Compass Stock

Good day, everyone. Welcome to the Compass Incorporated 2026 Q2 Earnings Call Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn our call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass Second Quarter 2026 Earnings Call. Joining us today will be Robert Reffkin, our Founder and CEO; and Scott Wahlers, our Chief Financial Officer. In discussing our company's performance, we will refer to some non-GAAP measures and discuss some metrics on a non-GAAP pro forma basis. You can find the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and supplemental non-GAAP pro forma information for prior quarters in our second quarter 2026 earnings release posted on our Investor Relations website.

We will also 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 third quarter of 2026 and full year 2026 and comments related to our expectations for realizing cost synergies and operational achievements. Our actual results may differ materially from these statements. For more information, see our most recent annual report on Form 10-K and our recent Form 10-Q. You should not place undue reliance on any forward-looking statements.

I will now turn the call over to Robert Reffkin. Robert?

Good afternoon, and thank you for joining us for our second quarter conference call. On today's call, I will be discussing 5 topics. First, I will provide a quick recap of our record Q2 results. Second, I will share an update on our cost synergy targets and our technology rollout. Next, I'll touch on our partnership with Rocket Redfin and how we are infusing competition in residential real estate. Fourth, I'll discuss how we are moving on the offense with AI, and I'll end by revisiting the long-term earnings potential of our business.

Starting with our record Q2 results, where all my year-over-year and quarter-over-quarter comments will be against pro forma figures. In Q2, Compass delivered record revenue and record adjusted EBITDA above the high end of our guide. Revenue of $4.3 billion was up 14% year-over-year compared to pro forma revenue of $3.8 billion a year ago, while adjusted EBITDA was $363 million. Cash on hand increased by $210 million quarter-over-quarter to $694 million, which drove net debt to adjusted EBITDA on a trailing 12-month and pro forma basis to 3.3x compared to the 4.2x in Q1 of 2026.

So this means over the past quarter, we have already lowered our net leverage ratio by roughly 1 turn. Consuming current 2026 consensus adjusted EBITDA estimates in our Q2 ending cash balance of $694 million, which would be conservative as we expect to generate free cash flow in the second half of the year. Our net debt to adjusted EBITDA ratio would move into the 2s by the end of the year, illustrating the progress we continue to make on reducing our net average ratio even as we are at the bottom of the cycle. In our brokerage business, which includes the [indiscernible] banker, Compacorcrin and Sotheby's International Realty brands, transactions were up 7.4% year-over-year compared to the market, which was up 3.5% year-over-year.

As a result, for 21 consecutive quarters, spanning our entire history as a public company. Our brokerage business has outperformed the market on an organic basis for the Compass stand-alone brand. And for the second consecutive quarter, including the Anywhere transaction, we have now outperformed the market as well. Additionally, brokerage gross transaction volume, or GTV, was up approximately 16% year-over-year compared to the market that was up 6%. This reflects roughly 1,000 basis points of outperformance compared to the market, which is an acceleration compared to the roughly 600 basis points of outperformance we delivered in Q1 2026.

We believe this outperformance is a reflection of the quality of our agents and exposure to the higher end of the market, which tends to be less rate sensitive. We believe the wealth effect created by a record stock market and a growing U.S. economy has been a driver of demand for our business and is helping offset the rise in interest rates. Recently, there has been much discussion regarding the Bay Area real estate boom driven by the SpaceX IPO, the upcoming SpaceX lockup and the potential IPOs for Anthropic and open AI. So we thought it would be helpful to provide some color on what we are seeing there, given our presence in that market.

On a year-over-year basis, in the Compass stand-alone brand, we are seeing revenue in the Bay Area up 19% year-over-year in both July and August on a business day adjusted basis, which is relatively consistent to the up 20% we observed in June. This suggests the momentum coming out of June in the Bay Area is continuing. In franchise, GTV was up 11.7% year-over-year compared to the housing market volumes that were up 6%, reflecting 570 basis points of outperformance. Our high-end brands, including the Corcoran and Sotheby's International Realty brands continued to significantly outperform the company average.

Integrated services revenue grew 7.7% year-over-year with title and escrow revenue being the primary driver. Total T&E transactions grew by 7.6% year-over-year, with purchase transactions growing by 6% and refi transactions growing by 25% year-over-year. Our focus in 2026 into 2027 is to unify our T&E operations by migrating all T&E operations to the Compass' title production platform. Transitioning to one title production platform is expected to unlock additional efficiencies and expand incremental margins in the future. While we are making this transition, however, we will continue to optimize our attach efforts by scaling best practices from both organizations and expect our attached efforts to accelerate in 2027 as we deploy tools such as 1 click title across our footprint.

In mortgage, our JVs more than doubled profitability in the Q2 year-over-year period, primarily due to strong volume growth and disciplined expense management. Our focus in 2026 in mortgage is to drive operational efficiencies within our JV entities while also making progress on attach by continuing to attract the best loan officers to the business. Now an update on our cost synergy and integration efforts, starting with our cost synergies. As of July, we actioned our entire year 1 target of $300 million in net cost synergies, 5 months ahead of plan.

As such, we are now pacing above our $300 million target and expect our action net cost synergies to be $330 million by the end of year 1. With our 2026 in-year realized net cost synergies to be $220 million compared to the $200 million that we previously stated.

We expect to realize about $150 million of the $220 million through the P&L compared to $130 million previously stated, and we continue to expect the remaining $70 million to be realized as CapEx synergies later this year. Lastly, regarding our total action net synergy target of $500 million. While we are not changing our total target at this time, given the accelerated pace at which we have been moving, it would be fair to assume that we will achieve the $500 million in cost synergies in less than 3 years and that we will achieve more than $500 million in cost synergies in 3 years.

As a reminder, approximately $420 million of the $500 million is expected to be realized through the P&L and $80 million is expected to be realized as CapEx synergies.

Next, onto our technology rollout. In July, we achieved a significant milestone as we made our newly branded home platform technology available to over 4,000 agents at Coldwell Banker, Corcoran in Sotheby's International Realty in the pilot beta. Feedback since the rollout has been positive, with Ages noting the ease of use on both mobile and desktop the network effect benefits of the platform, particularly in the private exclusive phase and the highly integrated nature of the platform. So far, the platform has received an 82% CSAT or customer satisfaction score, which is generally considered to be a strong score in the software industry.

By the end of September, nearly 50,000 new agents in the owned brokerage brands will have access to the platform, reflecting over 80,000 agents on the platform, including the Compass brokerage brand. All agents will have access to our private exclusives in [indiscernible]. Our 128,000 domestic franchise agents will begin to onboard in Q1 2027. I want to give a special thanks to our product and engineering team, our marketing team and our coaching teams for the monumental effort in getting us to the point in record time. I cannot overstate the relentless execution and tireless commitment the team put into this to make sure that the agents have access to the platform ahead of the fall market.

I am incredibly proud of the team in all my years at the company, I've never seen the team come together to realize such a big in audacious goal. Thank you.

Now let me provide a few thoughts on our partnership with Rocket-Redfin and how we are infusing competition in residential real estate. Starting with our Rocket-Redfin partnership. Since launching coming soon on Redfin in late Q1, our agents have received more than 60,000 leads from Rocket-Redfin and Compass has delivered more than 20,000 coming to listings to Redfin. Moreover, we want to share our first data points, highlighting the impact to consumer traffic resulting from the coming June inventory on compass.com.

In Chicago, where we have the most coming soons of any market, the number of sessions on compass.com in Chicago were up 111% year-over-year. outpacing the average sessions growth of 34% year-over-year on compass.com or by 77 percentage points. This reflects what happens when MLS rules let clients and their agents choose to market properties how they see fit, which in this case, is through the local MLS MRD. We expect more than 90% of MLSs to have rules that allow sellers to market both private exclusives and coming soon by the end of the year. The trend for sell of choice is moving quickly.

Moving on to how we are infusing competition in real estate. I believe in competition, not only does the law require companies to compete, the competition is the bedrock of our economy. Competition is the engine that produces the most value and options for consumers. However, today, the most powerful entity in real estate, the Multiple Listing Service or MLS, they do not compete. Instead, many abuse their power by creating mandatory rules and they enforce with fines up to $5,000 that every real estate professional and their sellers are expected to follow.

Real estate professionals have no ability to push back because they need access to them less to do their job. That is because over the past 10 years, all real estate professionals have been conditioned to use the MLS to market a listing to other real estate professionals. So without access to MLS, you can't access the listing data for your buyers. In almost all markets, agents have only 1 choice for multiple listing services taking that single MLS in that market, a monopoly that agents need to use to do their jobs. It is that market power that is empowered MLS's to find agents up to $5,000 for marketing outside MLS, even though the MLS is not the government. It's just a private entity.

What other private business can fine and punish other private houses? The untold secret in real estate is that the MLS is controlled by a collection of our competitors that tell us how we can and cannot compete. The MLS is controlled by a collection of our competitors who are running the Board, and they are telling us how we can and cannot compete. One other privateness is to hold how to compete by a collection of their competitors. This is why the MLS system has been investigated or sued by the United States government over 100 times in the last 50 years.

The MLS has been weaponized against the very customer that pays to get access to that service utility, namely the real estate agent and the real estate brokerages, those agents associated with. Let me say that again. Real estate agents pay the MLSs money. Real estate agents give the MLS the result of their hard work and their intellectual property in exchange, the MLS tells the real estate agent how to compete and finds and punishes the agent if they compete too hard. This is anticompetitive. This is anticonsumer and it's illegal.

Multiple Listing Services should have to compete for our business just as brokers have to compete for agents and agents have compete for their clients. Today, our agents compete relentlessly for every client. They compete at every kitchen table across the U.S. every single day. Brokerage is also conversely on compensation, on technology, on coaching, on culture to attract and retain the industry's top professionals. Over the years, Compass has invested over $2 billion in technology to compete, to provide competitive technology offerings. Because of competition, our real estate professionals cannot find or punish other agents or tell them how to compete. And because of competition, we cannot find or punish brokerages and agents or tell them how to compete. Most MLSs can. And most MLSs do because they have no competition. I am working to change that and bring competition to the MLSs so that they can compete for real estate professionals and succeed in those MLSs that do not compete fail.

Similarly, the dominant portal once competed for the attention of the consumer, competed for listings. But over the past 20 years, it gained dominant market power and with it, adopted restrictive rules that punish brokers and agents who are competing for those same consumers. Like MLS, the dominant portal takes the hard work in intellectual property created by brokerage agents without our permission and port fee, takes it for MLS and use it for lead diversion to make money on it time and time again. But if the dominant portal had to actually compete to get our listings, compete on price, compete on features, compete on value, they would have to completely change their business model or fail.

If the dominant portal no longer got listings for free from MLS, they would need to compete for those listings resulting in lifting agents, getting their buyer increase and their name and brand back on their listings. So everything Compass has done in the past, and everything it is doing today is designed to infuse competition into MLS, imports in real estate. Why? Because if multiple listing services in the dominant portal have to compete like real estate professionals and brokers have to compete every day, consumers and the agents that represent them win.

If they have to compete for brokerages, brokerage win. This is why I am supporting multiple listing services and portals that compete for our real estate professionals, and I'm working to inject competition in MLS and portal ecosystem. A good example of how competition can create change is the Rocket-Redfin partnership that was announced earlier this year. Less than a month after we announced the partnership, the dominant portal discontinued the Redfin band on coming soons marketed outside of their platform and launched a commenting product for agents and sellers on their own platform.

Competition resulted in more choices for agents and more choices for the consumer. Another example is our recent announcement with several multiple listing services across the country that supports those that compete for real estate professionals we have seen some of the largest MLSs in the country, including [indiscernible], Washington, D.C., Philadelphia, Southern California, Florida Nashville. They have begun to compete including by offering more flexible rules that let home sellers and their agents determine where and how to market their own properties.

MLSs that are expanding recognize that if they want to get agents in new markets, to sign up to their MLS. They can't expand with more restrictive rules and fines instead they need to compete with more marketing options and more marketing flexibility that helps listing agents and their sellers as opposed to helping the dominant portal. If MLSs and portals had to compete just like we compete with over 80,000 brokers in the country or how agents compete with the 1.5 million agents in the country, I am confident that our company will be able to create an incredible amount of value for all stakeholders, including our real estate professionals, their clients, our employees and our shareholders.

Every month, we are seeing more and more MLSs competing in ways that help our clients, our agent and our company. Competition will empower the best agents and the best brokerages. Competition naturally eliminate [indiscernible] and empower the 3-base marketing strategy. Competition will unlock the full potential of the Compass business model, and competition is coming.

Finally, we are also seeing several states encode into law a seller's right to market property, how they see fit through a seller opt outs. Connecticut, New York and Wisconsin now allow sellers to market their home privately with seller opt-outs. Over the past year, our 3-phase marketing strategy has required similar seller disclosure that states are now putting in place. So we only see this as a big positive. Furthermore, Washington State has adopted laws that allow home sellers to publicly market their homes, however they want, so long as the home is concurrently marketed to the general public and all other brokers. And our private exclusives and coming soon are marketed to the general public through our website.

So as you can see, the trend at the state level is also 1 where the law is emphasizing that homeowners the people who actually own the property for sale, get to choose how to market their properties, not multiple listing services or the dominant portal. Overall, all of these changes are well aligned with our 3-phase marketing strategy, which continues to see an increase in adoption across the Compass brand with adoption in the most recent week approaching 57% of all new Compass listings.

By the end of the third quarter, I would expect 80% of Compass brokerage listings to launch as a coming soon on compass.com and Redfin. And the total number of coming soon to build from there as we expand the offering to all of our brands. Of note, 65% of our franchise network participated in a Redfin coming soon previous session in late June with 40,000 of those agents already opting in to the Redfin Direct listing tool. And by the end of Q3, we expect over 180,000 agents of our franchise and broker agents to have the ability to create coming soons.

Now shifting to our AI strategy where we are moving on offense in 2 ways: one, reducing OpEx; and two, increasing agent productivity. First, we are using AI to reduce OpEx, as you would expect. In Q2, we began deploying FDEs or forward deployed engineers within business functions, including transaction management, legal and growth to build automated AI workflows directly into day-to-day operations. To date, the team has identified a mix of roughly $8 million in savings and cost avoidance opportunities.

Additionally, across the technology organization, 50% to 60% of all new code is now produced by AI which is helping us ship code faster and more efficiently 50% to 60%. Second, on agent productivity, we are rolling out tools to make our real estate professionals more efficient. In July, we demoed our AI assistant more broadly, which is an integrated assistant that helps agents orchestrate more than 90 of our platform tools, simply through natural language prompts.

Our earnings this quarter includes several direct testimonials regions. And as you will see, early feedback is incredibly positive. Agents are citing the amount of time the AI assistant is saving them on everyday tasks such as client outreach and importantly, helping them unearth proprietary leads. User data indicates deeper engagement with the platform with a number of tools per agent and number of conversations per agent up almost 2x since our demo day. I want to end by revisiting the long-term earnings potential of our business as we discussed last quarter.

As a reminder, our scenario analysis is not meant to be guidance and assumes no agent adds, no organic share take, no margin improvement, no improvement on any -- mortgage catch or any competition from leads or other ancillary revenue. These are all incremental growth levers in our business beyond a housing recovery and levers that we are beginning to pull, as you can see from our Q2 results.

Assuming the housing market remains flat at 4.1 million existing home sales, we would generate roughly $1 billion in adjusted EBITDA and $750 million in unlevered free cash flow.

In the next scenario, which we've assumed as 4.8 million existing home sales for this analysis, we would generate $1.5 billion in adjusted EBITDA and $1 billion in unlevered free cash flow. At mid-cycle levels of 5.5 million home sales, we would generate $2 billion in adjusted EBITDA and $1.5 billion in unlevered free cash flow. And lastly, we also provided an upside scenario of $6 million in home sales. And at that level, we would generate $2.5 billion in adjusted EBITDA and roughly $2 billion in unlevered free cash flow.

With that said, I will now hand it over to our CFO, Scott.

Thank you, Robert. Consistent with our prepared comments from last quarter, I'll provide some information about the contribution to our consolidated results from the acquired anywhere businesses where possible. However, we're integrating the entities quickly, and therefore, do not generally expect to break out separate results going forward. You'll find financial information included on our Investor Relations website from last quarter, that provides additional supplemental information on a pro forma basis as though the Anywhere business was combined with Compass for the full year of 2025. Where applicable, this prior year pro forma information will be referenced in my prepared comments today.

Now moving into the financial details. Revenue in Q2 reached $4.3 billion, which exceeded the high end of our revenue guidance range of $4 billion to $4.2 billion. On a pro forma basis, consolidated revenue was up 14.3% from the year ago period. We saw year-over-year revenue increases in each of our 3 operating segments during the quarter, but the owned brokerage segment was a standout with $3.96 billion of revenue and a 15% increase on a pro forma basis compared to the year ago period. wealth being created by the AI boom in the Northern California market supported some of this revenue growth, our Chief Economist, Mike Simonson, highlighted that during the first 6 months of the year, 140 transactions in San Francisco closed at least $1 million above the asking price with 44 of those transactions falling in June alone compared to just 8 homes closing $1 million above asking price in the first half of last year.

Gross transaction value for the brokerage segment was $155.2 billion in the second quarter, up 16% year-over-year on a pro forma basis, which reflects a 7% increase in transactions and average selling price appreciation of 8% to an average price of just over $1 million. Our talented real estate professionals and our presence in the luxury markets allowed us to capitalize on this market growth. As Robert commented earlier, the increase in our gross transaction value during the quarter of 16% on a pro forma basis compares very favorably to the overall market that was up 6% on volume.

Gross agent adds in the quarter were 2,816 down from 3,503 in Q1. As we mentioned last quarter, we are shifting recruiting practices of the brands acquired in the Anywhere transaction towards more productive agents. And while the total number of agents recruited is lower this quarter, productivity per agent continues to increase meaningfully and it's clearly not impacting our ability to grow.

Going forward, all the owned brokerage brands acquired in the Anywhere transaction will begin leveraging our enterprise sales team to recruit agents. Once this partnership model is fully set in motion by early 2027, we expect it to lead to a healthy level of agent adds and better productivity per it. Importantly, total agent retention in our brokerage business was 95.5%, which was largely flat compared to Q2 of 2025 on a pro forma basis and up 140 basis points compared to Q1 of 2026, where it was 94.1%.

Consistent with last quarter, 72% of total agent separations in the quarter had no production or very low production in the trailing 12-month period. As a result, excluding agents with 0 GCI last 12 months, agent retention would have been 97.7% in Q2, and excluding agents with 20,000 or less in GCI in the last 12 months, which on average equals less than 2 transactions at our price points, agent retention would have been 98.7% in Q2.

Commissions and other related expenses as a percentage of brokerage segment revenue increased by 43 basis points to 82.2% from 81.7% on a pro forma basis a year ago. This is largely due to mix, whereby the majority of the revenue growth was in markets with lower overall margins were closed by real estate professionals that are on the higher end of the split schedule. For the Compass stand-alone brand, this commission drink was flat year-over-year. Franchise segment revenue was $135 million in the quarter, up 7.6% on a pro forma basis, and GTV was up 11.7% year-over-year on a pro forma basis compared to housing market volumes that were up 6%, which reflected outperformance led by our luxury brands Sotheby's International Realty and Corcoran.

Integrated Service revenue reached $211 million in the second quarter, up 7.7% year-over-year on a pro forma basis driven by strong performance across title and escrow. Our Cartus relocation business, which is also included in the Integrated Services segment, secured 15 new clients and expanded numerous existing client relationships during the quarter. We believe Cartus is well positioned over other relocation management companies as we integrate into the brokerage operations and our brokerage and franchise operations benefit from the lead flow generated by the relocation side of the business.

Our total non-GAAP operating expenses were $699 million in Q2. As a reminder, our Q1 non-GAAP operating expenses of $641 million excluded OpEx from the Anywhere business for the first 8 days before the January 9 acquisition date. So the increase in Q2 reflects the full quarterly run rate of our combined operations and some modest increase in variable compensation rules as a result of our year-to-date outperformance as well as growth in Integrated Services segment. Recall that compensation for our title and Asia officers in the Integrated Services segment is included in the operations and support line and therefore, revenue growth in this business will have some corresponding growth in the OpEx line, but of course, that's coupled with accretive adjusted EBITDA.

As Robert touched on earlier, we have continued to make strong early progress on cost synergies. This quarter, we pulled forward some additional synergy actions, and we've now actioned $300 million of our cost synergy target which was our revised full year target for 2026. As we committed, when we hit our synergy targets, we won't stop looking for opportunities. We now expect to action as much as $330 million during 2026. Last quarter, we updated our expectations to realize about $200 million of the action synergies in our financials in 2026.

We said about 2/3 of this amount or $130 million will be reflected as reduced operating expenses in 2026, benefiting adjusted EBITDA and cash flow, and the remaining 1/3 or about $70 million will be reflected as lower CapEx which won't directly benefit adjusted EBITDA but will benefit free cash flow. As a result of pulling through some additional action synergies this quarter and a higher expected level of action synergies for the full year of 2026, we now expect approximately $150 million to be realized in OpEx, which reflects an increase of about $20 million from our prior expectations, but note that about 50% of this additional $20 million has already been realized in Q2.

OpEx was essentially flat year-over-year on a pro forma basis. And one of the drivers of that is our cost to serve per transaction, which hit a record low within the Compass brand in Q2. However, as we consolidate our back-office systems with other brands over the next year, we see opportunity to continue lowering the cost to serve per transaction through greater utilization of AI and deploying other best practices. Adjusted EBITDA for Q2 was $363 million, a record performance for any second quarter and almost triple the amount of adjusted EBITDA Compass generated a year ago on a stand-alone basis.

As an interesting data point, the $363 million of adjusted EBITDA in the quarter reflects more adjusted EBITDA in 1 quarter than for the full annual period of 2025 or any other annual period in Compass's history and early proof point of the earnings potential of the combined business. Adjusted EBITDA in the quarter includes segment adjusted EBITDA of $377 million from brokerage, $87 million from franchise and $52 million from integrated services, each reflecting improvements from Q1, both in terms of total dollar value and as a percentage of their respective segment revenues.

As a reminder, while certain direct expenses are allocated to each of the 3 operating segments, there are additional expenses that are not allocated to any of the operating segments because they relate to more of the corporate entity or because shared across multiple or all of the operating segments. These include expenses related to our technology, finance, legal, human resources, and executive functions. Therefore, the total adjusted EBITDA of a consolidated company will be equal to the total of the segment adjusted EBITDA for our 3 operating segments less the unallocated corporate expenses of $153 million to equal the total adjusted EBITDA of $363 million for the second quarter.

We achieved GAAP net income of $92 million this quarter, a significant improvement from GAAP net income of $39 million in the prior year despite the increase in depreciation and amortization expense, merger and integration expenses and interest expense resulting from the Anywhere transaction earlier this year. Our basic weighted average share count for the second quarter was 758 million shares, which was within our guidance range of 755 million to 760 million shares. As a reminder, the share count for Q2 reflects an anticipated step-up from Q1 and as the shares issued for the Anywhere transaction were only weighted during Q1 for the period post the January 9 closing date, but they have a full quarter weighting in Q2.

Free cash flow was very strong at $180 million for the quarter, resulting in $694 million of cash on our balance sheet as of June 30 and no outstanding borrowings on our $500 million revolver. The strong cash flow during the quarter was driven by the over performance on adjusted EBITDA as well as some favorable timing on working capital items. In particular, our remaining cash liability from anywheres NAR class action settlement of $54 million was not paid during the quarter and is now expected to be paid later in 2026.

Last quarter, I commented we would redeem the $500 million of our 9.75% notes in Q2 of 2027. The strong cash position as of quarter end, plus additional positive free cash flow anticipated for the second half of the year underscores our ability to achieve this commitment. We also stated that you should not expect to see any changes and our debt levels for the balance of the year or into Q1 of next year. That's because the highest cost tranche of our debt has a no call provision until April 2027. And our 7% notes have a 1.75% call premium associated with them as well that drops away on the same date in April 2027. So we plan to continue to build our cash position through that date. And in the meantime, we have our cash invested in short-term treasuries with yields in the mid-3% range. It's worth reiterating some of Robert's earlier commentary on our net leverage ratio.

Once again, we won't start reducing our gross debt levels until Q2 of next year due to the call provisions of the debt. However, our net debt levels are reducing when you consider our growing cash position. And when you combine this with our growing levels of trailing annual adjusted EBITDA, our net leverage ratio is improving. As Robert just touched on, if you take our net debt as of June 30, which is $2.45 billion and divide by 2026 consensus adjusted EBITDA estimates of approximately $850 million that yields a net leverage ratio of under 3x. But since we expect to generate additional cash flow in the second half of 2026, the actual ratio as of year-end will be even lower.

Turning to financial guidance for Q3. For the third quarter of 2026, we expect consolidated revenue in the range of $3.85 billion to $4.05 billion. We expect third quarter consolidated adjusted EBITDA to be in the range of $275 million to $305 million. And for the full year, we expect non-GAAP operating expenses in the range of $2.75 billion to $2.8 billion which is an increase of $50 million from the guidance provided last quarter. The increase is primarily driven by $35 million of OpEx assumed from a re-brokerage acquisition we completed in early July, and secondly, some additional compensation expenses related to our recent overperformance.

We expect basic weighted average share count for the third quarter to be between 767 million to 769 million shares, and we expect to generate positive free flow in Q3. Our cash flow in future years will be supported by the use of our net operating losses. It's worth a reminder that we have $1.8 billion of NOLs that will shield us from federal and state taxes as we generate taxable income. At our current combined tax rate of about 26% and which is a federal corporate tax rate of 21%, plus about 5% of a blended state tax rate. That's about $470 million of potential cash taxes that will be avoided due to the utilization of the NOLs in the future.

As we turn to Q&A, I want to say thank you to our entire team for the exceptional efforts and collaboration. We've all been working very hard for these past 6 months following our transformational merger with anywhere in January, and it's great to see those efforts embedded in the outstanding results we're sharing today. And finally, we'll be participating in the Barclays Industrials Conference on August 12 in New York City, the Oppenheimer Tech Conference on August 13, and the Annual Zelman Housing on September 17. We hope to see you at one of those events.

Operator, you can now begin Q&A.

[Operator Instructions] Our first question will come from Matthew Bouley with Barclays.

You have Elizabeth Langan on for Matt today. I just wanted to start off by asking for an update on your 3-phase marketing strategy. It sounds like you've had a lot of traction on the Redfin partnership. And I know last quarter, you had said that the coming season had moved up towards the mid-30% range of your listings last quarter. How are you tracking against that? And maybe if you could give a little more detail on how the broader network effects are materializing?

Great. So on the Compass brokerage side, the coming soons in July approached 57%. So for all new listings, 57% of them start off is coming soon. where we believe that we're on a path to have 80% of all new Compass brokerage listings start office consumes in August and September. For the other brands, they are now onboarding to the platform. And so now they're -- I would expect the same trend line over time there as well. Really, there's no downside. There's no reason not to. There's no days of market, no price job history, the worst thing that can happen is you get an offer. And you can say no, I don't want to offer I'm going to go to every site, not just the 60 million people that are buying off of redfin.com in our brokerage sites. Remember, only 4 million people buy a year. So how many tens of millions of people do you need to see your property.

And so that's why we're getting so much traction. And we're seeing a lot of demand for the private exclusives as well as the new brands come on because the same message is there for sellers. There's no downside. The worst may happen is you can go coming to and go to the public markets, but with the benefit of price discovery as a private exclusive. At the core, what that tool is it has many different benefits and make ways to use it at the core, it is a price testing tool in the exact same way that road shows that who's going public test price as the private listing is the exact same thing for people that are taking their property public and selling their property.

And so the only people that what seller wouldn't want a price testing tool. The only entity that wouldn't want a price testing tool are people whose business models can't make money off of it.

That makes a lot of sense. And secondly, I wanted to ask if you could touch on cost synergies. You obviously spoke to you're using the $500 million target right now, but as you've made progress and you're actioning a higher level than you were initially with the $330 million. How are you thinking about the upside there? And how should we be thinking about the pace in 2027 versus your prior expectations?

Yes. Thanks for the question. I think -- we're really happy with the progress made to date. In 6 months, we've made really strong progress on cost synergies. So we're really happy with that. And I think as you consider the pace over time, we're getting into some of the deeper operational synergy areas, some of the system integrations. Some of these things are going to take longer time. And so you'll definitely see the pace slow compared to how quickly we came out of the gate for the first 6 months. But I think in terms of what we can achieve overall I'd put you back to what we did in 2022 when interest rates started to spike with the mortgage rates, we made a commitment to take costs out of the business.

We exceeded our initial goals on that than we exceeded the goals we put again on top of that. And so the point being is that we're not going to stop looking for opportunities once we get to the $500 million goal. And so I think it's safe to assume are reasonable to assume that based on the base that we've come out in the first 6 months that we will hit our goals over time and potentially exceed them. But we're not going to go into detail as far as 2027 at this point in time.

Your next question will come from Jason Helfstein with Oppenheimer.

Robert, the lead stat in Chicago with Redfin are quite impressive. I think while Chicago has some uniqueness, maybe just talk about your ability to replicate this in other market? And then just when we think about transaction per agent, obviously, we can do the math on Q1 to Q2. Just how much do we -- upside do we see in transactions per agent if we get back to kind of a normal market versus the current level? So where do you think that peak upside is there?

I'll address Chicago and the broad opportunity and then I'll pass it on to Scott for transactions per agent. On Chicago, really happy to see that. Also, it kind of -- it shows what happens in a free market without restrictions, without fines, not bands. What it shows you is why wouldn't an agent put it on their sites first? Was the downside? What we do you want, what seller doesn't want the agent to get their own buyer -- the buyer increase and deal them directly.

And to see our traffic up over 100% year-over-year, 77 basis points over the rest of the regions, it's giving us even more confidence and more conviction. And it's also making our real estate [indiscernible] even more excited to continue to make progress here as we will. I don't think Chicago is that unique. To be clear, it is becoming the norm. MOS is have statuses that allow agents to share their listings with all agents across all brokerage firms and decide where it is publicly on their site. And so what I mean by that specifically is now 60% of our markets, but it's now in the 60s. They will allow to decide to have it on their site. And as long as they're sharing it within the MOS across all brokerage firms. And so we think this is going to become more and more the norm as agents see the value in and for their sellers.

And Jason, just to touch on the question on transactions per agent. Tough question to answer. As far as the specific data point, as a trend, I think you'll see the number continue to be up just as you did this quarter. And the reason for that is that we're turning out or trading out of the business, some of the unproductive agents. In fact, we cited stacks today that are similar to the stats we cited last quarter, where 49% of the agents that left -- the business in the quarter had 0 GCI in the trailing 12 months. So naturally, they're just going to increase transactions per agent.

There's a lot of mix in there, too, because remember, we're now disclosing total agent count, not just principal agent counts and the total recruiting number each quarter and the total attrition number is really not 100% in Compass' control. It's also in control of the principal agent, right? The principal agents who decides to add team members to its team, its who decides to attrit team members from the team. So that goes into that churn as well. But I think directionally speaking, you'll see that number go up as we by definition, are only recruiting productive agents to the company. And as a result of the data you saw in the last 2 quarters, we're trading out, on average, the lower-performing agents.

Your next question will come from Kunal Madhukar with Deutsche Bank.

A quick one1 on the outlook that you provided. Given the K sided or K-shaped market recovery or the economy that we are seeing right now, as the market recovers, what is your assumption on market share and especially around the recovery part. So if the market recovers from the current $4 million to like, let's say, $5 million or $5.5 million. If you're assuming the same market share going in that environment, is that given your bend towards higher-priced properties and more lucky properties, would that assumption be correct?

Look, we don't really think about guidance in terms of market share. I mean we really haven't changed our philosophy on guidance. And the way we do it is really consistent with how we've always done it for that upcoming quarter. It's really based on what we're seeing in our systems at this point in time, right? So as we sit here today, early August, we have good visibility into July. As a reminder too, for this current quarter, July represents -- it's the largest month of the 3 months in this quarter, directionally 40% of the volume in July.

And so we take a look at what we see in July. We have some data for August, right? So we're able to extrapolate that into a guide for the month of August. And then September is a little bit of our wildcard. It's the third month out in the quarter. And so we're taking educated guestimates on that based on trending information, but that's kind of how we do the guide for the upcoming quarter and really haven't changed that.

Got it. And with regard to agent growth, how should we think of agent growth for the third and the fourth quarters?

Yes. Look, in terms of agent growth, I think the point here is that we're going to continue recruiting productive agents into the environment. I mean as we talked about a little bit in our prepared comments we had consistent good growth on the Compass side. Our enterprise sales team has been in a good motion over years now of perfecting that sales motion, and we are rolling that recruiting team out to the other owned brands in the Anywhere side that we just acquired in January. And so we're looking forward to ramping that up and that should be full scale come January of next year. And so over the next couple of quarters, I think you'll still see steady growth, but we're really looking forward to getting that full recruiting motion heading into 2027.

The point being on agent count, though, is it's less of a number right, because that you'll see it's a directional indicator. And there's been limitations in putting a total agent count out. There's been limitations on putting a principal agent count number out there. As I've said before, you can have 1 principal agent that has dozens of team members that does a ton of production. You can also have a principal agent that's an individual contributor. The same is true for the disparity of individual agents on a growth count perspective. Not all agents are created equal in terms of their production. So a number is kind of hard to peg a result on. We're kind of like we provide that number in terms of direction, but it's not the only factor. And it doesn't impact growth is what it comes out to.

Your next question will come from Ryan McKeveny with Zelman.

Nice job with the results. So one quick follow-up on the comment you were just talking about with the enterprise sales operations. I guess, over a longer period of time, should we expect that system or the operations there to also be applicable on the franchise side of things for franchise owners and within the franchise brands. And then the other question I have is on just the cost side of things. So obviously, good work on the synergies. And I may have missed, I know in the past, Scott, you've talked to this idea of 3% to 4% OpEx inflation is kind of the expectation. You also called out this quarter the variable expense side of the integrated services.

So curious, when we step aside from the synergies for a moment, it's still -- is that 3% to 4% still what you're thinking about? And more generally on that, and sorry for the long-winded question, to the extent we either do have a significant recovery in existing home sales or they go meaningfully lower. I guess, how do you think about the OpEx cost structure between, let's call it, an upside and downside case? Does the 3% to 4% stay intact in an upside scenario? Or do you have to flex expenses higher and likewise in the downside, presumably you'd be looking for cost to remove. But yes, if you can speak to those, that would be great. I'm sorry again for the long question.

Great. I guess on the enterprise sales team, we're effectively thinking 6 months after the home platform launch, we launched the enterprise sales team. And so for the own brokerage, we started this summer. And so in winter, I think we should be fully complete with the enterprise sales team. In Q1 of next year, we'll start the home platform launch for our franchise affiliate brands and I would say 6 months later, you will see the same benefit and structure and offering that we provide own brand from an enterprise sales team perspective, we will provide to our franchise broker owners. Now just keep in mind, for them, they always have the option to or not to use them and they're completely different independent companies. But -- and we believe that our enterprise solution will be a value to them.

Yes, Ryan. On your second question, look, I think the 3% to 4% remark is definitely the right way to think about it over time. We historically had everything in 1 segment. So kind of all the costs for these different business units were all in 1 OpEx line. Now that we have 3 segment presentation. You can see the OpEx broken out between integrated services and the franchise side. And so I just kind of called out some of those comments that you will see some uptick as we do better on the franchise side -- on the integrated services side of things that's really kind of like muted in an overall.

I mean I think the biggest component of the business, the biggest component of the cost structure is on the brokerage side. And as we've said about before, as you grow that revenue, you just don't have a lot of fixed costs that grow with -- or variable costs, I should say, to grow with it, a lot of those costs are somewhat fixed in nature. So of course, there are some costs that will grow in a variable nature with revenue, but they're really kind of on the small end of time. So we still feel good about that rate over time.

I think the cost synergies, obviously, will grow, right? You will have additional increases in cost, but inflation will always exist, but we'll continue to be looking for ways to offset that with efficiencies and some of the cost synergy work. We'll lower that down so people can stay within that percentage over time.

Your next question will come from Alec Brondolo with Wells Fargo.

I appreciate the question. So interesting data points on kind of comp is coming seeing penetration of new listings, 57% in recent weeks. I think you said 80% by the end of the third quarter. We started to see some Coldwell Banker coming soon on the website and so on the portals. And so clearly, some progress being made on selling the coming soon listing modality into the new brands. How long do you anticipate it will take to get the Anywhere brands up to the level of coming soon penetration that you've been able to achieve at Compass. .

I think this spring market, i.e., the period before the spring market, January, February, March, I would expect the anywhere brands to be at the same level as the Compass brands.

Got it. That's helpful. And I guess maybe a follow-up question. I think yes, I think your Compass coming on is like 5% of Chicago listings more if you just look at listings that have been on the market for less than 30 days and the traffic data point was interesting to me. I think you said that in Chicago, your web traffic was up 100% or something to the portal. Does the success in leveraging the coming soon listings to drive traffic to compass.com change your thoughts at all around the portal strategy. I think clearly, you have the Redfin partnership. You've indicated a proclivity to partner. Just having more success driving direct traffic change your thoughts about wanting to compete more directly in the portal business as opposed to partner.

I think we've been consistent to entire time. Let me ask the question this way. Is it unreasonable to expect that the company that has the most listings in the United States is the #1 place people search in the United States. I don't think so. I think the only reason that is not the case is because there are mandatory rules that are forcing listing agents to give up their data and their clients' data, give up their content to third-party platforms. And so as these rules become go away because we believe they are beyond anticompetitive they're legal that the MLSs are a collection of our competitors who are telling us how we can and cannot compete. Again, I can't overstate that enough. They are a collection of our competitors. That's the MLS Board that runs MLS. That tells us how we can and cannot compete in marketing services.

As those go down and down and down every month in the year, they will. Agents will just put them on our sites. And then people will search where the inventory is. We've done the research. Like what does it take to get -- to make a buyer want to search another site is that they just need to know there's 1 listing in the exact market where they are looking. And if they believe 1 other listing, they will throw to that site. Now in terms of Redfin, they are a great, great partner in more ways than one. And I think that -- I think there's room for, of course, many different portals. And we believe when we're thankful that they provided competition to the dominant portal. And again, they're a great partner.

This concludes our Q&A session. I will now turn the call back to Robert Reffkin for closing remarks.

Well, thank you, everyone, for joining our call today. I want to end by thanking all of our employees in all of our real estate professionals for their hard work. Together, we delivered a record second quarter, and I look forward to continuing our strong momentum in the second half of this year with you all. Thank you to everyone, have a great rest of your day. .

This concludes today's call. Thank you for joining. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to Compass, Inc. 2026 Q1 Earnings Call. [Operator Instructions] I would now like to turn the call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass First Quarter 2026 Earnings Call. Joining us today will be Robert Reffkin, our Founder and CEO; and Scott Wahlers, our Chief Financial Officer.

In discussing our company's performance, we will refer to some non-GAAP measures. You can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our first quarter 2026 earnings release posted on our Investor Relations website. Additionally, note that since the financial results from the Anywhere transaction are not included in the prior year period or the first 8 days of Q1 2026, the current year and prior year results are not comparable. We have provided supplemental information included in the Form 8-K filed today that presents our revenue and commissions expenses and key business metrics on a pro forma basis as though the businesses were combined from the beginning of 2025. We believe this additional information will be useful to investors to assist in comparing the periods prior and subsequent to the closing of the Anywhere transaction.

We will also be making forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include our guidance for the second quarter of 2026 and full year 2026 and comments related to our expectations for realizing cost synergies and operational achievements. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent annual report on Form 10-K filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, May 5. We expressly disclaim any obligation to update this information.

I will now turn the call over to Robert Reffkin. Robert?

Good afternoon, and thank you for joining us for our First Quarter Conference Call. Before I go over our strong Q1 results, I would like to provide an update on our cost synergy targets and highlight a few early wins since we closed the Anywhere transaction.

First, on our cost synergies. On our Q4 earnings call in February, we shared our target of $250 million in cost synergies to be actioned by the end of year 1 and $400 million in net cost synergies over 3 years. I am very pleased to share that we are increasing our target to $300 million in cost synergies to be actioned by the end of year 1. And $500 million in net cost synergies over 3 years, of which $420 million is expected to be realized through the P&L and $80 million is expected to be realized as a CapEx synergy. Moreover, we have now actioned over $250 million in cost synergies as of April 1, which is only 82 days since we closed the Anywhere transaction. The acceleration results in an increase in our 2026 in-year realized cost synergies from approximately $100 million to $200 million.

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

Shifting now to our early Q1 wins that represent the growth and success in our brokerage brands. Sotheby International Realty sold the most expensive home in the history of the world at $350 million. While Coldwell Banker sold the most expensive home in the history of Miami-Dade County at $170 million. Both sales reinforce the combined company's authority in the luxury segment. Corcoran Sunshine, which is Corcoran's new development business, posted its strongest contract volume quarter in over 10 years with $1.5 billion in contracts signed in Q1. ERA executed its largest franchise sale transaction in 15 years. Better Homes and Gardens executed its largest franchise M&A transaction in the entire history of the brand. Christie's International Real Estate signed on 8 new franchise agreements in the quarter, all for new markets, which reflects the largest quarterly expansion in the history of the brand. CENTURY 21 recently executed its largest franchise sale transaction in 10 years with our stance on home seller choice being a key reason for the broker owner, Greg Hart, choosing to join.

In fact, Greg will be coaching our real estate professionals across our brands on home sales strategy given his impressive track record, which includes building a home sale strategy consulting and training company that [ Inc. 5000 ] ranked among the top 250 fastest-growing privately held firms in America.

Compass recruited more principal agents in Q1 than any prior Q1 in our history. We are now also scaling Compass' most effective recruiting strategies across all brands, starting with demand generation and brand-specific recruiting websites that outline how our technology platform helps agents grow their business. And finally, Coldwell Banker GCI retention rate in its top 2 quartile of agents, representing 82% of its total GCI over the trailing 12-month period, hit a 10-year high at 94.6% retention rate in Q1.

In our title and escrow business, we are consolidating our operations onto a single technology platform, which we expect will unlock sizable long-term savings through centralization once completed. In our mortgage business, GRA, which was Anywhere's JV with guaranteed rate, achieved its highest attach quarter in 2.5 years, while Origin Point, which is Compass' JV, achieved its highest attach rate ever in Q1 and delivered its best quarter of profitability. Going forward, we see a significant opportunity to continue to improve both our attach rate and profitability in our mortgage JVs.

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

Now turning to our Q1 2026 pro forma results.

[Technical Difficulty]

Ladies and gentlemen, thank you for your patience and standing by while we experience technical difficulties. I will now turn the call over to the management team to continue their prepared remarks.

Thank you. And again, sorry for the technical difficulties. Let me continue. In Q1, Compass, we delivered pro forma revenue of $2.76 billion, up 7% year-over-year compared to pro forma revenue of $2.58 billion a year ago. We reported adjusted EBITDA of $61 million. Our Q1 revenue came in above the midpoint of our guide and our adjusted EBITDA came in above the high end of our guide.

In our brokerage business, which includes the Coldwell Banker, Compass, Corcoran and Sotheby's International Realty brands, pro forma transactions were up 2.6% year-over-year compared to the market, which was flat year-over-year. This means that for 20 consecutive quarters, our brokerage business has outperformed the market on an organic basis. Pro forma brokerage GTV was up 7.3% year-over-year compared to the market that was up 1.5%. Pro forma total agent adds on a gross basis were 3,503, which was higher than Q4 2025 levels. Pro forma total agent retention in our brokerage business was 94%, flat compared to Q4 2025. Excluding agents with 0 GCI in the last 12 months, pro forma agent retention would have been 97% in Q1 and excluding agents with $20,000 or less in GCI in the last 12 months, which on average equates to less than 2 transactions at our price points, pro forma agent retention would have been over 98% in Q1.

Pro forma productivity per agent, which we measure as GTV per agent was up nicely year-over-year. Going forward, our brokerage recruiting and retention strategy as a combined company will be focused on productive agents as well as up and coming agents. We expect this to lead to a healthy level of agent adds, combined with improving agent retention and agent productivity growth.

In franchise, pro forma GTV was up 4.6% year-over-year compared to housing market volumes that were up 1.5%, reflecting 310 basis points of outperformance. Our Sotheby's International Realty and Corcoran brands continue to outperform the company average, while total franchise sales experienced a meaningful increase year-over-year. Pro forma integrated services revenue grew 11% year-over-year with title and T&E revenue being the primary driver. The quarter benefited from strong refinance activity with pro forma refi transactions up 100% year-over-year, while pro forma purchase transactions grew 4% year-over-year.

Purchase transaction growth outperformed overall housing market growth at 0.2% year-over-year. These strong results would not have been possible without each and every member of our team. I want to thank the entire team for their focus and hard work in a quarter of significant change for our company.

Now let me provide a few thoughts on our partnership with Rocket Redfin and the industry's shifting stance on phased marketing. First, we are pleased to see several other portals and brokerages following our lead on home seller choice and phased marketing. Sellers want more choices, not less choices. And as coming soon are provided as an option to more sellers, they will realize they have more options and more choices on how to market a home than any -- and we, as a company, have consistently provided sellers with more options than our other competing brokerage firms. We believe that will help our real estate professionals continue to outperform the market and win listings with their sellers.

Second, while we see others in the marketplace attempting to recreate an offering similar to ours, for several reasons, we are confident that the Compass 3 phase marketing option with the coming soon phase also being on Redfin is the best option for phased marketing in real estate. Here are a few reasons why.

First, unlike the other option in the marketplace, all of our coming soon buyer inquiries are always sent directly to the listen agent. The person that knows the property the best as opposed to when you click the contact tour or schedule appointment contact agent button it being rediverted to a third-party agent who doesn't know the listing the best. Second, unlike the other major portals coming soon option, in our case, we always allow the listing agent to do showings and we always allow open houses. That is not the case for the alternative options. Third, real estate is a local business. And with our depth of inventory in major markets, we believe we'll be able to send a strong signal to consumers to search compass.com and our other brokerage websites. Of note, compass.com was the fastest-growing real estate website in Q1 with 38% year-over-year growth in monthly average users and is now the sixth largest audience in real estate for a similar web.

Fourth, our agents can offer their buyers 1% off the mortgage rate through Rocket, a significant advantage, particularly in the current environment. And our advantage is being borne out in the numbers. In the Chicago metro area, which is the third largest housing market in the country by unit count, we have launched roughly 1,000 coming soon since we announced the partnership. This compares to virtually no unique coming soon inventory in the Chicago metro area that we can observe on the other portals as of last week. To date, we sent approximately 3,000 buyer inquiries back to listing agents from Compass coming soon on Redfin. These inquiries charge no referral fee from Redfin to the listing agent. And all of these buyer inquiries are incremental to what our listings -- real estate professionals would have received without the Redfin partnership.

In addition to free buyer inquiries, our real estate professionals are also receiving a minimum of 1.2 million leads from Rocket and Redfin over the next 3 years with over 24,000 leads already having been given to our real estate professionals since the partnership was announced.

Furthermore, we have also seen recruiting momentum pick up in the Compass brand since our announcement and principal agent recruiting is off to a faster start in Q2 than expected. One of the reasons for this is their interest in the Redfin and Rocket partnership as they want to benefit from these leads as well.

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

I also want to emphasize that this is not guidance, but these scenarios should help provide a range of expectations around the earnings power of our combined company, simply from an eventual recovery in existing home sales and once we've realized our cost synergies. Specifically, assuming the housing market remains flat at 4.1 million existing home sales, we would generate roughly $1 billion in adjusted EBITDA and $750 million in unlevered free cash flow.

In the next scenario, which we've assumed as 4.8 million existing home sales for this analysis, we would generate $1.5 billion in adjusted EBITDA and $1 billion in unlevered free cash flow. At mid-cycle levels of 5.5 million home sales, we would generate $2 billion in adjusted EBITDA and $1.5 billion in unlevered free cash flow. And lastly, we also provided an upside scenario of 6 million home sales. And at those levels, we would generate $2.5 billion in adjusted EBITDA and roughly $2 billion in unlevered free cash flow.

So what you can hopefully see from this analysis is that, one, even at 4.1 million existing home sales, which we believe is the trough of the cycle, we could -- we would expect the business to generate $750 million in unlevered free cash flow, giving us confidence that we can make progress in reducing leverage even in conservative scenarios. And two, once we begin the recovery up to mid-cycle levels, that the earnings growth and free cash flow potential in this business is incredibly significant.

Now I want to end by talking about our AI strategy. Last quarter, I touched on our 3 defensive pillars around AI. This includes: one, our growing base of proprietary data from our 3-phase marketing listings, which cannot be scraped by foundational AI models. Two, trust, which we believe will become even more important in a world where AI agents will bring inaccurate and fake information into the market like fake offers, fake listings, fake accounts, fake pictures, fake renderings, I'm already starting to see it. In this future, home human validation will continue to be important given the high stakes, high-ticket transaction. Trust will matter even more than before.

Three, positive network effects that our 330-plus thousand real estate professionals will create to continuously improve our Agentic AI capabilities on the platform. Combined, we believe we have the attributes required to evolve with the AI landscape. And despite all the fears around AI, the data indicates that agent utilization is now at the highest level in recorded history. Per NAR's annual consumer profile, 91% of home sellers and 88% of homebuyers choose to use a real estate professional to complete their transaction in 2025.

I want to reiterate that, that is the highest level that we have ever seen in record history. Moreover, we're seeing the lowest level of for sale by owner listings in record history at just 5%. So even with AI making significant progress in the last 2 years, we're seeing an increase in the number of people using agents and a decrease in the number of for sale by owner listings and both at historic levels. So the data I just shared, 91% of home sellers using an agent and 88% of homebuyers using agents, that compares to a similar 90% of home sellers using an agent in 2024 and 88% of homebuyers using an agent in that period as well.

And if you go back in time to 2005, what you see is 85% of home sellers using an agent and 77% of homebuyers using an agent. What this data is showing is that greater access to information or better search capabilities is not the reason why consumers choose to work with an agent. But rather, it's the agent's critical role in managing a highly complex and a highly emotional transaction. one where trust matters, where it's high stakes, high value. I cannot overstate how emotional these transactions and negotiations can become. The localized nuances that are prevalent in real estate are abundant and the nuanced deal process where no deal is the same as another is why people use a real estate professional. Moreover, what history shows is that as information becomes more prevalent as it did with the rise of the Internet from that 2005 period, where less buyers and sellers were using an agent. As the information becomes more prevalent, where more information and data has been out there over the last 2 decades.

With that -- with more information, you see a greater need for the average consumer to feel like they need to hire a professional to make sense of all the information and all the data. Said simply, history shows that more information and more data in the public domain increases the demand for advice from a real estate professional.

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

We now estimate that 30% to 40% of all new code written at Compass is produced by AI, which is helping accelerate product development velocity by 20%, while keeping our technology OpEx unchanged even as we upgrade the platform for the Anywhere integration. Second, on productivity, we can help our real estate professionals, title agents and mortgage loan officers within our ecosystem become even more efficient and gain an edge in the market by using AI.

For real estate professionals, we are fully integrating Compass AI 2.0 into their workflow to create an on-demand partner designed to help unearth business opportunities and streamline their daily workflows. Examples include a newly rolled out suggestion model, which suggests new steps an agent should take with their client to move their transaction along or proactively serving up buyer and seller leads through what we call our structural advantage tools, such as reverse prospecting, make and sell or the network tool to help a listing agent close a transaction faster. By giving our 330,000-plus real estate professionals these insights and reducing the number of manual tasks they perform each week, we are enabling them to service, win and close transactions faster.

For our title agents, we are planning to leverage our significant data advantage now created by the Anywhere transaction to execute a targeted local sales approach. By layering predictive analytics into our one-click title and escrow integration, our title agents will be able to identify and intercept high probability transactions with greater precision, which we believe will improve our attach rates.

For our mortgage loan officers, we can plan to apply similar predictive AI principles to capitalize on our expanded mortgage coverage. By utilizing our platform's proprietary transaction signals, we can provide loan officers with what we believe are highly qualified, highly high-intent leads exactly when a client needs financing, giving them an edge to win the business. Ultimately, we believe AI will be an accelerant to how much business our professionals do, and we are confident that we have the assets to help them win.

With that, I will now hand it over to Scott.

Thanks, Robert. I want to start by saying thank you to our consolidated team for the extraordinary effort and collaboration put in over the past 4 months, which has led to the great results we're sharing today. With the Anywhere transaction closing on January 9, Q1 was truly a transformational quarter for our company. Where possible, I'll provide some information about the contribution to our consolidated results from the acquired Anywhere businesses. However, we're integrating the entities quickly and therefore, do not generally expect to break out separate results going forward.

Please note that beginning this quarter, we'll also be providing additional information on an operating segment level. Our 3 operating segments going forward will be brokerage, franchise and integrated services. The Brokerage segment includes the results of our owned brokerage operations that now include the Coldwell Banker, Corcoran and Sotheby's International Realty Brands. The franchise segment includes the results of the franchise brands we just acquired through the Anywhere transaction as well as the Christie's International Real Estate franchise we acquired in January 2025. The Integrated Services segment includes the results of our joint title and escrow operations as well as the operations of the Cartus relocation business that came through the Anywhere transaction. The Integrated Services segment also includes the equity method income from our 49% owned mortgage joint ventures, including the guaranteed rate affinity JV from the Anywhere transaction and our Origin Point JV.

While certain direct expenses are allocated to each of the 3 operating segments, there are additional expenses that are not allocated to any of the operating segments because they relate more to the corporate entity or because they are shared across multiple or all of the operating segments. These include expenses related to our technology, finance, legal, human resources and executive functions. Therefore, the total adjusted EBITDA for the consolidated company will be equal to the total of the segment adjusted EBITDA results for our 3 operating segments, less the unallocated corporate expenses. We've reclassified our prior year results on the same operating segment basis for consistency with the current period presentation.

With all that said, revenue in Q1 reached $2.7 billion, at the upper end of our revenue guidance range of $2.55 billion to $2.75 billion. Excluding the Q1 revenue contribution from the Anywhere transaction of about $1.2 billion, revenue increased 10.9% year-over-year. We are very pleased with this result as Q1 was a tough year-over-year quarterly comp in 2026 as on a Compass stand-alone basis, we grew organic revenue in Q1 2025 by 14.6% compared to Q1 of 2024.

Brokerage segment revenue was $2.467 billion for Q1. On a pro forma basis, Brokerage segment revenue increased 7.1% in Q1 2026 compared to Q1 2025. Gross transaction value for the Brokerage segment was $97.3 billion in the first quarter. On a pro forma basis, brokerage segment GTV was up 7.3% year-over-year, a favorable comparison to the market that was at 1.5%. On a consolidated basis, including Anywhere, our average selling price was $978,000 for the quarter, representing a decrease of about 8% from a year ago as Anywhere's brokerage business has slightly lower average selling prices.

Commissions and other related expense as a percentage of our brokerage segment revenue improved to 81.4% for the quarter. compared to 83.2% in Q1 of last year as Anywhere's brokerage operations operate with slightly lower commission rates than Compass' brokerage operations. On a pro forma basis, commissions and other related expenses as a percentage of our brokerage segment revenue was 81.3% in Q1 compared to 81.0% in Q1 of last year. Pro forma franchise segment GTV was up 4.6% year-over-year compared to a housing market volume that was up 1.5%. And finally, pro forma integrated services revenue grew 11% year-over-year with title and escrow revenue being the primary driver.

Our total non-GAAP operating expenses were $641 million in Q1, an increase from $236 million of OpEx in the year ago period, driven by the operating expenses assumed in the Anywhere transaction. Note that this OpEx figure for Q1 of $641 million excludes Anywhere's expenses for the first 8 days of the quarter prior to the transaction closing or about $40 million of expense.

Adjusted EBITDA for Q1 was $61 million, a record level of adjusted EBITDA for any first quarter period in our history, exceeding the high end of our $15 million to $35 million guidance range and a strong improvement of 280% from adjusted EBITDA of $16 million a year ago. Last quarter, I talked about the impact of Anywhere's long-term incentive plan, or LTIP, which is comprised of cash settled RSUs that require mark-to-market accounting through the P&L. The run-up in Anywhere stock price at the end of 2025 led to higher operating expenses in the P&L. And since these LTIP awards started to be indexed off of Compass' stock following the closing of the merger, we expected that elevated level to continue into Q1, which is built into our Q1 guide. However, given the decrease in Compass' stock price from the time we issued our Q1 guidance in late February to the stock price as of March 31, the actual expense from the LTIP wound up being $19 million lower than expected, which benefited adjusted EBITDA in Q1.

Even after excluding the $19 million benefit from the LTIP, adjusted EBITDA would have been $42 million. This result still exceeded the high end of our adjusted EBITDA guidance range in the quarter, driven by higher-than-expected revenue and some other favorability in operating expenses, including slightly better realization of our cost synergies in the quarter.

Several items are excluded from adjusted EBITDA as follows: First, during the quarter, as expected, we incurred $183 million of transaction and integration expenses related to the Anywhere transaction. This includes expenses such as investment banking, legal fees and severance costs, including $61 million of stock-based compensation expense, primarily related to the change of control severance provisions from Anywhere's former executives. We do expect additional expenses in this line item throughout the year as we continue our cost synergy and integration efforts, but not near the level seen in Q1.

Second, you'll notice an elevated level of noncash depreciation and amortization expense this quarter at $163 million, up from $29 million a year ago. This increase is driven by the additional intangible assets and fixed assets we assumed in the Anywhere transaction, and this level of noncash depreciation and amortization expense will continue in the future.

Third, stock-based compensation expense in the quarter was $47 million, excluding the aforementioned $61 million day 1 charge related to Anywhere's former executives. Last quarter, I guided you that you should expect stock-based compensation on a consolidated basis will not exceed $50 million in any future quarter beginning in Q2, and that continues to be our expectation.

And finally, during the quarter, we recognized a $401 million onetime noncash deferred tax benefit related to the reversal of valuation allowances on our deferred tax assets. This reversal was related to the establishment of deferred tax liabilities for the recognition of intangible assets from the Anywhere transaction that are nondeductible for tax purposes. This $401 million deferred tax benefit offset the other noncash expenses and actually pushed us into a GAAP net income position this quarter of $22 million compared to GAAP net loss of $51 million a year ago. Our basic weighted average share count for the first quarter was 734 million shares, just slightly above the guidance range of 720 million to 730 million shares.

And as expected, free cash flow was negative at $168 million in the quarter, driven by the Anywhere transaction and integration expenses, including the transaction costs incurred by Anywhere prior to the closing of the transaction that were paid on or subsequent to the closing date. That said, we ended the quarter in a strong cash position with $484 million of cash on the balance sheet, an increase of $285 million from year-end. Cash increase was driven by the $880 million in net proceeds from the convertible debt offering, offset by the use of $345 million in the Anywhere transaction related to the payoff of the revolver, net of cash acquired from their balance sheet.

At the end of Q1, we had no outstanding borrowings on our $500 million revolver, and we remain well within our net leverage ratio covenant, which is the primary financial covenant on the revolver. As Robert touched on earlier, we have continued to make strong early progress on cost synergies. We have already actioned over $250 million of our cost synergy target, which was previously our year 1 target. As a result, we've now increased our year 1 action target from $250 million to $300 million and raised our 3-year action target from $400 million to $500 million. Furthermore, last quarter, we guided to an expectation to realize about $100 million of cost synergy in 2026, but that we now expect to realize about $200 million in 2026. About 2/3 of this amount or $130 million will be reflected as reduced operating expenses in 2026, benefiting adjusted EBITDA and cash flow and the remaining 1/3 or about $70 million will be reflected as lower CapEx, which won't directly benefit adjusted EBITDA, but will benefit free cash flow.

As I discussed last quarter, the reason why a portion of the cost synergies will be realized through CapEx is because Anywhere historically capitalized a large amount of employee and contract labor to its balance sheet, approximately $80 million in 2025. And as part of our cost synergy work, a significant portion of Anywhere's technology projects that had historically been subject to capitalization will be cut as we shift the technology focus to the Compass platform.

Importantly, as we've already made significant progress on the CapEx portion of our synergies, the vast majority of future actions over the next 3 years will generally all benefit the P&L and adjusted EBITDA.

Now turning to financial guidance for Q2. For the second quarter of 2026, we expect consolidated revenue in the range of $4 billion to $4.2 billion. We expect second quarter consolidated adjusted EBITDA to be in the range of $310 million to $350 million. For the full year, we expect non-GAAP operating expenses in the range of $2.7 billion to $2.75 billion when considering the actual OpEx of $641 million for Q1. Included in the full year OpEx range is the 3% to 4% OpEx inflation we typically expect and the $130 million of the OpEx synergies we expect to realize through the P&L.

On average, the OpEx for Qs 2, 3 and 4 reflects a step-up from the OpEx level of $641 million for Q1 for a few reasons. First, OpEx in Q1 excluded 8 days of Anywhere's operating expenses due to the transaction closing on January 9. Second, our annual employee compensation adjustments occur at the end of March, leading to a step-up of these payroll expenses starting in Q2 of each year. And offsetting these natural increases would be the higher P&L realization of synergies in the second, third and fourth quarters compared to the cost synergy realization in Q1, which was lower. We expect our weighted average share count for the second quarter to be between 755 million to 760 million shares. This is a step-up from Q1 as the shares issued for the Anywhere transaction were only weighted for the period post closing January 9.

Finally, a few thoughts on cash flow and debt levels. As I talked about last quarter, we fully expected to report negative free cash flow in the first quarter from the Anywhere transaction and integration cost spend. We expect to be free cash flow positive for the balance of the year. However, Q2 could be close to free cash flow breakeven or maybe even slightly negative based on the timing of severance and other payments to achieve our cost synergies, the timing of the semiannual interest payments on our debt, which are concentrated in the second and fourth quarters of the year and the timing of certain legal payments related to Anywhere, including the $54 million NAR related class action settlement that is still open and expected to be paid in the near term.

That said, we expect to deliver strong free cash flow in Q3 and Q4 of this year, which should put us in a cash position to deliver positive free cash flow on a full year basis and give us a clear path to prioritize aggressively delevering our balance sheet, which remains a high priority for us. Our first target in delevering is the highest cost tranche in our capital structure, the $500 million of 9.75% notes. These notes can't be prepaid today and will first become callable on April 15, 2027. The bonds will carry a redemption premium of [ 4.78% ] over par. And while this redemption premium will cost us $25 million in cash, it will save us nearly $50 million in annual interest cost. So it's a good use of cash. So April 15 of next year is circled on our calendar and assuming cash flows materialize as we expect, we'll be taking out the full tranche of the 9.75% notes in Q2 of next year. In the meantime, we'll build cash on the balance sheet while earning mid-3% returns in short-term treasuries.

To wrap up my comments, in early April, Moody's and S&P initiated credit ratings on Compass. As prior to this point, Compass had no debt and therefore, had no credit ratings. Their respective reviews included a month ago, and S&P initiated a B+ corporate rating and Moody's initiated a B2 corporate rating and each issued positive outlooks on Compass Inc, which were upgrades from where Anywhere was rated on a stand-alone basis before the transaction. Additionally, ratings on the outstanding bonds were each upgraded between 2 to 3 notches. We're pleased to see that 2 of the big 3 credit rating agencies have come out with positive outlooks on the cash flow generation capabilities of Compass and Anywhere on a combined basis.

Before I turn the call over to begin Q&A, we'll be attending the BTIG Conference on May 7 and the JPMorgan TMT Conference in Boston on May 18, and hope to see you there.

[Operator Instructions] Thank you, everyone. This is Soham. For the Q&A portion of the call, we're going to take questions that we received by e-mail in the text box. And apologies again for the technical difficulties.

So I guess the first question is from Jason Helfstein from Oppenheimer. How should we think about the timing of Anywhere's agents getting access to the Compass technology platform? And what do you expect in terms of adoption rate?

Thank you for the question. The Anywhere owned brokerage will get the technology starting next month and then more in each month following with everybody getting it by the first week of September, if not earlier. everyone in the owned operations. The franchise affiliate business will start getting it in January, and it will be released over the following 2 months as well, so in advance of the spring market.

Great. The second one from Jason is, have you seen the uptick of 3-phase marketing since you settled with Zillow and launched the Redfin partnership?

Yes, we've seen an uptick in the 3-phase marketing. It's been modest as the -- you're in the middle of the spring market when usually it's more towards the third phase, but we've definitely seen an increase. Our coming soon went from, I think it was low 20s to mid-30s, and I expect it to be much higher in the months ahead. My expectation is that coming -- that 80% of our listings will go through the coming soon phase. Extension comes from where before the restrictive rules that were put in place, i.e., clear cooperation, we had 90% of our listings start off as coming soon.

Okay. Next one is from Dae Lee from JPMorgan. You've gone from managing one brand to multiple brands across own brokerage and franchise network. That's not larger than your brokerage by transaction volume. That's a step change in complexity. What's the tangible benefit of maintaining distinct brands and catering to fundamentally different needs of agents spanning different brands and models?

Yes. So I think part of your question is the answer. Our customers are agents, right? You said agents have different needs. And so we need to serve those needs. And one of the needs that people have is a desire to have a local culture, local traditions, local beliefs and a local unique brand. And so this allows -- being able to support different brands allows us to serve more agents in the markets that we're in. And again, if our customers are agents, the -- I don't think I've heard an agent say they want us to merge all the brands as an example. But I have heard agents say that they want us to maintain their brands and we've given them that commitment.

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

Okay. The second one from Dae Lee is how much incremental synergy opportunity remains beyond the $500 million?

There is -- yes. I'll just -- yes, I'll start and I'll pass it on. There is incremental opportunity, but I wouldn't expect another increase in any time in the near future.

Yes. I was going to follow up with the same thing. I mean to say, we moved very quickly in these first 100 days since closing the transaction. We wanted to make a big impact early on just for the clarity of the organization and moving forward. And so as we get into the next phase of the synergies, we're getting into the deeper operational type integrations. And so we've got the runway to complete the rest of that phase, which we've clearly derisked ourselves with the great progress we've made to date, but we would not expect to be raising that target anytime soon.

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

Just repeat on...

Okay. I'll repeat it again. So on the synergies target and the increase to $500 million, can management dive into the primary areas of cost savings presumably leases, headcount, tech and development, how should we think about the mix of those big buckets?

Yes. Look, the reality is nothing has changed in terms of the buckets. I mean those big buckets were there. The reality is what's changed is more time has elapsed. We've had more ability to get into the details. And just to kind of like recap it, when we first put out the $225 million, that was at the time of announcement back in September of last year before we had any opportunity to get into the details, right? We increased that again to $300 million when we started doing some pre-close planning work, gave us more confidence of increasing that. The buckets didn't change then either. We just had more confidence on the total. We increased it to $400 million in February after we had 7 weeks of actual progress working with the leadership team of Anywhere and Compass coming together.

And then after now having almost 4 months completed since we closed the transaction on January 9, it's just that much additional confidence. I mean I think the one thing I'd add that is why we're seeing such good progress here is that the management teams are really working very well together. In a typical situation, I think you often have the target comes in, makes a lot of changes, makes decisions. And this has been a much more collaborative approach with the Anywhere and Compass management teams working really closely with each other, and I think it's been a good contributor of the reason for our success. So it's not really any new buckets. It's just really kind of, I think, a team that's working really well together and making good progress towards the original goals.

Okay. Great. The next question is also from Ryan. On the recent announcement with you and TPG and the stake in Purge, firstly, can you give some context on the dynamics driving that transaction in terms of how that impacts the model? Does the ownership structure change? And just how does it sort of flow through the P&L?

Yes. Look, on the Pier transaction, it's really a positive transaction for us. [ Purge ] is one of the key franchises under the Sotheby's International Realty brand, and it's an important relationship for us. They grew quickly through M&A prior to when mortgage rates spiked. This is going back into the early 2000s or 2020s, I should say. And so they just got into a situation where they were overlevered, took out too much debt as a result of their expansion and just had trouble keeping up with the debt payment. So it's a good business. It's fundamentally a good business. They just got overlevered on debt. So this transaction allowed them to restructure their finances, clean up their balance sheet and that puts them on the right path going forward.

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

Great. Next one is from Alec Brondolo from Wells Fargo. Could you speak to the cost buckets that drove the increase in the 3-year synergy target from $400 million to $500 million? How much of the $130 million in anticipated P&L cost synergies will be realized in the first half of the year relative to the second half? And could you speak to the learnings of the Anywhere franchise business since the acquisition closed? How are you thinking about bringing technology and the best practices to the franchisees?

Maybe I can start with the synergies question. On the synergies, I think if you think about the $130 million that will be realized through the P&L in 2026, about $10 million of that was realized in the first quarter, just given timing of the actions in relation to Q1. So that by default puts the remaining $120 million coming forth in Qs 2, 3 and 4. If you just divide that up at $40 million even. I'd say you could assume a little less than that average of $40 million in Q2 and a little more of that average in Q4 as a lot of the synergies are action now. They'll continue to build in terms of realization through the quarters of the year, and we still have another $50 million to go. And so that's a good way to kind of frame how that's going to come through the P&L.

In terms of franchise, historically, our company served real estate professionals with agents and with the goal of making them more profitable, serving them as entrepreneurs, helping them realize their entrepreneurial potential. Now we have a second customer base as broker owners, which are the franchise affiliate businesses. And they have the exact same goals as the real estate agent, which is to become more profitable to realize their entrepreneurial potential. And we are giving them the same advantages that helped Compass grow. We're giving them as broker owners to help them grow.

Obviously, it's the technology platform as one example, but also our enterprise sales team that recruits agents, our M&A team. So we are giving them both on the revenue side and the cost side, the same advantage that Compass had at a brokerage level, we're giving that to the franchise broker owners so that they can be more profitable businesses.

Okay. Great. The second one from Alec is, how should we be thinking about the size of the Anywhere agent base that has a low amount of GCI? How long do you anticipate attrition from that group of users that will last?

Alec -- go ahead Rob, do you want to take that? Yes. I was going to say on the agent base, I mean, I think the important point that we wanted to call out there is that the attrition during the quarter, a significant percentage of that was really kind of underperforming or nonperforming agents. 56% of the agents we said had 0 production. Another 21% on top of that had production of $20,000 or less in the past 12 months. So these are reductions of numbers of agents but really having no impact on the business.

On the [ CPA ] side, over the last several years, we've kind of really operated under this methodology of kind of focusing on the strong producing agents and the underperforming agents, if they pay their fees and they are otherwise in good standing with amounts owed to the brokerage, we'll keep them on. But if they're not producing and they're not paying bills as due, we'll move them out of the business. And so anywhere is now operating in that same capacity in recent periods of time, and I think they're just catching up to us a little bit. So it's good to see we're both aligned on that strategy. It's the right strategy. So there might be a little bit of more choppiness over the near term on that, but it's not going to be -- the important thing is that we're just dropping numbers of agents. It's not dropping any production at all. and that's an ankle.

As we've always said before, there's been this limitation with principal agent counts and total agent counts that not all agents are created equal. Even when we used to report principal agents on the Compass side, one principal agent could be operating as an individual contributor, another principal agent could have a team of dozens of agents doing extremely high production. So there are limitations to that metric on a principal agent basis, and there's also limitations on that on a total agent basis. But the important thing we wanted to get out there is that the lost agent counts really had very, very limited production associated with them. So no meaningful impact on the business.

Great. All right. Next one is from Bernie at Needham. With the guidance, can you provide some color by revenue buckets? How should we expect seasonality throughout the year? Are there any differences than typical housing market seasonality?

Could you repeat the last part...

With the guidance, can you provide some color by the revenue buckets? How should we expect seasonality throughout the year? Is there any difference in housing -- difference in the housing market seasonality?

It's probably going to be pretty similar. A lot of the GTV coming through franchise will follow similar to the brokerage seasonality. And so I'd expect those 2 to be fairly aligned. And you can actually see, just as a reminder, we put on our on our website through the investor deck, we provided today the pro forma revenue for 2025 as though Anywhere and Compass were combined from the beginning of 2025. And you can see the breakout for the Brokerage Franchise and Integrated Services segment, separated for Compass, separated for Anywhere and then, of course, in total. So you have good visibility of what that looks like on a trailing 12-month basis to hopefully give you some sense as to what that trending could look like going forward.

Great. So the next one is from Bernie as well. 84,000 agent count was lower than expected. I don't think we had the exact apples-to-apples comparisons with the principal versus nonprincipal agent count last quarter. How did agents trend quarter-over-quarter? Can you talk to agent retention?

Yes. I mean, look, I think we touched on that a little bit already with -- we had good recruiting we talked about the attrition and the portion of that attrition that was really kind of related to nonproductive agents. I think the gap to consider is that what we're talking about here with the 84,000 agents we're talking about owned brokerage agents, right? There's obviously a lot of agents on the franchise side of the house that we're not including in that count. That leads to our total, the 330,000-ish total count across the company, which includes international franchise.

Great. Next one from Michael Ng at Goldman Sachs. What were the key sources of the upgraded synergy outlook given 3 quarters of upgraded synergy outlook? Could we expect further upside from here? And as a housekeeping item, how much in P&L synergies was realized in Q1? And do you expect -- and how much do you expect in Q2?

Yes. I think we covered that one as well in an earlier question. Again, about $10 million was realized in the first quarter, which is up a little bit from what we expected. And then that leaves you with about $120 million of P&L realization that will come through in the last 3 quarters of the year. I'd expect a little less than $40 million in Q2, about $40 million in Q3 and a little more than $40 million in Q4, if you want to kind of like phase that out that way.

Okay. And this should be the last few questions here. So from Michael Rindos at Benchmark. Please discuss what's going on with private listings in Chicago -- in the Chicago MLS, sharing it nationally and Washington State, Wisconsin enacting laws around private listings.

Yes. So -- there are 2 types of laws that states are coming with. One is a model, which I believe is Wisconsin and Connecticut, where they're saying that if a seller signs that they don't -- that they want to be private listing, they can be private listing. So that actually means that some states are saying sellers have the legal right to be private listing and to market however they want. That's one model. I guess -- and well, there's 3 models.

And the second model is one where the states aren't seeing anything. And the third model would be states like Washington state, where they're saying if a listing is marketed to some, it must be publicly marketed. But public marketing per -- at least per MLS is assigning the yard. And so what is public marketing? So is that saying if you're marketing to this private listing, you have to assign your yard? I'm not sure that's fine. Public marketing is put on social media. So is that state saying, if you have a private listing, you also on your social media, I think that would be fine.

Is public marketing saying that you have the days on market or price drop history or a bunch of information. public marketing could just be a picture of the house, the neighborhood and say, contact me, an agent, come to compass.com, we'll show you all these listings. And so in those states like Washington, they're saying if it's -- they're seeing coming soon are perfectly legal and if nothing else, that it meets the requirement because clearly, it's a public marketing. And even private exclusives on compass.com, they're available per request. And so private exclusive is just a name, like private label for closed, like private banking, like private equity, like private client group, it's just a name. Obviously, it can't be private because it's private -- you can't sell something to yourself, right?

So what private exclusives are on compass.com, they're available by request, and they are publicly marketed. A different way to say it, Zillow bans private exclusives because they're public marketing. And even Zillow believes they're publicly marketed. And so that's what's happening in the state level. For [ MRE ], what we are bringing [ MRE ] national as well as it will be just a select number of MLSs that are pro seller choice, where we're going to give them all of our listings, where we're going to subsidize our agents joining. And the reason why it's not that I want to create a national MLS to replace local muses. I want to create a national MLS to compete against local muses because if they have to compete, who are they competing for? For us, for agents, agents deserve more choices. Sellers are more choices, not less.

And so I think this is a very positive -- in the same way, look what we kicked off. Now you have Zillow previews and realtor previews and coming soon in all these sites. Didn't the seller deserve that 5 years ago and 10 years ago? Why didn't they have it? Shouldn't sellers have more choices, not less choices. And so what we are doing, we are pushing on the system so that sellers and agents have more choices, less mandates. The seller should be the only person that decides how they market their home in the context of the law. And fiduciary duty and statutory duty, which are a majority of states, say that the agent, the real estate agent has must -- and this is the law. MLS rules are just rules of a business, they're private entities. But the fiduciary duty of statutory duty says the agent must follow all lawfullawful instructions of their clients. If a seller wants to market without days on market and price drop history, however they want, that is a lawful instruction.

And MLS with restrictive rules should not be able to tell an agent that they cannot follow the law or if they don't follow the law, their sellers' instructions that they're going to be find $5,000 and can lose their access.

So I think I'll close with this. The dominant portal that likes spanning agents for marketing outside of their platform to scare them from marketing outside of their platform, their tagline is we are trying to bring into the light these listings, bringing transparency into the light. Well, here's what we're bringing to light. We're bringing to light that sellers and sellers have been losing the disinterested advice of their fiduciary because of MLS [indiscernible] and [ deowbearance ]. And we are bringing to the light that sellers should be -- with their agents should be able to decide how they market their home in any way they want, not third-party portals and third-party platforms like an MLS. The seller hired the agent and the broker firm the seller didn't hired MLS. The seller hired an agent. They didn't hire a portal.

And again, I think that history will look back and they'll see that sellers will have more choices because of the efforts that we've been pushing forward. And I'm thankful for all of the agents and employees that have advocated for seller choice over the last number of years.

Great. I think we will end it there. I know we went a little bit over. So again, thank you, everyone, for joining the call, and apologies for the technical difficulties. We are available tonight and over the next few days to answer any of the questions you may have. Thanks again for joining.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Compass Inc. 2025 Q4 Earnings Call.

[Operator Instructions]

I would now like to turn our call over to Soham Bhonsle, Head of Investor Relations. Please go ahead.

Thank you very much, operator, and good afternoon, everybody, and thank you for joining the Compass Fourth Quarter 2025 Earnings Call.

Joining us today will be Robert Reffkin, our Founder and CEO; and Scott Wahlers, our Chief Financial Officer.

In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter 2025 earnings release posted on our Investor Relations website. Any discussion regarding organic revenue, organic OpEx, organic transactions or organic GTV excludes activity from businesses we acquired since October 1, 2024.

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 first quarter of 2026, the recently closed Anywhere transaction and full year 2026 and beyond, including comments related to our expectations or operational achievements. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in the most recent annual report on Form 10-K filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, February 26, we expressly disclaim any obligation to update this information.

I will now turn the call over to Robert Reffkin. Robert?

Good afternoon, and thank you for joining us for our Fourth Quarter Conference Call. I am thrilled to speak with you today for the first time as CEO and Chairman of our newly combined company, which serves 340,000 real estate professionals and over 2,000 franchise broker owners across 120 countries and territories.

On today's call, I will be discussing 5 topics: first, I will provide a quick recap of our record Q4 and 2025 results; second, I'll discuss the historic Rocket Redfin partnership we just announced and how it significantly expands home seller choice and provide extraordinary value to our real estate professionals; third, I'll touch on our 4 sustainable financial advantages; four, an update on our integration and cost synergy efforts; and I'll end by touching on AI and why I believe it will become a structural tailwind for our business.

Starting with our Q4 results. In Q4, Compass delivered record fourth quarter revenue of $1.7 billion, delivered record fourth quarter adjusted EBITDA of $58 million. Both our revenue and adjusted EBITDA came in above the high end of our guide. We also delivered record fourth quarter adjusted EBITDA margin to deliver the best organic principal agent recruiting quarter for Q4 as we added 830 principal agents. The Compass platform hit a Q4 record of 20 average weekly sessions per agent. We grew our Q4 title and escrow revenue to record levels. We grew our mortgage JV earnings to record Q4 levels, and lastly, we grew our title and escrow attach in our legacy markets to all-time highs in Q4.

2025 was also a record year for Compass as we generated approximately $7 billion in revenue, surpassing our prior peak of $6.4 billion in 2021, when the housing market was approximately 50% above current levels of annualized home sales. We generated adjusted EBITDA of $293 million which was the highest ever in our history, and we produced operating cash flow of $217 million, which is also an all-time high for the company.

None of these results would have been possible without each and every member of the Compass team. I want to sincerely thank the entire team for their maniacal execution and unwavering hard work in what has been, by any objective measure, one of the toughest housing markets in a generation. Now let me touch on the unprecedented step we took today to ensure home seller choice through our partnership with Rocket Redfin. At Compass, we firmly believe that home sellers deserve the right to freely market their home when, where and how they want. We also believe that home sellers should also have the right to publicly market their listings without negative insights such as days on market and price drop history, amongst others.

Currently, however, the Zillow ban forces home sellers to give them their listings within 24 hours of publicly marketing a property even if they don't want to be on Zillow and places negative insights such as days on market and price drop history on all listings. This is just wrong. Home sellers should have the freedom to publicly market their home wherever and however they want, without the fear being banned off a platform.

The Rocky Redfin partnership we announced today stands up for home seller choice as it provides homeowners the flexibility in how they introduce their homes to the market and does not subject homeowners to any negative insights for listings off Zillow. There are 4 highly accretive pillars to this partnership. First, our agents will have the opportunity to receive 1.2 million high-intent lease from redfin.com and Rocket Mortgage, over the course of our 3-year strategic alliance. The partnership is also structured in a way to provide us with an increase in lead flow in each of the 3 years with potential upside in year 3, depending on conversion rates. Second, our unique inventory will be on redfin.com with all leads on these listings routed directly to our listing agents across all of our brands, including, but not limited to, @properties, Better Homes and Gardens Real Estate, CENTURY 21, Christie's International Real Estate, Coldwell Banker, Compass, Corcoran, ERA and Sotheby's International Realty.

This will supercharge the amount of unique inventory publicly marketed on redfin.com in our brokerage websites because more homeowners will choose to become sellers. For example, homeowners who are reluctant to put their homes for sale for fear negative insights or due to the time of the year before the fall market, in the winter, over the summer will now have access to 60 million monthly active users without the risk of days on market or price drop history. And their coming listings will be prioritized on Redfin. This will bring more inventory to the market because it eliminates the artificial barrier that home sellers have to list their home such as days on market price drop history.

Keep in mind, only 4 million people buy homes a year. So 60 million consumers reflects 15x the amount of buyers that are buying a year. Third, with this partnership, we are reclaiming the digital yard sign for our agents and our brokerage brands as our agents name and their brokerage affiliation will be prominently displayed on each unique listing. This benefit cannot be understated as it will significantly expand consumer awareness of our agents and our 9 brokerage brands. Fourth, we believe the partnership will make home buying more affordable by increasing the amount of inventory on the market that otherwise would not be there. And by offering homebuyers 1 percentage point off their mortgage rate in year 1 or up to 6,000 in lender-paid credits through Rocket Mortgage.

Now I would like to discuss the 4 sustainable financial advantages we are focused on going forward, including a higher-than-industry revenue per transaction, a leading cost to serve position in the industry, an expanding LTV per agent and lastly, lower customer acquisition costs. Starting with our higher-than-industry revenue per transaction. We expect to achieve this by becoming the leader in delivering value-added services for real estate professionals through platform-driven attach as opposed to just the traditional channels used by other brokerages. This includes current services such as title and escrow, mortgage, home insurance, home warranty and moving services, but also potential future services we may consider, such as solar, home security and other agent services such as property, marketing, business spend, digital ads, property videos, 3D renderings, real estate, signed production, open house brochures, photography and more.

With an incremental TAM of more than $150 billion from these value-added services, Compass' potential revenue per transaction could be multiples above the industry average, creating a sustainable financial advantage relative to our competitors. Our second sustainable financial advantage will be to have the lowest cost of serve position in the industry. Since 2021, we have already reduced our cost to serve per transaction at Compass by over 30%, driven by platform improvements, process optimization, offshoring and AI. However, with anywhere, we see significant opportunity to lower our cost to serve further as we, one, build a best-in-class centralized services operation that will be the most efficient in the industry.

Two, offshore more back-end operations, and three, leverage AI to automate workflows and expand self-service tools on the platform. As early proof of how AI can help lower our combined cost to serve in the 5 short months since we rolled out an enterprise-wide AI learning effort at Compass. The team has already identified potential annualized efficiencies in the vicinity of $20 million, 2% of our Compass OpEx, which should allow us to limit OpEx growth as the business grows. Anywhere, approximately 2/3 of all documents in their brokerage business are already processed through AI-driven automation. Anywhere is AI-based document assignment engine already operates at 89% accuracy, and we'll continue to learn from the largest transaction data set in the industry. Furthermore, anywhere is also extending their capabilities through Agentic AI, including automation of wire claims to accelerate resolution and help agents get paid faster, which lowers cost, but also improves the agent experience.

By doing all of the above in ultimately establishing the lowest cost to serve position in the industry, we believe we will be able to drive better brokerage incremental margins than in the past, which should serve us well, particularly as industry volumes begin to normalize. Our third sustainable financial advantage will be our expanding LTV per agent as we bring more than 340,000 of our real estate professionals onto one connected platform. By connecting our franchise broker owners and real estate professionals through one seamless platform we will scale our best-in-class listing tools, coaching innovative marketing programs and AI capabilities to help grow their business and help them make more money by better serving their clients. As we scale our offerings in a tech-forward manner, we believe we'll be able to drive better agent and franchise retention, higher agent infringes productivity, higher attach on value-added services improved agent outcomes and lower recruiting costs.

Our fourth sustainable financial advantage will be our declining cost of customer acquisition as we execute on our strategy to become the #1 destination for buyers to find real estate professionals and homes for sale. As awareness around organic inventory grows via the Rocket Redfin partnership, we believe more and more homebuyers will seek out our agents listings and our agents for their advice. This will lower our customer acquisition cost as our share of voice in the market increases and should provide our agents with incremental business opportunities.

So bringing it all together, by combining our 4 sustainable financial advantages with what will continue to be a maniacal focus on OpEx and cost synergies, we believe we will build a more durable business model where adjusted EBITDA grows faster than revenue growth in the future. Now let me provide an update on our integration efforts and cost synergy targets. First, on integration. I want to start by saying how pleased I am by how well both our management teams are working together. Since close, we've made great progress by deploying best practices and integration, including establishing a transformation office that will be a single control tower to ensure we are achieving our targets, setting a clear road map to create a more efficient organization across each of our business units. And quickly creating clarity around the organization spans and layers.

Additionally, in the 6.5 weeks since closing the transaction, I've had the opportunity to spend time with countless employees, franchise broker owners, real estate professionals across all of Anywhere 6 brands in many, many markets. Two themes have emerged my conversations. First, there is broad-based excitement to be a part of the transformation our companies are going through. And second, the agents and broker owners are really excited to get access to the technology platform. This excitement is bearing itself out in the numbers as well as anywhere as GCI retention rate in its top 2 quartile of agents, representing 91% of Anywhere's own brokerage GCI over the trailing 12-month period, hit the highest level ever recorded in the month of January.

Now shifting over to our cost synergies. On our Q3 earnings call back in November, we stated a target of realizing $150 million in synergies in the first year and $300 million in net cost synergies over 3 years. I'm pleased to say that since close, just the 6.5 weeks since close, we have actioned approximately $175 million in cost synergies. Based on the pace at which the team is moving as well as their ability to collaborate and share data, I am making a CEO commitment to action $250 million of cost synergies in the first year.

Additionally, as we spent more time working together as a collective team, we have increased confidence in our cost synergy opportunity. As such, I'm now making a CEO commitment to action $400 million in net cost synergies over 3 years. I look forward to updating you on our progress against our improved goals in the coming quarters.

Now I want to end by talking about the 3 components of our business, that not only protect us from the threats of AI with strength in our business in the context of AI. The first is our proprietary data. The second is trust. I want to be clear Compass isn't in the business of brokering information. It's in the business of brokering trust, and we believe trust will become even more valuable in a world with AI. And third, is the positive network effects driven by our 340,000 agents, which strengthens our platform.

Starting with proprietary data. We all know that AI is less of a threat for company's proprietary data. And we all know that the Zillow ban in approximately 40% of MLSs have restricted rules that force brokerages to make the provider data public. With the Rocket Redfin partnership and the efforts I expect Compass and Rocket to take, I am confident that MLSs and Zillow will no longer be in a position to force brokerages to make their proprietary data public. We currently already have more than 20,000 Make- Me-Sell listings that are only available at Compass. And with the Rocket Redfin partnership, we believe we will have a large number of coming soon in private crucial listings that will help grow our proprietary data.

Our second pillar is trust. Compass is not a traditional SaaS company. As we operate in the high trust advisory business. This distinction is significant. AI can replicate software features, but we don't believe it can replicate trusted human judgment in a highly emotional highs high-ticket transaction. Buying a home is not like any other purchase. It's one of the most significant and complicated transactions in people's lives. Buying a home is also much more than just searching for a property. A buyer seeks out a real estate professional because they know they will need the expertise and emotional support when negotiate in navigating the purchase of a home. They seek out a real estate professional, not just for information that is already available online, but for information on what's going to happen in the future, such as when the neighbor a few doors over might be ready for the next move because their kids just graduated college.

They seek out a professional to serve as the last line of defense during the walk-through at the closing. When the agent they are working with spots uneven floors or smells a wet basement, and helps them negotiate a seller credit. I've been reading the same AI reports as everyone else. The reports that are addressing what could happen in a potential future for real estate. The quick summary is my AI agent will sell my house to your AI agent. They will do the best job and no one else is needed in the transaction process.

In our 13 years with Compass, I've seen a lot of things. I remember in the beginning, the biggest pain points for people were fake rental listings. We started off in the rental space. You would see a listing, it was fake. You reach out to the agent, they will tell you they can show you the listing and then last minute, switch it up and say, listing is gone, but I have something else to show you. AI will do that on steroids. The writers in some of these reports assume that real estate is clean and fair and that everyone is playing nice. But in real life, you have thousands of fake AI agents generating fake listings to be. Hundreds of fake AI agents will give AI agents false lowball bids to try and get them to price drop. Fake AI as will list fake listings to try and change comp prices to get higher prices.

It's going to get wild. I think the value of Compass will skyrocket in that world. The only solution will be close networks of trust. People think Compass' core is brokering information. It's not. It's brokering trust. And in the very near future, unless you have a great agent that is real, transaction with agents that our network deems trustworthy, you will not be able to transact safely. The MLS data will be corrupted. Open sites will be filled with noise. Private listings and private networks with real people will be the only trusted source.

I just don't see a meaningful amount of buyers laying a bot, negotiate with the seller's agent. If that were the case, then you would already be seeing people buying homes based off this estimate. You see people selling homes based off this estimate, and they're not doing that. Real estate is highly personal and the value of a home isn't solely determined based on the generic data and facts about the home. The value is driven by buyers and sellers personal connection to the home. In this world, Compass' value proposition will strengthen as we build a highly trusted environment for buyers, sellers and agents to own and manage their data with uncompromising privacy.

And so for the same reason the Internet did not replace agents, but actually increased consumers' use of them over the past 20 years, we believe that the winners of the future will not be the companies that simply have AI, but those that use it to amplify trusted agents at scale like Compass. Our third and final pillar is positive network effects of our 340,000 real estate professionals that strengthens our platform. This network serves as a large continuous positive feedback loop for our platform. We believe as a genetic AI becomes more common, the platforms with the most domain experts actively training and interacting with the system will win.

Our agents are encoding real-world localized transactional logic into our platform every single day, creating a network effect that cannot be replicated by horizontal AI tools or legacy brokerages. At Compass we are using AI to eliminate friction, allowing our agents to focus on winning and closing clients and by fully integrating it into the agent workflow to maximize productivity by giving 340,000 real estate professionals countless hours back every week, allowing them to focus on winning listings, advising clients and closing deals, we are going to help them to close more transactions. When a valley encumbers through this lens, we believe we possess exact pillars to thrive in the world of Agentic AI.

With that, I will now hand it over to Scott.

Thanks, Robert. Q4 was a landmark quarter for Compass, setting all-time Q4 records, both financially and operationally. Revenue reached $1.7 billion, a 23% increase year-over-year, beating the high end of our guidance. Even on an organic basis, excluding M&A, we grew 11.3%. For the 19th consecutive quarter, every quarter since our IPO, Compass outperformed the market. including during Q4 with organic transactions of 5.6% versus the 1% market increase. Quarterly principal agent retention was a solid 96.8%. During the quarter, we added 830 principal agents, which was a fourth quarter record despite not being able to recruit any of the Anywhere agents due to the pending merger during Q4. Note that because Anywhere does not have the same agent methodology for principal agents, as Compass does, we do not intend to provide principal agent count starting in Q1, but we will continue to provide total agent counts.

Gross transaction value was $65.6 billion in the fourth quarter, an increase of 21.6% from a year ago, reflecting the 19.7% increase in total transactions, combined with an increase in average selling price of about 2%. The increase in our average selling price was closer to 5% on an organic basis. However, our acquisitions over the past year primarily operate in markets with lower average selling prices compared to our organic average selling price, which brings down the overall average.

Our commissions and other related expense as a percentage of revenue was 81.5% for the quarter compared to Q4 of last year at 82.5% or an improvement of over 100 basis points year-over-year, primarily driven by the impact of our January 2026 acquisition of Christie's International Real Estate, which has more favorable margins. Excluding M&A, our commissions and other related expense as a percentage of revenue improved 13 basis points for the quarter versus a year ago. This is due to a positive impact from higher margin new development and title revenue, partially offset by about 10 basis points attributable to the impact of GeoMx on the brokerage business. Our total non-GAAP operating expenses were $259 million in Q4, an increase from $224 million of OpEx in the year ago period, which was largely driven by M&A, including the OpEx we assumed from the January 2025 acquisition of Christie's International Real Estate and a number of other brokerage and title companies we acquired this year.

Excluding the impact of M&A, our non-GAAP OpEx was up only about 1%. I'd like to also point out that even on a full year basis, when excluding the additional OpEx assumed from M&A, our organic OpEx was only up 1% over 2024. We have demonstrated discipline to manage organic OpEx growth to within 3% to 4%, annually, and this past year, we greatly exceeded that goal. Adjusted EBITDA was $58.3 million, a strong improvement of 249% from adjusted EBITDA of $16.7 million a year ago. Adjusted EBITDA exceeded the high end of our original guidance range by 19% and also represented a record level of adjusted EBITDA for any fourth quarter period.

Adjusted EBITDA benefited from the higher revenue, better gross margins and a continued strong discipline on operating expenses. During the fourth quarter, we incurred $10.6 million of transaction expenses related to the announced merger with Anywhere, primarily legal fees and investment banking fees, which is shown in the anywhere merger transaction and integration expense line on the P&L. And is excluded from our non-GAAP operating expenses for purposes of calculating adjusted EBITDA. You'll see the expenses on this line jump in Q1 as we recognize the expenses in connection with the closing of the transaction and additional expenses throughout 2026 as we drive our integration efforts, which I'll touch on a little later.

Stock-based compensation expense in the quarter was $57.5 million, and in line with our guidance. As a reminder, during our Q1 results last year, we explained that our stock-based compensation levels would be elevated during the second, third and fourth quarters in 2025 due to a change in our methodology for granting employee equity and the accounting rules related to that change. These higher-priced awards will start to vest out at the end of Q1, and you'll begin to see a step-down beginning in Q2 of 2026 on the base Compass business. This decline is expected to be partially offset with some levels of incremental expense coming through from the anywhere employee base. We'll provide more details next quarter as we finalize this impact. But as you consider your models, you should expect that stock-based compensation on a consolidated basis will not exceed $50 million in any future quarter, beginning in Q2 of this year.

That said, as part of the change in control severance provisions for some of the former Anywhere executives, there will be an incremental onetime charge for stock-based compensation recorded in Q1. GAAP net loss was $42.6 million compared to GAAP net loss of $40.5 million a year ago. However, excluding the $10.6 million in deal-related expenses from the Anywhere transaction, GAAP net loss would have been $32 million and $8.5 million improvement compared to the year ago period.

Our basic weighted average share count for the fourth quarter was $572 million, which was in line with our prior guidance. As for cash, we generated $42.2 million in free cash flow in the fourth quarter which represented the eighth consecutive quarter of positive free cash flow generation. We ended the fourth quarter with $199 million of cash and cash equivalents on the balance sheet. On January 7, 2026, we completed the issuance of $1 billion in convertible notes at a highly attractive coupon of just 0.25 percentage point. which was used to pay off Anywhere's revolver of $500 million at the closing. Using the 0.25% coupon on the convertible debt to pay off Anywhere's revolver at higher interest rates, provided for immediate annualized cash interest savings of $25 million.

The convertible debt offering has a conversion price of $15.98 per share and was structured with a cap call derivative instrument to protect shareholders from dilution up to a conversion price of $23.68 per share. After considering the cost of the cap call and the related issuance costs, the net proceeds received on the fund raise were $880 million. We have moved aggressively on synergies. In just 7 weeks, we have already actioned $175 million of our cost synergy target. The heavy lifting of headcount and vendor consolidation is already underway. Some of the remaining synergies will involve deeper operational integration, which naturally takes longer to execute. However, the progress to date in such a short period of time following the close of the transaction, certainly derisks our ability to attain our full cost synergy goals and provides early proof points on what we can deliver together as a combined company.

It is important to distinguish between actions taken and the timing of the realization of these actions in the financial statements and where the benefit will be realized in the financial statements. On the timing point, some of these actions taken to date had an immediate effect, such as day 1 personnel reductions. Other actions have terms ranging over the next 3, 6 or 9 months as the case of certain personnel reductions with associated retention periods or vendor contracts with varying end dates and some new operating leases that we entered into to consolidate space or move to smaller square footage don't take effect until the fourth quarter of this year or early 2027.

Additionally, because these actions were completed at various points throughout the first quarter, including this week, there will only be a modest benefit to Q1. To help with your models, on the book ends, you could plan for $5 million of realization in Q1 of 2026 and $44 million of realization in Q4 of 2026 and with some level of quarterly increases between those 2 data points. The $44 million to be realized in Q4 of 2026 represents 25% of the $175 million already actioned.

In the aggregate, this would result in about $100 million realized in 2026. These cost synergies will be realized either as reduced operating expenses in the P&L or reduced capitalization to the balance sheet. In either case, they will benefit free cash flow. Historically, Anywhere has capitalized a large amount of technology labor to its balance sheet, approximately $80 million in 2025. And as part of our cost synergy work, a significant portion of the projects that have been subject to capitalization in the past will be cut as we ship the technology focus to the Compass platform. Therefore, the roughly $100 million in synergies to be realized in 2026 that I just referenced, I'd assume slightly more than half will be reflected as reduced CapEx in 2026, and the remaining will be reflected as reduced OpEx in 2026.

Since our cost synergies were just actioned in the last 6.5 weeks, these are still directional estimates, but next quarter, I'll be able to provide you a better distribution of how the synergies will be reflected in our financials. As a last point on this topic, note that there will be cost to achieve these action synergies during Q1 and in future quarters, which will include in the merger transaction and integration line in the P&L, which will be excluded from adjusted EBITDA, but will impact cash flow.

For modeling purposes as a placeholder, you could assume up to 50% of action synergies for an estimate of the costs to achieve. Turning to financial guidance for Q1, which now includes the impact of the Anywhere transaction. For the first quarter of 2026, we expect consolidated revenue, including the revenue from the Anywhere transaction, in the range of $2.55 billion to $2.75 billion. While Q1 is the seasonally lightest quarter, we've observed softness in specific markets in January and particularly February due to the extreme winter weather and record snowfall across most of the country. Per NAR, January existing home sales in the U.S. of 3.9 million units were down 4.4% from last January with winter storm Fern being a call out in their release as many closings were delayed.

This is also supported by MBA's data point that mortgage purchase applications fell 14% in the final week of January and the first week of February, as much of the country was snowed in. Furthermore, Q1 is our toughest year-over-year comparison in 2026 as we grew total revenue by 29% and organic revenue grew by 15% in Q1 of last year. To be clear, we believe these are short-term weather-driven timing issues. The structural health of the housing market remains sound with Morgan's rates at 3-year lows, stable financial markets, and positive year-over-year inventory growth, we are optimistic heading into the spring selling season. For Q1 revenue guidance, keep in mind that while the revenue from the Anywhere transaction is included in Q1, the first 8 days of the quarter are excluded as we closed the transaction on January 9.

We expect consolidated adjusted EBITDA to be in the range of $15 million to $35 million. Since Q1 is the first quarter that will include any where's results, I'll provide some color on the contributions to the adjusted EBITDA line. However, we're quickly integrating this transaction. So going forward, we won't be providing guidance or actual results on a separate company basis. Breaking down the consolidated adjusted EBITDA guide for Q1, essentially all of the contribution is expected to come from Compass, whereas the contribution to the adjusted EBITDA guidance in Q1 from the Anywhere entities is negative.

If you further unpack the Anywhere portion of the adjusted EBITDA guide, there are a few items that you should take into consideration. First, consistent with Anywhere's public comments on its Q3 2025 earnings, Anywhere saw an elevated level of expense related to its employees' long-term incentive plan, or LTIP. Anywhere's LTIP is comprised of cash-settled RSUs which require mark-to-market accounting through its P&L. The run have been Anywhere stock price, especially at the time of the September 22 announcement of the transaction, drove higher operating expenses in its Q3 period. anymore continued stock appreciation through the January 9, 2026 closing date will also drive higher OpEx from the LTIP in Q1 as these awards continue to vest in future periods.

Second, anywhere disclosed during its Q3 earnings release that it experienced a significant spike in health care benefit costs in Q3 and that higher level of expense continued through Q4 and is expected to be the new baseline in 2026. Third, as a result of the purchase accounting for the Anywhere transaction, we're required to reset the straight-line rent calculations of the Anywhere office leases for GAAP accounting purposes over the remaining lease periods following January 9 which has the effect of increasing the amount of GAAP rent expense will recognize, post acquisition by about $4 million to $5 million per quarter going forward or $16 million to $20 million on the full year.

While this doesn't change the cash commitments of the office leases, it's a normal purchase accounting adjustment that increases GAAP rent expense. When you add up the expenses for these 3 items, the LTIP, the health care costs and the GAAP rent item compared to the Q1 period of last year, it amounts to an incremental expense in the range of $15 million to $20 million in the first quarter guide for the Anywhere component or $17.5 million at the midpoint. So adjusting for these items, our adjusted EBITDA guidance for Q1 would have been $32.5 million to $47.5 million.

We expect our weighted average share count for the first quarter to be between 720 million to 730 million shares. This includes the impact of the 167 million shares that we issued in January for the Anywhere transaction. For OpEx, while we are not providing a specific range for the full year at this time as we're completing the purchase accounting process, to provide some direction for your models, be sort of considering your baseline the standard inflation assumption we use of 3% to 4% on both the historical Compass and Anywhere OpEx, an incremental $20 million of annualized OpEx from the wraparound effect of midyear 2025 M&A and also the $16 million to $20 million increase that I referenced earlier in GAAP operating lease expenses as a result of the purchase accounting reset.

Of course, these items will be offset by the net cost synergies that we realized in year. We'll provide additional updates on OpEx next quarter after we finalize our purchase accounting for the transaction. Finally, A few thoughts on cash balances and debt levels. As you think about cash levels, note that Compass ended the year with $199 million of cash and as a frame of reference, Anywhere's cash as of year-end was $139 million.

Additionally, January cash activity reflects $880 million of net proceeds from the convertible debt issuance, partially offset by $500 million used to repay Anywhere's revolver and approximately $175 million of day 1 transaction cash outflows. Note that transaction costs and the cash used for cost to achieve will run through the operating cash flow line. Additionally, payments for Anywhere's annual employee bonus and LTIP programs are scheduled for payout in the first quarter and will also come through the operating cash flow line. As a result, we will report materially negative free cash flow in Q1.

We will return to free cash flow positive in future quarters, excluding the impact of any onetime items for the transaction and the cost to achieve our cost synergies. And finally, regarding debt levels. We now have long-term debt of $3.15 billion, which includes the $1 billion of newly issued convertible debt plus $2.15 billion of Anywhere's 4 tranches of notes that we assumed as part of the closing of the transaction. We don't expect to prepay any of the debt in advance of at least April of 2027 due to the nature of the call provisions on the 2 tranches of debt with the highest interest rates. For clarity, when I refer to the $3.15 billion of debt, I'm specifically excluding the securitization facilities for Anywhere's Cartus business and Compass' Concierge activity, as these securitization facilities are more operational in nature. Also as a reminder, in November 2025, we replaced our revolving credit facility with a new facility that originally had a capacity of $250 million.

That capacity automatically increased to $0.5 billion at the time of the closing of the Anywhere transaction in January and remains fully undrawn at this time. I would now like to turn the call over to the operator to begin Q&A.

[Operator Instructions]

Your first question comes from the line of Dae Lee with JPMorgan. Your question comes from Jason Helfstein with Oppenheimer.

Thanks for all the disclosure. Definitely take us some time on packs, but appreciate all of it. So when we have talked to folks who've been kind of bearish on your exclusive strategy, the pushback has been well is Zillow can get all of the other brokerages to work with them exclusively doesn't that like tilt the scale, and clearly, you getting -- it seems like Redfin to partner with you, that would kind of now move that point.

So maybe elaborate on, I guess, is there anything that you see now that could be an impediment to kind of the 3-phase marketing strategy working, now that you're partnering with Redfin. And then I guess, just how should we think about the economics for Redfin as part of this transaction. Is there anything you can share? Not transaction, but agreement.

Absolutely. So on your first question, things that can get in the way of the exclusive strategy. Look, the exclusive strategy, as you know very well, is just homeowner choice. So if you're asking -- well, things get in the way of homeowner choice or can they permanently get in the way of home and choice. I don't think so. And the -- in choice versus control, homeowner choice first versus platform control, homeowner choice will win because it's the seller's home. It's not a platform's home the seller's home. And so what we're doing is we're competing on giving as many options as possible to the seller. So they can market their home when, where and how they feel.

Since the last launch, we launched undisclosed address. As you know, the portal ban, bans the listing address on and won't put it on that portal's site if it markets outside of the portal for more than 24 hours. So our agents came to us, and they said, hey, why don't you let me undisclose address? Because if they don't know -- if that portal doesn't know the address, they can't ban it. And so that's just one of many, many, many, things that are coming through the pipeline, where we will just continue to give sellers more choice. And no seller wants less choices. They want more choices.

The feedback on this isn't just great for not have being banned by the dominant portal in the industry, it's also great because it allows sellers the privacy when they want to get public exposure but without the risk. And there are people that want public exposure, let's say, you're getting divorced you don't want your kids to know and you're moving and you want to publicly market home, but you don't want to dress there. So there's so many different reasons that this provides -- that more choices provide value.

In terms of the economics, I tell you this way. I've already had through this call, maybe it looks like over 5 agents reach out to me asking if they can talk about coming to Compass because of the leads. We have 1.2 million Rocket Morgan Redfin leads that will come to our agents as part of this, all the agents in our network of brands that makes it something that agents want to stay for, value for want to come for, your broker owners, your franchise affiliates and makes them see value and wants to common stay and and continue their franchise agreements.

In addition to those leads, it gives our -- we have -- this is an exclusive partnership. So our listing agents will be able to go to you, the seller and say, Jason, you have a very special home. But you say you want $3 million for it. I think it's probably worth $2.7 billion. If you list with anyone else and you're wrong, you're going to have a price drop that's going to hurt the value of your home. You may have extended days on market. But we have a partnership with Redfin, where I can publicly market your listing to 60 million buyers. No days on market, no negative insights. This changes everything. This is historic. This will change the way people sell and buy homes because -- and it will give all of our agents and our network of brands, a huge advantage when they're pitching or in the living room with the seller trying to get the business.

And so I think we'll be -- the number of listings will grow as a result, bringing new inventory to this company and to the market. Then you have the buyer increase going directly to the listing agents. For all of these, which is a huge value add to -- this is a huge value add for the agents. And again, lastly, the listings will be prioritized on Redfin. So this is something that shows the listing agents that we are fighting for them to have more choices. We were finding for them and their sellers to have more options. And while others are banning and finding them for not giving up their content to them, we're advocating for them.

And so this is a moment where we are fighting for agents to be able to not be banned and fined by dominant platforms and be able to market and meet their fiduciary duty to their sellers. In terms of the financial, we're not sharing that at this time. We probably will in one of the upcoming quarters. But you can come and do your math and what you think the 1.2 million leads would equal.

Your next question comes from the line of Dae Lee with JPMorgan.. .

First one on that topic. So I agree that real estate is personal and emotional. But as we think about consumers getting more transparency and self-source tools, like how do you think about helping your agents communicate their value proposition of that personal and emotional element. And do you feel like you can give them a differentiated AI level value that can convince consumers to pay those rates then keep the per-transaction economics resilient?

And then secondly, maybe for Scott, for the combined entity, how should we think about the commission as a percent of revenue on the blended basis in 2026 and for -- on a normalized basis, what kind of free cash flow conversion should we expect?

First on AI and value, look I'd say a couple of things. Technology -- the Internet would have -- a lot of the things that we were seeing now would have happened, they have said for the last 20 years about the Internet. And over the last 20 years, people are using barges more than they were 20 years ago. Just go look at a year after year after year. It's higher than it's ever been. Now why is that? I think it goes a little bit to the theme I was putting -- I was saying on the earlier on the call, which is the Internet led to a bunch of fake accounts, fake listings, fake postings and a lot of garbage. We think about fake news. .

News was a lot more credible before than today. And now today, for me, I go to Bloomberg, I can trust it. So trust in the era of more technology, more AI, you're just going to have less trust and more fake stuff in our industry with AI, it won't just be fake accounts, fake listing, fake take offers. We fake documentation, fake reviews, fake negotiations, fake identities, fake videos. And it's really going to be all over the place. And that's where agents come in. they shift -- they deal with all the noise and they make sure that what you see is real and what you see is accurate and that your time is well valued and for a transaction that is literally the most expensive transaction you're going to make, whether you buy or sell to pay for certainty, certainty has a price, right?

And confidence has a price. Emotional emotional confidence to know that you're you're not going to be taking advantage of because you have very advocate in front of you, but there's a price for that. And I think that price will -- I'm very confident that people continue to pay for the value of the real estate professional. I call it AI for AI, not -- well, artificial intelligence to empower agent intelligence. We have AI throughout our platform. And we're going to -- and these -- the current environment will let us build faster, build more, build cheaper and to integrate AI in more exciting ways in the future than we have in the past.

So this is only going to, I think, help. Real estate isn't a transaction. It's a process. Technology can eliminate an event, a transaction, but not a process. You got to need to find the person and build a relationship, let's call a seller, you get to meet them in person. You have to explain why work with me, why work with my firm, what can I provide what tools I have or programs I have you're going to stage it, you're going to do deep cleaning, cosmetic repair, flooring, roofing, AI can't do that. You're going to schedule appointments, you're going to take photos. You are going to decide which photo is the best photo and yes, you're going to use AI to decide which photo is the best photo, but your judgment is going to be on top of it and judgment will be more valuable than before because of all the noise in the system.

Yes. Dae, I'll take your question on the gross margin. Obviously, we don't have a gross margin line on the P&L, but we talk about gross margin in a shorthand way to recognize the remaining difference after subtracting commissions from revenue. So on that basis, on a consolidated level, you can absolutely expect gross margin to go up in the future. as a result of the franchise business and the title business coming in from Anywhere that doesn't have any direct commission expense related to it. But even if you tease out just the brokerage business, margins will also go up as the margins for the anywhere owned brokerage or better than the gross margins on the Compass side.

One way to estimate get an estimate of what that could look like is if you look at the pro forma financials that were included in the 8-K we filed when we announced the transaction. You'll see some estimates there. I'd also note that going forward, we will be providing segment disclosures on the combined business and breaking out the owned brokerage from the franchise business. And then separately, the integrated services businesses, which will include title and the Cartus Relocation facility.

So you'll have a lot better information on that next quarter. It's a little bit too early for me to give you those exact numbers now as we're still bringing that information together. And then on the cash flow, look, 70% to 80% conversion from EBITDA to free cash flow is probably still a good rule of thumb. We've generally been a little bit on the high end of that range, and it might be more to the lower end of that range because the one thing you need to consider now going forward is interest expense, which will drive that shift.

The one call out though is, as I said in the prepared remarks, there's a lot of expenses that will be going out this quarter in particular Q1 and for the full year. directly related to this transaction. And so we're going to be negative free cash flow for the first quarter. And that will -- so you have to kind of look at it on a normalized basis after backing out the $175 million I talked about for transaction expenses and the cost to achieve the synergies. But on a go-forward basis, I think that 70% to 80% adjusted for interest is probably a reasonable flow-through effect.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

I really appreciate the question. Maybe Robert, one for you. I think that there's 2 ways that you could have taken the projects with strategy. Obviously, you settled on the strategy of kind of syndicating the prime exclusive to Redfin knocking [indiscernible] for , I think another direction you could have taken the strategy would have been to syndicate the time it closes on the compass.com exclusively and try to build traffic into the O&O real estate portal and then develop leaf over time that way. Can you maybe just help us understand why you went with kind of this deal over the one that was proposed.

Yes. Thanks for asking. Look, we -- in Compass International Holdings, we have 9 incredible sites, all that would connect to our -- that we're building to connect into our our listing platform that has everything from first contact to cash and close for our real estate professionals and their buyers and sellers, all the key buy-side flows, all the key work, key sell-side flows. And so yes, we're still building that and investing in that. And those sites, I expect to get more and more traffic over time. But during the life of this 3-year agreement, I think this is a great opportunity to partner with one of the best companies in our space. .

And I think the Rocket Redfin partner shows that another large participant in the industry agrees with our position on home seller choice as it relates to everything that's happening in the market, it will be nice to be -- to have a company of its size and scale, advocating for home seller choice alongside us. So we won't be the only one out -- there's other big brokerages, but it will be nice to have someone really with the resources of a Rocket behind us, advocating all the necessary and important ways.

So I think that's that can't be overstated because the primary barrier to all this, this time next year, we should have 200,000 listings that are on our sites that are publicly honor sites that are where anyone can search it that are not on other sites and to bring the consumer to us. And so that's -- it's just that simple. And in 2018, 90% of our listings, before Clear Cooperation, 90% of them started off as publicly searchable listings on our site as coming soons and for on average, 11 days is bringing the consumer to our site to search as any normal company would, if you weren't being restricted by a nongovernmental entities like NAR.

Within NAR came out with a rule the Clear Cooperation bit. So any public marketing of a listing after 24 hours, you must put an MLS. So we were no longer able to have the natural advantage of having these listings on our site. So now with Compass International Holdings these 9 incredible brands. We have over 700,000 listings, I believe, together. So it's 90% of that, that's over $0.5 million. Those listings should, without restrictions, if you just take what the world was like in 2018, if you eliminate the Clear Cooperation role, which is only being enforced in 40% of markets now, 60% of them are letting -- are giving you the choice in the MLSs.

And you eliminate the Zillow ban, which bans anyone that advertises office again, imagine if Google banned everyone that advertised off Google would the world say. But if we eliminate those 2 things, then we will be able to have hundreds of thousands of listings on our sites and that's the most important thing for having the independence of the consumer traffic and the demand of consumer traffic that we can give to both our sellers and our agents.

And so we try to do that well, and we continue to try and we'll advocate, but I don't see a scenario where the MLSs will continue to enforce these restricted rules with Redfin with Rocket on our site because it's -- one -- for 2 reasons. One, because we now have more resources. Two, because they're going to lose they're moral narrative. Their moral narrative. These listings are hidden. These are hitting listings and for transparency, fair housing, doubling -- these kind of double end deals all best. Go hold on, when we're giving our public coming soon listings to you, let's just take a market like CRM and L.A. or in Dallas Netris or in Seattle, North West and Alaska, let's to take all 3 of those markets. we're going to give our public listings to Rocket Redfin. Publicly searchable with 60 million people. And in each of those markets, what's going to happen is that MLS is going to send our agents of fine for up to $5,000. $5,000. And I'm going to look at that piece paper, can you help me? And I guess, we will help them.

But what are you going to tell the public then? Is that -- are you telling me that you're finding the agent $5,000 for marketing that listing publicly on -- searchable by 60 million people on Redfin these sites that you're doing that to protect for housing. Are you doing that to protect transparency? Are you doing that to ensure that we're not doubling deals? Or are you doing this not to protect transparency, but protect your own business model? -- right? So that's -- it's going to expose that. And so I just -- again, that with plus the resources. I think the era of MLSs finding agents for for marketing outside the MLS, enforcing agents to give their sellers the market an option of one single thing to uncompetitive marketing option of one size fit all markets of one single thing, the MLS versus the dozens of things that would have happened in the free market to help the seller market their own freely. I think that's over. And so then it really leaves the dominant portal. And I think we'll see in the weeks and months ahead, how we address that.

Your next question comes from the line of Ryan McKeveny with Zelman.

Congrats on the results. So on the strategic alliance with Rocket Redfin, I guess first question actually is partially about anywhere, but ties to the alliance. So what's the status of integration of private exclusives are coming soon from the anywhere side of things, whether company-owned or franchise into kind of the existing Compass platform. Is that already integrated? If not, what's the time line for that?

And then similarly, what should we think about the time line for either the coming soon that will show up on Redfin versus private exclusive showing up on Redfin and will that initially be kind of Compass, what I'll call Compass stand-alone? Or will that be across the across the Anywhere business as well?

So we're launching our technology to all the owned brokerages in the -- in our network of brands on -- in July. And so that's when they will be able to share all of the inventory and access it in all the different ways that Compass has been able to do before. We're launching for the franchise broker owners in January. We have ways to accelerate, and I believe we will be able to give an option towards the end of next month. for anyone to be able to create coming soon or private exclusives in the platform. And again, that will be ready the next month. And then we'll have the option to have it go on to Redfin. I would expect the vast majority, 95-plus percent of our coming [indiscernible] private exclusives to go on to Redfin. But that's -- it's up for the seller and the agent to do. because we believe in choice. But there really is no reason not to get that incremental exposure.

Got it. That makes sense. And I guess on the on the comments about embedding racket Mortgage into the Compass International Holdings platform. I guess what does this mean for like Guaranteed Rate Affinity origin point side of the business? Any thoughts or anything we should know about on that side of things?

Yes. The way I think about it is guaranteed rate is -- they have -- they're a partner or in-person partner. They're in our offices. While the -- the way I think about it is that guaranteed then Rock & Mortgage is our digital partner. So guaranteed rate, an incredible low local partner in the offices and relationships at the sales meetings versus the digital partner on our site. But ultimately, what we're doing is we're expanding mortgage options for home buyers with this partnership.

Your next question comes from the line of Benjamin Black with Deutsche Bank.

This is Jeff on for Ben. Maybe just as a quick follow-up on the Alliance and the option for home sellers after their coming soon goes on life. Are you looking to do that nationally across? Or are you going to be focusing on the 60% of like MLSs where they're already sort of okay with it? And -- or maybe just some color there on how -- if that will be more regional or what the options are for sellers.

Yes. Well, thank you for asking. No, I am incredibly excited in Northwest MLS with our dear friend, Justin Hagg, the CEO, to publicly give listings to Redfin where Redfin is headquartered. And again, when we get a fine, when our individual agents get to fine for doing what was in their clients' best interest at their client's request. We'll share that with Rocket. We will say Rocket, we wanted to -- we wanted to give you these listings that would help the seller, help the agent, help you rockethelpredfin.com and when those moments happen, I think we'll be able to respond accordingly.

And again, I just -- I don't think that these -- I believe, this is my personal view, I think this alliance is -- marks the end of the restrictions that MLSs have had on agents and sellers on how they market homes. Because when they're restricting the agent and home seller, they're going to be restricting Rocket.

Your next question comes from the line of Michael Ng with Goldman Sachs.

First, Robert, I was wondering if you could talk a little bit about the listing agent referral program and how that would play out in success? Does that translate into market share gains, who ends up ultimately kind of putting the referral fee, does that come out of the buy-side agents pocket? And does that show up in the commission rate?

And then second, as a follow-up on the Compass Rocket partnership that's great to see. Is the relationship exclusive? Or could other brokerages that want to pursue or a coming soon or private exclusive strategy also strike a similar partnership with Rocket?

I'll start with the second question. The relationship is exclusive. On the first question, the new listing agent leading referral program we launched, this is -- it gives agents the choice to get -- be the only person ever to get the buyer inquiry on their listing, which some agents want, but also gives the choice for them to have someone else get it. If they don't -- if they either aren't getting it enough time or if or if they're on vacation, the dream of the second version is something like this, you're a listing agent, you get it aside if you don't pick up the phone because in a certain amount of time, how much time 10 minutes, 5 minutes, 15 minutes, anywhere in that range, you can choose that it will go to either someone on your team, someone in the company, a preselected number of buyer as you like working with.

And you can choose a different time and a different group of people, depending on if you're on vacation, if it's late at night, if it's after 5:00 on Fridays, where you're working with your family at State night, we're trying to give as much flexibility as possible for people to say, when they want their inquiry and when they don't and how they would frame them who they would give it to you. And to honor those listing agents who do give it to you others that would there be a 10% referral fee given back to them by those buyer agents. And then there's -- Compass has the traditional referral fee as well.

Your next question comes from the line of Matt Bouley with Barclays.

You have Elizabeth Langan on for Matt today. You gave helpful color on the cost synergy side, but I was Wondering if you could touch specifically on the revenue synergy side, just generally how you're thinking about the potential for the combined company as a whole? And then have you had any details or comments around how you're thinking about the future of the title of the franchise business as well?

Yes. We're really kind of focused as you can tell from our comments and our trajectory on the cost synergies. We're focusing most heavily right now on the cost synergies, less so on the revenue. I think that will come over time. But like one item that I'd call out on the the revenue synergies that comes across on the title side is really the scale of having the 2 title entities together. So between what Compass does on title, what the Anywhere side does on title, we're in the $450 million to $500 million of title revenue here, it's quite large and upwards of about 40 different service areas throughout the country.

And so there's areas where Compass Brokerage had brokerage operations before, we didn't have any local title operations to attach title onto that brokerage transaction. now with the different service areas we're picking up through the anywhere transaction we do. And vice versa, there's areas where Anywhere has brokerage operations Compass has a title that can be used because that will effectively provide some lift on title. But that's one example of some of the opportunities out there. But at this point in time, we really kind of focused heads down on the cost synergies, which is going to give us a great lift to free cash flow generation and the ability for us to start to pay down that debt.

And with that, I will now turn the call back over to Compass' Founder and CEO, Robert Reffkin, to close this out. Robert?

Thank you, everyone, for joining our call today. I just want to end by thanking all of our employees, all of our agents for all their incredible hard work and together, we really did something special. We delivered the strongest fourth quarter in our history, the strongest year in our history, and I look forward to building upon our strong momentum in 2026 together with the Anywhere team. And with that, have a great rest of your day.

This concludes our call today. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Compass, Inc. 2025 Q3 Earnings Call. [Operator Instructions]

I will now hand the conference over to Soham Bhonsle, Head of Investor Relations. Soham, please go ahead.

Thank you very much, operator, and good morning, everybody, and thank you for joining the Compass Third Quarter 2025 Earnings Call. Joining us today will be Robert Reffkin, our Founder and CEO; and Scott Wahlers, our Chief Financial Officer.

In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2025 earnings release posted on our Investor Relations website. Any discussion regarding organic revenue, organic OpEx, organic transactions or organic GTV excludes any activity from businesses we acquired since July 1, 2024.

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 fourth quarter of 2025 and full year 2025, including comments related to our expected financial results, operating expenses and free cash flow, as well as our expectations for operational achievements. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements.

All information in this presentation is as of today's date, November 4. We expressly disclaim any obligation to update this information. In addition, as we announced in September, Compass has agreed to merge with Anywhere Real Estate. The transaction is pending customary regulatory and shareholder approval, and we expect to close in the second half of 2026. We intend to make limited comments related to the Anywhere transaction in our prepared remarks. However, given that we are currently in the regulatory process, please note that we will be unable to answer any questions or comment any further on the transaction beyond our prepared remarks.

I will now turn the call over to Robert Reffkin. Robert?

Thank you for joining us today for our third quarter conference call. In what remains a trough level housing market, I am pleased to share that the Compass team produced the strongest Q3 results in our history. In Q3, Compass delivered record third quarter market share, delivered record third quarter revenue, delivered record third quarter adjusted EBITDA, delivered record third quarter adjusted EBITDA margin, delivered record Q3 free cash flow. The Compass platform hit a Q3 record of 22 average weekly sessions per agent. And we grew our Q3 title and escrow revenue to record levels.

Furthermore, we achieved a few all-time records once again, including: delivering the best organic principal agent recruiting quarter in the company's history, including adding 851 principal agents; growing our title and escrow attach in our legacy markets to all-time highs; and lastly, growing our mortgage JV earnings to record levels.

Revenue in the third quarter increased by 23.6% year-over-year, and we achieved the high end of our revenue guide. Total transactions increased by 22% and organic transactions were up 7% year-over-year as compared to the overall market where transactions increased by 2%. So this means Compass' total transaction count growth outpaced the market's growth by close to 20 percentage points and Compass' organic transaction count growth outpaced the market's growth by 5 percentage points. For 18 consecutive quarters, spanning our entire history as a public company, Compass has outperformed the market on an organic basis. There has never been a quarter since we started measuring this metric where Compass hasn't grown faster than the market. And as I will touch on a little later, we believe we can continue to outgrow the market even once we close the Anywhere transaction.

In Q3 2025, we generated adjusted EBITDA of $93.6 million, an increase of 80% from the $52 million in the year ago quarter, and we exceeded the high end of our adjusted EBITDA guidance by 17%. Quarterly principal agent retention was a solid 97.3%. In the quarter, we also successfully added 851 gross principal agents organically to Compass, which is a new record. We are seeing more momentum at this point in the quarter compared to the same point in the last quarter. Given this increased momentum, we expect to add 800 gross principal agents organically in Q4, and we see the new normal as 700 to 800 gross adds going forward as the new range.

In the T&E business, excluding 2025 M&A, our attach rate continued to improve year-over-year and was once again at a record in Q3. The Christie's International Real Estate business also continues to grow with 4 new affiliates joining the network in the quarter and 6 affiliates in the pipeline. And as I will touch on a little later, I'm excited to share that the Christie's International Real Estate business is pacing better than our initial expectations, driven by outperformance in agent retention, outperformance in revenue synergies from T&E, outperformance in synergies from mortgage and outperformance in OpEx control.

Revenue less commissions and other related expenses as a percentage of revenue in the third quarter was 18.6%, which is approximately 73 basis points above the 17.8% reported in the year ago quarter. Non-GAAP OpEx, excluding the $7.5 million related to the Anywhere transaction, was $252 million in Q3, which was relatively flat quarter-over-quarter as we continue to focus on OpEx control as a company.

Last quarter, we shared that we expect to deliver an incremental $50 million to $75 million in adjusted EBITDA with at least $50 million of that adjusted EBITDA improvement realized in 2026. I'm excited to share that we remain on track to deliver against this goal.

Now, let me take a moment to touch on the transformational merger we announced with Anywhere Real Estate a few weeks ago. Since we made the announcement, our teams have been hard at work getting all the necessary regulatory forms in place, and we have now filed our HSR forms to start the regulatory approval process. We continue to be confident in our ability to get the deal approved as we firmly believe that this is a pro-competitive deal that will bring more choice and better products to home sellers, to homebuyers, to real estate professionals and to franchise owners.

As one of the largest shareholders in Compass, I believe this combination is highly compelling for all our shareholders. The positive reaction from agents inside and outside of Compass only reinforces my view that we are creating a premier platform in residential real estate that will make the home selling and home buying experience better for consumers and ensure that real estate professionals and franchise owners continue to thrive for decades to come.

A common question we fielded from investors since the announcement is whether we believe we can continue to grow organically post the merger. To answer this question, we believe we already have a blueprint in the Christie's International Real Estate transaction, which I will refer to as CIRE going forward. So what have we observed since closing the CIRE acquisition? First, on agent count and retention, since close, we've been able to increase the number of net new principal agents in the business. Total principal agents didn't decline post close, they increased. Second, in the 9 months since we closed the transaction, their title business has experienced a 1,000 basis point lift in attach rate as more of our agents' clients choose to work with their title business.

The Anywhere transaction will, one, add a T&E presence in 7 states where we currently have a brokerage presence but no T&E presence; and two, we'll increase our T&E market coverage in many of the markets we have a smaller T&E presence in that is limited in market coverage. Given this increase in T&E market coverage, we believe we will achieve a significant lift in attach in these new markets, as well as our existing markets.

Next, in mortgage, Compass and CIRE both had guaranteed rate mortgage JVs under separate brands. Post close, we improved the profitability of these businesses resulting from OpEx efficiencies and increased attach rates. Anywhere also has a guaranteed rate mortgage JV. So we expect the similar integration efficiencies and attach rate improvements. And lastly, in terms of cost synergies, we are on track to achieve our stated $30 million target by bringing the Compass OpEx improvement playbook to this transaction.

So, as you can see, what we've been able to demonstrate in the CIRE transaction is that we can, one, grow agent count; two, increase T&E attach; three, improve mortgage JV profitability; and four, achieve the synergies that we set out to achieve. In summary, we have proven an ability to drive both top and bottom line growth in CIRE post close and to do so organically. I expect Anywhere agents to also see the positives of coming together to get the best of both worlds. And while we recognize that the Anywhere transaction is clearly much bigger in size, we are confident that we can replicate the CRE playbook at Anywhere over time.

Before I move on from the Anywhere transaction, I want to address our synergy targets directly. When we first committed to aggressive cost reductions to manage our burn rate, a commitment I made very clearly to this community, we followed through. In 2022, I said we would bring OpEx down by $320 million. By the end of 2023, we reduced our OpEx by $550 million with over $600 million reduced by 2025. We didn't just meet our goal. We exceeded it. That track record is the foundation of the commitment I am making today.

Based on the analysis we completed at the time of the transaction, we articulated a net cost synergy target of $225 million plus; not $225 million, but $225 million plus. That was a conservative target, and we remain entirely confident in achieving it. However, as we have moved deeper into the integration process and worked with the merger integration experts, we have now retained a top 3 consulting firm. One consensus has emerged. We can do more. Therefore, I'm increasing our commitment. I am personally committing today that we will deliver more than $300 million in net cost synergies, representing 11% of combined annualized non-GAAP OpEx, and $150 million will be realized in the first year post close.

The more than $300 million in net cost synergies includes the same dissynergy assumption that we previously had. This is a CEO commitment, backed by the same discipline and focus that allowed us to reset our cost structure without compromising our core growth engine. My commitment is firm, more than $300 million in net cost synergies, including the same dissynergy assumption that we previously had. We will hold ourselves accountable to this new benchmark, and we will update you on our progress every quarter post close.

Now, let me provide an update on the major AI initiative that's underway at Compass. Our vision around AI is clear. AI will transform our business by: one, redefining agent productivity; two, driving greater efficiency across the organization; and three, enhancing the relationship our agents have with their clients. At Compass, we call it AI for AI, artificial intelligence to empower agent intelligence.

As we shared last quarter, we began testing Compass AI 2.0 with our real estate professionals. In Q3, we completed an alpha that included hundreds of real estate professionals who tested Compass AI on both mobile and desktop. Our real estate professionals are finding tremendous value in simply using their voice to ask the Compass platform to perform tasks such as creating client collections, creating [ client one ] dashboards, creating business tracker folders or adding and tagging a CRM contact.

What I've been particularly pleased to see is that some of our agents have already been testing it live with their clients during listing appointments, which is helping elevate them in the eyes of their clients. This is the power of agentic AI in action, which breaks down complex manual processes into actionable steps that the AI can handle autonomously. This ability to automate administrative work will ultimately allow our real estate professionals to focus on what matters most, which is serving their clients.

What has become increasingly clear to us as we've continued to test Compass AI 2.0 is that Compass is well positioned to harness agentic AI in the brokerage vertical. This advantage stems from having invested nearly $2 billion to date in our proprietary end-to-end agent productivity platform compared to our competitors that almost all rely on multiple third-party software platforms that do not allow them to connect the various parts of an agent's workflow. In contrast to our competitors, our deeply integrated platform feeds our AI, giving it a unique contextual understanding. We believe Compass AI 2.0 has the ability to supercharge the adoption of the Compass platform and unlock a new wave of productivity for our agents. We expect to launch Compass AI 2.0 to all agents before the next earnings call and look forward to updating you on the impact.

In addition to these efforts, I'm now hearing a significant shift in increased revenue coming from ChatGPT and similar generative AI chatbots. Specifically, I've had dozens of top real estate professionals tell me they're getting free business from today's conversational AI platforms as homebuyers are now asking models like ChatGPT for the best agents in their market. And here's a critical distinction. Unlike real estate portals that divert buyers to the highest paying agents, AI models like ChatGPT are sending buyers to agents that have verifiable real-world data, things like transaction history, unique listings and client reviews. This is a major tailwind for Compass because we are home to so many of the industry's highest performing real estate professionals that have a lot of this verifiable real-world data. Ultimately, we believe that as search in the residential real estate category evolves towards AI-based search, it will unlock a whole new era for agents at Compass.

This new era will be defined by real estate transaction experience, results and reputation that is validated and verified. It will raise the bar and ensure that performance is directly rewarded with leads from these AI models, which will enhance the revenue of top brokerages and top agents like ours. And while we are optimistic that AI will elevate our agents even further, artificial intelligence is not emotional intelligence. I believe nothing can replace the ability our agents have to make meaningful connections, build relationships and get clients to trust them. In this new era of AI, artificial intelligence, EQ, emotional intelligence wins.

Finally, we are using AI to drive cost containment from an OpEx perspective. We have launched a mandatory employee AI learning initiative across our organization, including but not limited to, engineering, transaction operations, legal and finance. The goal is to find better ways to work and become more efficient by leveraging AI to support routine tasks today and more complex tasks in the future. By embedding AI across all our workflows, we believe we can deliver: one, a lower cost to serve per transaction; two, limit the increase in our OpEx going forward; and three, deliver an even better experience for our real estate professionals.

With that, I will now hand it over to Scott.

Thanks, Robert. As Robert stated earlier, our results this quarter were the strongest results for a third quarter in Compass' history and set a series of new records, both financially and operationally. Our third quarter revenue was $1.85 billion, an increase of 23.6% from the year ago period and an all-time Q3 record for Compass. While M&A contributed to the year-over-year growth in revenue, even excluding M&A, revenue increased 11% on an organic basis.

Transactions for the quarter increased 21.5%, or 6.6% on an organic basis, which compares favorably to the overall market where transactions increased by 2%. This outperformance to the industry is also reflected in our market share, which was [ 5.6% ] in the quarter, an increase of 83 basis points from the year ago period. As a reminder, due to seasonality, our quarterly market share in each third quarter is lower than the sequentially prior second quarter. This is driven by our West Coast markets that are typically a greater contributor to our total revenue mix in each Q2 period compared to Q3.

Gross transaction value was $70.7 billion in the third quarter, an increase of 22.5% from a year ago, reflecting a 21.5% increase in total transactions, combined with an increase in average selling price of about 1%. The increase in our average selling price was closer to 5% on an organic basis. However, our acquisitions over the past year primarily operate in markets with lower average selling prices compared to our organic average selling price, which brings down the overall average.

Our commissions and other related expense as a percentage of revenue was 81.44% for the quarter, an improvement of 73 basis points compared to Q3 of last year at 82.17%, primarily driven by the impact of our January acquisition of Christie's International Real Estate, which has more favorable margins. Excluding M&A, our commissions and other related expense as a percentage of revenue was down 20 basis points for the quarter versus the prior year quarter. Consistent with what we've seen all year, our highest producing agents, who generally carry higher splits, continue to take more of the market share gains, which contributes to the decline in this metric. As we said previously, we're okay with this trade-off today as these agents are driving higher gross commission income, and therefore, we retain a higher aggregate dollar value of revenue after commissions, albeit at a slightly lower effective rate.

Our total non-GAAP operating expenses were $252 million in Q3, an increase from $215 million of OpEx in the year ago period, which was largely driven by M&A, including the OpEx we assumed from the January 2025 acquisition of Christie's International Real Estate, the Washington Fine Properties acquisition in February 2025 and a number of other smaller brokerage and title companies we acquired this year. Excluding the impact of M&A, our non-GAAP OpEx over the prior year is higher by about 3.5%, reflecting our strong discipline on minimizing growth in organic OpEx.

During the third quarter, we incurred $7.5 million of transaction expenses related to the announced merger with Anywhere, primarily legal fees and investment banking fees. We expect to continue to incur these types of expenses through the closing of the transaction, and we also expect to incur integration costs in future periods as we kicked off the planning process for bringing these 2 companies together. Given this dynamic, we've opened a new line item on our statement of operations this quarter titled Anywhere merger transaction and integration expenses to capture the $7.5 million incurred this quarter. And we've also excluded these costs from our non-GAAP operating expenses and excluded them from the calculation of adjusted EBITDA. We'll continue to present these types of costs on this new line item in future periods.

Adjusted EBITDA was $93.6 million, a strong improvement of 80% from adjusted EBITDA of $52 million a year ago, and this also represents a record level of adjusted EBITDA for any third quarter period and the second strongest level of adjusted EBITDA for any quarter. Adjusted EBITDA benefited from the higher revenue and the continued strong discipline on operating expenses. For this quarter, adjusted EBITDA also benefited from the most profitable quarter we've ever had for our mortgage joint venture, which is now combined with the mortgage JV we acquired through the Christie's International Real Estate acquisition earlier this year. As a reminder, the mortgage JV results are included in the line item of our P&L titled equity in income of unconsolidated entities, which was a positive $3 million this quarter.

Stock-based compensation expense in the quarter was $60 million and in line with our guidance. As a reminder, during our Q1 results call earlier this year, we explained that our stock-based compensation levels would be elevated during the second, third and fourth quarters of 2025 due to a change in our methodology for granting employee equity and the accounting rules related to that change. As a result, you should expect a similar level of SBC in the fourth quarter, followed by reductions in 2026 as the RSUs with the higher accounting values begin to vest out.

GAAP net loss was $4.6 million in Q3 compared to GAAP net loss of $1.7 million a year ago. However, excluding the $7.5 million in deal-related expenses from the Anywhere transaction, net income would have been positive $2.9 million.

As for cash, we generated $73.6 million in free cash flow in the third quarter, which was not only an improvement over the $32.8 million of free cash flow from Q3 2024, but also a new record level of quarterly free cash flow for any third quarter period. As a reminder, our Q2 '25 free cash flow would have been higher than Q3 had it not been for the second and final installment of the class action settlement we paid in Q2 for $29 million. Also as a reminder, due to the seasonality of our business, our Q2 and Q3 free cash flow levels are the highest, and you should expect lower levels of free cash flow over the next 2 quarters due to the seasonality.

As a result of the strong cash flow in the third quarter, we paid down the $50 million balance on the revolver, which we previously drew to fulfill the cash portion of the purchase price for Christie's International Real Estate. We ended the third quarter with no outstanding balance on our revolver and $170 million of cash and cash equivalents on our balance sheet. Our basic weighted average share count for the third quarter was 566 million, which was in line with our prior guidance.

Turning now to financial guidance for Q4. For Q4 of 2025, we expect revenue in the range of $1.59 billion to $1.69 billion and expect adjusted EBITDA to be in the range of $35 million to $49 million. We expect our weighted average share count for the third quarter to be between 571 million to 574 million shares.

As you can see from our Q3 results, we remain very focused on OpEx discipline. Last quarter, we reduced our full year OpEx guidance from the prior levels of $1.017 billion to $1.042 billion down to $1.01 billion to $1.02 billion, or a reduction of $14.5 million off the midpoint. However, we continue to pace favorably to this revised OpEx level, and therefore, we're further reducing our OpEx range for the full year 2025 to $1 billion to $1.005 billion. This updated full year estimate includes the assumption of about $7 million of assumed in-year OpEx from 4 smaller acquisitions we completed during the third quarter. After considering the assumed OpEx from Q3 M&A, this reduction in our full year OpEx estimate is an additional $19.5 million off the midpoints or an aggregate reduction of $34 million.

The continued favorability reflected in our OpEx guide is in part due to the actions we announced last quarter with the goal of improving our profitability incrementally by $50 million to $75 million. When we announced this initiative last quarter, we stated we expected to achieve at least $50 million of this profitability enhancement to our adjusted EBITDA by 2026, and I'm pleased to say that we continue to expect to achieve this goal based on our progress to date.

I would now like to turn the call over to the operator to begin Q&A.

[Operator Instructions] Your first question comes from the line of Ryan McKeveny with Zelman & Associates.

Scott, 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?

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.

Got it. Okay. That makes sense. And then, Robert, you mentioned on the Christie's business, I think you said there's been a 1,000 basis point uplift in attach. And my understanding is, they had pretty strong ancillaries to begin with. So can you drill into that a little bit? Is that just agents allocating more business to that? Or did you guys possibly incorporate One-Click Title into their markets? Anything to unpack that uplift a little would be helpful.

Absolutely. It comes from bringing our -- the Compass agents into the fold. And before they were -- that title business is only working with their own agents and selectively with ours. But when we bring our agents into the fold and let them know that the Christie's [ properties title ] business is part of the family and giving them access to the office integration and to our technology, helping them understand that when the title business succeeds, we all succeed. That buy-in and the time saved by bringing the same house is what drives it. And so, we are excited to see how bringing other title businesses from anywhere into our -- into markets where we already operate, how that can drive attach as well.

Your next question comes from the line of Bernard McTernan with Needham & Company.

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?

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.

Yes, makes a lot of sense. And you mentioned the increased synergy target for the Anywhere transaction going from at least $225 million to at least $300 million. Any particular area you can say those costs are coming from? Or is it just more widespread?

[ As so, I ] mentioned earlier on the call, we aren't commenting beyond the updates provided earlier, but I would like to just reiterate my overall excitement for the transaction for all the reasons that we laid out on the call today, but also the last call that we had.

Your next question comes from the line of Chris Kuntarich with UBS.

Robert, if I could just ask on the increase in the number of agents you're going to be adding, I think you're talking to 700 to 800 now. That was previously 600 to 700. Could you just talk about what's giving you the confidence, what you're kind of seeing there to increase that expectation?

What's giving us the confidence is just the pipeline and flow of interested real estate agents and walkovers. And like I mentioned on the call, we're seeing -- we have more momentum at this point in the quarter than we did in the same point in the quarter last -- in last quarter. And we see -- I think what -- I think the average real estate professional sees that things are changing, and they're looking for a company that is going to be proactive as the world changes and not reactive and a company that has the resources to build the right future for their profession. We've invested nearly $2 billion in our technology platform. We've advocated for listing agents and their clients for home seller choice in an environment where they are being fined up to $5,000 by MLSs owned -- controlled by NAR if -- whenever they don't give a listing to the MLS. And now, of course, they're being banned by certain portals if they don't give their listing to the portal.

So just -- it's such a -- it's an environment where I don't think the average real estate professional feels like they are being supported. I don't think the average real estate professional feels like they're being supported by NAR. I don't think the average real estate professional feels like they're being supported by their MLS. I don't think the average real estate professional feels like they're being supported by certain leading portals. And we -- the only reason Compass exists is to support the real estate agent. If we can't help real estate agents create more success, we have no reason to exist. And we have now a track record of 13 years of investing in their profession. And so, I think any investor or analyst that does market checks on how people are feeling about this moment and the potential of these 2 companies coming together, I think you'll be continuously pleasantly surprised.

Super helpful. And just one quick follow-up on the 30% market share in your top 30 markets. Could you just give us a quick update on how that strategy is progressing?

Yes. We -- at this time, we're not talking about that topic but definitely appreciate the question.

Your next question comes from the line of Jason Helfstein with Oppenheimer & Co.

I apologize if this was addressed. Just a bunch of companies this morning. So 2 questions though. What drove the 2-point acceleration in organic growth and what's implied in 4Q? And I mean, it sounds like it's simply just adding more agents, but if there's just other ways you want to unpack that? And then two, Robert, just any more color, what's the current adoption of 3-Phased Marketing? And any thoughts you have around kind of adoption levels, given that we saw momentum, it slowed? Has it picked back up?

Jason, it's Scott. I'll go into the organic growth. I mean really, the Q3 was really a story of September. I mean, we started out the quarter with a decent July and August, but really kind of hit a nice stride in September, and that's what led the beat really on the organic side. We don't break out the organic versus M&A growth for our future guidance. So we don't have that for Q4. But you can see -- you can kind of back into that based on what we've done through the first 3 quarters. The Christie's International Real Estate acquisition back in January is the primary driver for the inorganic growth all year, and it will be the same way in the fourth quarter.

And on 3-Phased Marketing, we -- just given where things are, we're not guiding into that topic. But I can share with you that -- I can share with you that clients continue to want more choices, not less choices. I don't know a seller who wants less choices of how to market. I don't know a seller who said, I only want my listing to go through one funnel. I don't know if a seller says, I don't want to have an option to not have days on market and price drop history on the listing. I don't know a seller who says, I don't want an option to test price privately before being on the open market where you have the risk of price drops. And I don't know an agent who went into a listing presentation, came back and said, you know what, because I offered the Compass 3-Phased Marketing Strategy: Phase 1, Private Exclusive; Phase 2, Coming Soon, testing price privately with a large network of top agents in the country and then going to the open market. No agents told me in the last quarter that, that reduced their chances of getting the listing. I've only heard that it's increased their chances. Again, sellers want more choices, not less choices.

Your next question comes from the line of Alec Brondolo with Wells Fargo.

Maybe on Christie's, could you describe the propensity of the affiliates or the franchisees to work with you on operational improvements? Is it harder to bring operational improvements to bear in that business model relative to kind of the O&O model that the business is more accustomed to?

We have really focused on the O&O. But given the pending transaction, we are focusing much more on the franchise business. And we are ensuring that the platform will be able to work for the entire franchise business day 1 and that we will be able to get the appropriate efficiencies, not just for the company, the franchisor, but also for the real estate professional, giving them the platform that will allow them to move to save time and to better serve their clients. And so, we -- yes, and so it's a key focus given the moment that we're in.

Got it. And maybe if I could just follow up on the question around ChatGPT and kind of agents in that modality, the ChatGPT having a greater propensity to kind of serve the customers to the agent as opposed to serve the customers to the portal. How do you think about syndicating more data into kind of the ChatGPT environment? A lot of data in this industry is behind the paywall. It's behind MLS. It's inside a broker's internal system. How do you think about over time, perhaps giving ChatGPT more access to Compass data, more access to Compass listings to perhaps accelerate the trend that you're describing?

Definitely, anything we do will be along -- will be consistent with what sellers and their listing agents want, right? I think it's not the MLS' data, although they -- as a monopoly, they force you to -- this agent to give it to them out of your $5,000 fines, and then they sell it to well over 100 different entities. And so, I think given that what Compass stands for is choice over platform control, anything we do will be consistent with what sellers and their listing agents want. I do think the home is personal property. I think people have property rights. And I think the theme of privacy, data privacy, personal privacy, I think that theme is becoming more valuable every year that goes by, not less. And so, if we can -- the greater value than selling data to ChatGPT that -- I think is in getting more listings by serving the clients' needs. Again, that said, if a listing agent and their clients would like any certain platform to have their listing for more exposure -- as you know, Homes.com is boosting every listing that's banned in support of the listing agent and the seller in support of choice. So there -- I think there will be opportunities like the one you're mentioning but just has to come from the listing agent and their seller. The last thing on ChatGPT, it's not just that the top agents are getting more referrals, but they're getting them for free. So you could spend 40% of your commission getting it from one -- an inexperienced agent can spend 40% of their commission to give it to a portal, or an experienced agent can get -- no referral fee and just get a free referral from ChatGPT. So it really is a paradigm shift, and I'm happy for all of the experienced agents that are benefiting this moment.

Your next question comes from the line of Matthew Bouley with Barclays.

I wanted to ask on Christie's, sticking with that topic. So some really helpful color around everything you've done since the deal, kind of growing agents and the synergies you've achieved and so forth. I wanted to ask on kind of the learnings on running the franchise business over the past 9 months. How do you think about what you can sort of leverage between your own brokerage and the franchises across perhaps leads or otherwise? And would refranchising ever be a consideration?

So what we've learned is, the platform can scale to franchises and provide tremendous benefits to franchises just like owned and operated. I mean, it's the same -- from a real estate agent perspective, it's the same thing. And you just have to make it multi-tenant, multi-brand. And so, that's exciting, and we're in the middle of that work now. What we've learned is that we can give the same advantages that Compass created for ourselves to the franchise business. And so, [ think of it ] like what are the things that we have had outsized success with at Compass that we would want to bring to others. So for example, our enterprise sales engine, right, our recruiting engine for Compass, we can give the same strategic growth manager process, sales process and give it to our franchise. So we're in the process of testing that with our current franchise affiliates, but we're going to give them more broadly afterwards. And so, all the things with transaction management, we have the ability to do -- to provide a lower cost to serve to process transactions, which is a combination of our technology processes and our people, as well as we've really leaned in offshore and outsourcing and bringing that -- those same learnings to the franchise owners, and really everything that we've had to do on the growth or on the cost side for ourselves in the context of these last 4 years with the market turning, giving those same advantages to our franchise owners. And I'm really, really excited. And I love real estate professionals. At the core of what I love, they are entrepreneurs. And these franchise owners are entrepreneurs at the highest level. And I'm excited to help them grow and to have them as my client.

Got it. No, that's really helpful color. Secondly, I wanted to ask on maybe smaller M&A and growth investment into new markets. So obviously, I heard you loud and clear kind of put the 30-30 aside. Are there additional markets around the country on your wish list where you would look to build scale if we're thinking out over the next several years? Kind of where would you focus that next leg of growth investment?

Given the pending merger, we're going to hit a pause on incremental tuck-in M&A as we shift our focus on executing the integration flawlessly. That is -- the main thing is [indiscernible] that is a flawless integration, day 1 execution for majority of execution tasks and the platform for everybody and driving some cash flow in the interim period and of course, afterwards for the obvious reason. The good news is that our walkover motion has been working incredibly well. And as a reminder, these are typically the agent teams that could range from 50-plus or even as small as 20 to 30. But there's a lot of -- if you're the average small brokerage or boutique that's 20 to 100, we're more interesting to them today than we were 2 years ago. And you have not just the platform, but you also have -- you have the brands as well, which is great.

Just to add one comment to Robert's point there. We've talked about 4 acquisitions, 3 small brokerages and 1 title company that we acquired in the third quarter. That was all kind of pre the Anywhere transaction announcement. So we've effectively hit the pause button now.

Your final question comes from the line of Michael Ng with Goldman Sachs.

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.

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.

Great. And if I could just have a quick follow-up. On those legal costs that are embedded in the fourth quarter guidance, are you expecting them to come off in 2026? Or do you think these things will be ongoing?

Yes. I think there's some that will be ongoing, a little bit fully tough to tell now. It kind of depends on how some of the actions occur in the fourth quarter. But for now, I would expect some of them will continue into 2026, and we'll obviously provide an update on that when we get closer to our next quarter when we put out some expectations for 2026 guidance.

There are no further questions at this time. I will now turn the call back to Robert for closing remarks.

Thank you, everyone, for joining our call today. I want to end by thanking all of our employees, all of our agents for their incredible hard work. Together, we delivered our best third quarter ever. And I look forward to building upon this momentum in 2026 together with the Anywhere team. Thank you, and have a great rest of your day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the call today to discuss Compass' definitive merger agreement to combine with Anywhere Real Estate. I will now turn the call over to Soham Bhonsle, Head of Investor Relations at Compass. Please go ahead.

Good morning, everyone. It's my pleasure to welcome you to today's call. Joining me today on the call will be Compass' Founder and CEO, Robert Reffkin; and our CFO, Scott Wahlers. A press release and 8-K filed with the SEC with information on today's announcement can be found on the Compass website. As part of our 8-K, we have also included an investor presentation that has additional information on the announcement and can be found under the Events and Presentation tab in the Investor Relations website. We will also make a replay of this conference call available to listeners in the Investor Relations section of our website.

The matters we will be discussing today include forward-looking statements and as such, are subject to risks and uncertainties. These risks and uncertainties include those risks discussed in the most recent reports on Form 10-Q and 10-K as well as those discussed in the press release announcing this transaction. These and other risks and uncertainties could cause actual results to differ materially from those contained in our forward-looking statements.

With that, let me hand it over to Compass CEO, Robert Reffkin. Robert?

Good morning, and thank you for joining us on such short notice to discuss our announcement to combine with Anywhere Real Estate. Today marks a monumental moment for Compass, our real estate professionals, home sellers and home buyers as we bring some of the best brands in our industry together. As many of you know, we started this company because I saw my mom, who was a single mother and a real estate agent struggle because her brokers didn't give her the tools and resources to succeed.

Together with Anywhere, we will now have the collective resources to help agents and broker owners better serve their clients, realize their entrepreneurial potential and achieve their professional dreams. As importantly, this moment is about home sellers and home buyers who will benefit from the combined years of investment in technology, client programs and client services that both of these organizations have made. This combination will be transformational as we expect it to, one, create a premier residential real estate platform with approximately 340,000 agents globally.

Two, accelerate our ancillary services opportunity and diversify our revenue streams in a capital-light manner with Anywhere's global franchise network; three, deliver significant free cash flow driven by meaningful OpEx synergies and the improved OpEx leverage these businesses have as the housing market makes its way back to mid-cycle levels; and four, create the end-to-end experience for home sellers and home buyers as we evolve Compass into a unified operating system for real estate professionals, broker owners and their clients. Let me briefly elaborate on these points.

First, by bringing together Anywhere's more than 300,000 global real estate professionals, encompasses roughly 40,000 real estate professionals on one platform, we believe we will deliver significant value for home sellers, home buyers and real estate professionals. More home sellers and home buyers will have the ability to benefit from the $1.8 billion in investment we've made in our proprietary end-to-end platform over the past decade.

For real estate professionals, they will have access to an industry-leading technology platform and programs that help them compete for clients and differentiate themselves in the market. With access to approximately 120 countries and territories globally, agents will have the ability to significantly expand their agent-to-agent client referral network. Second, by adding over $1 billion in revenue from ancillary services such as title, escrow and relocation services as well as franchise revenue, we will be able to diversify our revenue mix with higher margin and more recurring revenue streams. This diversification will make our free cash flow profile more resilient through market cycles.

Moreover, with Guaranteed Rate being the mortgage JV provider for both Compass and Anywhere, we expect a seamless integration in our mortgage offering. Third, by combining our operations, we believe we will be able to deliver significant cost synergies and realize OpEx leverage in the P&L, particularly as the housing market makes its way back to the mid-cycle. We expect this to allow us to drive meaningful free cash flow and begin to delever at closing.

Scott will walk through the details, but we are targeting a 1.5x leverage ratio by year-end 2028. I would like to be clear that paying down debt will be the top priority. As you will see us bring the same maniacal focus, we brought to lowering our OpEx from an annualized run rate of $1.5 billion to $850 million to now focus on lowering our leverage ratio. Now looking ahead, this combination unlocks our long-term vision for the future. It evolves Compass into a unified operating system for residential real estate and creates a better, simpler experience for home sellers, home buyers and the trusted real estate professionals who advise them.

For too long, real estate professionals who are entrepreneurs and broker owners who are small businesses have been forced to pass together more than a dozen different tools just to do their jobs. And the experience for home sellers and home buyers has been confusing and overly stressful. The most successful companies don't replace entrepreneurs and small businesses, they empower them. And that's what Compass is doing.

We are building an end-to-end technology platform that saves real estate professionals and broker owners time, helps them run their businesses more efficiently and most importantly, allows them to provide differentiated service to their clients at a level they could not achieve alone. Home selling and home buying will become more simplified, transparent and more seamless, delivered digitally and cemented by trust between the home seller and their agent fiduciary and the home buyer and their agent fiduciary. And here's the most exciting part. As more of the country's best real estate professionals and broker owners choose to run their business on the Compass platform and more home sellers and home buyers choose to work with our professionals, it creates more value for everyone.

More users, listings, transactions, market and data insights makes our platform and the agents using it more valuable. It makes our technology better, makes our AI tools more predictive and our matchmaking between home sellers and home buyers more effective, increasing the platform's value for every agent, home seller and home buyer. This accelerates our ability to deliver what home sellers and home buyers need from home search to home financing to title insurance and other home services, all in one place and all guided by their trusted real estate advisory. While on the topic of technology, I want to briefly touch on another opportunity this combination unlocks and that's accelerating our AI road map. As we have said before, to truly harness AI, you need an end-to-end platform, and we've built one with over $1.8 billion of investment over the past decade.

Once we have integrated the 340,000 real estate professionals on our platform, we will have the ability to further our goal to help agents save time, be more productive and for home sellers and home buyers to benefit from more insights and connectivity within the platform. And this isn't just about agent or consumer-facing technology. We see a clear opportunity to apply AI across our own core business functions as well, which will allow us to drive efficiencies and create long-term operating improvements for the combined company. Now let me provide a quick overview of Anywhere's businesses, starting with the owned brokerage business.

We believe Anywhere's owned brokerage business is complementary to Compass' brokerage footprint as their collection of brands cater to a broader range of price points in geographies where Compass is not present or has little presence. Their own brokerage brands consist of several well-known brands such as Coldwell Banker, Sotheby's International Real Estate and Corcoran.

Moving on to the franchise business. The franchise business consists of 6 brands, namely Better Homes and Gardens, CENTURY 21, Coldwell Banker, Corcoran, ERA and Sotheby's International Realty. The franchise network has a presence across all 50 states in the United States in approximately 120 countries and territories across the globe, which significantly increases the agent-to-agent client referral opportunities across both companies.

Importantly, for investors, Anywhere's franchise business tends to be recurring in nature. Anywhere's franchise business also currently generates an attractive EBITDA margin, which will be highly accretive to our P&L. Lastly, this transaction adds meaningfully to our ancillary services offering as it gives us an immediate presence in 30-plus service areas in title and escrow and mortgage operations in all of our key markets. As we've discussed on prior calls, we have a significant opportunity to increase our attach rate through the rollout in our platform of one-click title and escrow.

This transaction now just gives us a much larger title and escrow to go after. With this transaction, we are also adding a best-in-class relocation business in Cartus, which currently serves more than half of the Fortune 50 companies, increasing lead gen opportunities for Compass agents. And finally, as mentioned earlier and as Scott will detail, we are adding a national mortgage presence through the [Technical Difficulty] mortgage JV.

Before I hand it over to Scott, I want to make clear that I fully recognize the enormity of the integration task ahead of us. And therefore, in the months ahead, we'll be naming a Chief Integration Officer, and I look forward to sharing with you how these 2 companies will come together.

Now with that, let me hand it over to Scott.

Thanks, Robert. I'd like to echo Robert's excitement of this transaction, and I'm thrilled for the opportunity of bringing these 2 great companies together.

Let me first recap the details of the transaction. Each share of Anywhere common stock will be exchanged for 1.436 shares of Compass Class A common stock, which represents a value of $13.01 per Anywhere common share based on a trailing 30-day VWAP. Based on this conversion, we expect to issue approximately 175 million Compass shares, which implies an equity value of $1.6 billion. As part of the transaction, we are also assuming $2.1 billion of Anywhere's senior notes and will pay off Anywhere's revolver at closing, which was $610 million at June 30.

Morgan Stanley has provided a $750 million bridge loan commitment to fund the repayment of the Anywhere revolver and transaction costs. In the aggregate, net of about $266 million of cash on Anywhere's balance sheet at June 30, the senior notes, the revolver and the transaction expenses totaled $2.6 billion. So taking the equity value of $1.6 billion and the debt of $2.6 billion, the total transaction is valued at $4.2 billion. This represents a premium of 21% to the total enterprise value of Anywhere and represents a multiple of approximately 10x Anywhere's 2026 underwritten EBITDA and 6.5x fully synergized EBITDA.

Upon completion of the transaction, current Compass shareholders will own approximately 78% of the combined company on a fully diluted basis, while Anywhere shareholders will own approximately 22%, the transaction is expected to close in the second half of 2026, subject to shareholder and regulatory approvals.

Robert spoke to the strategic merits of the transaction, so let me focus on why we believe this is such a compelling transaction from a financial standpoint. I'll discuss 3 primary financial benefits, which are revenue diversification, operating expense synergies and free cash flow generation. First, let's talk about the revenue diversification.

Today, Compass derives the vast majority of its revenue from our owned brokerage operations, primarily under the Compass brand. We also generate title and franchise revenue, but they are small in comparison to the scale of our brokerage operations. This transaction allows us to significantly expand our owned brokerage operations through the addition of 3 high-quality, highly recognizable brand names, which collectively had $4.7 billion of revenue in 2024.

Additionally, the transaction allows us to meaningfully diversify into franchise operations through Anywhere's 6 nationally recognized franchise brands that Robert highlighted earlier.

The franchise business provides steady recurring revenue and high adjusted EBITDA margins, both domestically and internationally. Our revenue will be further diversified by a meaningful addition of title operations across 30 service areas that effectively provide us with a national presence in title. These new title operations, when combined with our technology-led solutions like One-Click title will allow us to drive incremental attach of title services and will now have the ability to attach title to Compass brokerage transactions in markets where we don't currently have title operations.

Finally, as Robert mentioned, Anywhere's mortgage joint venture is with Guaranteed Rate, one of the largest retail mortgage lenders in the U.S. And importantly, Guaranteed Rate is the same partner Compass uses for our mortgage JV OriginPoint. The transaction will allow us to quickly consolidate our mortgage JVs, providing a higher attach opportunity with a wider footprint of loan officers across the country, while at the same time providing for expense synergies as we consolidate the mortgage entities.

The second primary financial benefit is the opportunity and expense synergies. We anticipate net cost synergies of $225 million that are highly achievable within 3 years of the close date.

Both Compass and Anywhere have been successful in implementing cost-reduction programs over the last few years. And now by combining the operating expenses of the 2 companies, we'll have renewed opportunities.

To name a few, there will certainly be vendor consolidation to achieve more favorable pricing with higher volumes, our office footprint across the combined title and brokerage operations will provide areas to consolidate higher-priced and less occupied office leases. And over time, we'll be able to consolidate overlapping technology systems and related spend.

To put the synergy goal in perspective, excluding commissions, Anywhere's annualized operating expenses of about $1.7 billion and Compass' of about $1 billion aggregate to $2.7 billion in total. Our goal of $225 million is only about 8% of that combined OpEx figure, which is why we believe it's very achievable over a 3-year period post-closing.

It's important to recognize that Anywhere's business is much larger than Compass' business today with significantly more employees and agents. As a result, we will approach the integration and the expense synergies in a very careful way to avoid interrupting service to our agents and to ensure our ability to effectively manage the combined public company post-closing.

Finally, the third major benefit of the transaction is free cash flow generation and reducing leverage. Historically, Anywhere's free cash flow generation has been limited due to their high debt load and over $150 million of annualized interest expense. In contrast, excluding our Compass Concierge securitization facility, Compass currently has no debt and a modest level of CapEx, and therefore, we're able to convert a higher percentage of our adjusted EBITDA to free cash flow.

Please note that as of today, we have no amounts drawn on our revolver as the $50 million outstanding as of June 30 has been subsequently paid in full.

By joining the companies together, Compass' higher free cash flow generation, along with the added benefit of the expense synergies we expect to achieve will generate meaningful cash flow to the combined company over time which will be especially amplified if we begin to see the market recover as mortgage rates move lower. This enhanced cash flow will be directed to delevering the balance sheet.

As I mentioned earlier, following the transaction, the combined company will have debt of approximately $2.6 billion, net of cash. To be very clear, Compass has historically operated with a view towards minimal to no debt and a conservative balance sheet, especially in light of the cyclicality of the real estate business. That mindset will not change when we close this transaction and delevering the balance sheet will be our primary focus along with integration.

As shown on Page 13 of the investor deck we added to our website today, we included leverage ratios, along with related assumptions used on Page 13 and 15. Based on these assumptions, on a stand-alone basis at June 30, Anywhere' leverage ratio is about 7.3x estimated 2025 EBITDA. However, on a combined basis of Compass, the leverage ratio decreases to about 4.4x and considering the fully realized $225 million synergy goal, the leverage ratio reduces to 3.2x.

By the end of 2028, our goal is to achieve a leverage ratio of about 1.5x. This is an aggressive goal, but we believe it's achievable based on the estimated EBITDA and free cash flow of the combined businesses.

When mortgage rates began to increase in early 2022, you saw Compass change our focus to operating expense reductions. And over time, we brought operating expenses down by an annualized rate of $600 million. In a similar change of focus on a go-forward basis, we will be acutely focused on debt reduction. Between the strategic and financial benefits, we believe this transaction is transformational for Compass and Anywhere and will create significant value for our shareholders, real estate professionals, home sellers and home buyers. I look forward to getting through the closing of this transaction and welcoming Anywhere' employee base for the Compass organization.

With that, thank you again for joining us on such short notice, and have a wonderful day.

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