Douglas Elliman Inc. (NYSE:DOUG) Q2 2024 Earnings Convention Name August 8, 2024 8:00 AM ET
Firm Members
Howard Lorber – Chairman, President & Chief Government Officer
Bryant Kirkland – Senior Vice President & Chief Monetary Officer
Convention Name Members
Soham Bhonsle – BTIG
Peter Abramowitz – Jefferies
Operator
Welcome to Douglas Elliman Second Quarter 2024 Earnings Convention Name. This name is being recorded and concurrently webcast. An archived model of the webcast might be accessible on the Investor Relations part of the corporate’s web site situated at traders.factor.com for one yr. Throughout this name, the phrases adjusted EBITDA and adjusted web loss might be used. These phrases are non-GAAP monetary measures and must be thought of along with however not as an alternative to, different measures of monetary efficiency ready in accordance with GAAP. Reconciliations adjusted EBITDA and adjusted web loss have been contained within the firm’s earnings launch which has been posted to the Investor Relations part of the corporate’s web site.
Earlier than the decision begins, I want to learn a Protected Harbor assertion. The statements made throughout this convention name that aren’t historic are forward-looking statements which might be topic to dangers and uncertainties that would trigger precise outcomes to vary materially from these set forth in or implied by forward-looking statements and described in additional element within the firm’s Securities and Alternate Fee filings.
Now, I want to flip the decision over to the Chairman, President and Chief Government Officer of Douglas Elliman, Howard Lorber.
Howard Lorber
Good morning and thanks for becoming a member of us. With me right this moment are Richard Lampen, our Chief Working Officer; Bryant Kirkland, our Chief Monetary Officer; and Scott Durkin, President and CEO of Douglas Elliman Realty. Our residential actual property brokerage enterprise. On right this moment’s name, we’ll focus on the present working atmosphere and Douglas Elliman’s monetary outcomes for the three and 6 months ended June 30, 2024.
All numbers offered this morning might be as of June 30, 2024, except in any other case said. We are going to then present closing feedback and open the decision for questions. Earlier than I flip to our outcomes, I need to start with an replace on sure issues. First, in July 2024, we have been happy to have obtained a $50 million progress funding from Kennedy Lewis, a number one credit-focused various asset administration agency.
We consider this positions us for strategic progress and growth and we stay up for tapping into the community and data base of Kennedy Lewis as we collaborate to drive long-term stockholder worth. Second, in June 2024, we have been happy to obtain preliminary court docket approval of our settlement of the pending vendor class motion litigation referring to actual property brokerage charges which will even outcome different comparable pending litigation.
Now we’ll focus on our outlook on our present working atmosphere in addition to developments we’re seeing in residential actual property. As mentioned in earlier quarters, generationally excessive rates of interest have pushed sustained itemizing stock shortages throughout our luxurious markets for greater than 2 years. These shortages have resulted in considerably decrease transaction volumes throughout this time.
Whereas we count on these industry-wide challenges will proceed to affect outcomes, we stay inspired by latest enhancements. First, our second quarter revenues and gross transaction values elevated from the prior yr interval by roughly 4% and seven%, respectively. Additional, common each day money receipts from present residence gross sales in July elevated by roughly 12% in comparison with July 2023. This continues a pattern that started in October 2023. We consider that is proof of the market’s gradual adjustment to greater rates of interest. Second, we proceed to see momentum in our improvement advertising and marketing enterprise, a platform that differentiates Douglas Elliman from our opponents.
By its improvement advertising and marketing division, Douglas Elliman employs a hybrid dealer mannequin, the place our prime resale residential actual property brokers work in tandem with our improvement advertising and marketing professionals and leverage their intensive {industry} relationships for the advantage of our developer shoppers.
Our brokers can market and promote high-profile developments that improve their manufacturers and supply extra fee potential for years as they’re usually employed to resell or lease these exact same items. Consequently, Douglas Elliman improvement advertising and marketing continues to be wanted by well-known actual property builders. This division has an lively pipeline of signed and new tasks of roughly $26.5 billion gross transaction worth, together with roughly $16 billion gross transaction worth in Florida alone.
We consider this bodes properly for the longer term as we’ll acknowledge fee earnings from these tasks once they shut. Third, itemizing quantity elevated 23% within the second quarter of 2024 from the prior yr interval as Douglas Elliman steady be the chief within the luxurious markets it serves. The arrival of the $100 million itemizing is upon us and we’re properly positioned to market and promote these prestigious properties. For instance, throughout the quarter, we received vital 9-figure exclusives in Orange County, California, Snowmass, Colorado and Coral Gables, Florida. The will increase in complete itemizing quantity follows a 6.7% improve within the first quarter in comparison with the primary quarter of 2023 and a 25% improve within the fourth quarter of 2023 in comparison with the fourth quarter of 2022.
We consider we’re already seeing the affect of elevated itemizing quantity and this pattern will proceed within the the rest of 2024 and into the primary quarter of 2025.
Per the rise in itemizing quantity, our common gross sales value per transaction remained an {industry} finest $1.81 million within the second quarter and was $1.64 million for the previous 4 quarters. We consider the consistency in our common gross sales value per transaction displays the power of our luxurious markets in addition to Douglas Elliman repute for providing the best properties and consumer expertise in actual property.
Lastly, our price discount efforts have been considered and the outcomes of our technique are starting to movement to the underside line. Over the previous yr, now we have continued to regulate our price construction to higher match our enterprise, together with extra headcount reductions chopping pricey sponsorships, streamlining promoting and commencing a program to consolidate workplace area.
Our actual property brokerage section lowered its working bills, excluding fee bills, litigation settlement bills, restructuring and different non-cash bills by $11.3 million within the first half of 2024, representing a decline of roughly 7.9% in comparison with the prior yr interval.
Over the past 12 months ended June 30, 2024, our actual property brokerage section has lowered its working bills, excluding fee bills, litigation settlement bills, restructuring and different non-cash bills by $21 million or roughly 7.3% in comparison with the 12 months ended June 30, 2023. We consider these efforts are enabling Douglas Elliman to fulfill {industry} challenges head on with out considerably impacting the agent expertise. We’re proud to share that our agent retention fee stands at 88% and we proceed to draw the {industry}’s finest expertise.
Now turning to Douglas Elliman monetary outcomes for the three months ended June 30, 2024. Douglas Elliman reported $285.8 million in revenues in comparison with $275.9 million within the 2023 interval. Web loss attributed to Douglas Elliman for the second quarter was $1.7 million or $0.02 per diluted share in comparison with $5.2 million or $0.06 per diluted share within the 2023 interval.
Adjusted EBITDA attributed to Douglas Elliman within the second quarter have been earnings of $2.4 million in comparison with a lack of $2.6 million within the 2023 interval. For comparability functions, our Actual Property Brokerage section reported working earnings of $2.9 million this quarter in comparison with an working lack of $1 million within the 2023 interval. Adjusted EBITDA attributed to the section have been earnings of $6.6 million in comparison with $2.5 million within the 2023 interval.
Adjusted web loss attributed to Douglas Elliman within the second quarter was $1.1 million or $0.01 per share in comparison with $4.9 million or $0.06 per share within the 2023 interval. Douglas Elliman has maintained ample liquidity with money and money equivalents at June 30, 2024, of roughly $92.9 million.
Now turning to Douglas Elliman’s monetary outcomes for the 6 months ended June 30, 2024. Douglas Elliman reported $486 million in revenues in comparison with $489.9 million within the prior yr interval. Web loss attributable to Douglas Elliman for the second quarter was $43.1 million or $0.52 per diluted share in comparison with $22.8 million or $0.28 per diluted share within the 2023 interval.
Web loss attributed to Douglas Elliman within the 2024 interval included a $17.75 million litigation settlement cost, of which now we have paid $7.75 million in June 2024. Adjusted EBITDA attributed to Douglas Elliman within the 6 months ended June 30, 2024, have been a lack of $15.9 million in comparison with $20.2 million within the 2023 interval.
For comparability functions, our actual property brokerage section reported an working lack of $32.3 million for the primary 6 months of 2024 in comparison with $18.4 million within the 2023 interval. Working loss within the 2024 interval contains the $17.75 million litigation settlement cost. Adjusted EBITDA attributed to the section have been a lack of $7.6 million in comparison with $10.5 million within the 2023 interval.
Adjusted web loss attributed to Douglas Elliman within the 6 months ended June 30, 2024, was $24.8 million or $0.30 per share in comparison with $21.6 million or $0.27 per share within the 2023 interval.
In abstract, we’re assured that Douglas Elliman is positioned for long-term success with its differentiated platform, continued price discount efforts and robust luxurious model. Our confirmed administration group has a profitable historical past of navigating many financial cycles and making use of monetary self-discipline that balances the significance of sustaining revenues and managing working bills to create long-term stockholder worth.
Wanting forward, along with driving operational efficiencies, we’re targeted on the strategic market growth, continued recruitment of excellent expertise and additional adoption of modern options to empower our brokers.
With that, we might be completely happy to reply questions. Operator?
Query-and-Reply Session
Operator
[Operator Instructions] We’ll take our first query from Soham Bhonsle with BTIG.
Soham Bhonsle
So first one, I assume, Howard, extra lately, we have seen a rise in stock in a few of your core markets like Florida and Texas and I believe you kind of famous that in your feedback as properly. So I assume, questioning what you are listening to from brokers as to why that is possibly not translated into extra transaction unit progress this quarter. As a result of after I kind of break down your GTV efficiency into items in value, it appears to be like like items have been nonetheless down 3%. So any ideas there can be useful.
Howard Lorber
Sure. I imply, look, I believe persons are nonetheless ready the stock constructing slightly bit as a result of they’re nonetheless ready for fee cuts, okay? It is so you will have stock construct after which there’s actually much less patrons at most ranges, or particularly on the decrease finish ranges out there due to charges. So hoping that we are going to have some fee cuts earlier than the top of the yr.
Who is aware of? I imply we might be actually proud of 2 quarter-point cuts however there’s additionally been speak of 0.5 level minimize after which 0.25-point earlier than year-end. And we’re positive we’ll see the stock actually taking place as folks determine to make new purchases from the present stock.
Soham Bhonsle
Okay. After which Bryant, I assume you probably did within the ready feedback, say, I believe up 12% on money receipts. Are you able to simply remind us how that really interprets into income going ahead?
Bryant Kirkland
Certain. I imply you may — clearly, we have had actually good efficiency in 2024 in comparison with 2023 up 12%. Our margins are operating wherever between 20% and 25%. So that basically will depend on areas going ahead. However what we’re seeing is a really sturdy market. And so simply so as to add slightly to the earlier query, we’re beginning to see the affect of that itemizing as we have seen sturdy July, particularly. So it does take — as a result of we acknowledge income when the earnings course of is full. That is solely when the sale happens. So we predict that appears optimistic going ahead.
Soham Bhonsle
Okay, nice. After which I assume on the capital increase, it sounds such as you’re trying to deploy that for progress. So are you able to possibly simply discuss whether or not you envision that spend going in direction of tuck-in acquisitions? Or is it constructing out groups extra organically? After which possibly only a market that you simply’d be trying to goal.
Howard Lorber
Look, our growth is mainly restricted to the states that basically are not any earnings tax states as a result of that is the place persons are going. So it is a variety of markets we’re not in that we could possibly be in. We have held again slightly bit however now we have actually I believe many of the no tax states lined now. We’re in Texas. We’re doing properly in Texas. We’re in clearly Florida. Florida continues to be booming because it’s considerably surprising virtually as a result of persons are coming to Florida in droves [ph]. And so they’re coming from throughout. Most individuals suppose like most of Florida, or loads of it’s coming from New York.
However having mentioned that, we see the California folks additionally coming to Florida. And that is stunning. The final pondering was that anybody from California that wishes to get out of the tax place there’s going to go to Texas. Properly, I believe generally California is extra aligned with Florida and we have heard that a number of instances that persons are — I’ve a neighbor in Florida on both sides of me that got here from California.
So we all know what is going on on. And we’re kind of proud of it and we’ll proceed to be very cautious with our cash and work properly. We might be working properly with Kennedy Lewis and we might be hopefully getting concerned. They’re an enormous lender to builders, single-family residence builders and we’re hoping to select up a few of that enterprise, if attainable.
Soham Bhonsle
Okay. After which, Bryant on bills. So it appears to be like such as you’ve been capable of deliver down the G&A line properly. However my query is extra across the go-forward. So if volumes have been to start to inflect subsequent yr or within the again half of the yr, how are you kind of occupied with managing that line or simply your fastened bills normally, proper? Ought to we count on that to proceed to pattern down as a few of your prior actions kind of movement by means of? Or do you count on so as to add extra people to help the expansion as you go ahead?
Bryant Kirkland
So clearly, you are asking a query about scale and to reply your query, we do suppose we will scale bills going ahead. And we predict that when revenues return that, that can affect the enterprise favorably. However let’s simply discuss the place we have been and the place we’re going. So the contributions to our earnings from the expense reductions actually do mirror to work over the past 2 years. And this has been a gradual affect and it has been constructing as administration has been very deliberate on these expense cuts and has been targeted on persevering with bills in a considered method. And in any other case, we’re not Pennywise, we’re not silly. We’re targeted on persevering with to boost the agent expertise which that is the number one driver of long-term stockholder worth.
And whereas initially, the expense reductions got here from decrease promoting which is considerably variable to revenues and personnel bills we’re now seeing the affect of the eliminations of leases and long-term sponsorships. So we’ll proceed to suppose well we’ll proceed to — the place there is a have to spend extra on issues like promoting, we’ll however we’ll proceed to attempt to scale our bills to the utmost quantity attainable.
Howard Lorber
And let me add one thing to what I used to be speaking about earlier than an growth. Our approach of growth now’s to not go purchase an organization or to not begin from scratch however what we do is we go into markets and most of those builders are — do enterprise in a number of states. So like, for example, now we have tasks in Tennessee arising. We do not have an workplace in Tennessee. We have now a dealer. And so that could be only for some time simply doing new improvement tasks which is a good a part of our enterprise. And that is just about how we lower your expenses in opening different markets.
Soham Bhonsle
Okay, understood. And simply final one. On break up, Bryant, it was up 150 foundation factors. And look, we have seen strain throughout the {industry}. Are you able to simply possibly discuss among the dynamics that play there.
Bryant Kirkland
Sure, in fact. And this can be a comparable asset to the primary quarter however I will provide the stroll ahead. So nothing has modified on the grid that we paid to brokers in recent times. And we’re trying area, for those who have a look at the area to area situation break up, they’re utterly constant. However what’s taking place is our margin evaluation is actually delicate in combine given the variety of markets we’re in. So particularly, Florida which is a better fee state elevated from 27% of our present residence gross sales within the ’23 second quarter to 30% of present residence gross sales within the second quarter of 2024.
That accounted for — for those who have a look at the distinction between that and New York Metropolis, that accounted for about half about 0.5% of the 1.5% change within the margin. The rest was because of the Douglas Elliman improvement advertising and marketing which you recognize that enterprise is delicate to income recognition accounting as a result of we solely acknowledge income and associated revenue on that enterprise when the earnings course of is full or the sale closes.
And as Howard mentioned, now we have an amazing pipeline in that and that appears good for future earnings. The ultimate affect was greater fee payouts on a proportion foundation and that was attributable to — we’re an ultra-luxury realtor. I imply that is the underside line. That is our market, ultra-luxury and we had some actually vital record-breaking transactions of 9 larger transactions throughout the quarter and that is going to lead to decrease margins. However on the similar time, it should lead to greater absolute gross revenue.
Operator
Our subsequent query comes from Peter Abramowitz with Jefferies.
Peter Abramowitz
Sure. So if we simply have a look at general transaction worth in your small business versus the general market, it might appear that you simply gained market share this quarter. So simply questioning for those who might present any context or feedback round that. Perhaps what drove that and for those who suppose that is one thing that is sustainable going ahead?
Bryant Kirkland
Clearly, record-breaking gross sales drove. We have now the very best brokers. We’re ultra-luxury residential actual property dealer.
Howard Lorber
Simply so as to add, now we have, I believe, in the entire {industry}, in the entire nation, now we have the best stage of gross sales. Our common sale this yr was $1.8 million, I believe, proper? The remainder of the businesses, even corporations, it doesn’t matter what dimension they’re, I do not suppose there’s anybody that is even near that. I believe they’re all $1 million or much less.
Bryant Kirkland
I consider you are right, Howard and we are also in markets that, along with record-breaking gross sales along with being the title ultra-luxury actual property, we are also in markets which might be much less mortgage fee delicate, mortgage charges have been very excessive within the second quarter. So we’re going to outperform in 1 / 4 like that from that fee — from the rate of interest perspective.
Peter Abramowitz
Okay, that is useful. After which a query simply general on the macro backdrop, clearly, some unstable and wild strikes out there. And there appears to be possibly slightly bit extra concern round a recession right this moment than there was a few weeks in the past. Simply for those who might assist us suppose by means of affect your small business. I do know that your core purchaser is possibly much less impacted by the macro backdrop and never as delicate. However have you ever had conversations internally about how that impacts the enterprise? And will you assist us suppose by means of, if we do go right into a recession, how we must always take into consideration kind of the go-forward kind of medium time period?
Howard Lorber
Sure. That is a tricky query as a result of we do not know the way the recession can be if there even is one. We maintain listening to what number of instances that we heard about it, oh, recession is coming, recession is coming. I do not suppose there’s going to be any severe recession, there could also be others that the alternative; however I nonetheless say that we’re in the very best place within the {industry} to climate a recession. And that is what’s essential as a result of whenever you come out of that recession, if there’s one, we’ll be the number one, we’ll proceed to be the number one dealer within the nation.
Peter Abramowitz
Bought it. After which another, if I might. I believe, Howard, you talked about in your feedback towards the top there, simply on strategic market growth. May you contact on possibly among the markets the place you are pondering that could be a risk, whether or not it is buying new groups or doubtlessly simply form of beefing up for restoration, simply markets general, the place you suppose the enterprise could possibly be increasing over the following yr or two?
Howard Lorber
Sure. As I mentioned, one of many methods we’re doing it with out spending some huge cash is thru new improvement. As a result of in a few of these markets, there’s actually just about nobody that does new improvement gross sales. So that is what we’re doing, as I mentioned in Tennessee and that is how we’re constructing our — just about all our markets, all our newer markets, together with Texas and together with Las Vegas. We have now some nice tasks and you do not have to spend a lot cash to do this as a result of now we have the again workplace a part of it in New York and Florida and that may service the entire nation just about.
So we’re not constructing — we’re not getting in and opening a taking 5,000 ft and opening an enormous lovely new workplace that we’re not doing. We need to get enterprise first earlier than we open the workplace. And that has labored fairly properly for us as a result of we’re very well-known within the new improvement enterprise. I imply, now we have big market share in — for those who have a look at Florida, an enormous market share in Florida and we have not been there that I assume how lengthy have we been to Florida?
Bryant Kirkland
11 years.
Howard Lorber
10, I used to be going to say 10 years, 10, 11 years. And we constructed up the place we’re the number one dealer in Miami Seashore, we’re the number one bulk dealer in Palm Seashore County. And we’re all the way in which up just about, we go midway up on the east aspect and we’re now on the West Coast of Florida. And so they actually do not have anybody that basically is aware of the brand new improvement enterprise like we do. And that is actually been an enormous assist. And so we’ll be going to locations the place there’s enterprise. It would not matter actually the place they’re. If we will do it and do it economically and generate income, we’re doing it.
Peter Abramowitz
All proper, that’s all for me. Thanks for the time.
Operator
Girls and gents, these are all of the questions that now we have for right this moment. Thanks for becoming a member of us on Douglas Elliman quarterly earnings convention name. Hope you will have a great day and this can conclude our name.
