nevertheless compass needle could not be achieved The much-touted goal of becoming free cash flow positive In 2023, brokerage executives remained positive about the company’s performance over the past year.
“Even with these new operating costs, [operating expense] Compass CEO and Founder Robert Refkin told investors and analysts during the company’s fourth quarter that the company was “capitalizing on agent growth, market share gains, and approximately $100 million in annual research and development.” We continue to invest in expanding our technological advantages and expanding our integrated services.” The company’s 2023 financial results will be announced on Tuesday night.
“We have successfully navigated two consecutive years of very significant industry-wide trade declines. Despite these significant headwinds, Compass has seen significant gains as the market begins to recover.” I think it is possible.”
Despite positive free cash flow in both Q2 2023 and Q3 2023, Compass recorded a free cash flow loss of $41 million in the fourth quarter, which resulted in a full-year 2023 free cash flow loss of $37.1 million. While this result wasn’t what Compass was aiming for, it’s still a notable improvement compared to the free cash flow loss of $361.8 million in 2022.
Compass attributed some of these struggles to the downturn in the housing market in 2023, with Compass closing 178,848 deals (down 15.5% for the year). However, executives noted that Compass outperformed an industry that reported a nearly 19% decline in transactions in 2023.
“We believe 2023 was the bottom of the economic downturn, and we are always preparing for a better 2024,” Levkin said. “Ultimately, the real estate market will reach more levels of transactions mid-cycle.”
Executives also said the brokerage was launched in 2023 amid an effort to reduce operating expenses, which was at least partly responsible for the company’s $59 million free cash-low loss in the first quarter of 2023. pointed out that this was the cause.
Compass’ other financial results also showed improvement compared to 2022. The company reported a net loss of $83.8 million compared to a net loss of $158 million in the fourth quarter of 2022, even though the company reported sales of approximately $1.1 billion in the fourth quarter of 2023, down 1% annually. It has improved from the loss.
Additionally, Compass reported full-year 2023 revenue of $4.885 billion, down 19% year-over-year, but its net loss for the year ($320.1 million) was almost the same as 2022’s $601.5 million. It became half.
Looking to 2024, Compass continues to focus on prudently managing operating expenses, executives said.
“I want to be clear that our 2024 operating cost target is not a one-time expense reduction, but a reset of operating costs,” Levkin said. “Importantly, our future success does not depend on delivering new products or expanding into new markets.”
With this strong management team, executives said the company aims to return to positive free cash flow in 2024, and he said they are confident they can achieve that.
“Cash flow in any period can be affected by the timing of cash collections from transactions and payments to agents, vendors, and employees, but it also depends on the relationship between each quarter and the past year. “The magnitude of the improvement in free cash flow is directly impacted and is due to the impact of our cost discipline,” said Kalani Leeritz, Chief Financial Officer.
While Levkin is happy to discuss Compass’ 2023 results, he told investors and analysts in prepared remarks that he would not answer any questions about the Commission litigation on this or future conference calls. Ta. Despite this assertion, Mr. Levkin was willing to answer questions about the company’s use of buyer agency agreements during the Q&A portion of the conference call.
He noted that the company has conducted its “largest training program” to date, with 20,000 agents trained on buyer representation agreements. As a result, purchaser agency agreements have become standard practice for Compass agencies.
“My concerns about the financial risk associated with this theme have been alleviated as I have seen these contracts successfully leveraged within Compass,” Levkin said.
He also noted that Compass began helping agents create buyer-facing presentations this fall, noting that while agents have long been creating listing presentations for sellers, they are struggling to clearly articulate their value proposition to buyers. He pointed out that he was having a hard time conveying his feelings to the public.
“One of the reasons we’re in a situation where not every buyer understands the value is that as an industry we’ve created listing presentations for sellers, but we’ve created buyer presentations for buyers. We didn’t do that,” Levkin said.
Looking ahead to 2024, Refkin and Compass remain optimistic about the future, highlighting the continued appeal of Compass’ technology platform to many agencies across the industry.
“Assuming we continue to add agents each year, maintain or slightly improve agent economics, and maintain $600 million in cost savings with minimal inflation growth of 3% to 4%, Compass We believe that we will generate $1,000 EBITDA and EBITDA. Free cash flow will improve and the market will recover to more normalized mid-cycle home sales levels,” Levkin said.
