Q2 2023 Douglas Elliman Inc Earnings Call

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Welcome to Douglas Elliman second quarter 2023 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This call is being recorded and simultaneously webcast an archived version of the webcast will be available on the Investor Relations section of the company's website located at investors that alderman dot com for one year.

During this call the terms adjusted EBITDA and.

And adjusted net income 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 EBITDA and adjusted net income are contained in Companys earnings release.

Which has.

Been posted to the Investor relations sections of the company's website.

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

The statements made during this call. This conference call that are not historical facts are forward looking statements that are subject to risks and uncertainties that could cause actual results.

Those set forth.

In or implied by forward looking statements.

Risks are described in more details in the company's Securities and Exchange Commission filings now I would like to turn the call offered to the chairman President and Chief Executive Officer of Douglas Elliman Howard Lorber.

Good morning, and thank you for joining US with me today are Richard Lamping, Our Chief operating Officer, Brian Kirkman, 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 Douglas elements financial results for the second quarter and first six months of 2023.

As well as our thoughts on the current operating environment and trends in residential real estate.

All numbers presented this morning will be as of June 30 of 2023, unless otherwise stated.

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

Starting first with Douglas elements financial results for the three months ended June 30 of 2023.

We're pleased that Douglas Elliman continued to outperform many of its competitors in the second quarter of 2023, even during the challenging backdrop of the current U S residential real estate market.

We attribute this to stable pricing in a luxury market, where buyers are more immune to interest rate pressures. The competitive advantage provided by Douglas elements strong development marketing business.

And the unwavering dedication of our World class agents.

Still our results over the past 12 months reflect these industry wide headwinds, which I will discuss in further detail shortly.

In the second quarter of 2023, Douglas Elliman reported $275 9 million in revenues compared to $364 4 million in 2022 periods.

Net loss attributed to Douglas <unk> for the second quarter was $5 2 million or <unk> <unk> per diluted share compared to net income of $10 2 million or <unk> 12 per diluted share in 2022 period.

Adjusted EBITDA attributable to Douglas Elliman was a loss of $2 6 million in the second quarter of 2023 compared to income of $19 2 million in the 2022 period.

For comparison purposes, our real estate brokerage segment reported an operating loss of $1 million in the second quarter of 2023 compared to operating income of $21 6 million in the second quarter of 2022.

Adjusted EBITDA attributed to Douglas Elliman real estate brokerage segment was $2 5 million in the second quarter of 2023 compared to $24 4 million in the second quarter of 2022.

Adjusted net loss attributed to Douglas Elliman, It was $4 9 million or <unk> <unk> per share in the second quarter.

Compared to adjusted net income of $9 7 million or <unk> 11 per share in the 2022 periods.

Now turning to Douglas <unk> results for the six months ended June 30 of 2023.

No Selman reported $489 9 million in revenues for the six months ended June 30 of 2023.

$673 3 million in 2022 period.

Net loss attributed to Douglas settlement for the six month period was $22 8 million or 28 cents per diluted share compared to net income of $16 8 million or <unk> 20 per diluted share in 2022 period.

Adjusted EBITDA attributable to <unk> for the six months period was a loss of $20 2 million compared to income of $31 9 million in the 2022 period.

For comparison purposes, our real estate brokerage segment reported an operating loss of $18 4 million for the six month period of 2023.

<unk> to operating income of $36 1 million in the 2022 period.

Adjusted EBITDA attributable to Douglas Elliman real estate brokerage segment was a loss of $10 5 million in 2023, six month period compared to income of $42 1 billion in 2022 periods.

Adjusted net loss attributed to Douglas Elliman was $21 6 million or <unk> 27 per share in the six months period compared to adjusted net income of $16 2 million or.

Or <unk> 19 per share in the 2022 period.

Now we will discuss our outlook on the current operating environment for Douglas Elliman.

Well as trends, we are seeing in residential real estate.

As we have mentioned on previous calls our industry is cyclical and the last year has been a difficult part of the cycle due to sharp increases in mortgage rates, which have created sustained listing inventory shortages in the luxury markets we serve.

We expect these industry wide challenges to continue and to impact our results in the second half of 2023.

However, as we touched on last quarter, we are encouraged by some improvements in trends we have seen that.

Typically first our average sales price per transaction remained strong at 164 million for the second quarter and was the highest quarterly average since the second quarter of 2022.

We believe this improvement validates both the expertise of our agents and our luxury markets, we serve as well as the stability of the luxury markets more broadly.

As we have stated before the luxury markets in which Douglas Elliman operates are usually the first markets to emerge from a down cycle as buyers are less mortgage reliant.

We also expect listings to increase and the tight supply of inventory to gradually ease as consumers adjust to higher interest rates <unk> adjust.

Expectations and traditional life milestones required buyers and sellers to transact.

Second we continue to see sequential improvement in our financial and operating results.

Our second quarter 2023 results showed improvement from the previous three quarters in terms of revenue and average selling price per home.

And our second quarter 2023 results improved from the previous two quarters in terms of operating income adjusted EBITDA number of transactions and gross transaction values.

We are also seeing sequential improvements in total listings for the first and second quarters of 2023 with first quarter listings up 40% compared to the fourth quarter of 2022, and second quarter listings up 12% compared to the first quarter of 2023.

Given the conversion of listings to revenues usually takes three to nine months. This is an encouraging sign for the fourth quarter of 2023.

Importantly, due to our strong financial position and cost reduction strategy focus element is well positioned to successfully navigate near term industry challenges.

And all of its elements strong balance sheet underscores our long history of profitability and managing various market conditions.

We maintain ample liquidity with cash and cash equivalents of approximately $130 million.

Or $1 47 per common share and no debt, which we believe provides us flexibility to adjust to various market conditions.

This liquidity also continues to provide us with a competitive advantage and expanding our core brokerage business as well as scaling our overhead expenses when entering new markets.

In the second quarter of 2023, our board made the decision to suspend our quarterly cash dividend of <unk> <unk> per share and declare an annual stock dividend on our common stock of 5%, which was paid on June 30 of 2023.

We believe the updated dividend policy will strengthen our balance sheet and position us to deliver long term stockholder returns.

Related to our cost reduction strategy in the first half of 2023, we continue to make thoughtful efforts to adjust our cost structure to fit our business.

Reducing head count for approximately 545 positions cutting costly sponsorships streamlining advertising mentioning a program to begin consolidating office space.

As a result of these efforts when comparing the second quarter of 2023 through the second quarter of 2022, our real estate brokerage segment reduced its general and administrative expenses by $2 million and its operations and support expenses by $2 2 million.

Nine 2% of the two categories.

On a sequential basis from the first quarter of 2023, our real estate brokerage segment reduced its general administrative expenses by $1 9 million on its.

Operations and support expenses by $1 6 million or seven 7% of the two categories.

We expect the impact of our cost reduction efforts to continue and firmly believe these actions will create a more nimble Douglas elliman without significantly impacting the agent experience.

These encouraging trends and our solid financial profile make us optimistic about Douglas Elliman and has significant growth opportunities, we see in a luxury market.

We remain focused on continuing to capture market share by leveraging our key strengths which include <unk>.

First and most importantly, our global network and our strong relationships with our 6900 outstanding agents, who will include some of the industry's most celebrated teams and individuals.

We remain very proud of our 87% agent retention rates.

A pre eminent Douglas Elliman development marketing business also provides a competitive advantage, especially considering the limited inventory of existing homes available for resale.

For the 12 months ended June 32023, our development marketing business signed and brought to market $4 7 billion of gross transaction value, including $4 2 billion of gross transaction value added in the 12 months ended June 32023, and Florida alone.

This will provide a foundation and creating long term value as these transactions closed over the next several years.

In summary, Douglas Elliman continues to weather the current macroeconomic challenges and we believe our differentiated platform and the underlying strength of our business makes us well positioned for long term growth and success.

A proven management team has a successful history of navigating many economic cycles, and applying financial discipline that balances the importance of maintaining revenues and managing operating expenses to create long term stockholder value.

Looking ahead in addition to driving operational efficiencies, we are focused on strategic market expansion.

<unk> recruitment of outstanding talent and further adoption of innovative solutions to empower our agents.

With that we will be happy to answer your questions operator.

Okay.

Operator.

Please open for questions.

Yes.

Operator, do you have any questions.

The audience.

Hey, Joe.

Excuse me.

Howard there appear to be technical difficulties are trying to reach.

The upper right away, we'll give it a minute a couple of minutes.

Sure.

Yes.

Yeah.

Dan Fannon from Jefferies. Please ask your question your line is open.

Okay.

Hi, Thanks, Good morning can you hear me.

Yes.

Great.

So I was just hoping to get a little bit more color on some of the current environment.

By region, you talked about.

The number of new listings still being low, but starting to pick up obviously average.

Sales prices also holding in there so maybe if you could talk a bit about.

Your strengths within obviously, the north northeast as well as Florida Theres, just any differences as you think about the pockets where you have covered.

Presence today in terms of some of the activity.

Over the last couple of years for sure that.

Two biggest markets are New York and Florida.

Florida has sort of <unk>.

Can close.

Of overtaking New York, but not quite yet.

What we see in the ICU.

I see in the New York market I speak to brokers everyday.

The.

Lower end is still doing well.

The higher end is doing well in certain parts of New York predominantly.

Downtown.

The weaker markets are the upper east side, right, now, which traditionally where the better markets, but that has changed.

And Florida, South Florida.

Yeah.

Pretty much the story is that.

There is there is business we go week by week and we see like last week for instance was very strong.

Weak.

In business.

While new development is doing very well.

Just to give you some some numbers on one particular project in Miami Beach, We started sales about seven months ago.

It's.

On around 20, <unk> Street in the Ocean and College Avenue.

And we sold as of just recently.

Over $600 million.

At an average price of the high fours.

Which is very.

Very strong for Florida.

Most of our Florida, new developments are selling well.

Not as quick as the one I'm talking about but that's selling well.

Our business in Texas, We've opened now where we are now in Austin.

Houston and Dallas.

<unk>.

Starting to move forward.

We're still pretty new there but.

But we started to pick up a couple of new developments also there.

California is.

Slow.

Right now.

It's been it's been a it's been a tough market I'd say.

For a while other than the one year that we all love it probably will never happen again in 2021.

They picked up then but we've done other things now other businesses you know we have an escrow company there and so forth.

So we're trying to do some of the ancillary things that we need.

To pick up revenue loss.

Las Vegas is new for Us, Nevada, and new office in Summerlin.

We're close to signing up a pretty big New development. There we have one distribute the second one.

Some of the other markets are new and small Nantucket.

You don't really know much until the end of the season.

That's a low cost market for us the way we entered.

Our Boston business has been increasing.

And.

We are considering.

Couple of other markets.

As.

That we've looked at it.

Nashville, we're trying to stay with the low tax or no tax states.

And we think thats the best place to be.

At all times, but especially during these times.

Great that's helpful.

And then just on the.

Seasonality in terms of activity and where we sit here at this point in the year.

Is there typically given newest and just starting to get better as you look at the back half of the year versus the first half.

Do you think that I know you aren't expecting any material recovery here in the short term, but as you think about kind of the second half and then into 'twenty. Four do you think <unk> seen the bottom and the lowest in terms of that activity level.

I would I would hope so, but it's I'll put it that way.

We're very hopeful that we're going to have a better second half of the year.

Traditionally.

Our BK.

Traditionally what is the best quarter expense.

Traditionally the best quarters are the second and third quarter.

And then it goes to the fourth quarter than the first quarter is generally the weakest.

So.

I suppose the holiday times, and so forth and people traveling traveling so.

We're hoping we're hoping we're very hopeful for a.

A good closings for the year.

Okay, and then just on the cost.

The numbers that have been.

Take it out.

Some of the expense items.

So, whereas we think about that exit <unk> run rate.

Yeah.

Or is the majority of what you had planned.

Out of the expense base or as we think about and also just the timing of that and <unk>, just meaning that there is still from our exit level.

There might be some flow through into <unk>. So just trying to get a good starting point of what the kind of fixed cost basis I'll, let BK I'd tell you the numbers, where we are in that but I will say this we are constantly looking at cost cutting.

Yeah.

But we obviously have to be careful that we don't cut things that.

Would be a trough.

Metal.

Agents BK you want to add.

And in both data and Howard you said it correctly.

We're entering into cost cutting phase I would've spent that week, we have now hit a run rate, which will continue to be lower and as Howard mentioned during the call looking at year over year, we were down about $4 2 million to one or two key expenses at the brokerage segment, which are general administrative and operations that support we were.

I think thats going to continue for the rest of the year and we think there will be as we enter 2004 and we have leases expiring we will see more cost reductions going forward, yes, yes, and one of those leases is in our management company that was a big lease and that's going to be a substantial substantial.

Change as we've already.

Located.

Smaller.

Less expensive space.

And we're working on getting that done I believe our leases over the first quarter to second quarter of next year and that was a very expensive lease.

Very expensive lease.

Sure.

Yes.

And Howard I think it's important to note that we have a luxury that many of our competitors have not because we have had such a strong balance sheet and we have been very deliberate in this cost cutting not to impact the agent experience.

Okay.

Okay. Thanks for taking my questions.

Thank you Dan.

Ladies and gentlemen, those are all the questions that we have for today.

Thank you for joining us on Douglas elements second quarter 2023 earnings Conference call.

Hope you have a good day and this will conclude our call.

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Yes.

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Eric.

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