This article was shared here with the permission of Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
After 15 months of cost-cutting, Compass is free cash flow positive, making more money than it spent in Q2 2023.
Why it matters: With a high cost base and dwindling cash reserves, Compass was forced to cut operating expenses as it pivoted to a profitable, sustainable operation – which it has done.
Dig deeper: I first wrote about Compass’ cash burn problem in May 2022, and it’s been a busy 15 months.
- Over the past year, the company has cut expenses by about 35 percent – or $500 million – through three rounds of layoffs.
- Compass’ annual operating expenses have dropped from $1.45 billion to $950 million, with a goal of getting down to $900 million by the end of the year.
A declining market is an especially challenging time to achieve profitability.
- As of Q2 2023, Compass’ trailing 12-month revenue was $5 billion — down from $6.7 billion a year ago.
- This means cost control is the only realistic option available to get cash flow positive.
Compass’ cash balance has stabilized at $335 million — and, in fact, has increased for the first time in years.
- Management clearly has confidence in the business: In July, it repaid the outstanding $150 million draw from its revolving credit facility.
What to watch: Compass isn’t entirely out of the woods yet, but it’s on a much more solid foundation.
- This past quarter is the high-water mark for revenue; from here seasonality kicks in with progressively lower revenue for the next nine months.
- It’s likely that cash flow will remain relatively flat for the rest of the year — the question is whether it will limit the company’s ability to invest for future growth (M&A and organic).
The bottom line: Compass’ turnaround has been an instructive case study in managing a business through a turbulent market.
- Like many businesses, the company was caught flat-footed last year when the market changed, but it executed a necessary turnaround to sustainability.
- The broader lesson is around adaptability — it matters less how you got to where you are, and more how quickly you can adapt to a rapidly changing environment.
Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.
