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Watch: Understanding Compass’ latest financials

TRD reporters Harrison Connery and Orion Jones chart the brokerage’s path to profitability

Compass’ tumultuous story took a positive turn recently, but the residential brokerage still has a ways to go on the path to profitability.

The Real Deal’s Harrison Connery and Orion Jones joined Hiten Samtani to break down Compass’ most recent quarterly earnings, which gave investors hope despite the biggest housing market slowdown in company history.

Compass’ third quarter earnings report showed losses, but revealed it’s on track to get out of the red. The news sent the company’s stock price up by 18% after the report was released, a welcome change from the downward trend that’s ruled its shares this year.

Among the good news for Compass was its increased market share, which would help it make up for lost ground and bring its revenue closer to last year’s, Connery said. The firm also made progress on some of the cost cutting it announced last quarter.

“If they can just keep revenue where it is, on a quarterly basis, and accomplish the cuts they announced … if they can just do those two things, they can be profitable next year,” Connery said.

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As of the Q3 report, Compass only made about one-fifth of the $320 million in cuts it promised for 2022. Investors will be watching to see if the firm gets up to speed by the end of the year, Jones said, as the brokerage “has a lot of money to save in just a short amount of time.”

While Compass has around $500 million in cash it can use, the company is also beholden to lenders to keep an additional $150 million in the bank in order to maintain its revolver loan.

The uncommon loan type also comes with a contingency: Compass revenue must continue rising in order for the firm to maintain it.

With deal volume dropping thanks to a cooling housing market, and macroeconomic uncertainty, the closely-watched company is facing its fair share of challenges in growing its revenue on pace with expectations.

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— Cailley LaPara

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