Compass takes $158M loss

Year-over-year revenue drops 30%; execs still project being free-cash-flow positive in Q2

From left: Compass' Kalani Reelitz and Robert Reffkin
From left: Compass' Kalani Reelitz and Robert Reffkin (Getty, Compass)

Compass posted a net loss of $158 million in the fourth quarter, up from $154 million in the third quarter but a slight improvement over the $175 million lost in the same period of 2021.

The net loss figure includes non-cash expenses like stock-based compensation and depreciation, which accounted for a combined $82 million last quarter. That puts Compass’ fourth-quarter cash burn at $76 million, the same as the previous period.

But a Compass executive had an optimistic outlook during a phone interview Tuesday afternoon, saying the company still plans on being free-cash-flow positive by the second quarter of this year.

“We’re not losing money because the business model doesn’t work,” said the executive. “We all know the business model of brokerage works and we feel good about that. We are not losing money where linearly over the course of the next year or two we’re worried about the viability of the business.”

Compass lost $602 million in 2022, up from $494 million in 2021. The brokerage said cash expenses accounted for $281 million, and attributed $49 million of that loss to one-time restructuring costs and $11 million to litigation fees. About $321 million was incurred in non-cash stock-based compensation expenses and depreciation. 

Quarterly revenue fell to $1.1 billion, a 31 percent decrease from the fourth quarter of 2021, which Compass blamed on the slowdown in the market. Its quarterly adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was a loss of $75 million, up from a loss of $51 million a year ago.

Annual transactions and revenue fell by 6 percent, with the company pulling in $6 billion over the course of the year. Its annual adjusted EBITDA was a loss of $210 million, compared with $2 million of income the year prior.

Executives said during the call they expect future EBITDA to be positive in line with cash flow.

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Compass finished the quarter with a cash balance of $362 million, which includes a $150 million draw on its revolver loan. 

Annual expenses fell to $1.26 billion, down from $1.78 billion in 2021. That includes variable expenses, like commissions, that could rise with the market. But the executive, speaking on condition of anonymity, predicted that despite a rebound among the market and revenues, the company’s cost saving initiative announced last year would keep expenses down. 

The brokerage was able to cut $338 million from its budget last year, the result of an aggressive $320 million cost-cutting plan announced during its second quarter earnings report. That includes two rounds of layoffs that affected 800 tech employees, but excludes savings from the most recent round of layoffs, in January.

“The impact of our op-ex reductions, it’ll really start manifesting itself in quarter two,” said the executive. 

Compass said in January its reductions put it in position to avoid further cuts even if the market falls up to 25 percent this year. However, CEO Robert Reffkin said during the earnings call the company is “prepared to move swiftly” to make further cuts if home sales are worse than expected. 

COO Greg Hart said Compass is looking into “using offshore talent” to lower costs even further. Reffkin said Compass is exploring switching to a franchise model for geographic expansions. 

Principal agent retention in the fourth quarter was 98 percent, the same from the previous quarter and the year-ago period. 

The company adjusted its first-quarter outlook to $950 million in revenue, up from $850 million, and revised its projected EBITDA to negative $70 million, up from negative $90 million.

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