Douglas Elliman Realty, LLC (NYSE: DOUG) reported a challenging first quarter in 2024 with a decline in revenue and a net loss, according to the company's latest financial results. Revenue for the quarter was $200.2 million, a decrease from $214 million in the same period the previous year. The net loss for the company was significant, at $41.5 million, which included a substantial litigation settlement charge.
Despite these figures, Douglas Elliman expressed confidence in its long-term success, citing strategic market expansion and cost reduction efforts. The company also highlighted a robust development marketing division pipeline and maintained a strong liquidity position with no debt.
Key Takeaways
- Douglas Elliman reported a Q1 2024 revenue of $200.2 million, down from $214 million year-over-year.
- The company's net loss for the quarter was $41.5 million, including a $17.75 million litigation settlement charge.
- Adjusted EBITDA showed a loss of $18.2 million.
- Douglas Elliman is confident in its long-term prospects, focusing on cost-cutting and market expansion.
- The development marketing division has a $25 billion project pipeline, with future commission income expected.
- The company remains liquid with $91.5 million in cash and equivalents, and no debt.
Company Outlook
- Douglas Elliman is concentrating on operational improvements to enhance profitability.
- The firm is actively reducing business costs through a new series of cuts.
- Executives stress the importance of a strong balance sheet to navigate market conditions.
Bearish Highlights
- Market share in New York has slightly decreased.
- High construction costs have limited new developments in California.
- Buyers are currently hesitant, influenced by high rates and the need to sell existing homes.
Bullish Highlights
- Florida market share remains strong due to new development business.
- Douglas Elliman is expanding with new developments in Texas and Las Vegas.
- Stability in interest rates could lead to a more active housing market.
Misses
- Q1 2024 saw a reduction in revenue compared to the previous year.
- The company experienced a notable net loss, impacted by a litigation settlement.
Q&A Highlights
- There were no further questions from participants during the earnings call.
- The company discussed the uncertainty of making all-cash offers in the current financial environment.
Douglas Elliman's earnings call revealed a mixed picture for the first quarter of 2024. While the company faced revenue decline and a net loss, its strategic focus on market expansion and cost reduction, coupled with a strong liquidity position, suggests a resilient outlook.
The real estate firm is adjusting to market dynamics, addressing operational efficiencies, and banking on its development marketing division to drive future growth. Despite the current hesitancy among buyers, Douglas Elliman's leadership is looking toward rate stability as a potential catalyst for market activity. With no further questions from call participants, the company closed the discussion on a note of cautious optimism for the future.
InvestingPro Insights
Douglas Elliman Realty's financial health and stock performance reflect a complex picture, as evidenced by the latest InvestingPro data and tips. The company's market capitalization stands at a modest $131.81 million, and it operates with a negative P/E ratio of -3.19 for the last twelve months as of Q1 2023. This suggests that investors are concerned about the company's profitability in the near term, which aligns with the reported net loss in the recent quarter.
InvestingPro Tips highlight that Douglas Elliman is actively returning value to shareholders through significant dividends, with a yield of 13.23% as of the latest data. This may appeal to income-focused investors, especially considering that the company has a policy of aggressive share buybacks, which could support the stock price over time.
Despite the challenges, Douglas Elliman's liquid assets exceed its short-term obligations, which is a positive sign for the company's ability to meet its immediate financial commitments. Additionally, the company trades at a low revenue valuation multiple, which could indicate that the stock is undervalued compared to its revenue generation capability.
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Full transcript - Douglas Elliman Inc (DOUG) Q1 2024:
Operator: 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.
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. On today's call, we will discuss the current operating environment and Douglas Elliman’s financial results for the three months ended March 31, 2024. All numbers presented this morning will be as of March 31, 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 Umpa 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, relationally 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 Elliman 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 and marketing business, while also increasing the attractiveness of the Douglas Elliman 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 in 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 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. 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 31, 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 enabled Douglas Elliman to meet industry challenges head on without significantly impacting the aging experience. We are proud to share that our agent 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 31, 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 Elliman 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 Elliman 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 Elliman 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 Elliman 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 Elliman 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 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. Operator?
Operator: The floor is now open for your questions. [Operator Instructions] Our first question will come from Soham Bhonsle with BTIG. Please go ahead.
Soham Bhonsle: Hey, guys. Good morning. Hope you're all doing well. Look, so I know it's a tough market out there, especially with rates and just being so volatile and inventory being so tight. But look, you know, we could be here for a while just depending on where inflation ends up and how the Fed reacts. So can you maybe just talk about your desire to get the business to break even or even modest profitability if we sort of hang around these levels for a little longer?
Howard Lorber: Well, you know, that's what we're doing in our course cutting. We're not going to sit here and just keep it the way it is now and hope that the market changes quicker than it may or may not. We're also trying to do it judiciously, not doing everything at once, and spreading it out, and also making sure that we're not affecting the experience, our customers experience, obviously our customers to us are our brokers. So that's really what we're working on.
Soham Bhonsle: Okay, and then Bryant, I guess on expenses, can you maybe just talk about how we should think about the run rate for the various OpEx lines as we go through the year and any items that we should be thinking about? Thank you.
Bryant Kirkland: Well, I mean, as you know, this is a seasonal business at times, so expenses move from quarter-to-quarter in a different way. However, we have cut as much as $18.9 million over the last 12 months, about $3 million of that was advertising, the majority, the remainder was in personnel and sponsorships and travel. We're continuing to look at that. We did eliminate 100 positions in 2023. We're continuing to look at ways to deliver excellent customer service to our agents more efficiently. And we'll be updating you that in future quarters.
Soham Bhonsle: Okay, and then if I could just squeeze one more in. It looks like, you know, I just have to look at unit share this quarter, at least on a national basis. It was down, but I know you guys aren't in all the markets across the country, so can you maybe just talk about your share in some of your core markets like New York, Florida and California and any other trends we should be sort of thinking about? Thank you.
Howard Lorber: Well, look, our market share in New York was down, I think, a small amount. Florida has been very strong, and that's basically because of our new development business. It's amazing how its transition from the best new development marketing revenue for us was always from New York and now it's Florida, substantially above what's going on in New York on new development. So California is really very little new development. It's never really been a great place for high-rise construction. My own view of that is that the problem really is, usually when people are going from a house to a condo, they want to bank some money. They want to sell their house for, let's say $10 million and buy something for $5 million. The problem is the new construction there, you're going to sell your house for $10 million and you're going have to spend $15 million to get something you live it. So that's not a great market. So we've really now are really concentrating on the new debt business in Texas. Texas is a good place for new development. Also Las Vegas, we have a couple of projects there. We just opened in the last couple of years. So we think we're in good spots as it relates to where we are in the country.
Bryant Kirkland: Yes, if you look at our proportion of revenues, the Southern and Western regions, which is Florida, Nevada, California, Texas, went from about 50.5% of revenues if you build existing home sales to 54% of existing home sales for the three-month period, if you look at the year-over-year period. That actually would be consistent with the fact that mortgage rates dipped in the fourth quarter, and those markets are less -- those markets are more mortgage-rate sensitive than the New York market, which is primarily cash buyers.
Soham Bhonsle: Yes, and then if I could just one more, Bryant. On the commission split 79%, it’s trended up a little higher. So what should we expect going forward? Maybe just talk about some of the trends within that number, some of the drivers?
Bryant Kirkland: So that's a great question. We are watching commission splits very closely as we do all expenses. It is an effort that management is watching very closely. Now, if you have to look at us, we're different than some of our national competitors, because of our limited number of markets. So our -- the three buckets that impact commission splits for us are new development, which is by far our highest margin. New York and Long Island, which are higher margins than Florida and California. What happened this quarter was, there was 189 basis point decline in gross margin. And that was driven by a 45% shift in the mix that I mentioned earlier in existing home sales in Florida and California going from 50% of our revenues from existing homes to 54%. And then in addition to that, because as you know, we only recognize revenues on development marketing when the earnings process is complete or when a home sells. We're in a period where we're not recognizing significant revenues, because we're bringing in significant cash from deposits. But the things that would normally be closing now were things that began construction in 2020 and ‘21 where you know the market -- the whole country was closed during that time. So that would be other impact on a commission's list that was about a 145 basis points. Now the bottom line is this when we look at region to region, the commission splits were consistent from 2023 first quarter to 2024 first quarter. So, we're not seeing any competitive pressures in that.
Soham Bhonsle: Okay, perfect. Thank you so much.
Operator: Thank you. We'll take our next question from Peter Abramowitz with Jefferies. Please go ahead.
Peter Abramowitz: Thank you. Yes, so I just want to go back to some comments. I think you said total listings were up year-over-year versus the first quarter of ‘23. So I just want to unpack that. Does that kind of imply that even though total listings were up, your transaction volume still down pretty significantly? Does that just imply that total like, kind of, decision making from buyers and sellers is happening a little bit more slowly? I just want to kind of get a little more context and understanding of the dynamic there?
Howard Lorber: Yes, I think that the listings may be up, but what happens is that the buyers, you have sort of a lack of buyers because someone that's going to buy today generally has something to sell. So they're stuck, it's a quandary because they can buy something and pay a higher rate. And then what they're going to sell probably has a lower rate on it, because they've owned it for a while. And that sort of puts a damper on their thinking and the process of whether they should move or not move.
Bryant Kirkland: And we are more immune to that pressure than some of our competitors, because we have such a high percentage of ourselves are ultra lottery and cash. However, what I think you're seeing is with the 25% increase in the fourth quarter and the 7% increase in the first quarter, you're now starting to see the markets are loosening up. People didn't have to do anything for two years after 2021 when mortgage rates were at historical lows and then went to generational highs as we know. Now we're seeing people have reasons to move and they're going to list their homes and that's going to create more volume for us in the future. Our average sales price continues to be very strong at almost $1.6 million per home. So we have a lot of competitive advantages in this area.
Peter Abramowitz: Okay, that's helpful. Do you have a breakdown of what percentage of the buyers within transactions that you're involved in? Are all cash versus using financing?
Bryant Kirkland: That's more difficult to say because many times people will make a cash offer and actually use financing when interest rates are low. But in New York, it's clearly still a significant percentage and also in the ultra-lottery in Florida, because you have just a different character of buyer.
Howard Lorber: Yes, in these markets, in the high-end markets, you don't have people making offers subject to mortgage contingencies. Because the seller doesn't want to see that, doesn't want to hear about that, okay? Because that's troublesome. So we really don't have an idea. And I agree with what BK is saying, is that many people just don't just say make an all cash offer, but then they're financing it outside of that.
Bryant Kirkland: Right.
Peter Abramowitz: Got it. And then last one for me I know you're still working on some of these kind of operational improvements and improving the cost structure. I guess just trying to think about the timing and trajectory of when you can kind of get the brokerage segment back to breakeven positive territory from an EBITDA perspective? Is it kind of a trajectory of rates? Is it an absolute level of transaction volume that you need to see? And I guess just any comments around possible timing of when you expect that to happen?
Howard Lorber: Well, look, the quicker rates go down is going to really prove what the -- how fast it's going to happen. But we don't look at it that way, because what if they stay where they are now or go up or go down a drop, that may not be that meaningful. We just have to focus on getting the business to make money for the shareholders and not wait and worry about where the volume is at any particular point. So I think that, that's what we're really, it's really much more of a -- it's not guesswork, but because one way or another, it's going to happen. But we want to keep trimming down the business until we really can't trim anymore. And we're starting, we started a new series of cuts and we're happy about that. And we're going to continue doing that into the foreseeable future.
Bryant Kirkland: You know, with our strong balance sheet, we do have time to do this right. We're not going to be under pressure from debt covenants or from historical losses, because of our strong balance sheet, so…
Peter Abramowitz: Right. I guess just one more as a follow-up then to Howard’s comments. I mean, in terms then of what rates mean for transaction volume, say they are stable, but high on an absolute level, do you think that stability would be enough to kind of see the market start to loosen up or do you think rates need to be going down for that to happen?
Howard Lorber: I think people are used to these rates, starting to get used to these rates already and no one really trusts what anyone else says. You know, what would they say, six or seven cuts? They were saying six or seven cuts this year and that was maybe three, four months ago. Now all of a sudden it's no cuts then someone starts talking about, there may be being one cut. So I don't think you could run, I know for sure you can't run, we can't run our business by worrying about that. We worry about it, we hope that is going to -- we're going to have cuts, but we're going to try to get ourselves in a position that no matter which way it goes or even if it stays this way for a while, that will be profitable.
Peter Abramowitz: All right. That's all for me. Thank you.
Bryant Kirkland: Thank you, Peter.
Operator: Thank you. Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman’s quarterly earnings conference call. We hope you have a good day. This will conclude our call.
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