Compass loses $133M, says it’s cash flow positive as it stares down $58M settlement

Compass’ earnings in the first quarter didn’t quite deliver on CEO Robert Reffkin’s optimistic forecast for 2024. 

The company, which said it was the first time in its history to close out the first period in the year cash flow positive, reported a net loss of $132.9 million.

The loss, down $17.5 million from the first quarter of last year but up from $83.8 million reported in the fourth quarter, includes the first traces of the brokerage’s proposed $57.5 million settlement of claims by home sellers in a series of class action lawsuits. 

But Reffkin said in Wednesday’s earnings call he anticipates it will remain cash flow positive for the remainder of the year despite its settlement, which it will begin paying in the second quarter. 

“I still believe 2024 will be better than 2023, and 2025 will be better than 2024 with a mid-cycle coming in 2026,” Reffkin said. 

The lawsuits centered around accusations that the company conspired with other brokerages and trade groups to hike agents’ fees. It is similar to class action lawsuits filed against the National Association of Realtors, which struck a $418 million deal with sellers and agreed to change several of its policies, including eliminating the field for buyers’ commissions in the Multiple Listing Service.

The potential impact of changes to how buyers’ commissions can be paid has been top of mind for investors, Reffkin said. He said he is confident that Compass brokers are well prepared to handle these changes in a time when some fear losses to buy-side commission revenue for brokerages. 

“Since the verdict, we have provided our agents with 57 national training sessions and hundreds of local training sessions,” he said. “With these efforts, I’ve seen our agents transition from initially being worried to now being confident.”

Beyond this, Reffkin said that 99 percent of MLS listings posted since the deal was proposed in March included offers to pay buyer’s agent commissions, 96 percent at a rate of 2 percent or more. 

“We’re not hearing from agents that any of these numbers are coming down,” he said, blaming the press for stoking fear about the potential impact of the settlement. 

The company’s revenue bounced back by 10 percent year-over-year. 

Its adjusted EBITDA — earnings before interest, taxes, depreciation and amortization – improved by 70 percent compared to the first quarter of last year, when it reported $20.1 million. 

The company reported $165.9 million in cash before relying on its revolving loan, according to Reffkin. 

In the fourth quarter of 2023, Compass narrowed its net loss to half of $158 million reported in the same period of 2022, a year in which it lost more than $600 million.

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.

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