Compass flips losses in second quarter for first profit

Compass took a second quarter victory lap on Wednesday, reporting a profit for the first time as a publicly traded company and flipping the last period’s massive loss on its head. 

The company generated a net income of $20.7 million in the second quarter, according to its earnings released Wednesday, a reversal from $133 million it reported in losses last quarter and its first profit since its 2021 public debut. The profit comes despite the residential giant having to pay out about $28.8 million of its $57.5 million deal to settle claims by home sellers in a series of class action lawsuits over broker commission guidelines. 

The company reported a free cash flow of $40.4 million in the second quarter of 2024, according to Reffkin. Quarterly revenue was up 14 percent year-over-year, to $1.7 billion. 

In contrast to previous periods, the chief executive said, Compass has “no outstanding draws” on its revolving loan this quarter. 

“This is an incredible milestone for us,” CFO Kalani Reelitz, citing the company’s cutting expenses. 

But the company’s cash on hand appears to have been aided by a jump in their commissions payable, which spiked $47 million from last quarter to almost $107 million. The Real Deal reported last year the liability can still factor into positive cash flow because Compass is holding it — but ultimately owes the same money to its agents. 

The jump in liabilities is similar to an increase seen in the second quarter of last year, when the brokerage hit a self-imposed deadline for cash flow positivity by the end of the period. An executive told TRD the $97 million Compass owed to agents at the time was due to deals closed late in the quarter it couldn’t pay out, but that the company does not delay payments to agents. 

As Compass’ cash-on-hand dwindled toward the end of last year and into 2024, CEO Robert Reffkin remained optimistic the company would continue its streak of being cash flow positive but stopped short of saying it would achieve profitability this year.

Compass reported an all-time high adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — of $77.4 million this quarter. This more than doubled from the  $30.1 million in adjusted EBITDA reported in Q2 of last year. 

Compass cut roughly $500 million in cash and non-cash expenses last year. Total operating expenses, a figure that includes commission payments, fell by nearly $1.5 billion. After a slip in the fourth quarter, it reclaimed its cash flow positive status in the first quarter of 2024. 

The company gained 2,406 principal agents in the second quarter for an increase of 16.5 percent, in large part due to its recent acquisition of New Orleans-based brokerage Latter & Blum. Its agent retention rate was 97 percent. 

Compass agents closed 60,390 transactions in the second quarter of this year — an 11.4 percent increase from last year, while transactions across the national residential market declined 3.3 percent for the same period, according to the National Association of Realtors. 

As part of a $418 million settlement with homesellers, NAR 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 pay out commissions was top of mind for investors last quarter. With the new rules set to go into effect on Aug. 17, Reffkin said he does not expect this to impact the company’s revenue. 

The chief executive cited updated statistics from last quarter that show 99 percent of MLS listings posted since the deal was proposed in March included offers to pay buyer’s agent commissions, 96 percent of which were at a rate of 2 percent or more.

Also on Wednesday, Reffkin announced the company’s “3030 vision” for the future, a strategic goal to grow to 30 percent market share in the “top 30 cities” it operates in by 2026.

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