Compass, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2020 included in our final prospectus, or our Final IPO Prospectus, that forms a part of the Registration Statement on Form S-1 (File No. 333- 253744), or the IPO Registration Statement, for our initial public offering, or our IPO, dated as of March 31, 2021 and filed with the SEC on April 1, 2021 pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section entitled “Special Note Regarding Forward Looking Statements”. You should review the disclosure under the section entitled “Risk Factors” in this Quarterly Report for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. OVERVIEW Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and is intended to provide an understanding of our results of operations, financial condition and changes in our results of operations and financial condition. Our MD&A is organized as follows: • Introduction. This section provides a general description of our company and its business, recent developments affecting our company and discussions of how seasonal factors may impact our results. • Results of Operations. This section provides our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis. • Key Business Metrics and Non-GAAP Financial Measures. This section provides a discussion of key business metrics and Non-GAAP financial measures we use to evaluate our business and measure our performance, in addition to the measures presented in our condensed consolidated financial statements. • Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of June 30, 2021. • Critical Accounting Estimates and Policies. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions. • Recent Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future. INTRODUCTION Our Company Compass, Inc. (the “Company”) was incorporated in Delaware on October 4, 2012 under the name Urban Compass, Inc. On January 8, 2021, the board of directors of the Company approved a change to the Company’s name from Urban Compass, Inc. to Compass, Inc. Our Business and Business Model We provide an end-to-end platform that empowers our residential real estate agents to deliver exceptional service to seller and buyer clients. Our platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service and other critical functionality, all custom-built for the real estate industry and enabling our 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. 24 Table of Contents Our business model is directly aligned with the success of our agents. We attract agents to our brokerage and partner with them as independent contractors who affiliate their real estate licenses with us, operating their businesses on our platform and under our brand. We generate revenue from clients through our 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. We currently generate substantially all of our revenue from commissions paid to us by clients at the time that a home is transacted on our platform. While adjacent services comprise a smaller portion of our revenue to date, we are well-positioned to capture meaningful revenue from adjacent services as we continue to expand and diversify our offerings within the real estate ecosystem. Initial Public Offering On April 6, 2021, we completed our IPO and our 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, we issued and sold 26,296,438 shares of our Class A common stock at a public offering price of $18.00 per share. We received aggregate proceeds of $438.7 million from the IPO, net of the underwriting discount and offering costs of approximately $11.0 million. On March 31, 2021, in connection with the effectiveness of the IPO Registration Statement, we recognized $148.5 million in stock-based compensation expense for (i) certain restricted stock units 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 IPO 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 our stock on a public exchange. Recent Developments On July 13, 2021, we and Guaranteed Rate announced the entry into a definitive agreement by our respective subsidiaries to form OriginPoint, a new mortgage origination company. OriginPoint will originate mortgages for our real estate brokerage clients, as well as the clients of any other brokerage, in order to make loans available to a broad consumer audience. Operational Highlights for the three months ended June 30, 2021 We look to continue to attract the most talented agents to our platform, which is critical to our long-term success. We grow our revenue by increasing the productivity of our agents and by selectively attracting high-performing agents looking to grow their business. We also continue to significantly invest in our proprietary, integrated platform, designed for real estate agents, to enable them to grow their business and save them time and money. This value proposition allows us to recruit more agents, help them grow their business and retain them on our platform at industry leading retention rates. We had nearly 23,000 agents on our platform as of June 30, 2021. A subset of our agents are considered principal agents, which we define as either agents who are leaders of their respective agent teams or individual agents operating independently on our platform. For the three months ended June 30, 2021, the Average Number of Principal Agents (1) was 10,629, an increase of 2,095, or 25%, from the three months ended June 30, 2020. The principal agent additions came in both new and existing markets. During the three months ended June 30, 2021, our agents closed 65,743 Total Transactions (1) , an increase of 140.3% when compared to the three months ended June 30, 2020. Our growth in Total Transactions was due to a combination of new agents joining the platform, enhanced productivity for existing agents already on the platform and a robust housing market. Our Gross Transaction Value (1) for the three months ended June 30, 2021 was $77.0 billion, an increase of 186.2% when compared to the three months ended June 30, 2020. This growth reflects strong transaction volume, higher productivity per principal agent and higher Average Transaction Values. Average Transaction Value is calculated by dividing Gross Transaction Value by Total Transactions. (1) For the definitions of Average Number of Principal Agents, Total Transactions and Gross Transaction Value please refer to the section entitled “Key Business Metrics” included elsewhere in this Quarterly Report. We believe there remains a meaningful opportunity to grow our business by continuing to expand our geographic coverage. During the three months ended June 30, 2021, we launched 15 new markets, bringing total markets served to 62 at the end of the quarter. We now operate real estate brokerage services in 27 states. For the three months ended June 30, 2021, our Gross Transaction Value represented 6.2% of residential real estate transacted in the United States, compared to 3.3% for the three months ended June 30, 2020. We calculate our market share by dividing our Gross Transaction Value, or the total dollar value of transactions closed by agents on our platform, by two times (to account for the sell-side and buy-side of each transaction) the aggregate dollar value of U.S. existing home sales as reported by the National Association of Realtors. Faster data integration and ingestion, more efficient 25 Table of Contents agent onboarding, and the ability to customize our solutions to local market requirements will allow us to enter new markets more quickly and effectively over time. We have a dedicated expansion team responsible for launching new markets that partners closely with our enterprise sales team to rapidly identify talented agents in each new market. As we move forward, the priority with which we enter new markets will be based on the addressable size of each market, agent feedback and local market dynamics. Expansion within existing markets is particularly cost efficient as we are able to leverage existing infrastructure, personnel and our agent network. We also use alternative models like Compass Anywhere to provide a more tailored offering for key customer segments in order to accelerate expansion in a cost efficient manner. Platform Highlights for the three months ended June 30, 2021 Our proprietary technology platform enables our agents to deliver an exceptional experience to their buyer and seller clients. It makes our agents more productive, allowing them to drive increased transaction volume by using technology to accelerate, automate and simplify many of the routine tasks an agent performs on a daily basis. It also uses artificial intelligence and machine learning to better analyze the data sets, yielding better outcomes for our agents and their clients. We continue to invest in the platform, adding new engineers to build out the depth and breadth of the platform for our agents. As of June 30, 2021, we employed approximately 950 engineers and product specialists in New York, Washington DC, Seattle, and Hyderabad. Usage on our platform continues to increase. For the three months ended June 30, 2021, total sessions on the platform grew by 104% as compared to the three months ended June 30, 2020 as both our agents and buyer and seller clients saw the advantages of discovering, collaborating, and transacting for home purchases and sales in a digital setting. Additionally, during the three months ended June 30, 2021, 85% of our agent teams used our proprietary technology platform weekly. This usage represents a 4% (1) increase when compared to the three months ended June 30, 2020. The ratio of daily active users to weekly active users (DAU/WAU) was 74% (1) during the three months ended June 30, 2021, an increase of 5 percentage points from the prior year period. We are investing aggressively in technologies and services that empower our agents. To that end, we recently completed the acquisition of Glide Labs, Inc., a real estate technology company. The addition of Glide to our suite of services accelerates our ability to offer critical transaction management tools to our customers and provides us with a fast-growing software services business. Our ability to grow our agents, retain our agents and increase agent success on our platform, depends in part, on our ability to continue innovating in the industry and our ability to successfully launch new products for agents and clients. As such, we plan to continue making significant investments in research and development. Seasonality and Cyclicality The residential real estate market is seasonal, which directly impacts our agents’ businesses. While individual markets may vary, transaction volume is typically highest in spring and summer, and then declines gradually in late fall and winter. We experience the most significant financial effect from this seasonality in the first and fourth quarters of each year, when our revenue is typically lower relative to the second and third quarters. We believe that this seasonality has affected and will continue to affect our quarterly results; however, to date its effect may have been masked by our rapid growth. Additionally, volatility due to the COVID-19 pandemic caused some disruption to the typical seasonality patterns of the residential real estate market and our quarterly results. The COVID-19 pandemic is ongoing and it might result in further volatility causing future disruptions to the typical seasonality patterns, which would continue to affect our quarterly results. See “Impact of COVID-19 Pandemic on our Business” elsewhere in this section for more information. The residential real estate industry is also highly cyclical, and individual markets can have their own cyclical dynamics that diverge from broad market conditions. Generally, when economic conditions are favorable, the real estate industry tends to perform well. When the economy is weak, if interest rates dramatically increase, if mortgage lending standards tighten, or if there are economic or political disturbances, the residential real estate industry tends to perform poorly. Our revenue growth rate tends to increase as the real estate industry performs well and to decrease when the real estate industry performs poorly. (1) We have refined the methodology that we used to calculate WAU and DAU/WAU; using this revised methodology WAU for the three months ended March 31, 2021 was 85% and DAU/WAU for the three months ended March 31, 2021 was 74%, up 7 percentage points from the prior year period. 26 Table of Contents Impact of the COVID-19 Pandemic on Our Business In March 2020, the World Health Organization declared the outbreak of the COVID-19 a global pandemic, which continues to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including quarantines, shelter-in-place orders, and business limitations and shutdowns. In the first half of 2020, the COVID-19 pandemic significantly affected the U.S. residential real estate market. As a result of health concerns, stay-at-home orders and economic uncertainty, many metro areas saw a significant decline in home sales. In April and May 2020, nationwide home sales dropped to their lowest levels since the 2007-2008 housing and financial crisis, with a significant increase in the number of delisted homes. During that time, new listings and home buying activity were down significantly year over year due to limitations on in-person activities related to the sale of residential real estate, such as prohibitions or restrictions on in home showings, inspections and appraisals, and availability or hours of local real property documentation searches and new recordings. However, the combination of low supply and historically low interest rates allowed prices to remain steady. In response to the COVID-19 pandemic, we also took a number of measures, including, but not limited to, adoption of remote working for our employees and a virtual model for our agents, various platform enhancements and certain cost-saving measures such as temporary reduction of our workforce by 15%, temporary salary reduction, termination of certain lease obligations and reduction of certain discretionary expenses. Towards the end of the second quarter of 2020, the U.S. residential real estate market started to recover. Potential buyers started to increase their housing search and purchase activity by the end of May 2020. Home showings per listing rose from their lows in March and April, and were well above pre-pandemic levels by May, aided by the increase in online and socially distant viewings. Housing supply did not recover at the same pace, with housing inventory down over significantly year-over-year in the second half of 2020. Starting in June 2020, we saw a dramatic increase in year-over-year revenue growth. This momentum continued through the second half of 2020 and into 2021 across most of our markets. During the first half of 2021, the new listings and home buying activity returned to pre-pandemic levels and most metro areas saw year-over-year price increases. More broadly, we believe COVID-19 has accelerated the adoption of our technology platform, allowing our agents to not only continue to operate their business during the slowdown, but also to take advantage of the current market momentum. In addition, we have seen strong interest in our Compass Anywhere mobile agent offering, which provides location flexibility and a fully virtual support model well-suited to the COVID-19 working environment. While our performance in the face of COVID-19 does not necessarily reflect our future performance in every industry downturn, our adaptable team, backed by our strong digital platform, proved its ability to respond quickly in times of significant market dislocation. 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 our 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 our business in particular. See the section entitled “Risk Factors – Risks Related to Our Business and Operations – The outbreak of the COVID-19 pandemic has had a material effect on our business and could continue to do so.” 27 Table of Contents RESULTS OF OPERATIONS The following table sets forth our consolidated statements of operations data for the period indicated: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in millions, except percentages) Revenue. $ 1,951.4 100.0% $ 682.1 100.0% $ 3,065.3 100.0% $ 1,302.0 100.0% Operating expenses: Commissions and other related expense (1) 1,590.4 81.5 559.0 82.0 2,532.6 82.6 1,067.8 82.0 Sales and marketing (1) 124.3 6.4 90.8 13.3 235.6 7.7 197.3 15.2 Operations and support (1) 96.7 5.0 44.5 6.5 166.7 5.4 105.6 8.1 Research and development (1) 73.5 3.8 34.2 5.0 170.1 5.5 73.0 5.6 General and administrative (1) 59.4 3.0 26.5 3.9 152.3 5.0 53.0 4.1 Depreciation and amortization 14.9 0.8 12.7 1.9 28.4 0.9 25.1 1.9 Total operating expenses 1,959.2 100.4 767.7 112.5 3,285.7 107.2 1,521.8 116.9 Loss from operations (7.8 ) (0.4 ) (85.6 ) (12.5 ) (220.4 ) (7.2 ) (219.8 ) (16.9 ) Investment income, net — — 0.5 0.1 — — 2.0 0.2 Interest expense (0.6 ) — — — (1.1 ) — — — Loss before income taxes (8.4 ) (0.4 ) (85.1 ) (12.5 ) (221.5 ) (7.2 ) (217.8 ) (16.7 ) Benefit from income taxes 1.3 0.1 0.9 0.1 2.0 0.1 0.9 0.1 Net loss $ (7.1 ) -0.4% $ (84.2 ) -12.3% $ (219.5 ) -7.2% $ (216.9 ) -16.7% (1) Includes stock-based compensation expense as follows: 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 Stock-based compensation 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: 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 Comparison of the Three and Six Months Ended June 30, 2021 and 2020 Revenue Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Revenue $ 1,951.4 $ 682.1 $ 1,269.3 186.1% $ 3,065.3 $ 1,302.0 $ 1,763.3 135.4% Revenue was $1,951.4 million and $3,065.3 million during the three and six months ended June 30, 2021, increases of $1,269.3 million, or 186.1%, and $1,763.3 million, or 135.4%, compared to the year ago periods, respectively. These increases were primarily driven by an increase in the number of 28 Table of Contents agents that joined our platform during 2020 and 2021, a higher volume of transactions from both new and existing agents, continued geographic expansion both within our existing and new markets, as well as from a modest increase in Average Transaction Value. The Average Number of Principal Agents for the three and six months ended June 30, 2021 grew to 10,629 and 10,221, increases of 24.5% and 22.5%, from the year ago periods, respectively. Total Transactions for the three and six months ended June 30, 2021 grew to 65,743 and 106,011, increases of 140.3% and 106.0% from the year ago periods, respectively. Operating Expenses Commissions and other related expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Commissions and other related expense $ 1,590.4 $ 559.0 $ 1,031.4 184.5% $ 2,532.6 $ 1,067.8 $ 1,464.8 137.2% Percentage of revenue 81.5% 82.0% 82.6% 82.0% Commissions and other related expense was $1,590.4 million and $2,532.6 million during the three and six months ended June 30, 2021, increases of $1,031.4 million, or 184.5%, and $1,464.8 million, or 137.2% compared to the year ago periods, respectively. Included in commissions and other related expense were non-cash expenses related to stock-based compensation of $11.7 million and $56.3 million for the three and six months ended June 30, 2021 and $0.5 million and $4.6 million for the three and six months ended June 30, 2020, respectively. The increases in stock-based compensation expense for the three and six months ended June 30, 2021 as compared to the year ago periods were primarily related to a one-time acceleration of stock-based compensation expense of $41.7 million in connection with our IPO, and stock-based compensation expense related to certain RSUs, for which the liquidity-based condition was satisfied in connection with the IPO. Commissions and other related expense excluding such non-cash stock-based compensation expense was $1,578.7 million and $2,476.3 million, or 80.9% and 80.8% of revenue for the three and six months ended June 30, 2021 and $558.5 million and $1,063.2 million, or 81.9% and 81.7% for the three and six months ended June 30, 2020, respectively. The increase in absolute dollars of commissions and other related expense, excluding the non-cash stock-based compensation, was primarily driven by our higher revenue. The favorable 100 and 90 basis points decreases in commissions and other related expense, excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue in the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, respectively, was primarily due to the change in mix of the commission arrangements we have with our agents and changes in geographic mix. Sales and marketing Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Sales and marketing $ 124.3 $ 90.8 $ 33.5 36.9% $ 235.6 $ 197.3 $ 38.3 19.4% Percentage of revenue 6.4% 13.3% 7.7% 15.2% Sales and marketing expense was $124.3 million and $235.6 million during the three and six months ended June 30, 2021, increases of $33.5 million, or 36.9%, and $38.3 million, or 19.4% compared to the year ago periods, respectively. Included in Sales and marketing expense were non-cash expenses related to stock-based compensation of $8.6 million and $17.6 million for the three and six months ended June 30, 2021 and $2.5 million and $5.4 million for the three and six months ended June 30, 2020, respectively. The increases in stock-based compensation expense for the three and six months ended June 30, 2021 as compared to the year ago periods were partially due to a one-time acceleration of stock-based compensation expense of $1.8 million in connection with our IPO, and stock-based compensation expense related to certain RSUs, for which the liquidity-based condition was satisfied in connection with the IPO. Sales and marketing expense excluding such non-cash stock-based compensation expense was $115.7 million and $218.0 million, or 5.9% and 7.1% of revenue for the three and six months ended June 30, 2021 and $88.3 million and $191.9 million, or 12.9% and 14.7% for the three and six months ended June 30, 2020, respectively. The increase in sales and marketing expense, excluding the non-cash stock-based compensation expense was partially due to an increase in headcount and increased agent marketing and advertising. The decrease in sales and marketing expense excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue during the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively, was primarily due to the economies of scale as we were able to grow revenue more quickly than the costs of our sales and marketing efforts. 29 Table of Contents Operations and support Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Operations and support $ 96.7 $ 44.5 $ 52.2 117.3% $ 166.7 $ 105.6 $ 61.1 57.9% Percentage of revenue 5.0% 6.5% 5.4% 8.1% Operations and support expense was $96.7 million and $166.7 million during the three and six months ended June 30, 2021, increases of $52.2 million, or 117.3%, and $61.1 million, or 57.9% compared to the year ago periods, respectively. Included in Operations and support expense were non-cash expenses related to stock-based compensation of $2.8 million and $7.8 million for the three and six months ended June 30, 2021 and $0.7 million and $1.5 million for the three and six months ended June 30, 2020, respectively. The increase in stock-based compensation expense for the three and six months ended June 30, 2021 as compared to June 30, 2020 was primarily due to a one-time acceleration of stock-based compensation expense of $3.1 million in connection with our IPO, and stock-based compensation expense related to certain RSUs, for which the liquidity-based condition was satisfied in connection with the IPO. Operations and support expense excluding such non-cash stock-based compensation expense was $93.9 million and $158.9 million, or 4.8% and 5.2% of revenue for the three and six months ended June 30, 2021 and $43.8 million and $104.1 million, or 6.4% and 8.0% for the three and six months ended June 30, 2020, respectively. The increase in absolute dollars, excluding such non-cash stock based-compensation expense, was primarily driven by an increase in compensation and other personnel-related costs due to increased headcount and costs associated with the various acquisitions completed during 2020 and 2021. The decrease in operations and support expense excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue during the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively, was primarily due to the economies of scale as we were able to grow revenue more quickly than the costs to support our agents on our platform. Research and development Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Research and development $ 73.5 $ 34.2 $ 39.3 114.9% $ 170.1 $ 73.0 $ 97.1 133.0% Percentage of revenue 3.8% 5.0% 5.5% 5.6% Research and development expense was $73.5 million and $170.1 million during the three and six months ended June 30, 2021, increases of $39.3 million, or 114.9%, and $97.1 million, or 133.0% compared to the year ago periods, respectively. Included in research and development expense were non-cash expenses related to stock-based compensation of $13.5 million and $63.0 million for the three and six months ended June 30, 2021 and $0.3 million and $0.8 million for the three and six months ended June 30, 2020, respectively. The increase in stock-based compensation expense for the three and six months ended June 30, 2021 as compared to June 30, 2020 was primarily due to a one-time acceleration of stock-based compensation expense of $46.9 million in connection with our IPO, and stock-based compensation expense related to certain RSUs, for which the liquidity-based condition was satisfied in connection with the IPO. Research and development expense excluding such non-cash stock-based compensation expense was $60.0 million and $107.1 million, or 3.1% and 3.5% of revenue for the three and six months ended June 30, 2021 and $33.9 million and $72.2 million, or 5.0% and 5.5% for the three and six months ended June 30, 2020, respectively. The increase in absolute dollars, excluding such non-cash stock based-compensation expense was primarily driven by an increase in compensation and other personnel-related costs due to increased headcount. The decrease in research and development expense, excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue during the three and six months ended June 30, 2021 as compared to the three months ended June 30, 2020, respectively, was primarily due to the economies of scale as we were able to grow revenue more quickly than the costs to invest in our technology infrastructure and platform. General and administrative Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) General and administrative $ 59.4 $ 26.5 $ 32.9 124.2% $ 152.3 $ 53.0 $ 99.3 187.4% Percentage of revenue 3.0% 3.9% 5.0% 4.1% 30 Table of Contents General and administrative expense was $59.4 million and $152.3 million for the three and six months ended June 30, 2021, increases of $32.9 million, or 124.2%, and $99.3 million, or 187.4% compared to the year ago periods, respectively. Included in general and administrative expense were non-cash expenses related to stock-based compensation of $17.7 million and $77.1 million for the three and six months ended June 30, 2021 and $9.0 million and $11.8 million for the three and six months ended June 30, 2020, respectively. The increases in stock-based compensation expense for the three and six months ended June 30, 2021 compared to the year ago periods were primarily due to a one-time acceleration of stock-based compensation expense of $55.0 million in connection with our IPO, and stock-based compensation expense related to certain RSUs, for which the liquidity-based condition was satisfied in connection with the IPO. General and administrative expense excluding such non-cash stock-based compensation expense was $41.7 million and $75.2 million, or 2.1% and 2.5% of revenue for the three and six months ended June 30, 2021 and $17.5 million and $41.2 million, or 2.6% and 3.2% for the three and six months ended June 30, 2020, respectively. The increase in absolute dollars, excluding such non-cash stock based-compensation expense was primarily driven by an increase in compensation and other personnel-related costs due to increased headcount. Our general and administrative expense, excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue decreased during the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively, as we were able to grow our revenues more quickly than the general and administrative expenses of our business. Depreciation and amortization Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Depreciation and amortization $ 14.9 $ 12.7 $ 2.2 17.3% $ 28.4 $ 25.1 $ 3.3 13.1% Percentage of revenue 0.8% 1.9% 0.9% 1.9% Depreciation and amortization expense increased by $2.2 million, or 17.3%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, depreciation and amortization expense increased by $3.3 million, or 13.1% when compared to the six months ended June 30, 2020. The increase was primarily driven by an increase in the amortization of intangible assets related to the impact of acquisitions completed during the year ended December 31, 2020 and the six months ended June 30, 2021. Depreciation and amortization expense as a percentage of revenue decreased in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively, primarily due to capital expenditures growing at a slower rate relative to our revenue growth. Investment income, net Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Investment income, net $ — $ 0.5 $ (0.5 ) -100.0% $ — $ 2.0 $ (2.0 ) -100.0% Investment income, net was not meaningful during the three and six months ended June 30, 2021 as a result of lower average interest rates on our short-term interest-bearing investments. During the three and six months ended June 30, 2020, interest income was $0.5 million and $2.0 million, respectively. Interest expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Interest expense $ (0.6 ) $ — $ (0.6 ) 100.0% $ (1.1 ) $ — $ (1.1 ) 100.0% Interest expense was $0.6 million and $1.1 million for the three and six months ended June 30, 2021. These amounts were driven by the interest expense incurred on both our Concierge Facility and Revolving Credit Facility, including the commitment fees related to the available borrowing capacities on such facilities. These facilities did not exist in the year ago periods. 31 Table of Contents Benefit from income taxes Three Months Ended June 30, Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in millions, except percentages) Benefit from income taxes $ 1.3 $ 0.9 $ 0.4 44.4% $ 2.0 $ 0.9 $ 1.1 122.2% Benefit from income taxes increased by $0.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, benefit from income taxes increased by $1.1 million when compared to the six months ended June 30, 2020. The increase resulted from a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions. K EY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Total Transactions 65,743 27,357 106,011 51,468 Gross Transaction Value (in billions) $ 77.0 $ 26.9 $ 120.8 $ 52.0 Average Number of Principal Agents 10,629 8,534 10,221 8,343 Net Loss (in millions) $ (7.1 ) $ (84.2 ) $ (219.5 ) $ (216.9 ) Net Loss Margin -0.4% -12.3% -7.2% -16.7% Adjusted EBITDA (1) (in millions) $ 71.3 $ (56.4 ) $ 40.7 $ (158.5 ) Adjusted EBITDA Margin (1) 3.7% -8.3% 1.3% -12.2% (1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of Net Loss to Adjusted EBITDA, see the section titled “—Non-GAAP Financial Measures” below. Key Business Metrics Total Transactions Total Transactions is a key measure of the scale of our platform, which drives our financial performance. We define Total Transactions as the sum of all transactions closed on our platform in which our agent represented the buyer or seller in the purchase or sale of a home. We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. We exclude transactions related to rentals in this metric. Total Transactions have increased over time as we recruited new agents in existing markets, expanded into new markets, retained top-performing agents, and as existing agents increased their productivity on our platform. Our Total Transactions for the three and six months ended June 30, 2021 and 2020 were 65,743 and 106,011, increase of 140.3% and 106.0% from the year ago periods, respectively. This increases were due to a combination of agent additions, enhanced productivity from the platform, and a robust housing market. Robust housing demand was driven by a number of factors including: (i) favorable economic conditions supported by historically low mortgage rates, (ii) higher mobility rates as consumers reassess the requirements of their homes, have more flexibility on location, and accelerate the purchase of second homes and (iii) positive demographic trends as millennials are entering the housing market in larger numbers and household formations increase. Gross Transaction Value Gross Transaction Value is a key measure of the scale of our platform and success of our agents, which ultimately impacts revenue. Gross Transaction Value is the sum of all closing sale prices for homes transacted by agents on our platform. We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction. This metric excludes rental transactions. 32 Table of Contents Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and macroeconomic factors. Our Gross Transaction Value for the three and six months ended June 30, 2021 were $77.0 billion and $120.8 billion, increases of 186.2% and 132.3% from the year ago periods, respectively. We have experienced consistent and significant growth in the number of agents on our platform and the markets we serve, resulting in strong period-over-period growth rates in both Total Transactions and associated Gross Transaction Value. Average Number of Principal Agents The Average Number of Principal Agents represents the number of agents who are leaders of their respective agent teams or individual agents operating independently on our platform during a given period. The Average Number of Principal Agents is an indicator of the potential future growth of our business, as well as the size and strength of our platform. This figure is calculated by taking the average of the number of principal agents at the end of each month included in the period. We use the Average Number of Principal Agents, in combination with our other key metrics such as Total Transactions and Gross Transaction Value, as a measure of agent productivity. Our Average Number of Principal Agents for the three and six months ended June 30, 2021 were 10,629 and 10,221, respectively, representing increases of 24.5% and 22.5% from the year ago periods, respectively. For the three and six months ended June 30, 2021, our Average Number of Principal Agents was 47% and 45%, respectively, of our average number of total agents. Our principal agents generate revenue across a diverse set of real estate markets in the United States. Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA is a non-GAAP financial measure that represents our net loss adjusted for depreciation and amortization, investment income, net, interest expense, stock-based compensation expense, benefit from income taxes and other items. During the periods presented, other items included (i) restructuring charges associated with lease termination and severance costs and (ii) acquisition-related expenses related to adjustments to the fair value of contingent consideration and acquisition consideration treated as compensation expense over underlying retention periods. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. We use Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe Adjusted EBITDA and Adjusted EBITDA Margin are also helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, however, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, including net loss and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA Margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are not presented in accordance with GAAP and the use of these terms varies from others in our industry. 33 Table of Contents The following table provides a reconciliation of Net loss to Adjusted EBITDA (in millions): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net loss $ (7.1 ) $ (84.2 ) $ (219.5 ) $ (216.9 ) Adjusted to exclude the following: Depreciation and amortization 14.9 12.7 28.4 25.1 Investment income, net — (0.5 ) — (2.0 ) Interest expense 0.6 — 1.1 — Stock-based compensation 54.3 13.0 221.8 24.1 Benefit from income taxes (1.3 ) (0.9 ) (2.0 ) (0.9 ) Restructuring charges (1) — 2.4 — 9.0 Acquisition-related expenses (2) 9.9 1.1 10.9 3.1 Adjusted EBITDA $ 71.3 $ (56.4 ) $ 40.7 $ (158.5 ) Net Loss Margin -0.4% -12.3% -7.2% -16.7% Adjusted EBITDA Margin 3.7% -8.3% 1.3% -12.2% (1) Includes lease termination and severance costs. See Note 12 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. (2) Includes adjustments related to the change in fair value of contingent consideration and adjustments related to acquisition consideration treated as compensation expense over the underlying retention periods. See Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. Adjusted EBITDA was income of $71.3 million compared to a loss of $56.4 million during the three months ended June 30, 2021 and 2020, respectively, and income of $40.7 million compared to a loss of $158.5 million during the six months ended June 30, 2021 and 2020, respectively. The favorable increase in Adjusted EBITDA during the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 was primarily due to a significant increase in our revenue which was driven by our growth initiatives resulting in an increase in the number of agents that joined our platform during 2020 and 2021, including continued geographic expansion into new markets and a higher volume of transactions from both new and existing agents. Additionally, while expenses increased as compared to the three and six months ended June 30, 2020, the rate of increase was less than the increase in our revenue which contributed to the favorable increases in Adjusted EBITDA. The following tables provide supplemental information to the Reconciliation of Net loss to Adjusted EBITDA presented above. These tables identify how each of the Operating expenses related financial statement line items contained within the accompanying condensed consolidated statements of operations elsewhere in this Quarterly Report are impacted by the items excluded from Adjusted EBITDA (in millions): 34 Table of Contents Three Months Ended June 30, 2021 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 1,590.4 $ 124.3 $ 96.7 $ 73.5 $ 59.4 Adjusted to exclude the following: Stock-based compensation (11.7 ) (8.6 ) (2.8 ) (13.5 ) (17.7 ) Acquisition-related expenses — — (9.9 ) — — Non-GAAP Basis $ 1,578.7 $ 115.7 $ 84.0 $ 60.0 $ 41.7 Three Months Ended June 30, 2020 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 559.0 $ 90.8 $ 44.5 $ 34.2 $ 26.5 Adjusted to exclude the following: Stock-based compensation (0.5 ) (2.5 ) (0.7 ) (0.3 ) (9.0 ) Restructuirng charges — (1.8 ) (0.1 ) — (0.5 ) Acquisition-related expenses — — (1.1 ) — — Non-GAAP Basis $ 558.5 $ 86.5 $ 42.6 $ 33.9 $ 17.0 Six Months Ended June 30, 2021 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 2,532.6 $ 235.6 $ 166.7 $ 170.1 $ 152.3 Adjusted to exclude the following: Stock-based compensation (56.3 ) (17.6 ) (7.8 ) (63.0 ) (77.1 ) Acquisition-related expenses — — (10.9 ) — — Non-GAAP Basis $ 2,476.3 $ 218.0 $ 148.0 $ 107.1 $ 75.2 Six Months Ended June 30, 2020 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 1,067.8 $ 197.3 $ 105.6 $ 73.0 $ 53.0 Adjusted to exclude the following: Stock-based compensation (4.6 ) (5.4 ) (1.5 ) (0.8 ) (11.8 ) Restructuirng charges — (4.5 ) (2.9 ) (0.7 ) (0.9 ) Acquisition-related expenses — — (3.1 ) — — Non-GAAP Basis $ 1,063.2 $ 187.4 $ 98.1 $ 71.5 $ 40.3 35 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Since inception, except for the six months ended June 30, 2021, we have generated negative cash flows from operations and have primarily financed our operations from net proceeds from the sale of convertible preferred stock and common stock. As of June 30, 2021, we had cash and cash equivalents of $810.7 million and an accumulated deficit of $1.3 billion. During the three months ended June 30, 2021, we received aggregate proceeds of $438.7 million from our IPO, net of offering costs of approximately $11.0 million. We expect that operating losses and negative cash flows from operations may continue in certain periods in the foreseeable future as we continue to invest in the expansion of our business, research and development and sales and marketing activities. We believe our existing cash and cash equivalents, the Concierge Facility (which, as defined below, may be used to support our Compass Concierge Program) and the Revolving Credit Facility will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months. Our future capital requirements will depend on many factors, including, but not limited to, growth in the number of our agents and the associated costs to attract, support and retain them, our expansion into new geographic markets, future acquisitions, and the timing of investments in technology and personnel to support the overall growth in our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected. As of June 30, 2021, there have been no material changes from the contractual obligations and commitments previously disclosed in our IPO prospectus. In addition to the foregoing, based on our current assessment, we do not currently anticipate any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic on our operations. 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 our financial condition, results of operations, or cash flows remain uncertain and dependent 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 our business in particular. While the potential economic impact brought by the COVID-19 pandemic may be difficult to assess or predict, the ultimate impact of the pandemic could result in significant disruption of global financial markets, reducing our ability to access capital in the future. In addition, a recession or long-term market correction resulting from the COVID-19 pandemic could materially affect our business, financial condition and results of operations. Concierge Facility In July 2020, our subsidiary, Compass Concierge SPV I, LLC, or Concierge SPV, entered into a Revolving Credit and Security Agreement, or 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, our Compass Concierge Program. The Concierge Facility is secured by the assets of the Concierge SPV, which primarily consists of the purchased receivables and cash of the Compass Concierge Program. The Concierge Facility is also guaranteed by us. Prior to July 29, 2021, borrowings under the Concierge Facility accrued interest at rates equal to the adjusted London interbank offered rate, or LIBOR plus the applicable 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, we were 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 our utilization rate. On July 29, 2021, we 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. 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 interest rate on the Concierge Facility was 3.16% as of June 30, 2021. We have the option to repay our 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 customary covenants related to the Concierge SPV, including affirmative covenants that restrict its ability to, among other things, incur additional 36 Table of Contents 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 we and our consolidated subsidiaries fail to comply with certain financial covenants that require us to meet certain liquidity-based measures, the commitments under the Concierge Facility will automatically be reduced to zero and we will be required to repay any outstanding loans under the Concierge Facility. As of June 30, 2021, we were in compliance with the covenants under the Concierge Facility. Revolving Credit and Guaranty Agreement In March 2021, we entered into a Revolving Credit and Guaranty Agreement, or 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 our consolidated total assets, plus such additional amount so long as our 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. Our obligations under the Revolving Credit Facility are guaranteed by certain of our subsidiaries and are secured by a first priority security interest in substantially all of our assets and subsidiary guarantors. Borrowings under the Revolving Credit Facility bear interest, at our 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. We are 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. We have the option to repay our 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, we had no outstanding borrowings under the Revolving Credit Facility and outstanding letters of credit totaled approximately $15.3 million. The Revolving Credit Facility contains customary representations, warranties, financial covenants applicable to the Company and to the Company’s restricted subsidiaries, affirmative covenants, such as financial statement reporting requirements, and negative covenant which 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. 37 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2021 2020 (in millions) Net cash provided by (used in) operating activities $ 44.1 $ (159.9 ) Net cash (used in) provided by investing activities (123.9 ) 24.4 Net cash provided by financing activities 450.4 3.0 Net increase (decrease) in cash and cash equivalents $ 370.6 $ (132.5 ) Operating Activities For the six months ended June 30, 2021, net cash provided by operating activities was $44.1 million. The inflow was primarily due to a $219.5 million net loss adjusted for $256.5 million of non-cash charges and cash inflow due to changes in assets and liabilities of $7.1 million. For the six months ended June 30, 2020, net cash used in operating activities was $159.9 million. The outflow was primarily due to a $216.9 million net loss adjusted for $60.7 million of non-cash charges and cash outflow due to changes in assets and liabilities of $3.7 million. Investing Activities During the six months ended June 30, 2021, net cash used by investing activities was $123.9 million consisting of $103.8 million in payments for acquisitions, net of cash acquired, and $20.1 million in capital expenditures. During the six months ended June 30, 2020, net cash provided by investing activities was $24.4 million consisting of $44.4 million in proceeds from sales and maturities of marketable securities partially offset by $19.2 million in capital expenditures and $0.8 million in payments for acquisitions, net of cash acquired. Financing Activities During the six months ended June 30, 2021, net cash provided by financing activities was $450.4 million, primarily consisting of $439.6 million in net proceeds from the issuance of common stock upon initial public offering, $16.2 million in proceeds from the exercise and early exercise of stock options and $2.7 million in net proceeds from drawdowns on the Concierge Facility, partially offset by $6.7 million in payments of contingent consideration related to acquisitions and $1.4 million in paid deferred debt issuance costs relating to the Revolving Credit Facility. During the six months ended June 30, 2020, net cash provided by financing activities was $3.0 million, primarily consisting of $3.4 million in proceeds from the exercise and early exercise of stock options and $1.0 million in proceeds from the issuance of convertible preferred stock partially offset by $1.4 million in payments of contingent consideration related to acquisitions. Off-Balance Sheet Arrangements We administer escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions. We are contingently liable for these escrow and trust deposits totaled $282.5 million and $46.1 million as of June 30, 2021 and December 31, 2020, respectively. We did not have any other off-balance sheet arrangements as of or during the periods presented. CRITICAL ACCOUNTING ESTIMATES AND POLICIES Critical Accounting Estimates Our MD&A is based upon our condensed consolidated financial statements and related notes, which were prepared in conformity with U.S. GAAP. The preparation of the condensed consolidated financial statements requires us 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 condensed consolidated financial statements and accompanying notes. 38 Table of Contents These judgments, estimates and assumptions are used for, but not limited to (i) valuation of our 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 our 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. We determine our estimates and judgments based on historical experience and on various other assumptions that we believe they 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 COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it has impacted and may continue to impact our operations and our 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 our 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 our business in particular. We will continue to assess impacts of the COVID-19 pandemic and will adjust our operations as necessary. Critical Accounting Policies Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. There have been no material changes to our critical accounting policies and estimates disclosed in our Final IPO Prospectus. For additional information about our critical accounting policies and estimates, see the disclosure included in our Final IPO Prospectus as well as Note 1 and Note 2 to our condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report. RECENT ACCOUNTING PRONOUNCEMENTS For a description of our recently adopted accounting pronouncements and accounting pronouncements issued but not yet adopted, see Note 2 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report.