With a little more than three months left until the end of the year—the looming deadline to become free-cash-flow positive—Compass is making another round of layoffs to hit its mark.
The New York-based firm announced in a Tuesday SEC filing that it is implementing an additional “workforce reduction” as part of its cost reduction efforts to achieve profitability by 2023.
In a memo obtained by RISMedia, Compass CEO and Co-Founder Robert Reffkin reassured agents that the labor cuts would largely impact “non-agent-facing teams” and not affect their daily work.
“We are fortunate to be in a position where we can reduce our costs while still being able to invest and create more for you than any other company in the industry,” Reffkin told agents in the memo.
He also stated that the most significant reduction came from the technology team, but the tech team still had more than 700 people.
“As entrepreneurs, you are no strangers to making hard decisions for the long-term success of your businesses,” Reffkin said in the memo.
According to the filing, a “significant portion” of the layoffs impacted Compass’ product and engineering team, which indicates that Compass has its sights set on achieving “a non-GAAP operating expense level of $1.05 billion to $1.15 billion next year.”
Compass didn’t immediately reply to RISMedia’s request for a headcount of impacted employees.
Compass estimates that it will incur a pre-tax cash charge of about $23 million to $26 million for severance and other termination benefits for employees whose roles are being eliminated during the third quarter.
The workforce reduction is in addition to its June 14 layoffs when Compass let go of 10% of its staff.
At the time, a company spokesperson told RISMedia that the “Strategic Action” was a difficult decision made in response to “clear signals of slowing economic growth.”
Compass echoed similar sentiments roughly a month ago when company executives announced that the brokerage would be tightening its belt on the expense side of its balance sheet so it could make good on its promise of attaining profitability by next year.
During its second-quarter call with investors, Reffkin and COO Greg Hart attributed Compass’ lackluster performance—it lost $101 million in Q2 and nearly $300 million in the first half of 2022—to a significant shift in the housing market amid spiking mortgage rates and ongoing economic headwinds.
“We are preparing for the real estate market this calendar year to be nearly 25% below where industry experts believe it would be just six months ago,” said Reffkin during the August earnings call.
“Never in my time at Compass have we seen such a big downturn in the market in such a short time,” he added.
In response to changing market conditions and projected headwinds for the remainder of the year, Compass announced it would cut back on its investment in technology while eliminating the use of financial incentives—equity or cash incentives—to recruit new agents in the future.
The latter had already been in the works before Compass’ quarterly report. The company’s planned reduction in tech investment also resulted in Compass parting ways with Chief Technology Officer Joseph Sirosh by the end of August.
Sirosh was joined by a small group of employees and recruiters in Compass’ tech department in the round of firings.
“The Company believes it is in a position to reduce its go-forward investment in technology given the maturity of the Company’s technology platform,” Compass said in the SEC filing.