Douglas Elliman Inc. (NYSE:DOUG) Q4 2023 Earnings Call Transcript
Douglas Elliman Inc. (NYSE:DOUG) Q4 2023 Earnings Call Transcript March 1, 2024
Douglas Elliman Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Douglas Elliman Fourth Quarter and Full Year 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 An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.elliman.com for one year.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 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. Now I'd 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 financial results, we want to reference the ongoing Sitzer/Burnett and other resulting litigation in the residential real estate brokerage industry. Given this is active litigation, we are not going to comment or speak to potential outcomes. We also intend to decline to answer questions on these matters. Since the verdict, more than 20 cases have been filed nationally, of which Douglas Elliman is currently aware of seven that involve us or one of its subsidiaries as a defendant.
The plaintiff's uncertain of those actions are seeking to centralize these lawsuits before the federal judge who presided over the sit burner trial in Missouri. The judicial panel will hear the matter on March 28th, 2024. In addition, we understand that the Department of Justice is reviewing industry practices on setting buyers broker commissions, including by weighing in on settlements reached by other companies. Douglas Elliman is currently defending the cases pending against it and has a number of free trial motions that will or have been brought. We believe the lawsuits, which are still in the very early stages and will likely take years to litigate, lack merit, and we intend to challenge them. As we begin to discuss our fourth quarter performance, we are enormously proud to share that Douglas Elliman was recently named the most trusted real estate brokerage firm in the United States as part of the America's most trusted series by Life Story Research.
This tremendous accomplishment is a testament to the hard work of our world-class agents and their unwavering commitment to our clients across the markets we serve. Now, turning to Douglas Elliman's financial results for the three months ended December 31st, 2023. Please note that all numbers presented this morning will be as of December 31st, 2023 unless otherwise stated. We are pleased that Douglas Elliman continued to outperform many of its peers in the fourth quarter of 2023. Despite ongoing industry-wide headwinds and impact results. We attribute our solid performance to three factors, stable pricing in our luxury markets where buyers are less sensitive to interest rate pressures. The competitive advantage provided by Douglas Elliman's strong development, marketing business, and our world-class agents.
For the fourth quarter of 2023, Douglas Elliman reported $214.1 million in revenues compared to $207.3 million in the fourth quarter of 2022. Net loss attributed to Douglas Elliman for the fourth quarter was $14.8 million or $0.18 per diluted share, compared to $18.4 million or $0.23 per diluted share in the 2022 period. Adjusted EBITDA attributed to Douglas Elliman in the fourth quarter, or a loss of $17.5 million compared to $17.1 million in the 2022 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $16.4 million this quarter compared to $15.6 million in the 2022 period. An 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 Elliman 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 Elliman results for the year ended December 31st, 2023. Douglas Elliman reported $956 million in revenues for the year ended December 31st, 2023, compared to $1.15 billion in 2022. Net loss attributed to Douglas Elliman 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 Elliman for the year, or 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 or 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, so our first increase in year-over-year quarterly revenues since the first quarter of 2022, which was 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 receipts 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 feeling encouraged after the Federal Reserve signaled in January that it is nearing a long-awaited shift toward cutting interest rates. Importantly, total listing volume also improved in the fourth quarter of 2023, up 25% from the 2022 period with gains and listings reported in Florida, California, New York, and Colorado, all increasing significantly compared to the fourth quarter of 2022.
Because we recognize revenues when the sale closes, we expect that we will begin to see the impact of increased listing via 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 operated, 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 our long history of profitability in managing various market conditions. We have maintained ample liquidity with cash and cash equivalence 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 head cat reductions, cutting costly sponsorships, streamlining advertising, and commencing a program to consolidate office space. Our cost reduction efforts have been judicious and the results of our strategy are beginning to flow to the bottom line.
Our real estate brokerage segment reduced its operating expenses, including commission expense, restructuring other non-cash 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 Douglas Elliman without significantly impacting the agent experience. We are proud to share that are agent retention rate 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 at 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 31st, 2023, our development marketing business had an active pipeline of signed and new projects 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 in the next year. We believe this bodes well for the future, as we will recognize commission income from these projects as they close in the coming years. 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 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?
See also 25 Countries with Developing Economies but Slow Growth Rates and 21 Best Countries to Buy Real Estate According to Reddit.
To continue reading the Q&A session, please click here.
