Compass reports 14% revenue drop in Q3 after transactions decline
CEO and founder Robert Reffkin said that lower sales volumes are creating “significant challenges” for the housing industry as mortgage rates climb.
Key points:
- The company reported adjusted EBITDA quarterly losses of $42 million compared to a quarterly gain of $12 million a year prior.
- Reffkin expects market volatility to continue into 2023 before returning to more normal growth.
Compass delivered a disappointing third-quarter earnings update Thursday, reporting a 14% decline in quarterly revenues over the same period in 2021.
Compass had $1.49 billion in revenue in Q3, down from $1.73 billion a year ago.
CEO and founder Robert Reffkin cited lower sales volumes as creating "significant challenges" in the housing industry, driven by higher mortgage costs amid a backdrop of inflation.
Transactions at Compass declined by 12% compared to the same period a year ago, which company leaders said is 10 points less than the industry as a whole.
Adjusted EBITDA losses for the quarter were $42 million, and the company expects EBITDA losses for the year to be $185 million to $215 million.
Reffkin said that he believes sales volatility will continue into 2023 before the housing market stabilizes and returns to more normal growth.
Despite the slowdown in transactions, Reffkin said Compass is continuing to innovate. He noted that the company recently launched its online agent platform designed to give real estate professionals the data, analysis and other information they need to steward customers through their real estate transactions.
"The Compass team remains laser focused on providing our agents with technology, workflow tools, and marketing support to be successful," Reffkin said.
Like many major real estate companies, Compass has had to contend with layoffs in the face of a shifting market. The company has reduced its workforce in the areas of engineering and technology after introducing its agent platform in all markets, Reffkin said.
Compass reported $25 million in severance payouts for dismissed workers. The company had previously estimated in an SEC filing that it would spend up to $26 million on severance packages. The company has laid off about 10% of its 450 employees and is continuing to look for additional ways to reduce costs, Reffkin said.
Compass reported a GAAP net loss of $154 million in Q3, compared to a GAAP net loss of $100 million for the third quarter a year ago.
The net loss included $50 million in "non-cash stock-based" compensation, $29 million for restructuring costs, $11 million in legal fees, and $21 million in depreciation and amortization, the company reported.
"Lower revenues and restructuring costs more than offset reductions in commissions and operating expenses," the company said in a prepared statement Thursday after the stock market closed.
The company reported $355 million of cash and cash equivalents in hand as of Sept. 30, a $76 million decrease compared to Q3 2021.