Press Release: Compass, Inc. Reports Second Quarter 2023 Results
Compass, Inc. Reports Second Quarter 2023 Results
Achieves Positive Free Cash Flow In Second Quarter
New York, NY - August 7, 2023 - Compass, Inc. (NYSE: COMP) (“Compass” or “the Company”), the largest residential real estate brokerage in the United States by transaction volume, announced its financial results for the second quarter ended June 30, 2023.
“I am pleased to say we are free cash flow positive in the second quarter of 2023,” said Robert Reffkin, Founder and Chief Executive Officer of Compass. “Additionally, national market share in Q2 2023 was 4.6% which marks the third consecutive quarter of market share gains, increasing 45 basis points over the period”.
“Compass continued to enhance its proprietary end-to-end platform with the launch of new features like Performance Tracker, Compass GPT integration as well as 1-click Title & Escrow. The non-GAAP Commissions expense as a percentage of revenue improved by approximately 38 basis points from the second quarter of last year when excluding the impact of the Agent Equity Program on the year ago period. High levels of principal agent retention continued with over 90% annualized retention in Q2 2023. Every month in the first half of the year, the number of principal agents the Company lost was less than the month before,” said Reffkin.
“We had operating cash flow of $53 million and free cash flow of $51 million in Q2 2023. We have made up most of the free cash flow deficit from Q1 2023 and we believe we are in position to achieve our goal of being free cash flow positive for 2023,” said Kalani Reelitz, Chief Financial Officer. “We ended the second quarter with $335 million in cash and cash equivalents including a $150 million draw from our revolving credit facility. Given our conviction on being free cash flow positive, in July we repaid the entire $150 million balance outstanding on the facility.”
In the last four quarters, Compass significantly improved its non-GAAP operating expenses with a reduction in the annualized run rate of more than $500 million. It expects to achieve its goal of a $900 million annualized operating expense run rate in Q4 2023. Compass remains committed to the path to maintain its operating expenses at $900 million in 2024 and is focused on maintaining that level through 2025.
Q2 2023 Financial Highlights:
Revenue decreased by 26% year-over-year to $1.5 billion as transactions declined 19% driven by macroeconomic factors, combined with a decrease in the price of the average Compass transaction which was in part attributable to a shift in mix involving fewer sales in high-end markets like California.
Q2 2023 GAAP Net loss was $48 million, an improvement of 53% from a Net loss of $101 million in Q2 2022. The Net loss for Q2 2023 includes non-cash stock-based compensation expenses of $39 million, depreciation and amortization of $22 million, and a $16 million restructuring charge related to continued efficiency improvements.
Adjusted EBITDA (a non-GAAP measure) was $30 million in Q2 2023, compared to $4 million in Q2 2022. This is an improvement of $26 million while revenue declined by 26% due to macroeconomic factors.
Operating Cash Flow / Free Cash Flow (a non-GAAP measure): During Q2 2023, we delivered operating cash flow of $53 million and free cash flow of $51 million when considering capital expenditures.
Cash and cash equivalents at the end of Q2 2023 was $335 million, which includes $150 million of cash resulting from a draw of our revolving credit facility in Q4 2022. The $150 million draw was repaid in July 2023.
Q2 2023 Operational Highlights:
Platform: The Compass end-to-end technology platform provides real estate agents with the ability to perform their primary workflows, from first contact to close, with a single log-in and without leaving the Compass platform. Compass continued the roll out of its title and escrow business integration into the technology platform in Southern California by expanding the offering to San Diego. We expect to complete our expansion of this integration in Philadelphia, Washington DC, Maryland and Virginia by the end of 2023, and eventually roll out this integration feature to all the markets where we offer title and escrow services.
National market share in Q2 2023 was 4.6%, up 13 basis points sequentially from Q1 2023. This marks the third consecutive quarter of market share gains, increasing 45 basis points over the period.
Agents: Average Number of Principal Agents was 13,633 for Q2 2023, an increase of 429 principal agents from Q2 2022 and up sequentially from Q1 2023. Compass continued to experience high levels of retention of principal agents with over 90%+ annual retention rate. Every month in the first half of the year, the number of principal agents we lost was less than the month before. July, while not yet closed, looks to continue the trend. The number of NAR agents is down from its peak of 1.6 million in October 2022.
Transactions: Compass agents closed 54,207 Total Transactions in Q2 2023, a decline of 19% compared to Q2 2022. Transactions for the entire U.S. residential real estate market declined 21% for the same period.
A note from Robert Reffkin-
Despite the challenges of the current real estate market – one of the most challenging in history – we’ve achieved our goal of becoming free cash-flow positive this quarter! This is a direct result of the incredible tenacity, passion, and resourcefulness you have all demonstrated.
In the past critics have said, “Compass could not make money in 2021, the best real estate market in history, so how could they ever make money in a normal market? Will they ever be profitable?” With today’s earnings, Compass just made money in the worst real estate market since 2009 and became free cash flow positive, meaning we generated more cash than we spent on operations. In doing so, we have put those questions to rest.
To highlight our results:
We achieved our commitment of being free cash flow positive for 2Q 2023 with $51 million in free cash flow.
National market share increased for the 3rd quarter in a row to 4.6%.
Revenue for the quarter was $1.5 billion with sales volume of $56.8 billion and over 54,000 transactions…that’s nearly 600 transactions per day! YOU did that!
Adjusted EBITDA was $30 million in Q2 2023, an increase from $4 million in Q2 2022.
Agent retention remained incredibly high with 98% of principal agents choosing to remain at Compass during Q2 2023 and every month this year less principal agents left than the month before.
Being free cash flow positive is an exciting milestone for Compass – one that will allow us to continue to invest more than any other company in the things that help agents grow their businesses. We have proven not only the strength of our company, but that all of you are the best in the industry. What is equally impressive is that we did this with a 98% retention rate of principal agents, and we saw numerous agents come back to Compass who had previously left. Additionally, we increased our national market share up to 4.6% – marking the third consecutive quarter of market share gains. While other companies are losing market share during this moment, we are gaining market share.
Our industry is experiencing a critical shift right now. In reaction to the market downturn, many brokerages are reducing the value they provide for agents – losing market share, closing offices, investing less in in-person culture, and giving up on trying to integrate 3rd party technology and tools. As this continues, the amount of value these brokerages can deliver to agents will be reduced significantly. Some traditional brokerages are turning into discount brokerages. At Compass, we are going in the other direction – we are gaining market share, strengthening the in-person culture of our offices, and investing millions of dollars in technology to help our agents grow and better serve their clients. This will ensure that Compass continues to create more tangible value for you and your clients than any other company. While others are retreating and weakening, Compass is building and getting stronger.