Q3 2022 Douglas Elliman Inc Earnings Call

Welcome to Douglas Elliman, Inc. Third quarter 2022 earnings Conference call. This call is being recorded and simultaneously webcast. An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.

Scott element dotcom for one year.

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 earnings release, which has been posted to the Investor Relations section.

The Companys website.

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

The statements made during the 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.

Now I would like to turn the call over to the Chairman President and Chief Executive Officer of Douglas Elliman, Inc, Howard and Lorber.

Yeah.

Good morning, and thank you for joining US with me today are Richard <unk>, Our Chief operating Officer, Brian Kirkland, Our Chief Financial Officer, and Scott <unk>, President and CEO of Douglas Elliman Realty, a residential real estate brokerage business.

On today's call, we will discuss trends in residential real estate Douglas elements financial results for the three and nine months ended September 32022 and performance in our luxury markets.

We will then provide closing comments and open the call for questions.

I would like to begin by discussing the current operating environment for residential real estate and why we believe Douglas Elliman is well positioned despite the challenging market.

As we discussed in our second quarter earnings call beginning in June we saw a decline in commissions from existing home sales and this trend continues to date.

We believe this decline has been caused by a limited supply of new inventory significant increases in mortgage interest rates and volatility in the financial markets.

As our industry entered the down cycle Douglas element is positioned to take advantage of significant up significant opportunities due to our key strengths, which provide competitive advantages and include a global network of best in class agents and the outstanding relationship we have with them.

We have added 336 net agents in 2022 and.

In addition to successfully recruiting agents, we're very proud of our 88% agent retention rate.

Each year, we provide opportunities to bring element agents together. So they may established referral relationships that help to retain important transactional business within Douglas Elliman.

Why are we using agents join and remain on the element team is a world class development marketing business, which has a hybrid platform.

English is us from our competitors.

The platform combines our leading agents with an experienced team of 80 employees in development marketing to represent the most exclusive new developments in the United States and because our approach encouraging our agents with expertise in the luxury home resale business to market new developments the development marketing business often serves as a pipeline for future resale.

Transactions for our agents.

Our second key strength is at Douglas Elliman brand backed by 111 year reputation the brand represents the finest and luxury real estate across the key markets most of which are less sensitive to mortgage interest rates.

Okay luxury markets are complementary with similar home purchases, we continue to expand into markets with similar characteristics, having recently expanded to Las Vegas, Nantucket, a new Canaan, Connecticut. We have also expanded in existing markets with new offices opening in Newport Beach, California, Arizona, Colorado.

Third our distinct approach to technology provides our agents with state of the art applications.

And to increase their productivity and business.

Many of these innovative applications have been identified by our New Valley ventures prop Tech investment subsidiary.

Our relationship with these cutting edge transformative companies as an investor in our client enables us to discover new innovations that benefit our agents at a low operating cost.

Our agents have embraced these enhancements and technology is a critical component recruiting agents from competitors.

And of course, our final key strength is our financial profile, we have a long history of profitability and current liquidity of approximately $193 million of cash at September 30 of 2022 and no debt.

This power provides us with opportunities to increase our core brokerage business as well as scale or overhead expenses by entering new markets.

I would like to address the listing inventory shortage, which continues to be a key characteristic of the housing market, where we are active.

The sudden increase in borrowing costs in 2022 has restrained potential supply from entering the housing market as homeowners remain reluctant to part with our mortgage rate obtained through purchase or refinance over the past several years.

Therefore, the unusual low listing inventory levels, particularly in the luxury sector have restrained sales potential of keeping a firm based in place for pricing.

As a result, we have seen and are continuing to see luxury listing inventory at lower levels or entering the market at lower levels than before the pandemic RMP.

However, we believe the tight supply will gradually ease as time passes and consumers adjust to higher interest rates and sellers weren't forced to sell we'll adjust pricing accordingly.

Importantly in residential real estate luxury markets are usually the last markets to enter a down cycle and the first markets to emerge when the cycle ends.

So we see a tremendous opportunity for growth in all luxury markets when market uncertainty subsides.

Now turning to Douglas Elliman, its financial results for the three and nine months ended September 32022.

Beginning with our financial results for the three months ended September 32022.

For the three months ended September 30 of 2022, Douglas Elliman reported $272 6 million of revenues compared to $354 2 million in the third quarter of 2021.

Net loss attributed to Doug assignments in the three months ended September 32022 was $4 million or <unk> per diluted share compared to net income of $25 2 million or 32 cents per diluted share in the third quarter of 2021.

For the three months ended September 32022, adjusted EBITDA attributed to Douglas Elliman was 124000 compared to $27 8 million in the third quarter of 2021.

Douglas Elliman began operating as a standalone public company in 2022, following its spin off from vector group.

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

Therefore for comparison purposes, our real estate brokerage segment reported operating income of $1 5 million for the three months ended September 32022, compared to $25 5 million in the third quarter of 2021.

Adjusted EBITDA attributed to our real estate brokerage segment were $5 1 million for the three months ended September 32022, compared to $27 8 million in the third quarter of 2021.

For the three months ended September 32022, adjusted net loss attributed to Douglas Elliman, It was $4.0 million or <unk> <unk> per share compared to adjusted net income of $24 9 million or 32 cents per share in the third quarter of 2021.

Moving now to Douglas Elliman financial results for the nine months ended September 32022.

For the nine months ended September 32002, Douglas Elliman reported $945 8 million in revenues compared to $1 billion in the 2021 period.

Net income attributed to Douglas stomach for the nine months ended September 32022 was $12 8 million or <unk> 16 per diluted share.

<unk> to net income of $78 7 million or $1 <unk> per diluted share in the 2021 period.

For the nine months ended September 32022, adjusted EBITDA attributed to Douglas Amit was $32 1 million compared to $89 4 million in their 2021 period.

For comparison purposes, our real estate brokerage segment reported operating income of $37 6 million for the nine months ended September 32022, compared to $82 9 million for the 2021 period.

Adjusted EBITDA attributable to our real estate brokerage segment were $47 2 million for the nine months ended September 32022.

Pay up to $89 4 million for the 2021 period.

For the nine months ended September 30 of 2022, adjusted net income attributed to Douglas Elliman was $12 2 million or <unk> 15 per share compared to $81 9 million or a $1.05 per share in the 2021 period.

Douglas L and also maintain a strong balance sheet with cash of approximately 193 million at September 32022.

In summary, Douglas Elliman has shown enduring performance in 2022, despite a challenging market and we believe our differentiated platform and approach position us for continued long term growth.

A proven management team has a successful history of navigating many economic cycles and applying financial discipline that balances the importance of maintaining revenue. While also judiciously analyzing operating expenses to create long term cycle.

Hold a value.

During the great financial crisis of 2008, our business was concentrated in the New York Metropolitan area and by 2010 revenues had returned to 2008 levels. Further by 2010 net income increased to eight and record.

These examples demonstrate both the power and tenacity of our agents at Douglas Elliman brand name in luxury markets as well as the decades of experience. This management team has and creating opportunities that appropriately reflect the current economic environment.

Looking ahead, we are focused on creating stockholder value through strategic market expansion continued recruitment of best in class talent.

Operational efficiencies and further adoption of innovative solutions to empower our agents.

In addition, during the third quarter, we were pleased to pay another five per share dividend to our stockholders.

It is our expectation that the 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 ask a question Press Star then the number one on your telephone keypad.

Your first question comes from the line of Daniel Fannon from Jefferies. Your line is open.

Thank you and good morning.

Wanted to just follow up in.

And understand specifically, maybe what you are doing differently in this type of backdrop clearly as you said the macro.

So our rates to.

Inventory are all kind of working against kind of what might be a more normalized activity and revenue environment. So.

As a management team and as you know in terms of how you are thinking about managing the business you said.

Can you kind of gave some some general terms I was hoping to get a little more specific in terms of what you guys are actually doing differently today and thinking about even into next year versus say.

Six months ago.

Yes.

We have been gone a process to evaluate costs related to leases such as expenses related to travel non agent facing administrative support and special events.

The support and services, we provide to our agents distinguishes us from our competitors, we do not intend to reduce anything thats agent facing.

That we want to leave alone because thats one of the reasons, we are bringing in new agents and agents are staying with us.

Okay.

Okay.

Okay.

And so you mentioned a couple of new markets and expanding.

Is that I guess, you mentioned Las Vegas names like that new Canaan are those new here in kind of a third quarter and as you think about prospectively, we should still kind of continue to think about more markets in and kind of the historical level of growth maybe that you've been putting forth in recent periods.

Yeah, well look we're looking at those new markets.

And basically where we're opening in markets, we have slightly different way than those that just go out and buy other companies. We generally try to find a few good brokers in those markets.

And bring them in with us.

And rent in many cases temporary space for a small space to get started we did not spend a lot of money and opening or buying offices.

Never have.

We bought a company wants to be in California.

That was probably it and we've made some very small purchases money in the one hundreds of thousands just to get some people to come on book to us. So we're really not big spenders as it relates to opening new businesses in new markets. We don't we're not going to just go there higher space.

Or buy another company.

Hope hope that it works. So so we're very careful in opening new offices. So we're going to continue if we find the right situation and the right people.

Understood.

And as you think about the inventory challenges.

The industry within the markets, where you have strong market share or is there any differences.

Some a little bit better or Florida versus Europe , or just just trying to get a sense of I know, it's kind of what those are broad trends of higher rates and everything that's happening.

Ross.

U S. But I was just hoping to get a little more delineation between the markets.

Yeah, I mean, you know.

When you look at New York, New York is actually performing pretty well compared to some of the other markets. But then again, if you look back to last year.

One likes to compared to 2021.

2021 was something that I don't think anyone really understands how would happen and what happened so quickly.

Yes.

Comparisons compared to 2021 is really you know to me it doesn't seem to make much sense because the real fact is who says that 2021 as the base year.

Yes, 2014, 15, 16, 17, 18 and 19 to look at also and we are still I believe better than we were 2019 was the last.

The last year before the pandemic. So I think we're in pretty good shape and I think that the luxury markets generally hold up pretty good.

We're talking about it now it's just a matter of the inventory, we still see lots of buyers.

At that level, but there's very little inventory because the prices moved up a lot of people are just holding on.

Some last year so.

But that's kind of soften at some point.

Okay and then just lastly, if you could provide an update on kind of the new development marketing and how that what kind of prospects that shows today or if that is also I.

I would assume also showing some signs of slowdown but.

Any update around that would be helpful.

Yeah.

There is not a lot of new development in New York, because nothing started during the pandemic. So we do have projects that were left over from before and a few new projects coming up but.

The most robust new development market for us is that as Florida.

We have a very big.

Schedule of.

New projects coming on the market over the next 18 months.

In the billions.

Thank you and just to clarify that the next 18 months is that more back half of next year that we should start seeing it come on or.

Part of it.

No theyre, starting that's starting now.

Starting now we've opened a couple you know in the last few months projects.

Usually in Florida, I can open up during the summer so starting.

A couple of months ago, we've opened a couple.

And we're going to be opening more.

Probably every month, we're going to have things opening in Florida.

Great. Thank you for taking all my questions.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman third quarter 2022 earnings Conference call. This will conclude our call. We hope you have a good day and you may now disconnect.

Please wait the conference will begin shortly.

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