Compass shares soared 35% on Wednesday First Quarter Earnings Conference Callduring which executives revealed they beat revenue expectations and expanded market share.
Shares rose 98 cents to $3.78, more than double their low of $1.84 but still well below their 52-week high of $6.88.
Investors responded enthusiastically as executives struggled to make the brokerage business cash flow positive by the end of June after a year of layoffs that aimed to save the company $550 million in annual operating expenses by the end of June.
“In the first quarter, our agents and employees delivered results,” said CEO Robert Reffkin. “When the market improves in the future, we will be able to generate significant long-term profits.”
Compass expects its second-quarter EBITDA (earnings before interest, taxes, depreciation and amortization) of $30 million to $50 million, based on an expected increase in revenue of $1.45 billion to $1.6 billion in the spring, And spring home sales typically rise.
“We remain on track to be free cash flow positive for the full year given our continued cost containment and assuming transactions this year are in line with industry expectations,” Chief Financial Officer Kalani Reelitz said on the earnings call.
One area of focus for Compass as it seeks to shed losses could be agency numbers. While Compass retained 96% of its prime agents last quarter, its overall headcount was down sequentially and hiring was down from previous levels.
Brokerage last year Stop issuing cash and equity incentives as a recruitment tool.
Reffkin said the company’s aggressive cost-cutting has hampered its ability to recruit new agents, though he added that hiring picked up later in the quarter.
“As we have to implement cost reductions between 2022 and January 2023, we now have roughly half the number of strategic growth managers we had a year ago,” the CEO said. “We need to add more recruiters to build this team, we recognize that and we’re doing that now.”
The number of Compass agents decreased by approximately 400 compared to the previous quarter. It added another 90 principal agents from January to March, after adding 112 in the final quarter of 2022.
Reffkin said more independent agents are joining teams as a hedge against market downturns, which means they don’t appear on the main roster. The other principal surrogate is retiring to become nominated director. Most of the principal agents who left last quarter were earning less than $250,000 a year in commissions, he added.
“I hope this quarter is the bottom line,” Reffkin said. “We don’t have formal forward guidance on surrogate numbers, but that’s my hope based on what we’re seeing. “
