Douglas Elliman Inc.

Welcome to Douglas Elliman's 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 An archived version of the webcast will be available on the investor relations section of the company's website located at investors.elliman.com for one year. During this call, the terms adjusted EBITDA 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 Companies 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 statement 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. Those set forth in or implied by forward-looking statements. These risks are described in more details 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 Ellman, Howard Lorber.

Good morning, and thank you for joining us. With me today are Richard Lampin, our Chief Operating Officer, Ryan Kirkland, our Chief Financial Officer, and Scott Durkin, President and CEO of Douglas Ellman Realty. a residential real estate brokerage business. On today's call, we will discuss Douglas Hellman's 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 30th, 2023, unless otherwise stated. We will then provide closing comments and open the call for questions. Starting first with Douglas Elliman's financial results for the three months ended June 30th, 2023. We are 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 our luxury markets where buyers are more immune to interest rate pressures. The competitive advantage provided by Douglas Elliman's 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 Edelman reported $275.9 million in revenues compared to $364.4 million in the 2022 period. Net loss attributed to Douglas-Sullman for the second quarter was $5.2 million, or $0.06 per diluted share, compared to net income of $10.2 million, or $0.12 per diluted share, in the 2022 period. Adjusted EBITDA attributed to Douglas-Sullman 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's 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 Hellman was $4.9 million, or $0.06 per share in the second quarter, compared to adjusted net income of $9.7 million, or $0.11 per share in the 2022 period. Now turning to Douglas Hellman's results for the six months ended June 30, 2023. Douglas Hellman reported $489.9 million in revenues for the six months ended June 30, 2023. compared to $673.3 million in the 2022 period. Net loss attributed to Douglas-Sulliman for the six-month period was $22.8 million, or $0.28 per diluted share, compared to net income of $16.8 million, or $0.20 per diluted share, in the 2022 period. Adjusted EBITDA attributed to Douglas-Sulliman for the six-month 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, compared to operating income of $36.1 million in the 2022 period. Adjusted EBITDA attributed to Douglas Edmonds real estate brokerage segment was a loss of $10.5 million in the 2023 six-month period, compared to income of $42.1 million in the 2022 period. Adjusted net loss attributed to Douglas Ullman was $21.6 million, or $0.27 per share, in a six-month period, compared to adjusted net income of $16.2 million, or $0.19 per share, in the 2022 period. Now we will discuss our outlook on the current operating environment for Douglas Ullman, as well as trends we are seeing in residential real estate. As we had 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're expecting 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 are seeing, specifically First, our average sales price per transaction remains strong at 1.64 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 the 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 settlement 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, sellers adjust price expectations, and traditional life milestones require 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 value. We have also seen 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, Douglas Elliman is well positioned to successfully navigate near-term industry challenges. Novus Element's 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 in 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 a decision to suspend our quarterly cash dividend of $0.05 per share and declare an annual stock dividend on our common stock of 5%, which was paid on June 30, 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, including reducing headcount more approximately by 45 positions, cutting costly sponsorships, streamlining advertising, and commencing a program to begin consolidating office space. As a result of these efforts, when comparing the second quarter of 2023 to 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, 9.2% 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 and its operations and support expenses by $1.6 million, or 7.7% 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-Sellman without significantly impacting the aging experience. These encouraging trends and our solid financial profile make us optimistic about Douglas-Sellman and the significant growth opportunities we see in our luxury markets. We remain focused on continuing to capture market share by leveraging our key strengths, which include, first and most importantly, our global network, and our strong relationships with our 6,900 outstanding agents, who include some of the industry's most celebrated teams and individuals. We remain very proud of our 87% agent retention rate. Our preeminent 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 30, 2023, 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 30, 2023, in Florida alone. This will provide a foundation and create a long-term value as these transactions close 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. Our 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, continued recruitment of outstanding talent, and further adoption of innovative solutions to empower our agents. With that, we will be happy to answer questions. Operator?

Operator, please open for questions. Operator, do you have any questions from the audience? Excuse me?