- Earnings call transcript Q3 2022

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Operator

Good afternoon. My name is Colby, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Compass Inc. Q3 2022 Earnings Conference. All lines have been placed on mute to prevent any background noise. there a remarks session. speakers the will question-and-answer be After call now Richard Relations. [Operator would the over Investor Instructions] I of turn to President Simonelli, Vice

may You begin.

Richard Simonelli

you, you and Compass Thank quarter good joining third call. for the thank earnings XXXX and operator, all afternoon,

business, Robert be and Scott Hart, brief and Chief Executive our overview our and provide financial to will strategy. provide a we our cover a in Chief update our will measures. Accounting of Kristen an will our today the Officer; then Operating results Chief on results discussion us of more Reffkin, Greg will Joining detail. company’s refer will outlook and Compass’ non-GAAP In some Officer; Wahlers, discussing Greg Officer. Robert performance,

these comparable most of quarter to You on our presentation third those non-GAAP GAAP release in investor can directly and the our earnings posted reconciliation the measures website. measures relations find

based assumptions, our These current our full will that our fourth quarter to and expectations, make year uncertainties. and expenses. on risks and XXXX, and are comments forecasts statements for involve the related statements forward-looking operating guidance We include and

factors annual results on could are and from Investor may differ other you our our available Form the statements, find affect quarterly information report Relations XX-Q recent on actual on about Form uncertainties, our also report and these most more results risks, website. with SEC Our can materially that XX-K filed

I’ll all over forward-looking update date You to expressly in should With any on We not it XXXX. to statements presentation information. information XX, disclaim is this turn Robert? place any on of that, November reliance this Robert. as today’s undue now obligation

Robert Reffkin

been for results This for and conference Rich, you, year real today to has everyone bad third quarter us generationally residential thank in our estate. call. Thank joining a you

past uncertainty market lack have XX are months will high of the The levels historic. inventory, the next The stock soaring decades. can high One past buyers speed been persistent. significantly decline diligent the been declines fallen fear of be over on be rates, home Compass several incredible months prices, sidelines. Transactions they keeping has and of the many have that worst and as years and XX of tough the tougher. mortgage

to business we reductions period heavy in engineering getting technology, of reductions our already achieve and been through down the operating variety With our aggressively we on force Since and to second our cost other behind expenses this market focused quarter other this the rapidly side. have investment a of measures, We’re expenses adapt more to year, deteriorating significant [ph]. efficiently. operating the us, in are meeting including

We market among have significant weakening achieved competitors. gains share

initiatives cost the exiting an that taken network, operating have non-GAAP helps have that highly of believe place in strong the targeted billion currently them us most regarded our more pace actions technology make productive. $X.XX We put between date and we a expense rate billion agent We advanced recruit built to and platform us and in deliver $X.XX agents brand on reduction XXXX. incredibly to run

However, are we done. not

cash reduce to positive to implementing Market become be the quarter second for to business in a future of cash being additional a cost declines. to base XXXX. ahead the managing any the initiatives are are flow with we’ll and flow cost free specific We free goal market conditions of starting continuing result get as with very XXXX, positive deteriorate reduction

industry negative seeing are forecasts for to full XX% X% We XXXX. of year the plus

a have been We decline. significant double-digit for planning

down year. go XX% will market the next believe not do we While

our the our to expect lot to a months. Chief Accounting Chief implemented including who begun and Hart, magnitude, management be Officer, We today. are not strong joining who have me Scott waiting Greg with in Wahlers, next are a fortunate this team, already, are and build plan we help of have Operating very this decline Officer to a to account a I of already three for plan am and

is On our automate, by eventually the platform the for our Greg platform. our to technology operational and using monetize platform and side, charge software further enhance leading standardize, continuing lowering expenses to

Wakefield On been great play the member got particularly business top finance I brand, seven and of financial has new that In business [ph] our Kalani. CFO. Cushman track CFO, in helping organization. but with Wakefield. with much to a estate our us companies, experience, we of someone States. and company & And leader of cycles, a role in convinced direction in former of transition of integral a to streamlined in nearly the I take than as He team, as four strong one years rest COO strategic management we has am as in encompass he including CFO. of only Compass brings weeks national profitable management delighted estate of confident the talking with next year an the and I throughout past team Kalani, rules become brings a financial wanted Cushman retreat wanted the along company. in years reached the the Kalani, spent we XX the critical company. can’t new meet had just Greg you am who that annual as with our most the instrumental XX agents to corporate the to not I agents do. a and We they our I and and as our growth. CFO. efficiencies side, two the a that & at acumen have for months search next our various for on him. had Kalani wanted CFO years In our best valuable ago, the done seen just about X,XXX believe you commercial as excellent we executive will set Scott a driving who skills Atlanta. of all tell Americas, strong was that with of operations Walgreens. am and our agent agents years meeting a for join industry team job, We a the business, and anniversary to to large in week, strong the A level I the Kalani over our I someone real and could our couple more XX and We and real board, drive United wait

and housing the turn future. so remains The quarter long capitalize marketing dedicated stability workflow to in when our cash tools goal to become team we we XXXX, in XXXX, will during of a continue meantime, for positive term. build starting growth best In remain in the our return over Compass we with Greg. focused flow to providing over the free market positive the continue can so XXXX. be we later to be believe the being successful While to it on reducing cash that foundation the fully the free challenged solid medium I’ll flow reach now agents with market supports to can technology, we second costs, in and

Greg Hart

you, Thank Robert.

best-in-class business. importantly and experience. in and network, compared XX%. and our add downturn continues We in the end-to-end with Compass right our proof strategy end-to-end retention come national believe leading are the extremely that them culture, brokerage number the strengthen successfully our brokerage third deliver and business in the the are population. agent Agents is technology core fierce our to for and favorably conditions. to principle by helps reported successful buyers and We our in we well in maintain third be agents covering out In transactions by more believe difficult than enhanced while of on in to a Compass of our platform, for XX% a a industry not with estate building the industry’s one which great the to ability We attract positioned their over agents technology from of allows half XX,XXX to based less business. entire advantage. their have agents decline continue we market as headwinds, agents, helps the number residential real advantage, grow to quality NAR. quantity the the year Advantage this retain to more is volume to quarter, productive the It’s only which decline of industry to compares We the technology fraction which believe continue our market sales competition States workflow the improve most our processed a to a compelling solution, of XX% our the Despite and transactions close roll quarter, built ago, United U.S. we even sellers economic

our Compass easy our with tool a to QX, as also makes Florida region. in our a to working to and Services personalized teams business. for launched with lower We’re of and provide in the to In and solution support, unlock manage we simple our technology increases using further expenses Services agents for tasks, find best Compass speed industry’s experience. agents supporting resolution, empowers get support tools, internal suite transparency, Compass agent help,

agents feedback. and to We staff serve and driving to services and staff expect launched continue our across to on Services enhancements both regions based be agent

term, achieving XXXX, for the balance to cash that with that the in top-line strive desire free to be growth we have reducing In with costs. the associated means positive As near flow we cost growth.

of most the of we paused the a operating California, one to platform By rate our cash markets M&A and friction we’re all way own into the title and on markets. platform, escrow and businesses offer services and attach of services. are a title of our technology side and On the escrow order to the our adjacent perspective, technology of we’re technology process into we directly conserve business, agents internally our and brokerage for adjacent an is to From creating the brokerage increasing growing services escrow in in transaction, title instead one existing which integrating Southern largest in title low integrating today. successful

future a benefit reduce our personnel to our to took market team, recruiting in our in means Compass approach much mid-August. which June on in that light growth place and quarters. simultaneously reductions costs over These of these September approach you the summer. the agents. moving just team of steps We better size growth of we to new combined reduced in as to update will we while We our ensure economic our rationalize agents To introduced recruits zero-incentive progress The costs for conditions. we recruiting our

or Compass. cash we As equity attract longer agents to use incentives no to

were strong Our the ability of community, we those and provides, reflection both platform the but our to agent do agent concerned. in the QX, first QX, assets this the we’ve culture, XXX agents profit company per In after inside with September more principal of not our agents of our added and XXX down incentives is team agents value in delivered and In than industry-leading recruiting growth ever principal outside our had. recruited across value from principal added zero recognition month of October, the expected top a reduction force, network our provide Compass.

report terms agents. platform, of XX% year. to principal our yet support offer saw agents QX agent financial we pleased that this In increased XX,XXX, because add of in making of again over representing deciding to we number retention opposed our agent decision XX% believe to of principal are year-over-year. and continue QX, agents principal to incentives, our that strong join In brand, and factors the the the as We power we of growth, this average to are as growth we

market we we’re and options continue assess always, all we keeping match the cost conditions our As structure to are facing to open.

that contract to tap enable Genpact, into example, a signed operating of our will part leading lower reduction, overall expense talent. provider For a BPO a us pool global with we of as cost

now our We XXXX. non-GAAP over end range are in to of it our well to the Scott will expenses $X.XX below turn committed driving of billion low Wahlers. operating I

Scott Wahlers

a I update enthusiasm Thanks, review and to Kalani Greg, today. provide my for joining everyone and guidance wanted joining us next in that, talented week. team going strong the to detail, to opportunity our do and results. on organization during then as hello an our for when turning the on fourth CFO. us senior leader joins to also share I’m our our he before results process, I’m get I’ve to he’ll to a be to addition financial great The management officially confident the But to I I’ll more call expectations quarter. finance and third him re our the recruiting had know us financial quarter that

decline of billion $X.X representing reduction billion to billion Third to a year in $XX.X as of the of ago, selling revenue year-over-year. in high quarter, average billion. the quarter XX% in guidance $X.XX decrease Gross transactions lower about of a a $X.X our a range $X.XX was referred billion price year end reflecting coming period, the revenue to, at well Greg from compares This was XX% in prior as third value X%. of transaction revenue the

Our from QX increased in non-GAAP revenue percentage we approximately participation with XXXX. Consistent driven of to program was equity agent XX.X%. the last our basis XXXX primarily by increase year-over-year year to call a of the expense as in commissions reduced points on XX by discussed what the relative August,

XX deck impact Excluding QX reduced Page includes details additional on the the basis the the saw XX of point in improvement investor participation, core agent impact line. commission on year-over-year program’s equity business. the program we of the

to and two-thirds we QX versus million, at a level a planned. this improvement of range attributable the in of loss to improvement Our than was our the more quickly operating reduced in guidance adjusted August. of the other which high $XX EBITDA represented of midpoint for a lower a guidance was million provided as of originally the the About we third quarter expenses revenue coming third end $XX due the was range, expenses

expenses, Our commissions $XXX total excluding were the third million for operating non-GAAP quarter.

from revenue. previously, many varying As talked in nature increased and about historically operating we are quarter-to-quarter expenses fixed in based sequentially our of with have line to opposed as non-commission somewhat

from a of reduction the of to million Forester reflects this level reduction our line with and QX for due from was in $XXX the QX, in year ago. in reduction However, QX QX and cost $XX quarter a the OpEx our including year initiatives, third million OpEx

of million loss in for million $XX to to the this a loss a schedule quarter, $XXX as in settlement loss charges, and GAAP depreciation non-cash net our well announced reduction actions, restructuring litigation reconciles included period of amortization GAAP saving million million included included $XX with quarters matter. cost costs to $XXX in which was release the in year also Consistent Included to in Our and related EBITDA. issued the quarter expense the loss quarter same third related a as the compensation related was that for we compared net primarily the in $XX in million ago. our expense, net force to GAAP today the stock-based million expense the prior net press September, adjusted of $XX.X of GAAP is

exit the was and cash equivalents We our prior the million, year payments EBITDA the on was have September. as cash we over negative related quarter. adjusted sheet the severance loss, Free $XXX which at million of in balance Motus our due of force $XX to the end last quarter reductions million of to cash approximately down that and announced flow as higher $XX during well

Now guidance. turning financial to our

gave to one the half translates additional on a markets. to and the percentage points call of billion the in driven QX X%. rates the For by pressure year have in two $X.XX with $X.X guidance volatility real actual the an QX $X.XX since results reduction our we continued to In which to we a reflecting range we stated to is $X.XX provided billion, of days market compared through combined in in billion increases this in to revenue mortgage percentage year, risen to mortgage expect that points of $X.XX equity outlook implied revenue particular, over September, billion rates our August When XX range QX revenue ago, guidance the this billion. to August, $X.X estate billion full and previously August

management impact of the the guidance seeing that adjusted $XXX within into have for of $XX EBITDA market to are the Despite weakness profitable challenges challenging committed challenges reductions remains half range expenses managing second the in market business of year million. current macroeconomic through QX expectation the full favorable teams had full entire the the future. call. adjusted million cost translates loss is August, on call partially line. $XX into provided the to year million the in loss we for to on environment we’ve build the of adjusted offset which Q&A an revenue our a $XXX reflecting and continued This commitment back the continued in me we’re of a operator million, the With EBITDA XXXX, seen to the expectations to EBITDA to loss business the of turn the delivering to Our the XXXX start that, our the portion and in for let manage this operating

Operator

Your question line Barclays. from from first the Bouley Instructions] [Operator of Matthew comes

line open. Your is

Matthew Bouley

on the come know to think I that, you billion I everyone. Hey OpEx guide XXXX billion touch Greg to $X.XX the cost misheard I please taking and cost kind say, of wanted exit to terms speak the heard in Thank is the good range questions. of evening and if was in intention I at to for range for a reductions. reductions? said temporary I sort held think in kind you’re the you additional of $X.XX what’s Thanks your there this XXXX, you, what to, if contemplating you lower potential than could but of correct you. that me of outcomes actions, I

Robert Reffkin

XXXX, decline, of that course actions build we are that, a The implemented three plus between, What see shared be Yes. next down to don’t interesting the plan magnitude months. we’ve are negative see, the market we level be year, that account that we to over but a at the then for – will of that XX% next already begun and majority to point. we expect forecasts not on and to X% is don’t that, that XX% permanent, for we temporaries vast

we the get sure that what And numbers you so to for. that, shared we that specificity, can with you’re you’re more looking I’m looking but believe for

Matthew Bouley

it. Got

there helpful that’s No Robert. Okay.

looks splits, zooming market, I’m that those of favor the right, the more bit, by of in higher your share doing of if just in the argument it sort like activity favor that commission came of one pronounced in into down a there’s commission splits that sequentially, the split of be an this math so type producing, even sort housing agents tends agents. top to Second

mean go to expect favor commission your you I see something to continue own Or that are of splits should here? Thanks. like to So, your we business? expecting in in kind the

Robert Reffkin

Yes.

business. true worst a there’s markets, agents keep So showed and that several cycles. over itself the business be that the sentiment to down best in I the lead think agents the And

I population the a don’t agent Compass, expect lower the agents agents. so continue said, XX% business business. at have so producing do mix are We across, to yes, of lot change And gain always focus agents other the I that to, companies. at lead top and That think I continued have as our on, we market least in leaving much. share think At they’ll will shift to from and

Matthew Bouley

thanks Good Well, Got everyone. luck, Robert. it. right. All

Robert Reffkin

you. Thank

Operator

next the Goldman Your line question from Sachs. of Ng from comes Michael

open Your line is

Michael Ng

I Thank for might Hey, to goal to it good additional savings. some much cash like questioning hear wanted on mixture get encouraging of afternoon. of the the to maybe slightly cost very XXXX. line in you about positive in prior sounds way. It’s follow different the up a just question. It to free be

number might associated helpful. some there imply stuff? with targeting run working are So you that of might what some Thank positive as be very non-GAAP, like a EBITDA? adjacent the would OpEx Maybe does more be de-emphasis services that much. there color some Perhaps a you rate. on also slight be benefits sounds like quarterly a capital Or that

Robert Reffkin

giving we’re, like provide, that Yes, Scott and to I’ll we the before, Let next But guidance think that mentioned then numbers not with year. let me it. formal I you’re you to start able be But models you’ll whatever providing we’re for add to year able guidance your what I’m you’d to formal that run to, add yes, comfortable like. not we’re Scott, for next time. this and need. get please I

Scott Wahlers

that’s other but EBITDA over the to cash free tend Yes, the cash guidance primary reiterating, where not do flow degree. each and flow and free and period, certain is to again next I But positive we’re add, focused would business sync on EBITDA. year, we’re goal move for for providing with a in just

Michael Ng

All right. Thanks guys.

Operator

of Your line question Co. from comes McTernan next from Needham Bernie and

is line Your open.

Bernie McTernan

continue? about Great. in we Maybe just start Thank that expect you the XX% growth to going Is run in quarter. for agents taking the third think rate good that just deceleration a should forward? the Or question. to

Robert Reffkin

purposefully keep Yes, to growth, the there XX% terms cost expanding both things aspects a mind, back the we’re we our you year if brokerages sense made year where into of of a new M&A also were One perspective. still pause environment year-over-year in were were ago us, of we from growth paused in ago, a given agent couple those a we is, go in cost two we in for we activities. and QX markets from that now, thought a doing perspective, it of that

headwinds are a perspective. from those so year-over-year basis agent an And on

We recruit zero our we move continue, to agents we growth believe that our off to with team incentive a start. our recruiting managers, strategic as is good however have to always agent recruiting

strong As October, had a of early very still call, I are we on that. effort in that positive the but and middle days, mentioned it’s we started the we August during

Bernie McTernan

gave there estate any the a a Got in for you out it. you. the, color kind And you west, break really to of, then seeing outcomes of the possible like, wide any real of broader you’re what terms Thank in way market. gave in is range

to if trying Just there’s any diversification within that. geographical, see

Robert Reffkin

is we’re in what weakness more Yes, California. seeing

the, of dramatic this time. history all in mean, But pain one the size starting all, but what fits rates. of day we rates to most in It’s parts went We’re most see a markets Florida. increases had know mortgage of a as fastest today. general are price the declines the of not points happened today, I XX the more thumb, seeing Mortgage weakness down think rule basis single that I at certain one

But and things of talking of And this demand. so into the a rule that for buyers a card their the a in baked spur agent expect we time I a lot that is would Obviously, today. to sidelines it’s every lock free, about this is in, that calling that, this were say, great not are to basically great rate. on great call a

what’s that’s moment. happening at so And this

Bernie McTernan

then just may. one Got more if it. And I

to to going Just for you those if some as wasn’t it fall housing new market be locked initiatives. XXXX, cost you Or bad would go cutting business? the cut, clarity loaded? and the, to saw, that rates you those interest cutting looks forward updated Like the get cost and cost on the Is continue plans? pivot still with would like

Robert Reffkin

implemented point you’re down we and If my not next declining beginning that are XX% of over into we’re plan course do plan we the thing interim that’s of over implemented because months count right – to we build – we referencing, magnitude three believe will that what that year, the the business. be next a are see the go three to market will however, the that regardless we for it’ll months, be the and believe and

Bernie McTernan

Understood. Thank much. you very

Operator

comes line the Berenberg. Justin Your from Ages next of question from

is Your open. line

Justin Ages

the taking questions. for thanks Hi,

new efforts agents, is there? have growth First might headwinds the fact competing you agent if any some you. on to continue that thoughts markets, expand each to as grow the into and be to going you’re to see Thank recruitment, decision with that the agents other there made not to you given

Robert Reffkin

their markets in where agents counterpart market much a of same We’re an or XX%, No, company and different company. if of compete share, something on with they’re impact a have XX% right? the number the that’s just created has the not at as upwards reality is as in in that we agents Compass past,

has And the so impact if that agents more – company within it been market. we’re or we that to that hasn’t, of driven get the they’re the about hasn’t same if concerned financial something continue

Justin Ages

has or, get housing market is the just And in providing working those been you’re platform? of steady trying of of stayed to whether, you need Thank increase at or, the an kind a lines? that sense something on even helpful. tools more or, there, are itself, agent less along to set the, it Or platform then the That’s facing through Robert. headwinds Okay. Compass you, the Compass usage

Robert Reffkin

The Yes, our thank very see strong you usage Justin. to platform continues agents. from

new out a help past help You back an plans, action in generate in know, them et can to reach the down in in ways than CRM, many ways using platform cetera. different agent help them our an our upmarket, using clients market business,

grow final know, end of you of and pieces provides we of usage with from benefit the, on course that, integrated really soften. agents their very the business. it way agents is the strong as the summer fact to the to that are started we so platform the single a that seeing of the market for rollout that And believe And, end of to end the remain over the even or has the bullish our run

Justin Ages

All right. That’s color. helpful. Thanks for the

Operator

Instructions] are Officer will I There this Executive Robert now to time. back remarks. call no Chief questions at [Operator over for further closing Reffkin, the turn

Robert Reffkin

time in call. and real us want It’s a the earnings journey. choppy continuing work Yes, I at the and just all on to to market forward you Thank together. we’ll estate you say next thank for with being we see to very everything you to of look our this for investors

Operator

This concludes today’s conference call.

You may now disconnect.

Compass (COMP) 11 Nov 222022 Q3 Earnings call transcript