Compass cost-cutting, revenue numbers send stock up 35%

Compass stock shot up 35 percent on Wednesday following the company’s first quarter earnings call, during which executives revealed they beat revenue expectations and grew market share.

The share price jumped 98 cents to $3.78, more than twice its low of $1.84 but still well off its 52-week high of $6.88.

The ebullient response from investors came as executives work to make the brokerage cash-flow positive by the end of June after a year of downsizing that aims to save the company $550 million in annual operating expenses by the end of June.

“In the first quarter, our agents and employees delivered,” said CEO Robert Reffkin. “When the market improves in the future we will be well-positioned for generating significant long-term profits.”

Compass expects its second quarter EBITDA — earnings before interest, taxes, depreciation and amortization — to be $30 million to $50 million, based on projections that revenue will rise to between $1.45 billion and $1.6 billion in the spring, when home sales typically rise.

“Given our continued cost discipline and assuming transactions stay in line with industry expectations for the year, we remain on schedule to be free-cash-flow positive for the full year,” said CFO Kalani Reelitz during the earnings call.

One area of concern for Compass as it seeks to get out of the red could be agent count. While Compass retained 96 percent of its principal agents last quarter, its overall number declined quarter-over-quarter and recruitment has tapered off from previous levels.

The brokerage last year stopped giving out cash and equity incentives as a recruitment tool. 

The company’s aggressive cost-cutting has impeded its ability to recruit new agents, according to Reffkin, though he added that recruitment picked up later in the quarter.

“With the cost reductions that we had to implement over the course of 2022 and then in January 2023, we currently have about half the number of strategic growth managers that we had a year ago,” the CEO said. “We need to add more recruiters to build that team back up, which we recognize and we’re doing that now.”

Compass’ agent count fell by roughly 400 from the previous quarter. It added 90 principal agents from January through March after picking up 112 in the final quarter of 2022.

Reffkin said more solo agents are joining teams as a hedge against a down market, meaning they don’t show up in the principal agent count. Other principal agents are retiring to become referral directors. He added that most of the principal agents who left last quarter made under $250,000 a year in commissions.

“My hope is that this quarter is the low point,” said Reffkin. “We don’t have a formal forward-looking guidance on our agent count, but that is my hope based on what we’re seeing.”