What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-01 · 269 added, 270 removed, 958 unchanged (36% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2023 , 2022 and 2021

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 , 2021 and 2020

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2023 , 2022 and 2021

5 unchanged sentences

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

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”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022 and the related consolidated statements of operations, of convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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.

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 on Internal Control over Financial Reporting appearing under Item 9A.

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.

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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.

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.

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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 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.

As disclosed by management, a material weakness existed during the year 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.

These procedures included, among others, evaluating the recognition of commissions revenue for a selection of revenue transactions by obtaining and inspecting customer contracts and related closing documentation, recalculating the commissions rate, and vouching to cash receipts as applicable.

These procedures included testing the effectiveness of controls relating to the commissions revenue process.

These procedures also included, among others, testing the completeness, accuracy, and occurrence of revenue recognized for commissions revenues for a sample of revenue transactions by (i) obtaining and inspecting source documents, such as customer contracts and related closing documentation, (ii) recalculating the commissions revenue, and (iii) vouching to cash receipts, as applicable.

/s/ PricewaterhouseCoopers LLP

New York , New York

March 1, 2023

February 28, 2024

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

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Net loss ( 320.1 ) ( 601.5 ) ( 494.1 )

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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Compass, Inc.

Consolidated Statements of Comprehensive Loss

(In millions)

Year Ended December 31,

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 )

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

Compass, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

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Preferred Stock Common Stock Additional Paid-in

Capital Accumulated Other

Comprehensive

(Loss) Income Accumulated

Capital Accumulated

Deficit Total Compass, Inc.

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

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

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

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 — — — — — — — —

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 early exercise of stock options — — 1,183,230 — — — — — — —

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

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

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

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

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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

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Issuance of common stock under the ESPP — — 759,835 — 2.5 — 2.5 — 2.5

Issuance of common stock in connection with the Strategic Transaction — — 8,957,910 — 30.0 — 30.0 — 30.0

Stock-based compensation — — — — 147.6 — 147.6 — 147.6

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Investing Activities

Proceeds from sales and maturities of marketable securities — — 55.5

Investment in unconsolidated entity ( 1.2 ) ( 15.0 ) ( 5.0 )

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Proceeds from drawdowns on Revolving credit facility 75.0 150.0 —

Repayments of drawdowns on Revolving credit facility ( 225.0 ) — —

Proceeds from issuance of common stock in connection with the Strategic Transaction 32.3 — —

Payments related to acquisitions, including contingent consideration ( 14.6 ) ( 17.5 ) ( 10.7 )

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Other ( 1.5 ) ( 0.6 ) ( 1.9 )

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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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

The Company consolidates an entity if its ownership, direct or indirect, exceeds 50 % of the outstanding voting shares of an entity and/or it has the ability to control the financial or operating policies through its voting rights, board representation or other similar rights.

Interests held by third parties in consolidated subsidiaries are presented as non-controlling interests, which represents the non-controlling stockholders’ interests in the underlying net assets of the Company’s consolidated subsidiaries.

For entities where the Company does not have a controlling interest (financial or operating), the investments in such entities are accounted for using the equity method or at fair value with changes in fair value recognized in net income, as appropriate.

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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.

During the years ended December 31, 2023 and 2022, the Company enacted various restructuring actions designed 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.

As the residential real estate market and related transaction volumes may remain challenging throughout 2024, operating losses and negative cash flows from operations will continue for certain quarterly periods in the foreseeable future.

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.

residential real estate market, as well as other factors such as litigation risks, will have on its business and may need to adjust its operations, including further operating expense reductions, as necessary.

There is no assurance that the Company will be successful in further adjusting its operating expenses to align to the changing real estate market conditions.

As of December 31, 2023 and 2022, the Company held cash and cash equivalents of approximately $ 166.9 million and $ 361.9 million, respectively.

Additionally, the Company has a Revolving Credit Facility that matures in March 2026, which it can draw upon provided it maintains continued compliance with certain financial and non-financial covenants.

As of December 31, 2023, the Company had $ 306.2 million available to be drawn under the Revolving Credit Facility.

Further, the Company was in compliance with each of the financial and non-financial covenants.

See Note 9 — "Debt" for further details.

The Company's operating cash flows vary depending on the seasonality of the real estate business.

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.

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If such asset groups were considered to be impaired, an impairment loss would be recognized when the carrying amount of the asset exceeds the fair value of the asset.

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

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

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

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

The Company has the only contractual relationship for the sale or exchange of real estate with its clients.

The Company has the only contractual relationship for the sale or exchange of real estate with their clients.

Accordingly, the Company is the principal in its transactions with home buyers and sellers.

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The Company operates exclusively in the United States and generates substantially all of its revenue from commissions from home sellers and buyers.

In addition to commission revenue, the Company generates 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, the Company generates 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.

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

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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.

Deferred tax assets and liabilities are classified as non-current in accordance with Accounting Standard Update (“ASU”) 2015-17.

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

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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.

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.

The Company has 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, the Company offered RSUs to affiliated agents through its 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.

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

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.

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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, 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.

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, the Company 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 periods 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, the Company has 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.

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.

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 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.

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

Early adoption is permitted.

The Company adopted this guidance on January 1, 2021 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

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 .

An update was also issued expanding the scope of this guidance.

The guidance provides optional expedients and exceptions for applying GAAP to contracts or other transactions affected by reference rate reform if certain criteria are met.

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):

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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

Compass, Inc.

Notes to Consolidated Financial Statements

fiscal years.

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

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

Early adoption is permitted.

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

The Company adopted this standard as of January 1, 2023 and the adoption did not 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.

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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.

The Company adopted this standard as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

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 .

An update was also issued expanding the scope of this guidance.

The guidance provides optional expedients and exceptions for applying GAAP to contracts or other transactions affected by reference rate reform if certain criteria are met.

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

The Company has evaluated applicable contracts and transactions and determined the standard did not have a material impact on the Company’s consolidated financial statements.

Business Combinations and Asset Acquisitions

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

Compass, Inc.

Notes to Consolidated Financial Statements

2023 Acquisitions

During the year ended December 31, 2023, the Company completed the acquisition of 100 % of the ownership interests in two residential real estate brokerages and acquired the assets of a smaller residential real estate brokerage.

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

The Company has accounted for these transactions as business combinations.

The consideration for the acquisitions completed during the year ended December 31, 2023 is primarily comprised of $ 6.8 million in the Company's Class A common stock, $ 1.1 million of cash paid at closing, an additional $ 1.0 million to be paid at a later date and an estimated $ 14.0 million of additional Class A common stock and cash that may be paid contingent on certain earnings-based targets being met at various payment dates through 2033.

Payments in excess of the original estimate may impact the Company's statement of operations in future periods.

The future consideration amounts were recorded as Accrued expenses and other current liabilities and Other non-current liabilities in the consolidated balance sheet.

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

$ 10.8 million of customer relationships;

$ 4.7 million of other current and non-current assets;

and $ 6.1 million of other current and non-current liabilities.

The excess of the aggregate purchase price over the aggregate fair value of the acquired net assets was recorded as goodwill of $ 11.4 million.

The acquired customer relationships are being amortized over the estimated useful lives of approximately 5 years.

Approximately $ 0.6 million of the goodwill recorded during the year ended December 31, 2023 is deductible for tax purposes.

The amount of tax-deductible goodwill may increase in the future to approximately $ 8.7 million dependent on the payment of certain contingent consideration, holdback 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.

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 transactions.

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.

Pro forma revenue and earnings for 2023 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.

2022 Acquisitions

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.

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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.

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 an estimated $ 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.

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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.

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

The amount of tax-deductible goodwill may increase in the future to approximately $ 2.6 million dependent on the payment of certain

Compass, Inc.

Notes to Consolidated Financial Statements

contingent consideration, 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.

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.

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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.

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 an estimated $ 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.

Total Consideration of Business Combinations and Asset Acquisitions

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

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Non-controlling interest 3.8

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):

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Net assets $ 185.6

Compass, Inc.

Notes to Consolidated Financial Statements

Approximately $ 59.0 million of the goodwill is deductible for tax purposes.

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.

1 unchanged sentence

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.

2020 Acquisitions

Modus Technologies, Inc.

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.

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 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, 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.

These transactions included the acquisition of smaller residential real estate brokerages in connection with ongoing agent recruitment efforts in key domestic markets.

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):

Cash paid at closing $ 27.7 $ 0.9

Cash to be paid after closing 2.0 —

Contingent consideration (payable in the form of cash and Class A common stock) 20.0 —

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

Cash and cash equivalents $ 3.0 $ —

Other current assets 0.1 —

Property and equipment 0.5 —

Operating lease right-of-use assets 4.1 —

Intangible assets (2) :

Acquired technology 6.3 —

Customer relationships 1.3 0.9

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.

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.

Contingent Consideration

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

Approximately $ 4.7 million of the obligations as of December 31, 2022 are fixed in value.

As of December 31, 2022, the undiscounted maximum payment under these arrangements was $ 14.0 million.

As of December 31, 2023, the undiscounted estimated payment under these arrangements was $ 31.8 million.

Changes in contingent consideration measured at fair value on a recurring basis were as follows (in millions):

3 unchanged sentences

Acquisitions 14.0 3.6 5.6

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

Fair value losses (gains) included in net loss 2.6 ( 2.2 ) ( 4.7 )

Payments ( 9.7 ) ( 11.8 ) ( 16.3 )

Closing balance $ 20.9 $ 14.0 $ 24.4

Compass, Inc.

Notes to Consolidated Financial Statements

Other Acquisition Related Compensation

3 unchanged sentences

For the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 0.6 million, $ 13.4 million and $ 28.6 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, 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.

Joint Venture

6 unchanged sentences

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 has contributed $ 1.2 million and $ 15.0 million of additional capital during the year ended December 31, 2023 and 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 $ 4.4 million at December 31, 2023 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.

The Company recorded equity losses of $ 3.3 million, $ 12.2 million and $ 1.3 million during the years ended December 31, 2023, 2022 and 2021, respectively.

No dividends were received by the Company during the years ended December 31, 2023 and 2022.

Compass, Inc.

Notes to Consolidated Financial Statements

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

6 unchanged sentences

The Company’s contingent consideration liabilities of $ 20.9 million and $ 14.0 million as of December 31, 2023 and 2022, respectively, are the Company’s only Level 3 financial instruments.

Compass, Inc.

Notes to Consolidated Financial Statements

See Note 3 — “Business Combinations and Asset Acquisitions” for changes in contingent consideration during the years ended December 31, 2023, 2022 and 2021.

14 unchanged sentences

The Company capitalized internally-developed software costs of $ 5.7 million and $ 17.0 million during the years ended December 31, 2023 and 2022, respectively.

Compass, Inc.

Notes to Consolidated Financial Statements

Goodwill and Intangible Assets, Net

2 unchanged sentences

Acquisitions 8.8

Measurement period adjustments 1.3

Balance at December 31, 2022

Acquisitions 11.4

Measurement period adjustments 1.3

Balance at December 31, 2023

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):

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Amortization expense was $ 32.9 million, $ 38.1 million and $ 25.9 million for the years ended December 31, 2023, 2022 and 2021, 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, 2023 is as follows (in millions):

Thereafter 0.8

Other Current Assets and Accrued Expenses and Other Current Liabilities

9 unchanged sentences

Concierge Credit Facility

In July 2020, the Company entered into a Revolving Credit and Security Agreement (the “Concierge Facility”) with Barclays Bank PLC, as administrative agent, and the several lenders party thereto.

In July 2020, the Company entered into a Revolving Credit and Security Agreement (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, the Company’s Compass Concierge Program.

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

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.

Borrowings under the Concierge Facility bear interest at the term SOFR rate plus a margin of 2.75 %.

The two year commitment fee is 0.35 % if the Concierge Facility is utilized greater than 50 % and 0.50 %, if the Concierge Facility is utilized less than 50 %.

On August 4, 2023, the revolving period under the Concierge Facility was extended to August 3, 2025.

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.

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

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

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 the Company's 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.

Compass, Inc.

Notes to Consolidated Financial Statements

reduced to zero and the Company will be required to repay any outstanding loans under the Concierge Facility.

As of December 31, 2023, the Company was in compliance with the covenants under the Concierge Facility.

The Concierge 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, bankruptcy and insolvency events, material judgments and change of control.

The occurrence of an event of default could result in the acceleration of the obligations and/or the increase in the applicable interest rate under the Concierge Facility.

Revolving Credit Facility

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

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 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 rate per annum equal to the secured overnight financing rate ("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.

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.

1 unchanged sentence

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.

As of December 31, 2023, there were 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 the Company and it’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.

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, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

1 unchanged sentence

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

Compass, Inc.

Notes to Consolidated Financial Statements

The components of lease costs for operating leases for the years ended December 31, 2023, 2022 and 2021 was as follows (in millions):

6 unchanged sentences

Total $ 145.8 $ 152.7 $ 135.3

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.

11 unchanged sentences

Weighted average discount rate 4.9 % 4.6 %

Compass, Inc.

Notes to Consolidated Financial Statements

Future undiscounted lease payments for the Company’s operating lease liabilities are as follows as of December 31, 2023 (in millions):

8 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

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.

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.

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.

Realogy Holdings Corp., et al v.

Urban Compass, Inc.

and Compass Inc.

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.

The Company and its subsidiaries have been named as defendants in ten putative class action lawsuits (the "Antitrust Lawsuits") that allege, among other things, violations of Section 1 of the Sherman Act, 15 U.S.C.

Five of the putative class action lawsuits, captioned Gibson, et al.

National Association of Realtors, et al., No.

4:23-cv-00788-FJG (W.D.

Mo.) (“Gibson”), filed on October 31, 2023, Grace v.

National Association of Realtors, et al., No.

3:23-cv-06352 (N.D.

Cal.) (“Grace”), filed on December 8, 2023, Umpa, et al.

National Association of Realtors, et al., 4:23-cv-00945 (W.D.

Mo.) (“Umpa”), filed on December 27, 2023, Fierro, et al.

National Association of Realtors, et al., Case No.

2:24-cv-00449 (C.D.

Cal.) (“Fierro”), filed on January 17, 2024, and Boykin v.

National Association of Realtors, et al., No.

2:24-cv-00340 (D.

Nev.) (“Boykin”), filed on February 16, 2024, name the Company as a defendant and allege, among other things, that certain trade associations, including the National Association of Realtors, multiple listing services, and real estate brokerages engaged in a continuing contract, combination, or conspiracy to unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1 by entering into a continuing agreement to require sellers of residential property to make inflated payments to brokers representing buyers.

The plaintiffs in the Gibson and Umpa matters allege a nationwide scope, while the Grace and Fierro matters are limited in scope to Northern California and Southern California, respectively.

The Company and the defendants in the Gibson and Umpa matter filed a series of motions to dismiss those complaints on February 26, 2024.

The plaintiffs’ opposition to those motions are due on March 25, 2024, and replies are due on April 22, 2024.

Two of the putative class action lawsuits, March v.

Real Estate Board of New York, et al., No.

1:23-cv-09995 (S.D.N.Y.) (“March”), filed on November 13, 2023, and Friedman v.

Real Estate Board of New York, et al., Case No.

1:23-cv-09601 (S.D.N.Y.) (“Friedman”), filed on January 18, 2024, name the Company as a defendant and allege, among other things, that

Compass, Inc.

Notes to Consolidated Financial Statements

the Real Estate Board of New York, and a number of real estate brokerages engaged in a continuing contract, combination, or conspiracy to unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1 by entering into a continuing agreement to require sellers of residential property to make inflated payments to brokers representing buyers.

The Friedman and March matters also allege violations of the Donnelly Act, N.Y.

§ 340, and the March matter further seeks injunctive relief pursuant to Section 16 of the Clayton Act, 15 U.S.C.

The Friedman and March matters are limited in scope to the New York City boroughs of Brooklyn, and Manhattan, respectively.

Two of the putative class action lawsuits, QJ Team, LLC, et al.

Texas Association of Realtors, Inc., et al., No.

4:23-cv-01013 (E.D.

Tx.) (“QJ Team”), filed on November 13, 2023, and Martin, et al.

Texas Association of Realtors, Inc., et al., No.

423-cv-01104 (E.D.

Tx.) (“Martin”), filed on December 14, 2023, name Realty Austin, LLC, a subsidiary of the Company, as a defendant and allege, among other things, that certain trade associations, including the Texas Association of Realtors, and a number of real estate brokerages engaged in a continuing contract, combination, or conspiracy to unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1 by entering into a continuing agreement to require sellers of residential property to make inflated payments to brokers representing buyers.

Batton, et al.

Compass, Inc., et al., No.

1:23-cv-15618 (N.D.

Ill.) (“Batton II”), filed on November 2, 2023, names the Company and seven other brokerages as defendants and alleges that the defendants entered into a continuing contract, combination, or conspiracy to unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1 and state law antitrust statutes, violated state consumer protection statutes, and were unjustly enriched by industry rules that set the manner by which buyer’s brokers are compensated.

The deadline to respond to the Batton II complaint is April 5, 2024.

The allegations in Batton II are substantially similar to those contained in the case captioned Batton, et al.

National Association of Realtors, et al., No.

1:21-cv-00430 (N.D.

Ill.) (“Batton I”), filed on January 25, 2021, which does not name the Company but names the National Association of Realtors and seven other brokerages.

On February 20, 2024, in Batton I, the Court granted the defendants’ Motion to Dismiss in part and denied in part, allowing most of the case to proceed.

On December 27, 2023, plaintiffs in the Gibson and Umpa matters filed a motion before the United States Judicial Panel on Multidistrict Litigation (“JPML”), captioned In re Real Estate Commission Litigation, No.

48 (J.P.M.L.), seeking to transfer and consolidate for pretrial proceedings the Gibson, Umpa, Grace, March, QJ Team, Martin, and three additional putative class actions to which the Company has not been named as a party, to one multidistrict litigation.

The deadline to respond to the complaints in the Martin, QJ Team, and March matters have been stayed pending a decision from the JPML on consolidation.

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 claim asserted therein.

The Company plans to vigorously defend itself against all claims.

The ultimate resolution of these matters could have a material adverse effect on the Company’s financial position, results of operations, and cash flow.

Letter of Credit Agreements

8 unchanged sentences

However, the Company remains contingently liable for the disposition of these deposits.

Compass, Inc.

Notes to Consolidated Financial Statements

Preferred Stock and Common Stock

2 unchanged sentences

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

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

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Each share of Class C common stock is entitled to twenty votes per share and will be convertible at any time into one share of Class A common stock and will automatically convert into Class A common stock under certain “sunset” provisions.

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 12,500.0 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.

Other than certain permitted transfers for estate

Compass, Inc.

Notes to Consolidated Financial Statements

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 12.5 billion shares of Class A common stock, 1.25 billion shares of Class B common stock and 100 million shares of Class C common stock.

Each class has par value of $ 0.00001 .

As of December 31, 2021, 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.

21 unchanged sentences

The liquidation rights of the holders of Class A and Class B common stock are subject to and qualified by the rights and preferences of the holders of convertible preferred stock.

Compass, Inc.

Notes to Consolidated Financial Statements

Each share of Class A common stock may be converted to one share of Class B common stock at the option of the holder.

4 unchanged sentences

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

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.

Strategic Transaction

In August 2023, the Company entered into a definitive asset purchase agreement with a Canadian real estate proptech company (the "Strategic Transaction") under which the Company received $ 32.3 million of cash in exchange for 9.0 million shares of Class A common stock and committed to make an additional contingent payment in the form of Class A common stock or cash, as determined by the Company.

The contingent payment is dependent on a volume-weighted stock price target for the Company's Class A common stock and is payable up to a maximum of $ 5.5 million in May 2025 (unless the volume-weighted stock price target is triggered).

As of December 31, 2023, the Company has estimated a liability of $ 2.9 million in connection with this contingent arrangement and has included the amount in the Other non-current liabilities line of its consolidated balance sheet.

Stock-Based Compensation

10 unchanged sentences

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”), 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.

In February 2021, the Company’s board of directors and stockholders adopted and approved the 2021 Employee Stock Purchase Plan (the “ESPP”), with an initial pool of 7.4 million shares of Class A common stock available for authorized purchase rights to the Company’s employees or to employees of its designated affiliates.

In addition, on January 1 st of each

Compass, Inc.

Notes to Consolidated Financial Statements

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, 2023, 14.1 million shares of Class A common stock remain available for grant under the ESPP.

4 unchanged sentences

During the year ended December 31, 2023, the Company issued 0.8 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

The Company recognized $ 1.3 million and $ 2.1 million of stock-based compensation expense related to the ESPP during the years ended December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023 and 2022, $ 1.0 million and $ 1.3 million, respectively had been withheld on behalf of employees for a future purchase under the ESPP.

Stock Options

1 unchanged sentence

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

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model with the exception of certain stock options that have market-based vesting conditions which are valued using a Monte Carlo simulation.

The inputs used below are subjective and require significant judgement to determine.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model.

For the year ended December 31, 2023, stock options granted were not material to the Company's financial statements.

For the years ended December 31, 2022 and 2021, the table below demonstrates the inputs used for options granted.

Year Ended December 31,

2022 2021 2020

Expected term (in years) 6.2 6.3

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$ 8.80 - $ 18.00

$ 6.65 - $ 23.44

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

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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.

The Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, and position

Compass, Inc.

Notes to Consolidated Financial Statements

within the industry and with historical share price information sufficient to meet the expected term of the stock options.

The historical volatility data was 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.

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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.

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):

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As of December 31, 2023, unrecognized compensation costs totaled $ 31.4 million and are expected to be recognized over a weighted-average period of 1.8 years.

Early Exercise of Stock Options

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.

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 of the Company’s 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

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Forfeited (2)

( 25,765,385 ) 6.13

Balance as of December 31, 2023

29,943,818 $ 5.15

(1) During the year ended December 31, 2023, the Company net settled all RSUs through which it issued an aggregate of 35.9 million shares of Class A common stock and withheld an aggregate of 7.6 million shares of Class A common st ock to satisfy $ 23.5 million of tax withholding obligations on behalf of the Company’s employees.

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.

(2) Included in forfeited shares are 17.2 million performance based RSUs previously held by the Company’s Chief Executive Officer that were cancelled in connection with changes made to the CEO's compensation package in December 2023.

The cancellation of these awards was accounted for as a modification and is not expected to have a material impact on the Company's statements of operations.

As of December 31, 2023, all unvested RSUs had total compensation costs of $ 147.7 million not yet recognized and is expected to be recognized over a weighted-average period of 2.0 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

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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 connection with the 2022 Agent Equity Program, the Company recognized a total of $ 53.3 million stock-based compensation expense of which $ 41.7 million was recognized during the year ended the year ended December 31, 2022 and $ 11.6 million was recognized during the year ended December 31, 2023.

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.

Prior to the issuance of the underlying RSUs, the stock-based compensation expense associated with these awards was recorded as a liability and $ 53.3 million was ultimately reclassified to Additional paid-in capital at the end of the vesting period when the underlying RSUs were granted.

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

Other Stock-Based Awards

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

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

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

The decrease in stock-based compensation expense in 2022 as compared to 2021 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 RSUs outstanding prior to the IPO contained a liquidity-event based vesting condition, in addition to a time-based vesting condition.

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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):

Compass, Inc.

Notes to Consolidated Financial Statements

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

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Total $ ( 321.7 ) $ ( 602.4 ) $ ( 496.6 )

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.

For the year ended December 31, 2023, the loss before income taxes of $ 321.7 million includes $ 3.3 million of losses from the Company’s equity investment in OriginPoint and excludes $ 1.2 million in net income attributable to non-controlling interests.

The OriginPoint business and other non-controlling interests operate in the United States.

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

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Federal $ — $ — $ —

State ( 0.3 ) — —

Foreign ( 0.1 ) ( 3.1 ) ( 1.2 )

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Total benefit from income taxes $ 0.4 $ 0.9 $ 2.5

The Company had an income tax benefit for the years ended December 31, 2023, 2022 and 2021 resulting from 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 and state income tax expense.

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:

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

Worthless stock deduction 3.2 % — % — %

Other ( 1.0 ) % 0.6 % ( 0.3 ) %

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Operating lease right-of-use assets $ ( 110.8 ) $ ( 132.2 )

Intangible assets — ( 1.7 )

Property and equipment ( 26.6 ) ( 37.5 )

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As of December 31, 2023 and 2022, the Company’s deferred tax assets were primarily the result of U.S.

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

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

gross deferred tax asset balances as of December 31, 2023 and 2022.

As of each reporting date, the Company considers new

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, 2023 and 2022, 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

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.

cumulative pre-tax book losses.

As of December 31, 2023, the valuation allowance was approximately $ 664.9 million, an increase of $ 70.7 million from December 31, 2022, which includes the impact of acquisition activity.

As of December 31, 2023 and 2022, the Company had approximately $ 1.6 billion and $ 1.4 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.

Of those amounts, $ 152.0 million will begin to expire in 2032 and $ 1.5 billion have an unlimited carryforward with utilization limited to 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, 2023 and 2022, the Company had approximately $ 1.9 billion and $ 1.6 billion of gross state net operating losses, respectively, that will begin to expire in 2026.

In connection with the previously announced shutdown of Modus Technologies, Inc.

(“Modus”), the Company recognized an ordinary worthless stock deduction for U.S.

income tax purposes.

This resulted in an increase to the gross federal net operating loss of approximately $ 27.0 million.

The Company has not recognized any tax benefits from the Modus worthless stock deduction as a result of the full valuation allowance maintained on its deferred tax assets.

The Company had no material uncertain tax positions as of December 31, 2023, 2022 and 2021.

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No material amounts of interest or penalties were recognized in the consolidated financial statements for the years ended December 31, 2023, 2022 and 2021.

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.

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.

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Under the Concierge Capital program, the Lender originates and services unsecured consumer loans to home sellers following its independent underwriting process pursuant to program-level criteria provided by the Company.

Pursuant to the Company’s agreement with the Lender, the consumer loans are unsecured, interest-free and have no associated fees except for late fees that the Lender may charge in its sole discretion.

The Company has no right or obligation with respect to any individual consumer loan originated by the Lender.

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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

For the years ended December 31, 2023, 2022 and 2021, the Company did not recognize any material income from

Compass, Inc.

Notes to Consolidated Financial Statements

from the Compass Concierge Program.

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.

Factors considered include but not limited to:

Factors considered include but are not limited to:

• No negative liens or judgements on the property;

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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

Changes in the Company’s estimate to the ACL are recorded through bad debt expense as Sales and marketing expense in the consolidated statements of operations and individual accounts are charged against the allowance

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):

when all reasonable collection efforts are exhausted.

The following table presents the aging analysis of Concierge Receivables as of December 31, 2023 and 2022 (in millions):

Current $ 28.4 $ 50.6

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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 Company computes net loss per share under the two-class method required for multiple classes of common stock and participating securities.

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.

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2023 2022 2021

Convertible preferred stock — — 238,954,050

Outstanding stock options 40,527,848 46,694,237 54,525,539

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Unvested common stock — 138,892 391,092

Contingent common stock to be issued in connection with the Strategic Transaction 1,664,551 — —

Total 72,737,176 94,698,485 110,502,861

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.

In addition to the workforce reductions, restructuring actions have

Compass, Inc.

Notes to Consolidated Financial Statements

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, 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.

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 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.

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):

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

During the year ended December 31, 2023, the Company 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.

The Company 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.

The following table summarizes the total costs incurred in connection with the Company's restructuring activities taken during the years ended December 31, 2023 and 2022 (in millions):

Year Ended December 31,

Restructuring costs Depreciation and amortization Total

Severance related personnel costs $ 8.9 $ 40.6

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Other restructuring activities — 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.

Total expense $ 35.7 $ 56.2

The total costs incurred in connection with the Company's restructuring activities during the years ended December 31, 2023 and 2022 were included in the consolidated statements of operations as follows (in millions):

Year Ended December 31,

Restructuring costs $ 30.4 $ 49.1

Depreciation and amortization 5.3 7.1

Total expense $ 35.7 $ 56.2

Compass, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the estimated timing of the Company's future lease and lease-related payments, net of amounts contractually subleased, related to restructuring activities for lease termination costs as of December 31, 2023 (in millions):

Payment Due by Period

Thereafter 0.5

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