Compass CEO Takes Good With the Bad in Mixed Q2 Performance

The cooling effect that the housing market has endured this year hasn’t done many favors for brokerages, but one could argue that it’s essential to keep a glass-half-full perspective when things aren’t going your way.

In the case of Compass, that’s how CEO and Founder Robert Reffkin chose to look at his company’s performance between April and June. The New York-based brokerage took its lumps in Q2 as its revenue decreased again, which the company attributed to slowing transactions driven by “macroeconomic factors.”

“We achieved strong financial results in line with guidance in the midst of a quarter that was impacted by mortgage rates increasing 100 basis points to 7% and unexpected market trauma resulting from the debt ceiling standoff in Congress,” Reffkin said during a Monday conference call following the release of Compass’ latest earnings report.

The brokerage raked in $1.5 billion last quarter, down 26% from the same period last year. The company cut its losses by 53% annually, posting a $48 million net loss in Q2. 

Despite posting another quarter of revenue declines, Reffkin touted several bright spots in the company’s performance, including making good on its coveted goal of becoming “free cash flow positive” by the year’s second quarter.

Compass reported an operating cash flow of $53 million and a free cash flow of $51 million. The milestone comes after the brokerage repaid the $150 million draw on its revolving credit facility in July.

According to Reffkin, Compass has nearly eliminated its corporate debt and claimed that the company has continued to take “a disciplined approach” to its operating expenses while still investing in its agents, platform, and growth.

As the housing market recovers, Reffkin indicated that the further investment and rollout of its company-owned tech would keep Compass ahead of its competitors. He touted the company’s new Performance Tracker, Compass GPT integration, and one-click Title and Escrow products that it has rolled out this year, signaling more to come before the end of 2023.

“We will be rolling out more team workflow functionality for agent teams over the next two quarters,” he said. “Next year, we expect to launch our client portal, which over time will become the client’s single destination for everything home before, during and after the transaction for both buyers and sellers.”

The company platform—and further investment in it—continues to be at the forefront of recruiting and retention efforts, according to Reffkin.

Compass added 429 principal agents between April and June, bringing its average number of principals to 13,633. Its agents closed 54,207 total transactions in the second quarter, down 19% annually.

The company also reported a 26% decline in gross transaction value during the quarter, posting $56.8 billion.

“We are strengthening our in-person culture and investing heavily in tools and technology for agents, capitalizing on the downturn to widen our competitive advantages as the high-value brokerage space is becoming much less crowded,” Reffkin said.

Compass expects to earn between $1.3 billion and $1.4 billion in the third quarter of the year, which would put the brokerage at another loss compared to how it performed in the same period last year.

Company executives are also forecasting that they will be able to maintain their free cash flow positive status through the rest of the year.

“We are very strong, and we are still investing in growth and the platform,” Reffkin said. We are excellently positioned for the cyclical upturn that will come when the market normalizes.”