Compass posted a net loss of $150 million in the first quarter but executives touted optimism, saying the company beat expectations and is closing in on a self-imposed deadline for positive cash flow.
The net loss figure includes non-cash expenses like stock-based compensation and depreciation, which accounted for $70 million in the first quarter. The brokerage reported an adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — of negative $67 million, an improvement over a year ago’s negative $97 million.
The reported loss puts Compass’ cash burn for the period at $80 million, down from roughly $120 million in the first quarter of 2022 but up slightly over the last two quarters of last year, which counted $76 million per period.
Quarterly revenue fell 31 percent year-over-year to $957 million, while transaction volume declined 24 percent annually as rising interest and mortgage rates roiled the housing market.
Compass CFO Kalani Reelitz said in an earnings call the company will be cash flow positive by the end of the second quarter — less than two months away. The forecast puts the brokerage in line with a deadline it announced last year.
“We remain on track to achieve our full-year operating expense targets,” said Reelitz.
CEO Robert Reffkin called the first quarter “strong,” saying the company surpassed “guidance and consensus on revenue and adjusted EBITDA” and pointing to “expense reduction initiatives starting in early 2022.”
Compass grew its market share to 4.5 percent in the first quarter, up 17 basis points from the prior quarter, the second quarter in a row it rose over the prior period.
Some of that growth is due to its headcount growing 6 percent year-over-year in the first quarter, on top of a principal agent retention rate of 96 percent. Reffkin touted the company’s technology, which he said was popular with recently added agents.
“The majority of these agents have told us they are paying Compass more than their previous brokerage,” said Reffkin, referring to brokers who have joined the brokerage since August.
He attributed their willingness to accept a lower commission split to the company’s tech platform, referral network and culture.
Executives said they successfully integrated title and escrow services into the company’s tech platform for agents in Southern California, something they’ve previously said is crucial to improving the company’s financials. Rollout will continue over the next year.
Compass is looking into integrating models similar to artificial intelligence chatbot ChatGPT into its platform to help agents with listing descriptions, marketing, and client outreach.
The company projected its second quarter EBITDA will be $30 million – $50 million.
“Looking ahead for the remainder of 2023, we remain cautiously optimistic until we gain more certainty from the unpredictable macroeconomic environment and future actions by the Fed,” Reffkin said.
The company, which drew $150 million from its revolver loan near the end of last year, withdrew another $75 million in March “out of an abundance of caution due to the recent banking crisis and potential contagion effect.” It paid the $75 million back in April.
This story has been updated with additional information from the earnings call.
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