Douglas Elliman Inc. (NYSE:DOUG) Q3 2023 Earnings Call Transcript November 8, 2023
Douglas Elliman Inc. beats earnings expectations. Reported EPS is $-0.06, expectations were $-0.08.
Operator: Welcome to the Douglas Elliman’s Third 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 An archived version of the webcast will be available on the Investor Relations section of the company’s website located at investors.elliman.com for one year.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 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 are not historical — 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 Securities and Exchange Commission filings. I would now like to turn the call over to the Chairman, President and Chief Executive Officer of Douglas Elliman, Howard Lorber. Please go ahead.
Howard Lorber: Good morning, and thank you for joining us. With me today are Richard Lampen, our Chief Operating Officer; Bryant Kirkland, our Chief Financial Officer; and Scott Durkin, President and CEO of Douglas Elliman Realty, our residential real estate brokerage business. Before turning to our results for the third quarter, we wanted to address the current litigation in the residential real estate brokerage industry. Given that we are talking about active litigation against Douglas Elliman, we are not going to comment extensively on that litigation and potential outcomes. I will make some brief comments and do not intend to comment further or take questions on these issues. Last week, a jury ruled in favor of the plaintiffs in the Sitzer/Burnett lawsuit in Federal Court in Missouri and awarded $1.78 billion in damages, which is subject to being tripled under the law.
We expect that the defendants, which include the National Association of Realtors and several other residential real estate franchisors and brokerages doing business in Missouri, will appeal the verdict and that the case will take a substantial period of time, possibly years, to be resolved. Douglas Elliman is not a party to that lawsuit, but we have been named in two new separate cases involving customary real estate business practices and the National Association of Realtors rules that were the subject of the Sitzer/Burnett lawsuit. We believe the lawsuits against us lack merit and we intend to challenge them. We have retained counsel to advise and represent us. We do not anticipate these lawsuits will result in any changes to our business that will significantly disrupt the agent-buyer relationship.
In the meantime, we believe that Douglas Elliman has two competitive advantages if our industry landscape evolves. First, our agents specialize in high-end home sales across the markets we serve in which the greater average transaction size makes expert home brokers a necessity. Second, our Douglas Elliman development marketing business, which represents high-end developers in the sale of such homes, continues to perform well. We will continue to keep a close eye on industry developments and adjust our strategy if and when needed, but we are confident we are well-positioned to succeed. Now turning to Douglas Elliman’s financial results for the three months ended September 30, 2023. Please note that all numbers presented this morning will be as of September 30, 2023, unless otherwise stated.
We are pleased that Douglas Elliman continued to outperform many of its competitors in the third quarter of 2023, despite ongoing industry-wide headwinds that continue to impact our results. We attribute our solid performance to three factors: 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 our world-class agents. For the third quarter of 2023, Douglas Elliman reported $251.5 million in revenues compared to $272.6 million in the third quarter of 2022. However, in Florida, one of our largest markets and our strongest market during the pandemic, we experienced a 20% increase in revenues in the quarter.
We believe the best markets tend to emerge first from any downturn and view Florida’s strong third quarter as a positive leading indicator of future performance across our luxury markets. Net loss attributed to Douglas Elliman for the third quarter was $4.9 million or $0.06 per diluted share, compared to net loss of $4 million or $0.05 per diluted share in 2022. Adjusted EBITDA attributed to Douglas Elliman was a loss of $3 million compared to income of $124,000 in the 2022 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $2 million this quarter compared to operating income of $1.5 million in 2022, and adjusted EBITDA to the segment was approximately $1.5 million compared to $5.1 million in 2022.
Adjusted net loss attributed to Douglas Elliman was $4.7 million or $0.06 per share, compared to adjusted net loss of $4 million or $0.05 per share in 2022. Now, turning to Douglas Elliman’s results for the nine months ended September 30, 2023. Douglas Elliman reported $741.4 million in revenues for the nine months ended September 30, 2023, compared to $945.8 million in 2022. Net loss attributed to Douglas Elliman was $27.7 million or $0.34 per diluted share, compared to net income of $12.8 million or $0.15 per diluted share in 2022. Adjusted EBITDA to Douglas Elliman for the nine-month period was a loss of $23.2 million compared to income of $32.1 million in 2022. Our real estate brokerage segment reported an operating loss of $20.3 million for the period compared to operating income of $37.6 million in 2022.
Adjusted EBITDA attributed to the segment was a loss of $9 million compared to income of $47.2 million in the 2022 period. Finally, adjusted net loss attributed to Douglas Elliman was $26.4 million or $0.32 per share in the nine-month period, compared to adjusted net income of $12.2 million or $0.14 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 the residential real estate marketplace. We have previously discussed the cyclical nature of our industry. The last six quarters have been a difficult part of the cycle, as historically high mortgage rates have driven sustained listing inventory shortages across our luxury markets. While we expect these industry-wide challenges will continue to impact our results for the remainder of 2023, we remain encouraged by some improvements in trends we are seeing.
Specifically, our average sales price per transaction increased to $1.57 million this quarter, up from $1.49 million in the third quarter of 2022. Revenues in the third quarter of 2023 declined 7.7% compared to the third quarter of 2022. The year-over-year decline narrowed from the first and second quarters of 2023, which saw declines of 30.7% and 24.3%, respectively, from 2022. We believe this signals that the market is beginning to adjust to interest rates. Our commission receipts in October improved on a year-over-year basis, the first time since May 2022. Total listing volume also improved in the third quarter, up 6.2% from the 2022 period. 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 our long history of profitability and managing various market conditions. We maintain ample liquidity with cash and cash equivalents of approximately $126 million or $1.43 per common share, and no debt. In the third quarter of 2023, we continue to adjust our cost structure to benefit our business, including additional headcount reductions, cutting costly sponsorships, streamlining advertising and commencing a program to begin consolidating office space. Our cost reduction efforts have been judicious and the result of our strategy are beginning to flow to the bottom-line. Compared to the year-ago period, our real estate brokerage segment reduced its operating expenses, excluding commission expense and restructuring, by $7.8 million in the third quarter of 2023, representing a decline of 10.5%.
On a sequential basis, our real estate brokerage segment reduced its operating expenses, excluding commission expense and restructuring, by $4.1 million this quarter compared to the second quarter of 2023, representing a decline of 5.8%. We expect the impact of our cost reduction efforts will continue to create a more nimble Douglas Elliman without significantly impacting the agent experience. We are proud to share that our agent retention rate stands at 90%, 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, which include our world-class network of 6,900 agents and our development marketing business. 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, especially considering the limited inventory of existing homes available for resale.
For the 12 months ended September 30, 2023, our development marketing business signed and brought to market new projects were $5.1 million of gross transaction value, including $4.6 million of gross transaction value added in the 12 months ended September 30, 2023, in Florida alone. In summary, Douglas Elliman 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 revenue 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 will be happy to answer questions. Operator?
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