Compass posted a $150 million net loss in the first quarter, but executives expressed optimism, saying the company beat expectations and was approaching a self-imposed deadline for positive cash flow.
The net loss figure, which includes non-cash charges such as stock-based compensation and depreciation, was $70 million in the first quarter. The brokerage reported an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $67 million, an improvement from negative $97 million a year ago.
The reported loss left Compass with a cash burn of $80 million for the period, down from about $120 million in the first quarter of 2022 but up slightly from last year’s last two quarters, which were $76 million each.
Quarterly revenue fell 31% year-over-year to $957 million, while transaction volume fell 24% annually as rising interest and mortgage rates roiled the housing market.
Compass Chief Financial Officer Kalani Reelitz said on the earnings call that the company will be cash flow positive by the end of the second quarter — less than two months from now.The forecast makes the brokerage firm its announced deadline last year.
“We remain on track to meet our full-year operating expense target,” Reelitz said.
Chief Executive Robert Reffkin called the first quarter “strong,” saying the company exceeded “guidance and consensus for revenue and adjusted EBITDA,” noting “planned expense reductions beginning in early 2022.”
Compass’ market share grew to 4.5 percent in the first quarter, up 17 basis points sequentially and its second consecutive quarter-over-quarter gain.
The increase was partly due to a 6% year-over-year increase in its headcount in the first quarter, while its prime agency retention rate was 96%. Reffkin touted the company’s technology, which he said has been popular with the recent addition of agents.
“Most of these brokers told us they were paying Compass more than they had with their previous brokerage,” Reffkin said, referring to brokers who have joined the brokerage since August.
He attributes their willingness to accept a lower commission share to the company’s technology platform, referral network and culture.
Executives said they were successful in integrating title and escrow services into the company’s technology platform for Southern California agents, which they have previously said was critical to improving the company’s financial health. It will continue to roll out next year.
Compass is working on integrating a ChatGPT-like model into its platform to help agents with listing description, marketing and customer outreach.
The company expects its second-quarter EBITDA to be $30 million to $50 million.
“Looking forward to the remainder of 2023, we remain cautiously optimistic until we gain more certainty from the unpredictable macroeconomic environment and the Fed’s future actions,” Refkin said.
The company drew $150 million from its revolving facility late last year, and drew a further $75 million in March “out of an abundance of caution about the recent banking crisis and potential contagion effects.” It repaid $75 million in April.
This story has been updated with more information from the earnings call.
