Compass, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section entitled “Note Regarding Forward—Looking Statements”. You should review the disclosure under the section entitled “Risk Factors” in this Annual Report for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. OVERVIEW Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report and is intended to provide an understanding of our results of operations, financial condition and changes in our results of operations and financial condition. Our MD&A is organized as follows: • Introduction. This section provides a general description of our company and its business, recent developments affecting our company, operational highlights and discussions of how seasonal factors and macroeconomic conditions may impact our results. • Results of Operations. This section provides our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis for the year ended December 31, 2024 compared to the year ended December 31, 2023. An analysis of the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis for the year ended December 31, 2023 compared to the year ended December 31, 2022 is included in our Form 10-K for the year ended December 31, 2023. • Key Business Metrics and Non-GAAP Financial Measures. This section provides a discussion of key business metrics and non-GAAP financial measures we use to evaluate our business and measure our performance, in addition to the measures presented in our consolidated financial statements. • Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of December 31, 2024. • Critical Accounting Estimates and Policies. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions. • Recent Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future. INTRODUCTION 37 Table of Contents We are a leading tech-enabled real estate services company that includes the largest real estate brokerage in the United States by sales volume. We also provide integrated services to real estate agents and their clients, including title, escrow and mortgage. We provide an end-to-end proprietary technology platform that empowers residential real estate agents to deliver exceptional service to seller and buyer clients. Our Compass platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service, brokerage services and other critical functionalities, all custom-built for the real estate industry. The Compass platform also uses proprietary data, analytics, AI, and machine learning to simplify workflows of agents and deliver high-value recommendations and outcomes for both agents and their clients. Additionally, we provide integrated services, such as title and escrow and mortgage, both of which are available on the Compass platform. Compass agents utilize the platform to grow their businesses, save time and manage their businesses more effectively. Our business model is directly aligned with the success of agents. We attract agents to our brokerage and partner with them as independent contractors that affiliate their real estate licenses with us, operating their businesses on the Compass platform and under our brand. We currently generate substantially all of our revenue from commissions paid to us by our agents' clients at the time that a home is transacted on the Compass platform. While integrated services comprise a small portion of our revenue to date, we believe we are well-positioned to capture meaningful revenue from integrated services as we continue to diversify our offerings within the real estate ecosystem. Recent Developments A number of macroeconomic conditions, including high interest rates and the Federal Reserve Board's policies, have contributed to the slowdown in the U.S. residential real estate market, impacting our business and financial results. Specifically, these conditions resulted in slowed consumer demand, declining home affordability and low inventory. While the Federal Reserve Board began to ease interest rates during 2024 and the beginning signs of a housing market recovery emerged, any further slowdown, additional challenging conditions or lack of further improvement in the U.S. residential real estate market could have a significant impact on our business and financial results during 2025 and beyond. Additionally, as part of its nationwide class action settlement of antitrust claims, NAR agreed to implement certain industry-wide practice changes, including, but not limited to, prohibiting buyer brokers' offers of compensation from being included in listings on Multiple Listing Services and requiring a buyer to enter into a written agreement with their agent that would set forth the buyer broker's fee before showing the buyer a property. These changes went into effect in August of 2024. Early in the spring of 2024, the Company entered into its own class action antitrust settlement and agreed to implement certain other practice changes. See Note 11 - "Commitments and Contingencies" to our consolidated financial statements included elsewhere in this Annual Report for more information. Further, we believe the Department of Justice is continuing to focus on the real estate industry, including the practice changes resulting from the NAR settlement, which could result in additional practice-wide changes. While we continue to assess the effects of the ongoing slowdown and the recent industry-wide changes on our business and financial results, the ultimate impact will depend on future developments, which are highly uncertain and difficult to predict, as well as the actions that we have taken, or will take, to minimize any current and future impact on our revenue, profitability, or liquidity. In the meantime, the significant cost reduction actions that we have taken since 2022 have reduced our operating expense levels to the point that we are able to consistently generate positive operating cash flow, aside from a limited number of seasonally slower transaction volume months during the year. Operational Highlights for the year ended December 31, 2024 We continue to attract and retain the most talented agents to our platform, which is critical to our long-term success. We grow our revenue by attracting high-performing agents looking to grow their business and increasing the productivity of our agents. We invest in our proprietary, integrated platform designed for real estate agents, to enable them to grow their business and save them time and money. This value proposition allows us to recruit more agents, help them grow their business and retain them on our platform at industry leading retention rates. We had over 33,000 agents on our platform as of December 31, 2024. A subset of our agents are considered principal agents, which we define as either agents who are leaders of their respective agent teams or individual agents operating independently on our platform. 38 Table of Contents As of December 31, 2024, 2023 and 2022, the Number of Principal Agents 1,2,3 was 17,752, 14,683 and 13,649, respectively. The principal agent additions came in both new and existing markets. During the years ended December 31, 2024, 2023 and 2022, our agents closed 205,122, 178,848 and 211,538 Total Transactions 1 , respectively. The increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily attributable to the increase in the number of agents on our platform. Our Gross Transaction Value 1 for the years ended December 31, 2024, 2023 and 2022 was $216.8 billion, $186.1 billion and $230.3 billion, respectively. Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets. The increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily attributable to the increase of the number of agents on our platform. For the year ended December 31, 2024, our Gross Transaction Value represented 4.95% of residential real estate transacted in the United States, compared to 4.46% for the year ended December 31, 2023. We calculate our market share by dividing our Gross Transaction Value, or the total dollar value of transactions closed by agents on our platform, by two times (to account for the sell-side and buy-side of each transaction) the aggregate dollar value of U.S. existing home sales as reported by NAR. Gross Transaction Value includes a de minimis number of new development and commercial brokerage transactions. Seasonality and Cyclicality The residential real estate market is seasonal, which directly impacts our agents’ businesses. While individual markets may vary, transaction volume is typically highest in spring and summer, and then declines gradually in late fall and winter. We experience the most significant financial effect from this seasonality in the first and fourth quarters of each year, when our revenue is typically lower relative to the second and third quarters. The effect of this seasonality on our revenue has a larger effect on our results of operations as many of our operating expenses (excluding commissions) are somewhat fixed in nature and do not vary directly in line with our revenue. We believe that this seasonality has affected and will continue to affect our quarterly results. The broader residential real estate industry is cyclical, and individual markets can have their own dynamics that diverge from broad market conditions. The real estate industry can be impacted by the strength or weakness of the economy, changes in interest rates or mortgage lending standards, or extreme economic or political conditions. Our revenue growth rate tends to increase as the real estate industry performs well and to decrease when the real estate industry performs poorly. Components of Our Results of Operations Revenue We generate substantially all our revenue by assisting home sellers and buyers in listing, marketing, selling and finding homes. We hold the real estate brokerage license that is necessary under relevant state laws and regulations to provide brokerage services and therefore we control those services that are necessary to legally transfer real estate between home sellers and buyers. We are the principal in the transaction and recognize as revenue the gross amount of the commission we receive in exchange for those services. Revenue is recognized upon the transfer of control of promised services to the home sellers or home buyers. Accordingly, real estate commissions are recorded as revenue at the point in time real estate transactions are closed (i.e., sale or purchase of a home). We also recognize revenue from other integrated services related to the home transaction such as title and escrow services. While revenue from these services has been immaterial through 2024, we expect revenue from these services to grow over time as we expand existing and add new integrated services into our platform. 1 For the definitions of Number of Principal Agents, Total Transactions and Gross Transaction Value please refer to the section entitled “—Key Business Metrics” included elsewhere in this Annual Report. 2 During the first quarter of 2024, the Company began to report its agent statistics as of the period end. The Company's Number of Principal Agents and year over year growth reported in this Annual Report is based on the period end count. 3 Excludes approximately 1,000 principal agents located in Texas who joined Compass during the second quarter of 2024 as part of the Latter & Blum Holdings, LLC acquisition. These agents operate with a flat fee / transaction fee based model, which is different from the Company's standard commission model. 39 Table of Contents Operating Expenses Commissions and other related expense Commissions and other related expense primarily consists of commissions paid to our agents, who are independent contractors, upon the closing of a real estate transaction and fees paid to external brokerages for client referrals, which are recognized and paid upon the closing of a real estate transaction. We also charge our agents fees. These fees are either transaction based, where amounts are collected at the closing of a real estate transaction, or in the form of periodic fixed fees. These fees are recognized as a reduction to commissions and other related expense. Our commissions and other related expense as a percentage of revenue is expected to fluctuate from period-to-period based on the mix of the commission arrangements we have with our agents, the fees we collect and any changes in integrated services revenue. Sales and marketing Sales and marketing expense consists primarily of marketing and advertising expenses, compensation and other personnel-related costs for employees supporting sales, marketing, expansion and related functions, occupancy-related costs for our regional offices, agent acquisition incentives and costs related to administering the Compass Concierge Program, including associated bad debt expenses. Advertising expense primarily includes the cost of marketing activities such as print advertising, online advertising and promotional items, which are expensed as incurred. Compensation and other personnel-related costs include salaries, benefits, bonuses and stock-based compensation expense. We expect sales and marketing expense to vary from period-to-period as a percentage of revenue. Operations and support Operations and support expense consists primarily of compensation and other personnel-related costs for employees supporting agents, third-party consulting and professional services costs, fair value adjustments to contingent consideration for our acquisitions and other acquisition related expenses. We expect operations and support expense to vary from period-to-period as a percentage of revenue. Research and development Research and development expense consists primarily of compensation and other personnel-related costs for employees in the product, engineering and technology functions, website hosting expenses, software licenses and equipment, third-party consulting costs, data licenses and other related expenses. We expect that our research and development expense will vary from period-to-period as a percentage of revenue. General and administrative General and administrative expense primarily consists of compensation costs for executive management and administrative employees, including finance and accounting, legal, human resources and communications, the occupancy costs for our New York headquarters and other offices supporting administrative functions, litigation charges, professional services fees, insurance expenses and talent acquisition expenses. We expect that general and administrative expense will vary from period-to-period as a percentage of revenue for the foreseeable future as we focus on processes, systems and controls to enable our internal support functions for our business. Restructuring Costs Restructuring costs consists primarily of severance and other termination benefits for employees whose roles are being eliminated, lease terminations costs as a result of the accelerated amortization of various right-of-use assets and other restructuring costs. 40 Table of Contents Depreciation and amortization Depreciation and amortization expense consists primarily of depreciation and amortization of our property and equipment, capitalized software and acquired intangible assets. We expect depreciation and amortization expense will vary from period-to-period as a percentage of revenue for the foreseeable future. Investment Income, net Investment income, net consists primarily of interest, dividends and realized gains and losses earned on our cash and cash equivalents. Interest Expense Interest expense consists primarily of expense related to the interest expenses, including commitment fees for available borrowing capacities, and amortization of debt issuance costs associated with our Concierge Facility and Revolving Credit Facility. Benefit from Income Taxes Benefit from income taxes consists of a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions netted with the recognition of deferred tax assets in India. Additionally, the Company incurred current income tax expense from states and its operations in India. We maintain a full valuation allowance against our U.S. deferred tax assets for income tax purposes because we have concluded that it is more likely than not that the deferred tax assets will not be realized. Equity in Loss of Unconsolidated Entity Equity in loss of unconsolidated entity includes the results of our share of losses from our mortgage joint venture with Guaranteed Rate, Inc. 41 Table of Contents RESULTS OF OPERATIONS The following table sets forth our consolidated statements of operations data for the periods indicated: Year Ended December 31, 2024 2023 2022 (in millions, except percentages) Revenue $ 5,629.1 100.0 % $ 4,885.0 100.0 % $ 6,018.0 100.0 % Operating expenses: Commissions and other related expense (1) 4,634.6 82.3 4,007.0 82.0 4,936.1 82.0 Sales and marketing (1) 368.7 6.5 435.4 8.9 575.1 9.6 Operations and support (1) 334.5 5.9 326.9 6.7 392.4 6.5 Research and development (1) 188.8 3.4 184.5 3.8 360.3 6.0 General and administrative (1) 165.2 2.9 125.7 2.6 208.1 3.5 Restructuring costs 9.7 0.2 30.4 0.6 49.1 0.8 Depreciation and amortization 82.4 1.5 90.0 1.8 86.3 1.4 Total operating expenses 5,783.9 102.7 5,199.9 106.4 6,607.4 109.8 Loss from operations (154.8) (2.7) (314.9) (6.4) (589.4) (9.8) Investment income, net 6.8 0.1 8.5 0.2 2.8 — Interest expense (6.4) (0.1) (10.8) (0.2) (3.6) (0.1) Loss before income taxes and equity in loss of unconsolidated entity (154.4) (2.7) (317.2) (6.5) (590.2) (9.8) Benefit from income taxes 0.5 — 0.4 — 0.9 — Equity in loss of unconsolidated entity (0.6) — (3.3) (0.1) (12.2) (0.2) Net loss (154.5) (2.7) (320.1) (6.6) (601.5) (10.0) Net loss (income) attributable to non-controlling interests 0.1 — (1.2) — — — Net loss attributable to Compass, Inc. $ (154.4) (2.7 %) $ (321.3) (6.6 %) $ (601.5) (10.0 %) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2024 2023 2022 Commissions and other related expense $ — $ 11.6 $ 59.0 Sales and marketing 31.5 35.0 42.0 Operations and support 16.5 16.1 15.6 Research and development 58.0 45.7 57.5 General and administrative 21.5 49.8 60.4 Total stock-based compensation expense $ 127.5 $ 158.2 $ 234.5 Comparison of the Years Ended December 31, 2024 and 2023 Revenue Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Revenue $ 5,629.1 $ 4,885.0 $ 744.1 15.2 % Revenue increased by $744.1 million, or 15.2%, for 2024 compared to 2023. The increase was primarily driven by an increase in the number of agents that joined our platform during 2023 and 2024 and a higher volume of transactions. The 42 Table of Contents Number of Principal Agents for 2024 was 17,752 compared to 14,683 for 2023. Total Transactions for 2024 increased to 205,122, an increase of 14.7% from 2023. Operating Expenses Commissions and other related expense Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Commissions and other related expense $ 4,634.6 $ 4,007.0 $ 627.6 15.7 % Percentage of revenue 82.3 % 82.0 % Commissions and other related expense increased by $627.6 million, or 15.7%, for 2024 compared to 2023. Included in Commissions and other related expense were non-cash expenses related to stock-based compensation of $11.6 million for the year ended December 31, 2023. The decline in stock-based compensation expense in 2024 as compared to 2023 was due to the discontinuation of the Agent Equity Program in 2023. Commissions and other related expense excluding such non-cash stock-based compensation expense was $4,634.6 million, or 82.3% of revenue for 2024, and $3,995.4 million, or 81.8% for 2023. The increase in absolute dollars and as a percentage of revenue of Commission and other related expense, excluding the non-cash stock-based compensation, was primarily driven by increased revenue and the impact of recent acquisitions, which operate in markets with higher average agent commissions splits compared to our core brokerage. Sales and marketing Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Sales and marketing $ 368.7 $ 435.4 $ (66.7) (15.3 %) Percentage of revenue 6.5 % 8.9 % Sales and marketing expense decreased by $66.7 million, or 15.3%, for 2024 compared to 2023. Included in Sales and marketing expense were non-cash expenses related to stock-based compensation of $31.5 million for the year ended December 31, 2024 and $35.0 million for the year ended December 31, 2023. The decrease in stock-based compensation expense for 2024 as compared to 2023 was primarily due to the Company ceasing to offer share-based awards as incentives for agents. Sales and marketing expense excluding such non-cash stock-based compensation expense was $337.2 million, or 6.0% of revenue for 2024, and $400.4 million, or 8.2% for 2023, respectively. The decrease in sales and marketing expense in absolute dollars and on a percentage of revenue, excluding non-cash stock-based compensation expense, was primarily due to a decrease in agent marketing costs and a reduction in cash-based agent incentives. Operations and support Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Operations and support $ 334.5 $ 326.9 $ 7.6 2.3 % Percentage of revenue 5.9 % 6.7 % Operations and support expense increased by $7.6 million, or 2.3%, for 2024 compared to 2023. Included in Operations and support expense were non-cash expenses related to stock-based compensation of $16.5 million for the year ended December 31, 2024 and $16.1 million for the year ended December 31, 2023, which remained relatively flat. Operations and support expense excluding such non-cash stock-based compensation expense was $318.0 million, or 5.6% of revenue for 2024, and $310.8 million, or 6.4% for 2023. The increase in absolute dollars, excluding such non-cash stock-based compensation expense, was primarily driven by an increase in personnel costs resulting from the Company's recent 43 Table of Contents acquisitions. The decrease of Operations and support expense, excluding such non-cash stock-based compensation expense, as a percentage of revenue was primarily related to the increase in revenue compared to the prior year period. Research and development Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Research and development $ 188.8 $ 184.5 $ 4.3 2.3 % Percentage of revenue 3.4 % 3.8 % Research and development expense increased by $4.3 million, or 2.3%, for 2024 compared to 2023. Included in Research and development expense were non-cash expenses related to stock-based compensation of $58.0 million for the year ended December 31, 2024 and $45.7 million for the year ended December 31, 2023. The increase in stock-based compensation expense for 2024 as compared to 2023 was primarily driven by forfeitures incurred due to the workforce reductions taken in connection with our restructuring activities in the prior year with no comparable activity in the current year. Research and development expense excluding non-cash stock-based compensation expense was $130.8 million, or 2.3% of revenue for 2024, and $138.8 million, or 2.8% for 2023. The decrease in absolute dollars and on a percentage of revenue basis, excluding such non-cash stock-based compensation expense, was primarily driven by a decrease in information technology related expenses as a result of the Company's cost reduction initiatives as described in Note 17 - "Restructuring Activities" in our consolidated financial statements included elsewhere in this Annual Report. General and administrative Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) General and administrative $ 165.2 $ 125.7 $ 39.5 31.4 % Percentage of revenue 2.9 % 2.6 % General and administrative expense increased by $39.5 million, or 31.4%, for 2024 compared to 2023. During the year ended December 31, 2024, General and administrative expense includes a charge of $57.5 million in connection with the Antitrust Lawsuits, which is discussed in Note 11 - "Commitments and Contingencies" to our consolidated financial statements included elsewhere in this Annual Report. Also included in General and administrative expense were non-cash expenses related to stock-based compensation of $21.5 million for 2024 and $49.8 million for 2023. The decrease in stock-based compensation expense for 2024 as compared to 2023 was primarily driven by the modification of the Company's Chief Executive Officer's performance-based RSUs at the end of 2023. General and administrative expense excluding non-cash stock-based compensation expense and the aforementioned litigation charge was $86.2 million, or 1.5% of revenue for 2024, and $75.9 million, or 1.6% of revenue for 2023. The increase in absolute dollars excluding such non-cash stock-based compensation expense and the litigation charge, was primarily due to the fact that during the year ended December 31, 2023, General and administrative expense included a benefit of $7.2 million for tax refunds resulting from a change in estimates for certain state taxes paid in prior years. These state taxes are now included in the Benefit from income taxes line of our consolidated statements of operations. On a percentage of revenue basis, excluding such non-cash stock-based compensation expense and the litigation charge, General and administrative expense remained relatively flat. 44 Table of Contents Restructuring costs Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Restructuring costs $ 9.7 $ 30.4 $ (20.7) (68.1 %) Percentage of revenue 0.2 % 0.6 % Restructuring costs during the year ended December 31, 2024 primarily consisted of lease terminations costs as a result of the accelerated amortization of various right-of-use assets and other related costs. Restructuring costs during the year ended December 31, 2023 primarily consisted of lease terminations costs and severance and other termination benefits for employees whose roles were eliminated. See Note 17 - "Restructuring Activities" in our consolidated financial statements included elsewhere in this Annual Report, for information. Depreciation and amortization Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Depreciation and amortization $ 82.4 $ 90.0 $ (7.6) (8.4 %) Percentage of revenue 1.5 % 1.8 % Depreciation and amortization expense decreased by $7.6 million, or 8.4%, for 2024 compared to 2023. The decrease in absolute dollars and on a percentage of revenue basis was primarily driven by a year-over-year decrease in the amount of fixed assets whose depreciation was accelerated in connection the exit of offices. The remaining decline relates to a slow down in capital expenditures when compared to the prior year period. Investment income, net Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Investment income, net $ 6.8 $ 8.5 $ (1.7) (20.0 %) During the year ended December 31, 2024, investment income was $6.8 million and during year ended December 31, 2023, investment income was $8.5 million. Investment income, net decreased during the year ended December 31, 2024 as a result of the Company holding less short-term interest-bearing investments throughout the year. Interest expense Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Interest expense $ 6.4 $ 10.8 $ (4.4) (40.7 %) Interest expense decreased by $4.4 million, or 40.7%, for 2024 compared to 2023. The decrease from the prior year period was primarily driven by the interest expense incurred on our Revolving Credit Facility as a result of balances outstanding in the prior year on the credit facility with no comparable balance outstanding during the year ended December 31, 2024. 45 Table of Contents Benefit from income taxes Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Benefit from income taxes $ 0.5 $ 0.4 $ 0.1 25.0 % Benefit from income taxes increased by $0.1 million, or 25.0%, for 2024 compared to 2023. The change primarily resulted from the recognition of deferred tax assets in India. Equity in loss of unconsolidated entity Year Ended December 31, 2024 2023 $ Change % Change (in millions, except percentages) Equity in loss of unconsolidated entity $ 0.6 $ 3.3 $ (2.7) (81.8 %) During the year ended December 31, 2024, equity in loss of unconsolidated entity was $0.6 million, and during the year ended December 31, 2023, equity in loss of unconsolidated entity was $3.3 million. These losses are from our mortgage joint venture with Guaranteed Rate, Inc. KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. Year Ended December 31, 2024 2023 2022 Total Transactions 205,122 178,848 211,538 Gross Transaction Value (in billions) $ 216.8 $ 186.1 $ 230.3 Number of Principal Agents (1)(2) 17,752 14,683 13,649 Net loss attributable to Compass, Inc. (in millions) $ (154.4) $ (321.3) $ (601.5) Net loss attributable to Compass, Inc. margin (2.7) % (6.6) % (10.0) % Adjusted EBITDA (3) (in millions) $ 126.0 $ (38.9) $ (210.0) Adjusted EBITDA margin (3) 2.2 % (0.8) % (3.5) % (1) During the year ended December 31, 2024, the Company began to report its agent statistics as of the period end. The Company's Number of Principal Agents and year over year growth reported in this Annual Report is based on the year end count. (2) Excludes approximately 1,000 principal agents located in Texas who joined Compass during the second quarter of 2024 as part of the Latter & Blum Holdings, LLC acquisition. These agents operate with a flat fee / transaction fee based model, which is different from the Company's standard commission model. (3) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA, see the section titled “—Non-GAAP Financial Measures” below. Key Business Metrics Total Transactions Total Transactions is a key measure of the scale of our platform, which drives our financial performance. We define Total Transactions as the sum of all transactions closed on our platform in which our agent represented the buyer or seller in the purchase or sale of a home. We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. This metric excludes rental transactions. 46 Table of Contents Our Total Transactions for the year ended December 31, 2024 were 205,122, an increase of 14.7% from the year ended December 31, 2023. The increase in Total Transactions was primarily attributable to the brokerages acquired since the same period a year ago. Gross Transaction Value Gross Transaction Value is a key measure of the scale of our platform and success of our agents, which ultimately impacts revenue. Gross Transaction Value is the sum of all closing sale prices for homes transacted by agents on our platform. We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction. This metric excludes rental transactions. Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and macroeconomic factors. Our Gross Transaction Value for the year ended December 31, 2024 was $216.8 billion, an increase of 16.5% from the year ended December 31, 2023. The period-over-period increase was primarily driven by the increase in the number of agents on our platform. Number of Principal Agents The Number of Principal Agents represents the number of agents who are leaders of their respective agent teams or individual agents operating independently on our platform. The Number of Principal Agents is an indicator of the potential future growth of our business, as well as the size and strength of our platform. We use the Number of Principal Agents, in combination with our other key metrics such as Total Transactions and Gross Transaction Value, as a measure of agent productivity. Our Number of Principal Agents as of December 31, 2024 was 17,752, representing an increase of 20.9% from the year ago period primarily driven by the agents we acquired in 2024 from Latter & Blum Holdings, LLC and Parks Village Nashville, LLC. Our principal agents generate revenue across a diverse set of real estate markets in the U.S. Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA margin Adjusted EBITDA is a non-GAAP financial measure that represents our Net loss attributable to Compass, Inc. adjusted for depreciation and amortization, investment income, net, interest expense, stock-based compensation expense, benefit from income taxes and other items. During the periods presented, other items included (i) restructuring charges associated with lease termination and severance costs, (ii) acquisition-related expenses related to adjustments to the fair value of contingent consideration and other forms of acquisition consideration and (iii) litigation charges in connection with the Antitrust Lawsuits and the Realogy Holdings Corp. matter. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe Adjusted EBITDA and Adjusted EBITDA margin are also helpful to investors, analysts and other interested parties because these measures can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, however, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including Net loss attributable to Compass, Inc. and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are not presented in accordance with GAAP and the use of these terms varies from others in our industry. 47 Table of Contents The following table provides a reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA (in millions, except percentages): Year Ended December 31, 2024 2023 2022 Net loss attributable to Compass, Inc. $ (154.4) $ (321.3) $ (601.5) Adjusted to exclude the following: Depreciation and amortization 82.4 90.0 86.3 Investment income, net (6.8) (8.5) (2.8) Interest expense 6.4 10.8 3.6 Stock-based compensation 127.5 158.2 234.5 Benefit from income taxes (0.5) (0.4) (0.9) Restructuring costs 9.7 30.4 49.1 Acquisition-related expenses (1) 4.2 1.9 11.2 Litigation charges (2) 57.5 — 10.5 Adjusted EBITDA $ 126.0 $ (38.9) $ (210.0) Net loss attributable to Compass, Inc. margin (2.7) % (6.6) % (10.0) % Adjusted EBITDA margin 2.2 % (0.8) % (3.5) % (1) Includes adjustments related to the change in fair value of contingent consideration and adjustments related to acquisition consideration treated as compensation expense over the underlying retention periods. See Note 3 - "Acquisitions" to the consolidated financial statements included elsewhere in this Annual Report for more information. (2) For year ended December 31, 2024, Litigation charges represents an expense of $57.5 million incurred during the three months ended March 31, 2024 in connection with the Antitrust Lawsuits. See Note 11 – “Commitments and Contingencies” to the consolidated financials statements included elsewhere in this Annual Report for more information. For the year ended December 31, 2022, Litigation charges represents an expense of $10.5 million incurred during the year ended December 31, 2022 in connection with the Realogy Holdings Corp. matter. See Note 11 to the consolidated financial statements included in the 2022 Form 10-K for more information. Adjusted EBITDA was income of $126.0 million compared to a loss of $38.9 million during the years ended December 31, 2024 and 2023, respectively. The improvement in Adjusted EBITDA during the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily a result of the impact of our cost reduction initiatives and an increase in revenue which was driven by an increase in the number of agents on our platform during 2023 and 2024. The following tables provide supplemental information to the Reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA presented above. These tables identify how each of the Operating expenses related financial statement line items contained within the accompanying consolidated statements of operations elsewhere in this Annual Report are impacted by the items excluded from Adjusted EBITDA (in millions): Year Ended December 31, 2024 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 4,634.6 $ 368.7 $ 334.5 $ 188.8 $ 165.2 Adjusted to exclude the following: Stock-based compensation — (31.5) (16.5) (58.0) (21.5) Acquisition-related expenses — — (4.2) — — Litigation charge — — — — (57.5) Non-GAAP Basis $ 4,634.6 $ 337.2 $ 313.8 $ 130.8 $ 86.2 48 Table of Contents Year Ended December 31, 2023 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 4,007.0 $ 435.4 $ 326.9 $ 184.5 $ 125.7 Adjusted to exclude the following: Stock-based compensation (11.6) (35.0) (16.1) (45.7) (49.8) Acquisition-related expenses — — (1.9) — — Non-GAAP Basis $ 3,995.4 $ 400.4 $ 308.9 $ 138.8 $ 75.9 Year Ended December 31, 2022 Commissions and other related expense Sales and marketing Operations and support Research and development General and administrative GAAP Basis $ 4,936.1 $ 575.1 $ 392.4 $ 360.3 $ 208.1 Adjusted to exclude the following: Stock-based compensation (59.0) (42.0) (15.6) (57.5) (60.4) Acquisition-related expenses — — (11.2) — — Litigation charge — — — — (10.5) Non-GAAP Basis $ 4,877.1 $ 533.1 $ 365.6 $ 302.8 $ 137.2 LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity and capital resources are cash flows from operations and the net proceeds from the sale of common stock in connection with our initial public offering. Our cash requirements consist principally of working capital, general corporate needs, and mergers and acquisitions related activities. We continue to invest in the development and expansion of our operations using available cash flows from operations. Ongoing investments include, but are not limited to, improvements in our technology platform and continued investments in our market footprint. As of December 31, 2024, we had cash and cash equivalents of $223.8 million and an accumulated deficit of $2.7 billion. During the year ended December 31, 2024, we generated $121.5 million in cash flows from operations. Additionally, we have a Revolving Credit Facility that matures in March 2026, which we can draw upon provided we maintain continued compliance with certain financial and non-financial covenants. See Note 9 - "Debt" to our consolidated financial statements included elsewhere in this Annual Report for further details. As of December 31, 2024, we had $296.2 million available to be drawn under the Revolving Credit Facility. Further, we were in compliance with each of the financial and non-financial covenants. While our operating cash flows vary depending on the seasonality of the real estate business, we believe that the Company 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. Concierge Facility In July 2020, we entered into a Revolving Credit and Security Agreement, or the Concierge Facility, with Barclays Bank PLC, as administrative agent, and the several lenders party thereto, which was subsequently amended on July 29, 2021, August 5, 2022 and August 4, 2023. The Concierge Facility provides for a $75.0 million revolving credit facility and is solely used to finance a portion of our Compass Concierge Program. The Concierge Facility is secured primarily by the Concierge Receivables and cash of the Compass Concierge Program. The interest rate on the drawn down portion of the Concierge Facility was 7.49% as of December 31, 2024. Pursuant to the Concierge Facility, the principal amount, if any, is payable in full in January 2026, unless earlier terminated or extended. As of December 31, 2024 and 2023, there were $23.6 million and $24.8 million, respectively, in borrowings outstanding under the Concierge Facility. We have the option to repay our borrowings under the Concierge Facility without premium or penalty prior to maturity. The Concierge Facility contains customary affirmative covenants, such as financial statement reporting requirements, as well as covenants that restrict its ability to, among other things, incur additional indebtedness, sell certain receivables, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions. Additionally, in the event that we fail to comply with certain financial covenants that require us to meet certain liquidity- 49 Table of Contents based measures, the commitments under the Concierge Facility will automatically be reduced to zero and we will be required to repay any outstanding loans under the Concierge Facility. As of December 31, 2024, we were in compliance with the covenants under the Concierge Facility. Revolving Credit and Guaranty Agreement In March 2021, we entered into a Revolving Credit and Guaranty Agreement, or the Revolving Credit Facility, with Barclays Bank PLC, as administrative agent and as collateral agent, or the Administrative Agent, and certain other lenders, which was subsequently amended on May 1, 2023. 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. Our obligations under the Revolving Credit Facility are guaranteed by certain of our subsidiaries and are secured by a first priority security interest in substantially all of our assets and subsidiary guarantors. Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50% or (ii) a rate per annum equal to the secured overnight financing rate, or SOFR, plus a margin of 1.50%. The base rate is equal to the highest of (a) the prime rate as quoted by The Wall Street Journal, (b) the federal funds effective rate plus 0.50%, (c) the SOFR term rate for a one-month interest period plus 1.00%, and (d) 1.00%. The SOFR term rate is determined by the Administrative Agent as the forward-looking term rate plus a 0.10% adjustment. During an event of default under the Revolving Credit Facility, the applicable interest rates are increased by 2.0% per annum. We are also obligated to pay other customary fees for a credit facility of this type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility of 0.175% per annum, fees associated with letters of credit and administrative and arrangement fees. The principal amount, if any, is payable in full in March 2026, unless earlier terminated or extended. We have the option to repay our borrowings, and to permanently reduce the loan commitments in whole or in part, under the Revolving Credit Facility without premium or penalty prior to maturity. As of December 31, 2024, we had no borrowings outstanding under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility totaled approximately $53.8 million. The Revolving Credit Facility contains customary representations, warranties, financial covenants applicable to us and our restricted subsidiaries, affirmative covenants, such as financial statement reporting requirements, and negative covenants which restrict its ability, among other things, to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions. The financial covenants require that (i) we maintain liquidity of at least $150.0 million as of the last day of each fiscal quarter and each date of a credit extension and (ii) consolidated total revenue as of the last day of each fiscal quarter be equal to or greater than the specified amount corresponding to such period. Minimum liquidity is defined as unused amounts under the $350.0 million Revolving Credit Facility plus our unrestricted cash and that of our restricted subsidiaries. The minimum required consolidated revenue threshold for the trailing four fiscal quarters is $4,668.0 million during 2024 and thereafter. As of December 31, 2024, we were in compliance with the financial covenants under the Revolving Credit Facility. The Revolving Credit Facility includes customary events of default that include, among other things, nonpayment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Revolving Credit Facility. 50 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2024 2023 2022 (in millions) Net cash provided by (used in) operating activities $ 121.5 $ (25.9) $ (291.7) Net cash used in investing activities (36.6) (11.7) (100.1) Net cash (used in) provided by financing activities (28.0) (157.4) 135.4 Net increase (decrease) in cash and cash equivalents $ 56.9 $ (195.0) $ (256.4) Operating Activities For 2024, net cash provided by operating activities was $121.5 million. The inflow was primarily due to a $154.5 million net loss adjusted for $215.1 million of non-cash charges and a net cash inflow due to changes in assets and liabilities of $60.9 million. The non-cash charges are primarily related to $127.5 million of stock-based compensation expense and $82.4 million of depreciation and amortization expense. The changes in assets and liabilities resulted in a cash inflow primarily due to an increase of $42.0 million in accrued expenses and other liabilities, a $23.1 million increase in Commissions payable, a $21.3 million decrease in other currents assets and a decrease of $7.0 million in other non-current assets. The cash inflow from operations was partially offset by a $17.4 million outflow from net operating lease right-of-use assets and operating lease liabilities, an increase of $8.0 million in accounts receivable due to timing of receipts, a decrease of $6.3 million in accounts payable due to timing of payments and a $0.8 million decrease in Compass Concierge receivables. The benefit to operating cash flow in 2024 provided by changes in assets and liabilities is impacted by timing and may reverse in future periods and negatively impact operating cash flows at that time. For 2023, net cash used in operating activities was $25.9 million. The outflow was primarily due to a $320.1 million net loss adjusted for $259.2 million of non-cash charges being offset by a net cash inflow due to changes in assets and liabilities of $35.0 million. The non-cash charges are primarily related to $158.2 million of stock-based compensation expense, $90.0 million of depreciation and amortization expense, $4.4 million of bad debt expense and $3.3 million of equity in loss of unconsolidated entity. The changes in assets and liabilities resulted in a cash inflow primarily due to a $21.4 million decrease in other currents assets, a $18.0 million decrease in Compass Concierge receivables, a $11.6 million increase in Commissions payable and a decrease of $9.1 million in other non-current assets. The cash inflow from operations was partially offset by a decrease of $10.6 million in accrued expenses and other liabilities, a decrease of $9.8 million in accounts payable due to timing of payments, an increase of $3.5 million in accounts receivable due to timing of receipts and a $1.2 million outflow from net operating lease right-of-use assets and operating lease liabilities. For 2022, net cash used in operating activities was $291.7 million. The outflow was primarily due to a $601.5 million net loss adjusted for $339.0 million of non-cash charges and cash outflow due to changes in assets and liabilities of $29.2 million. The non-cash charges are primarily related to $234.5 million of stock-based compensation expense, $86.3 million of depreciation and amortization expense, $12.2 million of equity in loss of unconsolidated entity and $7.3 million of bad debt expense. The changes in assets and liabilities resulted in a cash outflow primarily due to a $36.5 million decrease in accrued expenses and other liabilities, a $15.9 million decrease in Commissions payable, a $11.7 million increase in Compass Concierge receivables and a decrease of $4.8 million in accounts payable due to timing of payments. The cash outflow from operations was partially offset by a decrease of $17.6 million in other currents assets, a decrease of $9.8 million in other non-current assets, a decrease of $6.5 million in accounts receivable due to timing of receipts and a $5.8 million inflow from net operating lease right-of-use assets and operating lease liabilities. Investing Activities During 2024, net cash used by investing activities was $36.6 million, consisting of $18.9 million in payments for acquisitions, net of cash acquired, $15.7 million in capital expenditures and $2.0 million for investments in an unconsolidated entity. During 2023, net cash used by investing activities was $11.7 million, consisting of $11.2 million in capital expenditures and $1.2 million for investment in an unconsolidated entity, partially offset by $0.7 million in net cash acquired from acquisitions. 51 Table of Contents During 2022, net cash used by investing activities was $100.1 million, consisting of $70.1 million in capital expenditures, $15.0 million in payments for acquisitions, net of cash acquired, and $15.0 million for investment in an unconsolidated entity. Financing Activities During 2024, net cash used in financing activities was $28.0 million, primarily consisting of $35.0 million in taxes paid related to net share settlement of equity awards, $3.4 million in payments related to acquisitions, including payments of contingent consideration, and $1.2 million in net payments on drawdowns and repayments on the Concierge Facility, partially offset by $9.5 million in proceeds from the exercise of stock options and $2.2 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan. During 2023, net cash used in financing activities was $157.4 million, primarily consisting of $150.0 million in net repayments of drawdowns on the Revolving Credit Facility, $23.5 million in taxes paid related to net share settlement of equity awards, $14.6 million in payments related to acquisitions, including payments of contingent consideration, and $7.1 million in net payments on drawdowns and repayments on the Concierge Facility, partially offset by $32.3 million in proceeds from the issuance of common stock in connection with the Strategic Transaction (see Note 12 - "Preferred Stock and Common Stock" to our consolidated financial statements included elsewhere in this Annual Report for more information ) , $4.5 million in proceeds from the exercise of stock options and $2.5 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan. During 2022, net cash provided by financing activities was $135.4 million, primarily consisting of $150.0 million in proceeds from drawdowns on the Revolving Credit Facility, $15.7 million in net proceeds from drawdowns and repayments on the Concierge Facility and $9.0 million in proceeds from the exercise of stock options, partially offset by $23.5 million in taxes paid related to net share settlement of equity awards and $17.5 million in payments for acquisitions, including payments of contingent consideration. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2024: Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (in millions) Operating lease obligations (1) $ 560.9 $ 117.7 $ 197.1 $ 145.0 $ 101.1 Estimated undiscounted contingent consideration payments 35.4 3.3 20.4 7.9 3.8 Acquisition related payables 3.0 3.0 — — — Purchase obligations 70.2 36.9 26.3 7.0 — Total $ 669.5 $ 160.9 $ 243.8 $ 159.9 $ 104.9 _________ (1) As of December 31, 2024, we have additional operating leases for real estate that have not yet commenced of $15.3 million payable through 2035, which have been excluded from above. As of December 31, 2024, there were $23.6 million in borrowings outstanding under the Concierge Facility. We are required to pay an annual commitment fee of 0.35% if the Concierge Facility is utilized greater than 50% and 0.50%, if the Concierge Facility is utilized less than 50%. In addition, borrowings under the Concierge Facility bear interest at the term SOFR rate plus a margin of 2.75%. The effective interest rate was 7.49% as of December 31, 2024. The principal amount, if any, is payable in full in January 2026, unless earlier terminated or extended. For additional information, see the section titled “—Liquidity and Capital Resources—Concierge Facility.” As of December 31, 2024, we had no outstanding borrowings under our Revolving Credit Facility and outstanding letters of credit totaled approximately $53.8 million. Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50% or (ii) a rate per annum equal to SOFR plus a margin of 1.50%. During an event of default under the Revolving Credit Facility the applicable interest rates are increased by 2.0% per annum. We are also obligated to pay other customary fees for a credit facility of this type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility of 0.175% per annum, fees associated with letters of credit and administrative and arrangement fee. The principal amount, if 52 Table of Contents any, is payable in full in March 2026, unless earlier terminated or extended. For additional information, see the section titled “—Liquidity and Capital Resources—Revolving Credit and Guaranty Agreement.” We have irrevocable letters of credit with various financial institutions, primarily related to security deposits for leased facilities. As of December 31, 2024, we were contingently liable for $53.8 million, under these letters of credit which are collateralized by our Revolving Credit Facility. Off-Balance Sheet Arrangements We administer escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions. We are contingently liable for these escrow and trust deposits totaling $147.1 million and $120.0 million as of December 31, 2024 and 2023, respectively. We did not have any other off-balance sheet arrangements as of or during the periods presented. CRITICAL ACCOUNTING ESTIMATES AND POLICIES Our consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates and therefore, if material, our future financial statements will be affected. A thorough understanding of our critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below are the most difficult management decisions as they involve the use of significant estimates and assumptions as described above. See Note 2 - " Summary of Significant Accounting Policies" to our consolidated financial statements included elsewhere in this Annual Report for more information. Revenue Recognition We generate revenue by assisting home sellers and buyers in listing, marketing, selling and finding homes. We hold the real estate brokerage license that is necessary under relevant state laws and regulations to provide brokerage services and therefore controls those services that are necessary to legally transfer real estate between home sellers and buyers. Although our agents are independent contractors, they cannot execute a real estate transaction without a brokerage license, which the Company possesses. We have the only contractual relationship for the sale or exchange of real estate with their clients. Accordingly, we are the principal in our transactions with home buyers and sellers. As principal, we recognize revenue in the gross amount of consideration to which we receive in exchange for those services. We concluded that our brokerage revenue contains a single performance obligation that is satisfied upon the closing of a real estate services transaction, at which point the entire transaction price is earned. Revenue is recognized upon the closing of a real estate transaction (i.e. purchase or sale of a home) since we are not entitled to any commission until the performance obligation is satisfied and are not owed any commission for unsuccessful transactions, even if services have been provided. We operate exclusively in the United States and generate substantially all of our revenue from commissions from home sellers and buyers. In addition to commission revenue, we generate revenue through integrated services related to the home transaction such as title and escrow services which comprised an insignificant amount of the consolidated revenue for the years ended December 31, 2024, 2023 and 2022. Our management evaluated and determined that no disaggregation of revenue is necessary or appropriate. As we generally bill for our services at the time of revenue recognition, we do not have material deferred revenue or contract asset balances. In addition, we do not capitalize commissions paid to agents as incremental contract costs as there are no future benefits associated with the expenses. 53 Table of Contents Stock-Based Compensation We measure compensation expense for all stock-based awards based on the estimated fair value of the awards on the date of grant. Compensation expense is generally recognized as expense on a straight-line basis over the service period based on the vesting requirements. We recognize forfeitures as they occur. We issue RSUs to employees, and to affiliated agents and in certain cases in connection with business combinations. In addition to the issuance of RSUs to agents as equity compensation for the provision of services, we previously offered RSUs to affiliated agents through the Agent Equity Program. The Agent Equity Program offered affiliated agents the ability to elect to have a portion of their commissions earned during a calendar year to be paid in the form of RSUs. RSUs issued in connection with the Agent Equity Program were granted at the beginning of the year following the calendar year in which the commissions were earned and are subject to the terms and conditions of the 2012 Stock Incentive Plan and the 2021 Equity Incentive Plan, as applicable. We discontinued the Agent Equity Program following the issuance of RSUs during the first quarter of 2023 related to the 2022 Agent Equity Program. For RSUs granted in connection with the 2021 and 2022 Agent Equity Programs, we determined the value of the stock-based compensation expense at the time the underlying commission was earned and recognized the associated expense on a straight-line basis over the requisite service periods beginning on the closing date of the underlying real estate commission transactions. The stock-based compensation expense was recorded as a liability throughout the service 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, we have issued stock options and RSUs that contain service, performance and market-based vesting conditions. Such awards were valued using a Monte Carlo simulation and the underlying expense will be recognized as the associated vesting conditions are met. For stock options, which we issue to employees, affiliated agents and in certain cases in connection with business combinations, we generally estimate the fair value using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (1) the fair value of common stock, (2) the expected stock price volatility, (3) the expected term of the award, (4) the risk-free interest rate and (5) expected dividends. During the years ended December 31, 2024, 2023 and 2022, the number of stock options granted was immaterial. RECENT ACCOUNTING PRONOUNCEMENTS For a description of our recently adopted accounting pronouncements and accounting pronouncements issued but not yet adopted, see Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements included in this Annual Report.