What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 137 added, 150 removed, 443 unchanged (39% of the section changed)

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This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future.

We are a technology-enabled brokerage that provides an end-to-end platform of software, services and support to empower our residential real estate agents to deliver exceptional service to seller and buyer clients.

Real estate agents are themselves business owners, and Compass agents utilize the platform to grow their respective businesses, save time and manage their business more effectively.

Our platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service and other critical functionality, all custom-built for the real estate industry and enabling our core brokerage services.

The platform also uses proprietary data, analytics, artificial intelligence and machine learning to deliver high value recommendations and outcomes for Compass agents and their clients.

We provide an end-to-end platform that empowers our residential real estate agents to deliver exceptional service to seller and buyer clients.

Our platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service, brokerage services and other critical functionalities, all custom-built for the real estate industry.

Our platform also uses proprietary data, analytics, AI, and machine learning to simplify workflows of agents and deliver high-value recommendations and outcomes for both agents and their clients.

Additionally, we provide integrated services,

such as title and escrow and mortgage, both of which are available on our platform.

Compass agents utilize the platform to grow their businesses, save time and manage their businesses more effectively.

Our business model is directly aligned with the success of our agents.

We attract agents to our brokerage and partner with them as independent contractors who affiliate their real estate licenses with us, operating their businesses on our platform

and under our brand.

We currently generate substantially all of our revenue from commissions paid by clients at the time that a home is transacted, which agents use to assist home sellers and buyers in listing, marketing, selling and finding homes as well as through the provision of services adjacent to the transaction, such as title, escrow and mortgage origination services.

While adjacent services comprise a small portion of our revenue to date, we are well-positioned to capture meaningful revenue from adjacent services as we continue to expand and diversify our offerings within the real estate ecosystem.

On April 6, 2021, we completed our IPO and our Class A common stock began trading on the New York Stock Exchange on April 1, 2021 under the symbol “COMP”.

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

We received aggregate proceeds of $438.7 million from the IPO, net of the underwriting discount and offering costs of approximately $11.0 million.

We attract agents to our brokerage and partner with them as independent contractors that affiliate their real estate licenses with us, operating their businesses on our platform and under our brand.

We currently generate substantially all of our revenue from commissions paid to us by our agents' clients at the time that a home is transacted on our platform.

While integrated services comprise a small portion of our revenue to date, we believe we are well-positioned to capture meaningful revenue from integrated services as we continue to diversify our offerings within the real estate ecosystem.

Recent Developments

Throughout 2022, a number of macroeconomic conditions contributed to the slowdown in the U.S.

residential real estate market, impacting our business and financial results during the year ended December 31, 2022, as described in more detail in the section entitled “—Results of Operations”.

Throughout 2023 and 2022, a number of macroeconomic conditions continued to contribute to the slowdown in the U.S.

residential real estate market, impacting our business and financial results during the years ended December 31, 2023 and 2022, as described in more detail in the section entitled “—Results of Operations”.

These conditions include, but are not limited to, the conflict in Ukraine, volatility in the U.S.

equity markets, rising inflation, rapidly rising mortgage interest rates and the Federal Reserve Board increasing the federal funds rate by an aggregate of 4.50% through January 2023 with possible further increases.

These conditions have contributed towards slowed consumer demand and declining home affordability and began to have an impact on price appreciation.

equity markets, rising inflation, rapidly rising mortgage interest rates and the Federal Reserve Board increasing the federal funds rate by an aggregate of 5.25% through January 2024.

These conditions have contributed toward slowed consumer demand and declining home affordability and began to have an impact on price appreciation.

Any further slowdown or additional challenging conditions in the U.S.

residential real estate market could have a significant impact on our business and financial results in the first quarter of 2023 and beyond.

residential real estate market could have a significant impact on our business and financial results in 2024 and beyond.

While we continue to assess the effects of the current slowdown on our business and financial results, the ultimate impact will depend on future developments, which are highly uncertain and difficult to predict, as well as the actions that we have taken, or will take, to minimize any current and future impact.

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(“Modus”) and terminated certain of our operating leases.

The workforce reductions are part of a broader plan to take meaningful actions to improve the alignment between our organizational structure and our long-term business strategy, drive cost efficiencies enabled by our 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.

The workforce reductions were part of a broader plan to take meaningful actions to improve the alignment between our organizational structure and our long-term business strategy, drive cost efficiencies enabled by our technology and other competitive advantages and continue to drive toward profitability and positive free cash flow.

In addition to the 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;

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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;

a planned slow down in 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, we 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.

As a result of restructuring actions taken during the year ended December 31, 2022, we incurred restructuring costs of $49.1 million, resulting from severance and other termination benefits for employees whose roles were 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.

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These costs have been included within the Depreciation and amortization line in the consolidated statements of operations.

During January 2023, we implemented a further workforce reduction as part of our ongoing cost reduction initiatives to manage the business during the current macroeconomic environment.

As a result of this reduction, we expect 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.

During the year ended December 31, 2023, we implemented a further workforce reduction and took actions to reduce our occupancy costs, the most significant being the scaling down of our New York administrative office.

During the year ended December 31, 2023, we incurred restructuring costs of $30.4 million in connection with these actions.

These costs are a result of severance and other termination benefits for employees whose roles were eliminated and lease termination costs as a result of the accelerated amortization of various right-of-use assets and other lease-related costs.

These expenses have been presented within the Restructuring costs line in the consolidated statements of operations.

We incurred additional non-cash charges of approximately $5.3 million during the year ended December 31, 2023 associated with 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.

Operational Highlights for the year ended December 31, 2023

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We grow our revenue by attracting high-performing agents looking to grow their business and increasing the productivity of our agents.

We also continue to invest in our proprietary, integrated platform, designed for real estate agents, to enable

them to grow their business and save them time and money.

While we are not investing in technology at the same rate as in the past, we continue to invest in our proprietary, integrated platform designed for real estate agents, to enable them to grow their business and save them time and money.

This value proposition allows us to recruit more agents, help them grow their business and retain them on our platform at industry leading retention rates.

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We calculate our market share by dividing our Gross Transaction Value, or the total dollar value of transactions closed by agents on our platform, by two times (to account for the sell-side and buy-side of each transaction) the aggregate dollar value of U.S.

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

Should we elect to resume expansion into new markets in the future, faster data integration and ingestion, more efficient agent onboarding, and the ability to customize our solutions to local market requirements will allow us to enter new markets more quickly and effectively over time.

We have a dedicated expansion team responsible for launching new markets that partners closely with our enterprise sales team to rapidly identify talented agents in each new market.

The priority with which we enter new markets will be based on the addressable size of each market, agent feedback, local market dynamics and the improvement of macroeconomic conditions.

Expansion within existing markets is particularly cost efficient as we are able to leverage existing infrastructure, personnel and our agent network.

existing home sales as reported by NAR.

Gross Transaction Value includes a de minimis number of new development and commercial brokerage transactions.

Seasonality and Cyclicality

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We believe that this seasonality has affected and will continue to affect our quarterly results.

however, to date its effect may have been masked by our rapid growth during the year ended December 31, 2021 and the impact of changes in macroeconomic conditions experienced during the year ended December 31, 2022.

The broader residential real estate industry is cyclical, and individual markets can have their own dynamics that diverge from broad market conditions.

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

3 For the definitions of Average Number of Principal Agents, Total Transactions and Gross Transaction Value please refer to the section entitled “—Key Business Metrics” included elsewhere in this Annual Report.

Components of Our Results of Operations

We generate substantially all our revenue by assisting home sellers and buyers in listing, marketing, selling and finding homes.

We hold the real estate brokerage license that is necessary under relevant state laws and regulations to provide brokerage services and therefore we control those services that are necessary to legally transfer real estate between home sellers and buyers.

We are the principal in the transaction and recognize as revenue the gross amount of the commission we expect to receive in exchange for those services.

We hold the real estate brokerage license that is necessary under relevant state laws and regulations to provide

1 For the definitions of Average Number of Principal Agents, Total Transactions and Gross Transaction Value please refer to the section entitled “—Key Business Metrics” included elsewhere in this Annual Report.

2 During the first quarter of 2023, the Company began to utilize an updated methodology for tracking and reporting its agent statistics.

The Company's Average Number of Principal Agents and year over year growth reported in this Form 10-K is based on the updated methodology.

brokerage services and therefore we control those services that are necessary to legally transfer real estate between home sellers and buyers.

We are the principal in the transaction and recognize as revenue the gross amount of the commission we receive in exchange for those services.

Revenue is recognized upon the transfer of control of promised services to the home sellers or home buyers.

Accordingly, real estate commissions are recorded as revenue at the point in time real estate transactions are closed (i.e., sale or purchase of a home).

We also recognize revenue from other adjacent services related to the home transaction such as title and escrow services.

While revenue from these services has been immaterial through 2022, we expect revenue from these services to grow over time as we expand existing and add new adjacent services to our platform.

We also recognize revenue from other integrated services related to the home transaction such as title and escrow services.

While revenue from these services has been immaterial through 2023, we expect revenue from these services to grow over time as we expand existing and add new integrated services into our platform.

Operating Expenses

Commissions and other related expense

Commissions and other related expense primarily consists of commissions paid to our agents, who are independent contractors, upon the closing of a real estate transaction as well as stock-based compensation expense related to our Agent Equity Program and fees paid to external brokerages for client referrals, which are recognized and paid upon the closing of a real estate transaction.

Commissions and other related expense primarily consists of commissions paid to our agents, who are independent contractors, upon the closing of a real estate transaction as well as stock-based compensation expense related to our Agent Equity Program, which was discontinued following the completion of the 2022 Agent Equity Program, and fees paid to external brokerages for client referrals, which are recognized and paid upon the closing of a real estate transaction.

We also charge our agents fees.

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These fees are recognized as a reduction to commissions and other related expense.

Our commissions and other related expense as a percentage of revenue is expected to fluctuate from period-to-period based on the mix of the commission arrangements we have with our agents, the fees we collect and any changes in adjacent services revenue.

Beginning at the time of our IPO, we began to incur additional commissions and other related expense for stock-based compensation expense associated with RSUs granted in connection with the Agent Equity Program as described in the section titled “—Critical Accounting Estimates and Policies—Stock-Based Compensation.”

Sales and marketing

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We expect sales and marketing expense to vary from period-to-period as a percentage of revenue for the foreseeable future and decrease as a percentage of revenue.

Beginning at the time of our IPO, we began to incur additional sales and marketing expense for stock-based compensation expense associated with RSUs as described in the section titled “—Critical Accounting Estimates and Policies—Stock-Based Compensation.”

Operations and support

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We expect operations and support expense to vary from period-to-period as a percentage of revenue for the foreseeable future and decrease as a percentage of revenue.

Beginning at the time of our IPO, we began to incur additional operations and support expense for stock-based compensation expense associated with our RSUs as described in the section titled “—Critical Accounting Estimates and Policies—Stock-Based Compensation.”

Research and development

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We expect that our research and development expense will vary from period-to-period as a percentage of revenue for the foreseeable future and decrease as a percentage of revenue.

Beginning at the time of our IPO, we began to incur additional research and development expense for stock-based compensation expense associated with RSUs as described in the section titled “—Critical Accounting Estimates and Policies—Stock-Based Compensation.”

General and administrative

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We expect that general and administrative expense will vary from period-to-period as a percentage of revenue for the foreseeable future as we focus on processes, systems and controls to enable our internal support functions for our business.

Beginning at the time of our IPO, we began to incur additional general and administrative expense for stock-based compensation expense associated with RSUs as described in the section titled “—Critical Accounting Estimates and Policies—Stock-Based Compensation.”

Restructuring Costs

Restructuring costs consists primarily of 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.

For the year ended December 31, 2020, we have reclassified certain expenses previously classified in other operating expense amounts to the Restructuring costs line item in order to conform to the current period financial statement presentation.

Depreciation and amortization

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Benefit from income taxes consists of a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions.

The benefit from income taxes is reduced by current taxes in India that are not offset with future alternative minimum tax credits.

We maintain a full valuation allowance against our deferred tax assets

The benefit from income taxes is reduced by current taxes in India that are not offset with future alternative minimum tax credits, and state income tax expense.

We maintain a full valuation allowance against our deferred tax assets for U.S.

income tax purposes because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

Equity in Loss of Unconsolidated Entity

Equity in loss of unconsolidated entity includes the results of our share of losses from our OriginPoint joint venture.

Equity in loss of unconsolidated entity includes the results of our share of losses from our mortgage joint venture with Guaranteed Rate, Inc., which was formed in July 2021.

RESULTS OF OPERATIONS

The following table sets forth our consolidated statements of operations data for the period indicated:

The following table sets forth our consolidated statements of operations data for the periods indicated:

Year Ended December 31,

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Net loss (320.1) (6.6) (601.5) (10.0) (494.1) (7.7)

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

Net income attributable to non-controlling interests (1.2) — — — — —

Net loss attributable to Compass, Inc.

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Total stock-based compensation expense $ 158.2 $ 234.5 $ 386.3

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

Commissions and other related expense $ 41.7

Sales and marketing 1.8

Operations and support 3.1

Research and development 46.9

General and administrative 55.0

Total stock-based compensation expense $ 148.5

Comparison of the Years Ended December 31, 2023 and 2022

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The decrease was primarily driven by the macroeconomic conditions that contributed to the current slowdown in the U.S.

residential real estate market, a lower volume of transactions and a decline in Average Transaction Value, partially offset by an increase in the number of agents that joined our platform during 2021 and 2022.

residential real estate market, a lower

volume of transactions and a decline in Average Transaction Value, partially offset by an increase in the number of agents that joined our platform during 2022 and 2023.

The Average Number of Principal Agents for 2023 was 13,973 compared to 13,296 for 2022.

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Included in Commissions and other related expense were non-cash expenses related to stock-based compensation of $11.6 million for the year ended December 31, 2023 and $59.0 million for the year ended December 31, 2022.

The decline in stock-based compensation expense in 2022 as compared to 2021 was primarily related to a one-time acceleration of stock-based compensation expense of $41.7 million incurred on March 31, 2021 in connection with our IPO and a decline in year over year agent participation in the Agent Equity Program.

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 decline in stock-based compensation expense in 2023 as compared to 2022 was due to the discontinuation of the Agent Equity Program in 2023.

Commissions and other related expense excluding such non-cash stock-based compensation expense was $3,995.4 million, or 81.8% of revenue for 2023 and $4,877.1 million, or 81.0% for 2022.

The decrease in absolute dollars of commissions and other related expense, excluding the non-cash stock-based compensation, was primarily driven by our lower revenue.

The unfavorable 30 basis points increase in commissions and other related expense, excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue in the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to the change in mix of the commission arrangements we have with our agents and changes in geographic mix.

The decrease in absolute dollars of commissions and other related expense, excluding the non-cash stock-based compensation, was primarily driven the macroeconomic conditions that contributed to the slowdown in the U.S.

residential real estate market.

The unfavorable 80 basis points increase in commissions and other related expense, excluding the non-cash stock-based compensation expense, expressed as a percentage of revenue in the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to there being no Agent Equity Program contributions in the current year period as the Agent Equity Program was discontinued for 2023.

Excluding the impact of $47.5 million in Agent Equity Program contributions made during the year ended December 31, 2022, Commissions and other related expense as a percentage of revenue was remained relatively flat for 2023 compared to 2022.

Sales and marketing

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Percentage of revenue 8.9 % 9.6 %

Sales and marketing expense increased by $64.7 million, or 12.7%, for 2022 compared to 2021.

Sales and marketing expense decreased by $139.7 million, or 24.3%, for 2023 compared to 2022.

Included in Sales and marketing expense were non-cash expenses related to stock-based compensation of $35.0 million for the year ended December 31, 2023 and $42.0 million for the year ended December 31, 2022.

The increase in stock-based compensation expense for 2022 as compared to 2021 was due to expense for awards related to increased headcount partially offset by a one-time acceleration of stock-based compensation expense of $1.8 million incurred on March 31, 2021 in connection with our 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 and we continue to recognize additional stock-based compensation expense subsequent to the IPO.

The decrease in stock-based compensation expense for 2023 as compared to 2022 was due to lower headcount resulting from the aforementioned workforce reductions.

Sales and marketing expense excluding such non-cash stock-based compensation expense was $400.4 million, or 8.2% of revenue for 2023 and $533.1 million, or 8.9% for 2022, respectively.

The increase in sales and marketing expense in absolute dollars and on a percentage of revenue, excluding the non-cash stock-based compensation expense, was primarily due to an increase in agent marketing and advertising, an increase in agent recruiting costs and increased occupancy costs.

The decrease in sales and marketing expense in absolute dollars and on a percentage of revenue, excluding the non-cash stock-based compensation expense, was primarily due to a decrease in agent marketing and advertising and compensation and other personnel-related costs due to decreased headcount.

Operations and support

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Percentage of revenue 6.7 % 6.5 %

Operations and support expense increased by $17.5 million, or 4.7%, for 2022 compared to 2021.

Included in Operations and support expense were non-cash expenses related to stock-based compensation of $15.6 million for the year ended December 31, 2022 and $16.9 million for the year ended December 31, 2021.

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

We recognized a one-time acceleration of stock-based compensation expense of $3.1 million in connection with our IPO when this liquidity-event based vesting condition was satisfied and recognized additional stock-based compensation expense subsequent to the IPO over the periods that the time-based vesting conditions are satisfied.

Operations and support expense decreased by $65.5 million, or 16.7%, for 2023 compared to 2022.

Included in Operations and support expense were non-cash expenses related to stock-based compensation of $16.1 million for the year ended December 31, 2023 and $15.6 million for the year ended December 31, 2022, which remained relatively flat.

Operations and support expense excluding such non-cash stock-based compensation expense was $310.8 million, or 6.4% of revenue for 2023 and $376.8 million, or 6.3% for 2022.

The increase in absolute dollars and on a percentage of revenue basis, excluding such non-cash stock-based compensation expense, was primarily driven by an increase in compensation and other personnel-related costs due to higher headcount prior to the aforementioned workforce reductions.

The decrease in absolute dollars, excluding such non-cash stock-based compensation expense, was primarily driven by a decrease in compensation and other personnel-related costs due to decreased headcount.

As a percentage of revenue, Operations and support expense, excluding such non-cash stock-based compensation expense, was relatively flat when compared to 2022.

Research and development

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Included in Research and development expense were non-cash expenses related to stock-based compensation of $45.7 million for the year ended December 31, 2023 and $57.5 million for the year ended December 31, 2022.

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

We recognized a one-time acceleration of stock-based compensation expense of $46.9 million in connection with our IPO when this liquidity-event based vesting condition was satisfied and recognized additional stock-based compensation expense subsequent to the IPO over the periods that the time-based vesting conditions are satisfied.

The decrease in stock-based compensation expense for 2023 as compared to 2022 was primarily driven by workforce reductions taken in connection with our restructuring activities.

Research and development expense excluding such non-cash stock-based compensation expense was $138.8 million, or 2.8% of revenue for 2023 and $302.8 million, or 5.0% for 2022.

The decrease in absolute dollars and on a percentage of revenue basis, excluding such non-cash stock-based compensation expense, was primarily driven by lower research and development related headcount resulting from our aforementioned workforce reductions and other cost reduction initiatives.

General and administrative

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General and administrative expense decreased by $82.4 million, or 39.6%, for 2023 compared to 2022.

During the years ended December 31, 2022 and 2021, General and administrative expense includes charges of $10.5 million in connection with the Realogy Holdings Corp.

matter and $21.3 million in connection with the Avi Dorfman and RentJolt, Inc.

matter, respectively (collectively, the "Litigation Matters").

During the year ended December 31, 2022, General and administrative expense includes a charge of $10.5 million in connection with the Realogy Holdings Corp.

matter (the "Litigation Matter").

Also included in General and administrative expense were non-cash expenses related to stock-based compensation of $49.8 million for 2023 and $60.4 million for 2022.

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.

We recognized a one-time acceleration of stock-based compensation expense of $55.0 million in connection with our IPO when this liquidity-event based vesting condition was satisfied and recognized additional stock-based compensation expense subsequent to the IPO over the periods that the time-based vesting conditions are satisfied.

General and administrative expense excluding such non-cash stock-based compensation expense and the Litigation Matters was $137.2 million, or 2.3% of revenue for 2022 and $157.6 million, or 2.5% of revenue for 2021.

The decrease in absolute dollars and on a percentage of revenue basis, excluding such non-cash stock-based compensation expense and the Litigation Matters, was primarily due to our cost reduction initiatives taken during the year ended December 31, 2022.

The decrease in stock-based compensation expense for 2023 as compared to 2022 was primarily due to decreased expense for awards resulting from decreased headcount.

General and administrative expense excluding such non-cash stock-based compensation expense and the Litigation Matter was $75.9 million, or 1.6% of revenue for 2023 and $137.2 million, or 2.3% of revenue for 2022.

The decrease in absolute dollars and on a percentage of revenue basis, excluding such non-cash stock-based compensation expense and the Litigation Matter, was primarily driven by lower headcount resulting from our aforementioned workforce reductions and other cost reduction initiatives.

In addition, during the year ended December 31, 2023, General and administrative expense includes a benefit of $7.2 million for tax refunds resulting from a change in

estimates for certain state taxes paid in prior years.

Due to this change, these state taxes will now be included in the Income tax benefit line of our consolidated statements of operations.

Restructuring costs

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Percentage of revenue 0.6 % 0.8 %

Restructuring costs primarily consisted of costs associated with workforce reduction actions and the wind-down of Modus.

Restructuring costs during the year ended December 31, 2023 primarily consisted of costs associated with workforce reduction actions and lease terminations.

Restructuring costs during the year ended December 31, 2022 primarily consisted of costs associated with workforce reduction actions and the wind-down of Modus.

See Note 17 - "Restructuring Activities" in our consolidated financial statements included elsewhere in this Annual Report, for information.

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Percentage of revenue 1.8 % 1.4 %

Depreciation and amortization expense increased by $21.9 million, or 34.0%, for 2022 compared to 2021.The increase in absolute dollars and on a percentage of revenue basis was primarily driven by an increase in the amortization of intangible assets related to the impact of acquisitions completed during the year ended December 31, 2021 as well as the acceleration of $7.1 million of amortization in connection 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.

Depreciation and amortization expense increased by $3.7 million, or 4.3%, for 2023 compared to 2022.

The increase in absolute dollars and on a percentage of revenue basis was primarily driven by an increase in the amortization of intangible assets related to the impact of acquisitions completed during the year ended December 31, 2023 and 2022.

During the year ended December 31, 2023, Depreciation and amortization also includes $5.3 million related to acceleration of depreciation for fixed assets, including leasehold improvements, furniture and fixtures related to office leases we have exited associated with our restructuring activities.

During the year ended December 31, 2022, Depreciation and amortization includes the acceleration of $7.1 million of amortization in connection the discontinued use of certain intangible assets associated with the wind-down of Modus and charges pertaining to the write-down of fixed assets for certain real estate leases that have been exited, or partially exited.

Investment income, net

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Investment income, net $ 8.5 $ 2.8 $ 5.7 203.6 %

During the year ended December 31, 2022, interest income was $2.8 million and during year ended December 31, 2021, interest income was $0.1 million.

During the year ended December 31, 2023, investment income was $8.5 million and during year ended December 31, 2022, investment income was $2.8 million.

Investment income, net increased during the year ended December 31, 2023 as a result of increased average interest rates on our short-term interest-bearing investments.

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Benefit from income taxes decreased by $0.5 million, or 55.6%, for 2023 compared to 2022.

The decrease resulted from a reduction in current year acquisition related activities and an increase in current taxes in India that are not offset with future alternative minimum tax credits.

The change resulted from an increase in state income tax expense and a decrease in income tax benefits from acquisition related activities.

Equity in loss of unconsolidated entity

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Equity in loss of unconsolidated entity $ 3.3 $ 12.2 $ (8.9) (73.0 %)

During the year ended December 31, 2022, equity in loss of unconsolidated entity was $12.2 million and during the year ended December 31, 2021, equity in loss of unconsolidated entity was $1.3 million from our mortgage joint venture with Guaranteed Rate, Inc., which was formed in July 2021.

During the year ended December 31, 2023, equity in loss of unconsolidated entity was $3.3 million, and during the year ended December 31, 2022, equity in loss of unconsolidated entity was $12.2 million.

These losses are from our mortgage joint venture with Guaranteed Rate, Inc., which was formed in July 2021.

K EY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES

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Average Number of Principal Agents (1)

13,973 13,296 11,180

Net loss attributable to Compass, Inc.

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(0.8) % (3.5) % — %

(1) During the first quarter of 2023, the Company began to utilize an updated methodology for tracking and reporting its agent statistics.

The Company's Average Number of Principal Agents reported in this Annual Report is based on the updated methodology.

(2) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures.

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We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction.

We exclude transactions related to rentals in this metric.

This metric excludes rental transactions.

Our Total Transactions for the year ended December 31, 2023 were 178,848, a decrease of 15.5% from the year ended December 31, 2022.

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We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction.

We exclude transactions related to rentals in this metric.

This metric excludes rental transactions.

Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and macroeconomic factors.

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Our Average Number of Principal Agents for the year ended December 31, 2023 was 13,973, representing an increase of 5.1% from the year ago period.

For the year ended December 31, 2022, our Average Number of Principal Agents was 46.3% of our average number of total agents.

During the first quarter of 2023, we began to utilize an updated methodology for tracking and reporting our agent statistics.

Our Average Number of Principal Agents reported in this Annual Report is based on the updated methodology.

Our principal agents generate revenue across a diverse set of real estate markets in the United States.

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adjusted for depreciation and amortization, investment income, net, interest expense, stock-based compensation expense, benefit from income taxes and other items.

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

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

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(2) Represents a charge of $10.5 million incurred during the year ended December 31, 2022 in connection with the Realogy Holdings Corp.

matter and a $21.3 million expense incurred during the year ended December 31, 2021 in connection with the settlement of the Avi Dorfman and RentJolt, Inc.

See Note 11 to our consolidated financial statements included elsewhere in this Annual Report for more information.

Adjusted EBITDA was a loss of $210.0 million compared to income of $1.6 million during the years ended December 31, 2022 and 2021, respectively.

The decrease in Adjusted EBITDA during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to the growth in operating expenses as a percentage of revenue resulting from investments in sales and marketing, operations and support and research and development and a slow down in revenue resulting from the current macroeconomic conditions impacting the U.S.

matter and a charge of $21.3 million incurred during the year ended December 31, 2021 in connection with the settlement of the Avi Dorfman and RentJolt, Inc.

See Note 11 to our consolidated financial statements included in the 2022 and 2021 Form 10-K for more information.

Adjusted EBITDA was a loss of $38.9 million compared to a loss of $210.0 million during the years ended December 31, 2023 and 2022, respectively.

The decrease in Adjusted EBITDA loss during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily a result of the impact of our workforce reductions and cost reduction initiatives outpacing the impact of a slow down in revenue resulting from the current macroeconomic conditions impacting the U.S.

residential real estate market as described in more detail under the section entitled “—Recent Developments”.

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Acquisition-related expenses — — (1.9) — —

Litigation charge — — — — (10.5)

Non-GAAP Basis $ 3,995.4 $ 400.4 $ 308.9 $ 138.8 $ 75.9

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Acquisition-related expenses — — (23.9) — —

Litigation charge — — — — (21.3)

Non-GAAP Basis $ 5,181.8 $ 472.0 $ 334.1 $ 272.6 $ 157.6

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We believe our existing cash and cash equivalents, the Concierge Facility (which, as defined below, may be used to support our Compass Concierge Program) and the Revolving Credit Facility will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months and beyond.

Our future capital requirements will depend on many factors, including, but not limited to, growth in the number of our agents and the associated costs to attract, support and retain them, our decision to resume expansion into new geographic markets, continued investment in adjacent services and other new revenue streams, future acquisitions, the timing of investments in technology and personnel to support the overall growth in our business and the extent and duration of the current and any future slowdown in the U.S.

Our future capital requirements will depend on many factors, including, but not limited to, growth in the number of our agents and the associated costs to attract, support and retain them, our decision to resume expansion into new geographic markets, continued investment in integrated services and other new revenue streams, future acquisitions, the timing of investments in technology and personnel to support the overall growth in our business and the extent and duration of the current and any future slowdown in the U.S.

residential real estate market.

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Concierge Facility

In July 2020, our subsidiary, Compass Concierge SPV I, LLC, or Concierge SPV, entered into a Revolving Credit and Security Agreement, or the Concierge Facility, with Barclays Bank PLC, as administrative agent, and the several lenders party thereto.

The Concierge Facility provides for a $75.0 million revolving credit facility and is solely used to finance, in

part, our Compass Concierge Program.

In July 2020, we entered into a Revolving Credit and Security Agreement, or the Concierge Facility, with Barclays Bank PLC, as administrative agent, and the several lenders party thereto, which was subsequently amended on July 29, 2021,

August 5, 2022 and August 4, 2023.

The Concierge Facility provides for a $75.0 million revolving credit facility and is solely used to finance, in part, our Compass Concierge Program.

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

On August 5, 2022, we 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.

The interest rate on the Concierge Facility was 8.93% as of December 31, 2023.

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.

Pursuant to the Concierge Facility, the principal amount, if any, is payable in full in January 2026, unless earlier terminated or extended.

As of December 31, 2023 and 2022, there were $24.8 million and $31.9 million, respectively, in borrowings outstanding under the Concierge Facility.

We have the option to repay our 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 we and our consolidated subsidiaries fail to comply with certain financial covenants that require us to meet certain liquidity-based measures, the commitments under the Second A&R Concierge Facility will automatically be reduced to zero and we will be required to repay any outstanding loans under the Second A&R Concierge Facility.

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

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

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

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

As of December 31, 2023, we were in compliance with the covenants under the Concierge Facility.

Revolving Credit and Guaranty Agreement

In March 2021, we entered into a Revolving Credit and Guaranty Agreement, or the Revolving Credit Facility, with 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 Facility.

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

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

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%.

Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50% or (ii) a rate per annum equal to the secured overnight financing rate, or SOFR, plus a margin of 1.50%.

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 SOFR term rate for a one-month interest period plus 1.00%, and (d) 1.00%.

The SOFR term rate is determined by the Administrative Agent as the forward-looking term rate plus a 0.10% adjustment.

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

We are also obligated to pay other customary fees for a credit facility of this 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 on March 4, 2026, unless earlier terminated or extended.

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

We have the option to repay our borrowings, and to permanently reduce the loan commitments in whole or in part, under the Revolving Credit Facility without premium or penalty prior to maturity.

As of December 31, 2022, we had $150.0 million in outstanding borrowings under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $33.0 million.

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

As of December 31, 2023, we had no borrowings outstanding under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $43.8 million.

The Revolving Credit Facility contains customary representations, warranties, financial covenants applicable to us and our restricted subsidiaries, affirmative covenants, such as financial statement reporting requirements, and negative covenants 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 we maintain certain 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) 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.

The financial covenants require that (i) we maintain 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) 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 $3,799.0 million during 2023 and $4,668.0 million thereafter.

As of December 31, 2023, we were in compliance with the financial covenants under the Revolving Credit Facility.

certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events.

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.

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Net cash used in investing activities (11.7) (100.1) (192.5)

Net cash provided by financing activities 135.4 399.3 19.9

Net cash (used in) provided by financing activities (157.4) 135.4 399.3

Net (decrease) increase in cash and cash equivalents $ (195.0) $ (256.4) $ 178.2

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For 2023, net cash used in operating activities was $25.9 million.

The outflow was primarily due to a $320.1 million net loss adjusted for $259.2 million of non-cash charges being offset by a net cash inflow due to changes in assets and liabilities of $35.0 million.

The non-cash charges are primarily related to $158.2 million of stock-based compensation expense, $90.0 million of depreciation and amortization expense, $4.4 million of bad debt expense and $3.3 million of equity in loss of unconsolidated entity.

The changes in assets and liabilities resulted in a cash inflow primarily due to a $21.4 million decrease in other currents assets, a $18.0 million decrease in Compass Concierge receivables, a $11.6 million increase in Commissions payable and a decrease of $9.1 million in other non-current assets.

The cash inflow from operations was partially offset by a decrease of $10.6 million in accrued expenses and other liabilities, a decrease of $9.8 million in accounts payable due to timing of payments, an increase of $3.5 million in accounts receivable due to timing of receipts and a $1.2 million outflow from net operating lease right-of-use assets and operating lease liabilities.

For 2022, net cash used in operating activities was $291.7 million.

The outflow was primarily due to a $601.5 million net loss adjusted for $339.0 million of non-cash charges and cash outflow due to changes in assets and liabilities of $29.2 million.

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The cash inflow provided by operations was partially offset by an increase of $40.0 million in other currents assets and an increase of $11.8 million in other non-current assets.

For 2020, net cash used in operating activities was $58.1 million.

The outflow was primarily due to a $270.2 million loss from operations adjusted for $119.6 million of non-cash charges and cash inflow due to changes in assets and liabilities of $92.5 million.

The non-cash charges are primarily related to $51.2 million of depreciation and amortization expense, $43.2 million of stock-based compensation expense and $16.0 million of bad debt expense.

The changes in assets and liabilities resulted in a cash inflow primarily due to a net increase of $34.6 million operating lease liabilities as compared to operating lease assets, a $29.1 million increase in commissions payable as a result of increased revenue and the timing of commissions payments, a $20.5 million increase in accrued expenses and other liabilities, a $19.4 million decrease in Other current assets, and a $16.6 million decrease in Compass Concierge Receivables.

The cash inflow provided by operations was partially offset by an increase of $16.3 million in accounts receivable due to growth in revenue and timing of receipts.

Investing Activities

During 2023, net cash used by investing activities was $11.7 million, consisting of $11.2 million in capital expenditures and $1.2 million for investment in an unconsolidated entity, partially offset by $0.7 million in net cash acquired from acquisitions.

The investment in an unconsolidated entity represents our investment in our mortgage joint venture with Guaranteed Rate, Inc.

that we formed in 2021.

During 2022, net cash used by investing activities was $100.1 million, consisting of $70.1 million in capital expenditures, $15.0 million in payments for acquisitions, net of cash acquired, and $15.0 million for investment in an unconsolidated entity.

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The investment in an unconsolidated entity represents our investment in our joint venture that we formed in 2021.

During 2020, net cash used by investing activities was $13.4 million consisting of $43.3 million in capital expenditures and $25.6 million in payments for acquisitions, net of cash acquired, partially offset by $55.5 million in proceeds from sales and maturities of marketable securities.

Financing Activities

During 2023, net cash used in financing activities was $157.4 million, primarily consisting of $150.0 million in net repayments of drawdowns on the Revolving Credit Facility, $23.5 million in taxes paid related to net share settlement of equity awards, $14.6 million in payments related to acquisitions, including payments of contingent consideration, and $7.1 million in net payments on drawdowns and repayments on the Concierge Facility, partially offset by $32.3 million in proceeds from the issuance of common stock in connection with the Strategic Transaction (see Note 12 to our consolidated financial statements included elsewhere in this Annual Report for more information ) , $4.5 million in proceeds from the exercise of stock options and $2.5 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.

During 2022, net cash provided by financing activities was $135.4 million, primarily consisting of $150.0 million in proceeds from drawdowns on the Revolving Credit Facility, $15.7 million in net proceeds from drawdowns and repayments on the Concierge Facility and $9.0 million in proceeds from the exercise of stock options, partially offset by $23.5 million in taxes paid related to net share settlement of equity awards and $17.5 million in payments for acquisitions, including payments of contingent consideration.

During 2021, net cash provided by financing activities was $399.3 million, primarily consisting of $439.6 million in net proceeds from the issuance of common stock upon initial public offering, $26.9 million in proceeds from the exercise and early exercise of stock options and $7.8 million in proceeds from drawdowns on the Concierge Facility, partially offset by $62.4 million in taxes paid related to net share settlement of equity awards, $10.7 million in payments of contingent consideration related to acquisitions and $1.9 million in paid deferred debt issuance costs for credit facilities.

During 2020, net cash provided by financing activities was $19.9 million, primarily consisting of $15.9 million in proceeds from the exercise and early exercise of stock options and $11.4 million in proceeds from drawdowns on the Concierge Facility, partially offset by $3.2 million in payments of contingent consideration related to acquisitions, $3.0 million in repayments of drawdowns on the Concierge Facility and $1.3 million in paid deferred debt issuance costs for the Concierge Facility.

Contractual Obligations and Commitments

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(1) As of December 31, 2023, the Company has additional operating leases for real estate that have not yet commenced of $10.0 million payable through 2033, which have been excluded from above.

Our Concierge Facility matures August 4, 2023 unless earlier terminated or extended and can be repaid at any time.

As of December 31, 2023, there were $24.8 million in borrowings outstanding under the Concierge Facility.

We are required to pay an annual commitment fee of 0.50% on a quarterly basis based on the unused portion of the Concierge Facility.

In addition, interest on the used portion of the Concierge Facility is 2.35% plus an interest rate based on Term SOFR plus a credit adjustment spread of 0.11448%.

We are required to pay an annual commitment fee of 0.35% if the Concierge Facility is utilized greater than 50% and 0.50%, if the Concierge Facility is utilized less than 50%.

In addition, borrowings under the Concierge Facility bear interest at the term SOFR rate plus a margin of 2.75%.

The effective interest rate was 8.93% as of December 31, 2023.

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

For additional information, see the section titled “—Liquidity and Capital Resources—Concierge Facility.”

As of December 31, 2022, we had $150.0 million outstanding borrowings under our Revolving Credit Facility and outstanding letters of credit totaled approximately $33.0 million.

Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50% or (ii) a floating

rate per annum equal to the rate at which dollar deposits are offered in the London interbank market plus a margin of 1.50%.

As of December 31, 2023, we had no outstanding borrowings under our Revolving Credit Facility and outstanding letters of credit totaled approximately $43.8 million.

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

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

0.175% per annum, fees associated with letters of credit and administrative and arrangement fee.

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

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

For additional information, see the section titled “—Liquidity and Capital Resources—Revolving Credit and Guaranty Agreement.”

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We administer escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions.

We are contingently liable for these escrow and trust deposits totaled $136.7 million and $172.1 million as of December 31, 2022 and 2021, respectively.

We are contingently liable for these escrow and trust deposits totaling $120.0 million and $136.7 million as of December 31, 2023 and 2022, respectively.

We did not have any other off-balance sheet arrangements as of or during the periods presented.

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Although our agents are independent contractors, they cannot execute a real estate transaction without a brokerage license, which the Company possesses.

We have the only contractual relationship for the sale or exchange of real estate with its clients.

We have the only contractual relationship for the sale or exchange of real estate with their clients.

Accordingly, we are the principal in our transactions with home buyers and sellers.

As principal, we recognize revenue in the gross amount of consideration to which we expect to receive in exchange for those services.

As principal, we recognize revenue in the gross amount of consideration to which we receive in exchange for those services.

We concluded that our 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.

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We operate exclusively in the United States and generate substantially all of our revenue from commissions from home sellers and buyers.

In addition to commission revenue, we generate revenue through adjacent services related to the home transaction such as title and escrow services which comprised an immaterial amount of the consolidated revenue for the years ended December 31, 2022, 2021 and 2020.

In addition to commission revenue, we generate revenue through integrated services related to the home transaction such as title and escrow services which comprised an immaterial amount of the consolidated revenue for the years ended December 31, 2023, 2022 and 2021.

Our management evaluated and determined that no disaggregation of revenue is necessary or appropriate.

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We also issue 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, we offer RSUs to affiliated agents through our Agent Equity Program.

The Agent Equity Program offers affiliated agents the ability to elect to have a portion of their commissions earned during a calendar year to be paid in the form of RSUs.

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

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

In addition to the issuance of RSUs to agents as equity compensation for the provision of services, we previously offered RSUs to affiliated agents through our Agent Equity Program.

The Agent Equity Program offered affiliated agents the ability to elect to have a portion of their commissions earned during a calendar year to be paid in the form of RSUs.

RSUs issued in connection with the Agent Equity Program were 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.

We discontinued the Agent Equity Program following the issuance of RSUs during the first quarter of 2023 related to the 2022 Agent Equity Program.

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

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The fair value of these RSUs was measured based on the fair value of our 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 our registration statement.

The liquidity event-based vesting requirement was met on March 31, 2021, the effective date of the our registration statement, see Note 1 to our consolidated financial statements included in this Annual Report—“Business—Initial Public Offering.”

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

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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 granted in connection with the 2021 and 2022 Agent Equity Programs, we 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, we have 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 our stock on a public exchange.

Such awards are valued using a Monte Carlo simulation and the underlying expense will be recognized as the associated vesting conditions are met.

For RSUs granted in connection with the 2021 and 2022 Agent Equity Programs, we determined the value of the stock-based compensation expense at the time the underlying commission was earned and recognized 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 throughout the service period and was reclassified to Additional paid-in capital at the end of the vesting period when the underlying RSUs were issued.

On a limited basis, we have issued stock options and RSUs that contain service, performance and market-based vesting conditions.

Such awards were valued using a Monte Carlo simulation and the underlying expense will be recognized as the associated vesting conditions are met.

RECENT ACCOUNTING PRONOUNCEMENTS

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

What changed 10-K

Item 7. Management’s Discussion and Analysis