What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-10 · 152 added, 149 removed, 384 unchanged (44% of the section changed)

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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.

This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of September 30, 2021.

Critical Accounting Estimates and Policies.

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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.

In July 2021, we and Guaranteed Rate formed 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

OriginPoint is a joint venture and is owned 49.9% by us and 50.1% by Guaranteed Rate.

Operational Highlights for the three months ended September 30, 2021

We look to continue to attract the most talented agents to our platform, which is critical to our long-term success.

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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.

We had over 25,000 agents on our platform as of September 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.

For the three months ended September 30, 2021, the Average Number of Principal Agents (1)

was 11,616, an increase of 2,768, or 31.3%, from the three months ended September 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.

During the three months ended September 30, 2021, our agents closed 62,349 Total Transactions (1)

, an increase of 35.8% when compared to the three months ended September 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.

for the three months ended September 30, 2021 was $69.1 billion, an increase of 44.6% when compared to the three months ended September 30, 2020.

This growth reflects strong transaction volume, higher productivity per principal agent and higher Average Transaction Values.

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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.

During the three months ended September 30, 2021, we launched 5 new markets, bringing total markets served to 67 at the end of the quarter.

We now operate real estate brokerage services in 28 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.

For the three months ended September 30, 2021, our Gross Transaction Value represented 5.4% of residential real estate transacted in the United States, compared to 4.1% for the three months ended September 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

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existing home sales as reported by the National Association of Realtors.

Faster data integration and ingestion, more efficient

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.

Faster data integration and ingestion, more efficient 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.

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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

Platform Highlights for the three months ended September 30, 2021

Our proprietary technology platform enables our agents to deliver an exceptional experience to their buyer and seller clients.

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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.

As of September 30, 2021, we had approximately a 1,500 person technology team as well as a field organization dedicated to servicing the agent.

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.

For the three months ended September 30, 2021, total sessions on the platform grew by 31% as compared to the three months ended September 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.

During the three months ended September 30, 2021 and 2020, 83% and 83% of our agent teams used our proprietary technology platform weekly.

The ratio of daily active users to weekly active users (DAU/WAU) was 71% and 72% during the three months ended September 30, 2021 and 2020, respectively.

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.

To that end, in May 2021, we 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.

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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.

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.

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

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Our revenue growth rate tends to increase as the real estate industry performs well and to decrease when the real estate industry performs poorly.

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.

Impact of the COVID-19

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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.

Housing supply did not recover at the same pace, with housing inventory down 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.

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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.

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

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Includes stock-based compensation expense as follows:

Three Months Ended June 30,

Six Months Ended June 30, 2021

Three Months Ended September 30,

Nine Months Ended September 30,

Commissions and other related expense

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Total stock-based compensation expense

Stock-based compensation for the six months ended June 30, 2021 includes the following amounts related to a one-time

Stock-based compensation for the nine months ended September 30, 2021 includes the following amounts related to a one-time

acceleration of stock-based compensation expense in connection with the IPO:

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Total stock-based compensation expense

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

Three Months Ended June 30,

Six Months Ended June 30,

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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

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.

Revenue was $1,743.6 million and $4,808.9 million during the three and nine months ended September 30, 2021, increases of $555.1 million, or 46.7%, and $2,318.4 million, or 93.1%, compared to the year ago periods, respectively.

These increases were primarily driven by an increase in the number of 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 nine months ended September 30, 2021 grew to 11,616 and 10,686, increases of 31.3% and 25.5%, from the year ago periods, respectively.

Total Transactions for the three and nine months ended September 30, 2021 grew to 62,349 and 168,360, increases of 35.8% and 72.9% from the year ago periods, respectively.

Operating Expenses

Commissions and other related expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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.

Commissions and other related expense was $1,430.6 million and $3,963.2 million during the three and nine months ended September 30, 2021, increases of $451.2 million, or 46.1%, and $1,916.0 million, or 93.6% 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

expenses related to stock-based compensation of $26.3 million and $82.6 million for the three and nine months ended September 30, 2021 and $0.5 million and $5.1 million for the three and nine months ended September 30, 2020, respectively.

The increases in stock-based compensation expense for the three and nine months ended September 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.

stock-based compensation expense was $1,404.3 million and $3,880.6 million, or 80.5% and 80.7% of revenue for the three and nine months ended September 30, 2021 and $978.9 million and $2,042.1 million, or 82.4% and 82.0% for the three and nine months ended September 30, 2020, respectively.

The increase in absolute dollars of commissions and other related expense, excluding the non-cash

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The favorable 180 and 130 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.

stock-based compensation expense, expressed as a percentage of revenue in the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020 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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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.

Sales and marketing expense was $130.6 million and $366.2 million during the three and nine months ended September 30, 2021, increases of $30.9 million, or 31.0%, and $69.2 million, or 23.3% 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

expenses related to stock-based compensation of $10.3 million and $27.9 million for the three and nine months ended September 30, 2021 and $2.6 million and $8.0 million for the three and nine months ended September 30, 2020, respectively.

The increases in stock-based compensation expense for the three and nine months ended September 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.

stock-based compensation expense was $120.3 million and $338.3 million, or 6.9% and 7.0% of revenue for the three and nine months ended September 30, 2021 and $97.1 million and $289.0 million, or 8.2% and 11.6% for the three and nine months ended September 30, 2020, respectively.

The increase in sales and marketing expense, excluding the non-cash

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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.

stock-based compensation expense, expressed as a percentage of revenue during the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 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.

Operations and support

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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.

Operations and support expense was $97.0 million and $263.7 million during the three and nine months ended September 30, 2021, increases of $43.7 million, or 82.0%, and $104.8 million, or 66.0% 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

expenses related to stock-based compensation of $4.5 million and $12.3 million for the three and nine months ended September 30, 2021 and $0.7 million and $2.2 million for the three and nine months ended September 30, 2020, respectively.

The increase in stock-based compensation expense for the three and nine months ended September 30, 2021 as compared to September 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.

stock-based compensation expense was $92.5 million and $251.4 million, or 5.3% and 5.2% of revenue for the three and nine months ended September 30, 2021 and $52.6 million and $156.7 million, or 4.4% and 6.3% for the three and nine months ended September 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 increase in operations and support expense excluding the non-cash

stock-based compensation expense, expressed as a percentage of revenue during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, respectively, was primarily also due to an increase in compensation and other personnel-related costs due to

increased headcount.

The decrease in operations and support expense excluding the non-cash

stock-based compensation expense, expressed as a percentage of revenue during the nine months ended September 30, 2021 as compared to the nine months ended September 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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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.

Research and development expense was $89.7 million and $259.8 million during the three and nine months ended September 30, 2021, increases of $56.0 million, or 166.2%, and $153.1 million, or 143.5% 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

expenses related to stock-based compensation of $13.2 million and $76.2 million for the three and nine months ended September 30, 2021 and $0.3 million and $1.1 million for the three and nine months ended September 30, 2020, respectively.

The increase in stock-based compensation expense for the three and nine months ended September 30, 2021 as compared to September 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.

stock-based compensation expense was $76.5 million and $183.6 million, or 4.4% and 3.8% of revenue for the three and nine months ended September 30, 2021 and $33.4 million and $105.6 million, or 2.8% and 4.2% for the three and nine months ended September 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 increase in research and development expense, excluding the non-cash

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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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

General and administrative expense was $79.5 million and $231.8 million for the three and nine months ended September 30, 2021, increases of $56.8 million, or 250.2%, and $156.1 million, or 206.2% compared to the year ago periods, respectively.

During the three and nine months ended September 30, 2021, General and administrative expense includes a charge of $21.3 million in connection with the settlement in principle for the Avi Dorfman and RentJolt, Inc.

matter (the “Litigation Matter”).

Also included in general and administrative expense were non-cash

expenses related to stock-based compensation of $16.8 million and $93.9 million for the three and nine months ended September 30, 2021 and $2.0 million and $13.8 million for the three and nine months ended September 30, 2020, respectively.

The increases in stock-based compensation expense for the three and nine months ended September 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.

stock-based compensation expense and the litigation matter was $41.4 million and $116.6 million, or 2.4% of revenue for the three and nine months ended September 30, 2021 and $20.7 million and $61.9 million, or 1.7% and 2.5% of revenue for the three and nine months ended September 30, 2020, respectively.

The increase in absolute dollars and on a percentage of revenue basis, 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 increased administrative expenses resulting from our public company requirements following our IPO.

Depreciation and amortization

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

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Percentage of revenue

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.

Depreciation and amortization expense increased by $3.7 million, or 28.5%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, Depreciation and amortization expense increased by $7.0 million, or 18.4% when compared to the nine months ended September 30, 2020.

Depreciation and amortization expense as a percentage of revenue decreased in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

Investment income, net

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.

Investment income, net was not meaningful during the three and nine months ended September 30, 2021 as a result of lower average interest rates on our short-term interest-bearing investments.

During the three and nine months ended September 30, 2021, interest income was $0.1 million and during the nine months ended September 30, 2020, interest income was $2.0 million.

Interest expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

Interest expense

Interest expense was $0.6 million and $1.1 million for the three and six months ended June 30, 2021.

Interest expense was $0.7 million and $1.8 million for the three and nine months ended September 30, 2021 and $0.2 million for the three and nine month ended September 30, 2020.

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.

The Concierge Facility did not exist until July 2020 and the Revolving Credit Facility did not exist in the year ago periods.

Benefit from income taxes

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except percentages)

Benefit from income taxes

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.

Benefit from income taxes increased by $1.3 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

For the nine months ended September 30, 2021, benefit from income taxes increased by $2.4 million when compared to the nine months ended September 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.

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

Total Transactions

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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.

Our Total Transactions for the three and nine months ended September 30, 2021 were 62,349 and 168,360, increase of 35.8% and 72.9% from the year ago periods, respectively.

These 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:

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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.

Our Gross Transaction Value for the three and nine months ended September 30, 2021 were $69.1 billion and $189.9 billion, increases of 44.6% and 90.3% 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.

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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 Average Number of Principal Agents for the three and nine months ended September 30, 2021 were 11,616 and 10,686, respectively, representing increases of 31.3% and 25.5% from the year ago periods, respectively.

For the three and nine months ended September 30, 2021, our Average Number of Principal Agents was 46% and 43%, 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.

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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.

During the periods presented, other items included (i) restructuring charges associated with lease termination and severance costs, (ii) acquisition-related expenses related to adjustments to the fair value of contingent consideration and acquisition consideration treated as compensation expense over underlying retention periods and (iii) litigation charge in connection with the settlement of the Litigation Matter.

Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue.

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The following table provides a reconciliation of Net loss to Adjusted EBITDA (in millions):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Adjusted to exclude the following:

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Acquisition-related expenses (2)

Litigation charge (3)

Adjusted EBITDA

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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.

Represents a charge of $21.3 million in connection with the settlement in principle for the Litigation Matter.

See Note 6 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information.

Adjusted EBITDA was income of $12.2 million compared to $11.0 million during the three months ended September 30, 2021 and 2020, respectively, and income of $52.9 million compared to a loss of $147.5 million during the nine months ended September 30, 2021 and 2020, respectively.

The favorable increase in Adjusted EBITDA during the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 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 nine months ended September 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):

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Commissions and

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Acquisition-related expenses

Non-GAAP Basis

Three Months Ended June 30, 2020

Litigation charge

Three Months Ended September 30, 2020

Commissions and

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Acquisition-related expenses

Non-GAAP Basis

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Commissions and

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Acquisition-related expenses

Non-GAAP Basis

Six Months Ended June 30, 2020

Litigation charge

Nine Months Ended September 30, 2020

Commissions and

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Acquisition-related expenses

Non-GAAP Basis

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.

Since inception, except for the nine months ended September 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 September 30, 2021, we had cash and cash equivalents of $791.4 million and an accumulated deficit of $1.4 billion.

During April 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.

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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.

As of September 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

However, we will continue to assess the effect of the pandemic on our operations.

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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.

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

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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.

As of September 30, 2021 and December 31, 2020, there were $18.7 million and $8.4 million, respectively, in borrowings outstanding under the Concierge Facility.

The interest rate on the Concierge Facility was 3.15% as of September 30, 2021.

We have the option to repay our borrowings under the Concierge Facility without premium or penalty prior to maturity.

indebtedness, sell certain receivables, declare dividends or make certain distributions and undergo a merger or consolidation or certain other transactions.

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 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.

As of September 30, 2021, we were in compliance with the covenants under the Concierge Facility.

Revolving Credit and Guaranty Agreement

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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.

As of September 30, 2021, we had no outstanding borrowings under the Revolving Credit Facility and outstanding letters of credit totaled approximately $16.3 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.

As of September 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.

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The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions)

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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.

For the nine months ended September 30, 2021, net cash provided by operating activities was $48.3 million.

The inflow was primarily due to a $319.3 million net loss adjusted for $343.4 million of non-cash

charges and cash inflow due to changes in assets and liabilities of $24.2 million.

For the nine months ended September 30, 2020, net cash used in operating activities was $88.1 million.

The outflow was primarily due to a $230.4 million net loss adjusted for $86.6 million of non-cash

charges and cash inflow due to changes in assets and liabilities of $55.7 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.

During the nine months ended September 30, 2021, net cash used by investing activities was $160.9 million consisting of $127.3 million in payments for acquisitions, net of cash acquired, and $33.6 million in capital expenditures.

During the nine months ended September 30, 2020, net cash provided by investing activities was $19.9 million consisting of $55.5 million in proceeds from sales and maturities of marketable securities partially offset by $34.8 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

During the nine months ended September 30, 2021, net cash provided by financing activities was $463.9 million, primarily consisting of $439.6 million in net proceeds from the issuance of common stock upon initial public offering, $19.1 million in proceeds from the exercise and early exercise of stock options, $10.3 million in net proceeds from drawdowns on the Concierge Facility and $5.0 million in proceeds from capital contribution of non-controlling

interest, partially offset by $8.2 million in payments of contingent consideration related to acquisitions and $1.9 million in paid deferred debt issuance costs for credit facilities.

During the nine months ended September 30, 2020, net cash provided by financing activities was $12.8 million, primarily consisting of $8.2 million in net proceeds from drawdowns on the Concierge Facility, $6.8 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 $3.2 million in payments of contingent consideration related to acquisitions.

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.

We are contingently liable for these escrow and trust deposits totaled $205.7 million and $46.1 million as of September 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis