Compass, Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you very much, operator.

Good afternoon, everybody, and thank you for joining the Compass second quarter 2026 earnings call. Joining us today will be Robert Reffkin, our founder and CEO, and Scott Wahlers, our Chief Financial Officer. In discussing our company's performance, we will refer to some non-GAAP measures and discuss some metrics on a non-GAAP pro forma basis. You can find the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and supplemental non-GAAP pro forma information for prior quarters in our second quarter 2026 earnings release posted on our investor relations website. We will also make forward-looking statements that are based on our current expectations, forecasts, and assumptions involve risks and uncertainties. These statements include our guidance for the third quarter of 2026 and full year 2026, and comments related to our expectations for realizing cost synergies and operational achievements.

Our actual results may differ materially from these statements. For more information, see our most recent annual report on Form 10-K and our recent Form 10-Q. You should not place undue reliance on any forward-looking statements. I will now turn the call over to Robert Reffkin.

Robert? Good afternoon, and thank you for joining us for our second quarter conference call.

On today's call, I will be discussing five topics. First, I will provide a quick recap of our record Q2 results. Second, I will share an update on our cost synergy targets and our technology rollout. Next, I'll touch on our partnership with Rocket Redfin and how we are infusing competition in residential real estate. Fourth, I'll discuss how we are moving on the offense with AI. I'll end by revisiting the long-term earnings potential of our business. Starting with our record Q2 results, where all my year-over-year and quarter-over-quarter comments will be against pro forma figures. In Q2, Compass delivered record revenue and record adjusted EBITDA above the high end of our guide.

Revenue of $4.3 billion was up 14% year-over-year compared to pro forma revenue of $3.8 billion a year ago, while adjusted EBITDA was $363 million. Cash on hand increased by $210 million quarter-over-quarter to $694 million, which drove net debt to adjusted EBITDA on a trailing 12-month and pro forma basis to 3.3 times compared to the 4.2 times in Q1 of 2026. This means over the past quarter, we have already lowered our net leverage ratio by roughly one turn. Assuming current 2026 consensus adjusted EBITDA estimates in our Q2 ending cash balance of $694 million, which would be conservative as we expect to generate free cash flow in the second half of the year.

Our net debt to adjusted EBITDA ratio would move into the twos by the end of the year, illustrating the progress we continue to make on reducing our net leverage ratio, even as we are at the bottom of the cycle. In our brokerage business, which includes the Coldwell Banker, Compass, Corcoran, and Sotheby's International Realty brands, transactions were up 7.4% year-over-year compared to the market, which was up 3.5% year-over-year. As a result, for 21 consecutive quarters spanning our entire history as a public company, our brokerage business has outperformed the market on an organic basis for the Compass standalone brand. For the second consecutive quarter, including the Anywhere transaction, we have now outperformed the market as well. Additionally, brokerage gross transaction volumes, or GTV, was up approximately 16% year-over-year compared to the market that was up 6%.

This reflects roughly 1,000 basis points of outperformance compared to the market, which is an acceleration compared to the roughly 600 basis points of outperformance we delivered in Q1 2026. We believe this outperformance is a reflection of the quality of our agents and exposure to the higher end of the market, which tends to be less rate sensitive. We believe the wealth effect created by a record stock market in a growing U.S. economy has been a driver of demand for our business and is helping offset the rise in interest rates. Recently, there has been much discussion regarding the Bay Area real estate boom driven by the SpaceX IPO, the upcoming SpaceX lockup, and the potential IPOs for Anthropic and OpenAI. We thought it would be helpful to provide some color on what we are seeing there, given our presence in that market.

On a year-over-year basis in the Compass standalone brand, we are seeing revenue in the Bay Area up 19% year-over-year in both July and August on a business day adjusted basis, which is relatively consistent to the up 20% we observed in June. This suggests the momentum coming out of June in the Bay Area is continuing. In franchise, GTV was up 11.7% year-over-year compared to the housing market volumes that were up 6%, reflecting 570 basis points of outperformance. Our high-end brands, including the Corcoran and Sotheby's International Realty brands, continue to significantly outperform the company average. Integrated Services revenue grew 7.7% year-over-year, with title and escrow revenue being the primary driver. Total T&E transactions grew by 7.6% year-over-year, with purchase transactions growing by 6% and refi transactions growing by 25% year-over-year.

Our focus in 2026 into 2027 is to unify our T&E operations by migrating all T&E operations to the Compass' title production platform. Transitioning to one title production platform is expected to unlock additional efficiencies and expand incremental margins in the future. While we are making this transition, however, we will continue to optimize our attach efforts by scaling best practices from both organizations and expect our attach efforts to accelerate in 2027 as we deploy tools such as One Click Title across our footprint. In mortgage, our JVs more than doubled profitability in the Q2 year-over-year period, primarily due to strong volume growth and disciplined expense management. Our focus in 2026 in mortgage is to drive operational efficiencies within our JV entities, while also making progress on attach by continuing to attract the best loan officers to the business.

Now, an update on our cost synergy and integration efforts. Starting with our cost synergies. As of July, we actioned our entire year one target of $300 million in net cost synergies five months ahead of plan. As such, we are now pacing above our $300 million target and expect our action net cost synergies to be $330 million by the end of year one. With our 2026 in-year realized net cost synergies to be $220 million compared to the $200 million that we previously stated. We expect to realize about $150 million of the $220 million through the P&L, compared to $130 million previously stated, and we continue to expect the remaining $70 million to be realized as CapEx synergies later this year. Lastly, regarding our total action net synergy target of $500 million.

While we are not changing our total target at this time, given the accelerated pace at which we have been moving, it would be fair to assume that we will achieve the $500 million in cost synergies in less than three years, and that we will achieve more than $500 million in cost synergies in three years. As a reminder, approximately $420 million of the $500 million is expected to be realized through the P&L, and $80 million is expected to be realized as CapEx synergies. Next, onto our technology rollout. In July, we achieved a significant milestone as we made our newly branded Home Platform technology available to over 4,000 agents at Coldwell Banker, Corcoran, and Sotheby's International Realty in the pilot beta.

Feedback since the rollout has been positive, with agents noting the ease of use on both mobile and desktop, the network effect benefits of the platform, particularly in the private exclusive phase, and the highly integrated nature of the platform. So far, the platform has received an 82% CSAT, or customer satisfaction score, which is generally considered to be a strong score in the software industry. By the end of September, nearly 50,000 new agents in the owned brokerage brands will have access to the platform, reflecting over 80,000 agents on the platform, including the Compass brokerage brand. All agents will have access to our Private Exclusives and Coming Soon inventory. Our 128,000 domestic franchise agents will begin to onboard in Q1 2027.