Compass, Inc.: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2023 included in the 2023 Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section entitled “Special Note Regarding Forward-Looking Statements”. You should review the disclosure under the section entitled “Risk Factors” in Part II, Item 1A, "Risk Factors" in this Quarterly Report and Part I, Item 1A, “Risk Factors” in our 2023 Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

OVERVIEW

Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and is intended to provide an understanding of our results of operations, financial condition and changes in our results of operations and financial condition. Our MD&A is organized as follows:

• Introduction. This section provides a general description of our company and its business, recent developments affecting our company, operational highlights and discussions of how seasonal factors and macroeconomic conditions may impact our results.
• Results of Operations. This section provides our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis.
• Key Business Metrics and Non-GAAP Financial Measures. This section provides a discussion of key business metrics and non-GAAP financial measures we use to evaluate our business and measure our performance, in addition to the measures presented in our condensed consolidated financial statements.
• Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of June 30, 2024.
• Critical Accounting Estimates and Policies. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions.
• Recent Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future.

INTRODUCTION

Our Company

Compass, Inc. (the “Company”) was incorporated in Delaware on October 4, 2012 under the name Urban Compass, Inc. On January 8, 2021, the board of directors of the Company approved a change to the Company’s name from Urban Compass, Inc. to Compass, Inc. The Company has been based in New York City since its incorporation.

Our Business and Business Model

We provide an end-to-end platform that empowers our residential real estate agents to deliver exceptional service to seller and buyer clients. Our platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service, brokerage services and other critical functionalities, all custom-built for the real estate industry. Our platform also uses proprietary data, analytics, AI, and machine learning to simplify workflows of agents and deliver high-value recommendations and outcomes for both agents and their clients. Additionally, we provide integrated services, such as title and escrow and mortgage, both of which are available on our platform. Compass agents utilize the platform to grow their businesses, save time and manage their businesses more effectively.

Our business model is directly aligned with the success of our agents. We attract agents to our brokerage and partner with them as independent contractors that affiliate their real estate licenses with us, operating their businesses on our platform and under our brand. We currently generate substantially all of our revenue from commissions paid to us by our agents' clients at the time that a home is transacted on our platform. While integrated services comprise a small portion of our revenue to date, we believe we are well-positioned to capture meaningful revenue from integrated services as we continue to diversify our offerings within the real estate ecosystem.

Operational Highlights for the Three Months Ended June 30, 2024

We continue to attract and retain the most talented agents to our platform, which is critical to our long-term success. We grow our revenue by attracting high-performing agents looking to grow their business and increasing the productivity of our agents. While we are not investing in technology at the same rate as in the past, we continue to invest in our proprietary, integrated platform designed for real estate agents, to enable them to grow their business and save them time and money. This value proposition allows us to recruit more agents, help them grow their business and retain them on our platform at industry leading retention rates.

We had over 33,000 agents on our platform as of June 30, 2024. A subset of our agents are considered principal agents, which we define as either agents who are leaders of their respective agent teams or individual agents operating independently on our platform.

As of June 30, 2024, the Number of Principal Agents1 was 16,9972, an increase of 3,299, or 24.1%, from June 30, 2023. The principal agent additions primarily relate to the Company's recent acquisitions of various residential real estate brokerages.

During the three months ended June 30, 2024, our agents closed 60,390 Total Transactions, an increase of 11.4% when compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, the majority of the increase in total transactions was attributable to the brokerages acquired since the same period a year ago as these acquired brokerages operate in markets with average selling prices that are lower than the average selling price of our overall brokerage operations.

Our Gross Transaction Value for the three months ended June 30, 2024 was $65.0 billion, an increase of 14.5% when compared to the three months ended June 30, 2023. Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and the macroeconomic conditions impacting the U.S. residential real estate market. For more details surrounding the macroeconomic conditions that continue to impact the residential real estate market see the section entitled “Impact of the Macroeconomic Conditions on the U.S. Residential Real Estate Market and Our Business”.

For the three months ended June 30, 2024, our Gross Transaction Value represented 5.1% of residential real estate transacted in the U.S., compared to 4.6% for the three months ended June 30, 2023. We calculate our market share by dividing our Gross Transaction Value, or the total dollar value of transactions closed by agents on our platform, by two times (to account for the sell-side and buy-side of each transaction) the aggregate dollar value of U.S. existing home sales as reported by the National Association of Realtors ("NAR"). Gross Transaction Value includes a de minimis number of new development and commercial brokerage transactions.

For the definitions of Number of Principal Agents, Total Transactions and Gross Transaction Value, please refer to the section entitled “Key Business Metrics” included elsewhere in this Quarterly Report.

Seasonality and Cyclicality

The residential real estate market is seasonal, which directly impacts our agents’ businesses. While individual markets may vary, transaction volume is typically highest in spring and summer, and then declines gradually in late fall and winter. We experience the most significant financial effect from this seasonality in the first and fourth quarters of each year, when our

1 During the first quarter of 2024, the Company began to report its agent statistics as of the period end. The Company's Number of Principal Agents and year over year growth reported in this Form 10-Q is based on the quarter end count.

2 The Number of Principal Agents metric excludes approximately 1,200 principal agents located in Texas who joined Compass during the second quarter of 2024 as part of the Latter & Blum Holdings, LLC acquisition. These agents operate with a flat fee / transaction fee based model, which is different from the Company's standard commission model.

revenue is typically lower relative to the second and third quarters. The effect of this seasonality on our revenue has a larger effect on our results of operations as many of our operating expenses (excluding commissions) are somewhat fixed in nature and do not vary directly in line with our revenue. We believe that this seasonality has affected and will continue to affect our quarterly results.

The broader residential real estate industry is cyclical, and individual markets can have their own dynamics that diverge from broad market conditions. The real estate industry can be impacted by the strength or weakness of the economy, changes in interest rates or mortgage lending standards, or extreme economic or political conditions. Our revenue growth rate tends to increase as the real estate industry performs well and to decrease when the real estate industry performs poorly.

Impact of the Macroeconomic Conditions on the U.S. Residential Real Estate Market and Our Business

Throughout 2023 and through the first half of 2024, a number of macroeconomic conditions continued to contribute to the slowdown in the U.S. residential real estate market, impacting our business and financial results during the year ended December 31, 2023 and the six months ended June 30, 2024. These conditions include, but are not limited to, the conflict in Ukraine, volatility in the U.S. equity markets, rising inflation, rapidly rising mortgage interest rates, and the Federal Reserve Board increasing the federal funds rate by an aggregate of 5.25% through June 2024. These conditions have contributed toward slowed consumer demand and declining home affordability and began to have an impact on price appreciation. Any further slowdown or additional challenging conditions in the U.S. residential real estate market could have a significant impact on our business and financial results in 2024 and beyond. While we continue to assess the effects of the current slowdown on our business and financial results, the ultimate impact will depend on future developments, which are highly uncertain and difficult to predict, as well as the actions that we have taken, or will take, to minimize any current and future impact.

RESULTS OF OPERATIONS

The following table sets forth our consolidated statements of operations data for the periods indicated:

(in millions, except percentages)

(1) Includes stock-based compensation expense as follows:

30

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Revenue

(in millions, except percentages)

Revenue was $1,700.6 million and $2,754.7 million during the three and six months ended June 30, 2024, an increase of $206.6 million, or 13.8%, and $303.5 million, or 12.4%, compared to the prior year periods, respectively. The increase for the three and six months ended June 30, 2024 was primarily driven by an increase in the number of agents on our platform during 2023 and 2024 and a higher volume of transactions. The Number of Principal Agents as of June 30, 2024 grew to 16,997, an increase of 24.1% from the year ago period. For the three and six months ended June 30, 2024, 9.0% and 8.1% of the revenue increase was attributable to existing businesses and 4.8% and 4.3% was attributable to businesses acquired since the prior year periods, respectively.

Commissions and other related expense

(in millions, except percentages)

Commissions and other related expense was $1,405.3 million and $2,267.6 million during the three and six months ended June 30, 2024, an increase of $181.3 million, or 14.8%, and $252.7 million, or 12.5%, compared to the prior year periods, respectively. Included in Commissions and other related expense were non-cash expenses related to stock-based compensation of $11.6 million for the six months ended June 30, 2023. The decline in stock-based compensation expense for the six months ended June 30, 2024 when compared to the prior year period was due to the discontinuation of the Agent Equity Program in 2023. Commissions and other related expense excluding such non-cash stock-based compensation expense was $1,405.3 million, or 82.6% of revenue, and $2,267.6 million, or 82.3% of revenue, for the three and six months ended June 30, 2024 and $1,224.0 million, or 81.9% of revenue, and $2,003.3 million, or 81.7% of revenue, for the three and six months ended June 30, 2023, respectively. The increase in absolute dollars and as a percentage of revenue of Commission and other related expense, excluding non-cash stock-based compensation, for the three and six months ended June 30, 2024 when compared to the prior year periods was primarily driven by increased revenue, changes in mix of the commission arrangements we have with our agents and changes in geographic mix.

Sales and marketing

(in millions, except percentages)

Sales and marketing expense was $94.9 million and $188.3 million during the three and six months ended June 30, 2024, a decrease of $18.4 million, or 16.2%, and $40.3 million, or 17.6%, compared to the prior year periods, respectively. Included in Sales and marketing expense were non-cash expenses related to stock-based compensation of $8.3 million and $16.2 million for the three and six months ended June 30, 2024 and $9.0 million and $17.6 million for the three and six months ended June 30, 2023, respectively. Sales and marketing expense, excluding non-cash stock-based compensation expense, was $86.6 million, or 5.1% of revenue, and $172.1 million, or 6.2% of revenue, for the three and six months ended June 30, 2024 and $104.3 million, or 7.0% of revenue, and $211.0 million, or 8.6% of revenue, for the three and six months ended June 30, 2023, respectively. The decrease in absolute dollars and as a percentage of revenue, excluding non-cash stock-based compensation expense, during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was primarily due to a decrease in agent marketing costs and agent incentives.

Operations and support

(in millions, except percentages)

Operations and support expense was $83.1 million and $162.1 million during the three and six months ended June 30, 2024, an increase of $0.1 million, or 0.1%, and a decrease of $2.0 million, or 1.2%, compared to the prior year periods, respectively. Included in Operations and support expense were non-cash expenses related to stock-based compensation of $4.4 million and $8.1 million for the three and six months ended June 30, 2024 and $4.1 million and $7.1 million for the three and six months ended June 30, 2023, respectively. Operations and support expense, excluding such non-cash stock-based compensation expense, was $78.7 million, or 4.6% of revenue, and $154.0 million, or 5.6% of revenue, for the three and six months ended June 30, 2024 and $78.9 million, or 5.3% of revenue, and $157.0 million, or 6.4% of revenue, for the three and six months ended June 30, 2023, respectively. The decrease as a percentage of revenue, excluding such non-cash stock-based compensation expense, during the three and six months ended June 30, 2024 was primarily related to the increase in revenue compared to the prior year period. The decrease in absolute dollars, excluding such non-cash stock-based compensation expense, during the three and six months ended June 30, 2024 was insignificant.

Research and development

(in millions, except percentages)

Research and development expense was $47.4 million and $94.4 million during the three and six months ended June 30, 2024, an increase of $2.0 million, or 4.4%, and $0.1 million, or 0.1%, compared to the prior year periods, respectively. Included in Research and development expense were non-cash expenses related to stock-based compensation of $15.2 million and $30.1 million for the three and six months ended June 30, 2024 and $12.6 million and $23.0 million for the three and six months ended June 30, 2023, respectively. The increase in stock-based compensation expense for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was primarily driven by forfeitures incurred due to the workforce reductions taken in connection with our restructuring activities in the prior year with no comparable activity in the current year. Research and development expense, excluding such non-cash stock-based compensation expense, was $32.2 million, or 1.9% of revenue, and $64.3 million, or 2.3% of revenue, for the three and six months ended June 30, 2024 and $32.8 million, or 2.2% of revenue, and $71.3 million, or 2.9% of revenue, for the three and six months ended June 30, 2023, respectively. The decrease in Research and development expense, excluding non-cash stock-based compensation expense, in absolute dollars and as a percentage of revenue during the three and six months ended June 30, 2024 was primarily driven by lower research and development related headcount resulting from our cost reduction initiatives.

General and administrative

(in millions, except percentages)

32

General and administrative expense was $22.9 million and $105.1 million during the three and six months ended June 30, 2024, a decrease of $11.8 million, or 34.0%, and an increase of $36.0 million, or 52.1%, compared to the prior year periods, respectively. General and administrative expense includes a charge of $57.5 million for the six months ended June 30, 2024 in connection with the Antitrust Lawsuits, which is discussed in Note 6 - "Commitments and Contingencies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report. Also included in General and administrative expense were non-cash expenses related to stock-based compensation of $3.0 million and $9.4 million for the three and six months ended June 30, 2024 and $13.3 million and $24.6 million for the three and six months ended June 30, 2023, respectively. The decrease in stock-based compensation expense for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was primarily driven by the modification of the Company's Chief Executive Officer's performance-based RSUs at the end of 2023. General and administrative expense, excluding such non-cash stock-based compensation expense and the aforementioned litigation charge, was $19.9 million, or 1.2% of revenue, and $38.2 million, or 1.4% of revenue, for the three and six months ended June 30, 2024 and $21.4 million, or 1.4% of revenue, and $44.5 million, or 1.8% of revenue, for the three and six months ended June 30, 2023, respectively. The decrease in absolute dollars and as a percentage of revenue, excluding such non-cash stock-based compensation expense and the litigation charge, during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was primarily driven by our cost reduction initiatives.

Restructuring costs

(in millions, except percentages)

Restructuring costs in the three and six months ended June 30, 2024 primarily consisted of costs associated with continued lease terminations. Restructuring costs in the three and six months ended June 30, 2023 primarily consisted of costs associated with workforce reduction actions and lease terminations. See Note 12 - "Restructuring Activities" in our condensed consolidated financial statements included elsewhere in this Quarterly Report, for more information.

Depreciation and amortization

(in millions, except percentages)

Depreciation and amortization expense decreased $0.9 million, or 4.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and decreased $5.0 million, or 10.6%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease for the six months ended June 30, 2024 was primarily driven by $5.3 million in accelerated depreciation for fixed assets, including leasehold improvements, furniture and fixtures related to office leases we exited during the six months ended June 30, 2023 compared to $1.8 million in the current period. See Note 12 - "Restructuring Activities" in our condensed consolidated financial statements included elsewhere in this Quarterly Report, for more information.

Investment income, net

(in millions, except percentages)

33

Investment income, net decreased during the three and six months ended June 30, 2024 as a result of a decrease in our average short-term interest-bearing investments as compared to the year ago periods.

Interest expense

(in millions, except percentages)

Interest expense was $1.6 million and $3.1 million for the three and six months ended June 30, 2024, respectively. The decrease from the prior year periods was primarily driven by the interest expense incurred on our Revolving Credit Facility as a result of a balance outstanding in the prior year on the credit facility with no comparable balance outstanding during the three and six months ended June 30, 2024.

Income tax benefit

(in millions, except percentages)

For the three and six months ended June 30, 2024, Income tax benefit increased by $0.1 million and $0.4 million when compared to the three and six months ended June 30, 2023, respectively. The changes primarily resulted from partial reductions in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions netted with state income tax expense.

Equity in loss of unconsolidated entity

(in millions, except percentages)

During the three and six months ended June 30, 2024, Equity in losses of unconsolidated entity was $0.4 million and $1.2 million, respectively, primarily from our mortgage joint venture, which was formed in July 2021.

KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES

In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.

(1) During the first quarter of 2024, the Company began to report its agent statistics as of the period end. The Company's Number of Principal Agents and year over year growth reported in this Form 10-Q is based on the quarter end count.

(2) Excludes approximately 1,200 principal agents located in Texas who joined Compass during the second quarter of 2024 as part of the Latter & Blum Holdings, LLC acquisition. These agents operate with a flat fee / transaction fee based model, which is different from the Company's standard commission model.

(3) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of Net income (loss) attributable to Compass, Inc. to Adjusted EBITDA, see the section titled “—Non-GAAP Financial Measures” below.

Key Business Metrics

Total Transactions

Total Transactions is a key measure of the scale of our platform, which drives our financial performance. We define Total Transactions as the sum of all transactions closed on our platform in which our agent represented the buyer or seller in the purchase or sale of a home. We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. This metric excludes rental transactions.

Our Total Transactions increased for the three months ended June 30, 2024 to 60,390, or 11.4%, and for the six months ended June 30, 2024 to 98,839, or 9.7%, from the year ago periods. For the three and six months ended June 30, 2024, the majority of the increase in total transactions was attributable to the brokerages acquired since the same periods a year ago as these acquired brokerages operate in markets with average selling prices that are lower than the average selling price of our overall brokerage operations.

Gross Transaction Value

Gross Transaction Value is a key measure of the scale of our platform and success of our agents, which ultimately impacts revenue. Gross Transaction Value is the sum of all closing sale prices for homes transacted by agents on our platform. We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction. This metric excludes rental transactions.

Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and macroeconomic factors.

Our Gross Transaction Value for the three and six months ended June 30, 2024 was $65.0 billion and $105.1 billion, representing an increase of 14.5% and 12.5% from the year ago periods, respectively. The increase for the three and six months

ended June 30, 2024 were primarily driven by an increase in the number of agents on our platform.

Number of Principal Agents

The Number of Principal Agents represents the number of agents who are leaders of their respective agent teams or individual agents operating independently on our platform during a given period. The Number of Principal Agents is an indicator of the potential future growth of our business, as well as the size and strength of our platform. This figure represents the number of principal agents at the end of the period. We use the Number of Principal Agents, in combination with our other key metrics such as Total Transactions and Gross Transaction Value, as a measure of agent productivity.

Our Number of Principal Agents for the three and six months ended June 30, 2024 was 16,997, representing an increase of 24.1% from the year ago period. Our principal agents generate revenue across a diverse set of real estate markets in the U.S.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA is a non-GAAP financial measure that represents our Net income (loss) attributable to Compass, Inc. adjusted for depreciation and amortization, investment income, net, interest expense, stock-based compensation expense, income tax (expense) benefit and other items. During the periods presented, other items included (i) restructuring charges associated with lease termination and severance costs, (ii) acquisition-related expenses related to adjustments to the fair value of contingent consideration and other forms of acquisition consideration and (iii) a litigation charge in connection with the Antitrust Lawsuits. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.

We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe Adjusted EBITDA and Adjusted EBITDA margin are also helpful to investors, analysts and other interested parties because these measures can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, however, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including Net income (loss) attributable to Compass, Inc. and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are not presented in accordance with GAAP and the use of these terms varies from others in our industry.

The following table provides a reconciliation of Net income (loss) attributable to Compass, Inc. to Adjusted EBITDA (in millions):

(1) Includes adjustments related to the change in fair value of contingent consideration and other adjustments related to acquisition consideration. See Note 3 - "Acquisitions" to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information.

(2) Represent a charge of $57.5 million incurred during the three months ended March 31, 2024 in connection with the Antitrust Lawsuits. See Note 6 - "Commitments and Contingencies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information.

Adjusted EBITDA was income of $77.4 million and $30.1 million during the three months ended June 30, 2024 and 2023, respectively. Adjusted EBITDA was income of $57.3 million and a loss of $37.0 million during the six months ended June 30, 2024 and 2023, respectively. The improvement in Adjusted EBITDA during the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 was primarily a result of the impact of our cost reduction initiatives and an increase in revenue which was driven by an increase in the number of agents that joined our platform during 2023 and 2024.

The following tables provide supplemental information to the Reconciliation of Net income (loss) attributable to Compass, Inc. to Adjusted EBITDA presented above. These tables identify how certain Operating expenses related financial statement line items contained within the condensed consolidated statements of operations elsewhere in this Quarterly Report are impacted by the items excluded from Adjusted EBITDA (in millions):

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have generated negative cash flows from operations and have primarily financed our operations from net proceeds from the sale of convertible preferred stock and common stock. As of June 30, 2024, we had cash and cash equivalents of $185.8 million and an accumulated deficit of $2.6 billion.

We expect that operating losses and negative cash flows from operations may continue in certain periods in the foreseeable future as a result of the current slowdown in the U.S. residential real estate market as described in more detail under the section entitled “—Impact of the Macroeconomic Conditions on the U.S. Residential Real Estate Market and Our Business”. We believe our existing cash and cash equivalents, the Concierge Facility (which, as disclosed in the footnotes to the condensed consolidated financial statements, may be used to support our Compass Concierge Program) and the Revolving Credit Facility will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months and beyond.

Our future capital requirements will depend on many factors, including, but not limited to, growth in the number of our agents and the associated costs to attract, support and retain them, our decision to resume expansion into new geographic markets, continued investment in integrated services and other new revenue streams, future acquisitions, the timing of investments in technology and personnel to support the overall growth in our business and the extent and duration of the current and any future slowdown in the U.S. residential real estate market. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected. See the sections entitled “Risk Factors—Risks Related to Ownership of Our Class A Common Stock—We may need to raise additional capital to continue to grow our business and we may not be able to raise additional capital on terms acceptable to us, or at all” and “Risk Factors—Risks Related to Our Business and Operations—Covenants in our debt agreements may restrict our borrowing capacity or operating activities and adversely affect our financial condition” included in the 2023 Form 10-K.

Financial Obligations

See Note 5 - "Debt" in our condensed consolidated financial statements included elsewhere in this Quarterly Report, for information on our indebtedness as of June 30, 2024.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in millions):

Operating Activities

For the six months ended June 30, 2024, net cash provided by operating activities was $53.6 million. The inflow was primarily due to a $112.2 million Net loss adjusted for $109.4 million of non-cash charges and cash inflows due to changes in assets and liabilities of $56.4 million.

For the six months ended June 30, 2023, net cash used in operating activities was $2.2 million. The outflow was primarily due to a $197.1 million Net loss adjusted for $137.1 million of non-cash charges partially offset by cash inflows due to changes in assets and liabilities of $57.8 million.

Investing Activities

During the six months ended June 30, 2024, net cash used in investing activities was $26.5 million consisting of $18.0 million in payments for acquisitions, net of cash acquired, $7.3 million of capital expenditures and $1.2 million for investments in an unconsolidated entity.

During the six months ended June 30, 2023, net cash used in investing activities was $6.1 million consisting of $6.1 million in capital expenditures.

Financing Activities

During the six months ended June 30, 2024, net cash used in financing activities was $8.2 million primarily consisting of $14.1 million in taxes paid related to the net share settlement of equity awards and $2.5 million in payments related to acquisitions, including contingent consideration payments, partially offset by $4.8 million in proceeds from the exercise of stock options, $2.5 million in net proceeds from drawdowns and repayments on the Concierge Facility and $1.1 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.

During the six months ended June 30, 2023, net cash used in financing activities was $18.2 million, primarily consisting of $10.3 million in taxes paid related to net share settlement of equity awards, $10.2 million in payments related to acquisitions, including contingent consideration and $1.5 million in net outflows from drawdowns and repayments on the Concierge Facility partially offset by $2.9 million in proceeds from the exercise of stock options and $1.4 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.

Off-Balance Sheet Arrangements

We administer escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions. We are contingently liable for these escrow and trust deposits totaling $270.0 million and $120.0 million as of June 30, 2024 and December 31, 2023, respectively. We did not have any other off-balance sheet arrangements as of or during the periods presented.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Critical Accounting Estimates and Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates and therefore, if material, our future financial statements will be affected.

There have been no material changes to our critical accounting policies and estimates disclosed in our 2023 Form 10-K. For additional information about our critical accounting policies and estimates, see the disclosure included in our 2023 Form 10-K, as well as Note 1 and Note 2 to our condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report.

RECENT ACCOUNTING PRONOUNCEMENTS

For a description of our recently adopted accounting pronouncements and accounting pronouncements issued but not yet adopted, see Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report.

Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in interest rates or inflation.

Interest Rate Risk

Our cash and cash equivalents as of June 30, 2024 consisted of $185.8 million. Certain of our cash and cash equivalents are interest-earning instruments that carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.

We are also subject to interest rate exposure on our Concierge Facility and Revolving Credit Facility. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. Our Concierge Facility bears interest equal to the term SOFR rate plus a margin of 2.75%. As of June 30, 2024, we had a total outstanding balance of $27.3 million under the Concierge Facility. Our Revolving Credit Facility bears interest equal to SOFR plus a margin of 1.50%. As of June 30, 2024, we had no borrowings outstanding under the Revolving Credit Facility. Based on the amounts outstanding, a 100-basis point increase or decrease in market interest rates over a twelve-month period would not result in a material change to our interest expense.

Foreign Currency Exchange Risk

As our operations in India have been limited, and we do not maintain a significant balance of foreign currency, we do not currently face significant risk with respect to foreign currency exchange rates.

Evaluation of Disclosure Controls and Procedures.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Control over Financial Reporting and Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock. You should read carefully the information appearing in Part I, Item 1A, Risk Factors in our 2023 Form 10-K. There have been no material changes to the risk factors set forth in our 2023 Form 10-K. However, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results.