Good day, everyone. Welcome to the Compass Q2 2023 earnings call. I would now like to turn the conference over to Richard Simonelli, VP of Investor Relations. Please go ahead. Thank you, operator. We appreciate your time today, folks. Good afternoon, and thank you for joining the Compass Q2 2023 earnings call. Joining us today will be Robert Reffkin, our Founder and Chief Executive Officer, Greg Hart, our Chief Operating Officer, and Kalani Reelitz, our Chief Financial Officer. In discussing our company's performance, we will refer to some non-GAAP measures, and you can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our Q2 2023 earnings release posted on our investor relations website. We will make 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 Q3 and full year 2023, and comments related to our operating expenses and cash flow levels, 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 on our most recent annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the SEC and available also on our investor relations website. You should not place undue reliance on any forward-looking statements, and all information in this presentation today is based upon our time at August 7, 2023. We expressly disclaim any obligation to update this information. I'll now turn the call over to Robert Reffkin. Robert? Thank you, Rich, thank you for joining us today for our Q2 results conference call. I'm pleased to share that in the Q2, we grew market share, grew agent counts, and grew margin, while delivering positive free cash flow and strengthening our cash position. We achieved strong financial results in line with guidance in the midst of a quarter that was impacted by mortgage rates increasing 100 basis points to 7% and unexpected market turmoil resulting from the debt ceiling standoff in Congress. We will continue to take a disciplined approach to our operating expenses and run our business efficiently while still investing in our agents, platform, and growth. We continue to launch new products into our platform, such as Performance Tracker, Compass GPT integration, and 1-Click Title & Escrow. We will be rolling out more team workflow functionality for agent teams over the next two quarters, and next year, we expect to launch our client portal, which over time will become the client's single destination for everything home, before, during, and after the transaction for both buyers and sellers. We are seeing a positive trend on agent retention. Every month in the first half of the year, the number of principal agents we lost was less than the month before. July, while not yet closed, looks to continue the trend, and we believe this trend is being driven by fundamental changes in the competitive landscape, where the Compass value proposition relative to competitors is strengthening. There is a critical shift happening in the brokerage industry that is resulting in structurally weakened competition and a key differentiator for Compass. The Compass business model always has been and always will be focused on providing the best tools and services to agents so they can best grow their businesses. We are seeing many traditional brokerages that historically competed for agents with value-added support and services now significantly reducing investments in these areas, which for the most part, was already much less than what Compass provided. We believe this is driven by competitors facing any combination of factors that Compass doesn't face. Specifically, rising debt service costs, increases in agent departures, declining market share and margin, worsening free cash flow, and for some VC-backed companies, a pullback in the VC funding market. As an example, including equity compensation, we have invested over $1.5 billion in our technology platform over a 10-year period and continue to invest approximately $100 million in R&D a year, which makes it very challenging for competitors to catch up in a meaningful way. In the peak of the pandemic real estate boom, many competitors were talking about investing significant dollars in R&D. With a shift in the market, we are not seeing that come to fruition. The current pressure on competitors is resulting in two positive trends for Compass. One, we are seeing competitors reduce the financial incentives they were using to attempt to recruit Compass agents. Two, a race-to-the-bottom environment where many traditional brokerages that historically competed on value-added support and services, for example, support staff, training, coaching, in-person office culture, attempts to integrate third-party tech. We are now seeing them cut back on these areas, and in many cases, are adding themselves to the already crowded, low-cost, low-value brokerage service landscape, a model that is defined by charging agents the lowest possible amounts and providing them the lowest possible amounts. Quite simply, Compass is going the other direction. We are strengthening our in-person culture and investing heavily in tools and technology for agents, capitalizing on the downturn to widen our competitive advantages as the high-value brokerage space is becoming much less crowded.... It would not surprise me to see in the years to come, Compass as the only major national brokerage competing to serve agents with high-value products and services, and universally known for creating more tangible value for agents than any other company. Our financial results demonstrate that our aggressive stance and cost discipline in our reset of operating expense levels throughout 2022 and continuing into 2023 is working. In a moment, Kalani will discuss the details of our Q2 results, but here are some important highlights. We generated our second-best quarter of Adjusted EBITDA in company history, with Adjusted EBITDA of $30 million. We delivered on our commitment to be free cash flow positive in the Q2 with $51 million of free cash flow. This almost completely makes up for the Q1 of free cash flow deficits and positions us to achieve our goal of being free cash flow positive for all of 2023. We ended the Q2 with $335 million in cash and cash equivalents. Given our ability to generate strong free cash flow, ongoing improvement in operating expenses, and positive free cash flow outlook, we repaid the $150 million draw on a revolving credit facility in July. With the exception of the $30 million used to fund our very successful Compass Concierge program, we have no corporate debt. The business is on extremely solid footing, with over $450 million of liquidity today. For the Q3 in a row, we improved market share. Our market share is now 4.6%, an increase of 45 basis points over the last three quarters. I want to emphasize that we have successfully improved operating expenses by $500 million on a run rate basis in the last 12 months. We said we would cut OpEx from an annualized run rate of over $1.4 billion to $950 million, we did it. We said we would be free cash flow positive in Q2, we did it. We are very strong, we are still investing in growth and the platform. We are excellently positioned for the cyclical upturn that will come when the market normalizes. When the market returns, we will work to ensure that our OpEx does not. Specifically, we expect to exit 2023 at a $900 million OpEx run rate and are committed to a path we have outlined to maintain our OpEx at $900 million in 2024, are focused on maintaining that level in 2025 as well. We are confident that this approach ensures ongoing operating discipline while enabling us to continue to invest in the future growth of our business, growing and retaining agents and building upon our competitive advantage with the only proprietary end-to-end technology platform for agents in the industry. When the market improves in the future, we believe the company will be well-positioned to generate substantial free cash flow over the long term. We continue to be laser-focused on what we can control and remain diligent in our desire to achieve positive free cash flow in 2023. I remain incredibly excited about the future, and I want to end by thanking the entire Compass team of employees and agents. Their incredible dedication in these difficult times has allowed us to make it through the first half of 2023 with the confidence that we have a strong foundation for future success. I'll now turn it over to Greg. Thank you, Robert. We believe Compass has the best, most experienced, connected, and supported agents in the industry. As a result, they have been able to capitalize in a tight inventory environment, allowing Compass to continue to outperform our competitors by growing market share for the third consecutive quarter. In the Q2, we processed just over 54,000 transactions, a decline of 19% from a year ago, which compares favorably to the 21% decline in transactions for the entire residential real estate market in the Q2, as reported by the National Association of REALTORS. Although many agents have left the industry, as evidenced by declining NAR membership since its peak in October 2022, our market share for Q2 2023 was 4.63%, up 13 basis points versus Q1 2023, and up 45 basis points from Q3 2022. Our growth team is having increasing success, and we continue to grow our principal agent count since we eliminated cash and equity sign-on incentives last summer. The vast majority of agents tell us the Compass platform is their number one reason for coming to Compass. For Q2 2023, our average number of principal agents increased to 13,633 principal agents, up 3% year-over-year and an acceleration from Q1. We also saw more agents returning to Compass from other brokerages than in Q1. We call these win-backs, and the primary reasons these agents cite for returning to Compass are our technology platform, our culture, and the caliber of our agent network and the referrals it drives. These factors also contribute to our strong agent retention, as agents are staying at Compass at higher rates. For Q2, we continued to maintain high levels of retention of principal agents, with over 90% annualized retention in the Q2 of 2023. When agents have left Compass, most of this attrition has come from agents who are less productive in terms of both transaction count and gross transaction volume, as some agents have decided to leave the industry entirely during this prolonged market downturn. Going forward, we will continue to be opportunistic in our approach to adding to our agent base via selective M&A, while pursuing deal structures that allow us to utilize minimum upfront cash and limit equity dilution. We are proud of the fact that the majority of the agents coming to Compass tell us that one of the primary reasons they are doing so is for the platform, and we continue to invest to make this platform better. We recently released Compass Performance Tracker, a powerful addition to our integrated platform. It helps agents and team leaders to be more productive by allowing them to better monitor their activity and how that translates to business performance. This comprehensive, but simple-to-use dashboard helps agents to set goals and create activity targets for actions like texts made, calls placed, and emails sent to achieve those goals. They can then monitor that activity and track production in one place. This enables agents to use data-driven insights to help them make more efficient decisions and take more intentional action to improve their business performance. Like the rest of our platform, Performance Tracker is fully integrated with the other tools within the platform, which increases efficiency and accuracy by eliminating the need for agents to pay for third-party tools or manually enter redundant data on their production. Our title and escrow business has been outpacing our internal targets throughout the first half of 2023, as the business is generating positive Adjusted EBITDA and increasing attach rates after our successful launch of title and escrow integration in the Compass platform in Southern California. Since that March launch, platform integration has delivered new and repeat users, resulting in an acceleration in our attach rate at Chartwell Escrow and Consumer Title, our two T&E entities in Southern California. At Chartwell Escrow, the platform is driving increased users and contributing to the highest attach rate on record in Q2. Since launching, 28% of Chartwell's Compass transactions opened in Southern California originated on the Compass platform. At Consumer Title, 48% of their Compass orders originated on the platform, resulting in a significant increase in our attach rate. We continue to focus on strategically expanding market coverage for our Compass platform integration to accelerate the margin accretion driven by our T&E portfolio. We expect to add title and escrow integrations in Philadelphia, Washington, D.C., Virginia, and Maryland by the end of the year. The Compass platform is built to save our agents time and to help them achieve better business results, we leverage AI to help accomplish both objectives. As the leading technology-enabled brokerage and the number one brokerage in the U.S., our agents have been benefiting from our investments in artificial intelligence for a number of years. This isn't a new area for us. As I mentioned on our Q1 call, we've been leveraging AI across our platform since 2020 through features like our Likely to Sell recommendations, search suggestions, similar homes, our CMA generation tools, and in our Video Studio. We recently launched the beta for our integration of OpenAI's ChatGPT 4 capabilities directly into the Compass platform to help agents save substantial time with tasks such as writing listing descriptions, creating marketing collateral, and automating outreach with clients. We have seen tremendous interest in this technology from our agents and have had very positive response to our beta. We're excited to roll these capabilities out to all our agents over the coming months. We believe that we'll see an outsized return on our AI investments because of our integrated platform that AI tools can build upon and enhance. By its nature, all artificial intelligence depends on data to drive its performance. Our end-to-end platform provides more touch points where we can apply machine learning to improve the tools our agents use, our platform delivers more data to help us enhance the performance of those machine learning models. This, in turn, drives more usage as agents see better results, which then generates more data to improve the models. Compass is unique in this regard. Brokerages that don't offer their agents an integrated platform won't benefit from this virtuous cycle. In June, we launched a global affiliate referral program with BARNES International Realty. This will enable our agents to place luxury listings in front of a global, affluent audience. We've seen strong interest in this program from Compass agents across the country. Dozens of referrals have already been made, ranging from a $25 million referral to a $20,000 monthly rental. I am proud of the major strides we've taken in the transformation of Compass in what has been a very challenging market over the past 12 months. Our agents and our employees continue to demonstrate that they are the best in the industry, which is why Compass is the number one brokerage in the country. I will now turn it over to our CFO, Kalani Reelitz. Thanks, Greg. Today, I will review our Q2 financial results in more detail. Then I'll provide an update on our guidance expectations for the Q3. We continued to perform with focus and discipline in the midst of this historical low housing market. We continue to be focused on controlling what we can control, namely our cost base and our ability to attract and retain the best agents. As our Q2 results show, the strong focus on controlling our cost base resulted in the generation of Adjusted EBITDA and strong free cash flow, despite this extremely challenging market. For the Q4 in a row, we continue to reduce our operating expenses. Turning to our detailed financial results, our Q2 revenue was $1.5 billion, falling within our guidance range of $1.45 billion-$1.6 billion. This compares to $2 billion of revenue in the prior year period, representing a 26% reduction year-over-year. Revenue came in on the lower end of our expectations, as we saw pressure from continued increases in mortgage rates since the time we put out our guidance back in May. Gross transaction value was $56.8 billion in the Q2, a decline of 26% from a year ago, reflecting a 19% reduction in total transactions, as well as a decrease in average selling price of about 9%. Our non-GAAP commission expense as a percent of revenue improved by approximately 38 basis points from Q2 of last year to 81.93, when excluding the impact of the Agent Equity Program on the year ago period. As a reminder, 2022 was the last year we offered the Agent Equity Program, which allowed our agents to exchange a portion of their cash commission for equity. Page 14 of the Q2 investor deck includes additional details on the Agent Equity Program's impact on the commission line in the prior year periods. You will continue to see this differential through each quarter in 2023 until we anniversary the sunset of the Agent Equity Program in Q1, 2024. Our total non-GAAP operating expense, excluding commissions, were $238 million for the Q2, or $953 million on an annualized basis. As we've talked about previously, many of our non-commission-based operating expenses are somewhat fixed in nature and have historically increased sequentially from quarter to quarter, as opposed to varying in line with revenue. However, due to our cost reduction initiatives implemented over the past year, the $238 million of OpEx for the Q2 reflects a $128 million reduction from our OpEx of $366 million in the Q2 of last year. On an annualized basis, this reflects a reduction of over $500 million compared to the same quarter just one year ago. Our management team remains disciplined and focused on our operating expenses. As Robert mentioned, we are focused on maintaining our operating discipline that allows us to sustain our new cost base. As a reference point, the non-GAAP operating expenses we refer to include the expense categories of sales and marketing, operations and support, research and development, and G&A, and excludes stock-based compensation expense and other expenses that are excluded from Adjusted EBITDA. We've included tables on page 12 and 13 in our Q2 investor deck that reconcile these amounts. Our Adjusted EBITDA for the Q2 was $30.1 million. While within our guidance range, it was at the low end of our expectations, primarily due to the challenging market conditions, which negatively impacted our Q2 revenue and the resulting flow-through effect to Adjusted EBITDA. Our GAAP net loss for the Q2 was $48 million, compared to a loss of $101 million in the same period a year ago. Included in the GAAP net loss for the quarter are non-cash charges, which include $39 million of non-cash stock-based compensation expense and $22 million of depreciation and amortization expense. Additionally, during the Q2, we incurred a restructuring charge of $16 million related to continued efficiency pro-improvements. Free cash flow during the Q2 was positive $50.7 million, which compares favorably to a negative $29.9 million of free cash flow a year ago, driven primarily by the improvements in Adjusted EBITDA, lower capital expenditures, and other favorable changes in working capital. In particular, capital expenditures were just $2.6 million in the current quarter, compared to $20.6 million a year ago, driven by our cost and the intentional slowing of expansion to new markets and new offices. Cash flow can be impacted by the timing of cash collections from our clients and the payments of cash to our agents and vendors, the timing of our payroll cycles in relation to the calendar quarter end. We had $335 million of cash and cash equivalents on our balance sheet at the end of June, which reflect the payback of $75 million of our revolver during the Q2. Therefore, as of June 30th, the outstanding balance on our revolver was $150 million. Given the continued relative stability in the market and our strong cash flow during the Q2, we made the decision to repay this remaining outstanding balance of our revolver of $150 million in July to save on interest costs. We have access to liquidity of over $450 million to the cash on our balance sheet and the capacity on our revolving credit facility. Therefore, we believe we are well positioned to react to continued market challenges. Turning to our financial guidance. Our results for the first half of 2023 confirm that our operating expense discipline creates meaningful performance improvement. As we look forward to Q3, we continue to see mixed signals in the market, and while some trends have improved, we've also seen additional market risks. For Q3 of 2023, we expect revenue in the range of $1.3 billion-$1.4 billion, and positive Adjusted EBITDA of $15 million-$35 million. We do expect a revenue lift from the impact of net new agent additions over the last year. However, similar to the first half, we anticipate this will be offset by mix drag, particularly from declines in California, which is our largest market and experienced record sales last year. Importantly, we are on schedule to be free cash flow positive again in the Q3. Given our continued cost discipline, assuming transactions stay in line with industry expectations for the year, we remain on schedule to be free cash flow positive for the full year. Additionally, we are reaffirming our expectation for our full-year non-GAAP operating expenses to be in the range of $850 million-$950 million. We expect to be at the midpoint of this range on a run rate basis by year-end. For the last year, we've spoken about our commitment to reduce our cost base and have proven that commitment through our results. It is clear to us that our strong commitment to cost control is working and led directly to our solid Adjusted EBITDA results in Q2, despite declining revenue. We expect our continued commitment to cost control to drive favorable results over the remainder of the year and beyond. While we are excited with the results to date, we are even more committed today to our cost discipline as we maintain our operating expense levels over the next couple of years. Thank you again to our agents and team members for all you do for Compass. I would now like to turn the call over to the operator to begin Q&A. Thank you. If you would like to ask a question on the phone lines today, you can press star one on your telephone keypad to remove yourself from the queue. That is star one again. We'll take our first question from Bernie McTernan with Needham. Great. Thank you for taking the questions. Maybe to start, we'd just love to get your thoughts in terms of what the guidance contemplates for the broader real estate market in 3Q, and when you think the industry can get back to positive year-over-year growth. Yeah, in terms of the overall market, we continue to see more buyers than sellers. We see buyers have accepted, you know, these mortgage rates at 7% as the new normal. I think the evidence that there's more buyers than sellers, so every month this year, the prices have increased relative to the month before. We're all seeing more cash offers. In places like Manhattan, 65% of offers are all cash. In the country, it's around 40%, which historically is around 25%. That said, as, of course, as, as you know, there's just not enough inventory. So, we still believe that the market over the course of this year will be down approximately 20%, and, you know, we've shared down 15%-20% in the past. I say more towards the, the, the 20 now than the 15, given the, you know, the inventory still isn't coming to market at the pace that we would have liked. Understood. Helpful commentary. Thanks, Robert. Then just on... you provided some, some helpful commentary on agent retention, agent churn. It seems like you guys had some meaningful agent acquisitions towards the end of the Q2 and early Q3, but just love to get your comments in terms of how you guys are thinking about gross adds for the remainder of the year. Yeah, we did see some positive momentum. I sort of referenced that in, in my scripted remarks, and we've been really encouraged by the team's performance in the Q2. It was one of our most productive quarters we've ever seen in terms of the number of principal agents that we recruited per recruiter or Strategic Growth Manager. We hope to continue that, and so the challenge for the team is to how to not just continue at that level, but to take that up over time. In terms of net agent adds, on a go-forward basis, we don't have a formal and haven't ever provided a formal forecast for net agent adds, but we definitely expect the trends that we've seen to continue, and we're trying to goose them to be even more positive, and that's the challenge we've set for the team. Great. And maybe last one for Kalani. As we think about, as we think about OpEx seasonality, should there be OpEx seasonality? You You says we're sharpening our pencils for 2024. If you guys are able to hit the $900 million run rate in by the end of the year, should we just expect quarterly OpEx just to be, you know, $900 divided by 4, or is there some seasonality we should be taking into account? Yeah, thanks for the question. You know, we, we are a business that kind of moves sequentially by quarter versus, say, that variable kind of in line with revenue. I would expect, Bernie, there'd be some small seasonality aspects to it, but overall, we should keep relatively the same amount of OpEx. Materially, I think, it should look the same. There might be some, you know, give and take, especially with Q2 as a kind of a higher revenue quarter. Overall, we, we tend to, to be more of a kind of straight line through the year versus a variable in line with revenue. Understood. Thanks, you all. Thank you, all. We'll take our next question from Soham Bhonsle with BTIG. Hey, good evening, everyone. Thanks for taking the questions. Kalani, maybe wanted to dive in a little bit on the underlying assumptions for the guide in 3Q. The $1.35 billion midpoint, is it fair to say that you're assuming sort of flattish ASP next quarter and assuming similar market share there, a take, I guess, on a year-over-year basis? On EBITDA, the $25 million, the midpoint, it sort of looks like would take your non-GAAP OpEx to, you know, that $900 million range by 3Q. Does that mean that there's potential to maybe go below that $900 million run rate by 4Q? Yeah, sure. I'll, I'll ask-- answer the, the last one. I think, you know, we are. As we mentioned, we continue to move kind of from that 950, where we're at today, and annualize down to 900. I think overall, we, we are working hard. As we've always said, the, the majority of the actions to get to 900 have been identified and, and actioned already, and so it's about timing, things, vendor contracts and, and time- timing of those coming up. I think we will kind of glide into the Q4, run rate. You know, we continue to look for opportunities on costs and continue to look for opportunities to be more efficient, so we'll keep working there. I think, I think our guide, where we are, right at that $900 at the end of Q4 is, is right for us, and I think that's the right level of operating expense right now. Okay. On recruiting, thanks for the color earlier, but just wondering on the, on the competitor environment, I guess, could you maybe, you know, bifurcate what you're seeing for full service models versus, you know, other cloud-based or discount-based models? Because, you know, one of the things that we're hearing is, you know, agents might be moving to some of these cloud-based models because, you know, they can just keep more of their sort of, their split today. Just wanted to hear from you what you're seeing on, on the ground. Yeah. Yeah, what we're seeing on the ground, at the extreme, there's on one side, discount brokerages that charge nothing and give very little, to say lightly. On the other hand, there's brokerages that have historically charged more and provided more. What I'm seeing is a lot of the brokerages in the latter group that historically competed in hiring an agent and retaining them off of value-added, you know, support services, culture, you know, training, coaching, trying their best on, integrating technology, that they've, in this environment, massively pulling back, closing offices, reducing support. Then the agents coming back to them the next year and saying, "Hold on, I don't-- you don't even have an office. Why are you charging me, you know, 20%, 25%? I'm not going to pay that. I'm either, I'm going to go to the discount brokerage unless you, unless you charge me less. It's kind of forcing this downward spiral with some of the traditional competitors, moving towards a discount brokerage model, as you coined it. Yeah, there's, there's discount brokerages out there. There have been for all of Compass's existence, but I think it's a zero-sum game, and there's only so many top agents that would want to be at a discount brokerage, because generally speaking, the people that are best at what they want to do, the people that are best at what they do, want to have the best to help them do it. That's really where Compass fits in. Great. Thank you. We'll take our next question from Jason Helfstein with Oppenheimer. Thanks. Just first up for Kalani. Maybe talk about why that revenue is closer to the lower end of the guide versus the midpoint. Was it share coming in lower than you thought, or industry trends weakening later in the quarter, or a combination? Second question, maybe Robert, just kind of continuing to focus on share. How, you know, how do we think about it? I mean, share, you guys are gaining share, but albeit kind of less than last year. Is there an acceleration at some point to levels like more similar that we've seen maybe last year? Just how you're thinking about your strategy for market expansion from here. Thanks. Yeah. Yeah, I think, you know, when we provided our guide for Q2, mortgage rates were close to 6%. Unexpectedly, with, you get that combination of the, you know, debt ceiling showdown or standoff, as well as the mortgage rates going to 7%, that was definitely unexpected. I think that, that was the primary market share trend was not the driver of where revenue ended up. It was the, it was the changing real estate market. Yeah, maybe, Kalani, do you want to answer the second question? Yeah. Sure. Jason, can you just repeat the second question to make sure I heard it right? Yeah, I mean, or, or either one of you guys, but basically, I think, like, investors are trying to look at kind of share, and obviously, we look at volume, you know, you look at GMV or, or gross transaction value. I mean, the share gains you're seeing this year are less than the share gains that you saw last year, like if you were looking on a year-over-year basis. Do we think that share gains can accelerate more to the levels that, that you saw last year? Yeah You know, how much of that is a function of, you know, kind of continuing market expansion? Yeah. Greg, why don't you take the first part of that, Greg? I think you're, you're the right one. Yeah. It's a great question, Jason. The, the way that I think about that is, if you think about our market share last year, the first two quarters reflected the strength of our business in California. California has been substantially impacted for everybody in the industry over the last year. Because we were, you know, very heavily weighted towards California, our share gains relative to that have moderated, but we continued to gain share, you know, over the last two quarters despite that. I would expect that over time, particularly as the market recovers and California recovers, that you'll see our market share gains over time, hopefully increase rather than just stay at the current levels. We, you know, we continue to grow share through two primary drivers. 1, continuing to grow our agent count, and 2, our agents outperforming their competitors in all of their markets. We believe our platform is a huge driver of their ability to outperform their competitors, along with the fact that our agents are, you know, typically among the best agents in their markets. The caliber of our agents is a big asset for us from a market share perspective. Just any thoughts about market expansion? Yeah. In terms of, of market expansion, I, I wouldn't expect any major new market expansion, but we are expanding to new markets within our, our geos. An example of that would be, we're moving more into Santa Cruz in the Bay Area than we had been in the past. We'll see more of those sub-market expansions and further investments. Thank you. We'll take our next question from Matthew Bouley with Barclays. Good afternoon, everyone. Thanks for taking the questions. Let me just on the on the commission split, the 81.9 non-GAAP expense as a percentage of revenue. You know, it's obviously down year-over-year, as you've been alluding to, maybe sneaking up a little bit sequentially, which I think is normal seasonally. Is that the kind of peak commission split for the year? You know, or how do you think about that metric trending going forward, given everything what you're saying on the competitive side? Thank you. Yeah. Hey, Matthew, it's Kalani. You know, that just, just to be clear, the commission split will decrease over 2023, primarily driven by the non-comparable of our Agent Equity Program, right? Absent our Agent Equity Program, it provides roughly an 80 basis point drag. Absent of that, quarter over the last 2 quarters, we have increased market share between 30 and 40 basis points. I expected that trend to continue. I believe it's slide 12 in our deck includes kind of the reconciliation. You can see the AEP or the Agent Equity Program drag from last year on the commissions, and so you can do that math. I would say kind of app to apples, we should be at that 30 to 40 basis point, margin accretion on a quarterly basis for this year. All right. Got it. Thank you for that, Kalani. Then, secondly, super high level on the topic of generative AI, great color at the top around sort of, you know, Compass's head start. Are you worried at all that some of that could actually level the playing field a little bit, you know, and, and I guess really my question is: How do you kind of stay ahead of the pack to the extent some of your competitors, could have access to some of that? Thank you. Well, our competitors, for the most part, don't actually have their own platforms, so the tools that their agents use are gonna be spread across a diaspora of third-party licensed software. While each of those individual, vendors might leverage AI to improve what they do, it's not all integrated into one platform. So an agent could use AI to do something for marketing in one place, but then the benefit of that is limited to that tick. If they want to get at, you know, another part of their business, they have to then copy it, paste it, put it into that. The benefit of our platform is it's all together in one place. As an example, for the integration that we've done with ChatGPT-4 in Compass, you can create a listing description. The listing description is pulling all the information from the MLS data that we have, so it's leveraging all of the metadata that we have and pulling that directly in. The way that we've talked about it with our agents is, because one of the, you know, other questions that people sometimes ask is, "Will AI disenfranchise or disintermediate agents?" My perspective is absolutely not. It will make the best agents better. The ones who leverage AI will get better at what they do. They will save time, and they'll be better able to focus on where they truly provide value to their customers. Listing descriptions don't get you to perfect. They don't do the job for you, but they do 80% of the job in 1 second, and then the agent can put the final touches on it to have it reflect their brand and the way that they want to present themselves and their client's listing to the market. My belief is that AI will actually increase the differentiation that Compass offers versus others. We've seen that with Likely to Sell. No other brokerage has anything like Likely to Sell. It's generated more than $100 million of incremental revenue the last 2 years. You only get that benefit because our agents are using our CRM on a daily basis. The contact information is in there. We're able to create an AI-driven model that scores all of that and then recommends to agents the past clients they should reach out to because we believe that that home has a higher likelihood of going on the market in the next year. We've had amazingly positive responses from agents. My perspective is it'll actually increase our competitive differentiation over time. It's a great caller. Thanks, Greg. Good luck, everybody. Thanks, Matthew. We'll take our next question from Matthew Cost with Morgan Stanley. Hi, everybody. Thanks for taking the questions. I have 2. Just starting with the commentary at the beginning of the call about launching a consumer-facing portal next year. I guess can you talk through, you know, what, what do you think will distinguish that offering from your competitors and, and some of the key execution hurdles to, to building that? Secondly, just on the expansion of the T&E business outside of Southern California, you mentioned a couple more markets coming by the end of the year. Do you see that driving, you know, a measurable, margin impact, if not this year, then in 2024 at the company level? Thank you. How about I'll start on the client portal, and then, and Greg, how about you feel free to add, and on T&E, either Greg or Kalani, please take it away. On the client portal, you know, the number one reason why agents have come, come back to Compass, when every agent that comes back to Compass, I, I ask them why. The number one thing that I've heard them say is: My clients miss Collections, which is a collaborative tool where an agent works with a buyer on the portfolio of listings that they're, they're reviewing. You have price status changes real time. You don't have to look in emails for email updates, and you have all your comments in there, with not just the client, but whoever the client... You know, there are two people or three people searching with the client. It's all there in, in perpetuity. When an agent leaves, their client is like: "Whoa, whoa, you know, this, I have to restart my entire search. Where's all the history now to go back and forth by email and text message? I don't see when there's a price or status change. You know, that's, I'm not as happy as a client. We are, we are, the second was tour sheets in more client tools where the agent is actually working with the client. By background, the vast majority of what we, we build for agents, the client can't see. It's, it's, it's hidden on the agent view only, and the agent will just share it by text message or email with the client. The goal is, how can you get everything that an agent does with their client, everything they send them, to live in a single place, their place for all things home? Examples would be for a seller, the valuation, called a CMA. We already-- we have that, a digital CMA, but again, it's static, and it, it sits with-- it, it, it's sent in a, in a single way. It doesn't live in a single place that a client can see. For to see it updated, they have to go back to the agent. Another example for a seller would be all the digital marketing, digital ads, Google Ads, Instagram ads, you know, Facebook ads, whether, you know, the, the listing insights for all on all the major aggregator sites, as well as Compass. How many hits are you getting on these different sites for my listing? We have all those tools, but again, they only get sent to the client one at a time. Just taking the stuff we've already built for the agent and letting it live in a single place, the transaction timeline, and, and, you know, the title, escrow process, and more. Then for the buyers, it's extending what Collections is, and it's moving it into the negotiation with the forms, files, you know, e-signature, and beyond. Again, all in one place. The goal is that buyers and sellers go to the client portal before, during, and after the transaction. It will help us, you know, build more adjacent related services, not just mortgage title, but over time, home insurance, home warranty, home security, et cetera, into the client portal to create more monetization benefit. Greg, and maybe just to build, Robert, on that, slightly. One of the key things that we think the client portal can do, in addition to providing value to the client as they're working with an agent on a transaction, whether they're buying or selling a home, is to also provide value to the client after that transaction, and in the time that they own their home, but always in a way that reinforces the value of the Compass agent who assisted them with that transaction. Title and escrow integration is actually an interesting thing to talk about with respect to that, because title and escrow integration, obviously, title and escrow are important parts of transactions. There's a lot of stuff that happens that you need to track. You'd have to have dates, you have to provide documents, et cetera. We want the client portal to be a repository for all of those things, both the dates and tracking that and who owns the next step on them, but also all the documents that get created, so the client can always access them, like for tax season, et cetera, you know, after they've purchased or sold a home. The integration that we've done right now within business, the business tracker area of our platform, is just an agent-facing integration. The goal over time is to have pieces of that open up to the client and to other third parties, obviously, always in a secure fashion. So that's one of the reasons that we're excited about the title and escrow integration, not just for the incremental attaches driving, but also for the opportunity to continue to improve the client experience as well. With that, I'll pass it to Kalani to speak to the integrations and what impact we might see from a margin perspective over time. Yep, yep. Thanks, Greg. Matthew, I think just to finish it off, I think from, from the financial side of it, you know, we are excited about our adjacent services. All of our adjacent services come with very favorable margins to us and, and to our run rate. I think what you, you should expect is, over the next few years, say, 2-3 years, as we continue to grow our adjacent services and spread, and spread beyond where we are today, you'll start to see it become a, a more meaningful percent of our total total dollars, and then you'll start to see. I, I think you should expect over, over the next few years, for it to start to, to help and, and add some, some margin accretion. Great. Thank you. We'll take our next question from Ryan McCafferty with Zelman. Hey, thank you, for taking the question. Also on the T&E side, so you know, you called out reaching positive Adjusted EBITDA and the accelerating attach in Southern California. I think Philly, D.C., Maryland, you know, makes sense. I think you've got a pretty good footprint there already, so maybe the natural extension of, of where to go next. Any thoughts on expansion beyond those markets? You know, at a high level, I know that OpEx and cash flow is the target, that's most important at the moment, but it does feel like the success you're seeing in SoCal, you know, could justify a faster rollout to drive more attach, drive more EBITDA contribution with the T&E. Maybe just talk to us about, you know, bigger picture roadmap of, you know, the, the puts and takes behind how quickly you want to kind of ramp T&E into more markets, going forward? Thank you. Yeah. In the new year, we will expand the Title integration into our Colorado operation, as well as our Texas operation. We expect to be able to launch Title, likely in Florida, as well, over the course of this year. You know, we like with the OpEx reality, we have to make trade-offs, and so, you know, we're, we're moving as fast as, yeah, OpEx discipline allows. That's helpful. And, and Robert, just on California, you know, recognizing the share gains you're seeing despite that, that headwind is obviously good. I guess, just any thoughts more recently on how, how, California generally is performing? We've, we've all seen some of the headlines around the home insurance companies pulling back. I guess any- Yeah. Any incremental impact there or just, you know, your high-level view on California? Yeah, I haven't seen the home insurance issue in California and Florida have an impact on transactions yet. Of course, I've, I've heard the, the noise, and it is a serious issue, but I haven't seen it impact transactions yet. Maybe that's just because there's more buyers than sellers. Time will tell. In California, but really it's across the country, this is what most agents would describe as the most inconsistent market that they remember, where, you know, there's one property which had, you know, no offers, and no one visited it for three weeks, and a similar property probably to it and just a couple miles away that had, you know, X amount of people at the open house and multiple offers. In part, it, yeah, there, there really, there is no consistent story right now. That said, it's an opportunity market, where there's opportunity for, yeah, any agent, or buyer or seller if they're, if they're creative. It's a market where, you know, the best agents generally gain market share. You know, we're thankful that we're a company that has historically been focused on the best agents and will continue to be, because they're gonna ride out this storm, and gain market share through it. Got it. Thank you very much. We'll take our next question from Michael Ng with Goldman Sachs. Hey, good afternoon. Thank you for the question. Robert, Kalani, it was encouraging to see the cost initiatives and commitment to maintain $900 million of OpEx in 2024 and 2025. I just have two related questions. First, I was just wondering if you could talk a little bit about the confidence level in that $900 million of OpEx. Are there other areas where you can continue to cut, if needed, to fund inflation or respond to competition? Then second, you know, I can appreciate the free cash flow outlook as macro-dependent, but is it also, you know, your current assumption that free cash flow will be positive in 2024 and 2025? Thank you. Yep. Hey, Mike, it's Kalani. Let me start with the first one. I think, you know, we are, we are, we are confident that, that we are going to be exiting this year at, at a 900 run rate. Again, I've mentioned on, on a prior question, I think we've importantly, we've actioned much of the work to get to 900. And we continue to focus on opportunities to drive efficiencies and to, to make sure that we're delivering on the best platform with, with the right cost. I think as we think about 2024, we continue to we continue to see opportunities like low-cost labor. We continue to see the opportunities of just operating, you know, efficiencies, and some transformation in the way that we service our agents to give them better service, but at a more efficient opportunities. So I think, you know, in 2024, we, we do see, and we have created a path to get to and stay at that 900. As we see 2025, I think we continue to look at opportunities around very similar things. Again, low-cost labor, continue to look at vendor expenses, and even look at, you know, occupancy and how we can make sure that we are using our offices to bring the best energy to our offices. Sometimes that means the ability to consolidate, so we'll continue to look at those options overall. I think, as we think about, you know, free cash flow for, for the next year, I think what you're seeing is we're focused on controlling what, what gets us there, which is cost. Our ability to stay at $900 million, I think the, the big variable will be revenue for next year and how fast the market recovers. I think as we've talked about, that $900 million is both opportunistic to set us up for the future, but it's also, allows us to be ready for a market that continues to stay at that level. We'll continue to drive that cost and continue to, to work to free cash flow. I'm, I'm really feeling good about where we're at with our cost base for 2024. Great. Thank you, Kalani. We'll take our next question from Lloyd Walmsley with UBS. Thanks. Two questions. First, just, you know, appreciate the color on California. You know, other... Can you share any color on other big markets where you guys overindexed geographically or maybe, by price point? Like, what are, what are some things going on, in those markets or at those price points relative to the broader market that, you know, impact the business, you know, positive or negative, I guess, especially with rates doing what they're doing? And then, second one, just, you know, you, you guys have been, I think, exploring some more asset-light sort of deals and, you know, potential for technology licensing. Anything moving on that front that could help bring in, new high-margin revenue streams, you know, without a lot of investment? Anything you could share there would be great. Yeah. In terms of what's happened in different geographies, I'd say on balance, the markets that moved up the most in COVID, are being impacted the most on the downside, now. In terms of the, you know, last quarter, you know, we have a very strong presence in the DC, Maryland, Virginia area. We're, you know, by far number one there. ... debt ceiling standoff has a real impact in that market for the obvious reasons, because so many of the people that would be potentially impacted live in that community. I think it's, it's good to see that come behind us and normalizing, but that, you know, that was, yeah, that was unfortunate that period of time. I'd say the Florida and the low tax, warm weather states are still, you know, doing, you know, well. I'd say some of the markets where people have been more aggressive on return to office are doing better than markets that have not been aggressive enough on return to office. You see in Seattle downtown, for example, when Amazon brought everyone back, you know, the price has come back with it in downtown because it's, you know, prices are driven by people and demand. Again, it's the most inconsistent market that, you know, that I can recall, that many of the agents that I speak to can recall. The biggest issue constraining our market is not buyer demand, it's lack of inventory because of the 30% of homeowners are locked in at mortgage rates of 3% or below. 70% of homeowners are locked in at mortgage rates at 4% or below. 85% of homeowners are locked in at mortgages at 5% or below, and the delta between four and seven is a lot. You know, my belief is that when mortgage rates get below 6% in a-- at a sustainable level, that there will be a lot of, not just more demand, but more inventory. There is pent-up inventory that is, that is brewing because of the rate lock- the rate lock issue. In terms of asset-light tech licensing expansion, there, there's always that opportunity in front of us, but we're focused on focus, and the main thing is keeping the main thing, the main thing, and that is our agents. making sure that in this period of time, that we give them the best support and service, that we build the best platform for them, that we bring back our in-person culture at, at our historic levels when our competitors have not, and that we make this the best place to, to be an agent. So, you know, things around, you know, tech licensing are, are not a focus at this time. All right. Thank you. Thank you, and that does conclude the question and answer session. I'd like to turn the call back over to Robert Reffkin, CEO, for our closing remarks. Yeah. Well, thank you everyone for joining today's call. I wanna take these final moments of this call to thank all of the Compass employees and agents for their hard work and commitment to making Compass the number one real estate brokerage in the U.S. for the second year in a row. Together, we are proving that in the worst of times, Compass can generate free cash flow. The real estate market will come back, and when it does, I'm excited to show how much free cash flow we generate as we keep our cost base at these new levels. I'm confident that Compass is well positioned for the cyclical upturn that will come when the market normalizes. Thank you. Thank you. That does conclude today's presentation. Thank you for your participation. You may now disconnect.