Compass, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Compass operates a residential real estate brokerage and agent technology platform, with substantially all revenue generated from transaction commissions. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Revenue | $1,054.1 | $957.2 | Up 10.1%, primarily from agent growth and higher transaction volume |
| Operating loss | $(132.1) | $(148.4) | Operating margin was (12.5%), versus (15.5%) |
| Net loss attributable to Compass | $(132.9) | $(150.4) | Basic and diluted loss per share: $(0.27), versus $(0.33) |
| Adjusted EBITDA | $(20.1) | $(67.1) | Non-GAAP measure; margin improved to (1.9%) from (7.0%) |
| Operating cash flow | $8.6 | $(55.5) | Improved; substantially supported by changes in operating assets and liabilities |
| Cash and cash equivalents | $165.9 at March 31 | $166.9 at December 31, 2023 | Quarter-end cash decreased $1.0 from the beginning of the quarter |
Gross profit and a gross margin are not separately reported. Commissions and related expense was $862.3 million, or 81.8% of revenue, compared with $790.9 million, or 82.6% of revenue, in Q1 2023. The company reported total assets of $1,144.9 million, total liabilities of $811.4 million, and stockholders’ equity of $333.5 million at quarter-end. The accumulated deficit was $2.7 billion.
Operating metrics improved year over year: transactions rose 7.1% to 38,449; Gross Transaction Value increased 9.6% to $40.1 billion; and principal agents increased 7.3% to 14,591. Compass reported market share of 4.8%, compared with 4.5% a year earlier.
Material changes and unusual items
- General and administrative expense rose to $82.2 million from $34.4 million, primarily reflecting a $57.5 million charge for the proposed resolution of certain antitrust lawsuits.
- Sales and marketing expense declined 19.0% to $93.4 million, and restructuring costs fell to $1.5 million from $10.1 million. Management attributed lower underlying expenses across several functions to cost reductions and lower headcount.
- Adjusted EBITDA excludes the $57.5 million litigation charge as well as specified other items; it is a non-GAAP measure and should be considered alongside GAAP results.
- Stock-based compensation was $32.9 million, down from $44.9 million. Shares outstanding increased to 492.3 million from 484.9 million at year-end 2023.
- In Q1, Compass acquired a title and escrow services company for consideration including $4.0 million in stock and $0.5 million payable later. Two additional acquisitions were agreed in April and May; their preliminary upfront consideration was approximately $23.3 million in stock and $22.5 million in cash, with potential earn-outs.
Liquidity, debt, outlook, and risks
Compass had no borrowings under its $350 million revolving credit facility at March 31, 2024, with $310.9 million available to draw; $39.1 million of letters of credit were outstanding under the facility. It reported $23.5 million outstanding under the separate Concierge facility, which finances its Concierge program. The company said it was in compliance with facility covenants. The revolving facility matures in March 2026; the Concierge facility’s revolving period runs to August 2025, with principal, if any, payable in January 2026.
Management believes available cash, credit facilities, and future operations will support operations for at least the next 12 months and beyond. It also cautioned that operating losses and negative operating cash flow may continue in certain periods, given market conditions, and that further cost reductions may be needed. No specific revenue or earnings guidance is provided in the filing.
The proposed $57.5 million antitrust settlement covers the Gibson and Umpa matters and certain similar nationwide seller claims, includes business-practice changes, and remains subject to court approval. Half is expected to be paid within 30 days of preliminary approval and the remainder within one year of that approval. Other antitrust cases remain pending; Compass said it could not estimate a possible loss for Batton II, whose resolution could materially affect its financial position, results, or cash flow. The filing also highlights mortgage rates, inflation, housing affordability and demand, home inventory, litigation, and the seasonal and cyclical nature of real estate as risks.
Escrow and trust deposits administered for clients totaled $213.1 million at March 31, 2024. They are not company assets but Compass remains contingently liable for their disposition. Management reported disclosure controls were effective at the reasonable assurance level and no material change to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether courts grant preliminary and final approval to the antitrust settlement, its payment timing, and the effect of required business-practice changes.
- Progress and potential financial exposure in the remaining antitrust litigation, particularly Batton II and other cases not resolved by the proposed settlement.
- Whether transaction growth, agent additions, and Gross Transaction Value continue to translate into improved GAAP profitability and operating cash flow, apart from working-capital movements and non-GAAP adjustments.
- Cash needs and covenant headroom after settlement payments and the announced acquisitions, including any earn-outs or further financing requirements.
- Potential dilution from equity compensation, acquisition consideration, earn-outs, and the increase in shares outstanding.