Compass, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Compass, Inc. Condensed Consolidated Balance Sheets (In millions, except share and per share data, unaudited) June 30, 2021 December 31, 2020 Assets Current Assets Cash and cash equivalents $ 810.7 $ 440.1 Accounts receivable, net of allowance of $ 8.6 and $ 8.1 , respectively 66.6 54.8 Compass Concierge receivables, net of allowance of $ 19.3 and $ 17.2 , respectively 48.1 49.5 Other current assets 73.2 54.9 Total current assets 998.6 599.3 Property and equipment, net 146.4 141.7 Operating lease right-of-use assets 438.3 426.6 Intangible assets, net 107.4 45.6 Goodwill 177.4 119.8 Other non-current assets 43.5 32.1 Total assets $ 1,911.6 $ 1,365.1 Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities Accounts payable $ 31.8 $ 36.6 Commissions payable 91.7 62.0 Accrued expenses and other current liabilities 140.2 106.8 Current lease liabilities 76.6 68.1 Concierge credit facility 11.1 8.4 Total current liabilities 351.4 281.9 Non-current lease liabilities 441.0 435.9 Other non-current liabilities 43.7 23.5 Total liabilities 836.1 741.3 Commitments and contingencies (Note 6) Convertible preferred stock, $ 0.00001 par value, 0 and 246,430,170 shares authorized at June 30, 2021 and December 31, 2020, respectively; 0 and 237,047,550 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively — 1,486.7 Stockholders’ Equity (Deficit) Common stock, $ 0.00001 par value, 13,850,000,000 and 700,754,910 shares authorized at June 30, 2021 and December 31, 2020, respectively; 396,669,967 and 125,221,900 shares issued at June 30, 2021 and December 31, 2020, respectively; 394,419,967 and 122,971,900 shares outstanding at June 30, 2021 and December 31, 2020, respectively — — Additional paid-in capital 2,395.9 238.0 Accumulated deficit ( 1,320.4 ) ( 1,100.9 ) Total stockholders’ equity (deficit) 1,075.5 ( 862.9 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 1,911.6 $ 1,365.1 The accompanying footnotes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Compass, Inc. Condensed Consolidated Statements of Operations ( In millions, except share and per share data, unaudited ) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue $ 1,951.4 $ 682.1 $ 3,065.3 $ 1,302.0 Operating expenses: Commissions and other related expense 1,590.4 559.0 2,532.6 1,067.8 Sales and marketing 124.3 90.8 235.6 197.3 Operations and support 96.7 44.5 166.7 105.6 Research and development 73.5 34.2 170.1 73.0 General and administrative 59.4 26.5 152.3 53.0 Depreciation and amortization 14.9 12.7 28.4 25.1 Total operating expenses 1,959.2 767.7 3,285.7 1,521.8 Loss from operations ( 7.8 ) ( 85.6 ) ( 220.4 ) ( 219.8 ) Investment income, net — 0.5 — 2.0 Interest expense ( 0.6 ) — ( 1.1 ) — Loss before income taxes ( 8.4 ) ( 85.1 ) ( 221.5 ) ( 217.8 ) Benefit from income taxes 1.3 0.9 2.0 0.9 Net loss $ ( 7.1 ) $ ( 84.2 ) $ ( 219.5 ) $ ( 216.9 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.02 ) $ ( 0.77 ) $ ( 0.87 ) $ ( 1.99 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 377,615,338 109,120,449 252,958,956 108,942,655 The accompanying footnotes are an integral part of these condensed consolidated financial statements. 6 Table of Contents Compass, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In millions, except share amounts, unaudited) Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount For the three months ended June 30, 2021: Balances at March 31, 2021 221,127,100 $ 1,419.1 143,852,070 $ — $ 486.0 $ — $ ( 1,313.3 ) $ ( 827.3 ) Net loss — — — — — — ( 7.1 ) ( 7.1 ) Issuance of shares in connection with acquisitions — — 606,510 — 5.8 — — 5.8 Conversion of convertible preferred stock to common stock in connection with the initial public offering ( 221,127,100 ) ( 1,419.1 ) 223,033,725 — 1,419.1 — — 1,419.1 Issuance of common stock in connection with the initial public offering, net of offering costs — — 26,296,438 — 438.7 — — 438.7 Exercise of stock options — — 550,194 — 1.3 — — 1.3 Early exercise of stock options — — 81,030 — — — — — Vesting of early exercised stock options — — — — 1.3 — — 1.3 Stock-based compensation — — — — 43.7 — — 43.7 Balances at June 30, 2021 — $ — 394,419,967 $ — $ 2,395.9 $ — $ ( 1,320.4 ) $ 1,075.5 For the three months ended June 30, 2020: Balances at March 31, 2020 246,430,170 $ 1,526.7 109,717,910 $ — $ 154.7 $ 0.1 $ ( 963.4 ) $ ( 808.6 ) Net loss — — — — — — ( 84.2 ) ( 84.2 ) Unrealized loss on investments — — — — — ( 0.1 ) — ( 0.1 ) Issuance of shares in connection with acquisitions — — 179,920 — 1.2 — — 1.2 Exercise of stock options — — 747,660 — 3.2 — — 3.2 Stock-based compensation — — — — 13.0 — — 13.0 Balances at June 30, 2020 246,430,170 $ 1,526.7 110,645,490 $ — $ 172.1 $ — $ ( 1,047.6 ) $ ( 875.5 ) The accompanying footnotes are an integral part of these condensed consolidated financial statements. 7 Table of Contents Compass, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In millions, except share amounts, unaudited) Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount For the six months ended June 30, 2021: Balances at December 31, 2020 237,047,550 $ 1,486.7 122,971,900 $ — $ 238.0 $ — $ ( 1,100.9 ) $ ( 862.9 ) Net loss — — — — — — ( 219.5 ) ( 219.5 ) Issuance of shares in connection with acquisitions — — 855,740 — 10.1 — — 10.1 Conversion of Series D convertible preferred stock ( 15,920,450 ) ( 67.6 ) 15,920,450 — 67.6 — — 67.6 Conversion of convertible preferred stock to common stock in connection with the initial public offering ( 221,127,100 ) ( 1,419.1 ) 223,033,725 — 1,419.1 — — 1,419.1 Issuance of common stock in connection with the initial public offering, net of offering costs — — 26,296,438 — 438.7 — — 438.7 Exercise of stock options — — 4,523,124 — 11.2 — — 11.2 Early exercise of stock options — — 818,590 — — — — — Vesting of early exercised stock options — — — — 2.5 — — 2.5 Stock-based compensation — — — — 208.7 — — 208.7 Balances at June 30, 2021 — $ — 394,419,967 $ — $ 2,395.9 $ — $ ( 1,320.4 ) $ 1,075.5 For the six months ended June 30, 2020: Balances at December 31, 20 19 246,365,350 $ 1,525.7 109,294,060 $ — $ 143.4 $ 0.1 $ ( 825.1 ) $ ( 681.6 ) Cumulative change in accounting principle (ASU 2016-13) — — — — — — ( 5.6 ) ( 5.6 ) Net loss — — — — — — ( 216.9 ) ( 216.9 ) Unrealized loss on investments — — — — — ( 0.1 ) — ( 0.1 ) Issuance of shares in connection with acquisitions — — 401,310 — 1.2 — — 1.2 Issuance of Series G convertible preferred stock, net of issuance costs 64,820 1.0 — — — — — — Exercise of stock options — — 950,120 — 3.4 — — 3.4 Stock-based compensation — — — — 24.1 — — 24.1 Balances at June 30, 2020 246,430,170 $ 1,526.7 110,645,490 $ — $ 172.1 $ — $ ( 1,047.6 ) $ ( 875.5 ) The accompanying footnotes are an integral part of these condensed consolidated financial statements. 8 Table of Contents Compass, Inc. Condensed Consolidated Statements of Cash Flows (In millions, unaudited) Six Months Ended June 30, 2021 2020 Operating Activities Net loss $ ( 219.5 ) $ ( 216.9 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 28.4 25.1 Stock-based compensation 221.8 24.1 Change in acquisition related contingent consideration ( 0.5 ) 1.9 Bad debt expense 6.2 9.6 Amortization of debt issuance costs 0.6 — Changes in operating assets and liabilities: Accounts receivable ( 10.4 ) ( 30.9 ) Compass Concierge receivables ( 3.3 ) ( 28.0 ) Other current assets ( 18.2 ) 6.2 Other non-current assets ( 10.8 ) ( 3.1 ) Operating lease right-of-use assets and operating lease liabilities 2.0 23.1 Accounts payable ( 5.6 ) ( 11.8 ) Commissions payable 27.8 31.1 Accrued expenses and other liabilities 25.6 9.7 Net cash provided by (used in) operating activities 44.1 ( 159.9 ) Investing Activities Proceeds from sales and maturities of marketable securities — 44.4 Capital expenditures ( 20.1 ) ( 19.2 ) Payments for acquisitions, net of cash acquired ( 103.8 ) ( 0.8 ) Net cash (used in) provided by investing activities ( 123.9 ) 24.4 Financing Activities Proceeds from issuance of convertible preferred stock, net of issuance costs — 1.0 Proceeds from exercise and early exercise of stock options 16.2 3.4 Proceeds from drawdowns on Concierge credit facility 15.5 — Repayments of drawdowns on Concierge credit facility ( 12.8 ) — Payments of contingent consideration related to acquisitions ( 6.7 ) ( 1.4 ) Payments of debt issuance costs for the Revolving Credit and Guaranty Agreement ( 1.4 ) — Proceeds from issuance of common stock upon initial public offering, net of offering costs 439.6 — Net cash provided by financing activities 450.4 3.0 Net increase (decrease) in cash and cash equivalents 370.6 ( 132.5 ) Cash and cash equivalents at beginning of period 440.1 491.7 Cash and cash equivalents at end of period $ 810.7 $ 359.2 Supplemental disclosures of cash flow information: Cash paid for interest $ 0.5 $ — Supplemental non-cash information: Issuance of common stock for acquisitions $ 10.1 $ 1.2 Conversion of convertible preferred stock in connection with initial public offering $ 1,419.1 $ — Conversion of Series D convertible preferred stock $ 67.6 $ — The accompanying footnotes are an integral part of these condensed consolidated financial statements. 9 Table of Contents Compass, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Business and Basis of Presentation Description of the Business Compass, Inc. (the “Company”) was incorporated in Delaware on October 4, 2012 under the name Urban Compass, Inc. On January 8, 2021, the board of directors of the Company approved a change to the Company’s name from Urban Compass, Inc. to Compass, Inc. The Company provides an end-to-end platform that empowers its residential real estate agents to deliver exceptional service to seller and buyer clients. The Company’s platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service and other critical functionality, all custom-built for the real estate industry which enables the Company’s core brokerage services. The platform also uses proprietary data, analytics, artificial intelligence, and machine learning to deliver high value recommendations and outcomes for Compass agents and their clients. The Company’s agents are independent contractors who affiliate their real estate licenses with the Company, operating their businesses on the Company’s platform and under the Compass brand. The Company generates revenue from clients through its agents by assisting home sellers and buyers in listing, marketing, selling and finding homes as well as through the provision of services adjacent to the transaction, like title and escrow services, which comprise a smaller portion of the Company’s revenue to date. The Company currently generates substantially all of its revenue from commissions paid by clients at the time that a home is transacted. Stock Split In March 2021, the Company’s board of directors and the stockholders of the Company approved a ten -for-one forward stock split of the Company’s common stock and convertible preferred stock (collectively, the “Capital Stock”), which became effective on March 19, 2021. The authorized number of each class and series of Capital Stock was proportionally increased in accordance with the ten-for-one stock split and the par value of each class of Capital Stock was adjusted from $0.0001 to $0.00001 as a result of this forward stock split. All common stock, convertible preferred stock, stock options, restricted stock units (“RSUs”) and per share information presented within these condensed consolidated financial statements have been adjusted to reflect this forward stock split on a retroactive basis for all periods presented, except where otherwise noted. Initial Public Offering On April 6, 2021, the Company completed its initial public offering (“IPO”) and the Company’s Class A common stock began trading on the New York Stock Exchange on April 1, 2021 under the symbol “COMP”. In connection with the IPO, the Company issued and sold 26,296,438 shares of its common stock at a public offering price of $ 18.00 per share. The Company received aggregate proceeds of $ 438.7 million from the IPO, net of the underwriting discount and offering costs of approximately $ 11.0 million (of which $ 0.9 million were paid in 2020). Offering costs, including the legal, accounting, printing and other IPO-related costs have been recorded in Additional paid-in capital against the proceeds from the offering. During April 2021, also in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223,033,725 shares of common stock and the Company reclassified $ 1.4 billion of convertible preferred stock to Additional paid-in-capital. On March 31, 2021, in connection with the effectiveness of the Company’s IPO registration statement, the Company recognized $ 148.5 million in stock-based compensation expense for (i) certain RSUs that contained both service-based and liquidity event-based vesting conditions as the liquidity event-based vesting condition was satisfied upon effectiveness of the registration statement and (ii) certain stock options and RSU awards with service, performance and market-based vesting conditions that include stock price targets to be met after the listing of the Company’s stock on a public exchange. In April 2021, the Company adopted a restated certificate of incorporation and changed its authorized capital stock to consist of 12,500,000,000 shares of Class A common stock, 1,250,000,000 shares of Class B common stock, 100,000,000 shares of Class C common stock and 25,000,000 shares of undesignated preferred stock. On March 31, 2021, in connection with the effectiveness of the Company’s IPO registration statement, 15,244,490 shares of Class A common stock held by the Company’s founder and Chief Executive Officer were exchanged for an equivalent number of shares of Class C common stock. In addition, any Class A common stock issued to the Company’s Chief Executive Officer from RSU awards granted prior to February 2021 are able to be exchanged for Class C common stock once the RSUs have been settled for the underlying Class A common stock. 10 Table of Contents Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of all controlled subsidiaries. The condensed consolidated statements of operations include the results of entities acquired from the date of the acquisition. The unaudited interim condensed consolidated financial statements and related disclosures have been prepared by management on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary for a fair statement of the interim periods presented. The results of the interim periods presented are not necessarily indicative of the results expected for the full year. Certain information and notes normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted under the Securities and Exchange Commission’s rules and regulations. Accordingly, the unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2020, included in the final prospectus that forms a part of the Company’s IPO registration statement, dated as of March 31, 2021 and filed with the Securities and Exchange Commission on April 1, 2021 pursuant to Rule 424(b) under the Securities Act of 1933, as amended. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods covered by the consolidated financial statements and accompanying notes. These judgments, estimates and assumptions are used for, but not limited to (i) valuation of the Company’s common stock and stock awards, (ii) fair value of acquired intangible assets and goodwill, (iii) contingent considerations in connection with business combinations, (iv) incremental borrowing rate used for the Company’s operating leases, (v) useful lives of long-lived assets, (vi) impairment of intangible assets and goodwill, (vii) allowance for Compass Concierge receivables and (viii) income taxes and certain deferred tax assets. The Company determines its estimates and judgments based on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, actual results could differ from these estimates and these differences may be material. There are many uncertainties regarding the ongoing coronavirus (“COVID-19”) pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact the Company’s operations and its customers for an indefinite period of time. The extent and duration of the COVID-19 pandemic over the longer term and the extent to which it will impact the global economy, U.S. residential market and the Company’s financial condition, results of operations, or cash flows remain uncertain and depend on future developments that cannot be accurately predicted at this time. Such developments include, but are not limited to, the emergence of new variants, severity and transmission rate of the virus, the extent and effectiveness of containment actions taken, the timing, availability, and effectiveness of vaccines and the vaccination rates, as well as the impact of these and other factors on residential real estate values, real estate transaction behavior in general, and on the Company’s business in particular. The Company will continue to assess the impacts of the COVID-19 pandemic and will adjust its operations as necessary. Business Combinations Business combinations are accounted for under the acquisition method of accounting. This method requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the condensed consolidated statements of operations. Acquisition costs, consisting primarily of third-party legal and consulting fees, are expensed as incurred. 11 Table of Contents Stock-Based Compensation The Company measures compensation expense for all stock-based awards based on the estimated fair value of the awards on the date of grant. Compensation expense is generally recognized as expense on a straight-line basis over the service period based on the vesting requirements. The Company recognizes forfeitures as they occur. For stock options, which the Company issues to employees and affiliated agents, the Company generally estimates the fair value using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (1) the fair value of common stock, (2) the expected stock price volatility, (3) the expected term of the award, (4) the risk-free interest rate and (5) expected dividends. The Company also issues RSUs to employees and affiliated agents. In addition to the issuance of RSUs to agents as equity compensation for the provision of services, the Company offers RSUs to affiliated agents through its Agent Equity Program. The Agent Equity Program offers affiliated agents the ability to elect to have a portion of their commissions earned during a calendar year to be paid in the form of RSUs. RSUs issued in connection with the Agent Equity Program are granted at the beginning of the year following the calendar year in which the commissions were earned and are subject to the terms and conditions of the 2012 Stock Incentive Plan and the 2021 Equity Incentive Plan, as applicable. The Company’s RSUs granted prior to December 2020 generally vest based upon the satisfaction of both a service-based condition and a liquidity event-based condition. The service-based vesting condition for these awards is generally satisfied over four years , except for the RSUs associated with the 2020 Agent Equity Program which vested immediately on the date of issuance. The liquidity event-based vesting condition is satisfied on the occurrence of a qualifying event, generally defined as a change in control or the effective date of the registration statement for the Company’s IPO. Upon the satisfaction of both vesting conditions and any delayed settlement period, the Company will issue shares to the award holders from the pool of authorized but unissued common stock. The Company intends to settle RSUs for which all vesting conditions have been satisfied on September 28, 2021 (for affiliated agents) and October 28, 2021 (for employees). The fair value of these RSUs is measured based on the fair value of the Company’s common stock on the grant date and will begin to be recognized as expense when both the required service-based vesting condition and the liquidity event-based vesting condition has been achieved using the accelerated attribution method. The liquidity event-based vesting requirement was met on March 31, 2021, the effective date of the Company’s registration statement, see Note 1—“Business and Basis of Presentation—Initial Public Offering .” Beginning in December 2020, the Company began issuing RSUs that vest upon the satisfaction of only a service-based vesting condition that is generally ranging from four to five years . The fair value of these RSUs is measured based on the fair value of the Company’s common stock on the grant date and will be recognized as expense on a straight-line basis as the required service-based vesting condition is satisfied. Any vested RSUs that require only a service-based vesting condition will convert to common stock following vesting and their prescribed delayed settlement periods. For RSUs to be granted in connection with the 2021 Agent Equity Program, the Company determines the value of the stock-based compensation expense at the time the underlying commission is earned and begins to recognize the associated expense on a straight-line basis over the requisite service periods beginning on the closing date of the underlying real estate commission transactions. The stock-based compensation expense is recorded as a liability and will be reclassified to additional paid-in capital at the end of the vesting period when the underlying RSUs are issued. For the six months ended June 30, 2021, the Company recognized stock-based compensation expense and an associated liability of $ 13.7 million in connection with RSUs earned as a part of the 2021 Agent Equity Program. The associated liability is recorded within Accrued expenses and other current liabilities in the condensed consolidated balance sheet. On a limited basis, the Company has issued stock options and RSUs that contain service, performance and market-based vesting conditions that include stock price targets to be met after the listing of the Company’s stock on a public exchange. Such awards are valued using a Monte Carlo simulation and the underlying expense will be recognized as the associated vesting conditions are met. Deferred Offering Costs Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the IPO, are capitalized and recorded on the condensed consolidated balance sheets. As of December 31, 2020, $ 1.8 million of deferred offering costs were capitalized in Other non-current assets on the condensed consolidated balance sheet. During the three months ended June 30, 2021, $ 11.0 million of deferred offering costs were recorded against the proceeds from the initial public offering in Additional paid-in capital on the condensed consolidated balance sheet and as of June 30, 2021 there were no remaining deferred offering costs included on the condensed consolidated balance sheet. 12 Table of Contents New Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The ASU is part of the FASB’s simplification initiative, and it is expected to reduce cost and complexity related to accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard became effective for public companies with fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance on January 1, 2021 and the adoption of this standard did not have a material impact on the Company’s financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . An update was also issued expanding the scope of this guidance. The guidance provides optional expedients and exceptions for applying GAAP to contracts or other transactions affected by reference rate reform if certain criteria are met. The guidance became effective starting March 12, 2020 and may be applied prospectively through December 31, 2022. The Company is evaluating applicable contracts and transactions to determine whether to elect the optional guidance. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. 3. Acquisitions During the six months ended June 30, 2021, the Company completed several business acquisitions including the acquisition of 100% of the ownership interests in KVS Title, LLC, a title insurance and escrow settlement services company, Glide Labs, Inc., a real estate technology company and four small real estate brokerages. The purpose of these acquisitions was to expand the Company’s title and escrow offerings, to grow the Company’s transaction management tools included in its end to end real estate platform, and to expand its existing brokerage business in key domestic markets. The Company has accounted for two of the real estate brokerages as asset acquisitions and the remaining acquisitions were accounted for as business combinations. Total Consideration The total consideration for acquisitions completed during the six months ended June 30, 2021 comprised $ 117.0 million of cash, net of cash acquired, $ 5.8 million in Class A Common Stock of the Company and up to $ 4.7 million of additional cash that may be paid contingent on certain earnings-based targets being met through 2023. During the six months ended June 30, 2021, $ 103.8 million in cash was paid in connection with these acquisitions, net of cash acquired, and up to an aggregate of $ 13.2 million will be paid once certain indemnification matters and pre-acquisition contingencies are resolved. Future cash payments were recorded as Accrued expenses and other current liabilities in the condensed consolidated balance sheet. The fair value of the assets acquired and the liabilities assumed primarily resulted in the recognition of: broker relationships of $ 55.9 million; trademark intangible assets of $ 10.8 million; acquired technology of $ 5.5 million; operating lease right-of-use assets of $ 6.2 million; $ 6.0 million of other current and non-current assets; lease liabilities of $ 6.2 million; and $ 8.3 million of other current and non-current liabilities. The excess of the purchase price over the fair value of the acquired net assets was recorded as goodwill of $ 57.6 million. Acquired intangible assets are being amortized over their estimated useful lives of approximately 4 to 9 years. Approximately $ 23.8 million of the goodwill recorded during the six months ended June 30, 2021 is deductible for tax purposes. The amount of tax-deductible goodwill may increase in the future to approximately $ 45.7 million dependent on the payment of certain holdbacks and acquisition related compensation arrangements. These amounts are not expected to have an impact on the income tax provision while the Company maintains a full valuation allowance on its U.S. deferred tax assets. The Company has recorded the preliminary purchase price allocation as of the acquisition dates and expects to finalize its analysis within the measurement period (up to one year from the acquisition date) of the respective transaction. Any adjustments during the measurement period would have a corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, any subsequent adjustments are recorded to the consolidated statements of operations. Pro forma revenue and earnings for 2021 acquisitions have not been presented because they are not material to the Company’s consolidated revenue and results of operations, either individually or in the aggregate. 13 Table of Contents Contingent Consideration Contingent consideration represents obligations of the Company to transfer cash and common stock to the sellers of certain acquired businesses in the event that certain targets and milestones are met. As of June 30, 2021, the undiscounted maximum payment under these arr a ngements was $ 87.4 million. Changes in contingent consideration measured at fair value on a recurring basis were as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Opening balance $ 28.0 $ 17.1 $ 39.8 $ 16.4 Acquisitions 2.7 — 4.7 — Payments and issuances ( 0.4 ) ( 3.0 ) ( 11.0 ) ( 3.0 ) Fair value losses (gains) included in net loss 2.7 1.2 ( 0.5 ) 1.9 Closing Balance $ 33.0 $ 15.3 $ 33.0 $ 15.3 Other Acquisition Related Compensation In connection with the Company’s acquisitions, certain amounts paid or to be paid to selling shareholders are subject to clawback and forfeiture dependent on certain employees and agents providing continued service to the Company. These retention-based payments are accounted for as compensation for future services and the Company recognizes the expenses over the service period. As of June 30, 2021, the Company expects to pay up to an additional $ 44.9 million in future compensation to such selling shareholders in connection with these arrangements. For the three months ended June 30, 2021 and 2020, the Company recognized $ 7.2 million and $( 0.1 ) million, respectively, and for the six months ended June 30, 2021 and 2020, the Company recognized $ 11.4 million and $ 1.2 million, respectively, in compensation expense (income) within Operations and support in the accompanying condensed consolidated statements of operations related to these arrangements. During the six months ended June 30, 2021, the Company granted 277,776 shares of common stock to sellers in accordance with arrangements where vesting of the shares is contingent on such sellers providing continued service to the Company. Accordingly, these share-based payments will be accounted for as stock-based compensation expense over the underlying retention periods. There was no stock-based compensation expense related to these compensation arrangements recognized during the six months ended June 30, 2021. 4. Fair Value of Financial Assets and Liabilities The Company’s cash and cash equivalents of $ 810.7 million and $ 440.1 million as of June 30, 2021 and December 31, 2020, respectively, are held in cash and money market funds which are classified as Level 1 within the fair value hierarchy because they are valued using quoted prices in active markets. These are the Company’s only Level 1 financial instruments. The Company does not hold any Level 2 financial instruments. The Company’s contingent consideration liabilities of $ 33.0 million and $ 39.8 million as of June 30, 2021 and December 31, 2020, respectively, are the Company’s only Level 3 financial instruments. See Note 3 – “Acquisitions” for changes in contingent consideration for the three and six months ended June 30, 2021 and 2020. The following table presents the balances of contingent consideration (in millions): June 30, 2021 December 31, 2020 Accrued expenses and other current liabilities $ 10.3 $ 19.1 Other non-current liabilities 22.7 20.7 Total contingent consideration $ 33.0 $ 39.8 There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented. Level 3 Financial Liabilities The Company’s Level 3 financial liabilities relate to acquisition-related contingent consideration arrangements. Contingent consideration represents obligations of the Company to transfer cash and common stock to the sellers of certain acquired entities in the event that certain targets and milestones are met. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation, which is based on significant inputs, primarily forecasted future results of the acquired businesses, not observable in the market, discount rates and earnings volatility measures. The changes in the fair value of Level 3 financial liabilities are included within Operations and support in the accompanying condensed consolidated statements of operations (see Note 3 – “Acquisitions”). 14 Table of Contents The following tables present quantitative information regarding the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 liabilities, consisting of different contingent consideration agreements, measured at fair value on a recurring basis: June 30, 2021 December 31, 2020 Discount rate 0.0 % - 2.0 % 0.0 % - 2.0 % Weighted average discount rate 1.6 % 1.3 % Earnings volatility 0 % - 18 % 0 % - 18 % Weighted average earnings volatility 8.7 % 6.9 % 5. Debt Concierge Credit Facility In July 2020, the Company entered into a Revolving Credit and Security Agreement (the “Concierge Facility”) with Barclays Bank PLC, as administrative agent, and the several lenders party thereto. The Concierge Facility provides for a $ 75.0 million revolving credit facility and is solely used to finance, in part, the Company’s Compass Concierge Program. The Concierge Facility is secured primarily by the Concierge Receivables and cash of the Compass Concierge Program. Prior to July 29, 2021 borrowings under the Concierge Facility accrued interest at rates equal to the adjusted London interbank offered rate (“LIBOR”) plus a margin of 3.00 as adjusted, or an alternate rate of interest upon the occurrence of certain changes in LIBOR. Additionally, prior to July 29, 2021, the Company was required to pay an annual commitment fee of 0.50 % on a quarterly basis based on the unused portion of the Concierge Facility irrespective of the Company’s utilization rate. On July 29, 2021, the Company amended and restated the Concierge Facility (the “A&R Concierge Facility”), extending the revolving period for another twelve months, lowering the interest rate to LIBOR plus a margin of 1.85 %, which may be adjusted, and lowering the annual commitment fee to 0.35 % if the Concierge Facility is utilized greater than 50% (the annual commitment fee remained the same, at 0.50 %, if the Concierge Facility is utilized less than 50%). Pursuant to the A&R Concierge Facility, the principal amount, if any, is payable in full in January 2023 , unless earlier terminated or extended. The interest rate on the Concierge Facility was 3.16 % as of June 30, 2021. As of June 30, 2021 and December 31, 2020, there were $ 11.1 million and $ 8.4 million, respectively, in borrowings outstanding under the Concierge Facility. The Company has the option to repay the borrowings under the Concierge Facility without premium or penalty prior to maturity. The Concierge Facility contains customary affirmative covenants, such as financial statement reporting requirements, as well as covenants that restrict its ability to, among other things, incur additional indebtedness, sell certain receivables, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions. Additionally, in the event that the Company fails to comply with certain financial covenants that require the Company to meet certain liquidity-based measures, the commitments under the Concierge Facility will automatically be reduced to zero and the Company will be required to repay any outstanding loans under the Concierge Facility. As of June 30, 2021, the Company was in compliance with the covenants under the Concierge Facility. Revolving Credit Facility In March 2021, the Company entered into a Revolving Credit and Guaranty Agreement (the “Revolving Credit Facility”) with several lenders and issuing banks and Barclays Bank PLC, as administrative agent and as collateral agent. The Revolving Credit Facility provides for a $ 350.0 million revolving credit facility, which may be increased by the greater of $ 250.0 million and 18.5 % of the Company’s consolidated total assets, plus such additional amount so long as the Company’s total net leverage ratio does not exceed 4.50 :1.00 on a pro forma basis as of the most recent test period, subject to the terms of the Revolving Credit Facility. The Revolving Credit Facility also includes a letter of credit sublimit which is the lesser of (i) $ 125.0 million and (ii) the aggregate unused amount of the revolving commitments then in effect under the Revolving Credit Facility. The Company’s obligations under the Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries and are secured by a first priority security interest in substantially all of the Company’s assets and the Company’s subsidiary guarantors. Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50 % or (ii) a floating rate per annum equal to the rate at which dollar deposits are offered in the London interbank market plus a margin of 1.50 %. In the Revolving Credit Facility, the base rate is defined as the highest of (a) the prime rate as quoted by The Wall Street Journal, (b) the federal funds effective rate plus 0.50 %, (c) the rate at which dollar deposits are offered in the London interbank market for a one-month interest period plus 1.00 % and (d) 1.00 %. During an event of default under the Revolving Credit Facility, the applicable interest rates are increased by 2.0 % per annum. The Company is also obligated to pay other customary fees for a credit facility of this size and type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility of 0.175 % per annum and fees associated with letters of credit. The principal amount, if any, is payable in full in March 2026 , unless earlier terminated or extended. 15 Table of Contents The Company has the option to repay the Company’s borrowings, and to permanently reduce the loan commitments whole or in part, under the Revolving Credit Facility without premium or penalty prior to maturity. As of June 30, 2021, there were no borrowings outstanding under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $ 15.3 million. The Revolving Credit Facility contains customary representations, warranties, financial covenants applicable to the Com p any and to the Company’s restricted subsidiaries, affirmative covenants, such as financial statement reporting requirements, and negative covenant wh i ch restrict its ability, among other things, to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions. The financial covenants require that the Company maintain certain liquidity-based measures and total revenue requirements. As of June 30, 2021, the Company was in compliance with the covenants under the Revolving Credit Facility. The Revolving Credit Facility includes customary events of default that include, among other things, nonpayment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Revolving Credit Facility. The Company incurred debt issuance costs of $ 1.4 million in connection with the Revolving Credit Facility, which are included in Other current assets and Other non-current assets in the condensed consolidated balance sheet. The unamortized debt issuance costs will be amortized within Interest expense in the consolidated statements of operations over the remaining term on a straight-line basis. 6. Commitments and Contingencies Legal Proceedings From time to time, the Company may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the Company’s business taken as a whole. When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim and an estimate of the loss or range of loss, if such an estimate can reasonably be made. Legal costs related to the defense of loss contingencies are expensed as incurred. Claims or regulatory actions against the Company, whether meritorious or not, could have an adverse impact on the Company due to legal costs, diversion of management resources and other elements. Except as identified with respect to the matters below, the Company does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition or overall business in each case, taken as a whole. Avi Dorfman v. Robert Reffkin and Urban Compass, Inc. In July 2014, Avi Dorfman (“Dorfman”) and RentJolt, Inc. (“RentJolt”) (collectively, “Plaintiffs”) filed suit against the Company and Robert Reffkin (“Defendants”), seeking compensation for certain services, trade secrets and other contributions allegedly provided in the formation of the Company. After miscellaneous motion practice, in June 2018, Defendants moved for summary judgment, the court held oral argument in October 2018 and ultimately denied the Defendants’ motion for summary judgment in October 2019. In November 2019, Defendants appealed portions of the court’s summary judgment ruling. In February 2020, the appellate court granted in part and denied in part Defendants’ appeal resulting in one plaintiff (RentJolt) voluntarily discontinuing its only remaining claim and leaving the case. Defendants have one motion in limine pending. A trial date was previously set for September 2021 ; in August 2021, the trial date was rescheduled to January 2022. Realogy Holdings Corp., et al v. Urban Compass, Inc. and Compass Inc. In July 2019, Realogy Holdings Corp., NRT New York LLC (“Corcoran”) and many of its related entities (collectively, “Plaintiffs”) filed a complaint against the Company in the New York Supreme Court. The complaint alleges various violations of New York and California state law related to claims of unfair competition and seeks unspecified damages. The Company filed a Motion to Dismiss in September 2019. In September 2019, Plaintiffs filed an amended complaint, removing one claim and adding a claim for defamation. In November 2019, the Company moved to compel arbitration related to claims asserted by Corcoran and moved to 16 Table of Contents dismiss all of the counts. In June 2020, the Court denied the motion to dismiss and denied the motion to compel arbitration as moot, granting Plaintiffs leave to amend the complaint as to claims asserted by Corcoran without prejudice to Defendants’ ability to move to compel or dismiss the Second Amended Complaint. On July 3, 2020, Plaintiffs filed their Second Amended Complaint. On December 18, 2020, the Court denied the Company’s motion to compel arbitration on Plaintiffs’ second amended complaint without prejudice. Defendants’ Answer to the Second Amended Complaint and Counterclaims were filed on January 28, 2021. Additionally, the Company filed its appeal of the lower Court’s denial of the Company’s motion to dismiss and motion to compel arbitration on February 1, 2021. On June 1, 2021, the First Department affirmed the lower Court’s denial of the Company’s motion to compel arbitration. Discovery is proceeding , with an end date set for June 30, 2022. The Company is unable to predict the outcome of this action or to reasonably estimate the possible loss or range of loss, if any, arising from the claims asserted therein. Letter of Credit Agreements The Company has irrevocable letters of credit with various financial institutions, primarily related to security deposits for leased facilities. As of June 30, 2021 and December 31, 2020, the Company was contingently liable for $ 57.3 million and $ 50.7 million, respectively, under these letters of credit. As of June 30, 2021, $ 15.3 million and $ 42.0 million of these letters of credit were collateralized by the Company’s Revolving Credit Facility and cash and cash equivalents, respectively. As of December 31, 2020, all letters of credit were collateralized by the Company’s cash and cash equivalents. Escrow and Trust Deposits As a service to its home buyers and home sellers, the Company administers escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions. The escrow and trust deposits totaled $ 282.5 million and $ 46.1 million, respectively as of June 30, 2021 and December 31, 2020. These deposits are not assets of the Company and therefore are excluded from the accompanying condensed consolidated balance sheets. However, the Company remains contingently liable for the disposition of these deposits. 7. Preferred Stock and Common Stock Convertible Preferred Stock In March 2020, the Company issued an additional 64,820 shares of its Series G convertible preferred stock for proceeds of $ 1.0 million. In March 2021, the holders of 15,920,450 shares of the Company’s Series D convertible preferred stock elected to convert such shares into an equal number of shares of Class A common stock. During April 2021, in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223,033,725 shares of Class A common stock and the Company reclassified $ 1.4 billion of Convertible preferred stock to Additional paid-in-capital. Undesignated Preferred Stock In April 2021, the Company adopted a restated certificate of incorporation which provides for authorized undesignated preferred stock to 25,000,000 . As of June 30, 2021, there are no shares of the Company’s preferred stock issued and outstanding. Common Stock In February 2021, the Company approved the establishment of Class C common stock and an agreement with the Company’s CEO to exchange his Class A common stock for Class C common stock. On March 31, 2021, in connection with the effectiveness of the registration statement for the Company’s IPO, 15,244,490 shares of Class A common stock held by the Company’s founder and CEO were automatically exchanged for an equivalent number of shares of Class C common stock. In addition, any Class A common stock issued to the Company’s Chief Executive Officer from RSU awards granted prior to February 2021 are able to be exchanged for Class C common stock. Each share of Class C common stock is entitled to twenty votes per share and will be convertible at any time into one share of Class A common stock and will automatically convert into Class A common stock under certain “sunset” provisions. Other than certain permitted transfers for estate planning purposes, upon a transfer of Class C common stock, the Class C common stock will convert into Class A common stock. In April 2021, the Company adopted a restated certificate of incorporation and changed its authorized capital stock to consist of 12,500,000,000 shares of Class A common stock, 1,250,000,000 shares of Class B common stock and 100,000,000 shares of Class C common stock. As of June 30, 2021, the Company had three classes of common stock: Class A common stock, Class B common stock and Class C common stock. Each class has par value of $0.00001. 17 Table of Contents June 30, 2021 Shares Authorized Shares Issued Shares Outstanding Class A common stock 12,500,000,000 376,863,317 374,613,317 Class B common stock 1,250,000,000 4,562,160 4,562,160 Class C common stock 100,000,000 15,244,490 15,244,490 Total 13,850,000,000 396,669,967 394,419,967 As of December 31, 2020, the Company had two classes of common stock: Class A common stock and Class B common stock. Each class has a par value of $0.00001 . December 31, 2020 Shares Authorized Shares Issued Shares Outstanding Class A common stock 530,136,050 118,549,390 116,299,390 Class B common stock 170,618,860 6,672,510 6,672,510 Total 700,754,910 125,221,900 122,971,900 Holders of Class A common stock are entitled to one vote per share. Holders of Class B common stock are not entitled to vote. Holders of Class C common stock are entitled to twenty votes per share . Each share of Class C common stock is convertible at any time of the option of the holder into one share of Class A common stock. Each share of Class C common stock will automatically convert into a share of Class A common stock upon sale or transfer, except for certain permitted transfers. On July 1, 2021, the board of directors of the Company approved the conversion of all outstanding shares of the Company’s Class B common stock into the same number of shares of the Company’s Class A common stock effective on that date. A description of all other rights, preferences and privileges of the holders of the Company’s common stock are included in the Company’s IPO prospectus on Form S-1 filed with the Securities and Exchange Commission . As of June 30, 2021 and December 31, 2020, the Company had shares of common stock reserved for issuance as follows: June 30, 2021 December 31, 2020 Convertible preferred stock outstanding — 238,954,050 Options issued and outstanding 59,767,636 62,827,150 Restricted stock units issued and outstanding 55,268,499 32,556,160 Shares available for future stock-based incentive award issuances 35,035,925 11,679,150 Total 150,072,060 346,016,510 As of June 30, 2021 and December 31, 2020, the Company had 2,250,000 shares of Class A common stock issued and held as treasury stock which were subsequently retired on July 1, 2021 . 8. Stock-Based Compensation 2012 Stock Incentive Plan In October 2012, the Company adopted the 2012 Stock Incentive Plan (the “2012 Plan”). Under the 2012 Plan, employees and non-employees could be granted options on common stock, RSUs and other stock-based awards, including awards earned in connection with the Agent Equity Program. Generally, these awards were based on stock agreements with ten-year contractional terms for stock options, and seven-year contractual terms for RSUs, subject to board approval. 2021 Equity Incentive Plan In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Equity Incentive Plan (the “2021 Plan”), with an initial pool of 29,666,480 shares of common stock available for granting stock-based awards plus any reserved shares of common stock not issued or subject to outstanding awards granted under the Company’s 2012 Plan. In addition, on 18 Table of Contents January 1 st of each year beginning in 2022 and continuing through 2031, the aggregate number of shares of common stock authorized for issuance under the 2021 Plan shall be increased automatically by the number of shares equal to five percent (5%) of the total number of outstanding shares of common stock and shares of preferred stock of the Company outstanding (on an as converted to common stock basis) on the immediately preceding December 31 st , although the Company’s board of directors or one of its committees may reduce the amount of such increase in any particular year. The 2021 Plan became effective on March 30, 2021 and as of that date, the Company ceased granting new awards under the 2012 Plan and all remaining shares available under the 2012 Plan were transferred to the 2021 Plan. As of June 30, 2021, there were 35,035,925 shares available for future grants under the 2021 Plan, inclusive of those shares transferred from the 2012 Plan. 2021 Employee Stock Purchase Plan In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP authorizes the issuance of 7,416,620 shares of common stock to purchase rights granted to the Company’s employees or to employees of its designated affiliates. In addition, on January 1 st of each year beginning in 2022 and continuing through 2031, the aggregate number of shares of common stock authorized for issuance under the ESPP shall be increased automatically by the number of shares equal to one percent ( 1 %) of the total number of outstanding shares of common stock and shares of preferred stock of the Company outstanding (on an as converted to common stock basis) on the immediately preceding December 31 st , although the Company’s board of directors or one of its committees may reduce the amount of the increase in any particular year. No more than 150,000,000 shares of common stock may be issued over the term of the ESPP, subject to certain exceptions set forth in the ESPP. As of the date of this filing, no shares have been granted under the ESPP. Stock Options A summary of stock option activity under the 2012 Plan and the 2021 Plan, including 1,061,250 stock options that were granted outside of the 2012 Plan in 2019, is presented below (in millions, except share and per share amounts): Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (in years) Aggregate Intrinsic Value Balances as of December 31, 2020 62,827,150 $ 4.55 7.8 $ 1,208.0 Granted 3,119,998 13.88 Exercised ( 5,341,714 ) 3.03 Forfeited ( 837,798 ) 6.42 Balances as of June 30, 2021 59,767,636 $ 5.14 7.5 $ 483.9 Exercisable and vested at June 30, 2021 34,154,376 $ 3.61 6.5 $ 325.5 During the six months ended June 30, 2021 and 2020, the intrinsic value of options exercised was $ 88.5 million and $ 2.7 million, respectively. Restricted Stock Units A summary of RSU activity under the 2012 Plan and the 2021 Plan is presented below: Number of Shares Weighted Average Grant Date Fair Value Balances as of December 31, 2020 32,556,160 $ 6.75 Granted 23,376,819 14.14 Vested and converted to common stock — — Forfeited ( 664,480 ) 12.26 Balances as of June 30, 2021 55,268,499 $ 9.81 Included in the table above are 8,611,810 RSUs granted to an executive employee during the three months ended March 31, 2021. These RSUs have service, performance and market-based vesting conditions that include stock price targets to be met after the listing of the Company’s stock on a public exchange. 19 Table of Contents Stock-Based Compensation Expense Total stock-based compensation expense included in the condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2021 2020 2021 2020 Commissions and other related expense $ 11.7 $ 0.5 $ 56.3 $ 4.6 Sales and marketing 8.6 2.5 17.6 5.4 Operations and support 2.8 0.7 7.8 1.5 Research and development 13.5 0.3 63.0 0.8 General and administrative 17.7 9.0 77.1 11.8 Total stock-based compensation expense $ 54.3 $ 13.0 $ 221.8 $ 24.1 As more fully described in Note 1 – “Business and Basis of Presentation”, the Company recognized $ 148.5 million in stock-based compensation expense in connection with the effectiveness of the Company’s IPO registration statement on March 31, 2021. Stock-based compensation expense for the six months ended June 30, 2021 includes the following amounts related to a one-time acceleration of stock-based compensation expense in connection with the IPO (in millions): IPO Related Expense Commissions and other related expense $ 41.7 Sales and marketing 1.8 Operations and support 3.1 Research and development 46.9 General and administrative 55.0 Total stock-based compensation expense $ 148.5 As of June 30, 2021, unrecognized stock-based compensation expense totaled $ 523.4 million and is expected to be recognized over a weighted-average period of 3.3 years. The Company has not recognized any tax benefits from stock-based compensation as a result of the full valuation allowance maintained on its deferred tax assets. Early Exercise of Stock Options A majority of the stock options granted under the 2012 Plan provide option holders the right to elect to exercise unvested options in exchange for restricted common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service until the stock options are fully vested at the lesser of the original issuance price or the fair value the Company’s common stock. During the six months ended June 30, 2021, 818,590 stock options were early exercised for total proceeds of $ 5.0 million. As of June 30, 2021, 1,431,410 shares of common stock received by holders from an early exercise were subject to repurchase. The cash proceeds received for unvested shares of common stock recorded within Accrued expenses and other current liabilities and Other non-current liabilities in the condensed consolidated balance sheet was $ 8.1 million as of June 30, 2021. Amounts recorded are transferred into Common stock and Additional paid-in capital within the condensed consolidated balance sheets as the shares vest. 9. Income Taxes The Company recognized a benefit from income taxes of $ 1.3 million and $ 2.0 million for the three and six months ended June 30, 2021, respectively. This benefit resulted from a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions. Additionally, the Company incurred current tax expense from its operations in India, which was fully offset by a deferred tax benefit for future AMT tax credits. The Company recognized a benefit from income taxes of $ 0.9 million for the three and six months ended June 30, 2020. The Company continues to maintain a full valuation allowance on all domestic net deferred tax assets based on numerous factors including estimated future taxable income and historic profitability. 20 Table of Contents The Company does not have any amount recorded related to uncertain tax positions as of the period ended June 30, 2021 nor does it expect a substantial increase in the next 12 months. If applicable, the Company recognizes interest and penalties related to uncertain tax positions in the income tax provision. The United States is the Company’s only material tax jurisdiction and as a result of net operating loss carryforwards, the Company is subject to audit for all years for US federal income tax purposes. 10. Net Loss Per Share Attributable to Common Stockholders The Company computes net loss per share under the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights, of the Class A common stock, Class B common stock and Class C common stock are substantially identical, other than voting rights. Accordingly, the net loss per share attributable to common stockholders will be the same for Class A common stock, Class B common stock and Class C common stock on an individual or combined basis. The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in millions, except share and per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerator: Net loss attributable to common stockholders $ ( 7.1 ) $ ( 84.2 ) $ ( 219.5 ) $ ( 216.9 ) Denominator: Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted 377,615,338 109,120,449 252,958,956 108,942,655 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.02 ) $ ( 0.77 ) $ ( 0.87 ) $ ( 1.99 ) The following participating securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Convertible preferred stock — 248,336,668 — 248,336,668 Outstanding stock options 59,767,636 55,434,110 59,767,636 55,434,110 Outstanding RSUs 55,268,499 28,333,160 55,268,499 28,333,160 Unvested early exercised options 1,431,410 — 1,431,410 — Unvested common stock 689,316 869,100 689,316 869,100 Total 117,156,861 332,973,038 117,156,861 332,973,038 11. Compass Concierge Receivables and Allowance for Credit Losses In 2018, the Company launched the Compass Concierge Program for home sellers who have engaged Compass as their exclusive listing agent. The program, initially launched by the Company, is based on a services model (“Concierge Classic”) provided by Compass Concierge, LLC (“Compass Concierge”), which includes items such as consultation on suggested cosmetic updates or modifications to a specific property or guidance on securing licensed contractors or vendors to perform non-structural property improvements. The Concierge Classic program provides for the payment of the up-front costs of specified home improvement services provided by unrelated vendors. In 2019, the Compass Concierge Program was expanded to include a loan program underwritten by an independent third-party lender (the “Lender”) through a commercial arrangement with Compass Concierge (“Concierge Capital”). Under the Concierge Capital program, the Lender originates and services unsecured consumer loans to home sellers following its independent underwriting process pursuant to program-level criteria provided by the Company. Pursuant to the Company’s agreement with the Lender, the consumer 21 Table of Contents loans are unsecured, interest-free and have no associated fees except for late fees that the Lender may charge in its sole discretion. The Company has no right or obligation with respect to any individual consumer loan originated by the Lender. Under the agreement with the Lender, the Company has repayment rights against the Lender in connection with a corporate loan. Payment to the Company for these services under the Concierge Classic model or repayment of the loan funds under the Concierge Capital model is due upon the earlier of a successful home sale, the termination of the listing agreement, or one year from the date in which co s ts were originally funded. Compass Concierge receivables (“Concierge Receivables”) are stated at the amount advanced to the home sellers, net of an estimated allowance for credit losses (“ACL”). The Company does not recognize any revenue or earn any fees from the Compass Concierge Program. The Company incurs service fees payable to the Lender and incurs bad debt expense in connection with the Compass Concierge Program. The Company manages its credit risk by establishing a comprehensive credit policy for the approval of projects under the Concierge Classic program and new loans under the Concierge Capital program, while monitoring and reviewing the performance of its existing Concierge Receivables. Factors considered include but not limited to: • No negative liens or judgements on the property; • Seller’s available equity on the property; • Loan to listing price ratio; • FICO score (only for Concierge Capital program); and • Macroeconomic conditions. Credit Quality The Company monitors credit quality by evaluating various attributes and utilizes such information in its evaluation of the appropriateness of the ACL. Based on the Company’s experience, the key credit quality indicator is whether the underlying properties associated with the Concierge Receivables will be sold or not. Concierge Receivables associated with properties that are eventually sold have a lower credit risk than those that are associated with properties that are not sold. For Concierge Receivables where repayments have not been triggered (i.e., earlier of (i) sale of the property, (ii) termination of a listing agreement or (iii) 12 months from the date costs were originally funded), the Company establishes an estimate as to the percentage of underlying properties that will be sold based on historical data. This estimate is updated quarterly and on an annual basis. As of June 30, 2021 and December 31, 2020, the amount of outstanding Concierge Receivables related to unsold properties was approximately 95 % and 93 %, respectively. Allowance for credit losses The Company maintains an ACL for the expected credit losses over the contractual life of the Concierge Receivables. The amount of ACL is based on ongoing, quarterly assessments by management. Historical loss experience is generally the starting point when the Company estimates the expected credit losses. The Company then considers whether (i) current conditions, such as the impact of COVID-19 and related economic uncertainty surrounding the pandemic, (ii) future economic conditions and (iii) any potential changes in the Compass Concierge Program that are reasonable and supportable would impact on its ACL. The following table summarizes the activity of the ACL for Concierge Receivables for the three and six months ended June 30, 2021 (in millions): Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Beginning of period $ 16.9 $ 17.2 Allowances 2.8 4.7 Net write-offs and other ( 0.4 ) ( 2.6 ) End of period $ 19.3 $ 19.3 22 Table of Contents Aging Status The Company generally considers Concierge Receivables to be past due after being outstanding for over 30 days after initial billing. Changes in the Company’s estimate to the ACL is recorded through bad debt expense as Sales and marketing expense in the condensed consolidated statements of operations and individual accounts are charged against the allowance when all reasonable collection efforts are exhausted. The following tables present the aging analysis of Concierge Receivables as of June 30, 2021 (in millions): 31-90 days Over 90 days Total Past Due Current Total June 30, 2021 $ 3.6 $ 15.0 $ 18.6 $ 48.8 $ 67.4 12. Restructuring Activities and COVID-19 Update Beginning in March 2020, the onset of the COVID-19 pandemic resulted in a negative impact on the Company’s business in the second quarter of 2020 due to shelter-in-place and stay-at-home restrictions (in certain of the Company’s markets) which prohibited or reduced in-person residential real estate showings and the related impact on customer demand and housing inventory, as well as deteriorating economic conditions, such as increased unemployment rates. In light of the uncertain and rapidly evolving situation relating to COVID-19, the Company took a range of measures to address the uncertainties related to the COVID-19 pandemic including, but not limited to, reducing the size of its workforce, terminating certain lease obligations and reducing certain discretionary expenses during the first half of 2020. As a result of these cost-saving measures, the Company reduced its workforce by approximately 15 %. Although the demand in the Company’s services had recovered starting in the second half of 2020, the duration of the pandemic and any impacts on consumer behavior are unknown, and the amount of that demand which will persist after the reversal of the stay-at-home orders is unknown. Additionally, the pandemic’s impacts on the overall economy and credit markets could significantly impact the Company’s estimates of fair value, which could affect the carrying amount of certain assets and liabilities. As of June 30, 2021, the impacts of the pandemic have not significantly impacted the carrying amount of the Company’s assets and liabilities. The expenses resulting from these cost-saving measures were included in the consolidated statement of operations for the three and six months ended June 30, 2020, as follows (in millions): Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 Severance Lease Terminaion Total Severance Lease Terminaion Total Sales and marketing $ — $ 1.8 $ 1.8 $ 1.5 $ 3.0 $ 4.5 Operations and support 0.1 — 0.1 2.9 — 2.9 Research and development — — — 0.7 — 0.7 General and administrative 0.5 — 0.5 0.9 — 0.9 Total $ 0.6 $ 1.8 $ 2.4 $ 6.0 $ 3.0 $ 9.0 The Company did not recognize any restructuring expenses during the six months ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the Company did no t have any material remaining liabilities related to restructuring costs. 13. Subsequent Events On July 13, 2021, the Company and Guaranteed Rate, Inc. (“Guaranteed Rate”) announced the entry into a definitive agreement by their respective subsidiaries to form OriginPoint, a new mortgage origination company. OriginPoint will originate mortgages for the Company’s real estate brokerage clients, as well as the clients of any other brokerage, in order to make loans available to a broad consumer audience. On July 19, 2021, the Randall Family of Companies, a group of Southern Coastal New England residential real-estate brokerage entities, joined the Company through a stock purchase agreement. 23 Table of Contents