Compass Inc. Q1 2026 Earnings Call - Synergy Acceleration and Pro Forma Earnings Power

Operator: Ladies and gentlemen, thank you for joining us, and welcome to Compass, Inc. 2026 Q1 earnings call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw that question, press star 1 again. I would now like to turn the call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass first quarter 2026 earnings call. Joining us today will be Robert Reffkin, our Founder and CEO, and Scott Wohlers, our Chief Financial Officer. In 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 first quarter 2026 earnings release posted on our investor relations website. Additionally, note that since the financial results from the Anywhere transaction are not included in the prior year period or the first 8 days of Q1 2026, the current year and prior year results are not comparable.

We have provided supplemental information included in the Form 8-K filed today that presents our revenue and commissions expenses and key business metrics on a pro forma basis as though the businesses were combined from the beginning of 2025. We believe this additional information will be useful to investors to assist in comparing the periods prior and subsequent to the closing of the Anywhere transaction. We will also 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 second quarter of 2026 and full year 2026 and comments related to our expectations for realizing cost synergies and 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 filed with the SEC and available on our investor relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today’s date, May fifth. We expressly disclaim any obligation to update this information. I will now turn the call over to Robert Reffkin. Robert?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: Good afternoon, and thank you for joining us for our first quarter conference call. Before I go over our strong Q1 results, I would like to provide an update on our cost synergy targets and highlight a few early wins since we closed the Anywhere transaction. First, on our cost synergies. On our Q4 earnings call in February, we shared our target of $250 million in cost synergies to be actioned by the end of year 1 and $400 million in net cost synergies over 3 years.

I am very pleased to share that we are increasing our target to $300 million in cost synergies to be actioned by the end of year 1 and $500 million in net cost synergies over 3 years, of which $420 million is expected to be realized through the P&L and $80 million is expected to be realized as a CapEx synergy. We have now actioned over $250 million in cost synergies as of April 1, which is only 82 days since we closed the Anywhere transaction. The acceleration results in an increase in our 2026 in-year realized cost synergies from approximately $100 million to $200 million.

We previously expected $40 million of the $100 million of our cost synergies to be realized through the P&L as an OpEx synergy, with the remainder being realized as a CapEx synergy. Based on the increased realization of the target, we now expect about $130 million to be realized through the P&L and $70 million expected to be realized as a CapEx synergy. This reflects a roughly $90 million increase in our in-year realized OpEx synergy expectations and a $10 million increase in our in-year CapEx synergy expectations compared to our prior expectations due to the larger in-year realized target of $200 million. Shifting now to our early Q1 wins that represent the growth and success in our brokerage brands.

Sotheby’s International Realty sold the most expensive home in the history of the world at $350 million, while Coldwell Banker sold the most expensive home in the history of Miami-Dade County at $170 million. Both sales reinforced the combined company’s authority in the luxury segment. Corcoran Sunshine, which is Corcoran’s new development business, posted its strongest contract volume quarter in over 10 years with $1.5 billion in contracts signed in Q1. ERA executed its largest franchise sale transaction in 15 years. Better Homes and Gardens executed its largest franchise M&A transaction in the entire history of the brand. Christie’s International Real Estate signed on 8 new franchise agreements in the quarter. All for new markets, which reflects the largest quarterly expansion in the history of the brand.

Century 21 recently executed its largest franchise sale transaction in 10 years, with our stance on home seller choice being a key reason for the broker owner, Greg Hague, choosing to join. In fact, Greg will be coaching our real estate professionals across our brands on home sale strategy given his impressive track record, which includes building a home sale strategy consulting and training company that Inc. 5000 ranked among the top 250 fastest growing privately held firms in America. Compass recruited more principal agents in Q1 than any prior Q1 in our history. We are now also scaling Compass’s most effective recruiting strategies across all brands, starting with demand generation and brand specific recruiting websites that outline how our technology platform helps agents grow their business.

Finally, Coldwell Banker’s GCI retention rate in its top 2 quartile of agents, representing 82% of its total GCI over the trailing 12-month period, hit a 10-year high at 94.6% retention rate in Q1. In our title and escrow business, we are consolidating our operations onto a single technology platform, which we expect will unlock sizable long-term savings through centralization once completed. In our mortgage business, GRA, which was Anywhere’s JV with Guaranteed Rate, achieved its highest attach quarter in 2 and a half years, while OriginPoint, which is Compass’s JV, achieved its highest attach rate ever in Q1 and delivered its best quarter of profitability. Going forward, we see a significant opportunity to continue to improve both our attach rate and profitability in our mortgage JVs.

Lastly, we are moving forward with our digital mortgage partnership with Rocket Mortgage, with Rocket’s pre-qualification experience now embedded across all listings on compass.com. Our data and analytics team, led by Dave Crosby and supported by our chief economist Mike Simonsen, is executing a radical simplification of our significantly expanded data state. Since closing the Anywhere transaction, we’ve identified over 6,000 legacy reports and have already deprecated over half of them. We’re on a disciplined path to standardization across the entire company to get to approximately 100 high-fidelity reports. By minimizing the number of reports, it will allow our data team to focus on critical integration tasks and the development of proprietary insights by Q4 of this year, which we believe will provide our real estate professionals, title agents, and mortgage officers the ability to win more business in the marketplace.

Now turning to our Q1 2026 pro forma results.

Pro forma transactions were up 2.6% year-over-year compared to the market, which was flat year-over-year. This means that for 20 consecutive quarters, our brokerage business has outperformed the market on an organic basis. Pro forma brokerage GTV was up 7.3% year-over-year compared to the market that was up 1.5%. Pro forma total agent adds on a gross basis were 3,503, which was higher than Q4 2025 levels. Pro forma total agent retention in our brokerage business was 94%, flat compared to Q4 2025. Excluding agents with 0 GCI in the last 12 months, pro forma agent retention would have been 97% in Q1.

Excluding agents with $20,000 or less in GCI in the last 12 months, which on average equates to less than 2 transactions at our price points, pro forma agent retention would have been over 98% in Q1. Pro forma productivity per agent, which we measure as GTV per agent, was up nicely year-over-year. Going forward, our brokerage recruiting and retention strategy as a combined company will be focused on productive agents as well as up-and-coming agents. We expect this to lead to a healthy level of agent adds, combined with improving agent retention and agent productivity growth. In franchise, pro forma GTV was up 4.6% year-over-year compared to housing market volumes that were up 1.5%, reflecting 310 basis points of outperformance.

Our Sotheby’s International Realty and Corcoran brands continued to outperform the company average, while total franchise sales experienced a meaningful increase year-over-year. Pro forma integrated services revenue grew 11% year-over-year, with title and T&E revenue being the primary driver. The quarter benefited from strong refinance activity, with pro forma refi transactions up 100% year-over-year, while pro forma purchase transactions grew 4% year-over-year. Purchase transaction growth outperformed overall housing market growth at 0.2% year-over-year. These strong results would not have been possible without each and every member of our team. I want to thank the entire team for their focus and hard work in a quarter of significant change for our company. Now, let me provide a few thoughts on our partnership with Rocket Redfin and the industry’s shifting stance on phased marketing.

First, we are pleased to see several other portals and brokerages following our lead on home seller choice and phased marketing. Sellers want more choices, not less choices. As Coming Soons are provided as an option to more sellers, they will realize they have more options and more choices on how to market a home. We as a company have consistently provided sellers with more options than our other competing brokerage firms. We believe that will help our real estate professionals continue to outperform the market and win listings with their sellers. Second, while we see others in the marketplace attempting to recreate an offering similar to ours, for several reasons, we are confident that the Compass 3-phase marketing option with the Coming Soon phase also being on Redfin is the best option for phased marketing in real estate. Here are a few reasons why.

First, unlike the other option in the marketplace, all of our Coming Soon buyer inquiries are always sent directly to the listing agent, the person that knows the property the best, as opposed to when you click the contact tour or schedule appointment contact agent button, it being rediverted to a third-party agent who doesn’t know the listing the best. Second, unlike the other major portals Coming Soon option, in our case, we always allow the listing agent to do showings, and we always allow open houses. That is not the case for the alternative options. Third, real estate is a local business, with our depth of inventory in major markets, we believe we’ll be able to send a strong signal to consumers to search compass.com and our other brokerage websites.

Of note, compass.com was the fastest-growing real estate website in Q1, with 38% year-over-year growth in monthly average users, and is now the sixth largest audience in real estate per Similarweb. Fourth, our agents can offer their buyers 1% off the mortgage rate through Rocket, a significant advantage, particularly in the current environment. Our advantage is being borne out in the numbers. In the Chicago metro area, which is the third largest housing market in the country by unit count, we have launched roughly 1,000 Coming Soons since we announced the partnership. This compares to virtually no unique Coming Soon inventory in the Chicago metro area that we can observe on the other portals as of last week.

To date, we’ve sent approximately 3,000 buyer inquiries back to listing agents from Compass Coming Soon on Redfin. These inquiries charge no referral fee from Redfin to the listing agent, and all of these buyer inquiries are incremental to what our listings real estate professionals would have received without the Redfin partnership. In addition to free buyer inquiries, our real estate professionals are also receiving a minimum of 1.2 million leads from Rocket and Redfin over the next three years, with over 24,000 leads already having been given to our real estate professionals since the partnership was announced. We have also seen recruiting momentum pick up in the Compass brand since our announcement, and principal agent recruiting is off to a faster start in Q2 than expected.

One of the reasons for this is their interest in the Redfin and Rocket partnership, as they want to benefit from these leads as well. Shifting to the earnings potential of our combined business. A common question we receive from the investment community is what the earnings profile of the combined business could be in various housing market scenarios. In our investor deck this quarter, we have provided a scenario analysis to demonstrate how we are positioned to generate resilient financial performance even in a flat housing market and capture significant upside as the market improves and once we realize our cost synergies. Importantly, these scenarios assume no agent adds, no organic share take, no margin improvement, no improvements on T&E or mortgage attach, or any contribution from leads or other ancillary revenue streams, which we view as incremental growth levers in our business beyond the housing recovery.

I also want to emphasize that this is not guidance, but these scenarios should help provide a range of expectations around the earnings power of our combined company, simply from an eventual recovery in existing home sales and once we’ve realized our cost synergies. Specifically, assuming the housing market remains flat at 4.1 million existing home sales, we would generate roughly $1 billion in adjusted EBITDA and $750 million in unlevered free cash flow. In the next scenario, which we’ve assumed as 4.8 million existing home sales for this analysis, we would generate $1.5 billion in adjusted EBITDA and $1 billion in unlevered free cash flow. At mid-cycle levels of 5.5 million home sales, we would generate $2 billion in adjusted EBITDA and $1.5 billion in unlevered free cash flow.

Lastly, we also provided an upside scenario of 6 million home sales, and at those levels, we would generate $2.5 billion in adjusted EBITDA and roughly $2 billion in unlevered free cash flow. What you can hopefully see from this analysis is that, one, even at 4.1 million existing home sales, which we believe is the trough of the cycle, we would expect the business to generate $750 million in unlevered free cash flow, giving us confidence that we can make progress in reducing leverage even in conservative scenarios. Two, once we begin the recovery up to mid-cycle levels, that the earnings growth and free cash flow potential in this business is incredibly significant. I want to end by talking about our AI strategy.

Last quarter, I touched on our 3 defensive pillars around AI. This includes, 1, our growing base of proprietary data from our three-phase marketing listings, which cannot be scraped by foundational AI models. 2, trust, which we believe will become even more important in a world where AI agents will bring inaccurate and fake information into the market, like fake offers, fake listings, fake accounts, fake pictures, fake renderings. I’m already starting to see it. In this future, human validation will continue to be important given the high stakes, high-ticket transaction. Trust will matter even more than before. 3, positive network effects that our 330 plus thousand real estate professionals will create to continuously improve our agentic AI capabilities on the platform. Combined, we believe we have the attributes required to evolve with the AI landscape.

Despite all the fears around AI, the data indicates that agent utilization is now at the highest level in recorded history. Per NAR’s annual consumer profile, 91% of home sellers and 88% of home buyers choose to use a real estate professional to complete their transaction in 2025. I wanna reiterate that that is the highest level that we have ever seen in recorded history. Moreover, we’re seeing the lowest level of for sale by owner listings in recorded history at just 5%. Even with AI making significant progress in the last 2 years, we’re seeing an increase in the number of people using agents and a decrease in the number of for sale by owners listings, and both at historic levels.

The data I just shared, 91% of home sellers using an agent and 88% of home buyers using an agent, that compares to a similar 90% of home sellers using an agent in 2024 and 88% of home buyers using an agent in that period as well. If you go back in time to 2005, what you’d see is 85% of home sellers using an agent and 77% of home buyers using an agent. What this data is showing is that greater access to information or better search capabilities is not the reason why consumers choose to work with an agent. Rather it’s the agent’s critical role in managing a highly complex and a highly emotional transaction. One where trust matters, where it’s high stakes, high value.

I cannot overstate how emotional these transactions and negotiations can become. The localized nuances that are prevalent in real estate are abundant, and the nuanced deal process where no deal is the same as another, is why people use a real estate professional. Moreover, what history shows is that as information becomes more prevalent, as it did with the rise of the internet from that 2005 period, where less buyers and sellers were using an agent. As the information becomes more prevalent, where more information and data has been out there over the last two decades. With more information, you see a greater need for the average consumer to feel like they need to hire a professional to make sense of all the information and all the data.

Said simply, history shows that more information and more data in the public domain increases the demand for advice from a real estate professional. Now let me take a moment to speak about what we are doing to position ourselves and our business offensively for the AI opportunity. First, we are using AI to reduce OpEx as you would expect. In Q1 alone, our internal initiative to train Compass and their 2,300 employees on how to best use AI tools has freed up an estimated $2 million of resources by deploying targeted AI workflow automations across support, compliance, and brokerage operations. The team has identified potential annualized efficiencies in the vicinity of $23 million as part of our overall cost synergy goal. Furthermore, we are transforming our engineering organization by successfully deploying AI coding assistance and automated testing frameworks organization-wide.

We now estimate that 30%-40% of all new code written at Compass is produced by AI, which is helping accelerate product development velocity by 20% while keeping our technology OpEx unchanged even as we upgrade the platform for the Anywhere integration. Second, on productivity, we can help our real estate professionals, title agents, and mortgage loan officers within our ecosystem become even more efficient and gain an edge in the market by using AI. For real estate professionals, we are fully integrating Compass AI 2.0 into their workflow to create an on-demand partner designed to help unearth business opportunities and streamline their daily workflows.

Examples include a newly rolled out suggestion model, which suggests new steps an agent should take with their client to move their transaction along, or proactively serving up buyer and seller leads through what we call our structural advantage tools, such as reverse prospecting, make me sell, or the network tool to help a listing agent close a transaction faster. By giving our 330,000+ real estate professionals these insights in reducing the number of manual tasks they perform each week, we are enabling them to service, win, and close transactions faster. For our title agents, we are planning to leverage our significant data advantage now created by the Anywhere transaction to execute a targeted local sales approach.

By layering predictive analytics into our one-click title and escrow integration, our title agents will be able to identify and intercept high probability transactions with greater precision, which we believe will improve our attach rates. For our mortgage loan officers, we can plan to apply similar predictive AI principles to capitalize on our expanded mortgage coverage. By utilizing our platform’s proprietary transaction signals, we can provide loan officers with what we believe are highly qualified, high intent leads exactly when a client needs financing, giving them an edge to win the business. Ultimately, we believe AI will be an accelerant to how much business our professionals do, and we are confident that we have the assets to help them win. With that, I will now hand it over to Scott.

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Thanks, Robert. I want to start by saying thank you to our consolidated team for the extraordinary effort and collaboration put in over the past four months, which has led to the great results we’re sharing today. With the Anywhere transaction closing on January ninth, Q1 was truly a transformational quarter for our company. Where possible, I’ll provide some information about the contribution to our consolidated results from the acquired Anywhere businesses. However, we’re integrating the entities quickly and therefore do not generally expect to break out separate results going forward. Please note that beginning this quarter, we’ll also be providing additional information on an operating segment level. Our three operating segments going forward will be Brokerage, Franchise, and Integrated Services. The Brokerage segment includes the results of our owned brokerage operations that now include the Coldwell Banker, Corcoran, and Sotheby’s International Realty brands.

The franchise segment includes the results of the franchise brands we just acquired through the Anywhere transaction, as well as the Christie’s International Real Estate franchise we acquired in January 2025. The Integrated Services segment includes the results of our joint title and escrow operations, as well as the operations of the Cartus relocation business that came through the Anywhere transaction. The Integrated Services segment also includes the equity method income from our 49% owned mortgage joint ventures, including the Guaranteed Rate Affinity JV from the Anywhere transaction and our OriginPoint JV. Certain direct expenses are allocated to each of the three operating segments, there are additional expenses that are not allocated to any of the operating segments because they relate more to the corporate entity or because they are shared across multiple or all of the operating segments.

These include expenses related to our technology, finance, legal, human resources, and executive functions. The total adjusted EBITDA for the consolidated company will be equal to the total of the segment adjusted EBITDA results for our 3 operating segments, less the unallocated corporate expenses. We’ve reclassified our prior year results on the same operating segment basis for consistency with the current period presentation. Revenue in Q1 reached $2.7 billion at the upper end of our revenue guidance range of $2.55 billion-$2.75 billion. Excluding the Q1 revenue contribution from the Anywhere transaction of about $1.2 billion, revenue increased 10.9% year-over-year.

We are very pleased with this result as Q1 was a tough year-over-year quarterly comp in 2026, as on a Compass standalone basis, we grew organic revenue in Q1 2025 by 14.6% compared to Q1 2024. Brokerage segment revenue was $2.467 billion for Q1. On a pro forma basis, brokerage segment revenue increased 7.1% in Q1 2026 compared to Q1 2025. Gross transaction value for the brokerage segment was $97.3 billion in the first quarter. On a pro forma basis, brokerage segment GTV was up 7.3% year-over-year, a favorable comparison to the market that was at 1.5%.

On a consolidated basis, including Anywhere, our average selling price was $978,000 for the quarter, representing a decrease of about 8% from a year ago, as Anywhere’s brokerage business has slightly lower average selling prices. Commissions and other related expense as a percentage of our brokerage segment revenue improved to 81.4% for the quarter, compared to 83.2% in Q1 of last year, as Anywhere’s brokerage operations operate with slightly lower commission rates than Compass’s brokerage operations. On a pro forma basis, commissions and other related expenses as a percentage of our brokerage segment revenue was 81.3% in Q1, compared to 81.0% in Q1 of last year.

Pro forma franchise segment GTV was up 4.6% year-over-year compared to a housing market volume that was up 1.5%. Finally, pro forma integrated services revenue grew 11% year-over-year, with title and escrow revenue being the primary driver. Our total non-GAAP operating expenses were $641 million in Q1, an increase from $236 million of OpEx in the year-ago period, driven by the operating expenses assumed in the Anywhere transaction. Note that this OpEx figure for Q1 of $641 million excludes Anywhere’s expenses for the first eight days of the quarter prior to the transaction closing, or about $40 million of expense.

Adjusted EBITDA for Q1 was $61 million, a record level of adjusted EBITDA for any first quarter period in our history, exceeding the high end of our $15 million-$35 million guidance range and a strong improvement of 280% from adjusted EBITDA of $16 million a year ago. Last quarter, I talked about the impact of Anywhere’s LTIP, which is comprised of cash-settled RSUs that require mark-to-market accounting through the P&L. The run-up in Anywhere stock price at the end of 2025 led to higher operating expenses in the P&L. Since these LTIP awards started to be indexed off of Compass’s stock following the closing of the merger, we expected that elevated level to continue into Q1, which is built into our Q1 guide.

Given the decrease in Compass’s stock price from the time we issued our Q1 guidance in late February to the stock price as of March 31st, the actual expense from the LTIP wound up being $19 million lower than expected, which benefited adjusted EBITDA in Q1. Even after excluding the $19 million benefit from the LTIP, adjusted EBITDA would have been $42 million. This result still exceeded the high end of our adjusted EBITDA guidance range in the quarter, driven by higher-than-expected revenue and some other favorability in operating expenses, including slightly better realization of our cost synergies in the quarter. Several items were excluded from adjusted EBITDA as follows. During the quarter as expected, we incurred $183 million of transaction and integration expenses related to the Anywhere transaction.

This includes expenses such as investment banking, legal fees, and severance costs, including $61 million of stock-based compensation expense, primarily related to the change of control severance provisions from Anywhere’s former executives. We do expect additional expenses in this line item throughout the year as we continue our cost synergy and integration efforts, but not near the level seen in Q1. You’ll notice an elevated level of non-cash depreciation and amortization expense this quarter at $163 million, up from $29 million a year ago. This increase is driven by the additional intangible assets and fixed assets we assumed in the Anywhere transaction, and this level of non-cash depreciation and amortization expense will continue in the future. Stock-based compensation expense in the quarter was $47 million, excluding the aforementioned $61 million day one charge related to Anywhere’s former executives.

Last quarter, I guided you that you should expect stock-based compensation on a consolidated basis will not exceed $50 million in any future quarter beginning in Q2. That continues to be our expectation. Finally, during the quarter, we recognized a $401 million one-time non-cash deferred tax benefit related to the reversal of valuation allowances on our deferred tax assets. This reversal was related to the establishment of deferred tax liabilities for the recognition of intangible assets from the Anywhere transaction that are nondeductible for tax purposes. This $401 million deferred tax benefit offset the other non-cash expenses and actually pushed us into a GAAP net income position this quarter of $22 million compared to GAAP net loss of $51 million a year ago.

Our basic weighted average share count for the first quarter was 734 million shares, just slightly above the guidance range of 720 million-730 million shares. As expected, free cash flow was negative at $168 million in the quarter, driven by the Anywhere transaction and integration expenses, including the transaction costs incurred by Anywhere prior to the closing of the transaction that were paid on or subsequent to the closing date. That said, we ended the quarter in a strong cash position with $484 million of cash on the balance sheet, an increase of $285 million from year-end.

Cash increase was driven by the $880 million in net proceeds from the convertible debt offering, offset by the use of $345 million in the Anywhere transaction related to the payoff of their revolver, net of cash acquired from their balance sheet. At the end of Q1, we had no outstanding borrowings on our $500 million revolver, we may remain well within our net leverage ratio covenant, which is the primary financial covenant on the revolver. As Robert touched on early, we have continued to make strong early progress on cost synergies. We have already actioned over $250 million of our cost synergy target, which was previously our year 1 target.

As a result, we’ve now increased our year one action target from $250 million to $300 million and raised our three-year action target from $400 million to $500 million. Last quarter, we guided to an expectation to realize about $100 million of the cost synergies in 2026, but that we now expect to realize about $200 million in 2026. About two-thirds of this amount, or $130 million, will be reflected as reduced operating expenses in 2026, benefiting adjusted EBITDA and cash flow. The remaining one-third, or about $70 million, will be reflected as lower CapEx, which won’t directly benefit adjusted EBITDA but will benefit free cash flow.

As I discussed last quarter, the reason why a portion of the cost synergies will be realized through CapEx is because Anywhere historically capitalized a large amount of employee and contract labor to its balance sheet, approximately $80 million in 2025. As part of our cost synergy work, a significant portion of Anywhere’s technology projects that had historically been subject to capitalization will be cut as we shift the technology focus to the Compass platform. Importantly, as we’ve already made significant progress on the CapEx portion of our synergies, the vast majority of future actions over the next three years will generally all benefit the P&L and adjusted EBITDA. Now turning to financial guidance for Q2. For the second quarter of 2026, we expect consolidated revenue in the range of $4 billion-$4.2 billion.

We expect second quarter consolidated adjusted EBITDA to be in the range of $310 million-$350 million. For the full year, we expect non-GAAP operating expenses in the range of $2.7 billion-$2.75 billion when considering the actual OpEx of $641 million for Q1. Included in the full-year OpEx range is the 3%-4% OpEx inflation we typically expect and the $130 million of the OpEx synergies we expect to realize through the P&L. On average, the OpEx for Qs 2, 3, and 4 reflects a step-up from the OpEx level of $641 million for Q1 for a few reasons. First, OpEx in Q1 excluded eight days of Anywhere’s operating expenses due to the transaction closing on January 9th.

Second, our annual employee compensation adjustments occur at the end of March, leading to a step-up of these payroll expenses starting in Q2 of each year. Offsetting these natural increases would be the higher P&L realization of synergies in the second, third, and fourth quarters compared to the cost synergy realization in Q1, which was lower. We expect our weighted average share count for the second quarter to be between 755 million-760 million shares. This is a step-up from Q1, as the shares issued for the Anywhere transaction were only weighted for the period post-closing January ninth. Finally, a few thoughts on cash flow and debt levels. As I talked about last quarter, we fully expected to report negative free cash flow in the first quarter from the Anywhere transaction and integration cost spends.

We expect to be free cash flow positive for the balance of the year. However, Q2 could be close to free cash flow breakeven or maybe even slightly negative based on the timing of severance and other payments to achieve our cost synergies, the timing of the semiannual interest payments on our debt, which are concentrated in the second and fourth quarters of the year, and the timing of certain legal payments related to Anywhere, including the $54 million NAR-related class action settlement that is still open and expected to be paid in the near term.

That said, we expect to deliver strong free cash flow in Q3 and Q4 of this year, which should put us in a cash position to deliver positive free cash flow on a full-year basis and give us a clear path to prioritize aggressively delevering our balance sheet, which remains a high priority for us. Our first target in delevering is the highest cost tranche in our capital structure, the $500 million of 9.75% notes. These notes can’t be prepaid today and will first become callable on April 15th, 2027.

The bonds will carry a redemption premium of 4 and 7/8% over par. While this redemption premium will cost us $25 million in cash, it’ll save us nearly $50 million in annual interest cost. It’s a good use of cash. April 15th of next year is circled on our calendar, and assuming cash flows materialize as we expect, we’ll be taking out the full tranche of the 9.75% notes in Q2 of next year. In the meantime, we’ll build cash on the balance sheet while earning mid 3% returns in short-term treasuries. To wrap up my comments, in early April, Moody’s and S&P initiated credit ratings on Compass, as prior to this point, Compass had no debt and therefore had no credit ratings.

Their respective reviews concluded a month ago, and S&P initiated a B+ corporate rating, and Moody’s initiated a B2 corporate rating, and each issued positive outlooks on Compass Inc., which were upgrades from where Anywhere was rated on a standalone basis before the transaction. Additionally, ratings on the outstanding bonds were each upgraded between two to three notches. We’re pleased to see that two of the big three credit rating agencies have come out with positive outlooks on the cash flow generation capabilities of Compass and Anywhere on a combined basis. Before I turn the call over to begin Q&A, we’ll be attending the BTIG conference on May seventh and the JPMorgan TMT conference in Boston on May eighteenth, and hope to see you there.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: All right. Thank you, everyone. This is Sohum. For the Q&A portion of the call, we’re gonna take questions that we received via email in the text box. Apologies again for the technical difficulties. I guess the first question is from Jason Helfstein from Oppenheimer. You know, how should we think about the timing of Anywhere’s agents getting access to the Compass technology platform and what do you expect in terms of adoption rate?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: Yeah, thank you for the question. The Anywhere owned brokerage will get the technology starting next month, and then more in each month following, with everybody getting it by the 1st week of September, if not earlier, everyone in the owned operation. The franchise affiliate business will start getting it in January, and it will be released over the following 2 months as well, so in advance of the spring market.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. The second one from Jason is, have you seen the uptake of 3-Phased Marketing since you settled with Zillow and launched the Redfin partnership?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: Yes, we’ve seen an uptick in the 3-Phased Marketing. It’s been modest as, you know, you’re in the middle of a spring market when usually it’s more towards the third phase, but we’ve definitely seen an increase. Our Coming Soons went from, I think it was low 20s to mid-30s, and I expect it to be much higher in the months ahead. My expectation is that 80% of our listings will go through the Coming Soon phase.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great.

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: The expectation comes from where, before the restrictive rules that were put in place, i.e. Clear Cooperation, we had 90% of our listings start off as Coming Soons.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay. Next one’s from Dae Lee from JPMorgan. You’ve gone from managing one brand to multiple brands across owned brokerage and franchise network. That’s now larger than your brokerage by transaction volume. That’s a step change in complexity. What’s the tangible benefit of maintaining distinct brands and catering to fundamentally different needs of agents spanning different brands and models?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: I think part of, you know, in your question is the answer. You know, our customers are agents, right? You said agents have different needs, we need to serve those needs. One of the needs that people have is a desire to have a local culture, local traditions, local beliefs, and a local unique brand. This allows being able to support different brands allows us to serve more agents in the markets that we’re in. If our customers are agents, I don’t think I’ve heard an agent say they want us to merge all the brands, as an example, but I have heard agents say that they want us to maintain their brands, and we’ve given them that commitment.

The technology platform is the reason why it’s taking the time it is taking to roll out is, you know, half of the reason is so that it can work in a brand agnostic way. With that flexibility that we’re bringing, quite frankly, just towards this summer, it can serve different brands without any more investment. In the same way Shopify is able to support a bunch of different brands, you know, our platform should be able to support brands as well.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay. The second one from Dae Lee is, how much incremental synergy opportunity remains beyond the $500 million?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: There is. Well, yeah. I’ll start, and I’ll pass it on. There is incremental opportunity, but I wouldn’t expect another increase in any time in the near future.

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Yeah, I was gonna follow up with the same thing. I mean, it’s suffice it to say, we moved very quickly in these first 100 days since closing the transaction. We wanted to make a big impact early on just for the clarity of the organization in moving forward. As we get into the next phase of the synergies, we’re getting into the deeper operational type integrations. You know, we’ve got the runway to complete the rest of that phase, which we’ve clearly de-risked ourselves with the great progress we’ve made to date. We wouldn’t not expect to be raising that target anytime soon.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. Next is from Ryan McKeveny at Zelman. The first one is on the synergies target and increasing the target of $500 million in management dive into the primary areas of cost savings, presumably from a combination of leases, headcount, tech development. Should we think about the mix of those big buckets and what categories of expenses is the drivers for the incremental synergy?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Just repeat that last section.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Yeah. Okay. I’ll repeat it again. On the synergies target, and the increase to $500 million, can management dive into the primary areas of cost savings, presumably leases, headcount, tech, and development. How should we think about the mix of those big buckets?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Look, the reality is nothing’s changed in terms of the buckets. I mean, those big buckets were there. The reality is what’s changed is more time has elapsed. We’ve had more ability to get into the details. Just to kinda like recap it, when we first put out the $225 million, that was at the time of announcement, back in September of last year, before we had any opportunity to get into the details, right? We increased that again to $300 million when we started doing some pre-close planning work, gave us more confidence of increasing that. The buckets didn’t change then either. We just had more confidence on the total.

We increased it to $400 million in February, after we had 7 weeks of actual progress working with the leadership team of Anywhere and Compass coming together. After now having almost 4 months completed since we closed the transaction on January 9th, it’s just that much additional confidence. I mean, I think the one thing I’d add that is why we’re seeing such good progress here is that the management teams are really working very well together. In a typical situation, I think you often have the target comes in, makes a lot of changes, makes decisions, and this has been a much more collaborative approach with the Anywhere and Compass management teams working really closely with each other, and I think it’s been a good contributor of the reason for our success.

It’s not really any new buckets. It’s just really kind of, I think a team that’s working really well together and making good progress towards the original goals.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay, great. The next question is also from Ryan. On the recent announcement with you and TPG and the stake in Peerage, firstly, can you give some context on the dynamics driving that transaction in terms of how that impacts the model? Does the ownership structure change? Just how does it sort of flow through the P&L?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Yeah, look, on the Peerage transaction, you know, it’s really a positive transaction for us. Peerage is one of the key franchisers under the Sotheby’s International Realty brand, and it’s an important relationship for us. They grew quickly, through M&A prior to when mortgage rates spiked. This is going back into the early 2000s, or 2020s, I should say. They just got into a situation where they were over-levered, took out too much debt as a result of their expansion, and just had trouble keeping up with the debt payments. It’s a good business. It’s fundamentally a good business. They just got over-levered on debt. This transaction allowed them to restructure their finances, clean up their balance sheet, and now puts them on the right path, going forward.

You know, we pick up a 51% common ownership interest in this transaction. They’re back on being cash flow positive. Nothing changes from the standpoint of how those revenues will flow through our business on the franchise side. That’ll stay coming through franchise revenue going forward. As we talked about in the announcement, we kinda restructured some amounts they owed us from some royalty payments they were behind on. We’ll get those paid back just over a little bit longer period of time that we’ll provide. Overall, a net positive transaction for us.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. Next one is from Alec Brondolo, from Wells Fargo. Could you speak to the cost buckets that drove the increase in the three-year synergy target from $400 to $500? How much of the $130 million in anticipated P&L cost synergies will be realized in the first half of the year relative to the second half? Could you speak to the learnings of the Anywhere franchise business since the acquisition closed? How are you thinking about bringing technology and the best practices to the franchisees?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Maybe I can start with the synergies question. You know, on the synergies, I think if you think about the $130 million that’ll be realized through the P&L in 2026, about 10 of that was realized in the first quarter, just given timing of the actions in relation to Q1. That by default puts the remaining 120 coming forth in Qs 2, 3, and 4. If you just divide that up at $40 million even, I’d say you could assume a little less than that average of 40 in Q2, and a little more of that average in Q4. As you know, a lot of the synergies are action now.

They’ll continue to build in terms of realization through the quarter, quarters of the year, and we still have another $50 million to go. That’s a good way to kind of frame how that’s gonna come through the P&L.

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: In terms of franchise, historically, our company served real estate professionals as agents and with the goal of making them more profitable, serving them as entrepreneurs, helping them realize their entrepreneurial potential. Now, we have a second customer base as broker-owners, which are the franchise affiliate businesses. They have the exact same goals as the real estate agent, which is to become more profitable, to realize their entrepreneurial potential. You know, we are giving them the same advantages that helped Compass grow, we’re giving them as broker-owners to help them grow. Obviously, it’s the technology platform as one example, but also our enterprise sales team that recruits agents, our M&A team.

We are giving them both on the revenue side and the cost side, the same advantage that Compass had at a brokerage level. We are giving that to the franchise broker-owners so that they can be more profitable businesses.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay, great. The second one from Alec is, how should we be thinking about the size of the Anywhere agent base that has a low amount of GCI? How long do you anticipate attrition from that group of users that will last?

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: Yeah, look, Go, Robbie, you wanna take that?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Yeah, no, I was just going to say on the agent base, I mean, I think the important point that we wanted to call out there is that the attrition during the quarter, you know, a significant percentage of that was really kind of underperforming or non-performing agents. You know, 50% to 6% of the agents we said had zero production. Another 21% on top of that had production of $20K or less in the past 12 months. These are, you know, reductions of numbers of agents, but really having no impact on the business.

You know, on the Compass side, over the last several years, we’ve kind of really operated under this methodology of, you know, kind of focusing on the strong producing agents and the underperforming agents, you know, if they pay their fees and they are otherwise, you know, in good standing with amounts owed to the brokerage, we’ll keep them on. If they’re not producing and they’re not paying bills as due, we’ll move them out of the business. Anywhere’s, you know, now operating under that same capacity, in recent periods of time, and I think they’re just catching up to us a little bit. It’s good to see that we’re both aligned on that strategy. It’s the right strategy.

There might be a little bit of more choppiness over the near term on that, but the important thing is that we’re just dropping numbers of agents. It’s not dropping any production at all, and that’s an angle. As we’ve always said before, you know, there’s been this limitation with principal agent counts and total agent counts, is that not all agents are created equal. Even when we used to re-report principal agents on the Compass side, you know, one principal agent could be operating as an individual contributor. Another principal agent could have a team of dozens of agents doing extremely high production. There were limitations to that metric on a principal agent basis, and there’s also limitations on a total agent basis.

The important thing we wanted to get out there is that the lost agent counts really had very limited production associated with them, so no meaningful impact on the business.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. Thank you. All right, next one is from Bernie at Needham. With the guidance, can you provide some color by revenue buckets? How should we expect seasonality throughout the year? Are there any differences than typical housing market seasonality?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Could you repeat that, the last part?

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Yep.

Scott Wohlers, Chief Financial Officer, Compass, Inc.: And, and-

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: With the guidance, can you provide some color by the revenue buckets? How should we expect seasonality throughout the year? Is there any difference in housing market seasonality?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: You know, it’s probably gonna be pretty similar. You know, a lot of the GTV coming through franchise will follow similar to the brokerage seasonality. I’d expect those two to be fairly aligned. You can actually see, just as a reminder, we put on our website through the investor deck we provided today the pro forma revenue for 2025 as though Anywhere and Compass were combined from the beginning of 2025. You can see the breakout for the brokerage, franchise, and integrated services segment separated for Compass, separated for Anywhere, and then, of course, in total.

You have good visibility of what that looks like on a trailing 12-month basis to hopefully, give you some sense as to what that trending could look like going forward.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay, great. The next one is from Bernie as well. 84,000 agent count was lower than expected. I don’t think we had the exact apples-to-apples comparisons with the principal versus non-principal agent count last quarter. How did agents trend quarter-over-quarter? Can you talk to agent retention?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: I mean, look, I think we touched on that a little bit already with, you know, we had good recruiting. We talked about the attrition and the portion of that attrition that was really kind of related to non-productive agents. I think the gap to consider is that what we’re talking about here with the, you know, 84,000 agents, we’re talking about owned brokerage agents, right? There’s obviously a lot of agents on the franchise side of the house that we’re not including in that count. That leads to our total, you know, the 330,000-ish total count across the company, which includes international franchise.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. The next one’s from Michael Ng at Goldman Sachs. What were the key sources of the upgraded synergy outlook, given three-quarters of upgraded synergy outlooks? Could we expect further upside from here? As a housekeeping item, how much in P&L synergies was realized in Q1, and how much do you expect in Q2?

Scott Wohlers, Chief Financial Officer, Compass, Inc.: Yeah, I think we covered that one as well in earlier question. Again, about $10 million was realized in the first quarter, which is up a little bit from what we expected. That leaves you with about $120 million of P&L realization that’ll come through in the last 3 quarters of the year. It’s, you know, expect a little less than $40 million in Q2, about $40 million in Q3, and a little more than $40 million in Q4, if you wanna kind of like phase that out that way.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Okay. This should be the last few questions here. From Michael Rindos at Benchmark. Please discuss what’s going on with private listings in Chicago, in the Chicago MLS, sharing it nationally, and Washington State, Wisconsin enacting laws around private listings.

Robert Reffkin, Founder and Chief Executive Officer, Compass, Inc.: There are 2 types of laws that states are coming with. 1 is a model which I believe is Wisconsin and Connecticut, where they’re saying that if a seller signs that they don’t, that they want to be private listing, they can be private listing. That actually means that some states are saying sellers have the legal right to be a private listing, and to market however they want. That’s 1 model. I guess in Well, there’s 3 models. The second model is 1 where the states aren’t saying anything, and the third model would be states like Washington State, where they’re saying if a listing is marketed to some, it must be publicly marketed. Public marketing per, at least per MLSs, is a sign in the yard.

What is public marketing? Is that saying if you’re marketing to some as private listing, you have to have a sign in your yard? I’m sure that’s fine. Public marketing is putting on social media. Is that saying if you have a private listing, you also have to put it on your social media? I think that’d be fine. Is public marketing saying that it has to have days on market or price drop history or a bunch of information? Public marketing could just be a picture of the house, the neighborhood, and say, "Contact me. I’m the agent. Come to compass.com.

We’ll show you all these listings. In those states like Washington, one, they’re saying if it’s a, they’re saying Coming Soon are perfectly legal, and if not, if nothing else, that it meets the requirement ’cause clearly it’s a public marketing. Even Private Exclusives on compass.com, they’re available per request. Private Exclusive is just a name, like private label for clothes, like private banking, like private equity, like private client group. It’s just a name. Obviously, it can’t be private ’cause it’s private use. You can’t sell something to yourself, right? What Private Exclusives are on compass.com, they’re available by request, and they are publicly marketed. A different way to say it, Zillow bans Private Exclusives because they’re public marketing.

Even Zillow believes they’re publicly marketed. That’s what’s happening in the state level. For MRED, what we are bringing MRED national as well as it’ll be just a select number of MLSs that are pro-seller choice, where we’re going to give them all of our listings, where we’re going to subsidize our agents joining. The reason why, it’s not, it’s not that I wanna create a national MLS to replace local MLSs. I wanna create a national MLS to compete against local MLSs. If they have to compete, who are they competing for? For us, for agents. Agents deserve more choices. Sellers deserve more choices, not less.

I think this is a very. In the same way, look what we kicked off. Now you have Zillow Preview and Realtor.com Previews and Compass Coming Soon on all these sites. Didn’t the seller deserve that 5 years ago and 10 years ago? Why didn’t they have it? I mean, shouldn’t sellers have more choices, not less choices? What we are doing, we are pushing on the system so that sellers and agents have more choices, less mandates. The seller should be the only person that decides how they market their home in the context of the law. Fiduciary duty and statutory duty, which are a majority of states, say that the agent, the real estate agent has, must, and this is the law. MLS rules are just rules of a business.

They’re private entities. The fiduciary duty and statutory duty says the agent must follow all lawful, in quotes, lawful instructions of their client. If a seller wants to market without days on market and price drop, it’s however they want, that is a lawful instruction. An MLS with restrictive rules should not be able to tell an agent that they cannot follow the law, or if they don’t follow the law of their seller’s instructions, that they’re gonna be fined $5,000 and can lose their access. I think, you know, I’ll close with this. The dominant portal that likes banning agents for marketing outside of their platform to scare them from marketing outside their platform, their tagline is: We are trying to bring into the light these listings, bring transparency into the light.

Well, here’s what we’re bringing to the light. We’re bringing to the light that sellers, and sellers have been losing the disinterested advice of their fiduciary because of MLS fines and Zillow bans. We are bringing to the light that sellers with their agents should be able to decide how they market their home in any way they want, not third-party portals and third-party platforms like an MLS. The seller hired the agent and the brokerage firm. The seller didn’t hire the MLS. The seller hired the agent. They didn’t hire a portal. Again, I think that, you know, history will look back, and they’ll see that sellers will have more choices because of the efforts that we’ve been pushing forward.

I’m thankful for all of the agents and employees that have advocated for seller choice over the last number of years.

Soham Bhonsle, Head of Investor Relations, Compass, Inc.: Great. I think we will end it there. I know we went a little bit over. Again, thank you everyone for joining the call. Apologies for the technical difficulties. We are available tonight and over the next few days to answer any of the questions you may have. Thanks again for joining. This concludes today’s call. Thank you for attending.