Q2 2022 Douglas Elliman Inc Earnings Call
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Welcome to Douglas Element Inc. 2nd quarter 2022 Conference Hall.
During this call, the terms of adjustment income and adjust event.
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.
Reconciliation is to the Adjustment Net Income and Adjustment EBITDA or Containment in the company's earnings release, which has been posted in the Investor Relation section of the company's website located at investors.eleman.com. Reconciliation is to the company's website and the company's website located at investors.eleman.com Reconciliation is to the company's website
Before the call begins, I would like to read a safe harbor statement.
These statements made during the conference called 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 security and exchange permission filing.
Now I would like to turn the call over to the chairman, president and chief executive officer of Begris Eleman Inc., Howard and the Lordehr.
Good morning and thank you for joining us. With me today, our Richard Lampen, our Chief Operating Officer, Ryan Kirkland, our Chief Financial Officer, and Scott Durkin, President and CEO of Douglas Eleman Realty, our Residential Real Estate Groquers business.
On today's call, we will discuss Douglas Hellenmann's financial results for the three and six months and the June 30th, 2022, as well as current trends in our luxury markets.
We will then provide closing comments and open the call for questions.
Before we begin, I would like to take a moment to honor our beloved colleague, Karen Chessley, who passed away earlier this week. I'm going to pass away earlier this week. I'm going to pass away earlier this week.
As Vice President of Human Resources at Douglas Elliman and Senior Vice President of Human Resources at Douglas Elliman Realty, Karen was an integral part of our company for almost two decades and we will miss her dearly.
Our thoughts are with Karen's family and friends during this time.
Now we will begin by reviewing Douglas Helens finance results for the three and six months and the June 30, 2022.
Starting first with Douglas Salmon's financial results for the three months and the June 30, 2022, Douglas Salmon reported 364.4 million in revenues.
compared to $392 million in the second quarter of 2021.
Net income attributed to double summons to the three months ended June 30th, 2022, which 10.2 million was 13 cents per diluted share compared to net income of 39.5 million or 51 cents per diluted share in the second quarter of 2021. Or 51 cents per diluted share in the second quarter of 2021.
For the three months ended June 30th, 2022, adjusted in Bidaf, attributed to Douglas Salmon, was 19.2 million compared to 45.3 million in the second quarter of 2021. The second quarter of 2021.
Logan-Seldman began operating as a standalone public company in 2022, following its spinoff from Vector Group in December 2021. Expenses incurred by our public company operations are reported in the corporate and other segments, and the operations of our brokerage business are reported in our real estate brokerage segment.
Therefore, for comparison purposes, a real estate brokerage segment reported operating income of 21.6 million for the three months at the June 30, 2022.
in the second quarter of 2021.
The Justin E. Beddard attributed to a real state brokerage segment was 24.4 million for the three months at the June 30, 2022, compared to 45.3 million in the second quarter of 2021.
For the three months ended June 30th, 2022, adjusted net income was $9.7 million or 12 cents per share compared to adjusted net income of $43.1 million or 55 cents per share in the second quarter of 2021.
I will now provide an overview of Douglas Seleman's individual market performance during the quarter.
Douglas Elman delivered the second highest quarterly revenue total in our history in the second quarter of 2022.
Despite a challenging macroeconomic environment, an infant and a quarter, we significant lack of listing inventory of luxury homes across many of our markets.
We were also pleased to see increases in revenues and close sales from the New York City, Massachusetts, California and Texas markets in the second quarter of 2022 compared to the prior year period during which we experienced record levels of activity across our company.
In June , we began to see a decline of commission receipts, and this trend continued in July .
We believe this trend has been caused by less new listing inventory entering the market, financial market volatility, as well as significant increases in mortgage interest rates.
Initially, there's the climb skewed towards the lower end of the market because of its sensitivity to mortgage rate increases.
However
Luxury markets recently experienced softness that we believe has been due in particular to volatile financial markets as well as a limited listing inventory of luxury homes that has existed since the end of 2020 at one.
We are optimistic that luxury markets will rebound as financial markets stabilize, and we remain laser focused on selling luxury arms.
As we will discuss later, listing in Mentoria has recently accelerated to its highest level since the pandemic began. Nonetheless, listing in Mentoria remains below pre-pandemic levels, and this may provide a firm foundation for future price appreciation and our luxury offers.
We are proud of our brokers who are recognized internationally for their expertise in selling luxury homes.
and continue to execute transactions in our markets.
The highly profitable and luxury base in New York City market remains a large market, and our management team contains three good brokers as well as market new development projects in the region.
We are all aggressively growing our business in a Texas market which continues to attract record buyer demand across the entire state. Homes reportedly averaged only 33 days on the market and this timeline is even lower in our luxury markets.
We are confident Texas will become a major market for Douglas Soma in the future. I have already had 125 agents from the Fedatives in the state this year.
These agents bring expertise in local markets. They serve and reported approximately $750 million of annual gross transaction value prior to joining Douglas Elman.
Turning to Florida, the Hamptons and Colorado, while these markets significantly act before the COVID-19 pandemic, they have been negatively impacted in 2022 due to lack of listing inventory, volatility in the financial markets as well as increased international summer travel. The Hamptons and Colorado,
From the fourth quarter of 2019 to the second quarter of 2022, listing inventory in all of Douglas Selman's markets declined by approximately 50%.
We believe this limited listed inventory significantly restraints sales potential.
However, as previously mentioned, we believe this trend will be temporary. The second quarter of 2022 saw up-listing inventory accelerate to the highest level since the pandemic began, though that still is below pre-pandemic levels, which we believe suggests that sales will slowly increase markets during the period.
As a result, we see a tremendous opportunity for growth in all of our luxury markets when market uncertainty subsides and limited listing inventory continues to drive higher home prices.
Moving out of Douglas Elements' financial resource for the six months, and did you in 30 of 2022? For six months, and did you in 30 of 2022? Douglas Elements reported six hundred and seventy-three, three million in revenues.
compared to $664.8 million in the 2021 period.
We are proud to have delivered these record revenues to the first half of the year.
Net income attributed to the sum of the six months ended June 30th, 2022, were 16.8 million or 21 sets per gluted chair. Compassion that income of 53.4 million or 69 sets per gluted chair in the 2021 period. Or 69 sets per gluted chair in the 2021 period.
For the six months ended June 30, 2022, adjusted EBITDA attributed to Douglas-Salmon was $31.9 million compared to $61.6 million in the 2021 period.
For comparison purposes, a real estate brokerage segment reported operating income of $36.1 million for the six months ended June 30, 2022 compared to $57.4 million for the 2021 period.
Adjusted EBITDA attributed to our real estate brokerage segment was $42.1 million for the six months and the June 30th, 2022 compared to $61.6 million for the 2021 period.
For the six months ended June 30th, 2022, adjust the net income with 16.2 million or 20 cents per share compared to 57 million or 73 cents per share in a 2021 period.
The global settlement also maintained a strong balance sheet with cash of $202.1 million at June 30, 2020.
In summary, Douglas Hellman has performed well thus far in 2022 despite a challenging market. We believe our differentiated platform and approach position us will continue to grow.
Looking ahead, we are focused on creating stockholder value through strategic market expansion.
Continued recruitment of best and class talent, operation efficiencies, and further adoption of innovative solutions to empower our agents.
In addition, during the second quarter, we will please depend another 5 cent and appreciate dividend towards stockholders. Thank you.
is our expectation to dividend will serve as a key component of our capital allocation going forward.
With that, now we will be happy to answer questions. Operator.
At this time, I would like to inform everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad.
Your first question comes from the line of Ben, standing with Jeffries.
Thanks. Good morning. I wanted to just follow up and clarify a few things because I think you said inventories are clearly down, and I think you mentioned into July as well, but then you mentioned that they are improving. So I just want to understand the dynamics as you think about inventory and activity here in kind of the more shorter term. And are things better than improving from where they were in the second quarter? Or I'm sorry, I was just a bit confused by the commentary.
Yeah, I think the commentary really was they have improved. They started improving, obviously, because the market has slowed down.
But there's still below where we are in inventory pre-pandemic.
So the pandemic took a lot of inventory out of the market, and that has lasted up until the pandemic started, cause it has not shifted these things overOL's. So the gradually Fact Icon consumer market is divided up by supply and
last quarter pretty much and now it is starting to improve so as we see more inventory we believe obviously
obviously better for business.
but the lower inventory sort of squeezes.
the buyers, some of the buyers out of the market, but also
Matt?? you
higher price inventory. The inventory obviously starts
still going up in price.
which somewhat is...
Not bad heart for understand what this fact is.
I think we could all think about it in the fact that, you know, if it's not a lot of great inventory around, people that want that inventory are going to pay whatever price they have to pay. So the sales may be at that rate, but the pricing is going to move up.
And as the inventory, as more inventory comes in, the price may stabilize more, which is not bad either, because we've had such a big run up. And we've had such a big run up.
Did I answer your question? No, that makes sense. And I guess as you think about the other inputs of interest rates, and you mentioned financial markets volatility, both of those seem to be happening together, which is an additional headwind. But you mentioned the high end, which I think you've discussed in the past about that market being more resilient to higher rates, but really the incremental here is obviously you've got equity markets and bond markets moving a lot more. That has been the incremental kind of negative.
In terms of the market? Okay. Yeah, I think, yeah, look, I think that the mortgage rates, when they talk about, well, it's now down, I think I saw this morning like 5% in the 4 and 7 days, but they're talking about 30-year fixed-rate mortgages.
You know, the buys in the luxury market and that used 30 year fixed year fixed rate mortgages. fixed year fixed rate mortgages.
So, and it's still plenty of, you know, adjustable in the threes. And then obviously in the luxury markets, these are generally customary that have private banking relationships and so forth, where they could get better rates and or...
just take it out of their account at 150 basis points and wait for rates to come down to go into a traditional you know, 10 year, seven or 10 year adjustable mortgage. So I think it's really more the financial volatility.
then it is really the actual fact of the range being higher.
Okay, makes sense. And then you mentioned
125 agents in Texas that were brought on in the quarter. Can you give us the total in that region now and where that fits in terms of number of agents? Yeah, be careful. You have that number.
Yeah, the Texas region had for the first half of the year $23 million in brokerage revenues.
And as far as the region, over the last 12 months, we think it's about $40 million. So we're growing. But the question is how many ages? Do you know how many ages?
300.
Bring on. Jak.
Texas is a big state. We have to do a lot of recruiting to get those numbers up.
Yep, make sense. And when we think about just the cost base and that recruiting and you've said being efficient and managing the business and aggregate more efficiently, is you think about the first half expense level in a relative environment that's not, let's just say it doesn't get better, but you kind of stays around here. Is there efficiencies to be had within the expense base or are these reasonable run rates and how we should be thinking about EVA DAW and profitability?
Well look, the different markets that we're in have different commission structures. That's just the way it is. So... So... So...
In New York, it's the most profitable, and it always has been because the commission's rates that you pay have been lower somewhat, as opposed to like California, which is probably the highest in Florida for the top end brokers.
But really, we're not looking at that. We're just looking at the bottom line and the best way to prove on the bottom line is there are course cuts that we can make. So don't forget, 2021 was an unbelievable year, which... I don't forget, 2021 was an unbelievable year, which...
hopefully we won't have another pandemic and we'll never see anything like that. But the fact is, we have corporate overhead that is adjustable, that like for bonuses and so forth. So we're gonna do whatever we have to do to make sure that our bottom line is acceptable and that what we know
we keep moving forward. And so I think you're gonna probably not see that till more like the end of the year or into next year. But that's what the plan is. If it keeps up at a lower level, obviously we're gonna make changes because we watch it very carefully.
I understand. I guess it's their way to...
but a dollar amount around what that, yeah, I would, the expense amount that's subjected to, obviously, you're in bonus or that isn't the committee or infrastructure, just thinking about things like gene A and others. I know you have public company costs and other things that has come into the fold this year. But it's not, so I guess summary of what you said, you're not necessarily doing anything proactively today, but you could potentially do that if things persist. So of course, why you brought up one like bonuses.
of course obviously you know the bonuses would be less if we make less profits. That's the way it's supposed to be so that goes without saying. We're trying to be more efficient.
which I think we're doing pretty good job of and we may say some money in certain certain areas. We're going to look at it again and we're going to be very careful in spending the money.
Very good fight.
Right, that on page 15 of our presentation, there's a slide that shows what we've done since 2019.
And this only covers the real estate brokerage segments, operating expenses. It does not cover the public company expenses. But in the non-activity based and non-technology based expenses, we dropped that from 201.5 million in 2019 to 183.5 million in 2019.
zero million and that and if you think about it that's a 9.1, 9.2 percent drop and that has occurred as inflation has been up 12 percent since 2019. So we're really laser focused on that. And by the way the other factor is
that unless something changes drastically as it relates to people coming to the office.
We have a lot of leases and
We're really going to have a program of really looking at it very carefully and not renewing the cases and consolidating offices. We think that just makes sense.
I get to understand that makes sense. And I guess last one for me, just with regards to agent recruiting, we already went through Texas. Are there other markets that you would put, or how would you stack rank markets in terms of your priorities of attracting productive agents?
Well, I think the two biggest recruiting states are sort of all that we're doing right now. We see action and is New York and Florida.light Fox Company
Both of those.
We have a lot of brokers, have a lot of good brokers, and we really have built more good share. If you look at Florida, we did last year, what, $16.5 billion.
and Florida, which is sort of a new region for us, it's not very old and we're not all over the state, we're pretty much just in the southeast and we started opening some on the west coast of Florida, couple of offices, but we did, I think we did just under 15 billion.
in what's pretty much a newer market for us. And I will say when it comes to our new development business, we have not a lot of new development now in New York. or
You call it land price of this Del Haay construction course is Del Haay.
and
There's some product on the market that hasn't sold yet and developers are a little shy about going into new projects with all the rest of the new projects. There's some new projects. There's some new projects.
Florida.
we have a huge backlog of new projects that will...
be done over the next two to three years. So that's going to be a big plus for us also.
Great, thanks for taking all my questions.
Your next question comes from the line of John Masaka with Leningrad-Dalman.
Good morning.
So maybe just given the commentary around inventory picking up in kind of June and July , have you gotten any feedback from your agents about maybe why that is, why the kind of...
It increases supply. It's like, is it against specifically driving that?
Well, the increase in supply only comes from lower sales. It's pretty much simple and also, you know, it could be that people were waiting for whatever their reason of going into the market with what they want to sell, but realistically, I think it's really more of as sales go down.
That's what happens, your inventory builds up. That's what's supposed to happen. And I think that's pretty much that. VK and the numbers that you see anything different.
Now that's what I'm seeing Howard. Yeah, I think that's pretty much.
when it is. Okay.
And then looking at the different kind of regions in which you operate you mentioned that
I was in the law of strength in New York and Massachusetts and California. It made you a little bit less relative strength in Florida. I mean, I guess is that basically because you're laughing obviously kind of very historic levels of transaction activity or for on a dollar basis or is there something actual kind of I guess absolute weakness in those markets that you're seeing.
Well, I would say that...
a little bit of both. I mean, I think the fact of...
New York, you know, a lot of people don't realize.
The peak New York year, the way we figure it and look at it, was somewhere around 2015, 2016. So, 17, 18, 19.
pandemic were not great years.
and they were not great years because of the changes in the in the increase in mansion tax transfer taxes in all the government rules of the loss obviously people even because the loss of the uh... solve the the docks in the uh... over ten thousand dollars
So all of a sudden
You know, that market picked up, but it picked up from a level that was...
not moving up
for probably four or five years.
as opposed to some of the other markets where they were moving up during those years. So it's hard to exactly pinpoint it. We're happy it's happening. I mean...
I thank New York.
I may be a different than some other people, you know, how they speak about it. I think New York is still, you know, gonna be a very strong market. In fact, I've been quoted as saying that, I think New York is gonna be the number one second home market to the world, which I think most people would say that, that's what we spend money on.
I think what we need for that to happen though actually is the dollar has to get a little weaker against the other currencies I think that's why we're not seeing the international business this Summer that we thought we would see
because of the strength of the power.
Okay, that makes sense and is preemptively out and to the next question. So thank you very much. So thank you very much.
Okay.
Ladies and gentlemen, those are all of the questions that we have for today.
Thank you for joining us on Douglas Elements II Quarter 2022 Ernie's conference call. This will conclude our call. We hope you have a good day and you may now disconnect. Thank you.
Thank you.
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