This is for all the people who said it would never work – which includes a shocking number of industry insiders who didn’t give Compass any chance of making it.
Compass says it brought in $51 million more than it spent in the second quarter, the first time the residential brokerage has been cash-flow positive since going public in 2021.
The company still posted a net loss – which includes stock-based compensation and other expenses – of $48 million, according to its second-quarter earnings. That loss, however, was a big improvement from the same period last year, in which it lost $101 million.
Reaching cash-flow positivity was a key target the company had declared for itself last year, and Compass said it met the goal while still growing market share and agent count, according to its earnings report. It posted an adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — of $30 million, up from $4 million a year ago.
“We have made up most of the free cash flow deficit from Q1 2023 and we believe we are in position to achieve our goal of being free cash flow positive for 2023,” said Compass CFO Kalani Reelitz.
Second-quarter operating expenses came in at $1.5 billion, down roughly $600 million from a year ago. Compass has a goal of getting to $900 million in operating expenses, which Reelitz said it will hit in the fourth quarter.
The company’s commissions payable also increased to $98 million last quarter, an increase of $41 million over the prior quarter but in line with the $96 million figure a year ago.
The firm’s revenue fell 26 percent year-over-year to $1.5 billion, with transactions falling by a fifth and fewer deals in luxury home markets such as California.
Compass finished the second quarter with $335 million in cash and cash equivalents, but in July paid back the $150 million draw it had taken on its revolver loan.
The results reflect efforts from a year-long cost cutting campaign announced in the earnings call this time last year, when Compass pledged to cut $320 million from its budget. As part of that pledge, it stopped offering new agents cash and equity incentives, one of its most effective recruiting tools.
Compass was the top residential brokerage in the country by sales volume in 2022, according to RealTrends. As losses mounted — the firm lost over $600 million last year, up from $500 million in 2021 — critics and rivals seemed to relish in the company’s struggles and questioned its viability.
This is a developing story. Check back in for updates.
Most of the Compass agents here are working in North San Diego County’s coastal region – there are only a handful of those mentioned above that aren’t in the Compass offices from La Jolla to Carlsbad. P.S. For those who get Jessie’s rankings of the top producers in the county and wonder why we’re never included, it’s because of the way her software collects the data. Donna is always listed as the second agent on our listings, and they calculate the rankings per agent – so our volume is split in half.
Yesterday we had our regular sales meeting, and our manager Steve had the same clothing idea as me – though he also admitted that he wasn’t sure if gray goes with khaki either!
We were acknolwledged for our five-year anniversary at Compass (hard to believe!), and we also reviewed the statistics of $2,000,00+ sales in the county in the last 12 months:
Robert Reffkin’s goal was to have 20% share in the luxury markets, and here we are.
For a company that has been in San Diego for barely five years, Compass has done pretty well. We’ve been #1 since 2019, and in 2020 the volume was $2.13B with 2,372 units – big improvement since!
The agent productivity is around 3-4 annual sales per agent for all companies. But there are many licensees working on teams who are on salary so it’s not that bleak. But it is getting harder to find agents who are closing one sale per month, which makes it tougher for them to keep their chops up.
Last week, we lost a big agent to a start-up brokerage, and I hate to see people go. I’m not sure what happened in their case, but typically agents don’t try to re-negotiate with their current brokerage, instead they just leave for the greener grass without notice.
What should be considered is how likely it will be that single agency and off-market sales will grow as the market constricts further. The count today is probably under 10% of the total sales, but once it catches fire, those non-traditional sales could rise to 20% or 30% quickly.
Don’t underestimate how desperate it could get for agents, and how management will play a key role in pushing for in-house sales. It will be the same as with commercial real estate; where properties get sold in-house and public exposure to new listings is an afterthought.
This threat is the main reason why I work at Compass (of many). It’s not here yet, but it’s coming – and every agent will want to be with #1 as this evolves. We want to hire more agents on our team. If you would consider joining us, contact Donna the sales manager!
I’m just happy to see someone – anyone – step up to the microphone and discuss relevant facts about the real estate market. To also have my boss be so enthusiastic about the company and its future is an added bonus. Plus, our stock is up 50% (from $2 to $3!):
Yesterday was the Compass 2Q earnings call (transcript here) and as usual, the headlines focused on the net loss of $101.2 million – more than half of which was stock-based compensation for agents.
Compass has been very generous in their support of agents nationwide, and management is finding ways to effectively scale it back a bit. For example, they won’t be offering stocks as a recruiting tool any more. But we, the existing agents, aren’t affected by recruitment, and we’d be fine if they didn’t hire another agent! So while the stock may get battered, the agents are doing well.
I’ve mentioned that our annual contract is up in July. There was a time when we discussed Kayla joining Compass in NYC, and during that discussion our CEO offered us a 2-year contract. I brought it up again last month, and he agreed to it. We signed a two-year extension a couple of weeks ago – we are happy here!
Here are the Compass internal comments about the earnings call:
Compass has been in business locally for four years! Last year, we averaged 7.5 sales per agent.
It’s remarkable how Compass and eXp came into a rather staid and unchallenged brokerage environment and hired away nearly 2,400 productive agents so quickly.
