Q3 2021 Vector Group Ltd Earnings Call
[music].
Okay.
Welcome to vector Group Ltd third quarter 2021.
Carl.
During this call the terms adjusted operating income adjusted net income adjusted EBIDTA in tobacco adjusted operating income will be used.
These terms are non-GAAP financial measures and should be considered in addition to but not as substitute for other measures of financial performance prepared in accordance with GAAP.
Reconciliations to adjusted operating income adjusted net income and adjusted EBITDA and tobacco adjusted operating income are contained in the company's earnings release, which has been posted to the Investor Relations section of the company's web site located at Www Dot backed your group L. T D Dot com.
The political begins I would like to read a safe Harbor statement.
<unk> made during this conference call that are not historical facts are forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by forward looking statements.
He's basically describe in more detail in the company's Securities and Exchange Commission filings.
Now I would like to turn the call over to President and Chief Executive Officer of Ducks Group, Mr. Howard Lorber.
Good afternoon, and thank you for joining us on our third quarter 'twenty 'twenty. One earnings conference call. We are also excited to discuss vector group's separating its business is through the spin off of Douglas Elliman.
With me here today are Brian Kirkland CFO of vector.
Richard Lamping, Chief operating Officer, Rebecca Scott, <unk>, President and CEO of Douglas Elliman Realty L. L C.
David Ballard CTO at vector and Nick Anson, President and CFO Liggett vector brands.
We also have Ron Bernstein senior advisor to look at that the brands joining for the Q&A portion of the call.
During this call we will review our third quarter consolidated financial results as well as the financial performance for Douglas Elliman and like it.
We will then discuss the exciting news of our intention to spin off effect. It was real estate brokerage business, including Douglas Elliman and its cutting edge prop tech investments into an independent publicly traded company.
Today, we issued a press release announcing the spin off and posted a presentation to the Investor Relations section of our website with more details regarding the proposed transaction.
We will also file a form 10 with you guys he shape.
All references to spin co on today's call referred to the independent publicly traded real estate brokerage company. Following the effective date of the spin.
We will then take your questions before concluding today's meetings.
Let me start with financial results.
At September 30th 2021 vector group's consolidated balance sheet remains strong.
We maintained significant liquidity with cash and cash cash equivalents of $524 million.
<unk> cash of 159 billion Douglas Elliman and $133 million.
We also held investment securities and investment partnership interests with a fair market value of 214 million at September 32021.
Now turning to vector group's consolidated results from operations for the three months ended September 32021.
Thank you group's revenues was $652 6 million compared to $547 8 million into 2020 period.
$104 8 million increase in revenues was a result of an increase of $125 7 million in the real estate segment.
Actually offset by a decline of $29 million in tobacco.
Moving on to excuse me net income attributed to vector group was 48.9 or 32 cents per diluted common share compared to $38 1 million or 25 cents per diluted common share in the third quarter of 2020.
The company recorded adjusted EBITDA of $116 5 million compared to $103 3 million in the prior year.
Adjusted net income was 52.6 or 34 cents per diluted share compared to $38 3 million or 25 cents per diluted share in the 2020 period.
Moving on to the results for the nine months ended September 32021.
Vector group's revenues were 1.93 billion compared to 1.45 billion in the 'twenty 'twenty period.
The $478 million increase in revenues was a result of an increase of $500 4 million in the real estate segment offset by a decline of $22 5 million and just tobacco segment.
Net income attributed to vector group was $174 2 million or $1.13 per diluted common share.
60.7 million or 39 cents per diluted common share in the 2020 period.
The company recorded adjusted EBITDA of $355 1 million compared to $240 million in the prior year.
Adjusted net income was $194 3 million or $1.26 per diluted share compared to $106 9 million or 70 cents per diluted share in the 2020 period.
Moving on to the results of the last 12 months ended September 32028, 2021 vector group reported revenues of 2.48 billion net income of $206 4 million and adjusted EBITDA of $44 8 million.
I will now turn the call over to Nick to discuss our tobacco business.
Thank you Howard.
Turning to our tobacco business financial result.
Liggett continued its strong 2021 performance during the third quarter, delivering an increase in both retail and market share and operating income.
Eagle Twenty's continues to deliver significantly higher margins, while pyramid deliver substantial profit and market presence and we continue to be pleased with the performance of off price fighting brand Montego as we expand its distribution into targeted geographies across the country.
Based on management Science Associates retail data the discount category increased approximately 80 basis points in the third quarter from a year ago now comprising 26, 5% of the total market as compared to 25, 7% for the same period last year.
As the deep discount segment continues to offer attractive value propositions for the consumers, we expect down trading trends will continue for the foreseeable future.
Such we remain confident that our value focus brand portfolio and broad distribution position us well to meet these evolving market demands and drive profitable growth.
I will now turn to the combined tobacco financials for Liggett group and back to tobacco.
For the three and nine months ended September 30th 2021 revenues were $297 9 million and $895 9 million, respectively, compared to $318 9 million and $919 4 million for the corresponding 2020 period.
Tobacco adjusted operating income for the three and nine months ended September 30th 2021 was $91 8 million and $273 9 million compared to $91 6 million and $240 2 million for the corresponding periods a year ago.
Through the first three quarters of 2021 tobacco adjusted operating income exceeded our full year 2019 figures, which was a record at that point in time.
Liggett's third quarter earnings increase was primarily the result of higher gross profit margins associated with higher pricing and promotional spending efficiencies offset by lower wholesale volumes and higher master settlement agreement expense.
As discussed in last quarters conference call, we anticipated pressure on all third quarter wholesale volumes following significant inventory increase at the end of the second quarter and we estimate approximately half of our year over year third quarter wholesale shipment declines relate to reduction in wholesale inventories.
In addition, significant reductions made to our net MSA expense in the third quarter of last year because of unusually strong third quarter 2020 industry volumes put additional pressure on a year over year earnings comparison.
According to management Science associates overall industry wholesale shipments for the three months ended September 30 of 2021 went down 11, 8% compared to last year, while liggett's wholesale shipments declined by 11, 6% for the comparable period.
As we regularly note. However, we believe retail shipments are a much better indicator of underlying industry trends.
Varying wholesaler buying patterns.
Liggett retail shipments for the three months ended September 32021 declined six 1% from the year ago period, while industry retail shipments decreased 7% during the same timeframe.
As a result, liggett's third quarter retail share increased to $4 two 2% from 4.18% in the corresponding period last year.
Sequentially Liggett's retail share increased by 13 basis points in the third quarter over the second quarter.
In summary, we remain pleased with the operational and financial performance of our tobacco business.
Finally, while we are always subject to industry regulatory and general market risks, we remain confident that we have effective programs and infrastructure in place to keep our business operating efficiently efficiently and delivering both market share and profit growth from on Sally's based brand portfolio.
Let me tell me it over to Brian to discuss Douglas Elliman as results.
Thank you, Doug and good afternoon before.
Before our it addresses the spinoff transaction turning to Douglas elements of financial performance for the three nine and last 12 months ended September 30 of 2021.
For the three months ended September 30 of 2021, Douglas Elliman reported $354 $2 million in revenues compared to $208 million in revenues in the 2020 period.
Douglas Elliman reported net income of $25 $1 million and adjusted EBITDA up 20 yourself I'm quite $8 million in the third quarter compared to a loved $1.8 million and $14 $1 million in the year ago period.
For the nine months ended September 32021, Douglas Elliman reported $1.02 billion in revenues compared to $506.5 million in revenues into 2020 period.
Douglas Elliman reported net income of $82 $2 million and adjusted EBITDA of $89.5 million for the nine months 2021 period.
Compared to a net loss of $62 $2 million and adjusted EBITDA of $5.3 million into 2020 period.
The net loss in the 2020 period included pre tax charges for noncash impairments of $58 $3 million and pretax restructuring charges of $3 $3 million.
For the last 12 months ended September 30 of 2021, Douglas Elliman reported $1.29 billion in revenues $96 $2 million, and net income and $106 $2 million and adjusted EBITDA.
In addition, Douglas Elliman reported closed sales of $47.7 billion and the last 12 months ended September 32021.
Yeah.
Douglas Elliman to year to date results were driven by strong continued activity in all markets. Both closed sales volume and revenues doubled from the comparable to the ultimate 'twenty period.
We are particularly pleased with the continued strength of South Florida market as well as the rebound of the New York City market. During the first nine months of 2021.
In addition, Douglas elements gross margin or companies are all are increased to $94 $5 million.
In the third quarter of 2021.
From $58 $9 million in the third quarter of 2020.
For the nine months ended September 32021, Douglas Elliman gross margin or company dollar increased to $274 $1 million or $154 $8 million for the same period in 2020.
And as Douglas Elliman revenues and gross margin significantly increased in 2021, we have discontinued certain expense reductions which were implemented in the second quarter of 2020.
These include reductions to activity based items, such as advertising and discretionary compensation.
Thank you for your attention and over to Howard to discuss the spin off.
And Howard will serve as chairman President and CEO of the publicly traded Douglas Elliman, while continuing to serve as president and CEO of vector group Howard.
Thank you Brian.
I'll start with a reminder, that we have posted on the Investor Relations section of our website, an investor presentation that relates to the spin off we will be referring to pages in that presentation.
Turning to page three of that presentation. The other members of Douglas Elliman and his management team are presented there.
This team has substantial real estate expertise and a proven track record of driving growth we.
We are very excited about this team because we have combined a strong management team from vector with decades of public company management experience and a strong industry came from Douglas Elliman, which brings decades of real estate experience.
Moving to page four let's discuss our plan to separate vector group's real estate brokerage business and its prop tech investment into an independent publicly traded company.
We are doing this because we believe Douglas elliman as a separate company will leverage its comprehensive suite of real estate solutions industry, leading brand name prop Tech investment arms do Valley ventures, LLC and talented team of finding technology marketing and communication employees to unleash its growth potential.
We are doing this now, especially given current trends in the large and growing U S residential real estate industry at a time when the size of our business has reached a critical mass positioning us well to succeed in the market as a standalone company.
And of course, it will also be able to access to capital markets and widening potential investor base as well as uses pure play stock for M&A purposes, and provides incentive opportunities for its key talent.
We expect this transaction to create significant value for all of Docker settlements key stakeholders.
Hello per clients brokerage customers employees agents and stockholders.
Our presentation today, we will discuss why we are different than our competitors specifically, we believe our presence in the most important primary luxury markets in the United States.
Our opportunities for continued growth.
Our diverse revenue streams as well as our distinctive approach to technology will afford us a higher earnings multiple.
Moving to page five this is planned as a tax free spin off of Douglas Elliman to vector group's stockholders.
Upon completion, the new company called Douglas Elliman, I N C will be a separate publicly traded company on the New York stock exchange.
[laughter] assembles dog.
Douglas Elliman, Inc. Will consist of the brokerage New Valley Ventures, LLC D property management D development marketing Division title D E mortgage portfolio as well.
We're actually now for the spin off is that vector group's two businesses tobacco and real estate operate in distinct markets possess unique growth prospects and investment profiles.
As planned thanks to group stockholders will receive one share of spend so common stock for every two shares of vector group common stock held.
We also expect subject to board approval that spin co will initially pay five per share quarterly dividend to holders of Douglas Elliman in common stock and then factor will continue its 20 <unk> per share quarterly dividend.
Does the board will consist of <expletive> Lampkin, and myself as well as five seasoned public and private company executives, who bring technology legal and financial expertise Ron Kramer.
Wilson wife, Linda.
Linda Estelle, Michael Liebowitz and bauxite yet.
Now, let's turn to page six for an overview of elements business.
Founded in 1911th Douglas Elliman that was one of the preeminent cutting age residential brokerage companies in the United States.
Douglas Elliman has a leading real estate brand associated with luxury service and forward thinking that operates in premium markets, primarily those that are densely populated international finance and technology hubs as well as many of the second and third home markets, which feed them.
These markets offing housing inventory at premium price points.
When a brand name synonymous with luxury and its comprehensive suite of technology enabled real estate services and investment focus.
Douglas Elliman is well positioned to capitalize on the highly attractive dynamics in the U S residential real estate market.
As a standalone publicly traded company Douglas Elliman will pursue profitable growth opportunities to create stockholder value through the expansion of its geographic footprint adoption of cutting edge prop tech and investments in prostate companies through new Valley benches.
<unk> and its retention and recruitment of best in class talent <unk>.
Acquisitions, Aqua hires and operational efficiencies.
We will also be able to directly and more efficiently access the capital markets and widen as potential investor base.
Douglas Elliman has an attractive financial profile with a balance sheet strength of $200 million of net cash and significant operating leverage currently Douglas Elliman has approximately 6600 agents and put in 12 months ended September 30 of 2021. It had gross transaction volume of $47 7 billion.
Revenue of $1 $1.29 billion, and adjusted EBITDA of $106 2 million.
Turning to page seven Douglas Elliman as one of the largest residential brokerage companies in the New York Metropolitan area, which includes New York City Long Island, Westchester and the Hamptons and the sixth largest in the United States by sales value. According to housing water.
No. This is six months appropriate associated Realogy, Berkshire Hathaway unconscious for example, all of which bode tens of thousands of agents compared to element 6600.
Since 2013, Douglas Elliman has expanded throughout Florida, California, Aspen, and Snowmass, Colorado, Houston, Dallas, and Austin, Texas, and Massachusetts, including Boston, Cape Cod, Martha's vineyard and even topic.
The company can leverage Douglas Elliman brand equity and earnings and earnings quick credibility to expand its presence in new existing and adjoining mall.
Recruit best in class agents, recognizing trusted Douglas Elliman name, all contributing to increased market share.
An important point of differentiation for element from real Itchy and harvest is that the primary focus of our business is on the leading dental densely populated international finance and technology hubs, where housing inventory is at a premium price levels.
This is unlike these two competitors one of whom is a multi brand national franchise or those growth plans I will just focus and includes many markets through the country with the same demographics. This results an element in having an average price per transaction is substantially higher than our leading competitors.
This is important because the economics of the luxury market are attractive with commission rates strong.
But also because we see the luxury market as more recession proof, which drive us to our markets such as the continued migration to lower and lower tax states. The.
The prevalence of remote working and the growth of millennials entering the housing market, who are generally generationally inclined to buy.
We believe this creates a large runway for us to continue to grow our business not only in our existing but it completely complementary markets as well.
Turning to page nine to review the investment highlights just painful.
The U S residential real estate market has highly attractive growth dynamics.
Elements comprehensive suite of real estate solutions provide for multiple women of streams and opportunities to monetize our agent relationships.
Douglas Elliman has an industry leading brands with a presence in most major U S luxury markets.
Cutting edge technology, which support agent recruitment retention and productivity.
We have a strong platform for continued and sustainable growth.
Standalone Douglas Elliman will have a balance sheet strength and significant operating leverage and finally, we have a seasoned management team with substantial real estate experience and a track record of driving growth.
Now I will turn it over to <expletive> Lampkin vectors, Chief operating officer, who will discuss pages 10 to 13 on the residential real estate market predict.
Thanks Howard.
Turning to page 10, which highlights the attractive characteristics of the U S residential market.
Since the beginning of 2020 U S. Homeowner equity has grown 17, 6% to $23 six trillion.
New and existing home sales in the U S are forecast to grow to approximately $7 4 million units in 2022.
From $6 9 million units in 2021, and $6 5 million units in 2020.
This is occurring against the backdrop of low mortgage rates driving home sales and even with some increase next year likely still on a relative basis is very attractive levels.
This is accompanied by increased mobility, driven by a number of factors, including the continued migration to low tax jurisdictions.
As well as Covid related factors, such as greater remote work flexibility leading to increased demand for greater space and second homes.
Douglas Elliman increasingly refers to buyers wanting multiple primary residents with their second and third residents, having all the amenities space they desire for a full time restaurants.
Turning to page 11.
Another contributing factor to long term demand in the residential market arises from millennials.
Largest population cohort entering the housing market in large numbers as the hip family formation peak home buying age.
Making their first home purchases on an older age than prior generations. They know we are an important and growing part of the demand and we anticipate them to preferred technology focused firm like dug yourself.
This strong demand combined with low inventory has resulted in significant price appreciation in many sectors of the market, including in many of our luxury markets.
And finally agents continue to play a critical role in the purchase and sale of residential real estate.
Notwithstanding various agent list models like high volume.
They represent a very small piece of the market.
And at approximately 90% of all residential transaction and agencies involved.
Real estate transactions are complex and agents helped to facilitate the successful completion of the transaction.
Turning to page 12.
Does this elements comprehensive suite of real estate solutions provide for multiple revenue streams. In addition to our residential brokerage business.
Our existing portfolio of ancillary real estate services allows us to enhance client experience and drive revenue and earnings growth.
An opportunity to accelerate growth via investments or acquisitions.
These other revenue streams include the Douglas Elliman development sales and marketing platform, which enhances elements position in the luxury real estate.
Headed by Susan Difranza, an industry leader.
The new development is sought after by well known real estate developers as it offers expertise from project inception to close including sales leasing and marketing for new developments in key U S markets. The firm ranks among New York city's in South Florida's most prominent marketing and sales firms with 75 in <unk>.
House development professionals, overseeing a $40 billion portfolio of buildings bracelets themed art of taxes, Youll, new bell and iconic brands, including the Waldorf Astoria, the St Regis and the Ritz Carlton.
Through a strategic global Alliance with Knight, Frank residential the world's largest privately owned property consultancy Douglas.
Douglas Elliman, new development benefits from immediate opportunities to market properties to international audiences.
With new development sales and marketing.
Unlike our principal competitors Douglas Elliman employs a hybrid broker model, where our traditional residential real estate agents work in tandem with our Douglas Elliman, new development professionals and leverage their extensive industry relationships had the benefit of our developer clients are.
And so we're able to market and sell high profile developments that enhance their brands and provided additional commission revenue potential.
We believe this model provides a competitive advantage towards new development business, while also increasing the attractiveness of the Douglas Elliman platform to current and prospective agents.
Our premium residential property management business Douglas Elliman property management provides a full range of fee based management services for approximately 360 properties, representing about 56500 units in New York City, Nassau County, Long Island City, and Westchester County.
The buildings, we manage provides an important source of referrals for our agents who are building specialist program, which allows designated edge agents to leverage the relationship trust developed by our property management team with building owners and tenants.
The title services provides a wide the full range of title insurance services, the real estate buyers in financial institutions in New York, and Florida portfolio Escrow, a leader in the California, ESCO market delivers all pertinent documents for recording to the appropriate County Clerk's office the releases funds to the seller and any.
Other agreed upon as well.
Look.
We look over the coming year to expand our title and mortgage business into additional of our markets.
With that.
Let me turn it over to Scott.
The CEO of Douglas Elliman Realty LLC to discuss the Douglas Elliman brand, which we consider to be the leader in the luxury market.
Thanks <expletive>.
Turning to page 13 today, we believe Douglas Elliman is the preeminent luxury brand in the U S with an established reputation for luxury and trust built over the last century. This is an important point of differentiation for us from our peers.
We have successfully leveraged elements brand equity to expand from our historical focus on the New York Metropolitan area into new and are joining luxury markets throughout Florida, California, Massachusetts, Colorado and now Texas.
Places, where our clients often have primary second or third residences, and where agents and clients recognize and trust the Douglas Elliman name.
Our brand recognition and agent credibility lead to a large referral network amongst elliman agents, who are provided ample opportunity throughout the year to connect in person at bespoke events, including art Basel, The winter Equestrian Festival and the Hampton Classic these carefully curated defense allow agents.
To develop personal and professional relationship and a mutual trust with each other's clients looking to invest in multiple markets.
To build on this established brand presence Douglas Elliman produces a tremendous amount of owned content and social media for its digital magazine element insider and its classy print magazine element.
Firm also generates earned media via important news organizations, including the Wall Street Journal, The New York Times, the financial times and C. N B C to name a few building.
Building, a very high level of credibility in the real estate space as well as targeted exposure.
Brand initiatives exclusive listings, new development projects and close deals.
Such important press coverage resonates with our clients as it showcases element agents and executives thought leadership and contributes to our strong share of voice across all major markets in which we operate.
As you can see from the chart on the slide element is number one and earned media and each of its principal markets, including New York City, Florida and Los Angeles.
And as a final point, we sponsored the Miller Samuel report.
The gold standard of market research and the residential brokerage world. Jonathan Miller is the most quoted and respected researcher and analyst in our business and our association with these reports built a high credibility factor for our agents.
Turning to slide 14 element has a large and growing presence in most of the leading luxury markets in the United States or 6006 hundred agents across the country are augmented by our exclusive relationship with Knight, Frank whether it's international network with approximately 500 offices and 19000 agents.
This is an invaluable relationship that it's truly singular in the U S residential brokerage community and provides our agents with unprecedented global exposure to important buyers from around the world. This is of particular importance today as our borders open to foreigners on November 9th.
And as you can see from the chart, our significant and growing market share in our principal markets and we are regularly one of the largest firms in New York our focus on the major U S. Luxury market is reflected in Douglas elliman, having substantially higher average transaction value than any of our major competitors.
Currently $1 6 million year to date materially higher than compass and real itchy.
Now I will turn it over to David Ballard vectors, Chief Technology Officer, who will discuss pages 15 through 17 and provide an overview of elements technology platform David.
Thank you Scott and good afternoon all.
Starting on page 15, Youll start to see that our general approach to real estate technology is leveraging best of breed technology, leveraging proven technology around legacy.
<unk> as well as leveraging new early stage disruptive prop tech companies from New Valley Ventures. This strategy gives our stakeholders access to fast and changing industry, leading technology, while enabling Douglas elliman to benefit from traditional valuation growth a breakthrough.
Prop tech companies hiring technology talent to develop new products inside large companies such as Douglas Elliman is costly takes longer to bring new technology to the market and rarely generates most cutting edge solutions and then limits the value of the emerging product to the company's own usage and <unk>.
Ted We believe technology innovation is best fostered and smaller purpose built prop tech companies.
We operate a very open architecture technology infrastructure that allows for plug and play environment, where new features and functionalities can quickly be added for the benefit of our agents and their clients. This ensures our technology remains state of D. R.
Vendor Optionality is maintained and our costs are minimized by investing in early stage prop Tech companies Douglas Elliman can game differentiation access into the innovative product Tech services, while benefiting from expected growth and valuation of these firms without them.
Need to build or fully acquire them.
We anticipate that these investments will continue to provide us with unique access to cutting edge and industry, leading technology, providing us with valuable technology systems to improve the efficiency of Douglas elements business. While also capturing some of the most valuable created.
A combination of experience between real estate industry in the prop tech companies for which we partner with.
Our Douglas Elliman agent portal shown on this page powered by and then taught US is built on a native cloud SaaS infrastructure Foundation that is designed to rapidly adjust and incorporate new initiatives and solutions.
The user friendly portal incorporates automated and simplified workflows for our agents interactions expansive data rich dashboards and reports backed by artificial intelligence and integrated data assets.
The technology is completely plug and play and enables.
Enabled which supports our ability to quickly adjust our solution in concert with the digital transfer information happening in the prop tech industry today.
Turning to page 16.
Leveraging this solution leveraging this strategy. We also can quickly incorporate innovative technology to meet our business requirements at a rapid pace example, in 2018 to 2020 on average we were able to roll out about two to four major solutions needed to support.
Our business. In addition to just small changes that were required for our existing products solutions.
Over the course of 2021, we've rolled out nine solutions that are nine solutions and we target two more by the end of the year.
Solutions like mobile ready CRM DIY marketing solutions transaction management powered by reach out and others AI integration powered by Perlin E sign online notary DIY robust video abilities and.
And expanding revenue opportunities by leveraging partners like humming homes for home services.
Turning to page 17, our open architecture technology strategy allow us access to fast changing industry, leading technology, while enabling Douglas elliman reality to benefit from the potential adjacent revenue streams and valuation growth at the break.
Through tech firms.
Element is bringing innovation technology, driven prop tech solutions to Douglas Elliman reality, and the greater real estate community through its new valley venture subsidiary.
The investment approach and ensures the Douglas Elliman companies and its agents are on the cutting edge of the.
The industry with new solutions and services that can easily be integrated into our technology Foundation, while keeping us asset light.
This includes access to exciting fast growing sectors in the prop tech space such as EV.
And Green Tech.
We are significantly aligned with our at our assets.
Prop tech companies, we invest we.
We invest in benefit access to Douglas Elliman operating business and distribution to grow their own business, while simultaneously driving elements growth and competitive differentiation.
Another additional revenue stream example would be our white label homeowners engagement platform.
That supports long term client relationships by providing clients lifetime access to services that include home management, moving HPA Hvac's support.
Insurance change of addresses and many more are.
Our access to leading industry technology also enhances agent productivity, earning potential and satisfaction.
Thus supporting affects to recruit and retain high performing agents through the.
Appeal of more creative offerings.
And to the increase of our market share.
Now I now return.
Return back to Scott to go through page 18 in 'twenty.
Thank you David.
Moving on to page 18, Douglas Elliman has a strong platform for continued growth. This involves growth in existing markets and in markets adjacent to where we are today as well as entree into new markets. In addition to organic growth through recruiting in our major markets. We have a number of very significant opportunities to grow our market.
Sure and adjacent markets, where the element name is well known and trusted some clear examples in New York, where we have a significant presence in New York City Long Island, and the Hamptons, we are working hard to grow our business in Westchester County, Greenwich, Connecticut, and in New Jersey.
Likewise, we are focused on scaling our business in Boston and nearby summer luxury market.
In Florida, we are building on our strength in South, Florida from Miami to Palm Beach to increase our presence on the West coast with the state and recently for example have had a significant growth in our Naples present.
And we have made a strategic decision to aggressively grow our current business in Texas.
This past summer, we restructured our relationship with our partners and are fully integrating the business with the rest of our operations. We are actively recruiting top agents and talent and Houston, Dallas and Austin.
And we believe Texas could be a major market for us in the future, Texas has a low tax state and growing in importance as a tech hub seek seeing significant in migration from California, and other markets, where we operate in.
There are a number of potential markets, where our strengths in the luxury segment could make these markets interesting. These include examples markets such as Nashville, Scottsdale, Denver, Las Vegas, and San Francisco. These are also examples of markets, where there is also potential for new development sales and marketing busy.
Which can be a good way for us to enter a new market.
In the aggregate the 18 markets shown represent approximately 180 billion in transaction value, which would represent a 50% increase in our addressable market.
In terms of growth of our new development sales and marketing platform. This is very important as a part of our business total revenues for this business were $66 7 million year to date and our pipeline is very strong.
We see a number of attractive opportunities to expand this business into new markets and are actively working to expand our presence in Texas.
And as discussed before we have a real opportunity to expand our ancillary services, such as mortgage title and escrow to enhance client experience and stickiness as well as to drive.
Profitable revenue growth.
Turning to page 19, a final key to our continued growth.
And the retention and the recruitment of agents, we have a very high retention rate for our industry equal tool.
Well to approximately 90% of our revenue.
And our agents are long tenured with 87% of our revenue coming from agents, who have been with us for more than three years, while we have all the technological assets and leadership acumen of any major corporation, our agents and employees often describe are completely close knit culture as family like and probably have.
Since who have called element home for 10, 20, and even 30 years.
Forbes has ranked us as one of the best places to work several years running.
We are steeped in culture, rich and entrepreneurial ism and work closely with agents to help develop.
Unorthodox yet winning business plans that have led to some extremely successful initiatives that bring elliman worldwide acclaim and recognition.
Such examples include the shows millions dollar lifting Los Angeles million dollar lifting New York and most recently Kendra sells Hollywood.
Douglas Elliman has many of the most successful and most invisible visible agents in the U S. We pride ourselves on our track record for many years of recruiting high profile best in class agents, who are attracted to the strength of our platform and our brand as David mentioned before we will continue to invest in compelling prop tech opportune.
That will help propel our growth and competitive differentiation as well as enable us to benefit from growing adjacent revenue streams and the potential growth in valuation of breakthrough tech firms with that let me turn it over to Bryant to provide a financial overview Brian.
Thank you Scott.
It is very important for Douglas element to have a strong financial profile that is commensurate with its luxury customers. This strong financial profile will enhance douglas elements growth prospects as it spans and merger and acquisition opportunities.
And related to valuation we believe this position of strength should entitle dog to our higher earnings multiple.
Please turn to page 22.
Page 22 provides a summary of the attractiveness of Douglas Elliman straw.
<unk> operating performance with impressive revenue growth disciplined expense management led by seasoned industry executives healthy margins.
Limited capital expenditures.
Port strong future growth initiatives and.
A quarterly cash dividend from a balance sheet with $200 million.
Net cash.
Please turn to page 23.
This slide shows our strong key performance indicators.
Healthy number of principal agents significant growth in transactions and transaction value and most importantly, an average sales price of $1.55 million per home over the last 12 months well above the national average.
The reduction in principal agents from 2018 to 2021 is the result of cost reduction initiatives that began in 2019 as we demonstrated on page 20 of the presentation, our operating expenses, excluding activity driven items such as advertised.
And discretionary compensation have declined by about $25 million or 12% since 2019.
The fruits of our work from increasing revenues as well as expense reduction initiatives are demonstrated on page 24.
In addition to a healthy EBITDA margin of eight 2% there is a solid conversion to free cash flow with low capital expenditures.
Yeah.
Please turn to pages 25, and 26, where the company's income statement and balance sheet are presented.
Now turning to page 27.
A summary of the investment and some highlights are presented including.
Douglas Elliman.
Operates in a highly attractive U S real estate market.
Douglas Elliman is an industry, leading brand name that is associated with luxury.
Douglas Elliman has a seasoned management team with substantial real estate.
Technology.
And operating experience.
Douglas elements technology creates a strong platform for continued growth.
Douglas elements comprehensive solution for multiple revenue streams capitalizes on its monetization of its valued agent relationships.
And.
Douglas Elliman has a healthy balance sheet with significant operating leverage for expansion.
Thank you and back to you Howard.
In summary, we believe Douglas Elliman strong leadership team technology and financial profile is commensurate with the profiles of its luxury customers.
Being a separately traded public company will enhanced strength, which along with dogs runway for expansion will increase its growth prospects as it expands and seek M&A opportunities.
We are pleased with our long standing history of factor of paying a quarterly cash dividend. It remains an important component of our capital allocation strategy and following the spin off is our expectation that our current policy of quarterly dividends of <unk> 20 per share will continue well into the future.
Thank you very much and we will be happy to answer your questions operator.
Yes, Sir.
I would like to <unk> question.
One on your telephone keypad, if you're using a speaker phone. Please make sure that you're on mute function is turned off the line starts did not reach.
Again, Please press star one to ask a question.
Okay.
And our first question will come from Ian Zaffino with Oppenheimer and company.
Hi, great great. Thanks, guys, congratulations definitely exciting.
News in China.
Procedure so congratulations.
Couple of questions here kind of a lot to unpack.
But you know maybe just give us kind of the highlights as far as you know it was just.
100% spend does go through.
Sales traffic and then also what.
The cost basis.
The legacy vector a company and how do we think about that going forward as long as you follow ups. Thanks.
Let me start with that as it relates to it as a 100% spinoff. It's all of the shares of the company being spun off <unk> to shareholders.
And as it relates to having gone through a sales process to sell the company.
This industry has a lot of rumors, but we've never had a sales process to solve the problem.
<expletive> you enhance it and to the other parts of your questions.
Well.
Was your question about you asking about the <unk>.
The tax basis of the.
Of the.
Sure.
Our legacy vector after the spin is complete.
Brian do you want to pick that up.
Yeah sure all stockholders were retained our basis in better stock and after the spin off occurs we will notify stockholders of the allocation of their basis between Doug stock and <unk> stock.
Okay, but I'm, assuming the assets themselves have a relatively low basis and they've been fully depreciated here are pretty close to it.
Correct.
That is correct, but the question that was asked but this is a tax free spin off.
And as a result stockholders will not recognize any gain or loss on the transaction the basis is allocated between the two companies.
And Douglas Elliman does not have any and all kinds of Rockford does not have any internal guidance.
Okay. Good and then if I can squeeze in.
Two more questions. If we look at the pro forma EBITDA of dog.
How much cost should we expect to kind of creep back into the model once we get past sort of the whole.
Cost cutting and optimization process.
Do we think about that and then also any inter party related.
Agreement between the two entities you know I'm thinking that the real estate side appears to be staying with the G. R and if that's the case. It typically you had some type of exclusivity agreements with dog.
Especially on the <unk>.
Preopening, the marketing and the sales process, how does that all now work is two separate entities.
Nick do you want to answer.
Yes sure.
The.
There are a series of traditional.
Agreements intercompany agreements between.
Between vector in the spun off entity that will.
That would be traditional in a spin off there'll be certain sharing of corporate.
Expenses, some leases and other types of.
Things I mean, as you are correct that the real estate investments will remain with with vector.
Historically that has involved.
Some new development and marketing activity by Douglas Elliman those relationships.
We'll continue I think as Brian mentioned.
You mentioned I think we're very proud of the expense reductions.
We made.
You referenced the $25 million of expenses that had been taken out I think we've been very pleased that we think those expenses.
Fundamentally have been solid obviously there are activity related.
Expenses that are very correlated to volume and profitability no examples being.
Advertising and performance compensation, but I think we feel very good about the.
No.
Work that was done last year, two attempts to attack our expense structure in that.
We've seen those the fruits of that continue into this year as expected for the future.
Okay. Thank you very much I'll, let someone else hop on thanks.
Thank you.
Our next question comes from Hale Holden from Barclays.
Hi, good evening, Thanks for taking my call and congratulations I had.
Two questions I guess the first one is.
You mentioned that Doug would be spun off with $200 million of cash that it has on the balance sheet.
Are there any attention for to raise debt and doing an intercompany cash distribution to <unk> before the spinoff.
No we have no.
We have no plans, we feel thats a $200 million.
Is it enough, where we're profitable quite profitable we hope it will continue that way and we have no intention of it.
The public markets.
Until we really need to afford evident reason, whether it be a large acquisition or whatever.
Right now we think we're in good shape.
So tea will be effectively unlevered thats somebody to think about it.
Unlevered completely unlevered, yes, okay.
My second question is.
Why leave the real estate portfolio behind that.
Why not set it off with Doug.
Yeah.
Well I think part of the concept was that the spun off entity was going to be an asset light density I mean vector group has the existing infrastructure that has supported those investments historically and I think it was those were really the factors that drove our conclusion that it made sense to maintain those.
<unk> vector.
Where they historically had been.
Okay, I guess, sorry, one last one you guys seem very confident you'll get it done by year end.
That's coming up on US quickly I just was wondering if there are any hurdles we should think about.
That might delay us.
Well.
<unk> of it is obviously subject to final review by the SEC.
Among other.
Really the key variant then we remain hopeful and confident it will get done by year end, but again, we're not 100% in control of that process.
Great. Thank you very much.
Alright, thank you.
Our next question will come from it.
Your line.
Ocean credit partners.
Hi, Thanks for taking my question.
First question just around the.
The unsecured bond left at the back there.
I understand that I think element guaranteed.
So my question just around your thoughts around.
The step down there and if you're thinking about doing anything in conjunction.
With the spin off.
Well element did not guarantee those bonds.
The first one.
And obviously, we think liggett on its own we will be able to continue obviously paying the interest with it.
Earnings and.
We will be available when time comes to refinance them.
Okay. Thanks, and then can you just clarify I mean, it's a little bit confusing in the in the presentation.
It says that the real estate asset class there'd be GR, but the new valley entity will go with.
So these two new values actually there was new valley.
All day real estate, which had the real estate assets and then there was new valley.
As it related to.
The prop tech the prop tech investments.
Okay. So the news or the new valley, that's going with the spin because it really is not kind of your investment it's more it's more of the prop tech it's not last program.
Okay Kurt.
Correct.
Okay.
Then.
And then I had some questions on the tobacco side.
Can you guys just talk about like you know your margin. Obviously you know today is much stronger on the tobacco side. Then it was kind of pre Covid I mean, obviously a lot of that's driven by topline.
But can you got it.
How should we kind of think about kind of a more normalized.
Like tobacco.
Margin.
Profile.
We kind of think about you know.
Top line normalizes more.
To pre COVID-19 levels, how much how much of the other cost take out there or do you think it's relatively permanent.
Nick I wanted to handle that.
So as a reminder, it was back in <unk> and 'twenty 2018 back half of 2018, we made the decision to move forward.
Our volume based strategy to an income based strategy.
With our Eagle Twenty's brand and that has been the primary driver and continues to be the primary driver of our margin increase on a quarter over quarter year over year basis.
Currently anticipating that to continue as I mentioned in my prepared remarks, though the same time, we have launched montego.
In various markets across the U S and the the.
A strategy for that brand.
It's a compliment.
Both the Eagle and pyramid and and show up on market share in the in the U S market and that's what we've been doing so we were anticipating both stable and growing share but also continue to.
To deliver increased earnings through increased margins on our Eagle Twenty's Brian.
Just just to add to that effectively 2021 has really functioned as a using your analysis of post COVID-19 year.
If you look last year the industry was basically flat this year the retail market is down as Nick presented over 6% and wholesale was down over 11%. So the recovery from Covid and the industry has happened and liggett has been able to maintain its game.
Instead, it picked up during during the Covid period and extend them in 2021, which is a product as Nick just explained of the monetization of our Eagle brand.
Got it do you guys think it's it's a little bit more permanent.
Permanent just in terms of the you know as you continue to take price.
It's more a little bit of a permanent margin uplift for legg yet.
Just had one more question around Montego interesting to hear just the continued markets market share that that montego is gaining.
Got you guys kind of highlighted it over the last couple of quarters I think.
Percent.
Yeah, So I have.
Some more color around montego would be pretty helpful. I think in a prior quarters, you've kind of given the share of montego as a percentage of.
The discount sales is there any kind of color on the continued progress there because I think that's an interesting story obviously.
Sure look.
With respect to both our market strategy and our brand strategy as we've always said, we take this opportunistic approach to the to the marketplace and win win opportunities develop we need to take advantage of those opportunities and position <unk> to get it.
Its fair share or more of that future growth and where we're seeing those opportunities in the low end.
The low and the deep discount category continues to grow and so we're using montego is off price fighting brand to take advantage of those opportunities.
We're still in the early stages, but.
From a year over year perspective.
Increased from about 3% of the deep discount category two 7% of the deep discount category. So continue to be very pleased with the progress and the overall brand portfolio.
Okay. Thanks, Thanks for answering my questions appreciate it.
Great. Thank you.
Ladies and gentlemen, those are all the questions that we have once a day.
Thank you for joining us.
'twenty one earnings conference call it.
We'll conclude our call.
On behalf of all of US at Becker Group Liggett and Douglas Elliman.
That'd be one at the end well. Thank you offer your participation and you may now disconnect.
Okay.
Okay.
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