Compass Reports $154M Quarterly Loss in Tough Housing Market

Compass’ Robert Reffkin (Getty, Compass)

Compass’ losses continued to mount in the third quarter as the housing market cooled.

Its net loss in the third quarter was $154 million, including noncash–related expenses such as $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 its cash reserves fell by $76 million last quarter, compared with a $45 million drop in the second quarter, which is typically the most profitable for brokerages.

Its adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was a loss of $42 million, compared with a gain of $12 million a year ago. Revenue was $1.49 billion, a 14 percent year-over-year decrease.

The earnings were released after the market closed Thursday, during which Compass’ share price shot up 31 percent to $2.43. However, it is still down 17 percent in the past month and 75 percent this year.

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, Reffkin said 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 the second quarter. It also has $300 million available under its revolver.

Reffkin, who last month stepped in as chief financial officer on an interim basis, said the company “made progress in a number of important areas during the third quarter,” a challenging time in the housing market. He pointed to Compass’ 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 has risen to the top of the industry in its decade of existence, but has never turned a profit.

Reffkin said on the earnings call that the company is aiming to be cash flow positive by the second quarter next year. “We are managing the business to reduce the cost base with a very specific goal to become free cash flow positive in 2023,” he said.

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 past 12 months, up from 4.3 percent the year 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.

Hours before the earnings came out, Reffkin was at The Real Deal’s South Florida Real Estate Showcase & Forum, where he emphatically said during a panel discussion that “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.”