Welcome to Douglas Elliman Inc.’s Second 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 the adjusted net income and adjusted EBITDA are contained in the company’s earnings release, which has been posted in 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. These statements made during the 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 Inc., Howard M. 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 Douglas Elliman's financial results for the three and six months ended June 30th 2022, as well as current trends in our luxury markets. We will then provide closing comments and open the call for questions. Before we begin, I would like to take a moment to honor our beloved colleague Karen Chesleigh, who passed away earlier this week. As Vice President of Human Resources at Douglas Elliman and Senior Vice President of Human Resources at Douglas Elliman Realty, Karen was an integral part of our company for almost two decades and we will miss her daily. Our thoughts are with Karen's family and friends during this time. Now we will begin by reviewing Douglas Elliman's financial results for the three and six months ended June 30th 2022. Starting first with Douglas Elliman's financial results for the three months ended June 30th 2022. Douglas Elliman reported $364.4 million in revenues, compared to $392 million in the second quarter of 2021. Net income attributed to Douglas Elliman for the three months ended June 30th, 2022 was $10.2 million or $0.13 per diluted share, compared to net income of $39.5 million or $0.51 per diluted share in the second quarter of 2021. For the three months ended June 30th 2022, adjusted EBITDA attributable to Douglas Elliman was $19.2 million, compared to $45.3 million in the second quarter of 2021. Douglas Elliman began operating as a standalone public company in 2022, following its spin-off from Vector Group in December 2021. Expenses incurred by our public company operations are reported in the corporate and other segment, and 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 $21.6 million for the three months ended June 30th 2022, compared to $43.2 million in the second quarter of 2021. Adjusted EBITDA attributed to our real estate brokerage segment was $24.4 million for the three months ended June 30th 2022, compared to $45.3 million in the second quarter of 2021. For the three months ended June 30th 2022, adjusted net income was $9.7 million or $0.12 per share, compared to adjusted net income of $43.1 million or $0.55 per share in the second quarter of 2021. I will now provide an overview of Douglas Elliman's individual market performance during the quarter. Douglas Elliman delivered the second highest quarterly revenue total in our history in the second quarter of 2022, despite a challenging macroeconomic environment and ending the quarter with a significant lack of listing inventory of luxury homes across many of our markets. We were also pleased to see increases in revenues and closed sales from the New York City, Massachusetts, California and Texas markets in the second quarter of 2022, compared to the prior year period, during which we experienced record levels of activity across our company. In June, we began to see a decline of commission receipts and this trend continued in July. We believe this trend has been caused by less new listing inventory entering the market, financial market volatility, as well as significant increases in mortgage interest rates. Initially, this decline skewed towards the lower end of the market, because of its sensitivity to mortgage rate increases. However, luxury markets recently experienced softness that we believe has been due in particular to volatile financial markets, as well as a limited listing inventory of luxury homes that has existed since the end of 2021. We are optimistic that luxury markets will rebound as financial markets stabilize, and we remain laser-focused on selling luxury homes. As we will discuss later, listing inventory has recently accelerated to its highest level since the pandemic began. Nonetheless, listing inventory remains below pre-pandemic levels and this may provide a firm foundation for future price appreciation in our luxury markets. We are proud of our brokers, who are recognized internationally for their expertise in selling luxury homes and continued to execute transactions in our markets. The highly profitable and luxury-based New York City market remains our largest market and our management team continues to recruit brokers, as well as market new development projects in the region. We are all aggressively growing our business in the Texas market, which continues to attract record buyer demand across the entire State, homes reportedly averaged only 33 days on the market and this time line is even lower in luxury markets. We are confident Texas will become a major market for Douglas Elliman in the future and have already added 125 agents from competitors in the State this year. These agents bring expertise in local markets they serve and reported approximately $750 million of annual gross transaction value prior to joining Douglas Elliman. Turning to Florida, the Hamptons and Colorado, while these markets significantly outperformed through the COVID-19 pandemic we have been negatively impacted in 2022 due to lack of listing inventory, volatility in the financial markets, as well as increased international summer travel. From the fourth quarter of 2019 to the second quarter of 2022, listing inventory in all of Douglas Elliman's markets declined by approximately 50%. We believe this limited listed inventory significantly restrained sales potential. However, as previously mentioned, we believe this trend will be temporary. The second quarter of 2022 showed listing inventory accelerating to the highest level since the pandemic began, though it remains below pre-pandemic levels, which we believe suggests that sales were slowing in these markets during the period. As a result, we see a tremendous opportunity for growth in all of our luxury markets when market uncertainty subsides and limited listing inventory continues to drive higher home prices. Moving now to Douglas Elliman's financial results for the six months ended June 30th 2022. For the six months ended June 30th 2022, Douglas Elliman reported $673.3 million in revenues, compared to $664.8 million in the 2021 period. We are proud to have delivered these record revenues for the first half of the year. Net income attributed to Douglas Elliman for the six months ended June 30th 2022 was $16.8 million or $0.21 per diluted share, compared to net income of $53.4 million or $0.69 per diluted share in the 2021 period. For the six months ended June 30th 2022, adjusted EBITDA attributed to Douglas Elliman was $31.9 million, compared to $61.6 million in the 2021 period. For comparison purposes, our real estate brokerage segment reported operating income of $36.1 million for the six months ended June 30th 2022, compared to $57.4 million for the 2021 period. Adjusted EBITDA attributed to our real estate brokerage segment was $42.1 million for the six months ended June 30th 2022, compared to $61.6 million for the 2021 period. For the six months ended June 30th 2022, adjusted net income was $16.2 million or $0.20 per share, compared to $57 million or $0.73 per share in the 2021 period. Douglas Elliman also maintained a strong balance sheet with cash of $202.1 million at June 30th 2022. In summary, Douglas Elliman has performed well thus far in 2022, despite a challenging market, and we believe our differentiated platform and approach position us for continued growth. Looking ahead, we are focused on creating stockholder value through strategic market expansion, continued recruitment of best-in-class talent, operational efficiencies, and further adoption of innovative solutions to empower our agents. In addition, during the second quarter, we were pleased to pay another $0.05 per share dividend to our stockholders. It is our expectation this dividend will serve as a key component of our capital allocation going forward. With that, now we will be happy to answer questions.

[Operator Instructions] Your first question comes from the line of Dan Fannon with Jefferies.

Thanks. Good morning. I wanted to just follow-up and clarify a few things because I think you said your inventories were clearly down and I think you mentioned into July as well, but then you mentioned that they are improving. So I just want to understand the dynamics as you think about inventory and activity here in the more shorter-term? And are things better, they're improving from where they were in the second quarter or -- I'm sorry, just a bit confused by the commentary?

Yes, I think the commentary really was they have improved. They started improving, obviously, because the market has slowed down. But they're still below where we were in inventory pre-pandemic. So the pandemic took a lot of inventory out of the market and that has lasted up until this last quarter pretty much. And now it is starting to improve. So as we see more inventory, we believe, obviously, it's better for business. But the lower inventory sort of squeezes some of the buyers out of the market, but also it raises buyer price inventory. The inventory obviously starts still going up in price which isn't that hard to understand. But the fact is, if there's not a lot of great inventory around, people that want that inventory are going to pay whatever price they have to pay. So the sales may not be that great, but the pricing is going to move up. And as the inventory comes in, the prices may stabilize more, which is not bad either, because we've had such a big run up. Did I answer your question?

Yes, that makes sense. That makes sense. And I guess as you think about the other inputs of interest rates and you mentioned financial market's volatility. Both of those seem to be happening together, which is an additional headwind. But you mentioned the high-end, which I think we've discussed in the past about that market being more resilient to higher rates, but really the incremental here is, obviously, you've got equity markets and bond markets moving a lot more. That has been the incremental, kind of, negative -- in terms of the market, okay.

Yes, I think that the mortgage rates when they talk about, well, it's now down, I think I saw it this morning like 5%. But they're talking about 30-year fixed rate mortgages. The buyers in the luxury market do not use 30-year fixed rate mortgages. So, and there's still plenty of adjustable rate mortgages in the threes, and in the luxury markets, these are generally customers that have private banking relationships and so forth, where they could get better rates and/or just take it out of their account at 150 basis points. And wait for the rates to come down to go into a traditional 10-year or 7-year adjustable mortgage. So I think it's really more the financial volatility than it is really the actual fact of the rates being higher.

Okay, makes sense. And then you mentioned 125 agents in Texas that were brought on in the quarter. Can you give us the total in that region now? And where that fits in terms of a number of agents?

BK, do you have that number?

Yes. The Texas region had for the first half of the year $23 million in brokerage revenues. And as far as the region over the last 12 months, we think it's about $40 million, so we're growing.

But the question is how many agents? Do you know how many agents?

300.

300, okay. Texas is a big step, we have to -- we do a lot of recruiting to get those numbers up.

Yes, makes sense. And when we think about just the cost base in that recruiting and you've said being efficient in managing the business in aggregate more efficiently. As you think about the first half expense levels in a revenue environment that's not, let's just say, it doesn't get better, but kind of stays around here? Is there efficiencies to be had within the expense base? Or are these reasonable run rates and how we should be thinking about EBITDA and profitability?

Well, look, the different markets that we're in have different commission structures. That's just the way it is. So in New York, it's the most profitable and it always has been because the commission rates that you pay have been lower somewhat as opposed to like California, which is probably the highest in Florida for the top end brokers. But really we're not looking at that. We're just looking at the bottom line and the best way to improve on the bottom line is there are cost cuts that we can make. Don't forget, 2021 was an unbelievable year, which hopefully, we won't have another pandemic and we'll never see anything like that. But the fact is we have corporate overhead that is adjustable like for bonuses and so forth. So we're going to do whatever we have to do to make sure that our bottom line is acceptable and that we keep moving forward. And so I think you're going to probably not see that till more like the end of the year or into next year. But that's the plan. If it keeps up at a lower level, obviously, we're going to make changes because we watch it very carefully.

Understood. I guess is there a way to put a dollar amount around what the expense amount that's subject to obviously, you're in bonus or that isn't the committee or infrastructure? Just thinking about things like G&A and others, I know you have public company costs and other things that have come into the fold this year. But it's not -- so I guess, summary of what you said, you're not necessarily doing anything proactively today, but you could potentially do that if things persist?

Of course, while you brought up one like bonuses, of course, obviously, the bonuses would be less if we make less profits, that's the way it's supposed to be. So that goes without saying and we're trying to be more efficient, which I think we're doing a pretty good job and we may save some money in certain areas. We're going to look at it again. And we're going to be very careful in spending the money, very careful.

Right. That on Page 15 of our presentation, there is a slide that shows what we've done since 2019. And this only covers the real estate brokerage segment's operating expenses; it does not cover the public company expenses. But in the non-activity based and non-technology based expenses, we dropped that from $201.5 million in 2019 to $183.0 million. And if you think about it, that's a 9.1%, 9.2% drop, and that has occurred as inflation has been what 12% since 2019. So we're really laser focused on that.

And by the way, the other factor is that unless something changes drastically as it relates to people coming to the office, we have a lot of leases and we're really going to have a program of really looking at it very carefully and not renewing leases and consolidating offices. We think that just makes sense.

Yes, understood. That makes sense. And I guess last one for me just with regards to agent recruiting, we already went through Texas. Are there other markets that you would put or how would you stack rank markets in terms of your priorities of attracting productive agents?

Well, I think the two biggest recruiting states that we're doing right now that we see action in are New York and Florida. Both of those have a lot of brokers, have a lot of good brokers and we really have built market share. If you look at Florida, we did last year about $16.5 billion and Florida, which is sort of a new region for us, it’s not very old and we're not all over the state. We're pretty much just in the Southeast and we started opening some on the West Coast of Florida, a couple of offices. But we did just under $15 billion in what's pretty much a newer market for us. And I will say when it comes to our new development business, we have -- there is not a lot of new development now in New York because land prices are still high, construction costs are still high, and there's some product on the market that hasn't sold yet and developers are a little shy about going into new projects, although there are some new projects. In Florida, we have a huge backlog of new projects that will be done over the next two to three years. So that's going to be a big plus for us also.

Great. Thanks for taking all my questions.

Thank you.

Your next question comes from the line of John Massocca with Ladenburg Thalmann.

Good morning.

Good morning.

So maybe just given the commentary around inventory picking up in June and July. Have you guys any feedback from your agents about maybe why that is? Why the kind of increase in supply? Is there anything else specifically driving that?

Well, yes the increase in supply only comes from lower sales. It’s pretty much simple. And also, it could be that people were waiting for whatever their reason of going into the market with what they want to sell. But realistically, I think it's really more of a sales go down, that's what happens; your inventory builds up, that's what's supposed to happen. And I think it's pretty much that. BK, have you seen anything different?

No, that's what I'm saying, Howard.

Yes, I think that's pretty much what it is.

Okay. And then looking at the different regions in which you operate, you mentioned that there has been a lot of strength in New York and Massachusetts and California. And maybe a little bit less relative strength in Florida. I mean, I guess is that basically because you're lapping obviously kind of very historic levels of transaction activity or on a dollar basis? Or is there something actual, you know, actual kind of, I guess, absolute weakness in those markets that you're seeing?

Well, I would say that it’s a little bit of both. I mean, I think the fact of New York, you know, a lot of people don't realize. The peak New York year that the way we figure and look at it was somewhere around 2015 and 2016. So ’17, ’18, ’19 pre-pandemic were not great years. And they were not great years because of the changes in the increase in managing tax, transfer taxes, all the government rules. The loss also obviously people leaving, because the loss of the soft deductions over $10,000. So all of a sudden, that market picked up, but it picked up from a level that was not moving up for probably four or five years as opposed to some of the other markets where they were moving up during those years. So it's hard to exactly pinpoint it, we're happy it's happening. I think New York may be different than how some other people speak about it. I think New York is still going to be a very strong market. In fact, I've been quoted saying that, I think New York is going to be the number one second home market in the world, which I think most people would say that that's always been London. I think what we need for that to happen though actually is the dollar has to get a little weaker against the other currencies. I think that's why we're not seeing the international business this summer that we thought we would see because of the strength of the dollar.

Okay, that makes sense and you preemptively answered my next question. So thank you very much.

Okay.

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

Thank you.