Douglas Elliman Inc.

Good day and welcome to Douglas Elliman's first 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 An archived version of the webcast will be available on the investor relations section of the company's website located at investors.elliman.com for one year.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 loss are contained in the company's earnings release, which has been posted to the investor relations section of the company's website. 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 implied by forward-looking statements. These risks are described in more detail in the company's Security and Exchange Commission filings. Now I would like to turn the call over to the Chairman, President, and Chief Executive Officer of Douglas Elliman, Howard Lorber. Please go ahead.

Good morning, and thank you for joining us. With me today are Richard Lampin, our Chief Operating Officer, Brian Kirkland, our Chief Financial Officer, and Scott Durkin, President and CEO of Douglas Elliman Realty, our residential real estate brokerage business. On today's call, we will discuss the current operating environment and Douglas Elliman's financial results for the three months ended March 31st, 2024. All numbers presented this morning will be as of March 31st, 2024, unless otherwise stated. We will then provide closing comments and open the call for questions. Before I turn to our first quarter 2024 results, I want to begin with an update on Industry Brokerage Commission litigation. We are pleased to have recently announced a settlement agreement to resolve on a nationwide basis the pending class action litigation relating to real estate brokerage fees in the Gibson and Umpah cases pending in the Western District of Missouri, which will also resolve other similar pending litigation. The settlement agreement reflects our commitment to mitigating future uncertainties and limiting legal costs. It is not an admission of liability or of the validity of any claim. 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. As we have discussed, generationally high interest rates have driven sustained listing inventory shortages across our luxury markets for almost two years. These shortages have resulted in significantly lower transaction volumes during this time. While we expect these industry-wide challenges will continue to impact our results in 2024, we remain encouraged by recent improvements. First, Although our commission receipts were down in March compared to the prior year, they were up from the prior year in January, February, and April 2024. This continues the trend that began in October 2023. We believe this signals that the market is in the early stages of adjusting to higher interest rates. Second, we are also seeing promising momentum in our development marketing business, a platform that further differentiates Douglas Ullman from our principal competitors. As a reminder, through its development marketing division, Douglas Elliman employs a hybrid broker model where our top resale residential real estate agents work in tandem with our development marketing professionals and leverage their extensive industry relationships for the benefit of our developer clients. Our agents can market and sell high-profile developments that enhance their brands and provide additional commission potential for years to come as they are often hired to resell or rent those very same units. We believe this model provides a competitive advantage to our development marketing business while also increasing the attractiveness of the Douglas Ullman platform to current and prospective agents. Our development marketing division is sought after by well-known real estate developers and continues to create a foundation for long-term value over the next several years. This division has an active pipeline of signed and new projects of approximately $25 billion gross transaction value. including approximately $15 billion of gross transaction value in Florida alone. Further, approximately $5 billion of additional transaction value from our development marketing business is scheduled to come to market in the next year. We believe this bodes well for the future as we will recognize commission income from these projects when they close in the future. Third, consistent with the trend we saw in the fourth quarter of 2023, total listing volume improved in the first quarter of 2024, up 6.7% from the 2023 first quarter, with gains in listings reported in California, the Hamptons, Florida, and Long Island compared to the first quarter of 2023. This followed a 25% increase in total listing volume in the fourth quarter of 2023 compared to the fourth quarter of 2022. Because we recognize revenues when a sale closes, we expect that we will begin to see the impact of increased listing value in the second half of 2024. Consistent with the increase in listings, our average sales price per transaction remained an industry-best 1.595 million in the first quarter. Over the past three quarters, this remained flat and was 1.58 million for the first quarter of 2023. We believe the consistency in 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. Finally, our cost reduction efforts have been judicious, and the results of our strategy are beginning to flow to the bottom line. Over the past 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 a program to consolidate office space. Our real estate brokerage segment reduced its operating expenses, including commission expenses, litigation settlement expenses, restructuring, and other non-cash expenses by $5.4 million in the first quarter of 2024, representing a decline of approximately 7.6% compared to the prior year period. Over the last 12 months ended March 31st, 2024, Our real estate brokerage segment has reduced its operating expenses, excluding commission expenses, litigation, settlement expenses, restructuring, and other non-cash expenses by $18.9 million, or 6.6%. We believe these efforts enable Douglas Elliman to meet industry challenges head-on without significantly impacting the aging experience. We are proud to share that our aging retention rate stands at 90%, and we continue to attract the industry's best talent. Now turning to Douglas Elliman's financial results for the three months ended March 31st, 2024. For the first quarter of 2024, Douglas Elliman reported $200.2 million in revenue compared to $214 million in the first quarter of 2023. Net loss attributed to Douglas Elliman for the first quarter was $41.5 million or $0.50 per diluted share compared to $17.6 million or $0.22 per diluted share in the 2023 period. Net loss attributed to Douglas-Sullman in the first quarter of 2024 included a $17.75 million litigation settlement charge, of which we have agreed to pay $7.75 million by June 12, 2024, and up to two additional $5 million contingent payments between December 31, 2025 and December 31, 2027. Adjusted EBITDA attributed to Douglas Ullman in the first quarter were a loss of $18.2 million compared to $17.6 million in the 2023 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $32.8 million this quarter compared to $17.3 million in the 2023 period, which included the $17.75 million litigation settlement charge in the 2024 period. Adjusted EBITDA attributed to the segment were a loss of $14.2 million compared to $13 million in the 2023 period. Adjusted net loss attributed to Douglas Ellman in the first quarter was $23.7 million, or $0.28 per share, compared to $16.8 million, or $0.21 per share, in the 2023 period. Douglas Ellman has maintained ample liquidity with cash and cash equivalents of approximately $91.5 million, or $1 per common share and no debt. In summary, despite industry-wide headwinds, we are confident that Douglas Ellman is positioned for long-term success with its differentiated platform, continued cost reduction efforts, and strong luxury brand. 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 stakeholder 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. Operator?

The floor is now open for your questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad. You may remove yourself at any time by pressing star 2. Once again, to ask a question, please press star 1. Our first question will come from Soham Bansal with BTIG. Please go ahead. Hey, guys.