While not happy to acknowledge negative earnings for another fiscal quarter past, Robert Reffkin, founder and CEO of tech-enabled real estate brokerage giant Compass, expressed a strong optimism at a May 9 press conference that going forward there would be positive earnings reports. And even with revenue decreasing by 31% year-over-year to $957 million and transactions declining 24%, he held firm in that belief.
“We had a strong first quarter of 2023 that was highlighted by exceeding both our guidance and consensus on revenue and adjusted EBITDA,” he said. “Over the past few quarters, our agents and employees have successfully navigated the sharpest decline in residential real estate transactions in U.S. history. During this time, we increased our marketshare in the fourth quarter of 2022, and we’ve done so again in the first quarter of 2023.”
Compass did, however, suffer a net loss of $150 million in the first quarter of 2023, which was at least better than the $188 million lost in Q1 2022. Agent count increased by 721 in the first quarter, a 6% gain over a year ago. Total agent count is 13,515.
“Our non-GAAP commissions expense as a percentage of revenue improved by approximately 27 basis points from the first quarter of last year to 81.4%, when excluding the impact of the Agent Equity Program,” added Reffkin. “We continue to benefit from taking decisive action with our expense reduction initiatives starting in early 2022. We are on schedule to achieve positive free cash flow in 2023, starting with Q2.
“Our focus this year is to continue to invest in our platform to increase our competitive advantage that comes from offering the only proprietary end-to-end technology platform for agents in the country,” he concluded. “We have taken a massive step toward digitizing the real estate transaction process. No one has been this close to a fully digitized transaction to date.”
Compass stock rose 6.46% on the day to $280/share.
Compass Q1 2023 financial highlights:
- Revenue decreased by 31% year-over-year to $957 million as transactions declined 24%, which was attributable to lower industry-wide transactions.
- Q1 2023 GAAP Net loss was $150 million, an improvement from a Net loss of $188 million in Q1 2022. The Net loss for Q1 2023 includes non-cash stock-based compensation expenses of $45 million and depreciation and amortization of $25 million.
- Adjusted EBITDA (a non-GAAP measure) was $67 million in Q1 2023 compared to $97 million in Q1 2022. This is an improvement of $30 million, while revenue declined by 31% due to macroeconomic factors.
- Cash and cash equivalents at the end of Q1 2023 was $364 million, which includes $150 million of cash resulting from a draw of the revolver in Q4 2022 and a $75 million draw on the revolver in March 2023 that was taken out of an abundance of caution due to the recent banking crisis and potential contagion effect. The $75 million draw was paid back in April 2023.
- Compass agents closed 35,886 total transactions in Q1 2023, a decline of 24% compared to Q1 2022.
