Douglas Elliman Inc.

$12.6 million in the 2022 period, and adjusted EBITDA attributed to the segment were approximately a loss of $12.5 million compared to $12.6 million in the 2022 period. Adjusted net loss attributed to Douglas Salmon in the fourth quarter was $14.5 million, or $0.18 per share, compared to $18.4 million, or $0.23 per share, in the 2022 period. Now turning to Douglas Salmon's results for the year ended. December 31st, 2023. Douglas-Solomon reported $956 million in revenues for the year ended December 31st, 2023, compared to $1.15 billion in 2022. Net loss attributed to Douglas-Solomon was $42.6 million, or $0.52 per diluted share, compared to $5.6 million, or $0.08 per diluted share, in 2022. Adjusted EBITDA attributed to Douglas Ullman for the year were a loss of $40.7 million compared to income of $15 million in 2022.

Our real estate brokerage segment reported an operating loss of $36.8 million for the year compared to operating income of $22 million in 2022.

Adjusted EBITDA attributed to the real estate brokerage segment were a loss of $21.5 million compared to income of $34.5 million in 2022. Adjusted net loss attributed to Douglas Elliman was $40.9 million, or $0.50 per share for the year, compared to $6.2 million, or $0.08 per share in 2022. Now we will discuss our outlook on the current operating environment for Douglas Elliman, as well as trends we are seeing in residential real estate. We have previously discussed the cyclical nature of our industry. Generationally, high mortgage rates have driven sustained listing inventory shortages across our luxury markets for almost two years. These shortages have resulted in significantly lower transactions during this time. While we expect these industry-wide challenges will continue to impact our results for the first quarter of 2024, we remain encouraged by improvements in the fourth quarter of 2023 specifically. The fourth quarter saw our first increase in year-over-year quarterly revenues since the first quarter of 2022, which is driven by higher activity across the markets we serve, particularly in Florida.

Generally, the strongest markets tend to be the first markets to emerge from a downturn. This trend has continued in 2024 as our commission received have improved on a year-over-year basis in January and February of 2024. We believe this signals that the market is beginning to adjust to higher interest rates. Nonetheless, buyers are firmly encouraged after the Federal Reserve signaled in January that it is near a long-awaited shift toward cutting interest rates. Importantly, total listing volume also improved in the fourth quarter of 2023. Of 25% from the 2022 period, with gains in listings reported reported in Florida, California, New York, and Colorado, all increasing significantly significantly compared to the fourth quarter of 2022. Because we recognize revenue when the sale closes, we expect that we will begin to see the impact of increased listing volume in the second half of 2024. Our gross transaction value increased to $7.9 billion in the fourth quarter of 2023 from $7.5 billion in the fourth quarter of 2022. And transaction volume increased by approximately 5.2% in the fourth quarter. Consistent with the increase in transactions our average sales price per transaction remained an industry-best 1.58 million in the fourth quarter. This was flat compared to the third quarter of 2023 and the fourth quarter of 2022.

We believe the consistency and average price per transaction reflects the strength of the luxury markets we operate in, as well as Douglas Elliman's reputation for offering the finest properties and client experience in real estate. Due to our solid financial position and cost reduction strategy, Douglas Elliman is well positioned to successfully navigate near-term industry challenges. Douglas Elliman's strong balance sheet underscores a long history of profitability in managing various market conditions. we have maintained ample liquidity with cash and cash equivalents of approximately $120 million, or $1.31 per common share, and zero debt.

Throughout the year, we have continued to adjust our cost structure to better fit our business, including additional headcount reductions, cutting costly sponsorships, streamlining advertising, and commencing program to consolidate office space. Our cost reduction efforts have been judicious, and the results of our strategy are beginning to float to the bottom line. Our real estate brokerage segment reduced its operating expenses including commission, expense, restructuring, and other non-case expenses by $2.2 million in the fourth quarter of 2023, representing a decline of approximately 3.2% compared to the prior year period. We believe these efforts will continue to create a more nimble development without significantly impacting the aging experience. We are proud to share that our aging retention rates stand at 92%, and we continue to attract the industry's best talent. Looking ahead, we remain focused on continuing to capture market share by leveraging our key strengths, including our world-class network of agents and our development marketing business. We believe our development marketing business is creating a foundation for long-term value as transactions close over the next several years and provides a competitive advantage particularly at premium residences. and especially considering the limited inventory of existing home sales available. As of December 31, 2023, our development marketing business had an active pipeline of signed a new project of 21.6 billion gross transaction value, including 13.8 billion of gross transaction value in Florida alone. Further, 9.7 billion of additional transaction value from our development marketing business is scheduled to come to market next year. We believe this bodes well for the future as we will recognize commissioning from these projects as they close in the coming years.

In summary, Doga Sumlin continues to meet the current macroeconomic challenges, and we believe our differentiated platform and the underlying strength of our business positions us 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 brokers.

With that, we'll be happy to answer questions. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove your cell phone from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question and star 2 to remove yourself. We will pause for only a moment to assemble the question queue. We'll take our first question from Soham Bosley. Please go ahead. Can you hear me? Your line is open. Please go ahead. Hi. Can you all hear me? Yes. Now we can. Hi. Great. Good morning, everyone. Hope you're doing well. So this looks like the second quarter in a row where you've taken some market share compared to the national stats, which is great. But I know you're not in every market in the U.S. today either. So I guess the question is, are you seeing market share take on a local level as well? Or should we sort of think about this more of a function of, you know, markets just outperforming sort of national markets here? I would say that generally speaking, you know, the high-end markets do perform better. And that's why we've pretty much stuck to the high-end market. And our expansion is going to be going to be the same. We're not interested and going to every single market just to say that we have more markets, more brokers, but they don't have anywhere near what we have, an average price on the sales.

So we think that this is the right strategy for our company.

Got it. Okay. And it looks like your commission split was up another 210 basis points this quarter. It was sort of in the same ballpark last quarter. So can you just maybe speak to the drivers of the increase there? And are you seeing more competition for agents today, or is that just a function of mix? And should we sort of expect this trend to continue?

Well, I think it's both those things you mentioned. Surely there's been a lot of competition. You know, companies are, you know,

trading agents back and forth, and many times they're giving cash bonuses when they sign up, and higher splits, and this has been going on now for a number of years, probably for about six or seven years. And I think it's sort of slowed down at this particular point. And my guess is that as the market improves and brokers are doing better and better, that maybe will come down. It's not positive that I would say it'll come down because it's hard to take something back that you were already given, but at least on region and so forth will be at a lower level one that will help mediate these increases okay understood and then Brian on the opera expenses Looks like the G&A line was a little higher quarter. Were there any one-time items to call out there? And then how should we think about sort of the quarter run rate for just total op-ex commission in 2024? So, good morning first. And you're correct, the G&A line was higher. Some of that relates to the timing of expenses, particularly between the third quarter and fourth quarter related to events that we sponsor as well as insurance. And obviously also there was an increase in professional fees during the quarter. Going forward, we would say we like where we are, but we are going to be making more meaningful cuts in 2021. In particular, we discussed in our prior calls about the $4 million lease running off.

And in addition to that, we are making meaningful cuts in our property management division and expect some of those cuts to go over to the other areas of the business.

And then just lastly, is Scott on the call? He is, right? Hello? Yeah, this one's for Scott, I guess, Scott or Howard. You know, I guess just wondering, you guys all speak to agents daily. Can you just maybe give us a feel for what conversations with agents are going like today? You know, is there concern around sort of, you know, just an uncertain environment today, or do you feel like, you know, they feel good about

adapting to whatever may come ahead. Yeah, I think that most of them are adapting to what will ever come ahead. I assume As I said, we're not going to comment on the litigation. But I feel that we have a great group of agents in high-end markets that do you know, high, very high in sales. Of course, we are, have, do have markets that are lower end, but still high compared to, you know, the whole country. Like Long Island is a, where the company really started is a lower-end market. But still, that's a market probably that averages about $600. $600,000 for transaction. So it's not extremely low market. But I think that the agents are are happy here anyway and doing well. I guess there's been a little disappointment because I think most of us thought that we'd have a rate cut in the first quarter, which obviously is not going to happen now. But I think once that happens, which hopefully now will be the second quarter, that I think that it's going to be a great board. For the industry. Great. I appreciate all the value. Thank you. Well done. Next Ahmed with Jefferies. Good morning. This is Ahmed with Jefferies.

I guess my first question is about the macro environment. I was just hoping you could share some color on what you're seeing there and when comps start to accelerate in terms of volume this year.

So you're talking about compared to our competitors?

No, in terms of like year over year.

Oh, yeah. Again, year over year, obviously, we have a lack of inventory in most markets. especially in the strong markets and the low-tax states.

So that I believe once there is a rate cut that that will push a lot more into the market, and we will, you know, be doing substantially more business as rates come down. And, you know, Our new development business is a key part of Douglas Selman. And we have a great, very strong business there. And that's generous. generally speaking, at the high end of the market. And we're still pretty new in markets like Texas, and there's a great upside to Texas. We have three offices. We have Austin. Dallas, and Houston, and we're looking at maybe another market or so in Texas. So we think that's a great market to be in. We're also looking at other markets, but we're looking pretty much at the low-tax or no tax to expand on a macro basis. Got it. That's a great caller on the market. Actually, if you could make be expanded more on just what markets are seeing better demand or which markets maybe you're more concerned about. I mean, I think the ones that we're more concerned about are the ones that are attacking people out of their states. You know, we're in California. But California is very difficult. Okay. Very difficult because they keep adding taxes.

And, you know, it's pretty tough. And California was also a state that always had higher commission payouts to brokers than the East Coast. So that's, you know, that's a tough one. I think that's probably the toughest of the markets that we're in. But I think that, I think, you know, look, I think, BK, do you want to comment?

Yes, I'd be happy to. And good morning. I think one part about our story is our luxury brand is permeating throughout the country as there are shifts in the population.

If you look at Florida, California, new markets, they increased from 40%. 1% of revenues in the fourth quarter last year to 46 this year. This year, Florida alone went from 20.5% to 25% of the market. of our total revenues. So that was a significant increase. And we are continuing to see a lot of strong demand in Florida as how mentioned earlier for their 13.8 billion in inventory that we have that we're currently selling in development marketing. And a backlog of others that will be coming onto the market. Yes. And that number in Florida, I believe, is 5.8 billion hours. Got it. That's helpful. And then just one last one for me. This is really like I guess I couldn't find it. So I'll use this on your filings. But just trying to understand your development business. Could you maybe explain again what's the timing of recognition of cash and revenues on that. Oh, VK. Yes. I'll be happy to take that. So generally, when a deposit is received in, development marketing, we record that as a liability or deferred revenue. And we recognize the commission that we pay to our agent as a cost, as a deferred cost.

So we do not recognize profit on the new development until units start to close, because under the accounting rules, a sale occurs when all items have been met to close that sale. So that's when revenue is recognized. So there is a deferred liability on the books. I believe the number is about $63 million, and the deferred cost related to commissions we've paid on is about $41 million. The difference of that $20 million will be recognized over time, Generally, that's four years.

The other advantage is, and this is going to help our margins, commissions on new development sales are less than regular resales. Got it. Yeah, that's pretty helpful. Yes, I gave a number earlier. Coming to market on the development this year is 9.7 billion in Florida and That is 5.1 billion. That's not including what's already on the market. That's correct. Yeah. Perfect. Thank you. Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Hellman's quarterly earnings conference call. We hope you have a good day.