Douglas Elliman Inc. Q2 FY2024 earnings call

• In July 2024, received a $50 million growth investment from Kennedy Lewis for strategic growth. - In June 2024, preliminary court approval of settlement of seller class action litigation. - Second quarter revenues and gross transaction values increased by ~4% and 7% respectively; July cash receipts up 12% from 2023. - Development marketing business has an active pipeline of signed and new projects with ~$26.5 billion gross transaction value, including ~$16 billion in Florida. - Listing volume increased 23% in Q2 2024. - Average sales price per transaction was $1.81 million in Q2. - Cost reduction efforts: real estate brokerage segment reduced operating expenses by $11.3 million in first half of 2024 and $21 million over 12 months. - Agent retention rate at 88%.

For the 3 months ended June 30, 2024, Douglas Elliman reported $285.8 million in revenues compared to $275.9 million in the 2023 period. Net loss attributed to Douglas Elliman for the second quarter was $1.7 million or $0.02 per diluted share compared to $5.2 million or $0.06 per diluted share in the 2023 period. Adjusted EBITDA attributed to Douglas Elliman in the second quarter were income of $2.4 million compared to a loss of $2.6 million in the 2023 period. For the Real Estate Brokerage segment, operating income was $2.9 million this quarter compared to an operating loss of $1 million in the 2023 period, and adjusted EBITDA was income of $6.6 million compared to $2.5 million in the 2023 period. For the 6 months ended June 30, 2024, revenues were $486 million compared to $489.9 million in the prior year period. Net loss attributed to Douglas Elliman for the 6 months was $43.1 million or $0.52 per diluted share compared to $22.8 million or $0.28 per diluted share in the 2023 period. Adjusted EBITDA attributed to Douglas Elliman in the 6 months ended June 30, 2024, were a loss of $15.9 million compared to $20.2 million in the 2023 period. The Real Estate Brokerage segment had an operating loss of $32.3 million for the first 6 months of 2024 compared to $18.4 million in the 2023 period, and adjusted EBITDA loss was $7.6 million compared to $10.5 million in the 2023 period.

• Confident in long-term success with differentiated platform, cost reductions, and strong luxury brand. - Focus on strategic market expansion, continued recruitment of outstanding talent, and further adoption of innovative solutions. - Anticipate continued impact of industry challenges but see recent improvements in revenues, cash receipts, and listing volume.

• Generationally high interest rates leading to listing inventory shortages and lower transaction volumes. - Uncertainty around economic conditions and potential recessions impacting the business.

Q: More recently, saw increase in inventory in core markets like Florida and Texas but transaction unit growth not translated. What's the reason?

A: People are waiting for rate cuts; inventory building but fewer buyers at lower end due to rates, hoping for rate cuts by end of year.

Q: 12% increase in cash receipts, how does it translate to revenue going forward?

A: Margins running between 20% - 25% depending on regions; revenue recognized when sale occurs, so looks positive going forward.

Q: On capital raise, envision spend towards tuck-in acquisitions or organic team build-out? Which markets?

A: Expansion in no-income-tax states; working with Kennedy Lewis who is big lender to developers; example of working with developers in Tennessee without opening full office.

Q: On expenses, how will you manage go-forward if volumes inflect?

A: Think can scale expenses; will continue to be judicious, spend on things like advertising when needed, scale expenses to maximum possible; expansion in new markets through working with developers without full office setup.

Q: Split up 150 basis points, dynamics?

A: Region mix with Florida having higher commission percentage; development marketing business sensitive to revenue recognition; ultra-luxury transactions resulting in lower margins but higher absolute gross profit.

Q: Overall market share gain, context and sustainability?

A: Being ultra-luxury real estate, in less mortgage rate sensitive markets; outperform in quarters with high mortgage rates.

Q: Impact of macro backdrop and potential recession?

A: Confident in being well-positioned to weather recession; will be number 1 broker coming out of recession if there is one.

Q: Strategic market expansion, which markets?

A: Expand through new development in markets like Tennessee; working in no-income-tax states, leveraging developers' multi-state business.