There continued more ups and downs for national brokerage Compass as it reported third quarter earnings on November 16. The good news, as such, was managing to cut net losses from $154 million in the third quarter of 2022 to $39 million this time around, while revenues of $1.34 billion fell by 10% year-over-year. The numbers were also better than what Compass achieved in the second quarter, when it posted a $48 million net loss.
Compass Founder and CEO Robert Reffkin chose to focus on the company’s cash flow status, while acknowledging the down year 2023 has been for residential real estate sales.
“In the third quarter, for the second quarter in a row, Compass is free cash flow positive as we continue to execute our plan to drive operating expenses down while continuing to grow our agent count and expanding the features on our technology platform, the industry’s only proprietary first-contact-to-close platform,” he said. “Additionally, at a time when many agents are leaving the industry, Compass reached its second-highest quarterly retention rate since going public, and our national marketshare was up 26 basis points year-over-year.”
Reffkin paused his earnings comments to say that he would not now or in the future make any comment about the recent Burnett vs. NAR trial outcome, saying only that Compass was in a good place even as it was included as one of several defendants in a new, much bigger federal lawsuit.
He explained his optimism based on factors such as Compass tending to operate in the luxury space where buyers are likely to still want agents. Compass agents also typically have clients sign buyer-broker agreements and provide specialized tools and technology for both agents and their clients.
“We believe we will still be able to continue to grow agent count and invest in building upon our technology advantage,” he added. “Although the market is worse now than a year ago, Compass is a much stronger company with a lower cost base, better agent retention, revitalized post-pandemic culture, enhanced technology platform and a larger agent-to-agent client referral network. As we enter 2024, we believe we have positioned Compass for significant upside when the market recovers in the future.”
Q3 2023 financial highlights
- Revenue decreased by 10% year-over-year to $1.34 billion as transactions declined 12%, driven by macroeconomic factors.
- Q3 2023 GAAP Net loss was $39 million, an improvement of 74% from a Net loss of $154 million in Q3 2022. The Net loss for Q3 2023 includes non-cash stock-based compensation expenses of $38 million, and depreciation and amortization of $21 million.
- Adjusted EBITDA (a non-GAAP measure) was $22 million in Q3 2023 compared to $42 million in Q3 2022. This is an improvement of $64 million, while revenue declined by 10% due to macroeconomic factors.
- Operating Cash Flow/Free Cash Flow (a non-GAAP measure): During Q3 2023, the company delivered operating cash flow of $15 million and free cash flow of $12 million when considering capital expenditures.
- Cash and cash equivalents at the end of Q3 2023 was $220 million, with no draw of the company’s revolving credit facility.
