What changed in this filing

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Item 1A. Risk Factors

2021-11-12 compared with 2021-08-10 · 84 added, 92 removed, 745 unchanged (19% of the section changed)

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We have incurred net losses on an annual basis since we were founded, anticipate increasing our operating expenses in the future, and may not achieve or sustain profitability;

We anticipate using a significant amount of our cash to satisfy tax withholding and remittance obligations that will arise in connection with the initial and future settlements of RSU awards granted to our employees, which may have an adverse effect on our financial condition and liquidity.

Additionally, if we choose to implement a “sell-to-cover”

settlement method in the future, additional shares will be issued and sold in the market at settlement to cover tax withholding obligations, which would result in dilution to our stockholders.

We may not be able to commence our new mortgage joint venture in a timely manner or at all and may not realize the expected benefits from the new venture;

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We have incurred net losses on an annual basis since we were founded, anticipate increasing our operating expenses in the future, and may not achieve or sustain profitability.

We incurred net losses of $388.0 million and $270.2 million for 2019 and 2020, respectively, and had a net loss of $219.5 million for the six months ending June 30, 2021.

We had an accumulated deficit of $1.3 billion as of June 30, 2021.

We incurred net losses of $388.0 million and $270.2 million for 2019 and 2020, respectively, and had a net loss of $319.3 million for the nine months ending September 30, 2021.

We had an accumulated deficit of $1.4 billion as of September 30, 2021.

We expect to continue to make future investments in developing and expanding our business, including investing in technology, recruitment and training, expanding our adjacent services and pursuing strategic acquisitions and joint ventures.

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Because we expect to incur significant costs and expenses to grow our business, and we may incur expenses prior to generating incremental revenue with respect thereto, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in an increase in revenue to offset these expenses, which would further increase our losses.

We anticipate using a significant amount of cash to satisfy tax withholding and remittance obligations that will arise in connection with the initial and future settlements of RSU awards granted to our employees, which may have an adverse effect on our financial condition and liquidity.

We anticipate using cash to satisfy tax withholding obligations that will arise in connection with the monthly net settlements of RSU awards granted to our employees, which may have an adverse effect on our financial condition and liquidity.

Additionally, if we choose to implement a “sell-to-cover”

settlement method in the future, additional shares will be issued and sold in the market at settlement to cover tax withholding obligations, which would result in dilution to our stockholders.

Further, we anticipate to settle a large number of RSU awards this fall, which will result in dilution to our current stockholders.

Prior to December 2020, we granted RSU awards to our employees that vest based upon the satisfaction of both a service-based condition and a liquidity event-based condition.

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The liquidity event-based vesting condition is satisfied on the occurrence of a qualifying event and was satisfied upon our IPO in April of 2021.

Starting in December 2020, we granted RSU awards to our employees that vest based on the satisfaction of a service-based condition, which is generally satisfied over four years.

As a result, a large number of these RSU awards, which have previously satisfied the service-based vesting condition, vested in connection with or subsequent to our IPO and are required to be settled pursuant to their terms.

tax laws, the tax withholding and remittance obligations for RSUs arise in connection with their settlement on the settlement date.

We intend to settle all RSUs granted to our employees that have vested as of October 22, 2021 (the “ initial settlement

”) on October 28, 2021 (the “ initial settlement date

On the initial settlement date, we plan to withhold a certain number of shares of our Class A common stock that would otherwise be issued with respect to the settling RSU awards and to remit tax withholding amounts on behalf of our employees at applicable statutory rates to the relevant tax authorities, which we refer to as a “ net settlement

The tax withholding amount due in connection with the initial settlement will be based on the then-current value of the underlying shares of our Class A common stock, and we expect to remit the tax withholding amounts in cash, which would result in a significant use of our cash.

Based on the number of RSUs that are expected to vest as of October 22, 2021 and assuming (i) that the price of our Class A common stock at the time of the initial settlement date would equal to $14.50 per share, which was the price per share as of August 6, 2021, and (ii) a 40% tax withholding rate, we estimate that the tax withholding amount for the initial settlement would be approximately $66 million in the aggregate.

Additionally, based on the assumptions stated above, we would expect to deliver an aggregate of approximately 6.8 million shares of our Class A common stock to our employees holding settling RSU awards after withholding an aggregate of approximately 4.5 million shares of our Class A common stock to satisfy tax withholding and remittance obligations.

The amount of this obligation could be higher or lower, depending on the price of shares of our

Class A common stock on the initial settlement date, the number of RSU awards that remain outstanding on the initial settlement date when considering forfeitures in the ordinary course, and the actual amount of the tax withholdings which will vary on an employee by employee basis.

After the initial settlement, we plan to continue to net settle vested RSUs granted to our employees on a monthly basis.

Accordingly, we will continue to fund the tax withholding and remittance obligations on behalf of our employees and offset such funding by withholding shares of Class A common stock, which we would otherwise be obligated to deliver to them.

The initial net settlement of RSU awards and the net settlement of these awards going forward will result in a significant use of our cash and may have an adverse effect on our financial condition and liquidity.

Starting in December 2020, we grant RSU awards to our employees that vest based on the satisfaction of a service-based condition only, which is generally satisfied over four years.

tax laws, tax withholding obligations for RSUs arise in connection with their settlement on the settlement date.

Our current settlement practice is to net settle vested RSUs, meaning we withhold a certain number of shares of our Class A common stock that would otherwise be issued with respect to the settling RSU awards and satisfy tax withholding obligations on behalf of our employees by remitting the appropriate taxes to the relevant tax authorities.

We refer to this as “ net settlement

During October and November 2021, we net settled all RSUs granted to our employees that had vested as of October 31, 2021 (the “ initial net settlements

In connection with the initial net settlements, we issued an aggregate of 6.8 million shares of Class A common stock to our employees and withheld an aggregate of 4.7 million shares of our Class A common stock to satisfy $60.3 million of tax withholding obligations on behalf of our employees.

We plan to continue to net settle vested RSUs granted to our employees on the monthly basis.

Accordingly, we will continue to fund tax withholding obligations on behalf of our employees and offset such funding by withholding shares of Class A common stock, which we would otherwise be obligated to deliver to them.

The future monthly net settlements may result in a significant use of our cash and may have an adverse effect on our financial condition and liquidity.

In the future, we may also choose to implement a “sell-to-cover”

settlement method to satisfy tax withholding and remittance obligations for our employees, under which shares of our Class A common stock with a market value equivalent to the tax withholdings amount would be sold on behalf of the employees holding RSU awards upon settlement to cover their tax withholding liability and the cash proceeds from such sales will be remitted by us to the relevant taxing authorities.

settlement method to satisfy tax withholding obligations for our employees, under which shares of our Class A common stock with a market value equivalent to the tax withholding amount would be sold on behalf of the employees holding RSU awards upon settlement to satisfy their tax withholding obligations and the cash proceeds from such sales will be remitted by us to the relevant tax authorities.

Such sales would not result in our use of additional cash to satisfy the tax withholding obligations for RSU awards, but would result in dilution to our stockholders.

Additionally, we also granted RSU awards to certain of our agents.

We intend to settle all RSUs granted to our agents that have vested as of September 20, 2021 on September 24, 2021 and expect to deliver approximately 3.8 million shares of our Class A common stock to them.

Because our agents are independent contractors, we do not have tax withholding and remittance obligations, and accordingly, we will not use any of our cash to pay their tax withholding obligations.

However, issuance of shares of Class A common stock at settlement would result in dilution to our stockholders.

Additionally, we also grant RSU awards to our agents.

During September and November 2021, we settled all RSUs granted to our agents that had vested as of October 31, 2021 and issued an aggregate of 3.8 million shares of our Class A common stock to them.

Because our agents are independent contractors, we do not have tax withholding obligations, and accordingly, we did not, and will not in the future, use any of our cash to pay their tax withholding obligations.

However, issuance of shares of Class A common stock at settlement has resulted, and will result in the future, in dilution to our stockholders.

We plan to continue to settle vested RSUs granted to our agents on the monthly basis.

If we do not innovate and continuously improve and expand our platform to create value for Compass agents and clients, our business could be negatively impacted.

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In addition, these competitors could devote greater financial, technical and other resources than we have available to develop, grow or improve their businesses.

Because a material portion of our business is concentrated in certain geographic areas and high-end

markets, any adverse economic, real estate or business conditions in these geographic areas and/or impacting high-end

markets could have a material adverse effect on our operating results.

A material portion of our real estate brokerage offices and agents are concentrated in certain geographic areas, such as Southern California, Northern California and the tri-state

Local and regional real estate and economic conditions could differ materially from prevailing conditions in other parts of the U.S.

While overall the U.S.

real estate market could be performing well, a downturn in a geographic area where we have a material presence could result in a decline in our gross commission income and could have a material adverse effect on our operating results.

Additionally, a material portion of our real estate transactions take place in high-end

Any downturn in high-end

markets could result in a decline in our gross commission income and could have a material adverse effect on our operating results.

Additionally, if there is a downturn in high-end

markets, our agents may shift to transactions involving middle and lower range market prices, which, absent an increase in the number of transactions, could result in a decline in our gross commission income.

Monetary policies of the federal government and its agencies may have a material impact on our business, results of operations and financial condition.

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For example, in 2018 we began offering escrow services, and in 2020 we began offering title services and launched Compass Lens, our machine-learning home valuation product.

In 2021, we acquired Glide Labs, Inc., a real estate transaction management platform company, and entered into an agreement with Guaranteed Rate to form a new mortgage origination company.

In 2021, we acquired Glide Labs, Inc., a real estate transaction management platform company, and formed a new mortgage origination company with Guaranteed Rate.

We have invested significant resources in these and other new product and services offerings we expect to launch in the future.

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Even if we do launch new products and services, if they are not utilized by our agents at the rate we expect, or at all, our business, financial condition, and results of operations may be adversely affected.

We may not be able to commence our new mortgage joint venture in a timely manner or at all and may not realize the expected benefits from the new joint venture.

We and Guaranteed Rate, which is one of the nation’s largest retail mortgage companies, by and through our respective subsidiaries, have entered into a definitive agreement to form OriginPoint, a new mortgage origination company.

OriginPoint was structured as a non-exclusive

Our mortgage joint venture may not be able to commence operations in a timely manner and we may not realize the expected benefits from the new joint venture.

We and Guaranteed Rate, which is one of the nation’s largest retail mortgage companies, by and through our respective subsidiaries, formed OriginPoint, a mortgage origination company.

OriginPoint is structured as a non-exclusive

joint venture, where we hold a 49.9% equity interest and certain governance rights related to the joint venture, including representation on the management committee.

OriginPoint has not yet commenced operations and there can be no assurance that it will commence operations in a timely manner or at all.

OriginPoint has not yet commenced operations and there can be no assurance that it will commence operations in a timely manner.

In addition, we may not realize the expected benefits (including anticipated revenue) from this new joint venture.

The mortgage industry is inherently cyclical in nature and volatile and, as discussed in this Quarterly Report is subject to many of the same factors that affect our real estate brokerage and title and escrow services, including regulatory changes, increases in mortgage interest rates, other changes in market conditions, consumer trends, high levels of competition and decreases in operating margins.

The mortgage industry is inherently cyclical in nature and volatile and, as discussed in this Quarterly Report, is subject to many of the same factors that affect our real estate brokerage and title and escrow services, including regulatory changes, changes in mortgage underwriting standards, increases in mortgage interest rates, other changes in market conditions, consumer trends, high levels of competition and decreases in operating margins.

Any one of these factors could adversely affect the mortgage industry and our new joint venture in a material way.

The benefits of OriginPoint will depend, in part, on the successful partnership between us and Guaranteed Rate.

Although we have representation on the management committee and will be able to participate meaningfully in the decision-making process involving material business decisions.

Rather, OriginPoint will be managed by executives at the entity who will be charged with making decisions with respect to the day-to-day

operation of the business and the provision of core mortgage services.

The benefits of OriginPoint will depend, in part, on the successful partnership between us and Guaranteed Rate and the successful day-to-day

operation of the business by OriginPoint’s management.

Guaranteed Rate will act in a capacity as a service provider, providing certain services to support OriginPoint’s day-to-day

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In addition, OriginPoint or Guaranteed Rate could face operational or liquidity risks, such as litigation or regulatory investigations.

Even though we hold a minority ownership interest in the joint venture, improper actions by OriginPoint or Guaranteed Rate may lead to direct claims against us based on theories of vicarious liability, negligence, joint operations and joint employer liability, which, if determined adversely, could increase costs, negatively impact our reputation and subject us to liability for their actions.

impact our reputation and subject us to liability for their actions.

Additionally, in the event that we have a disagreement with Guaranteed Rate with respect to a particular issue or as to the management or conduct of the business, we may not be able to resolve such disagreement in our favor.

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In addition, there is no assurance that our agents, many of whom have existing relationships with other mortgage lenders, will support or work with OriginPoint.

Moreover, regulatory constraints prevent us from financially incenting such agents to refer their clients to Origin Point.

Moreover, regulatory constraints prevent us from financially incenting such agents to refer their clients to OriginPoint.

Our quarterly results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.

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Although our agents are independent contractors, if they were to provide lower quality services to their clients in a given market or overall, our image and reputation could be adversely affected.

In addition, if our agents make fraudulent claims about properties they show, if their transactions lead to allegations of errors or

omissions, if they violate certain regulations, or if they engage in self-dealing or do not disclose conflicts of interest to their clients, we could also be subject to litigation and regulatory claims which, if adversely determined, could adversely affect our business, financial condition and results of operations.

In addition, if our agents make fraudulent claims about properties they show, if their transactions lead to allegations of errors or omissions, if they violate certain regulations, or if they engage in self-dealing or do not disclose conflicts of interest to their clients, we could also be subject to litigation and regulatory claims which, if adversely determined, could adversely affect our business, financial condition and results of operations.

For example, if an agent were to recommend that a client use an escrow service in which the agent had an ownership interest but failed to disclose that interest to the client and to us, we could see our reputation tarnished and be held liable for the agent’s failure to disclose that interest under the Real Estate Settlement Proceeding Act.

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We sometimes engage in small acquisitions of businesses or agents to provide us with greater access to a given market.

For example, in July 2021, we acquired the Randall Family of Companies, a group of Southern Coastal New England residential real-estate brokerage companies.

For example, we recently acquired all or majority control of three title and escrow companies, Legacy Texas Title Co., First Alliance Title LLC and CommonGround Abstract, LLC,

extending our title and escrow portfolio to several new markets.

At times, we may look to larger acquisitions to provide us with additional technology or adjacent services to further enhance our platform and accelerate our ability to offer new products.

For example, in 2020, we acquired Modus Technologies, Inc., a title and escrow company, that provided us with a platform to offer title services to our agents and in May 2021, we acquired Glide Labs, Inc., a real estate transaction management platform company.

For example, in May 2021, we acquired Glide Labs, Inc., a real estate transaction management platform company.

Such strategic transactions that we enter into could be material to our financial condition and results of operations, and there can be no guarantee that they will result in the intended benefits to our business, and we may not successfully evaluate or utilize the acquired agents, businesses, products, or technology, or accurately forecast the financial impact of a strategic transaction.

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Moreover, the real estate industry is actively targeted by cybersecurity threat actors which attempt to conduct electronic fraudulent activity (such as phishing), security breaches and similar attacks directed at participants in real estate services transactions.

In common with others in our industry, we manage and hold confidential personal information, including potentially sensitive personal information belonging to employees, agents or the clients or other individuals with whom they transact, in the operation of our online platform services.

In common with others in our industry, we

manage and hold confidential personal information, including potentially sensitive personal information belonging to employees, agents or the clients or other individuals with whom they transact, in the operation of our online platform services.

Accordingly, we have been and continue to be subject to a range of cyber-attacks, such as email-based phishing attacks on our agents.

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We deposit this money with various depository banks and while these deposits are not assets of our business (and therefore excluded from our consolidated balance sheet), we remain contingently liable for the disposition of these deposits.

These escrow and trust deposits totaled $24.7 million and $46.1 million as of December 31, 2019 and 2020, respectively, and $282.5 million as of June 30, 2021.

These escrow and trust deposits totaled $24.7 million and $46.1 million as of December 31, 2019 and 2020, respectively, and $205.7 million as of September 30, 2021.

A significant amount of these deposits held by depository banks may be in excess of the federal deposit insurance limit.

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We expect that our international activities will grow in the future as we pursue opportunities in international markets, which may require significant dedication of management attention and will require significant upfront investment.

Our current and future international business and operations involve a variety of risks, including

the need to adapt and localize our platform for specific countries;

Our current and future international business and operations involve a variety of risks, including the need to adapt and localize our platform for specific countries;

unexpected changes in trade relations, regulations, or laws;

new, evolving, and more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information,

particularly in Europe and Canada;

new, evolving, and more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe and Canada;

difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;

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and regulations, adverse tax burdens, and foreign exchange controls that could make it difficult to repatriate earnings and cash.

If we invest substantial time and resources to establish international operations and are unable to do so successfully or in a timely manner, our

business, financial condition, and results of operations may be adversely impacted.

If we invest substantial time and resources to establish international operations and are unable to do so successfully or in a timely manner, our business, financial condition, and results of operations may be adversely impacted.

Our management team will be required to evaluate the effectiveness of our internal control over financial reporting.

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The Concierge Facility, which is secured by, and can be used to borrow against, eligible receivables and cash related to a part of our Compass Concierge program, and our Revolving Credit Facility, which is secured by substantially all the assets of us and our subsidiary guarantors, contains customary representations, warranties, affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants applicable to us and our restricted subsidiaries.

of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions.

The negative covenants include restrictions that, among other things, restrict our and our subsidiaries’ ability 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.

In certain cases, we may be required to repay all of the relevant debt immediately;

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Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on our business, financial condition and results of operations.

Generally accepted accounting principles in the United States of America, or GAAP, and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition, lease accounting, stock-based compensation, asset impairments, valuation reserves, income taxes and the fair value and associated useful lives of acquired long-lived assets, intangible assets and goodwill, are highly complex and involve many subjective assumptions, estimates and judgments made by management.

complex and involve many subjective assumptions, estimates and judgments made by management.

Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could significantly change our reported results and adversely impact our business, financial condition and results of operations.

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We release or update software code regularly and this practice may result in the more frequent introduction of errors, bugs, or vulnerabilities into the software underlying our platform, which can impact the agent and client experience on our platform.

an unintended impact on other sections of our software or system, which may result in errors, bugs, or vulnerabilities to our platform.

Additionally, due to the interoperative nature of the software and the systems underlying our platform, modifications to certain parts of our code, including changes to our mobile app, website, systems or third party application programming interfaces on which our platform rely, could have an unintended impact on other sections of our software or system, which may result in errors, bugs, or vulnerabilities to our platform.

Any errors, bugs, or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of our agents or clients, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business, financial condition and results of operations.

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We are guided by our principles including dreaming big, moving fast, learning from reality and being solutions-driven.

However, as we grow, we may face challenges that may affect our ability to sustain our culture, including:

However, as we grow, we may face challenges that may affect

our ability to sustain our culture, including:

failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values and mission;

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We maintain insurance to cover costs and losses from certain risk exposures in the ordinary course of our operations, but our insurance does not cover all of the costs and losses from all events.

We are responsible for certain retentions and deductibles that vary by policy, and we may suffer losses that exceed our insurance coverage limits by a material amount.

We are responsible for certain retentions and deductibles that vary by policy, and we may suffer losses that

exceed our insurance coverage limits by a material amount.

We may also incur costs or suffer losses arising from events against which we have no insurance coverage.

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Furthermore, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business and commercial partners and current and former directors, officers and employees.

As an example of a current litigation matter, we are party to a lawsuit involving plaintiff Avi Dorfman, who seeks compensation for certain services and other contributions allegedly provided in our formation;

Dorfman prevails, we may be forced to issue equity securities to him, which could cause dilution to holders of our capital stock.

As an example of a current litigation matter, a lawsuit involving plaintiff Avi Dorfman, who sought compensation for certain services and other contributions allegedly provided in our formation, was filed against us in 2014.

On October 25, 2021, we agreed to a settlement in principle and reported a $21.3 million General and administrative expense during the three and nine months ended September 30, 2021 in connection with this settlement.

See the section titled “Legal Proceedings” in Part I, Item 1 of this Quarterly Report for additional information.

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Our real estate brokerage business, our title and escrow business and the businesses of our agents must comply with RESPA and a variety of similar state regulations.

those involving federally-backed mortgages (under RESPA) or any residential sale (under certain state regulations).

RESPA and comparable state statutes prohibit providing or receiving payments, or other things of value, for the referral of business to escrow service providers in connection with the closing of certain real estate transactions such as those involving federally-backed mortgages (under RESPA) or any residential sale (under certain state regulations).

Such laws may to some extent impose limitations on arrangements involving our real estate brokerage, escrow services, and title agency.

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However, RESPA compliance may become a greater challenge under certain administrations for most industry participants offering escrow services, including brokerages, because of expansive interpretations of RESPA or similar state statutes by certain courts and regulators.

Permissible activities under state statutes similar to RESPA may be interpreted more narrowly and enforcement proceedings of those statutes by state regulatory authorities may also be aggressively pursued.

activities under state statutes similar to RESPA may be interpreted more narrowly and enforcement proceedings of those statutes by state regulatory authorities may also be aggressively pursued.

RESPA also has been invoked by plaintiffs in private litigation for various purposes and some state authorities have also asserted enforcement rights.

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Risks Related to Ownership of Our Class A Common Stock

The multi-class structure of our common stock has the effect of concentrating voting power with Robert Reffkin, our founder, Chairman and Chief Executive Officer, which will limit your ability to influence the outcome of matters submitted to our stockholders for approval, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions.

Our Class A common stock has one vote per share, our Class B common stock has no voting rights, except as otherwise required by law, and our Class C common stock has 20 votes per share.

Robert Reffkin, our founder, Chairman and Chief Executive Officer, holds all of the issued and outstanding shares of Class C common stock.

As of June 30, 2021, our founder held approximately 45% of the voting power of our outstanding capital stock in the aggregate, which voting power may increase over time as our founder vests in equity awards, including outstanding certain performance-based equity awards, pursuant to his right to require us to exchange any shares of Class A common stock for shares of Class C common stock.

If all such equity awards held by our founder had been vested, settled and exchanged for shares of Class C common stock as of June 30, 2021, our founder would have held approximately 69% of the voting power of our outstanding capital stock.

As a result, our founder will be able to determine or significantly influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.

The multi-class structure of our common stock has the effect of concentrating voting power with Robert Reffkin, our founder, Chairman and Chief Executive Officer, and his financial planning vehicles and affiliated trusts, which will limit your ability to influence the outcome of matters submitted to our stockholders for approval, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions.

Our Class A common stock has one vote per share and our Class C common stock has 20 votes per share.

As of November 9, 2021, Robert Reffkin, our founder, Chairman and Chief Executive Officer, together with his financial planning vehicles and affiliated trusts, hold 9,023,131 shares of Class A common stock and all of the issued and outstanding shares of Class C common stock.

Additionally, our founder holds two performance-based RSU awards and one time-based RSU award, which vests monthly.

Pursuant to the exchange agreement, our founder has a right to require us to exchange any shares of Class A common stock that he receives upon settlement of his vested RSUs for shares of Class C common stock, which he has elected in connection with the initial net settlement and future monthly net settlements.

As of November 9, 2021, our founder, together with his financial planning vehicles and affiliated trusts, held approximately 48% of the voting power of our outstanding capital stock, which voting power may increase over time as our founder’s RSU awards vest and settle and resulting shares of Class A common stock get exchanged for shares of Class C common stock.

If all such awards had been vested, settled and exchanged for shares of Class C common stock as of November 9, 2021, our founder, together with his financial planning vehicles and affiliated trusts, would have held approximately 68% of the voting power of our outstanding capital stock.

As a result, our founder is able to determine and may significantly influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.

Our founder may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.

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In addition, each share of Class C common stock will convert automatically into one share of Class A common stock upon the earlier of (i) the date fixed by our board of directors that is no less than 61 days and no more than 180 days following the first date on which the number of shares of our Class C common stock held by our founder, his permitted entities and permitted transferees is less than 50% of the number of shares of Class C common stock held by our founder, permitted transferees and permitted entities as of the date of the effectiveness of our IPO registration statement;

(ii) the date fixed by our board of directors that is no less than 61 days and no more than 180 days following the first date that both (A) our founder is no longer providing services to us as an officer, employee or consultant and (B) our founder is no longer a member of our board of directors as a result of a voluntary resignation by our founder or as a result of a written request or agreement by our founder not to be renominated as a member of our board of directors at a meeting of our stockholders;

(ii) the date fixed by our board of directors that is no less than 61 days and no more than 180 days following the first date that both (A) our founder is no longer providing services to us as

an officer, employee or consultant and (B) our founder is no longer a member of our board of directors as a result of a voluntary resignation by our founder or as a result of a written request or agreement by our founder not to be renominated as a member of our board of directors at a meeting of our stockholders;

(iii) the date fixed by our board of directors that is no less than 61 days and no more than 180 days following the date on which our founder is terminated for cause (as defined in our restated certificate of incorporation);

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or (vii) seven years from the date of the effectiveness of our IPO registration statement.

In addition, because our Class A common stock has one vote per share, if we issue Class C common stock in the future upon the vesting and settlement of equity awards held by our founder, the holders of Class C common stock may be able to elect all of our directors and to determine the outcome of most matters submitted to a vote of our stockholders for a longer period of time than would be the case if we issued Class A common stock rather than Class C common stock in such transactions.

However, until one of these triggering events occurs, voting power will be concentrated with our founder and his financial planning vehicles and affiliated trusts.

We cannot predict the effect our multi-class structure may have on the market price of our Class A common stock.

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Also in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote

and multi-class structures and temporarily barred new multi-class listings from certain of its indices and in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that

specifically includes voting rights in its eligibility criteria.

However, pursuant to our restated certificate of incorporation, each share of our Class C common stock will convert into one share of our Class A common stock two days prior to the date specified in writing upon which our shares of capital stock will be included on the S&P 500 index following written notice and confirmation from Standard & Poor’s of such specified date and inclusion.

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If additional capital is not available to us on terms acceptable to us or at all, we may need to modify our business plans, which would harm our ability to grow our operations.

Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could cause the market price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could cause the market price of our Class A common stock to fluctuate or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

All of the shares of Class A common stock sold in our IPO are freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act (including shares purchased by our affiliates in the IPO).

The remaining shares of our common stock are subject to the lock-up

agreement or market stand-off

agreements described below.

All shares of common stock subject to the lock-up

agreement will be released upon the date that is 180 days from March 31, 2021.

When the lock-up

period expires, we and our securityholders subject to a lock-up

All shares of Class A common stock issued prior to our IPO were subject to the lock-up

agreement or market stand-off

agreement will be able to sell our shares in the public market.

In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up

agreements prior to the expiration of the lock-up

See the sections titled “Shares Eligible for Future Sale” and “Underwriting” for more information.

Sales of a substantial number of such shares upon expiration of the lock-up

agreements until September 27, 2021 when our lock-up

period had expired.

Upon expiration of the lock-up

and market stand-off

agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

In addition, as of June 30, 2021, we had options and RSUs outstanding that, if fully exercised, would result in the issuance of 114,033,595 shares of Class A common stock and 1,002,540 shares of Class B common stock.

We have filed a registration statement to register shares reserved for future issuance under our equity compensation plans.

Subject to the satisfaction of applicable vesting requirements and expiration of the market standoff agreements and lock-up

agreements referred to above, the shares issued upon exercise of outstanding stock options or settlement of RSUs will be available for immediate resale in the open market.

agreements, a higher number of sales of our Class A common stock than usual took place in the public market and the market price of our Class A common stock fluctuated.

Future sales of a substantial amounts of our Class A common stock, particularly sales by our directors, executive officers or principal stockholders, or the perception that such sales might occur in the future, could cause the market price of our Class A common stock to fluctuate or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

Provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.

19 unchanged sentences

Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

Our restated certificate of incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or Federal Forum Provision.

Our restated certificate of incorporation provides that the federal district

courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or Federal Forum Provision.

Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law.

22 unchanged sentences

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 1A. Risk Factors