Q3 2024 Douglas Elliman Inc Earnings Call
Welcome to Douglas Elliman's third quarter 2024 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An archived version of the webcast will be available on the Investor Relations section of the company's website, located at investors.elemen.com for one year.
During this call, the terms Adjusted EBITDA and Adjusted Net Loss 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 Loss are contained in the company's earnings release, which has been posted to the investor relations section of the company's website.
Speaker Change: 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 applied by forward-looking statements.
These risks are described in more detail in the company's Securities and Exchange Commission filings.
Speaker Change: Now, I would like to turn the call over to the Chairman and Chief Executive Officer of Douglas Elliman, Michael S. Leibovitz.
Speaker Change: Good morning and thank you for joining us. First and foremost, I'm honored to have been named Chairman and CEO of Douglas Elliman and to lead this storied company through an exciting new chapter of transformation, growth, and diversification. With me today on the call is Brian Kirkland, our Chief Financial Officer.
Speaker Change: On today's call, we will discuss the current operating environment and Douglas Elements financial results for the three and nine months ended September 30, 2024. All numbers presented this morning will be as of September 30, 2024, unless otherwise stated.
We will then provide closing comments and open the call for questions.
Before we turn to our third quarter 2024 results.
Speaker Change: I'd like to start by reflecting on my first few weeks leading Douglas Elman.
Speaker Change: I've met with and spoke to many of our agents and staff across the organization. We truly have an outstanding roster of agents and employees. They've all made me feel truly welcome.
Speaker Change: We have an incredible foundation to build on and enhance our culture and create an even stronger culture of collaboration, respect, and integrity.
A brand, in my view, is the most recognizable brand in real estate.
It's the reason I took this incredible opportunity. We must innovate and evolve to stay ahead and be the firm that provides expertise and added value with real estate services and in-depth analytics to differentiate Douglas Elliman from our competitors.
Speaker Change: We plan to grow and diversify the business to deliver value, and we have already created a strategic M&A unit to explore complementary acquisitions in ancillary businesses like title, escrow, staging, insurance brokerage, and property management that we are very excited about.
Speaker Change: We are already in discussions to expand our property management business into Florida with this real opportunity as we expand our recurring revenue businesses.
Speaker Change: This approach will transform Douglas Elliman into a company with a diversified revenue stream and a sustainable growth engine. I look forward to sharing more of our plans in the weeks and months ahead. With that, I'll turn it over to Bryant, who will discuss our performance and the trend shaping the residential real estate industry.
Bryant: Thank you, Michael, and the management team is enthusiastic about the vision for the new Douglas element.
Bryant: With your leadership, our team at Douglas Elliman will be able to focus on increasing and diversifying revenues by logically investing in the business.
Bryant: We will capitalize on Douglas Elliman's competitive advantages in the ultra-luxury residential real estate brokerage segment, as well as our expertise in the development marketing division.
before reviewing the financial performance.
Bryant: We will provide some updates on trends in home sale pricing, listings, and development marketing, as well as accolades earned in some of our key markets.
First, pricing for home sales remains strong.
In the third quarter, our industry best average price per transaction rose to $1.6 million per home sale compared to $1.57 million per home sale in the comparable 2023 period.
Bryant: Year-to-date, through September 30, 2024, our average price per home sale transaction is $1.68 million, compared to $1.6 million in the 2023 period.
Bryant: Second, we continue to build momentum from increased home sale listings.
Bryant: Our listing volume increased 6% in the third quarter of 2024 from the prior year period.
Bryant: Third, our Development Marketing Division remains the preeminent industry player with a pipeline of actively marketed projects of approximately $26.8 billion of gross transaction value.
Bryant: Approximately 16.4 billion dollars of this gross transaction value is in Florida alone.
Bryant: In addition to this active pipeline, I am pleased to report we have another $4.7 billion of gross transaction value that we expect will be coming to market through the end of 2025.
Bryant: We believe this foundation of business bodes well for the future as we will recognize commission income from these projects when they close.
What?
Many of our brokerages continue to outperform their peers.
Bryant: We were recently named the number one brokerage by sales volume on Long Island, the Haptens, Westchester, and the Hudson Valley, and also eclipsed sales records in North Miami and the North Fork of Long Island.
Now, transitioning to updates on our expense structure.
Bryant: We continue to manage investments across our markets by focusing on return on investment.
Bryant: For the nine months ended September 30th, 2024, our real estate brokerage segment reduced its operating expenses, excluding commissions, depreciation, and amortization.
Bryant: Now, we will turn to Douglas Elliman's financial results for the three months ended September 30, 2024.
Bryant: Douglas Elliman has maintained ample liquidity with cash-in-cash equivalents at September 30th, 2024 of approximately $151.4 million.
compared to $251.5 million in the 2023 third quarter.
Bryant: Net loss attributed to Douglas Elliman for the third quarter was $27.2 million or $0.33 per diluted share compared to $4.9 million or $0.06 per diluted common share in the 2023 period.
Bryant: Net loss attributed to Douglas Elliman in the 2024 period included a $20.2 million non-cash charge for a change in the fair value of a derivative embedded within convertible debt.
Bryant: Adjusted EBITDA reported to Douglas Elliman in the third quarter were a loss of $1.4 million compared to a loss of $3 million in the 2023 period.
Bryant: Adjusted EBITDA attributed to this segment were income of $3.8 million compared to $1.5 million in the 2023 period.
Bryant: Now, turning to Douglas Elliman's financial results for the nine months ended September 30 of 2024.
Bryant: Douglas Elliman reported $752.3 million in revenues, an increase from $741.4 million in the 2023 period.
Bryant: Net loss attributed to Douglas Elliman was $70.3 million or $0.84 per diluted share compared to $27.7 million or $0.34 per diluted share in the 2023 period.
Net loss attributed to Douglas Elliman and the 2024 period.
included a $20.2 million non-cash charge.
Bryant: for the fair value of derivatives embedded within convertible debt in the third quarter and a $17.75 million litigation settlement charge in the first quarter.
Bryant: Adjusted EBITDA attributed to Douglas Elliman in the 9 months ended September 30, 2024 were a loss of $17.3 million compared to a loss of $23 million in the 2023 period.
Bryant: Operating loss in the 2024 period included a $17.75 million litigation settlement charge.
Bryant: Adjusted EBITDA attributed to the real estate brokerage segment were a loss of $3.8 million compared to a loss of $9 million in the 2023 period.
Adjusted Net Loss
Bryant: Attributed to Douglas Elliman in the nine months ended September 30th, 2024.
Now, back to you, Michael.
Michael: Thanks, Brian. And listen, just step away, I'd like you to step away for a second.
Michael: From some of my prepared remarks, so you can understand really how we're looking at this business ROI is going to be a major focus. You know, we've moved.
Bryant: You know I mentioned diversification. Diversifying this business model is one of our primary goals.
Bryant: As the business goes up and down, we all understand the real estate business has a lumpy nature to it. And diversifying the business and doing acquisitions and organically starting and growing.
Bryant: Businesses that sit around the agent will greatly enhance our agent base.
Bryant: diversification and bring us into new markets. So we're very excited about that. The best days of Douglas Elliman are truly ahead of us. You know I took this role on because of the because of the brand, the power of the brand, the ability to scale this brand, the ability to take this brand further than just domestically.
Bryant: with all of the businesses that we can be in. I'm very excited about this opportunity, and with that, we'll be happy to answer any questions.
Operator.
Speaker Change: At this time if you would like to ask a question please press star 1 on your telephone keypad.
Once again, that is Star 1 to ask a question.
Speaker Change: We'll go first to Peter Abramowitz with Jeffries. Please go ahead.
Peter Abramowitz: charged from the embedded derivative change in the convertible debt. Just just help us understand that a little bit more.
Thank you and good morning, Peter. Hope you're well.
Speaker Change: Thanks for the question and obviously we want to take the opportunity to explain the accounting for this embedded derivative.
So, let's dive into the background.
Speaker Change: As you're aware, in July 2024, the company received a $50 million growth investment from the Kennedy Lewis Investment Management Firm.
Speaker Change: We believe that this investment demonstrates the market's confidence in the strength of our business, as well as the Douglas Element 9 Michael just mentioned.
Speaker Change: In connection with this, the accounting standards required the company to value the conversion feature of the debt separately from the debt.
Speaker Change: So this requirement occurs because of a provision in the convertible debt which was mandated by stock exchange requirements.
Speaker Change: And that provision relates to stockholder approval of any modifications to the company's debt at an issue price below $1.23 per share.
Speaker Change: As we stated earlier, because the company's stock price increased by 71%, $1.07 at the time of the debt issuance to $1.83 per share at the end of the quarter, the value of the convertible debt
Speaker Change: increased by $20.2 million and that resulted in a non-cash charge to earnings.
Speaker Change: And again, it's important to emphasize this was a non-cash charge.
Speaker Change: and should not be cash paid expense because the company's debt and embedded derivative were carried at $67.5 million at the end of the quarter or September 30th rather than the $50 million face value.
Speaker Change: To put it in another way, when the debt is in the money, there are only two practical scenarios. Either the holder would convert the debt for shares,
Speaker Change: and then sell the shares, or the company would retire the debt at face value or $50 million.
So with that...
Do you have any other questions on it?
Speaker Change: No, no, I think that's helpful. And then one on just the rate backdrop and kind of how you're thinking about the impact to your overall market.
Speaker Change: Since the Fed has embarked on its easing cycle here, the long end of the curve has remained sort of stubbornly high.
Speaker Change: Just wondering if you can sort of help us think through how that might impact the sales market You know as we look ahead to 25
Speaker Change: When rates have gone up, we generally outperform our peers because we are less sensitive to interest rates because we have a higher percentage of cash buyers than our peers.
Speaker Change: So, again, we believe we're better positioned than our peers in this environment, but obviously we're hopeful for additional rate cuts over the next year to two years.
Speaker Change: Yeah, and listen, to add to that, you know, a little bit, I think that
Speaker Change: Number one, we're obviously very bullish on the business. We think we're getting to a part of the cycle that with the election being over there's going to be
Speaker Change: should there be more activity? I think the other thing I think people should remember, you know, and he was actually right about it. Now that, you know, Trump.
Speaker Change: is going to be the next president. He always would say, why doesn't the best credit in the world have the lowest rate?
Speaker Change: right? Like, why are we paying what we're paying, right? If you're a lender, the best credit gets the lowest rate. And I think you're going to have him probably jawboning the Fed and making statements like that. And obviously, listen, we've got our, you know, whatever inflation is still out there and whether it's sticky or not.
Speaker Change: What the Fed is going to do, nobody really knows, but I think you're going to have somebody obviously now in the White House that really wants low interest rates, and obviously the Fed is independent and they should stay that way.
Speaker Change: You are going to have that, and you've got, you know, a real estate guy in the White House that, you know, is probably going to make regulation significantly easier, which makes building permits...
Speaker Change: significantly easier to get, which just spurs activity. And like, you know, we all saw the markets yesterday and we can let them.
Speaker Change: speak for themselves. But, you know, I think that the fall of the next year in terms of everybody wants to get people into new homes and home building, you know, the nation is clearly under built with respect to new homes. And, you know, we think we're in an incredible position.
Speaker Change: to take advantage of that, you know, as the election is over and that has, you know, the uncertainty has eased up in the world. So we're excited about our opportunities going forward.
Speaker Change: Right, and the reason we're in that incredible position is because of the competitive advantage we have with the Douglas Elliman Development Marketing Division.
Speaker Change: Okay, that's helpful and very thorough. Thank you. And just one more, if I could, for Michael.
Speaker Change: you know, and good luck and good to meet you as you kind of embark on this journey here in a new position, but Just curious you mentioned talking about ROI targets on all your investments whether new or existing across the company Just wondering if you could help us think through kind of
Speaker Change: quantifying how you're thinking about, you know, what the hurdles and return rates you're looking for to sort of create value here within the company.
Speaker Change: Um, listen, we, you know, we're obviously still just, you know, I'm in this role for a few weeks. We're obviously discussing
Speaker Change: what we believe is the ROI that we want, you know, on each segment of the businesses that we're in, right? So, you know, in addition to the agents, we're in the property management business.
Speaker Change: We're, you know, in the title insurance business a little bit. We're going to be getting into a lot more businesses that will add ROI to our agents. We think that we have incredible entrepreneurs in our agents and they're business builders and we think that we can help them.
Speaker Change: build their businesses and so we don't want to be at the moment
Speaker Change: you know, a recruiting machine. We think that we have incredible agents already and we think that we can increase ROI to every one of our agents. We're gonna be smart and disciplined on how we look at new agent growth.
Speaker Change: And we're only going to do it if it makes a lot of sense. We're really not interested in.
having a headcount just for the sake of the headcount.
incredible profitability going forward.
Speaker Change: But we want to be really smart and we want to be really disciplined. And, you know, if you look at the agents we have, you know, they're the top agents.
So, it's going to be quality over quantity for us.
quality of people, quality of culture.
Speaker Change: quality of earnings, and we are going to be very methodical about what we do and how we do it, and we're excited.
All right, that's all for me. Thank you.
Appreciate it.
Thank you, Peter.
Speaker Change: Ladies and gentlemen, those are all the questions that we have for today.
Speaker Change: Thank you for joining us on Douglas Elliman's Quarterly Earnings Conference Call. We hope you have a good day, and this will conclude our call.
Daniel Fannon, Howard Lorber,
["Ramblin' Wreck from Georgia Tech"]