Compass, Inc. (COMP) Q4 2021 Earnings Call Transcript

Compass, Inc. (COMP 2.48%)
Q4 2021 Earnings Call
Feb 16, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Please standby, we are about to begin. Good day, ladies and gentlemen, and welcome to the Compass fourth quarter and full year 2021 earnings conference call. My name is Bo and I'll be your conference operator today. [Operator instructions] Rich Simonelli, vice president of investor relations, you may begin your conference.

Rich Simonelli -- Vice President, Investor Relations

Thank you, operator, and good afternoon, and thank you for joining Compass' fourth quarter and full year 2021 earnings conference call. Today's review of our actual financials will address the continuing operations of Compass and certain items are presented on a non-GAAP basis. The reconciliations between GAAP and non-GAAP measures for both our fourth quarter and full year financials, as well as our near-term guidance and long-term targets are included at the back of the earnings release and on the presentation we posted just recently on our website this evening. Please also see our disclosure on forward-looking statements, which reflects Compass' current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-Q and other SEC filings, including uncertainties posed by the COVID-19 pandemic, and the difficulty in predicting its future course and the impact on the housing market and the global economy.

Joining us today on the call will be Robert Reffkin, who's Compass' founder, chairman, and chief executive officer; and Kristen Ankerbrandt, who is our chief financial officer. Robert will provide a brief overview of Compass results and a discussion of our strategy. And then Kristen will cover the financial results and outlook in more detail. I'd like to now turn the call over to Robert Reffkin.

Robert?

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Thank you, and welcome to everyone joining our earnings call today. I hope everyone is safe and well. Today, we are sharing our financial results for the fourth quarter, the full year of 2021 and our outlook for 2022 and beyond. I couldn't be more excited or more thankful between building this business with our outstanding team of Compass employees and 26,000 world-class agents.

We are executing on our plan to drive strong revenue growth by being the best company in the world at empowering real estate agents to grow their business. Moreover, the management team and I are committed to executing our plan to deliver strong EBITDA and free cash flow. We recognize that free cash flow is the ultimate arbiter of financial success and value creation. I want to be explicit about our financial priorities, we are committed to increasing profitability and prioritizing free cash flow in 2022 and beyond.

We expect to be free cash flow positive in 2023, and we are committed to reaching by 2025 the medium-term 10% adjusted EBITDA margin goal that we set at the IPO. This would imply more than $1.2 billion in adjusted EBITDA by 2025. We also expect that free cash flow will be 8% to 9% of revenue by 2025. We will do this as we continue to develop the most differentiated productivity-enhancing technology for our agents and to significantly grow market share.

We have added a presentation in our investor relations site that walks through our margin path in more detail and provides new insights on the KPIs and model drivers. We did this to provide more transparency on margin drivers and other questions we receive about our business model. We will reference this in our remarks today. As we have discussed before, we also see a path to long-term EBITDA margins that are more than double the 10% level.

We walk through our medium-term margin drivers on Page 19 of the investor presentation I just referenced. Kristen Ankerbrandt, our CFO, will discuss our financial results and expectations later in the call, but I want to share what we expect to deliver in 2022 first. We respect that all constituents will make their own assumptions about near-term market growth rates. But let me share with you what we are seeing from our unique vantage point, given the markets we serve and agents we have.

While inventories are tight, demand has remained extremely strong into 2022 as evidenced by prices continuing to increase in 2022 above and beyond a year where home prices increased 19%. We foresee strong market growth for the rest of this year. For perspective, even if prices are flat for the rest of the year, given that 19% home prices was the improvement we saw in 2021 and the continued momentum that we're continuing to see in 2022, there is a strong level of embedded growth for the rest of 2022. And actually, the supply/demand dynamics we see in the market every day suggest that prices will continue to increase even further in 2022.

As we see the benefits of being prudent, the 2022 revenue expectations we provided today do assume some market growth moderation. But they also reflect the modeled impact of Compass market share gains due to three factors: one, the annualized impact of the 2021 agent recruits that have already joined Compass; two, strong visibility on new 2022 agent recruits; and three, a low single-digit increase in agent [Inaudible] productivity. In other words, we expect to continue to gain market share and significantly outperformed the market regardless of how fast the market grows. We have a multiyear track record of rapidly gaining share by adding agents and increasing their productivity.

Our market share was 1.1% three years ago, 4% in 2020 and 5.6% in 2021. That reflects an increase of 40% year over year and a 50% three-year CAGR. Despite our strong gains, our 5.6% market share remains relatively small, and we model that it will grow meaningfully from here. In markets in which we have operated for more than five years, our market share averages over 20%, which shows what we can achieve.

In summary, what we see in the market every day makes us optimistic about revenue growth, but we have haircut certain assumptions to arrive at the 2022 revenue expectation we presented today. We are also committed to managing our business to achieve our 2022 and long-term EBITDA goals. Our splits are improving, and by summer our agents will be able to service the entire real estate transaction on the Compass platform, which drives agent productivity. As we turn our product development attention toward lowering the cost of server agents in integrating adjacent services to drive margin, we expect to get more leverage against our tech spending.

We also have discretion to manage certain expenses going forward, and we'll do so. I want to get specific on our five agent-related KPIs that we focus on every day, which are also driving operating efficiency improvements and are key to driving toward our margin goals. These KPIs are: one, agent recruiting; two, agent retention; three, technology adoption; four, lowering our cost to serve; and five, growing our adjacent service businesses. So first, agent recruiting.

We continue to be successful with recruiting agents. We grew the total number of agents from 7,400 in Q4 2018 by a multiple of three and a half times to 26,300 in Q4 2021. We expect to add a similar number of agents in 2022 as we did in 2021. Higher productivity, not splits, is why new agents join Compass and our splits are improving.

In the fourth quarter of 2021, 62% of agents who came to Compass told us that they did so for a less favorable split than at their previous brokerage firm. In the fourth quarter of 2021, we recruited agents who report historical annual revenue consistent with our prior record recruiting quarter in Q4 2019. But with 31% fewer incentives and 50 basis points better commission economics to Compass. The payback period on our average incentive contract is now less than 12 months.

We also are winding down the use of equity to recruit agents. In January, for example, less than 9% of the agency recruited received equity. 60% of commission revenue comes from principal agents that make more than $1 million a year at Compass, compared to the national average of 14%, which is a key reason why our average splits are higher than some in the industry. We have demonstrated that our model can succeed at all market levels, and we'll continue to shift our agent mix away from agents that command the highest splits.

Given that the difference in splits between the highest producing cohorts and lower producing ones can be as high as 900 basis points, we expect significant margin benefit to result as our agent mix normalizes to more closely resemble the industry's. We provide more information on this on Page 13 of the investor presentation. We improved commissions as a percentage of revenue by 130 basis points in 2021 versus 2020. And we modeled approximately 250 basis points of margin improvement by 2025, resulting from a combination of our agents' cohorts maturing and agent mix normalizing.

We provide more information on this on Pages 14 and 19 of the investor presentation. Second, agent retention. Our strong technology platform, the strength of the Compass brands and the attraction of Compass referrals are clear drivers of our ability to successfully recruit agents, and are key to the industry-leading agent retention that we have. Our principal agent retention rates are consistently above 90% in an industry that averages 68% retention.

And our retention rates have strengthened since the IPO. These retention rates stay strong over time, including well after our agents come off their initial contracts. In our three oldest markets: New York City, Washington, D.C. and Boston, the percentage of agents off their initial contracts are 77%, 83% and 75%, respectively.

And the agent retention is 95%, 95% and 93%, respectively. I want to rearticulate that in the case of, let's say, the 95% agent retention, the 5% that is reduced to get to 95%, is including the burden of people that retire, people that are asked to leave or people that move industries altogether, reflecting a very high integrity number. See Page 9 of our presentation for more detail. On to number three, technology adoption.

A key area of focus for me in 2022 is agent technology adoption. Our technology is a key driver of agent productivity and is going to be the key driver of improvements in operating efficiency and margin in the future. By this summer, Compass agents won't have to leave the Compass platform or pay for third-party real estate software to complete a transaction. This stands in stark contrast to the industry which still cobbles together a large number of third-party solutions and where tech adoption is low.

In a 2021 study covering 75% of our agent teams, we found that the top quartile of agents who use our technology platform the most grew their business two and a half times more than those who use it the least. When you consider that most of an agent's day is in the field, it is impressive that the top 25% of our agent teams use our platform two hours and 14 minutes per day, and multi-agent teams are using it four hours and three minutes per day. This drives revenue, operational efficiency and margin, which is why we want to drive further adoption of our platform. In 2022, we launched Compass Core, focused on coaching agents on how to grow their business with the Compass technology platform.

In Q1, we've seen nearly 7,000 agents engaged in the program and the feedback has been nothing short of outstanding. A primary example of how we connect our coaching investments with business outcomes for agents is the likely to sell AI tool, which is particularly important in this low inventory environment. The likely to sell tool uses advanced AI to evaluate attributes of the home, the market and the owner to recommend the most likely to sell prospects from the agent's CRM. In 2021, $151 million gross commission revenue was from listings that the likely to sell tool recommended to our agents before the listing was created.

We expect this number to exceed $400 million in 2022. Fourth, lowering our cost to serve our agents. Now that we are close to being able to support the whole transaction on our platform, the next stop on the technology and operational efficiency road map is to use our own technology platform to lower the cost to serve our agents, which will drive even more leverage from our tech spending. No one else in the industry is even trying to do this at scale.

We look forward to the next few quarters this year when we can share with you metrics proving that using the technology ourselves to serve agents is lowering our cost to serve and increasing our adjacent services attach. And finally, number five, adjacent services. The winner in the space will be the company that can best monetize the real estate transaction. The clear path to achieve this result is to integrate adjacent services into the transaction flow.

At $140 billion annually, the market opportunity in adjacent services is larger than the $100 billion in commissions generated in the whole industry each year. Agents play a key role in helping their clients with navigating the adjacent services landscape. For example, the majority of the mortgages in the U.S. result from an agent referral.

To be clear, all of our adjacent revenue is still nascent and only 1% of 2021 revenue because we just began. Our Q4 and annualized revenue run rate was $85 million, which has already helped our margins. But more importantly, our initial uptake rates are very promising. We have already seen strong attach rates for our Title and Escrow services.

Attach rates for KVS Title business quickly grew from 19% in acquisition in Q1 2021 to 39% in Q4 2021. You can see Page 16 of the investor presentation for more detail. We now offer Title and Escrow in nine states and Washington, D.C., up from just two at the start of 2021. We plan to grow our T&E business in our existing markets and plans to expand into additional markets in 2022.

Also in 2021, we launched our mortgage business with a joint venture in mortgage with Guaranteed Rate. I am happy to say that we underwrote our first mortgage in December in the Chicago market. We expect to offer mortgages in the majority of our markets by the end of 2022. In summary, we are committed to driving growth in revenue, EBITDA and cash flow by giving our agents the technology platform and tools they need to be more productive and to drive more profitable revenue for Compass.

We have a significant technology advantage. It is also not lost on us that recent developments in the public and private capital markets, particularly with growth companies and real estate companies should lead to less innovation capital for potential competitors and, therefore, widening our competitive moat. I will now hand the call over to Kristen.

Kristen Ankerbrandt -- Chief Financial Officer

Thank you, Robert. We are proud of our 2021 results, and we exceeded our expectations. We achieved growth at scale while improving our margin profile. This shows that we can successfully and aggressively add new agents, help them grow their business through our platform and launch new adjacent services businesses, all while driving profitability on an adjusted EBITDA basis and prioritizing our path to free cash flow and EBITDA margins.

For the full year 2021, our revenue grew 73% year over year to $6.4 billion. Over the past three years, we grew revenue at a 94% CAGR and market share at a 50% CAGR. Our market share grew to 5.6% in 2021, up from 1.1% just three years ago. We expect to continue to rapidly take share.

At the same time, we've dramatically improved adjusted EBITDA. In 2019, our adjusted EBITDA loss was $325 million. This improved to a loss of $156 million in 2020 and reached positive adjusted EBITDA of $2 million for the full year 2021. This exceeds our most recent guidance for a $5 million to $25 million loss for 2021.

In 2021, we incurred a GAAP net loss of $494 million, compared to a net loss of $270 million a year ago. The increased GAAP loss was primarily driven by a year-over-year increase of $343 million in noncash stock-based compensation expense due to a change in the GAAP accounting for RSUs. Consistent with most companies when they go public, our RSUs contained the condition that did not allow for the recognition of expense until our IPO. As a result, we started reporting noncash stock-based compensation at the time of our IPO, and this trend will continue in the future.

Our balance sheet is strong with $618 million in cash at the end of 2021 and an untapped $350 million revolver. If a downturn occurs at some point in the next five years, we believe we will benefit as strong agents look for a place to expand their business and other brokerages find it harder to compete. Turning to the fourth quarter of 2021. We generated revenue of $1.612 billion, growing 31% over the prior year and ahead of the midpoint of our guidance range.

The two-year revenue CAGR, comparing revenue in Q4 2019 to Q4 202,1, was 56% and shows a return to a more normalized seasonality for the business in line with our expectations. Adjusted EBITDA for the quarter was a loss of $51 million, ahead of our guidance of a loss of $55 million to $75 million. Commissions as a percentage of revenue improved by 130 basis points year over year. Transactions grew 20%, in line with our expectations.

Last year's seasonality was skewed by COVID because the brief market pause in 2Q 2020 pushed transactions into the seasonally weaker fourth and first quarters, thus creating an abnormal comp for Q4 of 2021 that will continue into Q1 of '22. Now let me turn to guidance. First and foremost, I want to reiterate Robert's perspective that our expectations for '22 and beyond reflect our focus on improving profitability and free cash flow. As Robert mentioned earlier, while we operate in a cyclical industry, we expect to continue to gain market share regardless of market cycles.

While we foresee strong market growth for the rest of 2022, this is a factor that we can't control. What we can control is market share and managing our spending, and we are laser-focused on both. Now I will talk specifically about our '22 guidance and our longer-term guidance. First, I want to spend a moment on the outlook for industry growth.

In 2022, real estate experts have a wide range of estimates for annual growth in the residential real estate market, ranging from low single digits to an excess of 20%. As Robert mentioned, demand is strong but inventory is tight, and that will likely slow the rate of growth in transactions in Q1 relative to last year. With limited inventory, there is strong upward pressure on price. For one to conclude that the market will decline, that would mean a significant decline in transactions to offset the aforementioned price increases, a scenario that we view to be highly unlikely.

Also, keep in mind that we operate in the upper end of the market at price points of $750,000 and higher. This segment of the market is less sensitive to interest rates and continues to see strong demand, driving prices higher in the face of limited inventory. We believe that these higher prices will unlock inventory. But since we can't predict human behavior, including what the Fed will decide on interest rates, we see the benefits of taking a measured approach to our outlook at this time.

Our current outlook for 2022 revenue is $7.9 billion to $8.1 billion or 25% growth year over year. This is mostly driven by factors that we control and initiatives that we have executed consistently to date. These are the factors that drive our market share gains. We model that we could grow revenue in 2022 by 18% to 20% through market share gains in '21 and '22, independent of growth in the real estate market.

We have also assumed some market growth in our revenue outlook. The components of the market share drivers include the annualization of our 2021 cohort of agents that joined Compass last year, in-year revenue from agents that will join Compass in 2022 and the productivity uplift for our agents, all of which Robert already discussed. Now the best indicator of our ability to continue to gain share is our principal agent count, which we expect to increase by 2,600 to 2,800 principal agents on a net basis, in line with 2021 levels. Regardless of market conditions, we will achieve that objective.

Robert referenced the investor presentation in his remarks. In particular, I refer you to Slides 3, 4 and 5 that demonstrate we are significantly growing transactions and GTV per agent as our agents outpace the average agents in the industry by two and half to three and a half times. For 2022, we expect adjusted EBITDA to be at least $40 million. EBITDA and free cash flow are our top financial priorities.

To be 100% clear, while this EBITDA expectation reflects the benefits of improving economics with our agents and leverage against our tech spend going forward, we also have discretion to manage certain expenses, which we will do to deliver $40 million of EBITDA. That said, we see a number of scenarios in which this $40 million number could be higher. As 2022 unfolds, we believe we will have more insight into the direction of the market. Turning to our first quarter '22 guidance.

As you think about updating your models for the quarterly distribution of our '22 guidance, keep in mind that seasonality plays a big factor in our quarterly revenue. Q1 is always the weakest revenue quarter for the entire industry as fewer homes are listed during the December holiday season. Q4 is higher than Q1, and Q2 and Q3 are the highest quarters. While the COVID pandemic altered the typical quarterly patterns in 2020 and 2021, the seasonality patterns are normalizing as we started to see in Q3 and Q4 of 2021.

As a result, you should expect to see our Q1 revenue approximate between 16.25% and 16.75% of our full year revenue. While Compass' quarterly revenue distribution follows the pattern as reported through NAR, the percentage of Compass' revenue in the first quarter averaged 100 to 200 basis points below the NAR sales volume in the last three years. The main reason is that our revenue grows throughout the year as we continue to add agents to our platform. Now this will soften some of the normal seasonality trends you typically see in the industry and has the effect of further reducing the first quarter revenue distribution for Compass compared to the industry.

Please refer to Page 20 of our investor deck for more details. As for the quarterly distribution of our expenses, you should expect the commissions expense line to move closely in sync with the quarterly distribution of revenue. However, the other operating expense lines will trend sequentially upward throughout the year as the size and scale of our agent base and our service offerings grow. While you should expect to see operating leverage as our business gets more and more efficient, many of the expenses included within sales and marketing, ops and support, R&D and G&A do not move in line with the seasonal quarterly fluctuations of our revenue.

You can see the sequential upward trend in 2021, and you should expect this to continue in 2022. We've included a table on Slide 31 of the investor deck that shows this quarterly trend of non-GAAP operating expenses during 2021 for quick reference. Based on this trend, you should expect to see our Q1 2022 non-GAAP operating expenses increase, albeit at a very modest level versus the prior sequential quarter of Q4 2021. Using the assumptions above, we expect an adjusted EBITDA loss in Q1 of '22 of $100 million to $110 million.

This represents the return to normal seasonality in the real estate industry combined with strategic investments we made in 2021 to drive long-term profitability. These include: continued investment in our platform, which drives Compass' outperformance relative to the industry; launching high-margin adjacent services; expansion into 25 new MSA markets in 2021 and supporting 7,000 new agents; and post-COVID hiring throughout the rest of the business. As promised at the Q2 2021 earnings call, we remain committed to adjusted EBITDA profitability for the year with fiscal year '22 guidance of at least $40 million in EBITDA. We expect to see substantial positive EBITDA for the remainder of the year as seasonality returns to normal and investment is moderated.

Based on our margin maturity curves, tech adoption trends and splits, we are comfortable providing a view on long-term adjusted EBITDA and free cash flow margin targets. For 2025, we expect to grow adjusted EBITDA to a minimum of $1.2 billion for an adjusted EBITDA margin of at least 10% and to grow free cash flow margins to 8% to 9%. We have a comprehensive plan to achieve these margins by continuing to deliver improvements in our cost structure and operating leverage, consistent with what we've already done. Page 19 of our investor deck shows an illustrative outline of our plan to achieve 10% EBITDA margins in 2025.

While the exact path to 10% could vary somewhat from what we present here, we are confident that we can achieve our goal. I want to be clear that while we remain optimistic about our revenue growth prospects, we are also prepared to manage our expenses as necessary to deliver on our specific 2022 and 2025 EBITDA and cash flow goals. As you can see, the largest levers will be in commissions and other, sales and marketing and R&D. We expect to see 450 basis points of improvement in the commissions and other line.

250 basis points of that 450 basis points will come from recruiting more up-and-coming agents and also improving agent economics, which we have done at a rate of 100 basis points per year historically. Another 200 basis points will come from growth in adjacent services. We expect 200 basis points of improvement will come in the sales and marketing line. This is a steep discount to the operating leverage we have seen in this line historically and reflects the recent strength we've seen in our recruiting efforts.

In the fourth quarter, we had a record recruiting quarter paired with record low customer acquisition costs, a trend we expect to continue into 2022. And finally, we expect an additional 130 basis points will come in the R&D line as we see more leverage going forward relative to the accelerated tech investment over the past three years. We are very pleased with the continued improvement in our financial profile since the IPO. We've grown the business ahead of our expectations and crossed the line to adjusted EBITDA profitability this year with a path to at least $40 million in adjusted EBITDA in 2022 and 10% adjusted EBITDA margins in 2025.

And we are committed to generating free cash flow in 2023 and beyond. We believe that our business is in the best position it's ever been. This is not just borne out by our strong execution over the past several quarters, but also in the investment we've made to drive profitability in our business. Our economics are improving as we continue to attract and retain top agents, launch new markets and capture market share.

Our adjacent services businesses are nascent, but present a significant opportunity to drive profitability per transaction. We are a long-term market share gainer because we have the leading platform in the industry, harnessing the power of the most productive agents at scale to drive a sustainable financial advantage. Most importantly, we have the commitment and the conviction to achieve our 2025 EBITDA and free cash flow targets. With that, let me turn it back to the operator to start the Q&A portion of the call.

Questions & Answers:

Operator

Thank you very much, and thank you [Inaudible] [Operator instructions] And with that, we'll go first to Mike Ng with Goldman Sachs.

Michael Ng -- Goldman Sachs -- Analyst

Hey, good afternoon. Thank you very much for the question, and thank you for all the additional detail in the slides today. That was very helpful. I just had a question about the path of revenue less commission margin improvement over the next several years.

You guys called out agent tier mix and split improvements. I was wondering if you could just provide a little bit more color on the drivers of each of those items? Is it simply expansion into less competitive markets and better initial contracts? And are you able to drive that because of a better recognition of your platform? Like what's really helping that improvement there? Thank you.

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Yeah. So there's two things. One is just the agent cohorts maturing. If you look at Page 12 in the deck, it highlights that we've historically improved 100 basis points a year for each -- for every respective cohort over the last three cohorts.

And then secondly, we are not only hiring agents with more attractive splits, which you can see on Page 12, each year. But as we hire an agent mix that reflects the mix of the industry, not just a very aggressive focus on high-end agents, then you have a massive margin improvement. So specifically, if you look at Page 13, 60% of the agents that Compass hires are generating above $1 million in revenue. When you look at the market overall, it's expected that is 14%.

And for agents that are generating below $150,000 in annual revenue, it's 4% for us. While for the industry it's 34%. The delta in split for agents at Compass between $150,000 and $1 million is 900 basis points. And so when you look at the opportunity, if we did reflect the full market, that is 584 basis points of margin improvement.

But we're assuming that we only get a third of that over the medium term. And so it's the agent mix getting to a third of that, which is 190 basis points, plus assuming another 60 basis points of improvement of just the existing agent cohorts maturing.

Michael Ng -- Goldman Sachs -- Analyst

Great. Thanks, Robert, that's really helpful. And if I could just have a follow-up on the really strong attach rates for Title in D.C. predeal and since you guys acquired it.

Maybe you can talk a little bit about how the flow or the go-to-market for that Title business changed once you acquired it, that was able to drive that pickup in attach rates? Thank you.

Kristen Ankerbrandt -- Chief Financial Officer

Hi, Mike, it's Kristen. I'll take that one. So we were obviously very excited to bring KVS onto our platform in the first quarter of 2021. It was a service that our agents already really loved and we're utilizing quite a bit, as you can see in the attach rates.

As we were integrating KVS into our platform, we just simply had a more concentrated effort both enjoying some of the referral benefits of our agents in that market, talking about KVS, talking about the quality of the service. And then we have also been working with the KVS team to help them market themselves more effectively to our broader set of agents. I will say that team at KVS, they're very strong operators. And I think together, we've really formed quite a powerhouse, as you can see in the increase in attach rates in a very short period of time.

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Yeah. The only thing that I would add to that is that the success we've realized to date is by and large excludes the platform-driven success that we'll realize in the future. Because if you take our R&D over the course of the last five years, 90 -- 9% of it has been focused on agent productivity. And that's why we have industry-leading agent retention rate.

That's why we continue to grow our agents business faster than the market, excluding the benefit of team formation, excluding the benefit of price year-after-year-after-year, which you can see in the investor deck. And that's why we continue to hire agents at a very high pace and have a 71% NPS score. But we're now moving our R&D spend to focus on lowering our cost of server agents, but also into adjacent services. And so there are a number of initiatives that we're going to implement over the course of the next year by driving the recommendation and the integrated experience through the platform that should drive attach even further.

Michael Ng -- Goldman Sachs -- Analyst

Great. Thank you very much. Those were very helpful.

Operator

Thank you. We go next now to Mayank Tandon with Needham.

Mayank Tandon -- Needham and Company -- Analyst

Thank you. Good evening. Congrats, Robert and Kristen, on the quarter. I wanted to just start, Robert, with market share goals.

I think during the IPO, you had identified market share expansion opportunities. Could you sort of talk about where you are today versus what your goals were back then? Like where are you running relative to those expectations? Are you able to identify the markets that you're really targeting for launching in 2022?

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Yeah. So look, our market share went from less than 1% market share five years ago to a 5.6% market share this past year. And we have exceeded our original goals along those lines. We have a lot of detail on market share by market, and by cohort of where the market launched.

And you can see us consistently gain market share across our markets. And we -- I think there was a question that some people may have had, can you gain market share in lower price point markets or in the suburbs? And I think the goal of that disclosure today is to help highlight that in regard -- whether it's the high price point market or a sub-$300,000 ASP market like Philadelphia or a big city or a small suburb, but we're gaining market share in market-after-market. And so we feel really good about where we are. And I think the only other point that I mentioned is we launched more markets last year than we had in our original IPO model.

And so we're seeing not just more success on market share by market, but also more markets launched.

Mayank Tandon -- Needham and Company -- Analyst

That's helpful, Robert. And then sort of a similar question on the adjacent services. When I look back again during the IPO, I think you had identified several post-transaction services on the adjacent services side that you were planning to launch. And I just wanted to get a sense on time line and how does M&A fit into that to be able to scale those services over time?

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

The -- maybe I'll highlight where we are on the time line and then Kristen can highlight on the M&A side. So we originally in the IPO, we said we were going to launch mortgage in 2022. So we've actually accelerated that launch, albeit only in one market, but we're proud that we did accelerate it. And by the end of this year, we should have mortgage in the majority of our markets.

We are exploring the launch of another major adjacent service this year, but we haven't made a commitment to that. The greatest opportunity is Title and mortgage. And so we really want to focus on that. But there is a next best opportunity which we're exploring.

Kristen Ankerbrandt -- Chief Financial Officer

Right. And I think as we look ahead, in terms of the full scope of adjacent services that where we could expand our business. Title and Escrow and mortgage were the largest opportunities. And Title and Escrow at $35 billion, mortgage at $50 billion.

So those are the places where we wanted to focus our efforts to start. And we use different strategies for that, right? Title and Escrow, we have done a dual-pronged strategy where we have done some organic expansion and some M&A, and you saw the results of the acquisition that we did in Washington, D.C. For mortgage, we decided to form a joint venture with Guaranteed Rate, a leading mortgage provider and that is off to a very good start so far. As we look ahead, we'll look to -- for each adjacent services.

We'll look to utilize the strategy that we think is best suited to that particular strategy. I don't know that we need to own necessarily all the services. I think there are some good partnership opportunities that are out there as well. But I wouldn't be surprised if you saw us form another JV or utilize M&A for some of those different adjacent services that we plan to launch over the next several years.

Mayank Tandon -- Needham and Company -- Analyst

That's very helpful. Thank you so much for taking my question. Congrats again on the quarter.

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Thank you.

Operator

Thank you. We go next now to Brian Nowak at Morgan Stanley.

Brian Nowak -- Morgan Stanley -- Analyst

Thank you for taking my question. Asking Robert, just about -- as you look across the entire company of all of your processes with agents and your integration of ancillary services, can you give us examples of one or two areas where you really see a lot of learning to improve execution? Maybe it's agent attach, maybe it's agent interaction. Like where do you sort of see the area to really improve the way you execute to drive structurally faster growth than maybe even what you've guided to here?

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

There's a lot of opportunity. But let me give you one clear example. We have currently 700 amazing employees that are paying -- the process that pay for agents every single day. There are significant ways to help automate -- for 200 of those roles, we can automate it almost completely and allow them to do more high-value work.

And for the other roles, the other 500 roles, we believe that we can through -- by integrating the transaction management, all the forms, disclosures, the e-signature, everything in one place with compliant for the client and for the agent and Compass, where they don't have to go to multiple different places to process the payment, they can go to one, that should be able to make them more than twice as productive over the course of the next year. And so that's an example where it will drive agents' happiness in MTS because they'll pay agents faster and more consistently, accurately. It will also provide more transparency into the payment process that will also make agents happier because the entire transaction of the payment will be in the same platform. And it will also drive employee happiness because it will be simpler for them.

And there are ways, which we look forward to discussing in future quarters, that those specific people can help drive attach of some of the key parts of the transaction around Title specifically, Title and Escrow. We also were taking -- we've launched something called Contract to Close where you take a portion of the responsibility of the transaction process and files off of the agents back and they pay for it. And so as of three years ago, this was just a -- it was only a cost center. Now it's a cost center with revenue.

And if we can -- we believe that over the course of the next few years, we can have revenue grow at a much faster rate from Contract to Close, adoption across the country relative to the increased expense to actually turn this entire function into a profit center.

Operator

And thank you. We'll go next now to Jason Helfstein with Oppenheimer.

Jason Helfstein -- Oppenheimer and Company -- Analyst

Hi, I have two. So for the 2025 guidance, can you give us maybe a sense of like what the range of attach rates you might be assuming for adjacency? I mean if you want to break them down specific by product. But just in terms of what type of attach rate you need to kind of get to that target? And the second, we've gotten a number of questions where clients just -- you've got over $600 million in cash on the balance sheet. Obviously, you're guiding to materially improve cash flow position over the next 12, 18 months.

There were some acquisitions this year. How should investors think about capital deployment? So are there additional kind of earnouts or commitments that you have to honor over the next few years? And relative to additional acquisitions you might want to do, relative to the necessary cash position because a number of investors think you should do a buyback. So maybe help us all understand just how you're thinking about like cash deployment over the next 18, 24 months? Thank you.

Kristen Ankerbrandt -- Chief Financial Officer

Hey, Jason, nice to talk to you. In terms of the attach rates, so when we look at the 200 basis points or so that we expect -- margin improvement that we expect to come from adjacent services, we think that is achievable with attach rates in the 12% to 15% range. And that would be of addressable transactions. So I would think of that as essentially half of our total transactions because some can easily be attach to sell side, some can easily be attach to buy side and our sell-side, buy-side mix is about 50-50.

Now it's important to note here, the bulk of this is really driven by T&E. We've got a good track record in a very short period of time of having grown that business and a really nice path to good growth in 2022 as part of our plan. But we also, as Robert alluded to earlier, we expect to be able to launch some additional adjacent services. And so those -- the attach rates there will likely be below what I talked about as achievable for Title and Escrow there in order to develop those -- to develop this kind of -- or deliver this kind of margin improvement.

We feel really confident about our ability to deliver those attach rates, even just looking at the KVS case study, the Washington D.C. case study alone. I think that shows that we've taken the secret sauce we have here at Compass in terms of being able to really drive adoption of our tools and services among our agents and we're able to really translate that to Title and Escrow. Shortly, we'll be able to give you more data on mortgage, and we think we'll be able to do that across a number of adjacent services.

Now in terms of capital deployment going forward, if you look at where we have deployed our cash in the past. We, of course, have ongoing capex that's related to our market expansion. We did a lot of market expansion in 2021, 25 MSAs. We think going forward, 2022 and beyond, we'll return to a more normalized level of eight to 10 MSA markets per year.

So you should see that portion of the cash outflow come down slightly. We do utilize M&A from time to time, and that's been a real focus in the Title -- in our Title and Escrow strategy, of course, as of late. We'll continue to look for opportunities there where it makes sense. We remain very disciplined on price when it comes to M&A.

But for us, we see an opportunity to take what can be a solid business and turn it into a great business, just based on our ability to drive outsized attach with our agents. I know you had a question specifically around ongoing earn-out commitments related to M&A. And the total amount outstanding today is probably less than $50 million over the course of the next several years. So hopefully, that helps to dimensionalize it a bit for you.

Jason Helfstein -- Oppenheimer and Company -- Analyst

Thank you.

Kristen Ankerbrandt -- Chief Financial Officer

Sure.

Operator

Thank you. We go next now to Trevor Young at Barclays.

Trevor Young -- Barclays -- Analyst

Great. Thanks. Robert, I think you noted that by summertime, agents can support the entire transaction without using third-party software, as well as kind of already seeing some of that R&D pivot more toward reducing brokerage opex and even potentially overall Compass opex. When do we see that pivot on R&D deleverage? Is it at that summer kind of pivot point when everything can be done in the Compass software? Or is there still more kind of improvement there? Just trying to get a sense when we go from an investment cycle on R&D to returning to leverage.

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Yeah. Look, I think we will start seeing it over the course of this year. Whether this starts as early as summer, I think there are a couple of factors that we need to think through. But definitely, at some point this year, we will start seeing that.

Again, it's important to note that the agent productivity platform is really focused on the agent. It's not on reducing the cost to serve. And I would say, last year, 95-plus percent of our time was focused on that. And the key outstanding items are really transaction management, completing the full transaction flow on the Compass platform.

A little bit of stuff on team functionality and a little bit of work on search in a couple of key markets. But that allows us for, I'd say, this year -- the first half of the year, it's -- I would say around 80% of the focus is on completing the platform and the remaining 20% on primarily lowering the cost to serve and entering the world of adjacent service platform attach. But the goal would be next year -- if we can be as successful as we had expected here, the goal will be next year that the -- half of the effort is on lowering the cost to serve and adjacent service attach. And again, like I mentioned earlier, lowering the cost to serve -- we're calling the effort Service Desk.

It really also drives positive agent outcomes as well because we allow us to deliver some of the core agent services, whether it's agent payments, listing marketing, agent marketing, brand marketing through the platform as opposed to in one-on-one ways that are more onerous.

Trevor Young -- Barclays -- Analyst

That's really helpful, thanks. And then just quickly on Compass Concierge, just any update there and your ability to monetize that?

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

So we haven't changed our monetization philosophy around Concierge yet, but it's something we continue to look at as there are a number of vendors who would be happy to compensate for participation in the program, but we haven't -- it just hasn't been the area of focus.

Trevor Young -- Barclays -- Analyst

Great. Thank you.

Operator

Thank you. We'll take our last question this afternoon from Justin Ages with Berenberg Capital Markets.

Justin Ages -- Berenberg Capital Markets -- Analyst

Hi, thanks for taking my question, and nice quarter. A question or two on agent productivity. So one of the things that you've shown in the report that you released is the production uplift from when you get more agents using your platform. So can you talk about any steps that you're taking to actually increase the number of teams that are using that? It just seems like an easy way to boost the overall Compass kind of profile.

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Absolutely. Yeah. So this has been the key focus of mine so far this year, and it's really a key focus for the company because the advantage we have is we've invested hundreds of millions of dollars in R&D to build a platform that drives agent productivity, but just building the loan doesn't get everyone to use it. You think about a company like Salesforce, and they have massive number of implementation partners to help drive adoption.

And so we don't take for -- and that's just a CRM. A CRM is 15% of our overall platform. And so it is -- there's a lot to learn that can be intimidating. What we are doing is we are partnering with the country's best real estate coaches externally, coaches like Brian Buffini and Tom Ferry and Steve Shull and Chirag Shah and several others.

And we are also -- we have launched internal coaching with some of our best sales managers that have been coaching agents for decades in this way. And we're coaching them through the platform. And so instead of -- say, here's how every day you should make x amount of calls, x amount of emails, x amount of prospecting. In the open-ended way, it's more a -- go to the Compass platform, click on the likely to sell button and then do a bulk email from likely to sell to your client, to the people in your sphere of influence that are likely to sell.

We're creating the action plan in Compass that is a 12-month action plan that will -- that where every month, it tells you what you should do with your sphere of influence. And so that has been very, very, very successful and it's probably been the most positive NPS driver that we have seen in the company's history. And it really connects us from the business of real estate to the future of technology in a very cohesive way. So that's half of it.

The other half is -- we have in the same way, there's a genius bar at Apple. We have an incredible group of people called agent experience managers, who are helping to onboard and reonboard and train on these tools, and they're just going above and beyond in this period of time because it's a unique period of time where things are slow enough in January and February before the busy spring market, where agents have the time to learn the tools and to adopt some of those behavior changes.

Operator

And ladies and gentlemen, that is all the time we have for questions this afternoon. Ms. Ankerbrandt, I'll hand the conference back to you for any closing or additional comments.

Kristen Ankerbrandt -- Chief Financial Officer

All right. Thank you, operator, and thanks to everyone who joined the call today. We look forward to speaking to a number of you over the coming weeks. Thank you.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Rich Simonelli -- Vice President, Investor Relations

Robert Reffkin -- Founder, Chairman, and Chief Executive Officer

Kristen Ankerbrandt -- Chief Financial Officer

Michael Ng -- Goldman Sachs -- Analyst

Mayank Tandon -- Needham and Company -- Analyst

Brian Nowak -- Morgan Stanley -- Analyst

Jason Helfstein -- Oppenheimer and Company -- Analyst

Trevor Young -- Barclays -- Analyst

Justin Ages -- Berenberg Capital Markets -- Analyst

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