Compass, Inc. Q3 FY2025 earnings call

• Compass achieved record Q3 results including market share, revenue, adjusted EBITDA, free cash flow.
• Delivered best organic principal agent recruiting quarter with 851 adds, expecting 800 in Q4 and 700-800 gross adds going forward.
• Title and escrow attach rate improved and was at a record.
• Christie's International Real Estate business pacing better than initial expectations driven by agent retention, revenue synergies, and OpEx control.
• AI initiative underway with Compass AI 2.0 to launch before next earnings call, aiming to redefine agent productivity and efficiency.
• Merger with Anywhere Real Estate pending, expecting over $300 million in net cost synergies, with $150 million realized in first year post close.

In Q3 2025, Compass delivered record third quarter market share, revenue, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Revenue increased by 23.6% year-over-year to $1.85 billion. Adjusted EBITDA was $93.6 million, an 80% increase from the year ago quarter. Total transactions increased by 22%, with organic transactions up 7% year-over-year. The title and escrow attach rate continued to improve and was at a record. The Christie's International Real Estate business grew with 4 new affiliates joining the network in the quarter and 6 in the pipeline. Mortgage JV earnings reached record levels. Revenue less commissions and other related expenses as a percentage of revenue was 18.6% in Q3, approximately 73 basis points above the prior year.

• Q4 2025 revenue expected in range of $1.59 billion to $1.69 billion, adjusted EBITDA in range of $35 million to $49 million.
• Full year 2025 OpEx reduced to $1 billion to $1.005 billion.
• Expect to achieve at least $50 million of the $50 million to $75 million adjusted EBITDA improvement by 2026.

• Regulatory and shareholder approval needed for Anywhere Real Estate merger.
• Risks associated with AI integration and market adoption.
• Legal and litigation risks affecting operational expenses.

Q: Just on that last point on the incremental $50 million to $75 million EBITDA. I think it sounded as though some of that may have flowed through this quarter, maybe also in the 4Q guide. Is that the case? And as we think about the incremental of that into '26, is the $50 million kind of inclusive of what we've already been achieving? Or could there be an incremental $50 million on top in 2026?

A: Ryan, good to talk to you. Thanks for the question. Yes, it's really -- it's included in the $50 million to $75 million guide we talked about. So when we brought that up last quarter, we talked about the fact that some of it was already being considered in the reduction that we put out last quarter. And then, with the reduction this quarter, it's incremental to that. The idea is that those reductions in OpEx will continue into the baseline for 2026. And so, that's really kind of that initial what we put out of the $50 million to $75 million kind of EBITDA profitability improvement on really what were 2026 expectations as of the quarter ago.

Q: Maybe to start, Robert, I thought the commentary on everything that's going on in agentic and generative AI was interesting. Do you have an actual integration with ChatGPT currently? Or is this all organic traffic? And if not, are those conversations going on for you to potentially partner and deepen that integration?

A: We have an integration with OpenAI through our Compass AI 1.0 moving to Compass AI 2.0. That's the agentic AI that our agents are using. That's in alpha. That will be in full with all of our agents by the next earnings call. In terms of the ChatGPT lead flow, that's just coming organically from the world. And really, it's such a wonderful thing. You just call any top agent you know and say, have you gotten leads, received leads from ChatGPT, and they're going to say, yes. And then, ask the same question from someone who has no transaction experience, and they're going to say, no. And so, why that's great for us is we're a company of highly experienced real estate professionals with a lot of transaction experience. And it really does mark a different era. Like technology was being used by companies to force agents to pay for leads that didn't have experience. And now, technology is being used to guide agents organically to the best agents. Let me share it this way. What some portals do, not to mention a name, but some portals do is, they've taken the goodwill of Google. And they've made the consumer think that similar to how Google just guides you to the right answer, it guides you to exactly what you're looking for. And when it's not guiding there, it's a sponsored ad. It's taken the goodwill of Google. And then, it has guided -- has made the buyer think that they're always being guided to the best agent when -- or the listing agent. And it's not seen -- when it's a paid agent, it's not seen like Google. That's a sponsored paid agent. And so, what's great about ChatGPT is it's bringing the lead flow back to the truth, the way Google did, to the organic path to the best, most experienced agents. And that's a great thing for highly experienced real estate professionals and it's a great thing for companies like Compass.

Q: I just wanted to ask about OpEx management. Compass has obviously delivered a lot of good efficiencies in sales and marketing, ops and support. Is that kind of the key area of operational efficiencies that you see going forward? And then, as a follow-up, within the non-GAAP SG&A, were there any kind of meaningful legal expenses that are in there? I can appreciate the Anywhere transaction costs are excluded, but I was just wondering if there are any kind of legal costs related to pending lawsuits and litigation.

A: Yes. Quickly on the last question first. Yes, there are some legal expenses that are being incurred for the various litigation matters we have outstanding in the third quarter, and we have that in our OpEx guide for the fourth quarter. But to clarify, the stuff related to Anywhere specifically has been broken out on that separate line. Now on the -- where we see the OpEx reductions, as we talked about in the past, it's really -- the whole company is really aligned on a fiscally responsible management approach here. And as we said before, it's really embedded into the DNA of our employees at this point. I'll give you a couple of examples, but it kind of goes around the board. When we have a resignation in some of these groups, we challenge if the role needs to be backfilled. And if it does need to be backfilled, we challenge ourselves if it can be staffed in an offshore lower-cost labor market. We've got an internal team that focuses on applying Six Sigma methodologies to some of the key process areas with the goal of creating efficiencies and lowering costs. Robert talked about the AI initiative we've launched across the company that's being led by one of our Senior Vice Presidents, where all of our departments are being challenged on how they can use AI to improve productivity. In my own area of finance, we've been using an outside consulting firm to augment some of the support on our accounts payable processing for years now. But due to efficiency gains and some offshore staffing, we're going to be fully wound down on that consulting firm by the end of this year. That's going to bring a lower cost to that service. So it's really kind of just across the board, we're seeing this. And then, of course, we're making good progress on integrating the acquired businesses. And when we do that, we have opportunities to also consolidate and reduce some of the same categories. So the way we're really thinking about it is, we're going to continue to invest in the platform, invest in our agents, but we're being really disciplined on OpEx because when we close the Anywhere transaction, we're going to pick up a lot of debt. We realize that. And so, any dollar we save now is really kind of being put into the cash accounts, and that will be used to accelerate the debt paydown when we close that deal.