Compass, Inc. Reports Second Quarter 2023 Results
Achieves Positive Free Cash Flow In Second Quarter
"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
"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
"We had operating cash flow of
In the last four quarters, Compass significantly improved its non-GAAP operating expenses with a reduction in the annualized run rate of more than
Q2 2023 Financial Highlights:
- Revenue decreased by
26% year-over-year to as transactions declined$1.5 billion 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
, an improvement of$48 million 53% from a Net loss of in Q2 2022. The Net loss for Q2 2023 includes non-cash stock-based compensation expenses of$101 million , depreciation and amortization of$39 million , and a$22 million restructuring charge related to continued efficiency improvements.$16 million - Adjusted EBITDA2 (a non-GAAP measure) was
in Q2 2023, compared to$30 million in Q2 2022. This is an improvement of$4 million while revenue declined by$26 million 26% due to macroeconomic factors. - Operating Cash Flow / Free Cash Flow3 (a non-GAAP measure): During Q2 2023, we delivered operating cash flow of
and free cash flow of$53 million when considering capital expenditures.$51 million - Cash and cash equivalents at the end of Q2 2023 was
, which includes$335 million of cash resulting from a draw of our revolving credit facility in Q4 2022. The$150 million draw was repaid in July 2023.$150 million
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 toSan Diego . We expect to complete our expansion of this integration inPhiladelphia ,Washington DC ,Maryland andVirginia 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 2023.4 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 entireU.S. residential real estate market declined21% for the same period.5 - Gross Transaction Value ("GTV")6 was
in Q2 2023, a decline of$56.8 billion 26% compared to Q2 2022.
Additional information can be found in the Company's Q2 2023 Earnings Presentation, which can be found in the Investor Relations section of the Compass website at https://investors.compass.com.
Outlook
Q3 2023 Outlook:
- Revenue of
to$1.3 billion $1.4 billion - Adjusted EBITDA of
million to$15 $35 million - Free cash flow positive
FY 2023 Outlook:
- Non-GAAP Operating expense range of
.7$850 -$950 million - Free cash flow positive
We have not reconciled our guidance for Adjusted EBITDA to GAAP Net loss because certain expenses excluded from GAAP Net loss when calculating Adjusted EBITDA cannot be reasonably calculated or predicted at this time. Additionally, we have not reconciled our guidance for Non-GAAP Operating expense after commissions and other related expenses to GAAP Operating expenses because certain expenses excluded from GAAP Operating expenses cannot be reasonably calculated or predicted at this time. Accordingly, reconciliations are not available without unreasonable effort.
For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures on a historical basis, see "Reconciliation of Net Loss Attributable to Compass, Inc. to Adjusted EBITDA", "Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses" and "Reconciliation of GAAP Operating Cash Flow to Free Cash Flow" in the financial statement tables included within this press release.
Conference Call Information
Management will conduct a conference call to discuss the second quarter 2023 results as well as outlook at 5:00 p.m. ET on Monday, August 7, 2023. The conference call will be accessible via the Internet on the Compass Investor Relations website https://investors.compass.com. You can also access the audio webcast via the following link: Compass Inc. Q2 2023 Earnings Conference Call.
An audio recording of the conference call will be available for replay shortly after the call's completion. To access the replay, visit the Events and Presentations section on the Compass Investor Relations website at https://investors.compass.com.
Disclosure Channels
Compass uses its Investor Relations website, https://investors.compass.com, as a means of disclosing information which may be of interest or material to its investors and for complying with disclosure obligations under Regulation FD. We intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, the investor relations page on our website (www.compass.com), press releases, public conference calls, public webcasts, our Twitter feed (@Compass), our Facebook page, our LinkedIn page, our Instagram account, our YouTube channel, and Robert Reffkin's Twitter feed (@RobReffkin) and Instagram account (@robreffkin). Accordingly, investors should monitor each of these disclosure channels.
Safe Harbor Statement
This press release includes forward-looking statements, which are statements other than statements of historical facts, and statements in the future tense. These statements include, but are not limited to, statements regarding our future performance, including expected financial results for the third quarter and full year of 2023, planned operating expense and cash flow levels for the third quarter and full year of 2023, and our expectations for operational achievements. Forward-looking statements are based upon various estimates and assumptions, as well as information known to us as of the date of this press release, and are subject to risks and uncertainties, including but not limited to: general macroeconomic conditions in the
More information about factors that could adversely affect our results of operations, financial condition and prospects, or that could cause actual results to differ from those expressed or implied in our forward-looking statements is included under the captions "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q, copies of which are available on the Investor Relations page of our website at https://investors.compass.com/ and on the SEC website at www.sec.gov. All information herein speaks as of the date hereof and all forward-looking statements contained herein are based on information available to us as of the date hereof, and we do not assume any obligation to update these statements as a result of new information or future events. Undue reliance should not be placed on the forward-looking statements in this press release.
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared in accordance with GAAP, we present Adjusted EBITDA, Non-GAAP Operating expenses, and Free Cash Flow, which are non-GAAP financial measures, in this press release. We use Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow are also helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow have limitations as analytical tools. Therefore, you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow alongside other financial performance measures, including net loss attributable to Compass, Inc., GAAP Operating expenses, operating cash flows and our other GAAP measures. In evaluating Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments reflected in this press release. Our presentation of Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow should not be construed to imply that our future results will be unaffected by the types of items excluded from these calculations of Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow. Adjusted EBITDA, Non-GAAP Operating expenses and Free Cash Flow are not presented in accordance with GAAP and the use of these terms vary from others in our industry. Reconciliations of these non-GAAP measures have been provided in the financial statement tables included within this press release, and investors are encouraged to review these reconciliations.
About Compass
Compass is the largest residential real estate brokerage in
1 Compass was ranked number one in sales volume for 2022 by Real Trends in March 2023 for the second year in a row.
2 A reconciliation of GAAP to Non-GAAP measures can be found within the financial statement tables included within this press release.
3 A reconciliation of GAAP to Non-GAAP measures can be found within the financial statement tables included within this press release.
4 During the first quarter of 2023, we began to utilize an updated methodology for tracking and reporting our agent statistics. The Average Number of Principal Agents and year over year growth reported in this press release is based on the updated methodology.
5 We calculate Total Transactions by taking the sum of all transactions closed on the Compass platform in which our agent represents the buyer or seller in the purchase or sale of a home (excluding rental transactions). We include a single transaction twice when one or more Compass agents represent both the buyer and seller in any given transaction.
6 Gross Transaction Value includes a de minimis number of new development and commercial brokerage transactions.
7 Non-GAAP Operating expenses exclude Commissions and other related expenses, Depreciation and amortization, Stock-based compensation and other expenses excluded from the Company's calculation of Adjusted EBITDA. We calculate non-GAAP Operating expense annualized run rate by taking the sum of the quarter's non-GAAP sales and marketing, operations and support, research and development, and general and administration expenses and multiplying it by four.
Compass, Inc. | |||
Condensed Consolidated Balance Sheets | |||
(In millions, unaudited) | |||
June 30, 2023 | December 31, 2022 | ||
Assets | |||
Current assets | |||
Cash and cash equivalents | $ 335.4 | $ 361.9 | |
Accounts receivable, net of allowance | 58.4 | 36.6 | |
Compass Concierge receivables, net of allowance | 36.4 | 42.9 | |
Other current assets | 63.7 | 76.5 | |
Total current assets | 493.9 | 517.9 | |
Property and equipment, net | 171.0 | 192.5 | |
Operating lease right-of-use assets | 439.2 | 483.2 | |
Intangible assets, net | 86.4 | 99.3 | |
Goodwill | 203.8 | 198.4 | |
Other non-current assets | 30.3 | 41.8 | |
Total assets | $ 1,424.6 | $ 1,533.1 | |
Liabilities and Stockholders' Equity | |||
Current liabilities | |||
Accounts payable | $ 23.3 | $ 28.1 | |
Commissions payable | 97.0 | 48.0 | |
Accrued expenses and other current liabilities | 108.6 | 164.9 | |
Current lease liabilities | 101.4 | 94.6 | |
Concierge credit facility | 30.4 | 31.9 | |
Revolving credit facility | 150.0 | 150.0 | |
Total current liabilities | 510.7 | 517.5 | |
Non-current lease liabilities | 448.1 | 486.5 | |
Other non-current liabilities | 14.1 | 8.4 | |
Total liabilities | 972.9 | 1,012.4 | |
Stockholders' equity | |||
Common stock | — | — | |
Additional paid-in capital | 2,842.3 | 2,713.6 | |
Accumulated deficit | (2,394.7) | (2,196.5) | |
Total Compass, Inc. stockholders' equity | 447.6 | 517.1 | |
Non-controlling interest | 4.1 | 3.6 | |
Total stockholders' equity | 451.7 | 520.7 | |
Total liabilities and stockholders' equity | $ 1,424.6 | $ 1,533.1 |
Compass, Inc. | ||||||||
Condensed Consolidated Statements of Operations | ||||||||
(In millions, except share and per share data, unaudited) | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Revenue | $ 1,494.0 | $ 2,020.1 | $ 2,451.2 | $ 3,417.1 | ||||
Operating expenses: | ||||||||
Commissions and other related expense (1) | 1,224.0 | 1,652.9 | 2,014.9 | 2,799.3 | ||||
Sales and marketing (1) | 113.3 | 154.9 | 228.6 | 299.9 | ||||
Operations and support (1) | 83.0 | 104.9 | 164.1 | 213.8 | ||||
Research and development (1) | 45.4 | 107.2 | 94.3 | 215.4 | ||||
General and administrative (1) | 34.7 | 55.2 | 69.1 | 110.5 | ||||
Restructuring costs | 15.9 | 18.9 | 26.0 | 18.9 | ||||
Depreciation and amortization | 22.3 | 25.4 | 47.2 | 44.1 | ||||
Total operating expenses | 1,538.6 | 2,119.4 | 2,644.2 | 3,701.9 | ||||
Loss from operations | (44.6) | (99.3) | (193.0) | (284.8) | ||||
Investment income, net | 2.5 | 0.3 | 5.4 | 0.4 | ||||
Interest expense | (4.1) | (0.7) | (7.3) | (1.4) | ||||
Loss before income taxes and equity in loss of unconsolidated entity | (46.2) | (99.7) | (194.9) | (285.8) | ||||
Income tax benefit | — | 1.5 | — | 1.4 | ||||
Equity in loss of unconsolidated entity | (0.7) | (2.9) | (2.2) | (5.0) | ||||
Net loss | (46.9) | (101.1) | (197.1) | (289.4) | ||||
Net (income) loss attributable to non-controlling interests | (0.9) | (0.1) | (1.1) | 0.2 | ||||
Net loss attributable to Compass, Inc. | $ (47.8) | $ (101.2) | $ (198.2) | $ (289.2) | ||||
Net loss per share attributable to Compass, Inc., basic and diluted | $ (0.10) | $ (0.24) | $ (0.44) | $ (0.69) | ||||
Weighted-average shares used in computing net loss per share attributable to Compass, Inc., basic and diluted | 460,960,349 | 427,987,083 | 455,538,666 | 421,719,718 | ||||
(1) | Total stock-based compensation expense included in the condensed consolidated statements of operations is as follows (in millions): | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Commissions and other related expense | $ — | $ 6.4 | $ 11.6 | $ 23.4 | ||||
Sales and marketing | 9.0 | 11.2 | 17.6 | 21.9 | ||||
Operations and support | 4.1 | 4.1 | 7.1 | 8.4 | ||||
Research and development | 12.6 | 18.9 | 23.0 | 35.8 | ||||
General and administrative | 13.3 | 18.6 | 24.6 | 33.5 | ||||
Total stock-based compensation expense | $ 39.0 | $ 59.2 | $ 83.9 | $ 123.0 |
Compass, Inc. | |||
Condensed Consolidated Statements of Cash Flows | |||
(In millions, unaudited) | |||
Six Months Ended June 30, | |||
2023 | 2022 | ||
Operating Activities | |||
Net loss | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||
Depreciation and amortization | 47.2 | 44.1 | |
Stock-based compensation | 83.9 | 123.0 | |
Equity in loss of unconsolidated entity | 2.2 | 5.0 | |
Change in acquisition related contingent consideration | 0.6 | (0.3) | |
Bad debt expense | 2.8 | 3.4 | |
Amortization of debt issuance costs | 0.4 | 0.5 | |
Changes in operating assets and liabilities: | |||
Accounts receivable | (24.1) | (14.5) | |
Compass Concierge receivables | 5.9 | (26.9) | |
Other current assets | 12.4 | (15.0) | |
Other non-current assets | 9.4 | (3.3) | |
Operating lease right-of-use assets and operating lease liabilities | 9.5 | 3.9 | |
Accounts payable | (4.9) | 10.6 | |
Commissions payable | 49.0 | 31.9 | |
Accrued expenses and other liabilities | 0.6 | 6.7 | |
Net cash used in operating activities | (2.2) | (120.3) | |
Investing Activities | |||
Investment in unconsolidated entity | — | (12.5) | |
Capital expenditures | (6.1) | (41.4) | |
Payments for acquisitions, net of cash acquired | — | (15.0) | |
Net cash used in investing activities | (6.1) | (68.9) | |
Financing Activities | |||
Proceeds from exercise of stock options | 2.9 | 7.7 | |
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 1.4 | — | |
Taxes paid related to net share settlement of equity awards | (10.3) | (13.8) | |
Proceeds from drawdowns on Concierge credit facility | 29.3 | 26.7 | |
Repayments of drawdowns on Concierge credit facility | (30.8) | (12.5) | |
Proceeds from drawdowns on Revolving credit facility | 75.0 | — | |
Repayments of drawdowns on Revolving credit facility | (75.0) | — | |
Payments related to acquisitions, including contingent consideration | (10.2) | (6.7) | |
Other | (0.5) | — | |
Net cash (used in) provided by financing activities | (18.2) | 1.4 | |
Net decrease in cash and cash equivalents | (26.5) | (187.8) | |
Cash and cash equivalents at beginning of period | 361.9 | 618.3 | |
Cash and cash equivalents at end of period | $ 335.4 | $ 430.5 |
Compass, Inc. | |||||||
Reconciliation of Net Loss Attributable to Compass, Inc. to Adjusted EBITDA | |||||||
(In millions, unaudited) | |||||||
Three Months | Six Months | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net loss attributable to Compass, Inc. | |||||||
Adjusted to exclude the following: | |||||||
Depreciation and amortization | 22.3 | 25.4 | 47.2 | 44.1 | |||
Investment income, net | (2.5) | (0.3) | (5.4) | (0.4) | |||
Interest expense | 4.1 | 0.7 | 7.3 | 1.4 | |||
Stock-based compensation | 39.0 | 59.2 | 83.9 | 123.0 | |||
Income tax benefit | — | (1.5) | — | (1.4) | |||
Restructuring costs | 15.9 | 18.9 | 26.0 | 18.9 | |||
Acquisition-related expenses(1) | (0.9) | 3.0 | 2.2 | 11.1 | |||
Adjusted EBITDA | $ 30.1 | $ 4.2 | $ (37.0) | $ (92.5) | |||
(1) For the three months ended June 30, 2023 and 2022, acquisition-related expenses includes a |
Compass, Inc. | |||||||
Reconciliation of Operating Cash Flows to Free Cash Flow | |||||||
(In millions, unaudited) | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net cash provided by (used in) operating activities | $ (9.3) | ||||||
Less: | |||||||
Capital expenditures | (2.6) | (20.6) | (6.1) | (41.4) | |||
Free cash flow |
Compass, Inc. | |||||||
Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses | |||||||
(In millions, unaudited) | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
GAAP Commissions and other related expense | |||||||
Adjusted to exclude the following: | |||||||
Stock-based compensation | — | (6.4) | (11.6) | (23.4) | |||
Non-GAAP Commissions and other related expense | |||||||
GAAP Sales and marketing | $ 113.3 | $ 154.9 | $ 228.6 | $ 299.9 | |||
Adjusted to exclude the following: | |||||||
Stock-based compensation | (9.0) | (11.2) | (17.6) | (21.9) | |||
Non-GAAP Sales and marketing | $ 104.3 | $ 143.7 | $ 211.0 | $ 278.0 | |||
GAAP Operations and support | $ 83.0 | $ 104.9 | $ 164.1 | $ 213.8 | |||
Adjusted to exclude the following: | |||||||
Stock-based compensation | (4.1) | (4.1) | (7.1) | (8.4) | |||
Acquisition-related expenses | 0.9 | (3.0) | (2.2) | (11.1) | |||
Non-GAAP Operations and support | $ 79.8 | $ 97.8 | $ 154.8 | $ 194.3 | |||
GAAP Research and development | $ 45.4 | $ 107.2 | $ 94.3 | $ 215.4 | |||
Adjusted to exclude the following: | |||||||
Stock-based compensation | (12.6) | (18.9) | (23.0) | (35.8) | |||
Non-GAAP Research and development | $ 32.8 | $ 88.3 | $ 71.3 | $ 179.6 | |||
GAAP General and administrative | $ 34.7 | $ 55.2 | $ 69.1 | $ 110.5 | |||
Adjusted to exclude the following: | |||||||
Stock-based compensation | (13.3) | (18.6) | (24.6) | (33.5) | |||
Non-GAAP General and administrative | $ 21.4 | $ 36.6 | $ 44.5 | $ 77.0 |
Compass, Inc. | |||||||||||
Non-GAAP Operating Expenses Excluding Commissions and Other Related Expense | |||||||||||
(In millions, unaudited) | |||||||||||
Three Months Ended | |||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | ||||||
Sales and marketing | $ 134.3 | $ 143.7 | $ 133.6 | $ 121.5 | $ 106.7 | $ 104.3 | |||||
Operations and support | 96.5 | 97.8 | 89.6 | 81.7 | 75.0 | 79.8 | |||||
Research and development | 91.3 | 88.3 | 72.1 | 51.1 | 38.5 | 32.8 | |||||
General and administrative | 40.4 | 36.6 | 32.7 | 27.5 | 23.1 | 21.4 | |||||
Total non-GAAP operating expenses excluding | $ 362.5 | $ 366.4 | $ 328.0 | $ 281.8 | $ 243.3 | $ 238.3 |
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SOURCE Compass