Q1 2022 Douglas Elliman Inc Earnings Call

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Welcome to Douglas Elliman, Inc's first quarter 2022 conference call.

During this call the terms adjusted net income and adjusted EBITDA will be used.

These terms are non-GAAP financial measures and should be considered in addition to but not as a substitute for other measures of financial performance prepared in accordance with GAAP.

Reconciliations to adjusted net income and adjusted EBITDA are contained in the company's earning release, which has been posted to the Investor Relations section of the company's website located at investors Dot element Dot com.

Before the call begins I would like to read a safe Harbor statement.

The statements 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 in or implied by forward looking statements.

These risks are described in more detail in the company's Securities and Exchange Commission filings I would now like to turn the call over to the Chairman President and Chief Executive Officer of Douglas Elliman, Inc. Howard Lorber.

Good afternoon, and thank you for joining us.

Joining me today are Richard Lamping, our Chief operating officer.

Ryan Kirkman, Chief Financial Officer, and Scott <unk>, President and CEO of Douglas Elliman Realty, our residential real estate brokerage business.

On today's call, we will discuss the continued strength of U S residential real estate market and have factors in the market contributed to our solid first quarter financial performance.

We'll then answer your questions before concluding today's call.

During our last earnings call, we discussed why a brand name synonymous with luxury and a comprehensive suite of technology enabled real estate solutions.

<unk> Douglas Elliman to capitalize on the highly attractive dynamics in the U S residential real estate market.

During the first quarter, we demonstrated that this continue continued to be true.

We saw an ongoing trend of strong demand for residential homes combined with low inventory, which continues to result in significant price appreciation, particularly across our luxury markets.

Okay.

These dynamics have propelled an increase in our revenues to $308 9 million for the three months ended March 31, 2022, compared to $272 8 million for the first quarter of 2021.

Our gross transaction value increased to $11 7 billion for the three months ended March 31, 2022 up from $10 1 billion for the three months ended March 31 2021.

And we reported $52 8 billion in gross transaction value will closed sales over the last 12 months.

To date, our business has not been material impacted by higher mortgage rates and we believe this is the result of our focus on our luxury markets, where a higher percentage of transactions occur in cash.

We believe this momentum will continue for the residential real estate and an element in.

In particular, because of our strong presence and leading luxury markets.

Also contributing to this momentum are factors such as the growing importance of millennial buyers.

The return of international buyers and limited supply due to under building of new homes between $20 7 million in 2020.

It is important to note that our luxury brand results and higher average sales prices versus our peers across all our markets.

For the 12 months ended March 31, 2022 element had an average price per transaction of $162 million per home.

Statutorily higher than our leading competitors outside of New York City, our average price per transaction is approximately $1 5 million, which is well above the national average.

We believe this creates a runway for us to continue to grow our business not only in our existing markets and in complementary markets as well.

In addition to organic growth through recruiting in our major markets, we have significant opportunities to increase our market share in adjacent markets, where the element name is well known and trusted.

New York City remains our largest market with $17 3 billion in gross transaction value in the last 12 months ended March 31 2022.

We also continue to be pleased with the strong performance of our South Florida market with $14 7 billion in gross transaction value in the same period.

And average selling price remained at approximately $2 million per home across New York City, and South Florida.

We also maintained strong market share in New York City in South, Florida for the last 12 months, our market share in New York City, and South, Florida was 21% and 20% respectively.

We have also continued to expand our footprint across existing and new luxury markets.

In Florida, we expanded to Vero Beach endpoint Phaedra Beach near Jacksonville in the first quarter.

In Massachusetts, we opened in Nantucket office in April and recently broke at the highest price transaction transaction ever in that market.

We are opening two additional offices in Boston in the coming months.

We also continue to aggressively grow our business in Texas.

We are actively recruiting new agents in Houston, Dallas and Austin.

We believe Texas will be a major market for us in the future.

Our residential brokerage has further differentiated on enhanced viral approach Tech technology.

In the first quarter of 2022, we continued rolling out refinements of our cloud based my Douglas agent portal by incorporating new features including personalized distribution of data driven videos for marketing and social media.

A service designed to maximize our agents digital presence and our studio pro agent Concierge service.

Concurrently we continue to focus on reducing our expenses and rolled out two new packaged applications to automate our payment processing and streamlined escrow services.

In addition to lowering expenses. These integrated applications will provide a more automated experience and superior service to our ratings.

Looking ahead element is focused on creating stockholder value through the expansion of our footprint acceleration of our adoption of cutting edge <unk> solutions continued recruitment of best in class talent acquisitions accurate hires and operational efficiencies.

Before we discuss the financial results for the quarter I'd like to express my deep gratitude to the element agents and employees, who work hard every day for our company and our clients.

Our agents are consistently ranked among the best in the business and continue to power our company's success.

Yeah.

With that backdrop, let us move onto Douglas elements financial results.

For the three months ended March 31, 2020 to Douglas Elliman reported $308 9 million in revenues compared to $272 8 million in the 2021 period, primarily driven by increased commission and other brokerage income in our luxury markets.

Net income attributed to Douglas Elliman was $6 5 million or <unk> <unk> per diluted share for the three months ended March 31, 2022, compared to net income of $14 million or <unk> 18 per share in the prior year period.

For the three months ended March 31, 2022, adjusted EBITDA attributed to Douglas Elliman was $12 7 million compared to $16 4 million in the first quarter of 2021.

For comparability purposes element began operating as a standalone public company in the first quarter of 2022.

Expenses incurred by our public company operations are reported in the corporate and other segment and the operations of our brokerage business are reported in our real estate brokerage segment.

Therefore for comparison purposes, our real estate brokerage segment reported operating income of $14 5 million for the three months ended March 31, 2022, compared to $14 2 million for the three months ended March 31 2021.

Our real estate brokerage segment reported adjusted EBITDA attributed to it of $17 7 million for the three months ended March 31, 2022, compared to $16 4 million for the three months ended March 31 2021.

For.

For the three months ended March 31, 2022, adjusted net income was $6 5 million or <unk> <unk> per share compared to adjusted net income of $13 nine or 18.

<unk> per share in the first quarter of 2021.

Douglas Elliman also maintained a strong balance sheet with cash of $203 7 million at March 31 2022.

We believe this liquidity places us in a position of strength in the market.

In summary element had a strong first quarter and we believe we have a strong platform for continued growth.

In addition, during the first quarter, we were pleased to begin paying a <unk> <unk> per share dividend to our stockholders.

It is our expectation that dividend will serve as a key component of our capital allocation going forward.

With that we will be happy to answer questions operator.

At this time I would like to remind everyone in order to.

To ask a question press star followed by the number one on your telephone keypad.

Yes.

Your first question comes from the line of Rick like ROI from Jefferies. Your line is open.

Yes.

Yes, Hi, Howard and team so I guess when.

When you guys discuss the resilience of sales relative to higher rates.

As I mentioned cash buyers do you guys by chance have a percentage on that number.

Well it varies it varies from market to market, but the real fact is that in the higher end deals there is less talk of mortgage.

That doesn't mean, they're not ultimately getting financing on it after they purchase it or getting if they deal with a private bank they could be getting.

Financing, which doesn't have a mortgage on it from the private bank.

But we don't we don't really see interest rates, having affected too much yet and in fact, what I.

I've seen in the past over the years is that as rates start going up that brings people into the market quicker.

Because they don't want to be priced out of the market.

They start thinking back of what interest rates looked a long time ago and they're like Wow. They don't want it they don't want to get to that point. So it's sort of motivate some people to come into the market.

Understood.

Kind of ties into what I was going to ask after that so you would basically say the higher end markets like New York City in Florida.

Our.

Relatively resilient against interest rate.

I guess the interest rate.

It could be.

It could be resilient, but it depends how much at some point it wouldn't if we got back to these crazy rates that we had years ago, but we don't see that and then also taking into account inflation.

And look people need houses were still millions of the houses short in this country.

And.

According to all the data that we see.

And.

People need and want housing and therefore, they're going to do everything possible to do it as quick as possible.

The way it looks now with inflation.

And the supply problems to build new houses and rising interest rates.

There's no better time, probably than right now.

Got it that was helpful. Thank you and if I may just a little bit on modeling.

How should we think about growth in fixed costs for the upcoming fiscal year 2022.

Yeah.

Yes.

Hey, Greg how are you.

I'm doing well thanks, good to hear from you very good so if we look at our cost.

We put them into three buckets, we put them into activity based which are advertising.

Discretionary compensation.

Bonuses.

Put them into non activity based and we put them into expansion. If you look at our cost in recent years on the general administrative line. Our non activity have been reduced from 216 million to $194 million that number has dropped off as people return to the offices, but we will be taking initiatives.

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Two at Domino's cost.

The year progresses.

Got it and just just for clarity, though that reduction in G&A, that's referring to the total the total entity or just the brokerage segment.

NII for 2019 over the last 12 months is roughly gone from to 252 million to 256, but most of that has been either through its fashion of $13 million or.

Activity based costs, which are to advertising and discretionary bonuses.

<unk> 5 million to 49.

And obviously this activity I'll start really contend yet or they correlate to the business and we've increased our business significantly since 2019.

Okay understood. So I guess taking away from that.

With the return to office and expect some sort of.

Pick up potentially in G&A, but you guys are metering.

Our monitoring the situation.

Yes that scenario.

Monitor very closely when you started to return to office that was just part of it don't forget we had people on furlough.

Layoffs, and then all of a sudden when Colgate slowdown in our markets really started picking up in our in our primary markets. We had a higher back people and we had to find people and that wasn't that easy I think thats on the negative side. The positive side is the fact that we really like most other companies that have lots of office space, we're not going to.

We're not going to need all the space, we have so as leases coming due and we're going to consolidate and save some.

<unk> money on rent over the next few years.

Okay got it.

Good to hear and then.

One last item.

Maybe I missed this in your reporting but did you guys get or do you guys have a number of transactions in the quarter.

No I don't.

In the quarter just developed.

Rick is in the press release.

Alright.

And Rick.

When we are giving expenses, we are providing to expenses real estate brokerage subsidiary.

That does not include corporate costs.

Okay understood public cash got it.

Got it so that it doesn't include the G&A entity.

Understood Okay.

Okay I will take another look at the press release, then for that deal Count and appreciate you guys answered.

Okay. Thank you. Thank you.

Again, if you would like to ask a question press star followed by the number one on your telephone keypad.

Question comes from John Matt So.

With Lindenberg Thalmann. Your line is open.

Good afternoon.

Hi.

Okay.

Curious, where you feel you are in terms of broker Tau are you looking to kind of recruit still maybe in some of your core markets I know, there's obviously an initiative to expand into newer markets.

And some adjacent geographies, but in markets like New York or South, Florida, I mean do you feel you are in a good place from a brokerage a broker number or do you think you need to add more agents not no no no. We always looking to add we have some attrition we try to keep our numbers going up though as far as agent count.

Especially on the good agents.

Just hired a great agent staff.

Started a couple of days ago, we've made an announcement about it. This was an agent is doing a couple of million dollars a year in commissions.

And that's what we're looking for.

And then when you look at our newer markets like Texas, I mean, I think we hired 60 people in Dallas and the last.

Month or two.

So we are we are very much.

On the recruiting bandwagon and everyone in the company every executive in the company one of their jobs is including mine is to recruit.

We spend a lot of time doing that.

Okay.

And then as we think about growth how.

How much of that is really recruitment driven and how much of that could potentially be M&A, particularly given the current capital markets environment Orient well.

Look M&A M&A sounds better, but there's also a cost of it and recruiting probably takes a longer period of time, and there's a little bit tougher than just going and buying someone but on the other hand.

We look at the costs also.

There is no simple solution I mean, we want to recruit okay, and we want to.

Have acquisitions, but most of our acquisitions.

Recently have been small companies, which we call sort of walk over deals where there is maybe we just took over a group of 10 that had a small company I think always in Naples are outside of Naples and.

So all of a sudden now we have a new office in Naples.

And we didn't pay anything upfront for that.

But they wanted our brand.

That's what everyone wants they wanted our brand in one of the reasons they want our brand is because.

Our agents if you asked our agents where they get a lot of their business from <unk> would tell you for Douglas Elliman agents in other markets.

It's how we built the company, Florida people.

New York people have Florida, Florida people go to Aspen.

Several months, California.

I've been going to Texas, and Florida. So we have New York City people have been going to the Hamptons, we have so many markets all of our markets sort of connect to each other.

And that's really how we want to keep growing the company.

Okay and then just.

One kind of detailed question you talked about the G&A.

Was there anything one time ish in in one queue that we should watch out for or is that it may be kind of a good run rate now that you're kind of.

Public company and separate public company and then also given.

Given the amount of activity going on on the brokerage side.

As as far and good afternoon, John as far as.

General administrative as a public company side, we had $6 7 million of loss about one seventh of that related to stock comp. So that $5 million. There was a part that was one time, we believe the number for the year will be about $18 million.

Okay.

Okay, that's very helpful.

Yes, and John one more item.

Someone asked earlier about the number of transactions in the first quarter. The number was 7212 and over the last 12 months at 32519.

Okay. Thank you very much thank.

Thank you.

Your next question is from the line of Mike Nolan with Jpmorgan. Your line is open.

Good afternoon could you discuss management succession now that you are independently traded.

Well, we think we have a good management team, but we've only been independently.

Going on three months in third or fourth months, and we are opening new markets and doing a lot of recruiting so.

We will have put together a management succession plan at some point, but we're not ready for that at this point.

Okay. Thank you.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas elements first quarter 2022 earnings Conference call. This will conclude our call. We hope you have a goody.

You may now disconnect.