What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-02-28 · 590 added, 642 removed, 638 unchanged (66% of the section changed)

10 unchanged sentences

To the Board of Directors and Stockholders of Compass, Inc.

Opinion on the Financial Statements

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Compass, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive loss, of convertible preferred stock and stockholders’ equity (deficit), and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not (i) design or maintain an effective control environment, as the Company lacked sufficient oversight of activities related to internal control over financial reporting due to a lack of an appropriate level of experience and training commensurate with public company requirements, (ii) maintain formal accounting policies and procedures, and did not design, document and maintain controls related to substantially all of the Company’s business processes to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over account reconciliations, segregation of duties and the preparation and review of journal entries, and (iii) design and maintain effective controls over information technology, or IT, general controls for information systems and applications that are relevant to the preparation of the consolidated financial statements related to (a) program change management, (b) user access controls, (c) computer operations, and (d) testing and approval of controls for program development.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and

operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

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Revenue is recognized upon the closing of a real estate transaction (i.e., purchase or sale of a home) since the Company is not entitled to any commission until the performance obligation is satisfied and is not owed any commission for unsuccessful transactions, even if services have been provided.

The Company operates exclusively in the United States and generated revenue of $6,421 million for the year ended December 31, 2021, of which a significant portion was related to commissions from home sellers and buyers.

The Company operates exclusively in the United States and generated revenue of $6,018 million for the year ended December 31, 2022, of which substantially all was generated from commissions from home sellers and buyers.

The principal considerations for our determination that performing procedures relating to revenue recognition - commissions revenue is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to revenue recognition.

As disclosed by management, material weaknesses existed related to the Company’s control environment, which impacted this matter.

As described above in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, there is a material weakness related to the Company’s control environment, which impacted this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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New York , New York

February 28, 2022

March 1, 2023

We have served as the Company’s auditor since 2014.

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Consolidated Balance Sheets

(In millions, except share and pe r

(In millions, except share and per share data)

December 31, 2022 December 31, 2021

Current Assets

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Property and equipment, net 192.5 157.4

Operating lease right-of-use

Operating lease right-of-use assets 483.2 484.7

Intangible assets, net 99.3 127.2

Other non-current

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Goodwill 198.4 188.3

Other non-current assets 41.8 48.4

Total assets $ 1,533.1 $ 1,800.6

Liabilities and Stockholders’ Equity

Current liabilities

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Concierge credit facility 31.9 16.2

Revolving credit facility 150.0 —

Total current liabilities 517.5 437.1

lease liabilities

Other non-current

Non-current lease liabilities 486.5 483.0

Other non-current liabilities 8.4 32.9

Total liabilities 1,012.4 953.0

Commitments and contingencies (Note 11)

Convertible preferred stock, $ 0.00001 par value, 0 and 246,430,170 shares authorized at December 31, 2021 and

2020, respectively;

Stockholders’ equity

Common stock, $ 0.00001 par value, 13,850,000,000 shares authorized at December 31, 2022 and 2021;

438,098,194 and 409,267,751 shares issued and outstanding at December 31, 2022 and 2021, respectively

Stockholders’ equity (deficit)

Common stock, $ 0.00001 par value, 13,850,000,000 and 700,754,910 shares authorized at December 31, 2021 and

2020, respectively;

409,267,751 and 125,221,900 shares issued at December 31, 2021 and 2020, respectively;

409,267,751 and 122,971,900 shares outstanding at December 31, 2021 and 2020, respectively

Additional paid-in

Additional paid-in capital 2,713.6 2,438.8

Accumulated deficit ( 2,196.5 ) ( 1,595.0 )

Total Compass, Inc.

stockholders’ equity (deficit)

Non-controlling

Total stockholders’ equity (deficit)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

stockholders’ equity 517.1 843.8

Non-controlling interest 3.6 3.8

Total stockholders’ equity 520.7 847.6

Total liabilities and stockholders’ equity $ 1,533.1 $ 1,800.6

The accompanying footnotes are an integral part of these consolidated financial statements.

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Year Ended December 31,

2022 2021 2020

Revenue $ 6,018.0 $ 6,421.0 $ 3,720.8

Operating expenses:

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General and administrative 208.1 288.5 105.8

Restructuring costs 49.1 — 10.3

Depreciation and amortization 86.3 64.4 51.2

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Interest expense ( 3.6 ) ( 2.4 ) ( 0.6 )

Loss before income taxes and equity in loss

Loss before income taxes and equity in loss of unconsolidated entity ( 590.2 ) ( 495.3 ) ( 271.9 )

Benefit from income taxes 0.9 2.5 1.7

Equity in loss of unconsolidated entity ( 12.2 ) ( 1.3 ) —

Net loss per share attributable to common stockholders, basic and diluted

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

Net loss ( 601.5 ) ( 494.1 ) ( 270.2 )

Net (income) loss attributable to non-controlling interests — — —

Net loss attributable to Compass, Inc.

$ ( 601.5 ) $ ( 494.1 ) $ ( 270.2 )

Net loss per share attributable to Compass, Inc., basic and diluted $ ( 1.40 ) $ ( 1.51 ) $ ( 2.46 )

Weighted-average shares used in computing net loss per share attributable to Compass, Inc., basic and diluted 428,169,180 326,336,128 109,954,760

The accompanying footnotes are an integral part of these consolidated financial statements.

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Year Ended December 31,

Other comprehensive (loss) income:

Unrealized (loss) gain on investments

2022 2021 2020

Net loss $ ( 601.5 ) $ ( 494.1 ) $ ( 270.2 )

Other comprehensive loss:

Unrealized loss on investments — — ( 0.1 )

Comprehensive loss $ ( 601.5 ) $ ( 494.1 ) $ ( 270.3 )

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(In millions, except share amounts)

Additional Paid-in

Accumulated Other

Preferred Stock Common Stock Additional Paid-in

Capital Accumulated Other

Comprehensive

(Loss) Income

Total Compass, Inc.

(Loss) Income Accumulated

Deficit Total Compass, Inc.

Stockholders’

Equity (Deficit)

Non-controlling

Equity (Deficit) Non-controlling

Interest Total

Stockholders’

Equity (Deficit)

December 31, 2018

Unrealized gain

on investments

stock, net of

issuance costs

Exercise of stock

December 31, 2019

Unrealized loss

on investments

stock, net of

issuance costs

Conversion of

preferred stock

Exercise of stock

Early exercise of

stock options

Vesting of early

exercised stock

December 31, 2020

non-controlling

Conversion of

preferred stock

Conversion of

preferred stock

with the initial

public offering

Shares Amount Shares Amount

Balances at December 31, 2019

246,365,350 $ 1,525.7 109,294,060 $ — $ 143.4 $ 0.1 $ ( 825.1 ) $ ( 681.6 ) $ — $ ( 681.6 )

in connection

with the initial

public offering,

net of issuance

upon exercise

Vesting of early

exercised stock

December 31, 2021

Cumulative change in accounting principle (ASU 2016-13) — — — — — — ( 5.6 ) ( 5.6 ) — ( 5.6 )

Net loss — — — — — — ( 270.2 ) ( 270.2 ) — ( 270.2 )

Unrealized loss on investments — — — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

Issuance of Series G convertible preferred stock, net of issuance costs 64,820 1.0 — — — — — — — —

Conversion of Series D convertible preferred stock ( 9,382,620 ) ( 40.0 ) 9,382,620 — 40.0 — — 40.0 — 40.0

Issuance of shares in connection with acquisitions — — 401,310 — 1.2 — — 1.2 — 1.2

Issuance of common stock upon exercise of stock options — — 2,710,680 — 9.6 — — 9.6 — 9.6

Issuance of common stock upon early exercise of stock options — — 1,183,230 — — — — — — —

Vesting of early exercised stock options — — — — 0.6 — — 0.6 — 0.6

Stock-based compensation — — — — 43.2 — — 43.2 — 43.2

Balances at December 31, 2020

237,047,550 $ 1,486.7 122,971,900 $ — $ 238.0 $ — $ ( 1,100.9 ) $ ( 862.9 ) $ — $ ( 862.9 )

Net loss — — — — — — ( 494.1 ) ( 494.1 ) — ( 494.1 )

Acquisition related non-controlling interest — — — — — — — — 3.8 3.8

Conversion of Series D convertible preferred stock ( 15,920,450 ) ( 67.6 ) 15,920,450 — 67.6 — — 67.6 — 67.6

Conversion of convertible preferred stock to common stock in connection with the initial public offering ( 221,127,100 ) ( 1,419.1 ) 223,033,725 — 1,419.1 — — 1,419.1 — 1,419.1

Issuance of common stock in connection with the initial public offering, net of issuance costs — — 26,296,438 — 438.7 — — 438.7 — 438.7

Issuance of shares in connection with acquisitions — — 855,740 — 10.1 — — 10.1 — 10.1

Issuance of common stock upon exercise of stock options — — 9,318,012 — 21.3 — — 21.3 — 21.3

Issuance of common stock upon settlement of RSUs, net of taxes withheld — — 10,871,486 — ( 62.4 ) — — ( 62.4 ) — ( 62.4 )

Vesting of early exercised stock options — — — — 5.0 — — 5.0 — 5.0

Stock-based compensation — — — — 301.4 — — 301.4 — 301.4

Balances at December 31, 2021

— $ — 409,267,751 $ — $ 2,438.8 $ — $ ( 1,595.0 ) $ 843.8 $ 3.8 $ 847.6

Net loss — — — — — — ( 601.5 ) ( 601.5 ) — ( 601.5 )

Other activity related to non-controlling interests — — — — — — — — ( 0.2 ) ( 0.2 )

Issuance of shares in connection with acquisitions — — 1,033,340 — 3.6 — — 3.6 — 3.6

Issuance of common stock upon exercise of stock options — — 4,145,127 — 9.0 — — 9.0 — 9.0

Issuance of common stock upon settlement of RSUs, net of taxes withheld — — 9,464,159 — ( 23.5 ) — — ( 23.5 ) — ( 23.5 )

Vesting of early exercised stock options — — — — 5.5 — — 5.5 — 5.5

Issuance of common stock in connection with the 2021 Agent Equity Program — — 13,608,896 — 100.0 — — 100.0 — 100.0

Issuance of common stock under the ESPP — — 578,921 — 2.3 — — 2.3 — 2.3

Stock-based compensation — — — — 177.9 — — 177.9 — 177.9

Balances at December 31, 2022

— $ — 438,098,194 $ — $ 2,713.6 $ — $ ( 2,196.5 ) $ 517.1 $ 3.6 $ 520.7

The accompanying footnotes are an integral part of these consolidated financial statements.

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Year Ended December 31,

2022 2021 2020

Operating Activities

Net loss $ ( 601.5 ) $ ( 494.1 ) $ ( 270.2 )

Adjustments to reconcile net loss to net cash used in operating activities:

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Other current assets 17.6 ( 40.0 ) 19.4

Other non-current

Operating lease right-of-use

assets and operating lease liabilities

Other non-current assets 9.8 ( 11.8 ) ( 4.9 )

Operating lease right-of-use assets and operating lease liabilities 5.8 2.4 34.6

Accounts payable ( 4.8 ) ( 3.3 ) ( 6.5 )

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Investing Activities

Purchases of marketable securities

Proceeds from sales and maturities of marketable securities — — 55.5

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Payments for acquisitions, net of cash acquired ( 15.0 ) ( 137.4 ) ( 25.6 )

Net cash (used in) provided by investing activities

Net cash used in investing activities ( 100.1 ) ( 192.5 ) ( 13.4 )

Financing Activities

Proceeds from issuance of convertible preferred stock, net of issuance costs

Proceeds from exercise and early exercise of stock options 9.0 26.9 15.9

Proceeds from issuance of common stock under the Employee Stock Purchase Plan 2.3 — —

Taxes paid related to net share settlement of equity awards ( 23.5 ) ( 62.4 ) —

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Repayments of drawdowns on Concierge credit facility ( 43.3 ) ( 31.7 ) ( 3.0 )

Payments of contingent consideration related to acquisitions

Payments of debt issuance costs for credit facilities

Payment of deferred offering costs

Proceeds from drawdowns on Revolving credit facility 150.0 — —

Payments related to acquisitions, including contingent consideration ( 17.5 ) ( 10.7 ) ( 3.2 )

Proceeds from issuance of common stock upon initial public offering, net of offering costs — 439.6 —

Other ( 0.6 ) ( 1.9 ) ( 1.2 )

Net cash provided by financing activities 135.4 399.3 19.9

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents ( 256.4 ) 178.2 ( 51.6 )

Cash and cash equivalents at beginning of period 618.3 440.1 491.7

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Cash paid for interest $ 2.3 $ 1.3 $ 0.2

Supplemental non-cash

Supplemental non-cash information:

Issuance of common stock for acquisitions $ 3.6 $ 10.1 $ 1.2

6 unchanged sentences

Compass, Inc.

(the “Company”) was incorporated in Delaware on

October 4, 2012 under the name Urban Compass, Inc.

2021 , the board of directors approved a change to the Company’s name from Urban Compass, Inc.

(the “Company”) was incorporated in Delaware on October 4, 2012 under the name Urban Compass, Inc.

On January 8, 2021, the board of directors approved a change to the Company’s name from Urban Compass, Inc.

to Compass, Inc.

The Company provides an end-to-end

platform that empowers its residential real estate agents to deliver exceptional service to seller and buyer clients.

The Company provides an end-to-end platform that empowers its residential real estate agents to deliver exceptional service to seller and buyer clients.

The Company’s platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service and other critical functionality, all custom-built for the real estate industry which enables the Company’s core brokerage services.

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The Company currently generates substantially all of its revenue from commissions paid by clients at the time that a home is transacted.

In March 2021, the Company’s board of directors and the stockholders of the Company approved a ten -for-one

forward stock split of the Company’s common stock and convertible preferred stock (collectively, the “Capital Stock”), which became effective on March 19, 2021.

The authorized number of each class and series of Capital Stock was proportionally increased in accordance with the ten-for-one

stock split and the par value of each class of Capital Stock was adjusted from $ 0.0001 to $ 0.00001 as a result of this forward stock split.

In March 2021, the Company’s board of directors and the stockholders of the Company approved a ten -for-one forward stock split of the Company’s common stock and convertible preferred stock (collectively, the “Capital Stock”), which became effective on March 19, 2021.

The authorized number of each class and series of Capital Stock was proportionally increased in accordance with the ten -for-one stock split and the par value of each class of Capital Stock was adjusted from $ 0.0001 to $ 0.00001 as a result of this forward stock split.

All common stock, convertible preferred stock, stock options, restricted stock units (“RSUs”) and per share information presented within these consolidated financial statements have been adjusted to reflect this forward stock split on a retroactive basis for all periods presented.

1 unchanged sentence

On April 6, 2021, the Company completed its initial public offering (“IPO”) and the Company’s Class A common stock began trading on the New York Stock Exchange on April 1, 2021 under the symbol “COMP”.

In connection with the IPO, the Company issued and sold 26,296,438 shares of its common stock at a public offering price of $ 18.00 per share.

In connection with the IPO, the Company issued and sold 26.3 million shares of its common stock at a public offering price of $ 18.00 per share.

The Company received aggregate proceeds of $ 438.7 million from the IPO, net of the underwriting discount and offering costs of approximately $ 11.0 million (of which $ 0.9 million were paid in 2020).

Offering costs, including the legal, accounting, printing and other IPO-related

costs have been recorded in Additional paid-in

capital against the proceeds from the offering.

During April 2021, also in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223,033,725 shares of common stock and the Company reclassified $ 1.4 billion of convertible preferred stock to Additional paid-in-capital.

Compass, Inc.

Notes to Consolidated Financial Statements

Offering costs, including the legal, accounting, printing and other IPO-related costs have been recorded in Additional paid-in capital against the proceeds from the offering.

During April 2021, also in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223.0 million shares of common stock and the Company reclassified $ 1.4 billion of convertible preferred stock to Additional paid-in-capital.

Summary of Significant Accounting Policies

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All intercompany accounts and transactions have been eliminated in consolidation.

The Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) and include the assets, liabilities, revenues and expenses of all controlled subsidiaries.

The Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the assets, liabilities, revenues and expenses of all controlled subsidiaries.

The consolidated statements of operations include the results of entities acquired from the date of each respective acquisition.

Certain operating expense amounts presented in the prior period consolidated statements of operations have been reclassified to the Restructuring costs line item in order to conform to the current period financial statement presentation.

Compass, Inc.

Notes to Consolidated Financial Statements

The change in classification does not affect previously reported Total operating expenses in the consolidated statements of operations.

Consolidation

4 unchanged sentences

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods covered by the consolidated financial statements and accompanying notes.

These judgments, estimates and assumptions are used for, but not limited to (i) valuation of the Company’s common stock and stock awards, (ii) fair value of acquired intangible assets and goodwill, (iii) fair value of contingent consideration arrangements in connection with business combinations, (iv) incremental borrowing rate used for the Company’s operating lease, (v) useful lives of long-lived assets, (vi) impairment of intangible assets and goodwill, (vii) allowance for Compass Concierge receivables and (viii) income taxes and certain deferred tax assets.

The preparation of consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods covered by the consolidated financial statements and accompanying notes.

These judgments, estimates and assumptions are used for, but not limited to (i) valuation of the Company’s common stock and stock awards, (ii) fair value of acquired intangible assets and goodwill, (iii) fair value of contingent consideration arrangements in connection with business combinations, (iv) incremental borrowing rate used for the Company’s operating leases, (v) useful lives of long-lived assets, (vi) impairment of intangible assets and goodwill, (vii) allowance for Compass Concierge receivables and (viii) income taxes and certain deferred tax assets.

The Company determines its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances.

However, actual results could differ from these estimates and these differences may be material.

There are many uncertainties regarding the ongoing coronavirus (“COVID-19”)

pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact the Company’s operations and its customers for an indefinite period of time.

The extent and duration of the ongoing COVID-19

pandemic over the longer term and the extent to which it will impact the global economy, U.S.

residential market and the Company’s financial condition, results of operations, or cash flows remain uncertain and depend on future developments that are highly uncertain and difficult to predict.

Such developments include, but are not limited to, the emergence of new variants, severity and transmission rate of the virus, the duration and extent of the spread of the virus (including new variants), the timing, availability, and effectiveness of vaccines (including booster shots) and the vaccination rates, the prevalence of local, regional and national restrictions and regulatory orders in response to the ongoing COVID-19 pandemic and the extent and effectiveness of containment actions taken, as well as the impact of these and other factors on residential real estate values, real estate transaction behavior in general, and on the Company’s business in particular.

The Company will continue to assess the impacts of the ongoing COVID-19

pandemic and will adjust its operations as necessary.

Since inception, the Company has primarily generated negative cash flows from operations and has primarily financed operations from net proceeds from the issuance of convertible preferred stock and common stock.

In addition, a number of macroeconomic conditions, including rising inflation and rapidly rising mortgage interest rates, have contributed to a slowdown in the U.S.

residential real estate market, which has had an adverse impact on the Company’s business and may continue to adversely impact the Company’s business in the future.

The Company has a Revolving Credit Facility, which it can draw upon provided it maintains continued compliance with certain financial and non-financial covenants.

As of December 31, 2022, the Company had $ 167.0 million available to be drawn under the Revolving Credit Facility and was in compliance with each of the financial and non-financial covenants.

See Note 9 — "Debt" for further details.

During the year ended December 31, 2022 and in January 2023, the Company announced various restructuring actions to improve the alignment between the Company’s organizational structure and its long-term business strategy, drive cost efficiencies enabled by the Company’s technology and other competitive advantages and continue to drive toward profitability and positive free cash flow.

The Company will continue to assess the impact that changing macroeconomic factors and the slowdown of the U.S.

Residential real estate market will have on its business and will adjust its operations as necessary.

As of December 31, 2022 and 2021, the Company held cash and cash equivalents of approximately $ 361.9 million and $ 618.3 million, respectively.

The Company believes that it will have sufficient liquidity from cash on hand, its Revolving Credit Facility and future operations to sustain its business operations for the next twelve months and beyond.

Compass, Inc.

Notes to Consolidated Financial Statements

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance.

3 unchanged sentences

Substantially all long-lived assets are located in the United States and substantially all revenue is attributed to sellers and buyers based in the United States.

Net Loss Per Share Attributable to Common Stockholders

The Company follows the two-class method

when computing net loss per common share when shares are issued that meet the definition of participating securities.

The two-class method

determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method

requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Net Loss Per Share Attributable to Compass, Inc.

The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities.

The two-class method determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Prior to conversion in connection with the IPO, the Company’s convertible preferred stock contractually entitled the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in the Company’s losses.

Compass, Inc.

Notes to Consolidated Financial Statements

For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

For periods in which the Company reports net losses, diluted net loss per common share attributable to Compass, Inc.

is the same as basic net loss per common share attributable to Compass, Inc., because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Foreign Currency

2 unchanged sentences

Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the exchange rate on the transaction date.

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured at period-end using

the period-end exchange

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured at period-end using the period-end exchange rate.

Realized and unrealized gains and losses from foreign exchange were immaterial for the years ended December 31, 2022, 2021 and 2020.

1 unchanged sentence

The Company considers all investments with an original maturity date at the time of purchase of three months or less to be cash and cash equivalents.

Cash equivalents consist primarily of money market funds.

Cash equivalents consist primarily of money market funds and U.S.

treasury securities .

The Company’s accounts, at times, may exceed federally insured limits.

5 unchanged sentences

Opening balance $ 7.1 $ 8.1

Allowances 5.5 1.7

Net write-offs and other ( 3.6 ) ( 2.7 )

2 unchanged sentences

Notes to Consolidated Financial Statements

Prepaid Incentives

Other current assets and Other non-current assets

in the consolidated balance sheets include prepaid incentives that represent cash payments made to certain agents as an incentive to associate their license with the Company.

The prepaid incentives have a related service period requirement which provides for the repayment of such amounts if the agent disassociates from the Company prior to the completion of the specified service period.

The value of these prepaid incentives are amortized within Sales and marketing expense in the consolidated statements of operations over the underlying service periods.

Prepaid Agent Incentives

Other current assets and Other non-current assets in the consolidated balance sheets include prepaid agent incentives that represent cash payments made to certain agents as an incentive to associate their license with the Company.

The prepaid agent incentives have a related service period requirement which provides for the repayment of such amounts if the agent disassociates from the Company prior to the completion of the specified service period.

The value of these prepaid agent incentives are amortized within Sales and marketing expense in the consolidated statements of operations over the underlying service periods.

Property and Equipment, net

5 unchanged sentences

The useful lives of property and equipment are as follows:

Leasehold improvements

Lesser of estimated useful life or remaining lease term

Office furniture and equipment

Computer software and internally-developed software

Computer equipment

Description Useful Life

Leasehold improvements Lesser of estimated useful life or remaining lease term

Office furniture and equipment Five years

Computer software and internally-developed software Three years

Computer equipment Three years

Business Combinations

14 unchanged sentences

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups (collectively, “asset groups”) may not be recoverable.

This includes but is not limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset groups’ carrying amount may not be recoverable.

This includes but is not limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset groups’ carrying

Compass, Inc.

Notes to Consolidated Financial Statements

amount may not be recoverable.

Recoverability of asset groups to be held and used is measured first by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset group.

1 unchanged sentence

No impairment losses for long-lived assets have been recognized in any of the periods presented.

Compass, Inc.

Notes to Consolidated Financial Statements

Goodwill represents the excess of the cost of an acquired business over the fair value of the assets acquired at the date of acquisition.

2 unchanged sentences

As part of the goodwill impairment test, the Company first performs a qualitative assessment to determine whether further impairment testing is necessary.

If, as a result of its qualitative assessment, it is more-likely-than-not that

the fair value of the Company’s reporting unit is less than its carrying amount, a two-step impairment

test is required.

If, as a result of its qualitative assessment, it is more-likely-than-not that the fair value of the Company’s reporting unit is less than its carrying amount, a two-step impairment test is required.

If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows.

If the carrying value of the reporting unit continues to exceed its fair value, the implied fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded.

The Company has no t

recorded any impairments related to goodwill as of December 31, 2021.

The Company has not recorded any impairments related to goodwill as of December 31, 2022.

The Company determines if an arrangement contains a lease at inception based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use.

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The Company does not have any finance leases.

Right-of-use (“ROU”)

assets are recognized at the lease commencement date and represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Right-of-use (“ROU”) assets are recognized at the lease commencement date and represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the remaining lease term.

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ROU assets are also assessed for impairments consistent with the Company’s long-lived asset policy.

The Company does not allocate consideration between lease and non-lease components,

such as maintenance costs, as the Company has elected to not separate lease and non-lease components

for any leases within its existing classes of assets.

The Company does not allocate consideration between lease and non-lease components, such as maintenance costs, as the Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets.

Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments for real estate taxes, insurance, maintenance and utilities, which are generally based on the Company’s pro rata share of the total property, are not included in the measurement of the ROU assets or lease liabilities and are expensed as incurred.

Operating leases are presented separately as operating lease right-of-use assets

and operating lease liabilities, current and non-current, in

the accompanying consolidated balance sheets.

Operating leases are presented separately as operating lease ROU assets and operating lease liabilities, current and non-current, in the accompanying consolidated balance sheets.

Compass, Inc.

Notes to Consolidated Financial Statements

Revenue Recognition

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As principal, the Company recognizes revenue in the gross amount of consideration to which the Company expects to receive in exchange for those services.

Compass, Inc.

Notes to Consolidated Financial Statements

The Company concluded that its brokerage revenue contains a single performance obligation that is satisfied upon the closing of a real estate services transaction, at which point the entire transaction price is earned.

8 unchanged sentences

Commissions and other related expense primarily consist of commissions paid to the Company’s agents, who are independent contractors to the Company, upon the closing of a real estate transaction (i.e., purchase or sale of a home), as well as stock-based compensation expense related to the Company’s Agent Equity Program (see Note 2 — “Summary of Significant Accounting Policies — Stock-Based Compensation”) and fees paid to external brokerages for client referrals, which are recognized and paid upon the closing of a real estate transaction.

The Company also charges resource fees to affiliated agents.

The Company also charges fees to affiliated agents.

These fees are either transaction based, where amounts are collected at the closing of a brokerage transaction, or in the form of periodic fixed fees over a defined period of time.

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Advertising expense primarily includes the cost of marketing activities such as print advertising, online advertising and promotional items, which are expensed as incurred.

Advertising costs were $ 118.1 million, $ 101.1 million and $ 103.9 million for the years ended December 31, 2021, 202 0

and 2019, respectively.

Advertising costs were $ 147.1 million, $ 118.1 million and $ 101.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Compensation costs includes salaries, taxes, benefits, bonuses and stock-based compensation.

Compass, Inc.

Notes to Consolidated Financial Statements

Operations and Support

4 unchanged sentences

General and administrative expense primarily consists of compensation costs for executive management and administrative employees, including finance and accounting, legal, human resources and communications, the occupancy costs for the Company’s New York headquarters and other offices supporting administrative functions, professional services fees, insurance expenses and talent acquisition expenses.

Restructuring

Costs and liabilities associated with management-approved restructuring activities are recognized when they are incurred.

Restructuring charges primarily consist of costs associated with a workforce reduction and operating lease right-of-use asset impairments.

One-time employee termination costs are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period.

Ongoing employee termination benefits are recognized as a liability when it is probable that a liability exists and the amount is reasonably estimable.

Restructuring charges are recognized as an operating expense within the consolidated statements of operations and related liabilities are recorded within Accrued expenses and other liabilities on the consolidated balance sheets.

The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.

Depreciation and Amortization

Depreciation and amortization expense primarily consists of depreciation and amortization of the Company’s property and equipment, capitalized software and acquired intangible assets.

Compass, Inc.

Notes to Consolidated Financial Statements

Interest Expense

4 unchanged sentences

The effect on deferred tax assets and liabilities resulting from a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Deferred tax assets and liabilities are classified as non-current in

accordance with Accounting Standard Update (“ASU”) No.

allowances are established against deferred tax assets if it is more likely than not that they will not be realized.

Deferred tax assets and liabilities are classified as non-current in accordance with Accounting Standard Update (“ASU”) No.

Valuation allowances are established against deferred tax assets if it is more likely than not that they will not be realized.

The Company recognizes tax benefits from uncertain tax positions only if the Company believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

1 unchanged sentence

The Company’s policy is to adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on its financial condition and operating results.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in

Compass, Inc.

Notes to Consolidated Financial Statements

which such determination is made and could have a material impact on its financial condition and operating results.

The provision for income taxes includes the effects of any reserves that management identifies.

3 unchanged sentences

There are three levels of inputs that may be used to measure fair value:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Unobservable inputs that are supported by little or no market activity, requiring the Company to develop its own assumptions.

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 Unobservable inputs that are supported by little or no market activity, requiring the Company to develop its own assumptions.

The carrying amount of the Company’s financial instruments including Cash and cash equivalents, Accounts receivable, Compass Concierge receivables, Accounts payable and Commissions payable approximate their respective fair values because of their short maturities.

5 unchanged sentences

The Company recognizes forfeitures as they occur.

Compass, Inc.

Notes to Consolidated Financial Statements

For stock options, which the Company issues to employees and affiliated agents, the Company generally estimates the fair value using the Black- Scholes option pricing model, which requires the input of subjective assumptions, including (1) the fair value of common stock, (2) the expected stock price volatility, (3) the expected term of the award, (4) the risk-free interest rate and (5) expected dividends.

The Company also issues RSUs to employees and affiliated agents.

For stock options, which the Company issues to employees, affiliated agents and in certain cases in connection with business combinations, the Company generally estimates the fair value using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (1) the fair value of common stock, (2) the expected stock price volatility, (3) the expected term of the award, (4) the risk-free interest rate and (5) expected dividends.

The Company also issues RSUs to employees, affiliated agents and in certain cases in connection with business combinations.

In addition to the issuance of RSUs to agents as equity compensation for the provision of services, the Company offers RSUs to affiliated agents through its Agent Equity Program.

1 unchanged sentence

RSUs issued in connection with the Agent Equity Program are granted at the beginning of the year following the calendar year in which the commissions were earned and are subject to the terms and conditions of the 2012 Stock Incentive Plan and the 2021 Equity Incentive Plan, as applicable.

The Company has discontinued the Agent Equity Program following the issuance of RSUs in January 2023 related to the 2022 program year.

The Company’s RSUs granted prior to December 2020 generally vest based upon the satisfaction of both a service-based condition and a liquidity event-based condition.

1 unchanged sentence

The liquidity event-based vesting condition is satisfied on the occurrence of a qualifying event, generally defined as a change in control or the effective date of the registration statement for the Company’s IPO.

The fair value of these RSUs is measured based on the fair value of the Company’s common stock on the grant date and will begin to be recognized as expense when both the required service-based vesting condition and the liquidity event-based vesting condition has been achieved using the accelerated attribution method.

The liquidity event-based vesting requirement was met on March 31, 2021, the effective date of the Company’s registration statement, see Note 1—“

Business—Initial Public Offering.”

Beginning in December 2020, the Company began issuing RSUs that vest upon the satisfaction of only a service-based vesting condition that is generally ranging from four to five years .

The fair value of these RSUs was measured based on the fair value of the Company’s common stock on the grant date and was recognized as expense when both the required service-based vesting condition and the liquidity event-based vesting condition were achieved using the accelerated attribution method.

The liquidity event-based vesting requirement was met on March 31, 2021, the effective date of the Company’s registration statement, see Note 1—“Business—Initial Public Offering.”

Compass, Inc.

Notes to Consolidated Financial Statements

In December 2020, the Company began issuing RSUs that vest upon the satisfaction of only a service-based vesting condition that generally ranges from one to five years .

The fair value of these RSUs is measured based on the fair value of the Company’s common stock on the grant date and will be recognized as expense on a straight-line basis as the required service-based vesting condition is satisfied.

Any vested RSUs that require only a service-based vesting condition will convert to common stock following vesting and their prescribed delayed settlement periods.

For RSUs to be granted in connection with the 2021 Agent Equity Program, the Company determines the value of the stock-based compensation expense at the time the underlying commission is earned and begins to recognize the associated expense on a straight-line basis over the requisite service periods beginning on the closing date of the underlying real estate commission transactions.

The stock-based compensation expense is recorded as a liability and will be reclassified to additional paid-in

capital at the end of the vesting period when the underlying RSUs are issued.

For RSUs granted in connection with the 2021 and 2022 Agent Equity Programs, the Company determined the value of the stock-based compensation expense at the time the underlying commission is earned and began to recognize the associated expense on a straight-line basis over the requisite service periods beginning on the closing date of the underlying real estate commission transactions.

The stock-based compensation expense was recorded as a liability and will be reclassified to additional paid-in capital at the end of the vesting period when the underlying RSUs are issued.

On a limited basis, the Company has issued stock options and RSUs that contain service, performance and market-based vesting conditions that include stock price targets to be met after the listing of the Company’s stock on a public exchange.

1 unchanged sentence

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13,

Financial Instruments — Credit Losses (Topic 326)

, which modifies the measurement of credit losses on financial instruments.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) , which modifies the measurement of credit losses on financial instruments.

This standard requires the use of an expected loss impairment model for instruments measured at amortized cost based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount.

This guidance is effective for public companies with fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted this standard as of January 1, 2020 on a modified retrospective basis which

resulted in a $ 5.6 million increase in the Company’s overall allowance for credit losses related to the Company’s Compass Concierge receivables, with a corresponding increase to the Company’s accumulated deficit.

In August 2018, the FASB issued ASU 2018-13,

Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement

The guidance eliminates, amends and adds certain disclosure requirements for fair value measurements.

The new standard is effective for all public entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019.

The Company adopted this standard as of January 1, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

Intangibles — Goodwill and Other —

Software (Subtopic

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)

The guidance on the accounting for implementation, setup and other upfront costs (collectively referred to as implementation costs) applies to entities that are a customer in a hosting arrangement that is a service contract.

The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement

that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software

(and hosting arrangements that include an internal-use software

The new standard is effective for public companies with fiscal years beginning after December 15, 2019, including interim periods within that fiscal year and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption and early adoption is permitted.

The Company adopted this standard prospectively as of January 1, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Compass, Inc.

Notes to Consolidated Financial Statements

In November 2019, the FASB issued ASU No.

Compensation — Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606):

Codification Improvements — Share-Based Consideration Payable to a Customer

The ASU simplifies and increases comparability of accounting for nonemployee stock-based payments, specifically those made to customers.

Under the new guidance, such awards will be accounted for as a reduction of the transaction price in revenue, but should be measured and classified following the stock compensation guidance in ASC 718, Compensation — Stock Compensation

The new standard is effective for public companies with fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and can be applied retrospectively or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings upon adoption.

The Company adopted this standard on a modified retrospective basis as of January 1, 2020, and the adoption did not have an impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No.

Income Taxes (Topic 740):

The Company adopted this standard as of January 1, 2020 on a modified retrospective basis, which resulted in a $ 5.6 million increase in the Company’s overall allowance for credit losses related to the Company’s Compass Concierge receivables, with a corresponding increase to the Company’s accumulated deficit.

In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The ASU is part of the FASB’s simplification initiative;

and it is expected to reduce cost and complexity related to accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes

related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in

the tax basis of goodwill.

and it is expected to reduce cost and complexity related to accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The new standard will become effective for public companies with fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

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New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04,

Reference Rate Reform (Topic 848):

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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The guidance was issued on March 12, 2020 and may be applied prospectively through December 31, 2022.

On December 21, 2022, the FASB issued ASU 2022-06, R eference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The Company is evaluating applicable contracts and transactions to determine whether to elect the optional guidance.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08,

Business Combinations (Topic 805):

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The guidance amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

The amendment is effective for public companies with fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The amendment is effective for public companies with fiscal years beginning after December 15, 2022, including interim periods within those

Compass, Inc.

Notes to Consolidated Financial Statements

fiscal years.

The amendment should be applied prospectively to business combinations occurring on or after the effective date.

1 unchanged sentence

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures , which requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance.

This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The adoption of this standard is currently being evaluated and is not expected to have a material impact on the Company’s consolidated financial statements.

Business Combinations and Asset Acquisitions

2 unchanged sentences

The results of operations of businesses acquired by the Company have been included in the consolidated statements of operations since their respective dates of acquisition.

Goodwill generated from all business

completed was primarily attributable to expected synergies from future growth and potential monetization opportunities.

Goodwill generated from all business combinations completed was primarily attributable to expected synergies from future growth and potential monetization opportunities.

2022 Acquisitions

During the year ended December 31, 2021, the Company completed several business acquisitions including the acquisition of 100 % of the ownership interests in KVS Title, LLC, a title insurance and escrow settlement services company, Glide Labs, Inc., a real estate technology company, Randall Family of Companies, a group of Southern Coastal New England residential real-estate brokerage entities, three

additional small real estate brokerages and three additional small title insurance and escrow settlement services companies.

The purpose of these acquisitions was to expand the Company’s title and escrow offerings, to grow the Company’s transaction management tools included in its end-to-end

real estate platform, and to expand its existing brokerage business in key domestic markets.

During the year ended December 31, 2022, the Company completed the acquisition of 100 % of the ownership interests in a title insurance and escrow settlement services company and acquired the assets of a small real estate brokerage.

The purpose of these acquisitions was to expand the Company’s title and escrow offerings and to expand its existing brokerage business in key domestic markets.

The Company has accounted for these acquisitions as business combinations.

Total Consideration of Business Combinations

The total consideration for acquisitions completed during the year ended December 31, 2022 comprised $ 12.1 million of cash, net of cash acquired, $ 0.8 million in Class A common stock of the Company and up to $ 3.6 million of additional cash that may be paid contingent on certain earnings-based targets being met through 2029.

Future cash payments were recorded as Accrued expenses and other current liabilities and Other non-current liabilities in the consolidated balance sheets.

The fair value of the assets acquired and the liabilities assumed primarily resulted in the recognition of:

customer relationships of $ 8.1 million;

trademark intangible assets of $ 1.1 million;

$ 1.0 million of other current and non-current assets;

and $ 2.5 million of current and non-current liabilities.

The excess of the purchase price over the fair value of the acquired net assets was recorded as goodwill of $ 8.8 million.

Acquired intangible assets are being amortized over their estimated useful lives of approximately 3 to 5 years.

None of the goodwill recorded during the year ended December 31, 2022 is deductible for tax purposes.

The amount of tax-deductible goodwill may increase in the future to approximately $ 2.6 million dependent on the payment of certain holdbacks and acquisition-related compensation arrangements.

These amounts are not expected to have an impact on the income tax provision while the Company maintains a full valuation allowance on its U.S.

deferred tax assets.

As of December 31, 2022, an aggregate of $ 1.2 million of the cash to be paid after closing for certain acquisitions remained unpaid.

These amounts are presented within Accrued expenses and other current liabilities and Other non-current liabilities on the consolidated balance sheet and are expected to be paid during the years ended December 31, 2023 and December 31, 2024.

The Company has recorded the preliminary purchase price allocation as of the acquisition dates and expects to finalize its analysis within the measurement period (up to one year from the acquisition date) of the respective transaction.

Any adjustments during the measurement period would have a corresponding offset to goodwill.

Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, any subsequent adjustments are recorded to the consolidated statements of operations.

Compass, Inc.

Notes to Consolidated Financial Statements

During 2021, the Company completed two

asset acquisitions of smaller residential real estate brokerages in connection with ongoing agent recruitment efforts in key domestic markets.

The consideration for these two acquisitions comprised

$ 13.2 million in cash, net of cash acquired ,

million in the Company’s Class A common stock and up to

million of additional cash that may be paid contingent on certain earnings-based targets being met.

During the year ended December 31, 2021, the Company recorded net assets of

million primarily comprised of customer relationships.

Pro forma revenue and earnings for 2022 acquisitions have not been presented because they are not material to the Company’s consolidated revenue and results of operations, either individually or in the aggregate.

2021 Acquisitions

The purpose of these acquisitions was to expand the Company’s title and escrow offerings, to grow the Company’s transaction management tools included in its end-to-end real estate platform, and to expand its existing brokerage business in key domestic markets.

During 2021, the Company completed two asset acquisitions of smaller residential real estate brokerages in connection with ongoing agent recruitment efforts in key domestic markets.

The consideration for these two acquisitions comprised $ 13.2 million in cash, net of cash acquired, $ 5.8 million in the Company’s Class A common stock and up to $ 3.4 million of additional cash that may be paid contingent on certain earnings-based targets being met.

During the year ended December 31, 2021, the Company recorded net assets of $ 23.9 million primarily comprised of customer relationships.

Such amounts are also included in the tables below.

6 unchanged sentences

Non-controlling interest 3.8

The following table summarizes the preliminary allocations of the purchase price for the business combinations and asset acquisitions (in millions):

As of December 31, 2022, an aggregate of $ 12.3 million of the cash to be paid after closing for certain acquisitions remained unpaid.

These amounts are presented within Accrued expenses and other current liabilities on the consolidated balance sheet and are expected to be paid during the year ended December 31, 2023.

Compass, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the allocations of the purchase price for the business combinations and asset acquisitions (in millions):

Cash and cash equivalents $ 11.2

1 unchanged sentence

Property and equipment 2.5

Operating lease right-of-use

angible assets (2)

Operating lease right-of-use assets 12.8

Intangible assets (2)

Acquired Technology 5.5

relationships

Customer relationships 90.7

Trademarks 11.3

Total assets $ 206.6

Total liabilities $ ( 21.0 )

Net assets $ 185.6

Approximately $ 43.8 million of the goodwill is deductible for tax purposes.

The amount of

tax-deductible

goodwill may increase in the future to approximately $ 52.1

million dependent on the payment of certain holdbacks and acquisition related compensation arrangements.

The amount of tax-deductible goodwill may increase in the future to approximately $ 64.7 million dependent on the payment of certain holdbacks and acquisition related compensation arrangements.

These amounts are not expected to have an impact on the income tax provision while the Company maintains a full valuation allowance on its domestic deferred tax assets.

The identified intangible assets have a useful life

of 2 - 9 years.

Any adjustments during the measurement period would have a corresponding offset to goodwill.

The identified intangible assets have a useful life of 2 - 9 years.

Pro forma revenue and earnings for 2021 acquisitions have not been presented because they do not have a material impact to the Company’s consolidated revenue and results of operations, either individually or in the aggregate.

1 unchanged sentence

Modus Technologies, Inc.

9, 2020, the Company completed the acquisition of 100 % of the outstanding shares of Modus Technologies, Inc., a title and escrow company that provides an internally developed title and escrow technology platform to agents, home sellers and buyers.

On October 9, 2020, the Company completed the acquisition of 100 % of the outstanding shares of Modus Technologies, Inc.

("Modus"), a title and escrow company that provides an internally developed title and escrow technology platform to agents, home sellers and buyers.

The purpose of the acquisition was to expand its title and escrow service offerings and technology capabilities.

Compass, Inc.

Notes to Consolidated Financial Statements

The consideration for the purchase of Modus Technologies, Inc.

included a contingent consideration arrangement, payable over three years and based on the attainment of transaction-based targets as defined by the purchase agreement.

The maximum amount of contingent consideration that could be earned was

$ 70.0 million, payable in a combination of $ 50.0 million in cash and $ 20.0 million in the Company’s Class A common stock.

The Company recorded the contingent consideration liability at its fair value of $ 20.0 million

and will continue to adjust the contingent consideration liability at each reporting date to its then fair value, with any changes recorded through Operations and support in the accompanying consolidated statements of operations.

The consideration for the purchase of Modus included a contingent consideration arrangement, payable over three years and based on the attainment of transaction-based targets as defined by the purchase agreement.

The maximum amount of contingent consideration that could be earned was $ 70.0 million, payable in a combination of $ 50.0 million in cash and $ 20.0 million in the Company’s Class A common stock.

The Company recorded the contingent consideration liability at its fair value of $ 20.0 million and recorded all fair value adjustments to the contingent consideration liability at each reporting date, with any changes recorded through Operations and support in the accompanying consolidated statements of operations.

See “Note 5 — Fair Value of Financial Assets and Liabilities” for further discussion of inputs used to determine the fair value of contingent consideration.

A portion of this contingent consideration is subjected to forfeiture dependent on certain employees providing future service to the Company and will be accounted for as compensation expense over the required service periods.

A portion of this contingent consideration was subject to forfeiture dependent on certain employees providing future service to the Company and was accounted for as compensation expense over the required service periods.

See “Other Acquisition Related Compensation” below.

As of December 31, 2021, the remaining unpaid contingent consideration is $ 11.0 million and will be paid primarily in 2022 and 2023.

As of December 31, 2022, the remaining unpaid contingent consideration is $ 4.7 million and will be paid in 2023 and 2024.

During 2020, the Company completed several asset acquisitions.

1 unchanged sentence

The consideration for these acquisitions was paid entirely in cash.

Compass, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the aggregate fair value of the components of the purchase consideration, as of the respective dates of each of the acquisitions (in millions):

Technologies,

Cash paid at closing $ 27.7 $ 0.9

2 unchanged sentences

The following table summarizes the allocations of the purchase price (in millions):

Technologies,

Cash and cash equivalents $ 3.0 $ —

4 unchanged sentences

Acquired technology 6.3 —

relationships

Total liabilities

The goodwill is non-tax deductible.

The identified intangible assets have a useful life of 3 - 6 years.

Pro forma revenue and earnings for 2020 acquisitions have not been presented because they do not have a material impact to the Company’s consolidated revenue and results of operations, either individually or in aggregate.

Compass, Inc.

Notes to Consolidated Financial Statements

2019 Acquisitions

Contactually, Inc.

In February 2019, the Company completed the acquisition of 100 % of the outstanding shares of Contactually, Inc.

(“Contactually”), a technology company that provides an internally developed cloud-based Customer Relationship Management (“CRM”) platform tailored to the real estate industry.

The Company acquired Contactually primarily for its CRM expertise and engineering employees to assist in the development of the Company’s own proprietary CRM software platform.

During 2019, the Company completed the acquisition of several residential real estate brokerages in connection with ongoing agent recruitment efforts in key domestic markets.

The consideration for these acquisitions includes contingent consideration arrangements, payable over a period of up to 6 years and are based on the attainment of profitability targets as defined by the purchase agreements.

The maximum amount that can be earned is $ 13.1 million, payable in cash.

The Company recorded the contingent consideration at its fair value of $ 7.4 million and will continue to adjust the contingent consideration liabilities at each reporting date to its then fair value, with any changes recorded to Operations and support in the accompanying consolidated statements of operations.

The following table summarizes the aggregate fair value of the components of the purchase consideration, as of the respective dates of each of the acquisitions (in millions):

Contactually,

Cash paid at closing

Elimination of pre-existing relationships

Contingent consideration (payable in the form of cash)

The following table summarizes the allocation of the purchase price (in millions):

Contactually,

Cash and cash equivalents

Other current assets

Property and equipment

Operating lease right-of-use assets

Intangible assets (2)

Acquired technology

Customer relationships 1.3 0.9

Other non-current assets

Trademarks 1.7 —

Total assets $ 55.4 $ 0.9

Total liabilities $ ( 5.7 ) $ —

Net assets $ 49.7 $ 0.9

The goodwill is non-tax deductible.

1 unchanged sentence

Compass, Inc.

Notes to Consolidated Financial Statements

Contingent Consideration

4 unchanged sentences

Year Ended December 31,

2022 2021 2020

Opening balance $ 24.4 $ 39.8 $ 16.4

Acquisitions 3.6 5.6 20.0

Fair value (gains) losses included in net loss ( 2.2 ) ( 4.7 ) 8.9

Payments ( 11.8 ) ( 16.3 ) ( 5.5 )

Closing balance $ 14.0 $ 24.4 $ 39.8

Compass, Inc.

Notes to Consolidated Financial Statements

Other Acquisition Related Compensation

In connection with the Company’s acquisitions, a portion of the cash and equity

consideration amounts paid or to be paid to the selling shareholders are subject to clawback and forfeiture dependent on certain employees and agents providing continued service to the Company.

In connection with the Company’s acquisitions, a portion of the cash and equity consideration amounts paid or to be paid to the selling shareholders are subject to clawback and forfeiture dependent on certain employees and agents providing continued service to the Company.

Accordingly, this consideration is accounted for as compensation for future services and the Company recognizes the expenses over the underlying retention periods.

As of December 31, 2022, the Company expects to pay an additional $ 21.9 million in future cash consideration to sellers in connection with these arrangements.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 28.6 million, $

4.2 million and $ 7.1 million in compensation expense within Operations and support in the accompanying consolidated statement s

of operations related to these arrangements.

Similarly, the Company granted 277,776 , 221,390 and 21,080 shares of common stock to sellers in accordance with arrangements where receipt of the shares were contingent on certain employees and agents providing continued service to the Company in the years ended December 31, 2021, 2020 and 2019.

For the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 13.4 million, $ 28.6 million and $ 4.2 million, respectively, in compensation expense within Operations and support in the accompanying consolidated statements of operations related to these arrangements.

Similarly, the Company granted 0.9 million, 0.3 million and 0.2 million shares of common stock to sellers in accordance with arrangements where receipt of the shares were contingent on certain employees and agents providing continued service to the Company in the years ended December 31, 2022, 2021 and 2020, respectively.

Accordingly, these share-based payments will be accounted for as stock-based compensation expense over the underlying retention periods.

For the years ended December 31, 2021 and 2019, the Company recognized $ 1.1 million and $ 0.6 million in stock-based compensation expense within Operations and support in the accompanying consolidated statement of operations related to these arrangements.

For the years ended December 31, 2022 and 2021, the Company recognized $ 2.0 million and $ 1.1 million, respectively, in stock-based compensation expense within Operations and support in the accompanying consolidated statement of operations related to these arrangements.

There was no stock-based compensation expense related to these compensation arrangements recognized during the year ended December 31, 2020.

6 unchanged sentences

OriginPoint is owned 49.9 % by the Company and 50.1 % by Guaranteed Rate.

The Company and Guaranteed Rate each contributed capital of $ 5.0 million when OriginPoint was formed in July 2021 and have not contributed any additional capital through December 31, 2021.

The Company is accounting for OriginPoint as an equity method investment and will record its equity earnings or losses related to OriginPoint within Equity in loss of unconsolidated entity

in the statement of operations.

The Company’s investment in OriginPoint had a balance of $ 3.7

million at December 31, 2021 and is included within Other

assets on the accompanying consolidated balance sheet.

The Company recorded equity losses of $ 1.3

million during the year ended December 31, 2021.

No dividends were received by the Company during the year ended December 31, 2021.

The Company and Guaranteed Rate each contributed capital of $ 5.0 million when OriginPoint was formed in July 2021.

The Company has contributed $ 15.0 million of additional capital during the year ended December 31, 2022.

The Company is accounting for OriginPoint as an equity method investment and will record its equity earnings or losses related to OriginPoint within Equity in loss of unconsolidated entity in the consolidated statements of operations.

The Company’s investment in OriginPoint had a balance of $ 6.5 million at December 31, 2022 and is included within Other non-current assets on the accompanying consolidated balance sheet.

The Company recorded equity losses of $ 12.2 million and $ 1.3 million during the years ended December 31, 2022 and 2021, respectively.

No dividends were received by the Company during the years ended December 31, 2022 and 2021.

OriginPoint has established and maintains its own warehouse lines of credit, and it funds its own mortgage loan transactions from these independent sources.

The warehouse lines maintained by OriginPoint are collaterized by the underlying mortgages available for sale and are non-recourse to Compass.

The warehouse lines maintained by OriginPoint are collateralized by the underlying mortgages available for sale and are non-recourse to Compass.

Fair Value of Financial Assets and Liabilities

The Company’s cash and cash equivalents of

$ 618.3 million and $ 440.1 million as of December 31, 2021 and 2020, respectively, are held in cash and money market funds which are classified as Level 1 within the fair value hierarchy because they are valued using quoted prices in active markets.

The Company’s cash and cash equivalents of $ 361.9 million and $ 618.3 million as of December 31, 2022 and 2021, respectively, are held in cash, money market funds and U.S.

treasury securities which are classified as Level 1 within the fair value hierarchy because they are valued using quoted prices in active markets.

These are the Company’s only Level 1 financial instruments.

The Company does not hold any Level 2 financial instruments.

The Company’s

contingent consideration liabilities of $ 24.4 million and $ 39.8 million as of December 31, 2021 and 2020, respectively, are the Company’s only Level

3 financial instruments.

The Company’s contingent consideration liabilities of $ 14.0 million and $ 24.4 million as of December 31, 2022 and 2021, respectively, are the Company’s only Level 3 financial instruments.

Compass, Inc.

Notes to Consolidated Financial Statements

no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented.

Level 3 Financial Liabilities

The Company’s Level 3 financial liabilities relate to contingent consideration for acquisitions.

Contingent consideration represents obligations of the Company to transfer cash and common stock to the sellers of certain acquired entities in the event that certain targets and milestones are met.

As of December 31, 2021, the undiscounted maximum payment under these arrangements was $ 24.4 million which is expected to be paid over a period of up to 4 years.

The primary method the Company used to estimate the fair value of the contingent consideration was a Monte Carlo simulation, which is based on significant inputs, such as forecasted future results of the acquired businesses, which are not observable in the market, discount rates and earnings volatility measures.

The changes in the fair value of Level 3 financial liabilities are included within Operations and support in the accompanying consolidated statement s

of operations (see Note 3 — “Business Combinations and Asset Acquisitions”).

The following tables present quantitative information regarding the significant unobservable inputs utilized by the Company to measure its Level 3 liabilities, consisting of different contingent consideration agreements, at fair value on a recurring basis:

Year Ended December 31,

Discount rate

0.0 % - 2.0 %

0.0 % - 4.0 %

Weighted average discount rate

Earnings volatility

0.0 % - 15.0 %

0.0 % - 18.0 %

0.0 % - 45.0 %

Weighted average earnings volatility

See Note 3 — “Business Combinations and Asset Acquisitions” for changes in contingent consideration during the years ended December 31, 2022, 2021 and 2020.

The following tables present the balances of contingent consideration as presented in the consolidated balance sheets (in millions):

Accrued expenses and other current liabilities $ 10.0 $ 12.9

Other non-current

Other non-current liabilities 4.0 11.5

Total contingent consideration $ 14.0 $ 24.4

There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented.

Property and Equipment, Net

6 unchanged sentences

Property and equipment, net $ 192.5 $ 157.4

The Company recorded depreciation expense related to property and equipment of $ 38.5 million, $ 34.4 million and $ 24.3 million for the years ended December 31, 2021, 2020 and 2019, respectively which includes $ 6.0

million, $ 4.8 million and $ 4.0 million, respectively, related to capitalized internally–developed software.

The Company capitalized internally-developed software costs of $ 15.7

million and $ 5.2 million during the years ended December 31, 2021 and 2020, respectively.

Compass, Inc.

Notes to Consolidated Financial Statements

The Company recorded depreciation expense related to property and equipment of $ 48.2 million, $ 38.5 million and $ 34.4 million for the years ended December 31, 2022, 2021 and 2020, respectively which includes $ 9.4 million, $ 6.0 million and $ 4.8 million, respectively, related to capitalized internally–developed software.

The Company capitalized internally-developed software costs of $ 17.0 million and $ 15.7 million during the years ended December 31, 2022 and 2021, respectively.

Goodwill and Intangible Assets, Net

1 unchanged sentence

Balance at December 31, 2020

Acquisitions 68.5

Balance at December 31, 2021

Acquisitions 8.8

Measurement period adjustments 1.3

Balance at December 31, 2022

The following table

summarizes the carrying amounts and accumulated amortization of intangible assets (in millions, except weighted-average remaining useful life):

Compass, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the carrying amounts and accumulated amortization of intangible assets (in millions, except weighted-average remaining useful life):

December 31, 2022

Gross Carrying

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Value Weighted

Finite-lived intangible assets:

relationships

Acquired technology

Customer relationships 2 - 9 years

$ 155.2 $ ( 68.6 ) $ 86.6 3.4

Acquired technology 5 years

5.5 ( 1.8 ) 3.7 3.3

Trademarks 2 - 9 years

13.0 ( 4.3 ) 8.7 4.9

Indefinite-lived intangible assets:

Domain name 0.3 — 0.3 n/a

Total $ 174.0 $ ( 74.7 ) $ 99.3

December 31, 2021

Gross Carrying

Useful Life Gross Carrying

Amount Accumulated

Amortization Net Value Weighted

Finite-lived intangible assets:

relationships

Acquired technology

Customer relationships 2 - 9 years

$ 150.4 $ ( 42.9 ) $ 107.5 4.3

Acquired technology 2 - 5 years

17.5 ( 9.0 ) 8.5 3.2

Trademarks 2 - 9 years

13.6 ( 2.7 ) 10.9 5.4

Indefinite-lived intangible assets:

expense was $

25.9 million, $

16.8 million and $

16.6 million, for the years ended December 31, 2021, 2020 and 2019, respectively.

Domain name 0.3 — 0.3 n/a

Total $ 181.8 $ ( 54.6 ) $ 127.2

Amortization expense was $ 38.1 million, $ 25.9 million and $ 16.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Estimated future amortization expense for finite-lived intangible assets as of December 31, 2022 is as follows (in millions):

Thereafter 1.5

Compass, Inc.

Notes to Consolidated Financial Statements

Estimated future amortization expense for finite-lived intangible assets as of December 31, 2021 is as follows (in millions):

Other Current Assets and Accrued Expenses and Other Current Liabilities

Other current assets consisted of the following (in millions):

Agent Incentives

Prepaid agent incentives $ 48.4 $ 52.7

Other 28.1 42.2

Other current assets $ 76.5 $ 94.9

2 unchanged sentences

Accrued compensation 50.4 67.4

Accrued other acquisition related compensation, current

Contingent consideration, current

Other 72.8 88.7

Accrued expenses and other current liabilities $ 164.9 $ 240.9

3 unchanged sentences

The Concierge Facility is secured primarily by the Concierge Receivables and cash of the Compass Concierge Program.

Prior to July 29, 2021 borrowings under the Concierge Facility accrued interest at rates equal to the adjusted London interbank offered rate (“LIBOR”) plus a margin of 3.00 % as adjusted, or an alternate rate of interest upon the occurrence of certain changes in LIBOR.

Additionally, prior to July 29, 2021, the Company was required to pay an annual commitment fee of 0.50 % on a quarterly basis based on the unused portion of the Concierge Facility irrespective of the Company’s utilization rate.

On July 29, 2021, the Company amended and restated the Concierge Facility (the “A&R Concierge Facility”), extending the revolving period for another twelve months, lowering the interest rate to LIBOR plus a margin of 1.85 %, which may be adjusted, and lowering the annual commitment fee to 0.35 % if the Concierge Facility is utilized greater than 50% (the annual commitment fee remained the same, at 0.50 %, if the Concierge Facility is utilized less than 50%).

Pursuant to the A&R Concierge Facility, the principal amount, if any, is payable in full in January 2023 , unless earlier terminated or extended.

On July 29, 2021, the Company amended and restated the Concierge Facility (the “A&R Concierge Facility”), to among other things, extend the revolving period to July 28, 2022, lower the interest rate to LIBOR plus a margin of 1.85 %, which may be adjusted, and lower the annual commitment fee to 0.35 % if the A&R Concierge Facility is utilized greater than 50 % (the annual commitment fee remained the same, at 0.50 %, if the Concierge Facility is utilized less than 50 %).

On August 5, 2022, the Company further amended and restated the Concierge Facility (the “Second A&R Concierge Facility”) to among other things extend the revolving period to August 4, 2023, replace the LIBOR benchmark with Term SOFR plus a credit adjustment spread of 0.11448 % and make certain other technical adjustments.

The applicable margin on the Second A&R Concierge Facility increased from 1.85 % to 2.35 %.

The annual commitment fee as described in the preceding sentences remained the same.

The interest rate on the Concierge Facility was 7.59 % as of December 31, 2022.

The Company has the option to repay the borrowings under the Concierge Facility without premium or penalty prior to maturity.

The Concierge Facility contains customary affirmative covenants, such as financial statement reporting requirements, as well as covenants that restrict its ability to, among other things, incur additional indebtedness, sell certain receivables, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions.

Additionally, in the event that the Company fails to comply with certain financial covenants that require the Company to meet certain liquidity-based measures, the commitments under the Concierge Facility will automatically be reduced to zero and the Company will be required to repay any outstanding loans under the Concierge Facility.

As of December 31, 2021, the Company was in compliance with the covenants under the Concierge Facility.

Pursuant to the Second A&R Concierge Facility, the principal amount, if any, is payable in full in February 2024, unless earlier terminated or extended.

The Company has the option to repay the borrowings under the Second A&R Concierge Facility without premium or penalty prior to maturity.

The Second A&R Concierge Facility contains customary affirmative covenants, such as financial statement reporting requirements, as well as covenants that restrict its ability to, among other things, incur additional indebtedness, sell certain receivables, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions.

Additionally, in the event that the Company fails to comply with certain financial covenants that require the Company to meet certain liquidity-based measures, the commitments under the Second A&R Concierge Facility will automatically be reduced to zero and the Company will be required to repay any outstanding loans under the Second A&R Concierge Facility.

As of December 31, 2022, the Company was in compliance with the covenants under the Second A&R Concierge Facility.

Revolving Credit Facility

In March 2021, the Company entered into a Revolving Credit and Guaranty Agreement (the “Revolving Credit Facility”) with Barclays Bank PLC, as administrative agent and as collateral agent, and certain other lenders.

The Revolving Credit Facility provides for a $ 350.0 million revolving credit facility, subject to the terms and conditions of the Revolving Credit

Compass, Inc.

Notes to Consolidated Financial Statements

The Company incurred debt issuance costs of $ 0.5 million and

million during the year s

ended December 31, 2021 and 2020, respectively, in connection with the Concierge Facility, which are included in Other current assets and Other non-current

assets, net of accumulated amortization, in the consolidated balance sheets.

The unamortized debt issuance costs will be amortized within Interest expense in the consolidated statements of operations over the remaining term on a straight-line basis.

Revolving Credit Facility

2021 , the Company entered into a Revolving Credit and Guaranty Agreement (the “Revolving Credit Facility”) with several lenders and issuing banks and Barclays Bank PLC, as administrative agent and as collateral agent.

The Revolving Credit Facility provides for a $

350.0 million revolving credit facility, which may be increased by the greater of $

250.0 million and

18.5 % of the Company’s consolidated total assets, plus such additional amount so long as the Company’s total net leverage ratio does not exceed

1.00 on a pro forma basis as of the most recent test period, subject to the terms of the Revolving Credit Facility.

The Revolving Credit Facility also includes a letter of credit sublimit which is the lesser of (i) $

125.0 million and (ii) the aggregate unused amount of the revolving commitments then in effect under the Revolving Credit Facility.

The Company’s obligations under the Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries and are secured by a first priority security interest in substantially all of the Company’s assets and the Company’s subsidiary guarantors.

The Revolving Credit Facility also includes a letter of credit sublimit which is the lesser of (i) $ 125.0 million and (ii) the aggregate unused amount of the revolving commitments then in effect under the Revolving Credit Facility.

The Company’s obligations under the Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries and are secured by a first priority security interest in substantially all of the assets of the Company and the Company’s subsidiary guarantors.

Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50 % or (ii) a floating rate per annum equal to the rate at which dollar deposits are offered in the London interbank market plus a margin of 1.50 %.

In the Revolving Credit Facility, the base rate is defined as the highest of (a) the prime rate as quoted by The Wall Street Journal, (b) the federal funds effective rate plus 0.50 %, (c) the rate at which dollar deposits are offered in the London interbank market for a one-month

interest period plus 1.00 % and (d) 1.00 %.

The base rate is equal to the highest of (a) the prime rate as quoted by The Wall Street Journal, (b) the federal funds effective rate plus 0.50 %, (c) the rate at which dollar deposits are offered in the London interbank market for a one-month interest period plus 1.00 % and (d) 1.00 %.

During an event of default under the Revolving Credit Facility, the applicable interest rates are increased by 2.0 % per annum.

The Company is also obligated to pay other customary fees for a credit facility of this size and type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility of 0.175 % per annum and fees associated with letters of credit.

The interest rate on the borrowings under the Revolving Credit Facility was 5.86 % as of December 31, 2022.

The Company is also obligated to pay other customary fees for a credit facility of this type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility of 0.175 % per annum, fees associated with letters of credit and administrative and arrangement fees.

The principal amount, if any, is payable in full in March 2026, unless earlier terminated or extended.

The Company has the option to repay the Company’s borrowings, and to permanently reduce the loan commitments whole or in part, under the Revolving Credit Facility without premium or penalty prior to maturity.

As of December 31, 2021, there were no borrowings outstanding under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $ 30.3 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 December 31, 2021, the Company was in compliance with the covenants under the Revolving Credit Facility.

The Company has the option to repay the Company’s borrowings, and to permanently reduce the loan commitments in whole or in part, under the Revolving Credit Facility without premium or penalty prior to maturity.

As of December 31, 2022, there were $ 150.0 million in borrowings outstanding under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $ 33.0 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 covenants which restrict their 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 (i) the Company maintains liquidity of at least $ 150.0 million as of the last day of each fiscal quarter and each date of a credit extension and (ii) the Company’s consolidated total revenue as of the last day of each fiscal quarter be equal to or greater than the specified amount corresponding to such period.

The minimum required consolidated revenue threshold for the trailing four fiscal quarters is $ 2,418.0 million during 2022, $ 3,799.0 million during 2023 and $ 4,668.0 million thereafter.

As of December 31, 2022, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

The Revolving Credit Facility includes customary events of default that include, among other things, nonpayment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events.

The occurrence of an event of default could result in the acceleration of the obligations under the Revolving Credit Facility.

The Company incurred debt issuance costs of $ 1.4 million in connection with the Revolving Credit Facility, which are included in Other current assets and Other non-current

assets in the consolidated balance sheet.

The unamortized debt issuance costs will be amortized within Interest expense in the consolidated statements of operations over the remaining term on a straight-line basis.

Compass, Inc.

Notes to Consolidated Financial Statements

The components of lease costs for operating leases for the years ended December 31, 2022, 2021 and 2020 was as follows (in millions):

Year Ended December 31,

2022 2021 2020

Operating lease costs $ 113.7 $ 102.3 $ 93.1

2 unchanged sentences

Variable lease costs 35.4 29.0 26.4

Total $ 152.7 $ 135.3 $ 121.8

Compass, Inc.

Notes to Consolidated Financial Statements

The Company has a small population of subleases whereby it acts as a lessor and has recognized sublease income as noted in the table above.

The impact of this portfolio is not material to the consolidated financial statements.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized lease costs, net of sublease income, of $ 124.3 million, $ 110.2 million and $ 109.1 million, respectively, in Sales and marketing expenses

$ 11.0 million, $ 11.6 million and $ 11.6 million, respectively, in General and administrative expenses in the consolidated statement s

of operations.

For the years ended December 31, 2022, 2021 and 2020, the Company recognized lease costs, net of sublease income, of $ 141.5 million, $ 124.3 million and $ 110.2 million, respectively, in Sales and marketing expenses and $ 11.2 million, $ 11.0 million and $ 11.6 million, respectively, in General and administrative expenses in the consolidated statements of operations.

Supplemental cash flow information related to leases was as follows (in millions):

Year Ended December 31,

2022 2021 2020

Cash paid for amounts included in the measurement of operating lease liabilities:

Operating cash flows used in operating leases $ 118.8 $ 106.3 $ 92.0

Supplemental disclosure of non-cash

leasing activities:

Supplemental disclosure of non-cash leasing activities:

ROU assets obtained in exchange for new operating lease liabilities $ 94.7 $ 137.1 $ 66.3

3 unchanged sentences

Future undiscounted lease payments for the Company’s operating lease liabilities are as follows as of December 31, 2022 (in millions):

Thereafter 178.7

Total future lease payments 677.7

1 unchanged sentence

Present value of lease liabilities $ 581.1

As of December 31, 2021, the Company had additional operating leases that have not yet commenced with future undiscounted lease payments of approximately $ 82.0 million.

Compass, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2022, the Company had additional operating leases that have not yet commenced with future undiscounted lease payments of approximately $ 11.2 million payable through 2033, which have been excluded from above.

Commitments and Contingencies

2 unchanged sentences

When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the Company’s business taken as a whole.

When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim and an estimate of the loss or range of loss, if such an estimate can reasonably be made.

When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim

Compass, Inc.

Notes to Consolidated Financial Statements

and an estimate of the loss or range of loss, if such an estimate can reasonably be made.

Legal costs related to the defense of loss contingencies are expensed as incurred.

1 unchanged sentence

Except as identified with respect to the matters below, the Company does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition or overall business in each case, taken as a whole.

Avi Dorfman v.

Robert Reffkin and Urban Compass, Inc.

In July 2014, Avi Dorfman (“Dorfman”) and RentJolt, Inc.

(“RentJolt”) (collectively, “Plaintiffs”) filed suit against the Company and Robert Reffkin (“Defendants”), seeking compensation for certain services, trade secrets and other contributions allegedly provided in the formation of the Company.

During the year ended December 31, 2021, the matter was settled and the Company recognized an expense of

million within General and administrative expense in the accompanying consolidated statements of operations.

Realogy Holdings Corp., et al v.

1 unchanged sentence

and Compass Inc.

In July 2019, Realogy Holdings Corp., NRT New York LLC (“Corcoran”) and many of its related entities (collectively, “Plaintiffs”) filed a complaint against the Company in the New York Supreme Court.

The complaint alleges various violations of New York and California state law related to claims of unfair competition and seeks unspecified damages.

The Company filed a Motion to Dismiss in September 2019.

In September 2019, Plaintiffs filed an amended complaint, removing one claim and adding a claim for defamation.

In November 2019, the Company moved to compel arbitration related to claims asserted by Corcoran and moved to dismiss all of the counts.

In June 2020, the Court denied the motion to dismiss and denied the motion to compel arbitration as moot, granting Plaintiffs leave to amend the complaint as to claims asserted by Corcoran without prejudice to Defendants’ ability to move to compel or dismiss the Second Amended Complaint.

On July 3, 2020, Plaintiffs filed their Second Amended Complaint.

On December 18, 2020, the Court denied the Company’s motion to compel arbitration on Plaintiffs’ second amended complaint without prejudice.

Defendants’ Answer to the Second Amended Complaint and Counterclaims were filed on January 28, 2021.

Additionally, the Company filed its appeal of the lower Court’s denial of the Company’s motion to dismiss and motion to compel arbitration on February 1, 2021.

On June 1, 2021, the First Department affirmed the lower Court’s denial of the Company’s motion to compel arbitration.

Discovery is proceeding, with an end date set for October 3, 2022.

The Company is unable to predict the outcome of this action or to reasonably estimate the possible loss or range of loss, if any, arising from the claims asserted therein.

In July 2019, Realogy Holdings Corp., NRT New York LLC and many of its related entities (collectively, “Plaintiffs”) filed a complaint against the Company in the New York Supreme Court.

The complaint alleges various violations of New York and California state law related to claims of unfair competition.

On September 28, 2022, the Company and Plaintiffs executed a confidential agreement that resolved the matter.

During the three months ended September 30, 2022, the Company recognized an expense of $ 10.5 million within General and administrative expense in the accompanying consolidated statements of operations in connection with this matter and the amount was subsequently paid during the three months ended December 31, 2022.

Letter of Credit Agreements

2 unchanged sentences

As of December 31, 2022, $ 33.0 million and $ 15.0 million of these letters of credit were collateralized by the Company’s Revolving Credit Facility and cash and cash equivalents, respectively.

As of December 31, 2020, all letters of credit were collateralized by the Company’s cash and cash equivalents.

As of December 31, 2021, $ 30.3 million and $ 24.2 million of these letters of credit were collateralized by the Company’s Revolving Credit Facility and cash and cash equivalents, respectively.

Escrow and Trust Deposits

As a service to its home buyers and home seller clients, the Company administers escrow and trust deposits which represent undistributed amounts for

the settlement of real estate transactions.

The escrow and trust deposits totaled $ 172.1 million and $ 46.1 million, respectively ,

as of December 31, 2021 and 2020.

As a service to its home buyers and home seller clients, the Company administers escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions.

The escrow and trust deposits totaled $ 136.7 million and $ 172.1 million as of December 31, 2022 and 2021, respectively.

These deposits are not assets of the Company and therefore are excluded from the accompanying consolidated balance sheets.

2 unchanged sentences

Convertible Preferred Stock

In 2019, the Company issued 22,306,800 shares of Series G convertible preferred stock for proceeds of $ 343.3 million, net of $ 0.8 million issuance costs.

In 2020, the Company amended its certificate of incorporation and changed the authorized shares of Series G convertible preferred stock to 22.4 million and issued an additional 0.1 million shares of Series G convertible preferred stock for proceeds of $ 1.0 million.

In 2020, 9.4 million shares of Series D convertible preferred stock were converted into an equal number of shares of Class A common stock at the election of the holder resulting in the reclassification of $ 40.0 million in carrying value from Convertible preferred stock to Common stock and Additional paid-in capital.

Compass, Inc.

Notes to Consolidated Financial Statements

In 2020, the Company amended its certificate of incorporation and changed the authorized shares of Series G convertible preferred stock to 22,371,620 and issued an additional 64,820 shares of Series G convertible preferred stock for proceeds of $ 1.0 million.

In 2020, 9,382,620 shares of Series D convertible preferred stock were converted into an equal number of shares of Class A common stock at the election of the holder resulting in the reclassification of $ 40.0 million in carrying value from Convertible preferred stock to Common stock and Additional paid-in capital.

The Company’s convertible preferred stock authorized, issued and outstanding, the aggregate liquidation preferences, including dividends that would be due if and when declared by the board of directors we re

as follows as of December 31, 2020 (in millions, except share and per share amounts):

December 31, 2020

Series of Convertible

Preferred Stock

Issuance Price/

Preferred Stock Year Issued Shares

Authorized Shares

Outstanding Issuance Price/

Liquidation Price

Carrying Value

(Per Share) Aggregate

Value Carrying Value

Issuance Costs)

In March 2021, the holders of 15,920,450 shares of the Company’s Series D convertible preferred stock elected to convert such shares into an equal number of shares of Class A common stock.

During April 2021, in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223,033,725 shares of Class A common stock and the Company reclassified $ 1.4 billion of Convertible preferred stock to Additional paid-in-capital.

As of December 31, 2021, the Company had no convertible preferred stock outstanding.

Series A 2013 54,811,930 54,811,930 $ 1.0000 $ 54.8 $ 54.7

Series B 2014-2015 18,133,240 18,133,240 2.0766 37.7 37.5

Series C 2015-2016 13,580,260 13,580,260 4.0500 55.0 54.8

Series D 2016-2017 25,303,070 15,920,450 4.2632 67.9 67.6

Series E 2017-2018 78,543,890 78,543,890 6.7478 530.0 529.0

Series F 2018 33,686,160 33,686,160 11.8570 399.4 398.8

Series G 2019-2020 22,371,620 22,371,620 15.4269 345.1 344.3

246,430,170 237,047,550 $ 1,489.9 $ 1,486.7

In March 2021, the holders of 15.9 million shares of the Company’s Series D convertible preferred stock elected to convert such shares into an equal number of shares of Class A common stock.

During April 2021, in connection with the IPO, all series of the Company’s convertible preferred stock then outstanding were converted into 223.0 million shares of Class A common stock and the Company reclassified $ 1.4 billion of Convertible preferred stock to Additional paid-in-capital.

As of December 31, 2022 and 2021, the Company had no convertible preferred stock outstanding.

Undesignated Preferred Stock

In April 2021, the Company adopted a restated certificate of incorporation which provides for authorized undesignated preferred stock to 25,000,000 .

As of December 31, 2021, there are no shares of the Company’s preferred stock issued and outstanding.

In April 2021, the Company adopted a restated certificate of incorporation which provides for authorized undesignated preferred stock to 25.0 million shares of undesignated preferred stock with a $ 0.00001 par value per share.

As of December 31, 2022 and 2021, there are no shares of the Company’s preferred stock issued and outstanding.

In February 2021, the Company approved the establishment of Class C common stock and an agreement with the Company’s CEO to exchange his Class A common stock for Class C common stock.

On March 31, 2021, in connection with the effectiveness of the registration statement for the Company’s IPO, 15,244,490 shares of Class A common stock held by the Company’s founder and

CEO were automatically exchanged for an equivalent

number of shares of Class C common stock.

On March 31, 2021, in connection with the effectiveness of the registration statement for the Company’s IPO, 15.2 million shares of Class A common stock held by the Company’s founder and CEO were automatically exchanged for an equivalent number of shares of Class C common stock.

In addition, any Class A common stock issued to the Company’s CEO from RSU awards granted prior to February 2021 are able to be exchanged for Class C common stock.

1 unchanged sentence

Other than certain permitted transfers for estate planning purposes, upon a transfer of Class C common stock, the Class C common stock will convert into Class A common stock.

In April 2021, the Company adopted a restated certificate of incorporation and changed its authorized capital stock to consist of 12,500,000,000 shares of Class A common stock, 1,250,000,000 shares of Class B common stock and 100,000,000 shares of Class C common stock.

In April 2021, the Company adopted a restated certificate of incorporation and changed its authorized capital stock to consist of 12,500.0 million shares of Class A common stock, 1,250.0 million shares of Class B common stock and 100.0 million shares of Class C common stock.

Each class has par value of $ 0.00001 .

On July 1, 2021, the board of directors of the Company approved the conversion of all outstanding shares of the Company’s Class B common stock into the same number of shares of the Company’s Class A common stock effective on that date.

As of December 31, 2020, the Company had 2,250,000 shares of Class A common stock issued and held as treasury stock which were subsequently retired on July 1, 2021 .

Compass, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2020, the Company had 2.3 million shares of Class A common stock issued and held as treasury stock which were subsequently retired on July 1, 2021.

The followings tables reflect the authorized, issued and outstanding shares for each of the common share classes as of December 31, 2022 and 2021:

December 31, 2022

Authorized Shares

Issued Shares

Class A common stock 12,500,000,000 419,842,991 419,842,991

12,500,000,000

Class B common stock 1,250,000,000 — —

1,250,000,000

Class C common stock 100,000,000 18,255,203 18,255,203

13,850,000,000

Total 13,850,000,000 438,098,194 438,098,194

December 31, 2021

Authorized Shares

Issued Shares

Class A common stock 12,500,000,000 391,912,514 391,912,514

Class B common stock 1,250,000,000 — —

Class C common stock 100,000,000 17,355,237 17,355,237

Total 13,850,000,000 409,267,751 409,267,751

The rights of common stock are as follows:

11 unchanged sentences

such conversion shall be deemed to have been made immediately prior to the closing date of the public offering.

Each share of Class C common stock is convertible at any time of the option of the holder into one share of Class A common stock.

Each share of Class C common stock will automatically convert into a share of Class A common stock upon sale or transfer, except for certain permitted transfers.

Compass, Inc.

Notes to Consolidated Financial Statements

Each share of Class C common stock is convertible at any time of the option of the holder into one share of Class A common stock.

Each share of Class C common stock will automatically convert into a share of Class A common stock upon sale or transfer, except for certain permitted transfers.

Stock-Based Compensation

2012 Stock Incentive Plan

In October 2012, the Company adopted the 2012 Stock Incentive Plan

(as amended, the “2012 Plan”).

Under the 2012 Plan, employees and non-employees can

be granted options on common stock, RSUs and other stock-based awards, including awards earned in connection with the Agent Equity Program.

Generally, these awards are based on stock agreements with

contractional

terms for stock options and up to a ten-year

contractual terms for RSUs, subject to board approval .

In October 2012, the Company adopted the 2012 Stock Incentive Plan (the “2012 Plan”).

Under the 2012 Plan, employees and non-employees could be granted stock options, RSUs and other stock-based awards, including awards earned in connection with the Agent Equity Program.

Generally, these awards were based on stock agreements with a maximum ten-year term for stock options and a maximum seven-year term for RSUs, subject to board approval.

2021 Equity Incentive Plan

In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Equity Incentive Plan (the “2021 Plan”), with an initial pool of

shares of common stock available for granting stock-based awards plus any reserved shares of common stock not issued or subject to outstanding awards granted under the Company’s 2012 Plan.

In addition, on January 1 st

of each year beginning in 2022 and continuing through 2031, the aggregate number of shares of common stock authorized for issuance under the 2021 Plan shall be increased automatically by the number of shares equal to five percent

of the total number of outstanding shares of common stock and shares of preferred stock of the Company’s outstanding (on an as converted to common stock basis) on the immediately preceding December 31 st

, although the Company’s board of directors or one of its committees may reduce the amount of such increase in any particular year.

In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Equity Incentive Plan (the “2021 Plan”), with an initial pool of 29.7 million shares of common stock available for granting stock-based awards plus any reserved shares of common stock not issued or subject to outstanding awards granted under the 2012 Plan.

In addition, on January 1 st of each year beginning in 2022 and continuing through 2031, the aggregate number of shares of common stock authorized for issuance under the 2021 Plan shall be increased automatically by the number of shares equal to 5 % of the total number of outstanding shares of common stock and outstanding shares of preferred stock (on an as converted to common stock basis) on the immediately preceding December 31 st , although the Company’s board of directors or one of its committees may reduce the amount of such increase in any particular year.

The 2021 Plan became effective on March 30, 2021 and as of that date, the Company ceased granting new awards under the 2012 Plan and all remaining shares available under the 2012 Plan were transferred to the 2021 Plan.

As of December 31, 2021, there were

shares available for future grants under the 2021 Plan, inclusive of those shares transferred from the 2012 Plan.

Effective January 1, 2022 the shares available for future grants were increased by an additional 20,457,795 shares as a result of the annual increase provision described above.

As of December 31, 2022, there were 34.6 million shares available for future grants under the 2021 Plan, inclusive of those shares transferred from the 2012 Plan.

Effective January 1, 2023, the shares available for future grants were increased by an additional 21.9 million shares as a result of the annual increase provision described above.

2021 Employee Stock Purchase Plan

In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Employee Stock Purchase Plan (the “ESPP”).

The ESPP authorizes the issuance of

shares of common stock to purchase rights granted to the Company’s employees or to employees of its designated affiliates.

of the total number of outstanding shares of common stock on the immediately preceding December 31st, although the Company’s board of directors or one of its committees may reduce the amount of the increase in any particular year.

shares of common stock may be issued over the term of the ESPP, subject to certain exceptions set forth in the ESPP.

Effective January 1, 2022 the shares available for issuance under the ESPP were increased by an additional

result of the annual provision described

of the date of this filing, no shares have been issued

under the ESPP.

In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Employee Stock Purchase Plan (the “ESPP”), which authorized purchase rights to the Company’s employees or to employees of its designated affiliates.

In addition, on January 1 st of each year beginning in 2022 and continuing through 2031, the aggregate number of shares of common stock authorized for issuance under the ESPP shall be increased automatically by the number of shares equal to 1 % of the total number of outstanding shares of common stock and outstanding shares of preferred stock (on an as converted to common stock basis) on the immediately preceding December 31 st, although the Company’s board of directors or one of its committees may reduce the amount of the increase in any particular year.

No more than 150.0 million shares of common stock may be issued over the term of the ESPP, subject to certain exceptions set forth in the ESPP.

The ESPP initially authorized the issuance of 7.4 million shares of common stock and effective January 1, 2022, the authorized shares increased by 3.9 million shares as a result of the annual increase provision described above.

As of December 31, 2022, 10.7 million shares of Class A common stock remain available for grant under the ESPP.

Effective January 1, 2023, the authorized shares increased by 4.2 million shares as a result of the annual increase provision described above.

The ESPP permits employees to purchase shares of the Company’s Class A common stock through payroll deductions accumulated during six-month offering periods up to a maximum value of $ 12,500 per offering period.

The offering periods begin each February and August, or such other period determined by the Compensation Committee.

On each purchase date, eligible employees may purchase the shares at a price per share equal to 85 % of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period, or (2) the fair market value of the Company’s Class A common stock on the purchase date, as defined in the ESPP.

During the year ended December 31, 2022, the Company issued 0.6 million shares of Class A common stock under the ESPP.

The Company recognized $ 2.1 million of stock-based compensation expense related to the ESPP during the year ended December 31, 2022.

As of December 31, 2022, $ 1.3 million has been withheld on behalf of employees for a future purchase under the ESPP.

Compass, Inc.

Notes to Consolidated Financial Statements

Stock Options

Stock options vest over a prescribed service period generally lasting

Stock options vest over a prescribed service period generally lasting four years .

Upon the exercise of any stock options, the Company issues shares to the award holder from the pool of authorized but unissued common stock.

2 unchanged sentences

Year Ended December 31,

2022 2021 2020

Expected term (in years) 6.2 6.3 7.0

5 unchanged sentences

$ 6.65 - $ 23.44

5.16 - $ 6.44

Weighted average grant date fair value of options granted $ 2.31 $ 8.68 $ 5.67

Compass, Inc.

Notes to Consolidated Financial Statements

Each of these inputs is subjective and generally requires significant judgment.

Expected Term

— The expected term represents the period that the stock-based awards are expected to be outstanding.

Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding.

The Company uses the simplified method to calculate the expected term due to insufficient historical experience, which assumes a ratable rate of exercise over the contractual term.

Risk-Free Interest Rate

— The risk-free interest rate is based on the U.S.

Risk-Free Interest Rate — The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the date of grant for zero-coupon U.S.

Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

Expected Volatility

— As a result of the lack of historical and implied volatility data of the Company’s common stock prior to the IPO, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in its industry for a period equal to the expected life of the option.

Expected Volatility — As a result of the lack of historical and implied volatility data of the Company’s common stock prior to the IPO, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in its industry for a period equal to the expected life of the option.

The Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, and position within the industry and with historical share price information sufficient to meet the expected term of the stock options.

The historical volatility data has been computed using the daily closing prices for the selected companies.

Dividend Rate

— The expected dividend rate is zero as the Company has not declared or paid any cash dividends and does not anticipate to do so in the foreseeable future.

Fair Value of Common Stock

— Prior to the IPO, the fair value of the shares of common stock underlying stock options and RSUs were historically determined by the board of directors as there was no public market for the common stock.

Dividend Rate — The expected dividend rate is zero as the Company has not declared or paid any cash dividends and does not anticipate to do so in the foreseeable future.

Fair Value of Common Stock — Prior to the IPO, the fair value of the shares of common stock underlying stock options and RSUs were historically determined by the board of directors as there was no public market for the common stock.

The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors including:

the valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, the Company’s operating and financial performance, secondary transactions involving the Company’s common stock, the lack of liquidity of common stock and general and industry specific economic outlook, amongst other factors.

A summary of stock option activity under the 20 12

Plan, including 1,061,250 stock options that were granted outside of the 20 12

Plan in 2019, is

presented below (in millions, except share and per share amounts):

Number of Shares

Compass, Inc.

Notes to Consolidated Financial Statements

A summary of stock option activity under the 2012 Plan and the 2021 Plan, including 1.1 million stock options that were granted outside of the 2012 Plan in 2019, is presented below (in millions, except share and per share amounts):

Number of Shares Weighted

Price Weighted

Contract Term

(in years) Aggregate Intrinsic Value (1)

Balance as of December 31, 2021

54,525,539 $ 5.30 7.1 $ 221.3

Granted 367,555 4.73

Exercised ( 4,145,127 ) 2.14

Forfeited ( 4,053,730 ) 6.95

Balance as of December 31, 2022

Excercisable and vested at December 31, 2021

46,694,237 $ 5.44 5.9 $ 8.5

Exercisable and vested at December 31, 2022

36,739,913 $ 4.70 5.4 $ 8.5

(1) The aggregate intrinsic values have been calculated using the Company’s closing stock prices of $ 2.33 and $ 9.09 as of December 31, 2022 and December 31, 2021, respectively.

During the years ended December 31, 2022, 2021 and 2020, the intrinsic value of options exercised was $ 20.3 million, $ 124.1 million and $ 9.8 million, respectively.

1 unchanged sentence

As of December 31, 2022, unrecognized compensation costs totaled $ 62.6 million and are expected to be recognized over a weighted-average period of 2.6 years.

, the Company granted 1,620,540 stock options with service, performance and market-based vesting conditions to an executive employee.

These conditions include stock price targets to be met after the listing of the Company’s stock on a public exchange.

For the year ended December 31, 2021, total compensation costs of $ 1.5 million related to these options was recognized.

As of December 31

, total compensation costs of $ 3.5

million related to these options has not yet been recognized.

The remaining

expected to be satisfied over a period of 3.9 years.

Early Exercise of Stock Options

A majority of the stock options granted under the 2012 Plan provide option holders the right to elect to exercise unvested options in exchange for restricted common stock.

Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service until the stock options are fully vested at the lesser of the original issuance price or the fair value the Company’s common stock.

Compass, Inc.

Notes to Consolidated Financial Statements

During the year ended December 31, 2021, 918,590 stock options were early exercised for total proceeds of $ 5.6 million.

As of December 31, 2021, 1,068,300 shares of common stock received by holders from an early exercise were subject to repurchase.

The cash proceeds received for unvested shares of common stock recorded within Accrued expenses and other current liabilities and Other non-current

liabilities in the consolidated balance sheet was $ 3.2 million and $ 3.0 million, respectively, as of December 31, 2021.

Amounts recorded are transferred into Common stock and Additional paid-in

capital within the consolidated balance sheets as the shares vest.

A majority of the stock options granted under the 2012 Plan originally provided option holders the right to elect to exercise unvested options in exchange for restricted common stock.

As of December 31, 2022, 0.1 million shares of common stock received by holders from an early exercise were subject to repurchase.

The cash proceeds received for unvested shares of common stock recorded within Accrued expenses and other current liabilities and Other non-current liabilities in the consolidated balance sheet was $ 0.5 million and $ 0.1 million, respectively, as of December 31, 2022.

Amounts recorded are transferred into Common stock and Additional paid-in capital within the consolidated balance sheets as the shares vest.

During the year ended December 31, 2022, no stock options were early exercised.

Restricted Stock Units

A summary of RSU activity under the 2012 Plan and the 2021 Plan is presented below:

Number of Shares

Number of Shares Weighted

Balance as of December 31, 2021

54,517,930 $ 10.29

Granted 40,362,895 6.16

Vested and converted to common stock (1)

( 27,935,099 ) 9.11

Forfeited ( 19,755,889 ) 11.13

Balance as of December 31, 2022

During the year ended December 31, 2021 ,

the fair value of restricted stock units that vested and converted to common stock was $ 203.5 million .

There were no units vested and converted to common stock during the years ended December 31, 2020 and 2019.

During 2021, the Company net settled all RSUs through which it issued an aggregate of

shares of Class A common stock and withheld an aggregate of

shares of Class A common stock to satisfy $ 62.4 million of tax withholding obligations on behalf of the Company’s employees.

As of December 31, 2021, all

unvested RSUs had total compensation costs of $ 479.4 million not yet recognized and is expected to be recognized over a weighted-average period of 3.2 years.

47,189,837 $ 7.10

Compass, Inc.

Notes to Consolidated Financial Statements

(1) During the years ended December 31, 2022, the Company net settled all RSUs through which it issued an aggregate of 27.9 million shares of Class A common stock and withheld an aggregate of 4.9 million shares of Class A common st ock to satisfy $ 23.5 million of tax withholding obligations on behalf of the Company’s employees.

As of December 31, 2022, all unvested RSUs had total compensation costs of $ 243.4 million not yet recognized and is expected to be recognized over a weighted-average period of 2.5 years.

Included in the table above are 17.2 million RSUs that only vest upon the satisfaction of both (i) a service-based vesting condition and (ii) the achievement of performance-based vesting conditions that remain outstanding as of December 31, 2022.

The performance-based vesting conditions provide that 12.5 % of the shares subject to the RSUs will vest subject to the achievement of a market price per share of $ 23.14 of the Company's Class A common stock.

An additional 12.5 % of the shares subject to the RSUs will vest upon the achievement of a market price per share of the Company's Class A common stock at each of 200 %, 250 %, 300 %, 350 %, 400 %, 450 % and 500 % of $ 23.14 .

Agent Equity Program

In connection with the 2021 Agent Equity Program, the Company recognized a total of $ 100.0 million in stock-based compensation expense of which $ 84.8 million was recognized during the year ended December 31, 2021 and $ 15.2 million was recognized during the year ended December 31, 2022.

In February 2022, the Company granted 13.6 million RSUs, which immediately vested and converted to Class A common stock in connection with the 2021 Agent Equity Program.

Prior to the issuance of the underlying RSUs, the stock-based compensation expense associated with these awards was recorded as a liability and $ 100.0 million was ultimately reclassified to Additional paid-in capital at the end of the vesting period when the underlying RSUs were granted.

For the year ended December 31, 2022, the Company recognized stock-based compensation expense and an associated liability of $ 41.7 million in connection with RSUs earned as a part of the 2022 Agent Equity Program.

The associated liability is recorded within Accrued expenses and other current liabilities in the consolidated balance sheet.

In February 2022, the Company issued 13,624,457 RSUs to affiliated agents in connection with the 2021 Agent Equity Program.

During the years

ended December 31, 2021 and 2020, the Company granted 8,611,810 and 8,611,810 RSUs, respectively, to an executive employee.

include service, performance and market-based vesting conditions.

These conditions include stock price targets to be met after the listing of the Company’s stock on a public exchange.

For the year ended December 31, 2021, total compensation costs of $ 25.0 million related to these awards was recognized.

As of December 31, 2021, total

compensation costs related to these RSUs of $ 75.2 million has

not yet been recognized.

The remaining expense

is expected to be satisfied

over a period of 3.3 years.

These awards were valued using a Monte Carlo simulation.

In January 2023, the Company granted 14.1 million RSUs to affiliated agents in connection with the 2022 Agent Equity Program.

These RSUs immediately vested and converted to Class A common stock.

Following the issuance of these RSUs, the Company discontinued the Agent Equity Program.

Other Stock-Based Awards

In July 2018, the Company issued 1,680,340 shares of Class A common stock with a grant date fair value of $ 2.66 per share to an executive employee.

These shares are subject to a four-year vesting period in which the employee must continue to provide services to the Company.

The fair value of these shares was measured based on the fair value of the Company’s common stock on the grant date and will be recognized as expense over the service period of the award.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized stock-based compensation expense of $ 1.2 million, $ 1.1 million and $ 1.1 million, respectively, related to this award.

For the years ended December 31, 2021, 2020 and 2019, the Company recorded approximately $ 2.2 million, $ 8.0 million and $ 0.6 million, respectively, in compensation expense for stock-based awards outside the 20 12

For the year ended December 31, 2020, $ 8.0 million of these expenses related to compensation expenses incurred in connection with the sale of shares to investors by certain Company employees and non-employee service

providers in excess of the fair value of the shares sold.

There were no expenses incurred in connection with the sale of shares to investors by certain Company employees and non-employee

service providers in excess of the fair value of shares for the years

ended December 31,

Compass, Inc.

Notes to Consolidated Financial Statements

For the year ended December 31, 2020, $ 8.0 million of stock-based compensation expense related to compensation expenses incurred in connection with the sale of shares to investors by certain Company employees and non-employee service providers in excess of the fair value of the shares sold.

There were no expenses incurred in connection with the sale of shares to investors by certain Company employees and non-employee service providers in excess of the fair value of shares for the years ended December 31, 2022 and 2021.

Stock-Based Compensation Expense

1 unchanged sentence

Year Ended December 31,

2022 2021 2020

Commissions and other related expense $ 59.0 $ 128.7 $ 5.7

4 unchanged sentences

Total stock-based compensation expense $ 234.5 $ 386.3 $ 43.2

The increase in stock-based compensation expense in 2021 as compared to 2020 and 2019 was almost entirely the result of the required accounting treatment for RSUs which differed before and after the March 31, 2021 effective date of the Company’s IPO.

The increase in stock-based compensation expense in 2022 and 2021 as compared to 2020 was almost entirely the result of the required accounting treatment for RSUs which differed before and after the March 31, 2021 effective date of the

Compass, Inc.

Notes to Consolidated Financial Statements

Company’s IPO.

The RSUs outstanding prior to the IPO contained a liquidity-event based vesting condition, in addition to a time-based vesting condition.

The liquidity-event based vesting condition did not allow for the recognition of stock based-compensation expense until this condition was satisfied at the time of the IPO.

The Company recognized a one-time

acceleration of stock-based compensation expense of $ 148.5 million in connection with the IPO when this liquidity-event based vesting condition was satisfied on March 31, 2021 and recognized additional stock-based compensation expense subsequent to the IPO over the periods that the time-based vesting conditions are satisfied.

Stock-based compensation expense for the year ended December 31, 2021 includes the following amounts related to a one-time

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

The Company recognized a one-time acceleration of stock-based compensation expense of $ 148.5 million in connection with the IPO when this liquidity-event based vesting condition was satisfied on March 31, 2021 and recognized additional stock-based compensation expense subsequent to the IPO over the periods that the time-based vesting conditions are satisfied.

Stock-based compensation expense for the year ended December 31, 2021 includes the following amounts related to a one-time acceleration of stock-based compensation expense in connection with the IPO (in millions):

Commissions and other related expense $ 41.7

7 unchanged sentences

Year Ended December 31,

2022 2021 2020

United States $ ( 610.4 ) $ ( 496.5 ) $ ( 272.4 )

International 8.0 ( 0.1 ) 0.5

For the year ended December 31

, 2021, the loss before income

taxes of $ 496.6 million includes $ 1.3

million of losses from the Company’s equity investment in OriginPoint.

Total $ ( 602.4 ) $ ( 496.6 ) $ ( 271.9 )

For the year ended December 31, 2022, the loss before income taxes of $ 602.4 million includes $ 12.2 million of losses from the Company’s equity investment in OriginPoint.

The OriginPoint business operates in the United States.

Compass, Inc.

Notes to Consolidated Financial Statements

The components of the Company’s income tax benefit (provision) consisted of (in millions):

Year Ended December 31,

2022 2021 2020

Federal $ — $ — $ 0.8

Foreign ( 3.1 ) ( 1.2 ) ( 0.2 )

Total current ( 3.1 ) ( 1.2 ) 0.6

Federal 0.9 2.1 0.3

State 0.3 0.4 0.6

Foreign 2.8 1.2 0.2

Total deferred 4.0 3.7 1.1

Total benefit from income taxes $ 0.9 $ 2.5 $ 1.7

The Company had an income tax benefit for

the years ended December 31, 2021, 2020 and 2019,

from a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions and current taxes in India that is

fully offset with future AMT tax credits.

The effective income tax rate differed from the statutory federal income tax

rate as follows:

Compass, Inc.

Notes to Consolidated Financial Statements

The Company had an income tax benefit for the years ended December 31, 2022, 2021 and 2020, resulting from a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions and current taxes in India that are partially offset with future alternative minimum tax credits.

The effective income tax rate differed from the statutory federal income tax rate as follows:

Year Ended December 31,

2022 2021 2020

Tax at federal statutory rate 21.0 % 21.0 % 21.0 %

3 unchanged sentences

Non-deductible executive compensation ( 0.6 ) % ( 2.8 ) % 0.0 %

Non-deductible

Non-deductible expenses ( 0.4 ) % 0.1 % ( 2.1 ) %

Other 0.6 % ( 0.3 ) % 1.1 %

Benefit from income taxes 0.2 % 0.5 % 0.6 %

The components of net deferred taxes arising from temporary differences were as follows (in millions):

6 unchanged sentences

Accrued compensation 35.4 32.5

Capitalized research & development costs 83.6 —

Intangible assets 6.7 —

Other 5.4 3.4

Total deferred tax assets $ 767.1 $ 613.8

Deferred tax liabilities:

Operating lease right-of-use

Operating lease right-of-use assets $ ( 132.2 ) $ ( 132.8 )

Intangible assets — ( 1.7 )

3 unchanged sentences

Net deferred tax assets $ 3.2 $ 1.4

Compass, Inc.

Notes to Consolidated Financial Statements

The Company is subject to income taxes in the United States and India.

1 unchanged sentence

As of December 31, 2022 and 2021, the Company’s deferred tax assets were primarily the result of U.S.

federal and state net operating losses, operating lease obligations, stock-based compensation and compensation and other expense related accruals.

federal and state net operating losses, operating lease obligations, capitalized research and development costs, stock-based compensation and compensation and other expense related accruals.

A full valuation allowance was maintained against its U.S.

gross deferred tax asset balances as of December 31, 2022 and 2021.

As of each reporting date, the Company considers new evidence, both positive and negative, that could impact the Company’s view with regard to future realization of deferred tax assets.

As of December 31, 2021 and 2020, the Company continued to maintain that the realization of its deferred tax assets has not achieved a more-likely-than-not threshold

primarily due to the evidence that the Company continued to maintain three-year cumulative pre-tax book

As of December 31, 2021, the valuation allowance was in the amount of approximately

$ 448.4 million, an increase of $ 160.9 million from December 31, 2020, which includes the impact of acquisition activity.

As of December 31, 2021 and 2020, the Company had approximately $ 1.2

and $ 882.5 million of gross federal net operating losses, respectively.

Of those amounts, $ 151.7 million will begin to expire in 2032 and

have an unlimited carryforward with utilization limited at 80 % of taxable income.

As of each reporting date, the Company considers new

Compass, Inc.

Notes to Consolidated Financial Statements

evidence, both positive and negative, that could impact the Company’s view with regard to future realization of deferred tax assets.

As of December 31, 2022 and 2021, the Company continued to maintain that the realization of its deferred tax assets has not achieved a more-likely-than-not threshold primarily due to the evidence that the Company continued to maintain three-year cumulative pre-tax book losses.

As of December 31, 2022, the valuation allowance was in the amount of approximately $ 594.2 million, an increase of $ 145.8 million from December 31, 2021, which includes the impact of acquisition activity.

As of December 31, 2022 and 2021, the Company had approximately $ 1.4 billion and $ 1.2 billion of gross federal net operating losses, respectively.

Of those amounts, $ 152.0 million will begin to expire in 2032 and $ 1.2 billion have an unlimited carryforward with utilization limited at 80 % of taxable income.

Such amounts may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, as a result of various ownership change rules.

As of December 31, 2021 and 2020, the Company had approximately $ 1.2

and $ 870.7 million of state net operating losses, respectively, that will begin to expire in 2029.

The Company had

no uncertain tax positions as of

December 31, 2021, 2020 and 2019

The Company does not anticipate a significant increase or decrease in the uncertain tax positions in the next twelve months after the reporting period.

As of December 31, 2022 and 2021, the Company had approximately $ 1.6 billion and $ 1.2 billion of gross state net operating losses, respectively, that will begin to expire in 2026.

The Company had no material uncertain tax positions as of December 31, 2022, 2021 and 2020.

The Company does not anticipate a material increase or decrease in the uncertain tax positions in the next twelve months after the reporting period.

It is the Company’s policy to record interest and penalties related to uncertain tax positions as a component of the provision for income taxes.

No amounts of interest or penalties were recognized in the consolidated financial statements for the years ended December 31, 2021, 2020 and 2019.

The Company has obtained an income tax holiday in India ,

which expires in 2024 .

This incentive is conditional on meeting certain direct investment thresholds.

No material amounts of interest or penalties were recognized in the consolidated financial statements for the years ended December 31, 2022, 2021 and 2020.

The Company has obtained an income tax holiday for one of the three locations it operates in India, which expires in 2024.This incentive is conditional on meeting certain direct investment thresholds.

If the Company fails to satisfy the conditions, the Company may be required to refund previously realized benefits.

1 unchanged sentence

The number of years with open tax audits varies depending upon the tax jurisdiction.

The Company is generally no longer subject to

examination by the Internal Revenue Service (“IRS”) for years before 201 5

The Company is generally no longer subject to U.S.

federal examination by the Internal Revenue Service (“IRS”) for years before 2015.

The IRS and state taxing authorities can subject the Company to audit dating back to 2012 when the Company begins to utilize its net operating loss carryforwards.

1 unchanged sentence

In 2018, the Company launched the Compass Concierge Program for home sellers who have engaged Compass as their exclusive listing agent.

The initial program is based on a services model (“Concierge Classic”) provided by Compass Concierge, LLC (“Compass Concierge”), which includes items such as consultation on suggested cosmetic updates or modifications to a specific property or guidance on securing licensed contractors or vendors to perform non-structural property

improvements.

The Concierge Classic program provides for the payment of the up-front costs

of specified home improvement services provided by unrelated vendors.

The initial program was based on a services model (“Concierge Classic”) provided by Compass Concierge, LLC (“Compass Concierge”), which included items such as consultation on suggested cosmetic updates or modifications to a specific property or guidance on securing licensed contractors or vendors to perform non-structural property improvements.

The Concierge Classic program provided for the payment of the up-front costs of specified home improvement services provided by unrelated vendors.

During 2022, the Company substantially ceased providing new payments under the Concierge Classic program.

In 2019, the Compass Concierge Program was expanded to include a loan program underwritten by an independent third-party lender (the “Lender”) through a commercial arrangement with Compass Concierge (“Concierge Capital”).

3 unchanged sentences

Under the agreement, the Company has repayment rights against the Lender in connection with a corporate loan.

Payment to Compass Concierge for these services under the Concierge Classic model or repayment of the loan funds under the Concierge Capital model is due upon the earlier of a successful home sale, the termination of the listing agreement or one year from the date in which costs were originally funded.

Compass Concierge receivables (“Concierge Receivables”) are stated at the amount advanced to the home sellers, net of an estimated ACL in the accompanying consolidated balance sheet.

For the years ended December 31, 2021 and 2020, the Company did not recognize any revenue or earn any fees from the Compass Concierge Program.

The Company incurs service fees payable to the Lender and incurs bad debt expense in connection with the Compass Concierge Program.

Payment to the Company for these services under the Concierge Classic program or repayment of the loan funds under the Concierge Capital program is due upon the earlier of a successful home sale, the termination of the listing agreement or one year from the date in which costs were originally funded.

Compass Concierge receivables (“Concierge Receivables”) are stated at the amount advanced to the home sellers, net of an estimated ACL in the accompanying consolidated balance sheets.

For the years ended December 31, 2022 and 2021, the Company did not recognize any revenue or earn any fees

Compass, Inc.

Notes to Consolidated Financial Statements

from the Compass Concierge Program.

The Company incurs service fees payable to the Lender and incurs bad debt expense in connection with the Compass Concierge Program.

The Company manages its credit risk by establishing a comprehensive credit policy for the approval of new loans, while monitoring and reviewing the performance of its existing Concierge Receivables.

14 unchanged sentences

The Company maintains an ACL for the expected credit losses over the contractual life of the Concierge Receivables.

The amount of ACL is based on ongoing, quarterly assessments performed by management.

The amount of ACL is based on ongoing, quarterly assessments by management.

Historical loss experience is generally the starting point when the Company estimates the expected credit losses.

The Company then considers whether (i) current conditions, such as the impact of COVID-19 and

related economic uncertainty surrounding the pandemic, (ii) future economic conditions and (iii) any potential changes in the Compass Concierge Program that are reasonable and supportable would impact its ACL.

The Company then considers whether (i) current conditions and economic conditions, (ii) future economic conditions and (iii) any potential changes in the Compass Concierge Program that are reasonable and supportable would impact its ACL.

The following table summarizes the activity of the ACL for Concierge Receivables as of December 31, 2022 and 2021 (in millions):

Opening balance $ 17.3 $ 17.2

Adoption of ASU 2016-03

Allowances 1.8 7.2

Net write-offs and other ( 4.4 ) ( 7.1 )

1 unchanged sentence

The Company generally considers Concierge Receivables to be past due after being outstanding for over 30 days after the initial billing.

Changes in the Company’s estimate to the ACL is recorded through bad debt expense as Sales and marketing expense in the consolidated statements of operations and individual accounts are charged against the allowance when all reasonable collection efforts are exhausted.

Compass, Inc.

Notes to Consolidated Financial Statements

reasonable collection efforts are exhausted.

The following tables present the aging analysis of Concierge Receivables as of December 31, 2022 and 2021 (in millions):

Total Past Due

December 31, 2021

December 31, 2020

Net Loss Per Share Attributable to Common Stockholders

The Company computes net loss per share under the two-class

method required for multiple classes of common stock and participating securities (convertible preferred stock).

Current $ 50.6 $ 41.0

31-90 days 1.8 0.9

Over 90 days 5.2 8.3

Total $ 57.6 $ 50.2

Net Loss Per Share Attributable to Compass, Inc.

The Company computes net loss per share under the two-class method required for multiple classes of common stock and participating securities (convertible preferred stock).

The rights, including the liquidation and dividend rights, of the Class A common stock, Class B common stock and Class C common stock are substantially identical, other than voting rights.

Accordingly, the net loss per share attributable to common stockholders will be the same for Class A common stock, Class B common stock and Class C common stock on an individual or combined basis.

Compass, Inc.

Notes to Consolidated Financial Statements

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in millions, except share and per share amounts):

The following table sets forth the computation of basic and diluted net loss per share attributable to Compass, Inc.

(in millions, except share and per share amounts):

Year Ended December 31,

Net loss attributable to common stockholders

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

The following participating securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (on an as-converted basis):

2022 2021 2020

Net loss attributable to Compass, Inc.

$ ( 601.5 ) $ ( 494.1 ) $ ( 270.2 )

Weighted-average shares used in computing net loss per share attributable to Compass, Inc., basic and diluted 428,169,180 326,336,128 109,954,760

Net loss per share attributable to Compass, Inc., basic and diluted $ ( 1.40 ) $ ( 1.51 ) $ ( 2.46 )

The following participating securities were excluded from the computation of diluted net loss per share attributable to Compass, Inc.

for the periods presented because including them would have been anti-dilutive (on an as-converted basis):

Year Ended December 31,

2022 2021 2020

Convertible preferred stock — — 238,954,050

1 unchanged sentence

Outstanding RSUs 47,189,837 54,517,930 32,556,160

Shares subject to the Employee Stock Purchase Plan 583,749 — —

Unvested early exercised options 91,770 1,068,300 1,075,710

Unvested common stock 138,892 391,092 640,320

Restructuring Activities and COVID-19 Update

Beginning in March 2020, the onset of the COVID-19

pandemic resulted in a negative impact on the Company’s business in the second quarter of 2020 due to shelter-in-place

and stay-at-home

restrictions (in certain of the Company’s markets) which prohibited or reduced in-person

residential real estate showings and the related impact on customer demand and housing inventory, as well as deteriorating economic conditions, such as increased unemployment rates.

In light of the uncertain and rapidly evolving situation relating to COVID-19,

the Company took a range of measures to address the uncertainties related to the COVID-19

pandemic including, but not limited to, reducing the size of its workforce, terminating certain lease obligations and reducing certain discretionary expenses during the first half of 2020.

As a result of these cost-saving measures, the Company reduced its workforce by approximately 15 %.

Although the demand in the Company’s services had recovered starting in the second half of 2020, the duration of the pandemic and any impacts on consumer behavior are unknown, and the amount of that demand which will persist after the reversal of the stay-at-home

orders is unknown.

Additionally, the pandemic’s impacts on the overall economy and credit markets could significantly impact the Company’s estimates of fair value, which could affect the carrying amount of certain assets and liabilities.

As of December 31, 2021, the impacts of the pandemic have not significantly impacted the carrying amount of the Company’s assets and liabilities.

The expenses resulting from these cost-saving measures were included in the consolidated statement of operations for the year ended December 31, 2020, as follows (in millions):

December 31, 2020

Sales and marketing

Operations and support

Research and development

General and administrative

During the year ended December 31, 2019, the Company incurred $ 1.7 million in facility-related costs associated with the early termination of certain of the Company’s office leases in Sales and marketing in the accompanying consolidated statement of operations.

The Company did not recognize any restructuring expenses during the year ended December 31, 2021.

As of December 31, 2021 and 2020, the Company did no t have any material remaining liabilities related to restructuring costs.

Total 94,698,485 110,502,861 336,053,390

Restructuring Activities

2020 Restructuring Activities

Beginning in March 2020, the onset of the COVID-19 pandemic resulted in a negative impact on the Company’s business in the second quarter of 2020 due to shelter-in-place and stay-at-home restrictions (in certain of the Company’s markets) which prohibited or reduced in-person residential real estate showings and the related impact on customer demand and

Compass, Inc.

Notes to Consolidated Financial Statements

housing inventory, as well as deteriorating economic conditions, such as increased unemployment rates.

In light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, the Company took a range of measures to address the uncertainties related to the COVID-19 pandemic including, but not limited to, reducing the size of its workforce, terminating certain lease obligations and reducing certain discretionary expenses during the first half of 2020 (the "2020 Restructuring").

During the year ended December 31, 2020, the Company incurred restructuring costs of $ 10.3 million in connection with the 2020 Restructuring resulting from $ 6.0 million for severance related personnel costs and $ 4.3 million for lease termination costs.

These costs have been presented within the Restructuring costs line in the consolidated statements of operations and were primarily paid during 2020.

2022 Restructuring Activities

During the year ended December 31, 2022, the Company enacted certain workforce reductions, wound down Modus and terminated certain of its operating leases.

The workforce reductions were part of a broader plan by the Company to take meaningful actions to improve the alignment between the Company’s organizational structure and its long-term business strategy, drive cost efficiencies enabled by the Company’s technology and other competitive advantages and continue to drive toward profitability and positive free cash flow.

In addition to the aforementioned workforce reductions, restructuring actions have included and are expected to include, but not be limited to, a reduction in U.S.

hiring and backfills resulting from attrition;

a reduction in spend through third party vendors;

eliminating the use of incentives when recruiting new agents and reducing incentives for existing agents;

a planned pause in M&A activity and new market expansion;

and a review of occupancy costs with a view to consolidating offices and reducing related costs.

As a result of restructuring actions taken during the year ended December 31, 2022, the Company incurred restructuring costs of $ 49.1 million, resulting from severance and other termination benefits for employees whose roles are being eliminated, lease terminations costs as a result of the accelerated amortization of various right-of-use assets and other restructuring costs, including those costs related to the wind-down of Modus.

These costs have been presented within the Restructuring costs line in the consolidated statements of operations.

The Company incurred additional non-cash charges of approximately $ 7.1 million during the year ended December 31, 2022 associated with the discontinued use of certain intangible assets associated with Modus and charges pertaining to the write-down of fixed assets for certain real estate leases that have been exited, or partially exited.

These costs have been included within the Depreciation and amortization line in the consolidated statements of operations.

The expenses resulting from these cost-saving measures were included in the consolidated statements of operations for the year ended December 31, 2022, as follows (in millions):

Year Ended December 31, 2022

Restructuring costs Depreciation and amortization Total

Severance related personnel costs $ 40.6 $ — $ 40.6

Lease termination costs 7.7 — 7.7

Accelerated amortization of intangible assets — 4.6 4.6

Accelerated depreciation — 2.5 2.5

Other restructuring activities 0.8 — 0.8

Total $ 49.1 $ 7.1 $ 56.2

As of December 31, 2022, the Company did not have any material remaining liabilities related to restructuring costs.

2023 Restructuring Activities

During January 2023, the Company implemented a further workforce reduction as part of the Company’s ongoing cost reduction initiatives to manage the business during the current macroeconomic environment.

As a result of this reduction, the Company expects to incur pre-tax cash charges of approximately $ 10 million to $ 12 million for severance and other termination benefits for employees whose roles were or are being eliminated during the three months ending March 31, 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data