.7 billion, marking a 14% increase year-over-year, supported by a 9% organic growth rate. Notably, the company's transactions rose by 11.4% despite the overall market facing a 3.3% decline. This outperformance illustrates Compass's growing market share, which increased to 5.13%, reflecting a 50 basis point improvement from last year.

Free Cash Flow and Future Guidance

Compass achieved positive free cash flow of $40.4 million, despite a $28.8 million payment related to antitrust litigation; excluding this cost, free cash flow would stand at an impressive $69 million. Looking ahead, the company expects Q3 revenue between $1.425 billion and $1.525 billion, with adjusted EBITDA ranging from $30 million to $50 million. These projections indicate a 10% rise in revenue and an 83% increase in EBITDA year-over-year.

Operating Expense Management Lifts Profitability

The company successfully reduced its operating expenses (OpEx) to $217.4 million, down 9% from the previous year. This decline results from investments aimed at operational improvements, notably within the transactions operations team, which saw a cost reduction of 22% compared to 2022. For 2024, OpEx guidance ranges from $876 million to $896 million, factoring in additional costs from recent acquisitions.

Strategic Growth Through Acquisitions and Recruitment

Compass's acquisition strategy proved fruitful, successfully acquiring two brokerages in Q2 2024, bolstering its agent count by 3,299 (a 24% increase year-over-year), including 2,375 from the Latter & Blum and Parks Real Estate acquisitions alone. The company’s recruitment efforts also yielded 543 new principal agents during the quarter, demonstrating strong retention at 97.3%.

Long-term Vision: The 30-30 Strategy

Looking to the future, Compass outlined a ambitious 30-30 vision aimed at achieving an average 30% market share in its top 30 markets by 2026. This strategy combines organic growth with strategic M&A, intending to transform the company’s operational capabilities and position as a leader in the brokerage industry.

Focus on Reducing Stock-Based Compensation

In its ongoing effort to enhance shareholder value, Compass has successfully reduced stock-based compensation by 21% year-over-year to $31 million in Q2 2024, marking the lowest level since going public. This is part of a broader strategy to minimize dilution and align incentives more closely with performance outcomes, with projections aiming for a $130 million expense in 2024, a 44% reduction from 2022.

Market Dynamics and Future Outlook

The market remains challenging but shows signs of potential recovery, buoyed by a rebound in mortgage rates and inventory levels. While industry-wide transaction volumes declined, Compass continues to capture market share and maintain growth momentum. Its innovative technology platform and strategic positioning place it well for future success as market demand increases.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Compass, Inc., Q2 2024 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. (Operator Instructions.) Thank you. I would now like to turn our call over to Richard Simonelli, Senior Vice President of Investor Relations. Please go ahead.

[Richard Simonelli, executive]

Thank you, operator, and good afternoon, everyone, and thank you for joining the Compass Second Quarter earnings call. Joining us today will be Robert Reffkin, our Founder and Chief Executive Officer and Kalani Reelitz, our Chief Financial Officer discussing our company's performance. We will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our second quarter 2024 earnings release, which we posted on our Investor Relations site earlier today. We will be making forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include our guidance for the third quarter of 2024 and full year 2024, including comments related to our operating expenses and free cash flow as well as our expectations for operational achievements.



Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC, also available on our Investor Relations website. You should not place undue reliance on any forward-looking statements, and all information in this presentation today is as of today, July 31. We expressly disclaim any obligation to update this information.



I'll now turn the call over to Robert Reffkin. Robert?

[Robert Reffkin, executive]

Thank for joining us today for our second quarter 2024 results conference call. Today, I will discuss our second quarter results, our 30-30 vision to strengthen our structural advantages, an update on the impact of the NAR settlement. And finally, I will discuss our continued commitment to reduce stock-based compensation and equity dilution. So, let's start with our second quarter results. I'm pleased to say that we have the best performance we have ever had as a company.



We achieved our all-time high GAAP net income of positive $20.7 million. This compares to a net loss of $47.8 million a year ago. We generated our all-time high adjusted EBITDA of $77.4 million, which is more than double adjusted EBITDA in Q2 2023.



For the second quarter in a row and for four of the last five quarters, Compass generated positive free cash flow. We generated $40.4 million in free cash flow, which includes the impact of the $28.8 million antitrust litigation settlement payment. So, $69.2 million, excluding the cost of the settlement.



We grew revenue significantly. In Q2 2024, we generated $1.7 billion in revenue, an increase of 14% year-over-year, 9% of which was organic growth. Transactions increased by 11.4% a year ago as transactions in the overall market declined by 3.3% during the same period. So, Compass transactions increased 14.7% more than the market. As additional color, 7% of our transactions that closed in the quarter were likely to sell AI recommendations in the Compass CRM from the prior 12 months. As a reminder, these leads historically convert to listings at an 8% rate more than the typical lead generation sources.



We grew market share significantly. In Q2 2024, our quarterly market share was 5.13%, an increase of 50 basis points year-over-year and 37 basis points on a sequential basis compared to Q1 2024. We reduced our OpEx in the second quarter to $217.4 million, an improvement of $20.9 million from Q2 2023 OpEx of 23 -- or $238.3 million, reducing our OpEx with platform investments. An example of this was our transactions operations team. We were able to reduce the cost of this team by 22% in 2023 compared to 2022, thanks to the Compass platform tools we developed to process transactions.



From the first half of 2024, we are down 14% compared to the first half of 2023. We grew our cash balance, and our balance sheet is strong. We ended Q2 2024 with $185.8 million in cash and cash equivalents and no outstanding draws on our $350 million revolving credit facility. Our cash balance increased from last quarter and from the prior year-end despite the $28 million antitrust litigation settlement payments and the cash used in acquisitions of Latter & Blum and Parks Real Estate.



We continue to seek accretive strategic acquisitions as inbound increase from brokerages continue to be robust. In the second quarter of 2024, we closed two transactions, which added over 2,000 principal agents. We further increased our presence in the Southeast with the acquisition of Latter & Blum, the Number 1 agency in Louisiana with nearly 15% market share in New Orleans. In Tennessee, we acquired Parks Real Estate. When combined with our existing operations in Tennessee, we now have over 20% market share in Nashville and are the Number 1 agency in Tennessee.



We also continue to hire principal agents organically. We hired 543 principal agents organically in the quarter. At the end of Q2 2024, the number of principal agents at Compass was 16,997 compared to 13,600 gates in Q2 2023, an increase of 24% year-over-year. We also continued the trend of strong agent retention with 97.3% quarterly principal agent retention in Q2 2024. Our title and escrow business continues to strengthen. We finished Q2 with our highest ever attach rates. Moreover, since January of 2024, we improved our attach rate by six percentage points. Additionally, we have integrated six of our seven key title and escrow partners into our Compass platform and will have all seven partners integrated into the platform by the end of Q3.



And finally, over the next 18 months, we are focused on launching title operations across all of our most mature transaction-rich markets, including the San Francisco Bay Area market, New York City, Seattle, Houston, Boston, Chicago and Austin.



I now want to talk about our vision for the future, which we are calling our 30-30 vision to realize on average 30% market share in our top 30 cities achieved in 2026. Our 30-30 vision unlocks our complementary and compounding inventory-based structural advantages that may come as a compelling company for agents, homebuyers, home sellers, employees and investors. We are the only brokerage firm that has combined these advantages into one cohesive offering that rests on our technology platform. Most importantly, we believe our structural advantages result in clear financial advantages.



Today, I'd like to share with you the sources of our structural advantages, the impact of our structural advantage to date and what we are doing to strengthen our structural advantages going forward. The sources of our structural advantages come from the following four attributes. There is no other brokerage firm that has the combination of these attributes and few brokerages have even one. Our first structural advantage is the integrated nature of our end-to-end platform.



The Compass platform is unrivaled in its ability to drive agent productivity and brokerage company operating efficiencies. We offer the only contact-to-close platform where an agent can go from first contact with a new client, to closing and to commission collection, all in one place and where employees can execute the key employee-to-agent functions like transaction management support, marketing support and title and escrow support for the agents; all through the same platform that the agent is using.



Our second structural advantage is our national scale. With over 33,000 agents across the United States, we are able to build upon our technology differentiation and continue to invest by amortizing the cost of our investments over more agents. This is something that smaller brokerages are unable to do. Our third structural advantage is our top agent network. Per real trends more top agents work at Compass than any other brokerage firm. In fact, Compass has 50% more top agents as the next largest brokerage firms for real [turns].



We have the best agent-to-agent client referral network in the country and Compass' find an agent tool helps drive agent-to-agents client referrals. Our average agent derives [17.5%] of their business from agent referrals. Referrals not only result in more revenue for Compass, but act as a recruiting and retention [fly wheel].



Our fourth structural advantage is our depth and breadth of inventory. At Compass, we take advantage of our inventory position to create better financial outcomes for sellers and therefore, agents and therefor Compass. The foundation of every entity success in real estate is access to inventory. The source of success for all players in the industry, whether MLSs, aggregators, buyer agents or listing agents is access to inventory. Without inventory, agents have nothing to help their clients sell or buy and the MLS and aggregators have nothing to list.



Listing data is valuable and belongs to our listing agents. We believe that in any market where Compass has Number 1 market share, we have a clear path over the near term to have more publicly searchable listings than any other public sites, which will send a signal to the consumer that they need to search Compass.com.



The combined effect of each of our four structural advantages is bigger than the sum of the parts. All Compass constituents, agents, sellers, buyers and Compass can reap the powerful benefits from this combination of attributes. For agents, that means helping them generate more revenue and less time with lower third-party costs to operate our business. For sellers, it means selling their homes for more money and less time with less cost to market or prepare their house for sale. For buyers, it means helping them access the most inventory to find the best house for them at the best price in the least amount of time. For Compass, it means growing brokerage and integrated revenue, while -- integrated services revenue, while creating a lower cost to serve -- a lower cost to serve agents than any traditional brokerage firm.



We have three key initiatives to strengthen our structural advantages, and we expect them to drive search traffic, leads, agent recruiting, agent retention, gross margin improvement and market share gains. The first initiative is creating the largest inventory of homes for sale in the country. As previously mentioned, our 30-30 vision is to have, on average, 30% market share in our top 30 cities in 2026. We plan to add on top of our active inventory, a larger pool of passive inventory. Think of passive inventory as homeowners who have a price in mind that they would accept for their home that haven't listed it in the open market. Agents may know these prices for some of their clients, but the challenge is that information doesn't live in one central place for the entire 80 network of agents to access.



However, since Compass is the only platform that combines where agent search listings and their CRM contacts in the same place, we have the unique ability to add aspirational make me move prices to the almost 100 million contacts that currently reside in the Compass CRM. We -- with only one million single-family homes on the market today, I expect that in 2025, Compass will have a combined [off] MLS and make me move inventory that is many times more than a publicly searchable active market. This will further make clear to buyers that they need to work with a Compass agent to see the market. As of this week, our agents are able to add make new prices to their clients in their compass CRM.



The second initiative is making Compass the required destination for real estate. Our goal is to make it clear that Compass agents and Compass.com have more inventory than third-party sites, sending a strong signal to buyers that if you aren't working with the Compass agents, aren't searching Compass, you're not seeing all the inventory. With more web traffic comes more leads we can send to our agents, transactions that result from leads that are given to our agents at approximately a 50% margin.



Our third initiative is launching the Compass Client dashboard. Only Compass can provide a true engine experience for agents and clients because only Compass offers all the products and features agents and clients need in one platform. Launching in six months, the client dashboard will put all the key agents to client interactions in one place, including agent client communication, transaction time line, tax, document, CMA, valuations, listing marketing, listing insights, buyer search results, offers in negotiations, buyer tours, open house feedback, title and escrow and more. Over time, we plan to incorporate the key service providers interactions into the client dashboard as well, such as loan officers, home inspectors, home appraisers, photographers, videographers, home insurance and home security providers as well as ongoing home improvement vendors.



With these three initiatives, I expect Compass to be in a place where any agent is at an undeniable advantage by being a Compass agent, and any homebuyer or home seller is at an undeniable advantage by being a Compass client, all within 2025. Ultimately, these structural advantages drive our KPIs, cash flow generation and shareholder value creation.



Moving on to the NAR settlement. Compass entered into a nationwide settlement agreement covering all of the sell-side [insurance] claims against us and that settlement has been preliminary approved by the court. We expect final approval of our settlement in late October 2024. It has been 4.5 months since the announcement of the NARS settlement, and we have not seen a noticeable change from before the settlements in either the percentage of sellers that offer a buyers/agent commission or in the average commission amount they are paying buyer's agents. To be clear, the fears many had about commissions going down or buyer compensation disappearing has simply not materialized.



Over the month of May and June, in the markets generating the majority of our revenue, more than 99% of the new listings on the MLS, not just Compass listings, included offers to pay the buyer agents. Furthermore, about 96% of new listings on the MLS during that time period included offers to pay 2% or more and more than 80% -- and more than 80% are offering to pay 2.5% or more.



We do not expect the actual rule change requiring a buyer [position] agreement on August 17 to impact the commission to buyer agents for three reasons. First, as seen from the data after the unprecedented press attacking agent commissions, which we saw as the biggest risk and the subsequent unprecedented questions from sellers about whether or not they should pay buyer commissions, the data clearly shows that sellers continue to value incentivizing the buyer agents.



Second, after August 17, the seller will continue to determine the buyer agent commission. And we don't believe the seller will be influenced by the Buyer's Representation Agreement since the buyer agreement is shared only with the buyer. Third, Buyer Representation Agreements have already been required in half the states Compass operate in, and we have not seen them impact commissions, and this has been for many, many years before the NAR settlement.



Now on to stock-based comp. Over the last two years, we created in our DNA the muscle to bring down annualized operating expenses by close to $600 million while still growing our business. As we move forward, we continue to identify opportunities to create shareholder value. We fully recognize that OpEx is not the only cost we have in our control. And over the past few years, we have significantly reduced the annual dollar amount of stock-based compensation with six straight quarters of decreases. Importantly, our stock-based compensation expense is expected to be about $130 million for 2024, which is over $100 million less or 44% less than the $234 million we reported just two years ago in 2022. And our stock-based comp expense in Q2 was the lowest in our history as a public company



I am committed to reducing dilution from stock-based comp and increasing free cash flow and free cash flow per share. Kalani will provide more detail on what we've done to date and what we plan to do in his prepared remarks.



In closing, we see the industry consolidating around the winners. Compass is the Number 1 brokerage for three consecutive years. We are delivering excellent financial results, and we have a strong balance sheet, given the fiscal responsibility we have exhibited by moving to being free cash flow positive with no draw on our credit facility, no convertible debt and ample liquidity allowed through our revolver. I want to end by thanking the entire Compass team of employees and agents. I see their commitment to making Compass successful with their incredible dedication and determination.



I will now pass it over to Kalani.

[Kalani Reelitz, executive]

Thank you, Robert. Before I go into details of our Q2 performance, I wanted to start my prepared remarks by acknowledging and thanking our Head of IR, Richard Simonelli. As many of you know, Rich is moving on from Compass, but leaves Compass in a much better place than when we started. Rich is a professionals, professional, a pros, pro, and has helped Robert and I tell the Compass story through some of the most exciting and turbulent times in company's history. Rich, thank you personally and from all of us at the Compass team, thank you for all the great work you've done.



Now before I get into the results for the quarter, I want to add to Robert's comments about achieving a 30% market share in the top 30 cities. Let me share how we're going to get there. It will be through a mix of organic growth and accretive M&A. We believe many of the 1.4 million prospective agents can grow their business and improve their quality of life by joining Compass. Compass gives agents a comprehensive offering of technology, people and network that no one else has. This is why the pace of brokerage firms seeking to join Compass has increased during the downturn. We have capitalized on this by making strategic accretive acquisitions. We are being very selective. We're interested in and talking to premium blue-chip local and regional brokerages. However, the financials have to make sense.



These acquisitions become more attractive when we build in the benefits of synergies, including lowering the overall operating costs for our agents by leveraging the Compass platform, including our technology, real estate footprint and back office processes that already exist. In 2023, we added three brokerages in Arizona, California and Texas. And in 2024, we added two brokerages in Louisiana and Tennessee.



Now let me provide you with some detail on our operations for the quarter. In the second quarter, we processed 60,390 transactions, an increase of 11.4% from a year ago, which compares very favorably to the 3.3% decline in transactions for the entire residential real estate market in the second quarter as reported by the National Association of Realtors. Our market share for Q2 2024 was 5.13%, up 50 basis points year-over-year and up 37 basis points sequentially from Q1 of 2024.



As of June 30, 2024, we had 16,997 principal agents compared to 13,698 as of June 30, 2023; an increase of 3,299 year-over-year, or 24%. This increase was driven by 2,375 principal agents that we acquired through the Latter & Blum acquisition in Louisiana and the Parks Real Estate acquisition in Tennessee. Additionally, on an organic basis, our team recruited 543 principal agents in the second quarter, which was a strong recruiting quarter for us. Our quarterly retention in the second quarter was 97.3%.



Turning to our financial results for the quarter. Our second quarter revenue was $1.7 billion, an increase of 14% from the year ago period, which was at the high end of our guidance range of $1.6 billion to $1.7 billion. Gross transaction value was $65 billion in the second quarter, an increase of 14% from a year ago, reflecting the 11% increase in total transactions combined with an increase in average selling price. Our commission expense as a percent of revenue was 82.6%, an increase of 70 basis points from Q2 of last year. While we continue to see the long-term structural tailwinds related to Compass expense, commission expense, in the quarter, about two-thirds of the increase in commission expense as a percent of revenue is attributable to changes in geo mix in the markets in which we operate and from brokerage acquisitions we closed since the year-ago period that were made in markets with lower average splits than our overall brokerage rate.



Our total non-GAAP operating expenses, excluding commission and other related expenses were $217 million for the second quarter. This reflects a reduction in expenses of $21 million or 9% from Q2 a year ago. Even after considering the added expenses we assumed related to each of the two brokerage acquisitions we completed in Q3 of 2023, the Florida Title acquisition this past January and two brokerage acquisitions we closed this past quarter.



As a reminder, the non-GAAP operating expenses, we refer to amidst expenses that we excluded from the calculation of adjusted EBITDA, including stock-based compensation and depreciation and amortization. And as always, we've included tables on Page 12 and 13 in our Q2 investor deck that reconcile these amounts to our GAAP operating expense.



Our adjusted EBITDA for the second quarter was $77 million, which was slightly better than the high end of our guidance range of $55 million to $75 million. This adjusted EBITDA level reflects an improvement of 157% over the year ago results. And importantly, it reflects a new company record as the highest level of adjusted EBITDA we reported as a company. In addition to a new all-time record of adjusted EBITDA, we also achieved a new record as it relates to GAAP net income. During the second quarter, our GAAP net income was $20.7 million, which is the first time in the company's history that we are reporting a quarter with positive GAAP earnings. This is an incredible milestone for us as it validates that at the right levels of operating expenses, the financial model works.



It's important to note that the achievement of positive GAAP net income was made possible by our relentless focus on reducing our operating expenses, but was also assisted by reducing some of the expense lines traditionally excluded from the calculation of adjusted EBITDA. Most notably, stock-based compensation expense was $31 million during the second quarter, which reflects a reduction of 21% from a year ago and reflects the lowest level of stock-based compensation expense that we reported as a public company.



As Robert mentioned, we are constantly focused on creating value for our shareholders. We have put a focus on bringing down stock-based compensation with the same approach and discipline that allowed us to successfully reduce our operating expenses by nearly $600 million. It's important to highlight that we've already accomplished several action items over the last 18 months to manage stock compensation. First, we sunset our agent equity program in December of 2022, which allowed agents to convert a portion of their cash commission into Compass equity.



Second, we eliminated the use of equity as an incentive to recruit agents in the third quarter of 2022 around the same time that we eliminated the use of cash as a sign on recruiting incentives for agents. Third, we greatly reduced the workforce over the several reductions in force during 2022 and 2023, including a reduction in the size of our product and engineering team, which consumes the largest portion of our employee-based equity grants. And fourth, we've shifted a considerable amount of labor to low-cost offshore markets through the use of contractors. In addition to this, helping to reduce cash expenses, this also reduces the use of equity as we don't issue equity to contractors.



These measures have resulted in significant reduction in our stock-based compensation expense. And in 2022, our stock-based compensation expense was $234 million. In 2023, our stock-based compensation reduced by $76 million or 32% to $158 million, and we expect our stock-based compensation will reduce to approximately $130 million for the full year of 2024. This will reflect a reduction of 44% or over $100 million for the first two years since 2022.



Going forward, we will continue to offshore work through our low-cost labor efforts where OpEx is reduced, and equity compensation is not utilized. Also, stock compensation will gradually reduce as the higher-priced shares issued at the time of our IPO will vest out over the next one to two years since the stock-based compensation expense is determined based on the share price at the time of grant. In addition to the reduction in stock-based compensation expense, we are focused on minimizing dilution in other ways as well. One example of this is the way we net settle employee RSUs when they vest through this net settlement Compass [pays] the cash for employees' payroll withholding taxes and withhold an equal amount of shares at the time of vesting. The share holdback from taxes reduces dilution from stock compensation by about 40% and effectively operates like a regular share buyback program during the year.



Further, any issuance of equity for M&A going forward will continue to be made through a strict framework that allows -- that applies to accretive deals at favorable multiples that grow revenue and EBITDA and ultimately, shareholder value. While we believe stock-based compensation is an important tool to align the actions of our team members to the outcomes of Compass, we also understand it represents a real cost. In the exact same way we delivered operating expenses -- expense reductions, Robert, myself and our full management team are focused with action plans to continue to bring down stock-based compensation. As the housing market recovers and revenue growth occurs, we do not believe there is a need to materially increase the absolute dollar amount of stock-based compensation in the future. As we have done with our OpEx efforts, we look forward to showing progress on this commitment and upcoming earnings calls.



Turning back to our financial results. Free cash flow during the second quarter was positive $40.4 million. As previously disclosed, the first payment of our class action legal settlement was made in the second quarter, which reduced the cash flow in the quarter by $29 million. Excluding the effect of that payment, free cash flow would have been $69 million, which would have meant an improvement of 36% over the free cash flow of $51 million in Q2 of last year.



As a reminder, and consistent with my comments last year, it's important to note that our positive cash flow in the first half of 2024 is partially due to a couple of timing items that will have offsetting effects later in the year. First, many of these fees that are -- many of the fees that are billed to our agents occur at the beginning of the calendar year. So, our cash flow in the early part of the year is aided by timing of when the fees are paid, and they will have an offsetting effect later in the year. Second, we tend to see seasonal impacts to working capital that are favorable in the first two quarters of the year when cash collections from our brokerage commissions are higher at the end of the quarter -- each of these quarters compared to the beginning of these quarters. The opposite is generally true in Q3 and especially in Q4 when seasonality impacts working capital in a negative way. These timing items should be neutral for the full year but can create choppiness for individual quarters within the year.



We expect to be free cash flow positive for the full year even after considering the $29 million legal settlement payment made in Q2. However, we expect that free cash flow will be only slightly positive in Q3 and free cash flow will be negative in Q4.



We ended the second quarter with $186 million of cash and cash equivalents on our balance sheet, and we have no outstanding draws on our revolving line of credit. We believe we are well positioned to react to continued market challenges.



Now turning to our financial guidance. For Q3 of 2024, we expect revenue in the range of $1.425 billion to $1.525 billion, and we expect adjusted EBITDA to be in the range of $30 million to $50 million. The midpoint of the -- each of these revenue and adjusted EBITDA ranges reflect increases of 10% and 83% compared to Q3 of last year. Let me provide a few additional data points as it relates to financial modeling you may be doing for the second half of 2024. First, consider our commissions as a percent of revenue for Q2 was 82.6%. We would expect this margin to remain around this level for the balance of the year, which reflects the integration of our recent M&A transactions that have commission rates that are higher than our core brokerage.



Second, as it relates to OpEx, we have updated our OpEx range for the year 2024 of $876 million to $896 million. As we laid out last quarter, this range starts with our core company OpEx of $850 million and adds in $15 million for 2023 M&A OpEx, $12 million of OpEx for Latter & Blum acquisition that closed in April and an additional $9 million for the balance of 2024 from the Parks entities that we just acquired in May. For modeling purpose, you should expect an additional sequential increase to OpEx in Q3 and Q4 as the partial quarter impact of our Q2 acquisition of Latter & Blum and Parks contribute to a full quarter's worth of OpEx in Q3 and Q4.



Finally, as I stated earlier, we are reiterating our expectation to be free cash flow positive for the full year. However, on a quarterly basis, we expect free cash flow to be marginally positive in Q3 and negative in Q4 given the seasonality of our business.



As I wrap up my prepared remarks, I'd just like to recap some of the highlights that we made that made the second quarter such a standout. First, we grew revenue by 14% versus a year ago with market share increasing 50 basis points to over 5%. We delivered an 11% increase in transaction volume from a year ago compared to a 3% decline in transaction volume for the overall industry. The number of our principal agents increased by 24% versus a year ago, an increase of nearly 3,300 principal agents. We achieved an additional OpEx reduction of $21 million versus Q2 of last year or $83.6 million on an annualized basis, even after considering the additional OpEx assumed for recent acquisitions.



We delivered a new record level of adjusted EBITDA of $77 million despite revenue being down by $250 million compared to Q2 of 2021, which was a quarter of our prior adjusted EBITDA record. We completed two M&A transactions through which we became the Number 1 brokerage by sales volume in the Nashville and New Orleans market. We reduced over -- we produced over $40 million of free cash flow and increased our cash position despite paying out over $28 million in legal settlements. And finally, we reported GAAP net income of $21 million, which marks the first time as a public company that we've ever reported positive GAAP net income.



Results like these don't happen without the incredibly hard work and dedication of our team members, and I'd like to say thank you again to our agents and employees for all that you do for Compass. I would now like to turn the call over to the operator to begin Q&A.

[Operator]

Thank you. (Operator Instructions.) We'll pause for just went to compound the Q&A roster. Our first question for today comes from the line of Matthew Bouley with Barclays.

[Matthew Bouley, analyst]

I'll ask around the 30-30 strategy, understanding the wide array of competitive advantages that you have supporting recruiting and retention. The question is kind of mechanically speaking, getting to a 30% share in your top 30 markets. I know you mentioned it would be a combination of organic and M&A. So, from a starting point, I guess, where are you today in those markets? And is there kind of a clear pipeline around M&A to get you there? Or should we think kind of returning to a few years ago that there could be some kind of uptick in competition to kind of go after some of the agents you may need around that organic share gain piece.

[Robert Reffkin, executive]

On the organic side, we don't expect to be going back to the old days of cash incentives and equity incentives. That's not needed given the strength of the platform. We -- and you are seeing an increased interest in coming to Compass. I think historically, there is on balance a desire for agents to be part of small in boutiques. I think when the NAR settlement has helped accelerate is the understanding of the benefits of being part of a bigger company. And not just agents are seeing that, brokerage CEOs are seeing that as well. And so, yes, it will be a mix of organic and brokerage M&A. And the M&A, as Kalani said, will leave a very disciplined framework to make sure that it's always accretive on an EBITDA multiple basis before the benefit of cost synergies. And so, it can be even more accretive when you include the cost synergies.

[Matthew Bouley, analyst]

Got you. Okay. Super helpful. Maybe secondly, just kind of zooming into the market. Obviously, interest rates have come down a bit. You kind of look at some of the high-level data with Mortgage Bankers Association, etc., has maybe not fully reflected that move in rates yet. Kind of what are you seeing around availability of inventory coming back online? I'm also curious if that NAR settlement, great color there around what it is and is not doing around commission rates, but is it creating any uncertainty in terms of transactions that may be getting pushed to the right? So, yes, just kind of overall market color and then -- and sort of what you're seeing around how the settlement may be actually impacting the market.

[Robert Reffkin, executive]

So, let's do the latter first, it's a little more straightforward. The NAR settlement has not impacted from anything I've seen buyer or seller desire to transact. It has impacted certain agents desire to be in the business. And those aren't really Compass agents. But I think newer agents, people that don't have as much experience and that haven't really been committed or that we're going to start joining the industry may decide not to because of the headlines, but it's not impacting transactions. It's just, I think, impacting certain agents and their desire or fear around the industry. But the fear for agents that are actually in the business that are professionals, I would tell you, when I go around all the different offices, and I travel regularly to offices across the country, there are more agents that think that this will help their business than hurt their business. When I say business, I mean revenue, their money. And in the beginning, people were concerned, but now that people are actually practicing and out there with Buyer's Representation Agreements -- remember, some of the MLSs have already made the Buyer's Representation Agreements [amended] them earlier. Not everyone is leading to August 17. So, there are data points that are out there.



In terms of what's happened in the overall real estate market, look, it has been somewhat of a confusing market. However, I'm modestly optimistic about the fall. This last quarter, we saw existing home sale seasonally adjusted annual rate home sales average of $4.05 million. That compares to $4.09 million for the full year last year. So, what that means is this last quarter was actually worse on seasonally [adjusted] annual rate of home sales than all of last year. And last year, we know it was the lowest level of transaction since 1995, 28 years ago. The population now is more than 20% larger than it was back then. So, clearly, the market is depressed, it's also on the upside creating pent-up demand. There is -- the must move market has been moving, which we kind of believe it's around $4 [million]. But the want to move market has been continuing to build up demand.



I think what happened in Q2, while it was down 3% year-over-year, I think it's all around mortgage rates. The consumer buyers, they react more to the change in mortgage rates than the absolute mortgage rates itself. And so, the mortgage rate in last fall, it went up 100 basis points, and that's why I stopped the market, it went from 7% to 8%. The more -- this last quarter or the spring, we started off with a boom because that mortgage started up at 6% now, but then it went up to 7.5%. So, it went up 100 basis points. And again, it's not just the absolute rate, it's the change in the rate.



What we just saw in June, the data came out today, is that the pending transactions were actually up 3.5% year-over-year. And so, we're actually seeing June as a reversal of trend, which makes on a -- not closed but on a pending more real-time basis. And that makes sense because June versus April, mortgages went down from 7.5% back to 7%. And now because of what's happening in the broader market, mortgage rates just hit 6.7%. And so, what will the fall look like? I continue to believe it's more about what's going to happen in mortgage rates. If you believe that this fall will have a lowering of the fed funds rate then in a subsequent lowering of mortgage rates going not just to 6.7, where they're right now, but below 6.5%, anywhere in this kind of 6.7% to below range, I think we're going to see an increase year-over-year, particularly given that last year was defined by 7% going to 8% mortgage rates, the highest mortgage that we've had in over 20 years.



In terms of inventory, yes, we have single-family inventories up 40% year-over-year. Total inventory is up 23%. That's still and it sounds optimistic. But still relative to 2019, it's 3% less. And so, we're still below the pre-pandemic levels. And last thing to note, I'd say, is on price, prices are up 3.5%. And so, when I say it's confusing, you have more inventory, so more sellers, which is great, and almost every week this year, inventory has grown. And so, that's good because you can't buy what you can't sell. And so, it's good that we have more inventory going into this fall. But it's also confusing because the existing home sales numbers have been so low last couple of months.



I -- the fact that more -- that the actual price is 3.5% up, is a data point that there's more buyers than sellers. Right? If it would be hard for there to be less buyers than sellers and has the price of homes be at an all-time high, which is where they are at right now.

[Matthew Bouley, analyst]

Got it. Well, thanks for addressing everything I asked and good luck guys.

[Operator]

Our next question is from the line of Jason Helfstein with Oppenheimer.

[Jason Helfstein, analyst]

Everyone, just a bunch of questions around kind of M&A. So, Robert, what's the primary reason an agency sells to Compass? Do you expect further M&A this year? Do you have any capital constraints for M&A from a cash standpoint, potentially you look at 100% earnout deals. And then just Kalani, housekeeping, I don't think you gave it out, but what was the acquisitions impact on transactions or transaction growth? You gave it for revenue, but I don't think for transactions. Thanks.

[Robert Reffkin, executive]

So, the primary reason that CEOs are selling to Compass. Remember, these CEOs, they're great people, they're great entrepreneurs, they work really, really hard. Many of them are family businesses. Even if they're not family businesses, they treat their companies as families, and they care as much about their agents that I care about mine. And so, -- but the call -- when I'm calling people now, what I'm saying is I'm speaking, first and foremost, to what Compass -- what coming together can do for their agents. At the top of the list, what I say is, would you be interested? So, it's someone that I may not even know that well at all. It's -- I say, I think I have an opportunity to give your agents our technology and our private exclusives, which are the off-MLS inventory, the unique inventory. And any CEO who hears that in a market where we have market share shows a level of interest. I actually don't start with that merge. It's just more of the overall conversation. If there's a way for us to give your agents, our technology in our off-MLS private exclusive listings, would you be interested? And then from there, we have a broader conversation about many different ways that we can achieve their objectives of helping their agents in what's been in the market for now almost three years of a lot of pain that meet their personal financial kind of life goals. I mean, they being the CEO.



In terms of the multiple, we're aspiring to multiples that are on average, we target 4x EBITDA, (making this) pre-synergy. So, after post synergies, that number goes down significantly. But I'll let Kalani discuss more the question around capital.

[Kalani Reelitz, executive]

Yes. Thanks, Robert. Jason, thanks for the question. Look, I would -- it's right -- just north of two-thirds of our transaction counts came from M&A. Just a reminder, the recent acquisitions of Parks and Latter & Blum, and even some of the 2023, have a bit lower at times significantly lower ASP. And so, that's how you square the math there.

[Operator]

Our next question comes from the line of Bernie McTernan with Needham & Company.

[Bernard McTernan, analyst]

Maybe just to start on the 30-30 just to level set, what is your current market share in those top 30 markets? And maybe how much of the overall GTV does it represent? And just trying to get some framework in terms of how big of a revenue step-up this could be if you're able to reach this goal?

[Kalani Reelitz, executive]

Robert, I think you might be on mute. Let me start with -- Go ahead, Robert.

[Robert Reffkin, executive]

On average -- hi. First it's on average. It's not getting to that number in every market, but having on average the market share of volume, not units closed in our top 30 markets. There -- we do have more in terms of market share in some markets today. We have more than 20% market share in many markets today, and we're in between 10 to 20 in most -- in many more. And so, I would say we're more than halfway there, but just marginally. And -- but we -- the structural advantages, they aren't just advantages for Compass. Every one of these advantages are for advantages for agents as well. And so, client dashboard is obviously for agents and their clients. Having more inventory, like what we've dealt with in the last three years is one of the key issues for agents is there's just not enough inventory. So, we are creating a platform that they can go to agents and say, we can help you better serve your clients because we can give you a better access to inventory, not just the on MLS inventory, the [off] MLS inventory, make me move inventory, which we launched this week and more and making all that searchable into the platform, along with all of your clients' contacts, all of your clients and you're their addresses.



And so, we have like again, $100 million addresses in our contacts from our CRM and all those addresses, they have a profile, number of beds, neighborhood, etc. And so, allowing agents to be able to search that, we're moving to a world where the Compass platform helps with agents the benefits of being part of a bigger company that has the platform. And I believe that as this all comes out, and this isn't all coming out in a year, two years, this is a matter of months. As these things are coming out, I think it's going to dramatically accelerate our ability to bring on agents organically and to dramatically accelerate our ability to align with CEOs or brokerage firms because they see the benefit in it for them.

[Bernard McTernan, analyst]

Understood. And then, Robert, I know you partially answered it in a previous question, but just trying to think about -- understand that right now, there might not be a significant -- or there isn't a significant impact, or a material impact, from the NAR settlement. But do you think there will be? Will there be any change like if it is like once we hit August 17, does that change anything? Or do you really think no, it's just going to be overblown still.

[Robert Reffkin, executive]

I think from the transaction side, it's not -- buyers and sellers -- I don't think the buyer and seller are even -- it's not top of mind anymore. And there's not going to be like national headlines in August 17 saying anything around this and if there was, it wouldn't be a fraction of what happened after the NAR settlement. And so, I don't think it's going to change transactions, A. B, I don't think it's going to change the kind of buyer, seller mindset around what I -- around how they think about paying different parties. And we've already -- remember, half our markets already have been using Buyer's Representation Agreements. The change in some of those markets is doing it a little earlier. But you should also know that there are a number of states that are coming out with viewpoints with their regulators coming out and saying that it should not -- that it's too early to have a Buyer's Representation Agreement before the showing. And that it should be before negotiation, an offer but not before showing.



So, I think time will still tell even if in somebody's markets, if the state will even allow it to be that early. But again, I don't see there being a change.

[Kalani Reelitz, executive]

Yes, Bernie, I would add just internally, though, we're using it as opportunity to continue to train our agents, to continue to show the agents, the tools we have to trade value. So, in the end, I don't think there's a ton macroly, but I think internally, it's a good opportunity for us to continue to show and train on value.

[Operator]

Our next question is from the line of Soham Bhonsle with BTIG.

[Soham Bhonsle, analyst]

Robert, just following up on that last question, I guess. It doesn't sound like you're concerned about commission rates, but I think there's still a fair amount of debate amongst investors. So, maybe just talk about sort of some of the contingency planning that you have done in this situation where there is pressure. And if you could just focus specifically on commission split on your side and how you sort of intend to defend that line going forward if we were to see split pressure.

[Robert Reffkin, executive]

Well, look, I think on the split side, that's in relation to the overall market competitive dynamics and the value that you provide relative to that. My view is on the competitive dynamics, I don't think spreads can go much lower. And so, I think that pressure was hard to see that creating more pressure. And I think -- or the value that we're providing is going to increase dramatically because I think I said earlier on the call, [the advantage] that were given to the agents. The -- in terms of -- in terms of what -- look, I know that investors have had -- there are some investors, actually, there are many investors, by the way, that aren't worried about this anymore. But yes, there are some that say, okay, what loan happen on August 17 and afterwards. Again, my belief is that the Buyer's Representation Agreement doesn't change the conversation that a listing agent has with a seller. And so, the listing agents -- the seller is going down with a listing agent. We're going to talk about how much the seller wants to incentivize the buyer's agent. On August 17 versus the week before, that conversation is going to have be the same framework. And so, I don't see how it's going to change what the seller does.



What it does is it left the buyer agent actually negotiate for themselves, right? So, when I say like the best agents are actually happy with this, because the best thing is saying, oh, now I can actually negotiate for myself. Now I can -- I don't -- before the buyer agents were actually historically just taking whatever the listing agent negotiated for them. It's actually kind of interesting. And now the best buyer agents, many of them come to mind, who I meet across the country, they're asking their buyers for more than what the listing agent was negotiating on their behalf historically.



And so, time will tell, but I can see things being flat. I can see them maybe going down modestly, but I just haven't seen that yet. You can also see it going up and time will tell.

[Soham Bhonsle, analyst]

Got it. Okay. And then curious on the make me move tool. It sounds like a pretty interesting way to source some unique inventory. But I'm just trying to understand this a little bit. So, if the seller indicates that they're interested in selling, and there's a buyer in your system that sort of raises their hand, will that inventory remain just on the Compass platform? Or do you intend to sort of market that home on the MLS as well to get sort of broader syndication over time?

[Robert Reffkin, executive]

Yes. So, I'm going to try to be very clear here. We have 100 million people in more than -- or more than 100 million contacts in our CRM. I went out to all the agents this week, and I gave them a challenge. I said, go to your clients and ask them if they want to list their home. Ask them if they want to (inaudible), ask them if they want [a private exclusive]. If they say no, say, -- is there a price that you would sell at? Is there an aspirational price that you would sell at? My wife, as an example, would never sell our home. But when asked, there is a price. Everyone has a price, right?



So, this is, if nothing else, is an opportunity to get our agents in front of clients to engage, to build relationship and build business. But at a minimum, finding out that price and putting it in the Compass CRM. And so, it's just -- so, it's only internal. The only person who will know the make them move price is the agent they put it in there. However, what we're building over the months ahead is the ability, and this was the Number 1 -- and remember how we say everything that we do comes from our agents? The Number 1 request voted by our agents in the history of Compass is this idea, and that's why we're working on it, is when you're searching, let's just call it, five better penthouse, San Francisco. Can we not just have what's available on the MLS? What's a private exclusive to -- what's the private exclusive, which is off MLS. Can you also because Compass, this is with an agent, put in this request, because our CRM is in the same place where people search, it's the same platform and likely to sell has the addresses of all these contracts. Can you make it so the third line would be in my CRM? So, in Robert's CRM, I have 3,000 contacts on average. I -- there two people, let's say, that have a five-bedroom penthouse in Soho, in San Francisco. So, that would be the third line of what's available. And then the fourth line, there are only five lines. The fourth line are the other agents at Compass. It will show 17 other agents as an example, who they have people in their contacts, who have five bedrooms in San Francisco that are Penthouses. I will not know the names of those people or their actual addresses, I will only have a confidential reference number. So, I can say, hey, Jane, hey, John, I have a buyer who wants to spend $10 million on a five-bedroom penthouse in San Francisco. It looks like you have two contacts. Here are their reference numbers, would they want to buy?



We have top agents that do this today already, but it's one on one, it's off platform. We're making it -- we're just taking the real estate world and we're bring into the platform. And the fifth and last line is for what's in those contacts in my CRM and in the other agents CRM, adding to make new prices. So, it gives us a better signal of would these people be willing to sell and at what price? And so, that is what -- when I say making the prices, that is how they will be surfaced in every search that the agent makes.

[Soham Bhonsle, analyst]

Okay. so, it sounds exclusive to the platform. And then just -- and just last one, Kalani, as we think about the 30-30 strategy, and fully appreciating that you're not in all markets across the U.S., do you have a sense for what that sort of translates to market share in, call it, sort of a normalized $5 million existing home sales kind of environment, if you were to sort of achieve those levels?

[Kalani Reelitz, executive]

Yes. Sure, Soham. As Robert mentioned, we're probably half of the way there already. And so, I don't know that I'll estimate an exact number, but obviously, we're at five. We just reported five-plus this quarter. So, somewhere in the high single digits, low teens, would be kind of the math estimate, but it will depend on markets. Like Robert said, the goal here is really about driving inventory and our structural advantages to make sure that we are advantaging our agents. And so, it will depend on the markets and how fast we get there. But that's how I think about it at this point.

[Operator]

Our next question is from the line of Michael Ng with Goldman Sachs.

[Michael Ng, analyst]

I just have two. First, this one is for Kalani. On the commissions and expenses point, 82.6%, around that level for the rest of the year. Is that something that is just higher for the year given the M&A? And does it normalize down lower? Or is that a level of commissions that should be sustained higher even beyond 2024? And then I have a separate follow-up.

[Kalani Reelitz, executive]

Sure. Yes, sure. So, as it relates to gross margin and commissions, I think we mentioned, right, we saw that 70 basis point decline, about two-thirds of it is driven mainly by the market mix as well as the M&A related. I think for the year, we see it relatively kind of consistent to this quarter. I do think, and we are actively working, and I think there's a lot of tailwinds as it relates to gross margin, so I think it's more of a period of time to answer your question directly. I think as you think about some of the tailwinds, we have our organic recruiting team is bringing on about 500 to 600 agents per quarter. These are agents kind of in that top 50%, but not at the top 10%, right? So, the economics of our agents that we're bringing on are beneficial to our overall fleet. And we'll continue to do that. The team is doing a really good job there, 540-plus this quarter.



Additionally, we are seeing, and we'll continue to see for a little bit more, some of the incentives that we stopped incentives in the second half of 2022. As incentive burns off, we'll see some tailwinds there. And then lastly, you'll see us continue to talk about our opportunity to grow our reach and depth of our integrated services, particularly title and escrow. Our T&E business has abnormally favorable impacts on our gross margin. And so, as we grow and continue to grow, and I think we have a really aggressive growth plan to be kind of on par with our peers, as that continues, you'll see significant gross margin improvement from that as well. So, I do think it's more of a period of time as we lap some of the M&A and lap some of the kind of the market dynamics. But overall, I think we're well positioned to grow our commission rates in our favor.

[Michael Ng, analyst]

Great. Thank you, Kalani. And I just had a follow-up on the passive inventory make me move. Could you just talk a little bit about how that fits within, I guess, the confines of like the NAR's clear cooperation policy and why that may or may not apply?

[Robert Reffkin, executive]

Yes. so, first, I think clear cooperation will end. I now -- and it's a top priority of mine, top focus, beginning with a lot of MLS leaders and others in the industry. It has already been effectively eliminated in a number of the largest MLSs by allowing the restrictions to no longer be restricted. And so, even if it wasn't the -- what clear cooperation is, I believe clear cooperation is anti-homeowner. I believe that -- I believe that too much of the way the system works today isn't for the homeowner. And so, what -- I'll give you a couple of examples. Days on market is the killer of value. Price drop history is the killer of value. The reason why private exclusives at Compass are so popular is because they do not have days on market. When they go up, they do not have price drop history. When we go to Mercedes-Benz lot or any other luxury good, you don't see on every Mercedes-Benz the price drop or the days market.



And so, there are some markets where we have over 20% of the market share, where the majority of our listings come on as a Compass buyer who sees it first. Because those homeowners, they want to be able to test the market without that, what you call negative marketing. Now the aggregators in the United States have negative market and price drop history, days on market, AVMs, evaluation estimates, crime, all these kinds of things. These are things that in many other markets in the world that don't exist.



So, if you go into Australia, REA, which is owned by News Corp, there's no negative insight of any kind. And so, I'm sharing all this because it helps highlight why it is actually pretty easy in the construct of the United States system, which took inventory, gave it to aggregators to put negative insights on to get more buyers, searching like so easy to go to homeowners and say, we can protect you from those negative insights through these different tools, where we can test the market privately or test the market without having the negative insights on them.



And clear cooperation, what it's doing and is it -- the problem with it is it forcing homeowners into negative insights. It's -- there is -- it's saying anyone who has an agent, anyone who has an agent, after one day of public marketing, where with no negative insights on a place that come through your agents, you have to put it in the MLS. And it then goes through a system, which the homeowner doesn't have a choice on. And so, as we're -- now this is a top priority for us, and we're talking with leaders in the industry. I'm very confident the clear cooperation will go away as it is currently known. And even if it were not, the make me move prices because they're not public marketing and they're only searchable in CRM when you're talking to your agents, that's why even in the contrast of clear cooperation, is not an issue.

[Michael Ng, analyst]

Great. Thank you for all the color, Robert, that's really helpful.

[Operator]

Our next question is from the line of Ryan McKeveny with Zelman & Associates.

[Ryan McKeveny, analyst]

Yes. Sorry about that guys. I was on mute. Nice job on the quarter. Thanks for taking the questions. Kalani, I just wanted to come back to you on the revenue less P&O margin. So, I think your commentary was confidence over time, there can be some leverage there. I know you called out the ancillaries and that makes a lot of sense. Anything you can share more on the opportunity for margin improvement on the agent economics over time? Would that be something that maybe just comes from the mix of agents? Geography obviously plays a role. But as you expand all of these new products and offerings, is there upsell potential to agents? Just curious how you bridge that gap to get to margin improvement on [CNO] over time?

[Kalani Reelitz, executive]

Yes. Sure, Ryan. I'll start, Robert, if you have anything to add. A few things. Just noting again the headwinds we're seeing currently are more around mix, right? And so, it's not kind of structural on an agent-for-agent basis. It's just a mix. And so, that's why I have confidence that we have some opportunity to continue to move our economics. I think every time we're renegotiating deals we're bringing folks off of some of the incentive plans that we were on in the prior. And I think as you hear us today, where we're really confident and excited about those structural advantages we're talking about. And when we have those, those are the kind of conversations where we are having with agents, how we can help agents. So, it's not just commission, but how do we make sure that they're making the most money when we can do that, we obviously can have better, more productive conversations.



So, I do think the short term is more around resetting the mix. I think there is opportunity as we bring more agents on to bring -- kind of fill out the portfolio, if you will, which will improve our commission rates. And then I think individually, our teams are working every day really hard to make sure we're showing the value of Compass, and that positions us well for continued economic improvement.

[Robert Reffkin, executive]

Yes. I'll just add to what Kalani said. I think we have the benefit of hiring agents at better margin, the benefit of more T&E, which is helping margins. But I think what we were seeing is our -- really our acquisitions of market, end markets, with lower splits has offset the kind of things that I was just mentioning. I think over time, we'll be -- there'll be an M&A strategy that will be more balanced. And so, it won't hurt us, I think it will even help us. I think I think that's one, just the M&A strategy. And the markets where I referenced those transactions, those are some of the lower -- the most more challenged split markets that we're in.



Two, that's why I referenced on the call, we're going to be expanding T&E to a number -- to all of our largest cities over the course of the next 18 months, and there's multiple hundreds of basis points per transaction when you add T&E. And so, expanding T&E -- we're in seven markets now, but there are many more markets to go to.



And then three, I believe with the things that we just mentioned on the call, coming to fruition, that there will be an undeniable advantage to every agent. It has an advantage at Compass and their clients do as well and I believe that will help with the margin conversations.

[Kalani Reelitz, executive]

Yes. all of that, right, Ryan. I would just add, I forgot to add, I also think if you look -- so, we're talking about commissions. If we look at our total kind of the economics of the agent, which includes marketing, which includes some of the prior stock comp, right, if you look at those total agent economics, we are actually improving over time. That's part of the cost OpEx, etc. So, I think on the commission side, everything Robert and I just said, I would also point us to that total kind of company dollar that the agent has in that economics. We are improving that with each of the steps we've made over the last two to three years. That's already a metric that's improving.

[Ryan McKeveny, analyst]

Got it. That makes a lot of sense. Thanks for all that color. And Robert, I guess, the listing side of things is obviously getting a lot of attention. The make me move is very interesting. I guess in the here and now today, it seems what's happening is that Compass agents are having success winning listings, let's call it, at a faster rate than peers. And ultimately, that translates to share gains.



In February, you had made a comment that I think you said seller activity on your platform was up something like 40% year-over-year. And at that time, inventory and new listings had just started to rise. So, kind of an indication that seemingly Compass agents were having early signs of success as listings overall started to expand. I guess any updates you can share on just the amount of seller activity you're seeing on the platform today or just those trends generally in listings taken by Compass agents versus agents overall?

[Robert Reffkin, executive]

Yes. I remember earlier in the year, we saw on the platform, because [traditional] brokerage doesn't know when their agents -- doesn't know systematically through a platform if their agents are -- how many of their agents are having listing presentation conversations with their clients and when it's happening. But the listing presentations come to the Compass platform, which we build, not a third-party platform so we know, as well as the CMAs, the comparative market analysis, the market reports. And so, we can see -- we can see the full pipeline of an agents activity from first contact on the buy side and sell side all the way through.



And so, yes, early in the year, we could tell that the listing presentation conversations were up directionally around 40%. And then as I mentioned earlier on the call, the actual inventory is now up 40%. And so, it's -- we do have that insight. I don't have an updated view of that number on listing presentations, now going into the fall. And so, I don't have that. But what we do have is that -- what I shared earlier on the call, that are likely to sell recommendations in our CRM whenever you go in an agent -- there's a button in your CRM that says, LTS, likely to sell. And it's a recommendation that for anyone that's in your contact database and the average agent has around 3,000 people, and their addresses attached to these, it's a recommendation of if they're highly like they sell or medium likely to sell. And if they're not one of those two things, there's not a recommendation.



It's looking at -- it's a weighted model looking at a bunch of factors, some key ones are details about the property, bedrooms, baths, square footage or time since the last sale and frequency of past transactions for the platform, home value appreciation or people moving data and percent of owners, renters, how can they move. And so, it's based on those types of factors. And what we saw is of the Compass transactions that closed in Q2, it was 7% of those addresses were recommended through the Compass likely to sell in the prior 12 months. And so, we -- when we look at the likely to sells, we're actually not seeing an increase in the number of likely to sells necessarily going forward versus what we've seen in the past. And so, that's an indication that I think that -- that the market is -- I don't think we're going to see a big boom in new inventory. But I don't think it's declining either. I think inventory in the fall -- well, actual inventory will have to be more do with buyers coming to market versus new sellers.

[Operator]

We have a final question today from the line of Ben Black with Deutsche Bank.

[Unknown Analyst]

This is Jeff [Steiner] on for Ben. Just one quick one on you mentioning inventory as a structural advantage, a lot a talk on that. And you mentioned the clear cooperation policy potentially going away and maybe some of the NAR rules that are about to go into effect. Does any of that allow you to lean into kind of private exclusives in a bigger way? And maybe more broadly, will any of that potentially push the industry to more of a decentralized listing structure?

[Robert Reffkin, executive]

It's a really good question. It's a question that a lot of MLS leaders are asking, which is if agents aren't forced to put listings in the MLS, which I believe that is not -- I believe that that's inevitable, that they can't be forced because that's not the world that we live in, and the DOJ publicly, and this is all public, but they're actively looking at clear cooperation, right? And so, that -- we opened that case. So, again, I think it will go away. And there are another -- one of the judges recently reopened a case from, I believe, this top agent network on clear coverage. There's a lot going around on clear cooperation. And at the heart of it is, are you forcing people? And when you have -- and that's a problem when you're forcing somebody to do something.



And so, I believe the forcing mechanism will go away, but it will be fine. It's not -- from an MLS standpoint, we find, because we already have data points. There is no clear cooperation in the state of -- in MLS PIN, which it's broker -- under NAR, and that's Massachusetts. There is no clear cooperation in Marin, Napa, Sonoma County, which is [Baris.] And there are a number of other examples. And things work just fine.



And so, I think there's a fear of -- from some stakeholders like what will happen, how decentralized will it get? What it will mean is that, I believe, is that the vast majority of inventory will end up coming to a centralized place. But it won't -- probably not as much will be instant. And there are reasons for homeowners for it not to be instant. There are many homeowners that believe that it's not always foreseen marketing into the MLS isn't always in their favor. What if they're a CEO, what if they're getting married? What if they're getting divorced? What if they're a celebrity? What if they want to test the market and the aspirational price? What if they're -- they need to develop the property for -- and paint it and stage it? They want to test the market beforehand before the days of market really starts. There are so, many reasons why people want choice. And so, I think that choice will happen. But when the choice happens, we already have the data point that the system will still work because there are many MLSs that don't have clear cooperation. But I do believe that Compass will be able to show that where there's more inventory on Compass.com, as well as more inventory for our agents than any other public sites.

[Unknown Analyst]

Great. It was very helpful.

[Operator]

Thank you for your question. And ladies and gentlemen, that will end today's Q&A session. I'd like to turn the call back over to Robert Reffkin for closing remarks.

[Robert Reffkin, executive]

Well, first of all, thank you for joining our call today. As you can tell, I'm very excited by where we are and where we are going as a company. Our excellent financial results in the midst of a very difficult market really demonstrate that we are on the right track to avail. And when the market does return to normal, we will be well positioned to capitalize. I just want to say how grateful I am to all the amazing agents, all the amazing employees who have persevered through difficult times and always with their eyes on delivering great results for their clients and for the company and to say thank you. Thank you for joining this call.

[Operator]

Thank you, ladies and gentlemen. That does conclude today's call. Thank you for joining. You may now disconnect. Have a great day.