Compass ramps up cash burn, loses $154M

Brokerage spent $76M in Q3

Compass' Robert Reffkin (Getty, Compass)
Compass' Robert Reffkin (Getty, Compass)

Compass ramped up its cash burn in the third quarter, adding onto its mounting losses as the housing market cooled.

Its net loss in the third quarter was $154 million, including non-cash related expenses like $50 million in stock compensation, $29 million in restructuring expenses associated with recent layoffs and $21 million in depreciation and amortization. The loss is up from $101 million in the second quarter and $100 million a year ago.

The tech-forward brokerage said Thursday it spent $76 million more than it made last quarter, up from $45 million in quarter two, typically the most profitable quarter for brokerages.

Its adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was a loss of $42 million, compared to a net gain of $12 million a year ago.

The losses come after CEO Robert Reffkin in August announced a $320 million cost reduction program. The brokerage also enacted two waves of layoffs in recent months, and cut roughly 800 tech employees this year, according to comments Reffkin made earlier this week in a video conference with brokers.

Compass finished the quarter with $355 million in cash and cash equivalents, down from $431 million at the end of quarter two. It also has $300 million available under its revolver.

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Reffkin in a statement said the company “made progress in a number of important areas during the third quarter,” which marked a challenging time in the housing market. He pointed to the company’s rolled-out tech platform as reason for optimism.

“Our platform offers important differentiation in the marketplace and it is a conduit to drive incremental revenue lift and cost efficiency,” he said. “Importantly, in line with our major cost savings program announced in August, we have achieved significant cost reductions in our technology, engineering and general and administrative expenses.”

The upstart firm rose to the top of the industry in its decade of existence, but has never turned a profit.

Despite the staff reductions, Compass grew its principal agent headcount to 13,314, up 355 from the second quarter and an increase of 15 percent year-over-year.

Compass’ market share increased to 4.6 percent over the last twelve months, up from 4.3 percent the twelve months prior. But transactions fell 12 percent, which the company said was in comparison to an industry wide decline of 21 percent year-over-year. Quarterly gross transaction volume fell year-over-year to $57.3 billion from $69.1 billion.

Reffkin was at The Real Deal’s South Florida Real Estate Showcase & Forum hours before the earnings came out, where he emphatically said in a panel “there is no scenario where I’m going to let this company fold.”

“Nobody gave us money to put in a bank account,” he said. “Every time you read a headline that Compass lost money, what you’re really reading is that Compass decided to invest in its agents.”