Welcome to Douglas Elliman Inc.’s First Quarter 2022 Conference Call. During this call, the terms adjusted net income and adjusted EBITDA 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 net income and adjusted EBITDA are contained in the company’s earnings release, which has been posted to the Investor Relations section of the company’s website located at investors.elliman.com. 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. I would now like to turn the call over to the Chairman, President and Chief Executive Officer of Douglas Elliman Inc., Howard M. Lorber.

Good afternoon and thank you for joining us. Joining 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 continued strength of the U.S. residential real estate market and how factors in the market contributed to our solid first quarter financial performance. We will then answer your questions before concluding today’s call. During our last earnings call, we discussed why a brand name synonymous with luxury and a comprehensive suite of technology-enabled real estate solutions positions Douglas Elliman to capitalize on the highly attractive dynamics in the U.S. residential real estate market. During the first quarter, we demonstrated that this continued to be true. We saw an ongoing trend of strong demand for residential homes combined with low inventory, which continues to result in significant price appreciation, particularly across our luxury markets. These dynamics have propelled an increase in our revenues to $308.9 million for the three months ended March 31, 2022, compared to $272.8 million for the first quarter of 2021. Our gross transaction value increased to $11.7 billion for the three months ended March 31, 2022, up from $10.1 billion for the same period in 2021, and we reported $52.8 billion in gross transaction value or closed sales over the last 12 months. To date, our business has not been materially impacted by higher mortgage rates, and we believe this is the result of our focus on our luxury markets where a higher percentage of transactions occur in cash. We believe this momentum will continue for the residential real estate and Elliman in particular, because of our strong presence in leading luxury markets. Also contributing to this momentum are factors such as the growing importance of millennial buyers, the return of international buyers, and limited supply due to the underbuilding of new homes between 2007 and 2020. It is important to note that our luxury brand results in higher average sales prices versus our peers across all our markets. For the 12 months ended March 31, 2022, Elliman had an average price per transaction of $1.62 million per home, substantially higher than our leading competitors outside of New York City. Our average price per transaction is approximately $1.5 million, which is well above the national average. We believe this creates a runway for us to continue to grow our business not only in our existing markets, but in complementary markets as well. In addition to organic growth through recruiting in our major markets, we have significant opportunities to increase our market share in adjacent markets where the Elliman name is well-known and trusted. New York City remains our largest market with $17.3 billion in gross transaction value in the last 12 months ended March 31, 2022. We also continue to be pleased with the strong performance of our South Florida market with $14.7 billion in gross transaction value in the same period, and the average selling price remained at approximately $2 million per home across New York City and South Florida. We also maintained strong market share in New York City and South Florida. For the last 12 months, our market share in New York City and South Florida was 21% and 20%, respectively. We have also continued to expand our footprint across existing and new luxury markets. In Florida, we expanded to Vero Beach and Ponte Vedra Beach near Jacksonville in the first quarter. In Massachusetts, we opened a Nantucket office in April and recently brokered the highest price transaction ever in that market. We are opening two additional offices in Boston in the coming months. We also continue to aggressively grow our business in Texas. We are actively recruiting new agents in Houston, Dallas, and Austin. We believe Texas will be a major market for us in the future. Our residential brokerage is further differentiated and enhanced by our approach to technology. In the first quarter of 2022, we continued rolling out refinements of our cloud-based MyDouglas agent portal by incorporating new features, including personalized distribution of data-driven videos for marketing and social media, a service designed to maximize our agents’ digital presence and our StudioPro agent concierge service. Concurrently, we continue to focus on reducing our expenses and rolled out two new packaged applications to automate our payment processing and streamline escrow services. In addition to lowering expenses, these integrated applications will provide a more automated experience and superior service to our agents. Looking ahead, Elliman is focused on creating shareholder value through the expansion of our footprint, acceleration of our adoption of cutting-edge PropTech solutions, continued recruitment of best-in-class talent acquisitions, acqui-hires, and operational efficiencies. Before we discuss the financial results for the quarter, I’d like to express my deep gratitude to the Elliman agents and employees who work hard every day for our company and our clients. Our agents are consistently ranked among the best in the business and continue to power our company’s success. With that backdrop, let us move on to Douglas Elliman’s financial results. For the three months ended March 31, 2022, Douglas Elliman reported $308.9 million in revenues compared to $272.8 million in the 2021 period, primarily driven by increased commission and other brokerage income in our luxury markets. Net income attributed to Douglas Elliman was $6.5 million or $0.08 per diluted share for the three months ended March 31, 2022 compared to net income of $14 million or $0.18 per share in the prior year period. For the three months ended March 31, 2022, adjusted EBITDA attributed to Douglas Elliman was $12.7 million compared to $16.4 million in the first quarter of 2021. For comparability purposes, Elliman began operating as a standalone public company in the first quarter of 2022. Expenses incurred by our public company operations are reported in the corporate and other segment, while the operations of our brokerage business are reported in our real estate brokerage segment. Therefore, for comparison purposes, our real estate brokerage segment reported operating income of $14.5 million for the three months ended March 31, 2022, compared to $14.2 million for the same period in 2021. Our real estate brokerage segment reported adjusted EBITDA attributed to it of $17.7 million for the three months ended March 31, 2022, compared to $16.4 million for the same period in 2021. For the three months ended March 31, 2022, adjusted net income was $6.5 million or $0.08 per share compared to adjusted net income of $13.9 million or $0.18 per share in the first quarter of 2021. Douglas Elliman also maintained a strong balance sheet with cash of $203.7 million at March 31, 2022. We believe this liquidity places us in a position of strength in the market. In summary, Elliman had a strong first quarter, and we believe we have a strong platform for continued growth. In addition, during the first quarter, we were pleased to begin paying a $0.05 per share dividend to our shareholders. It is our expectation that this dividend will serve as a key component of our capital allocation going forward.

Your first question comes from the line of Ritwik Roy from Jefferies. Your line is open.

Yes. Howard and team. So when you discussed the resilience of sales relative to higher rates, you mentioned cash buyers. Do you, by any chance, have a percentage on that number?

Well, it varies from market to market, but the real fact is that in high-end deals, there is less talk of mortgages. And that doesn’t mean they are not ultimately getting financing on it after they purchase it or if they deal with a private bank, they could be getting financing without a mortgage from the private bank. But we don’t really see interest rates having affected too much yet. In fact, what I’ve seen in the past over the years is that as rates start going up, that brings people into the market quicker because they don’t want to be priced out of the market. They start thinking back of what interest rates looked like a long time ago and they are hesitant to let that happen again. So it sort of motivates some people to enter the market.

Understood. So that kind of ties into what I was going to ask after that. So you would basically say the higher-end markets like New York City and Florida are relatively resilient against interest rate increases?

Well, it may be resilient, but it depends on how much. At some point, it wouldn’t be if we reverted back to the crazy rates that we had years ago, but we don’t foresee that. They are also considering inflation. And look, people need houses. We’re still millions of houses short in this country according to all the data we see, and people need and want housing. Therefore, they are going to do everything possible to make it happen quickly because the current conditions with inflation and supply problems to build new houses and rising interest rates present a unique challenge, but there is probably no better time than right now.

Got it. That was helpful. Thank you. And if I may, just a little bit on modeling. How should we think about the growth in fixed costs for this upcoming fiscal year 2022?

Yes. BK, Bryant?

Hi, Rick, how are you?

I am doing well. Thank you. Good to hear from you.

Very good. So if we look at our costs, we categorize them into three buckets. We categorize them into activity-based, which includes advertising and discretionary compensation or bonuses. We categorize them into non-activity based costs, and finally, expansion-related costs. If you look at our costs in recent years in the general administrative line, our non-activity based costs have been reduced from $216 million to $194 million. That number has slightly increased as people have returned to the office, but we will be taking initiatives to examine those costs as the year progresses.

Got it. And just for clarity, that reduction in G&A refers to the total entity or just the brokerage segment?

Yes. The G&A from 2019 over the last 12 months is roughly – it has gone from $252 million to $256 million, but most of that has been either through expansion of $13 million or activity-based costs, which are advertising and discretionary bonuses from $35 million to $49 million. Obviously, the activity-based costs are really contingent on the business, and we’ve increased our business significantly since 2019.

Okay. Understood. So I guess taking away from that, with the return to office, you expect some sort of pickup in G&A potential, but you are monitoring the situation?

We’re monitoring it very closely.

Yes. When you mention return to office, that is just a part of it. Don’t forget, we had people on furlough and layoffs. Then all of a sudden, when COVID slowed down and the markets really started picking up in our primary markets, we had to hire back people, which was a challenge. I think that was on the negative side. The positive side is the fact that, like most other companies with a lot of office space, we won’t need all the space we have. As leases start coming due, we’ll consolidate and save substantial money on rent over the next few years.

Got it. That’s good to hear. And then one last item, maybe I missed this in the reporting, but do you guys have a number of transactions in the quarter?

No, I don’t...

In the quarter? Just a minute. Rick, it’s in the press release.

The number?

And Rick, when we provide expenses, we are providing the expenses at the real estate brokerage subsidiary. That does not include corporate costs as a public company.

Okay, understood. Got it. So, yes. Does it include the G&A entity there? Understood. Okay, cool. I will take another look at the press release then for that deal count and appreciate your answers.

Okay, thank you.

Your next question comes from John Massocca with Ladenburg Thalmann. Your line is open.

Good afternoon.

Hi.

Curious where you feel you are in terms of broker count? Are you looking to recruit still maybe in some of your core markets? I know there is obviously an initiative to expand in some newer markets in adjacent geographies. But in markets like New York or South Florida, do you feel you’re in a good place in terms of brokerage – a broker number, or do you think you need to add more agents?

No. No, we’re always looking to add. We have some attrition. We try to keep our numbers going up, especially with good agents. We just hired a great agent who started a couple of days ago. We made an announcement about it. This was an agent that was doing a couple of million dollars a year in commissions. That’s what we’re looking for. In our newer markets like Texas, we hired 60 people in Dallas in the last month or two, so we are very much focused on recruiting. Everyone in the company, every executive in the company, including myself, is dedicated to recruitment, and we spend a lot of time doing that.

Okay. And then as we think about growth, how much of that is really recruitment driven? And how much of that could potentially be M&A, particularly given the current capital markets environment we’re in today?

Well, look, M&A sounds better, but there is also a cost to it. Recruiting probably takes a longer period of time and is a little bit tougher than just going and buying someone. But on the other hand, we look at the costs as well. There is no simple solution. We want to recruit and we want to pursue acquisitions, but most of our recent acquisitions have been small companies, which we call sort of walkover deals, where we just took over a group of ten that had a small company in Naples. Suddenly, we have a new office in Naples without paying anything upfront, but they wanted our brand. One of the reasons they want our brand is because our agents, if you ask them, will tell you that they get a lot of their business from Douglas Elliman agents in other markets, and that’s how we’ve built the company. Florida agents have ties to New York agents, and Florida agents go to Aspen in the summer months. California agents have been going to Texas and Florida. New York City people travel to the Hamptons. We have so many markets. All our markets started to connect to each other. That’s how we want to keep growing the company.

Okay. And then just one kind of detailed question, you talked about the G&A; was there anything one-time in 1Q that we should watch out for, or is that a good run rate now that you are a public company and a separate entity given the activity going on in the brokerage side?

As far as good afternoon, John, general administrative at the public company side, we had $6.7 million of loss, about $1.7 million of that related to stock compensation. So of that $5 million, part of it was one-time. We believe the number for the year will be about $18 million.

Okay. That’s very helpful. And that’s it for me.

Yes. John, one more item. Someone asked earlier about the number of transactions – in the first quarter, the number was 7,212. Over the last 12 months, it’s 32,518.

Okay, thank you very much.

Thank you.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman’s first quarter 2022 earnings conference call. This will conclude our call. We hope you have a good evening, and you may now disconnect.