Compass revenue down, but Q4 losses improve
Revenue was $1.1 billion, down 31% compared to Q4 2021, but cost-cutting measures may be stemming the tide of losses.
In an effort to counter a 31% decline in revenue in Q4, Compass is focused on reducing expenses and may consider the introduction of franchises in new markets.
"If a buildout of franchising is a more profitable way to grow, that is certainly something we are exploring," Reffkin said during a Q4 earnings call after the market closed Tuesday. "We will be putting more focus on franchising but not in a way that would impair existing agents."
In the fourth quarter, the company brought in $1.11 billion in revenue, a decrease from the $1.6 billion generated in Q4 2021.
Reffkin said he believes that Compass — which had a 25% drop in home sales — performed better than the industry as a whole, and he remains focused on cutting costs. He said he was prepared to make further reductions in 2023 if the economic downturn continues to impact home sales and revenue.
And while 10-year-old Compass made a name for itself in the industry by attracting new agents with cash bonuses and stock options, Reffkin noted that the company paused those incentives in 2022 but still managed to attract talent.
"We've hired 1,000 agents since August without signing bonuses or equity, and they are coming because they believe that Compass and the [agent] platform will help them grow their business," Reffkin said.
Revenue: $1.11 billion in Q4, down 31% year-over-year as transactions declined 25%. $6 billion in full-year revenue, down 6% from 2021.
Adjusted EBITDA: $75 million loss in Q4, compared to a $51 million loss in Q4 2021. Adjusted EBITDA for the year was $210 million in losses, compared to $2 million in income for FY 2021.
GAAP net loss: $158 million for Q4, down from a net loss of $175 million in
Q4 2021. The net loss for FY22 was $602 million compared to $494 million in FY21.
Agents: Principal agents averaged 13,073 for FY22, an increase of 2,015 from FY21. Agent retention for Q4 2022 was 98%, the same as Q3 2022 and Q4 2021.
Transactions: 211,538 transactions for fiscal 2022, a decline of 6% year-over-year.
What Compass had to say
"While 2022 was a tough year for the housing market, we responded by taking the initiative to reset our cost space, reduce expenses and drive operating efficiencies," Reffkin said. "As the market deteriorated, we moved fast to reduce non-GAAP operating costs" by $338 million.
The company reported a 98% agent retention and credited its tech focus. "We attribute a significant amount of our agents' productivity to our differentiated technology platform, which is the only proprietary end-to-end technology platform for agents in the country," Reffkin said.
He previously noted that Compass had completed the "heavy investment phase" of its platform and plans to focus on continued improvements over time.
Like many companies affected by the market downturn, Compass made workforce reductions in an effort to cut costs, instituting three rounds of layoffs between June 2022 and January 2023.
Reffkin did not indicate whether the company would make further staff reductions in 2023, but discussed plans to cut costs by using offshore talent in non-agent-facing roles. Compass is working with the global company Genpact, which specializes in providing skilled services that include technology, finance and accounting and customer care.
The company will continue to invest in growth and technology in 2023 after the 2022 rollout of its updated technology platform. Compass plans to integrate title and escrow services in the tech platform after beta testing it in California.
Compass CFO Kalani Reelitz said he anticipates the company will be "free cash flow positive" by the second quarter of this year. "We continue to implement our expense reduction actions as planned," he said.