Compass extends its cash flow streak

Brokerage brought in $12M more than it spent in Q3, marking second straight positive quarter

Compass Stays Cash Flow Positive In The Third Quarter
Compass' Robert Reffkin (Compass, Getty)

Compass is cash-flow positive for the second consecutive quarter.

The residential brokerage reported it was cash-flow positive by $12.2 million in the third quarter, a figure that includes capital expenditures. The results come after the firm met a self-imposed deadline for its initial quarter of being cash-flow positive since going public in 2021. 

But the streak could be coming to an end in 2023, CFO Kalani Reelitz said.

“We anticipate free cash flow to trend in line with Adjusted EBITDA and be negative in the fourth quarter as well,” said Reelitz. “As a result, while we have made significant improvement in our free cash flow and cash position, we do not anticipate being free cash flow positive for the full year 2023.”

The company posted a net loss of $39 million, a figure that includes non-cash, stock-based expenses of $38 million and depreciation and amortization of $21 million. Its net loss of $39 million last quarter is a 74 percent improvement over the third quarter of 2022. 

Compass’ adjusted EBITDA — a version of earnings before interest, taxes, amortization and depreciation — was $21.8 million last quarter, up from negative $42.2 million year-over-year.

“As we enter 2024, we believe we have positioned Compass for significant upside when the market recovers,” said CEO Robert Reffkin, referring to slow sales caused by a rise in mortgage rates in a statement ahead of the company’s earnings call.

During the company’s earnings call, Reffkin downplayed concerns about the verdict issued last week in the landmark Sitzer/Burnett antitrust lawsuit. A jury in the Kansas City-based case found the National Association of Realtors and two brokerages conspired to inflate commissions. Minutes after the verdict was announced, the plaintiff’s attorney filed a nearly identical lawsuit against NAR and a slew of brokerages, including Compass. 

The chief executive said he feels “confident” in confronting the legal action. Reffkin cited a move last year by the Northwest MLS that said sellers would be responsible for buyer broker compensation, instead of listing brokers, after which commission figures stayed in line with the national average. 

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Reffkin also touted the company’s tech platform and the brokerage’s strength in the luxury market, where he said high price points will insulate the sector from market turbulence.

Revenue was $1.34 billion, a 10 percent decline from the previous year, while transactions fell to 48,000, a 12 percent decline. Compass reports a 20 percent market decline over the same period. 

The brokerage’s principal agent count grew by 511 to 14,055 year-over-year. Compass reported a retention rate above 90 percent, the second highest since going public. The firm also acquired Realty Austin and Realty San Antonio last quarter, which boosted its Texas headcount by 630 agents

The company’s commissions payable, the money it owes to agents, fell to $77.1 million, a $22 million drop over the previous quarter, but a year-over-year increase of $11 million. 

Compass finished the quarter with $220 million in cash and cash equivalents, despite paying back the $150 million it borrowed from its revolver loan in July. The company at the end of the third quarter did not have a draw on its $300 million revolver. 

The company expects to hit its $900 million annualized operating expense run rate of $900 million in the fourth, Reffkin said, a figure it plans on reducing to $850 million next year. 

Compass stock fluctuated dramatically after hours, falling to a low of $2 immediately after earnings were released, before rising to $2.20 and settling at $2.14. The stock was at $2.11 when markets closed in the U.S. The stock hit a 52-week low after last week’s antitrust verdict.

This article has been updated with context and quotes from the evening earnings call.

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