Compass posts $83M quarterly loss, $320M for year

Compass posted a net loss of $320 million in 2023, including a loss of $83.8 million in the fourth quarter.

That’s about half of its net loss of $158 million in the fourth quarter of 2022, a year in which it lost more than $600 million.

Net loss figures include non-cash expenses such as stock compensation and depreciation. The company’s cash burn last quarter was $26 million, down from $76 million a year ago. Compass’ adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was negative $39 million all of last year, down from negative $210 million in 2022.

Compass trumpeted its first two cash-flow-positive quarters last year in the second and third quarters, but reported a free cash flow loss of $41 million in the fourth.

Executives attribute the improvements to the cost-cutting measures it initiated in the second quarter of 2022. CEO Robert Reffkin said in a statement Tuesday that the brokerage is positioned “for what we believe will be significant upside when the market begins to recover” later this year.

“We believe that Compass will generate hundreds and hundreds of millions of dollars in EBITDA and free cash flow as the market recovers to a more normalized midcycle home sales level of 5.3 to 5.5 million annual home sales,” he added on the earnings call. 

The brokerage industry had expected the market to begin recovering last year, but it did not happen. Mortgage rates ticked down in the fall but have since bounced back up, for-sale inventory remains low, and home affordability across the U.S. has worsened.

Still, other brokerages have fared better in that environment than Compass. The company’s cash position fell to $167 million, down from $362 million a year ago.

Part of the decrease stems from a $150 million repayment the company made toward its $300 million revolver loan. It needs to have a cash balance of at least $150 million to maintain access to the loan. 

Quarterly revenue was $1.1 billion, a 1.1 percent decrease from the year prior, with transactions falling 4.9 percent over that timeframe. Compass reports transactions fell by 9.2 percent marketwide last quarter.

Annual expenses at Compass fell by more than $1.4 billion last year compared to 2022.

Compass’ average total agent count rose 1 percent year-over-year, aided by a gain of more than 1,000 agents through acquisitions. The brokerage said it managed out 50 underperforming principal agents and 400 total agents last quarter with average income commission under $10,000.

Reffkin said during the earnings call that the proliferation of buyers’ agreements “alleviates my concern on the financial risk related to the topic”, when asked about potential further action from the Department of Justice in the wake of a landmark antitrust lawsuit that found coupled agent commission in violation of antitrust laws. 

In advance of the earnings report, Compass stock closed up 3 percent Tuesday — a positive day for the stock market in general — to $3.42 per share.

Presidential election years, as this is, are seen by some experts as depressing home sales because of uncertainty about future economic policies.