Compass, Inc. (COMP) Earnings Call Transcript
January 23, 2023
Earnings Call Speaker Segments
Joining me here post [ line ] is Compass, CEO, Robert Reffkin. Welcome. Nice to see you.
Thank you for hosting me.
Why do you think we're at a bottom? Fed's still raising rates?
Well, at Compass, we have a unique vantage point. We're the #1 real estate brokerage brand in the country. We have nearly 30,000 agents, and 18% of the top agents -- top 1,000 agents in the country are at Compass. And so what I can see is our agents are getting more buyers showing requests than they have for months. So there's an increase there. And for the first time in 10 months, all the statistics that I look at are trending positive. So for example, the housing -- the homebuilder sentiment index improved month over month for the first time in over a year. You had a 25% increase in weekly purchase mortgage applications. And lastly, the pending closings, which in the fall were down over 30% year-over-year for much of the fall, so far in January, it's nearly flat in the overall market.
So is it just because mortgage rates are up the high?
That's a big part of it. Mortgage rates went in January from an all-time low to a 20-year high in less than 9 months.
Like [indiscernible] yes, easy.
Exactly. And so that created a sharper decline in real estate transactions than even in the 2008 financial crisis.
But we need to see rents come down. The Fed needs to see rents come down to get inflation down. Does that mean that that's not going to happen?
Well, in New York, we're seeing rents moderate and come down. There's some softening there, and there's more landlord concessions than there have been for any time in the COVID period. But you're right, 40% of CPI is housing. But if you look at housing transaction prices, in November, they were 2.5% below the spring peak. And so nothing changes. In this upcoming spring, it'll be 2.5% from that contribution.
In other words, buyers have, what, a few more months to get in the deals before prices start going up. That would be very good for your business if ever.
Yes. The buyer strike was last fall. That's gone. And so right now, buyers are coming back. I think if there's an issue for this next year, it's going to be more on the listing side with sellers that are worried about losing -- they're locked in at 2.7%. They're worried about losing that mortgage rate and having to buy something in the 6s.
Let's talk about your business and what all of this has meant. It's been a tough period. The stock went -- you went public back in spring 2001 at $18. Stock is trading $3-something per share. It's double whammy, the housing market, your tech stock. How have you readjusted to this reality?
Yes. We just had our 10-year anniversary. And for the first 9 years, the world was focused on growth, and we did that very, very well, becoming the #1 brokerage firm, yes, in the country and a Fortune 500 company. But in the last year, the world switched on a dime to focus on profit, and we are switching with it. We brought our expenses down 3x over the last year in meaningful ways. And we most recently brought it down to a range of $850 million to $950 million is what we said we are now targeting. If we would have brought our expenses down to that level a year ago, we would have been profitable last year. And we believe we can be profitable and free cash flow positive even with a 25% market decline this year because of this new expense range.
What about the trade-off between growth and profitability?
We're focused on profitability. We are a grower. In Q3, our agents count grew 15% year-over-year, and our agent retention actually improved year-over-year to the prior year third quarter. But right now, the focus is distinctly and universal here around profit.
But kind of -- so cost cuts, the other question is how sustainable these cuts are. Can they last for a few years?
The goal and what I've shared publicly is that we intend to keep our cost base at this new level. And the market, it will increase at some point but will not increase our expenses in any meaningful way. And the delta is going to be EBITDA and profit that we can share with all of our investors.
We've seen layoffs as part of these cuts. Are you hiring still as well?
We are hiring moderately, but that's not the focus at this time.
What about getting agents without offering incentives, which you were telling me has a big change right now in the market?
Yes. The -- in August, we announced that we're not going to give any more financial incentives to bring agents onto Compass, no signing bonuses of any kind. And we have since hired nearly 1,000 agents to come on to Compass. And the majority of them actually said their pay income is more than their previous firm. So this is one of the best data points for investors and for employees that are putting our careers in this company. If the majority of agents are actually paying more to come to Compass, they are speaking with their pocketbooks that they believe that Compass will help them grow their business and make them more successful.
The thing for Compass, and when you went public, I remember there was so much about this, was always the technology, that it was a technology company as much of a real estate. How differentiated is that tech at this point versus some of your competitors?
Our technology is very differentiated. We've invested over $1 billion in building what we have today, the industry's first contact to close platform where an agent can go from meeting someone and putting them in their CRM and going all the way to getting paid in one single place, one platform, one code base. And none of our competitors have built anything of the kind.
Robert, thank you for joining me, with the optimism.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete Compass, Inc. transcript - plus 251,000+ transcripts from 12,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to Compass, Inc. earnings transcripts and 251,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $105 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.