Welcome to Douglas Elliman, Inc.’s Third Quarter 2022 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 An archived version of the webcast will be available on the Investor Relations section of the company’s website located at investors.elliman.com for one year.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 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. Before the call begins, I would like to read a safe harbor statement. The 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 would 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 trends in residential real estate, Douglas Elliman’s financial results for the three and nine months ended September 30, 2022, and performance in our luxury markets. We will then provide closing comments and open the call for questions. I would like to begin by discussing the current operating environment for residential real estate and why we believe Douglas Elliman is well positioned despite the challenging market. As we discussed in the second quarter earnings call, beginning in June, we saw a decline in commissions from existing home sales, and this trend continues to date. We believe this decline has been caused by a limited supply of new inventory, significant increases in mortgage interest rates, and volatility in the financial markets. As our industry enters a down cycle, Douglas Elliman is positioned to take advantage of significant opportunities due to our key strengths, which provide competitive advantages and include our global network, our best-in-class agents, and the outstanding relationship we have with them. We have added 336 net agents in 2022. In addition to successfully recruiting agents, we are very proud of our 88% agent retention rate. Each year, we provide opportunities to bring Elliman agents together so they may establish referral relationships that help to retain important transactional business within Douglas Elliman. One reason agents joined and remain on the Elliman team is our world-class development marketing business, which has a hybrid platform that distinguishes us from our competitors. The platform combines our leading agents with an experienced team of 80 employees in development and marketing to represent the most exclusive new developments in the United States. And because our approach encourages our agents with expertise in the luxury home retail business to market new developments, the development marketing business often serves as a pipeline for future resale transactions for our agents. Our second key strength is the Douglas Elliman brand. Backed by a 111-year reputation, the brand represents the finest in luxury real estate across the key markets, most of which are less sensitive to mortgage interest rates. Our key luxury markets are complementary with similar home purchases. We continue to expand into markets with similar characteristics. Having recently expanded to Las Vegas, Nantucket, and New Canaan, Connecticut, we have also expanded in existing markets with new offices opening in Newport Beach, California, and Basalt, Colorado. Third, our distinct approach to technology provides our regions with state-of-the-art applications designed to increase their productivity and business. Many of these innovative applications have been identified by our New Valley Ventures PropTech investment subsidiary. Our relationship with these cutting-edge transformative companies as an investor and client enables us to discover new innovations that benefit our agents at a low operating cost. Our agents have embraced these enhancements and technology is a critical component in recruiting agents from competitors. And of course, our final key strength is our financial profile. We have a long history of profitability and current liquidity of approximately $193 million of cash at September 30, 2022, and no debt. This power provides us with opportunities to increase our core brokerage business as well as scale our overhead expenses by entering new markets. I would like to address the listing inventory shortage, which continues to be a key characteristic of the housing market where we are active. The sudden increase in borrowing costs in 2022 has restrained potential supply from entering the housing market as homeowners remain reluctant to part with the mortgage rate obtained through purchase or refinance over the past several years. Therefore, the unusually low listing inventory levels, particularly in the luxury sector, have restrained sales potential, keeping a firm base in place for pricing. As a result, we have seen and are continuing to see luxury listing inventory at lower levels. We are entering the market at lower levels than before the pandemic era began. However, we believe the tight supply will gradually ease as time passes and consumers adjust to higher interest rates and sellers, when forced to sell, will adjust prices accordingly. Importantly, in residential real estate, luxury markets are usually the last markets to enter a down cycle and the first markets to emerge when a cycle ends. So, we see a tremendous opportunity for growth in all luxury markets when market uncertainty subsides. Now turning to Douglas Elliman’s financial results for the three and nine months ended September 30, 2022. Beginning with our financial results for the three months ended September 30, 2022. The three months ended September 30, 2022, Douglas Elliman reported $272.6 million in revenues compared to $354.2 million in the third quarter of 2021. A net loss attributed to Douglas Elliman for the three months ended September 30, 2022, was $4 million or $0.05 per diluted share compared to a net income of $25.2 million or $0.32 per diluted share in the third quarter of 2021. For the 3 months ended September 30, 2022, adjusted EBITDA attributed to Douglas Elliman was $124,000 compared to $27.8 million in the third quarter of 2021. Douglas Elliman began operating as a stand-alone public company in 2022, following its spin-off from Vector Group. Expenses incurred by our public company operations are reported in the corporate and other segment, and the operations of our brokerage businesses are reported in our real estate brokerage segment. Therefore, for comparison purposes, our real estate brokerage segment reported operating income of $1.5 million for the three months ended September 30, 2022, compared to $25.5 million in the third quarter of 2021. Adjusted EBITDA attributed to our real estate brokerage segment was $5.1 million for the three months ended September 30, 2022, compared to $27.8 million in the third quarter of 2021. For the three months ended September 30, 2022, adjusted net loss attributed to Douglas Elliman was $4.0 million or $0.05 per share compared to adjusted net income of $24.9 million or $0.32 per share in the third quarter of 2021. Moving now to Douglas Elliman’s financial results for the nine months ended September 30, 2022. For the nine months ended September 30, 2022, Douglas Elliman reported $945.8 million in revenues compared to $1 billion in the 2021 period. Net income attributed to Douglas Elliman for the nine months ended September 30, 2022, was $12.8 million or $0.16 per diluted share compared to net income of $78.7 million or $1.01 per diluted share in the 2021 period. For the nine months ended September 30, 2022, adjusted EBITDA attributed to Douglas Elliman was $32.1 million compared to $89.4 million in the 2021 period. For comparison purposes, our real estate brokerage segment reported operating income of $37.6 million for the nine months ended September 30, 2022, compared to $82.9 million for the 2021 period. Adjusted EBITDA attributed to our real estate brokerage segment was $47.2 million for the nine months ended September 30, 2022, compared to $89.4 million for the 2021 period. For the nine months ended September 30, 2022, adjusted net income attributed to Douglas Elliman was $12.2 million or $0.15 per share compared to $81.9 million or $1.05 per share in the 2021 period. Douglas Elliman also maintained a strong balance sheet with cash of approximately $193 million at September 30, 2022. In summary, Douglas Elliman has shown enduring performance in 2022 despite a challenging market, and we believe our differentiated platform and approach position us for continued long-term growth. Our proven management team has a successful history of navigating many economic cycles and applying financial discipline that balances the importance of maintaining revenue while also judiciously analyzing operating expenses to create long-term stockholder value. During the great financial crisis of 2008, our business was concentrated in the New York metropolitan area. And by 2010, revenues had returned to 2008 levels. Further, by 2010, net income increased to a then record. These examples demonstrate both the power and tenacity of our agents on the Douglas Elliman brand name and luxury markets as well as the decades of experience this management team has in creating opportunities that appropriately reflect the current economic environment. 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 third quarter, we were pleased to pay another $0.05 per share dividend to our stockholders. It is our expectation that the dividend will serve as a key component of our capital allocation going forward. With that, we will be happy to answer questions.

[Operator Instructions] Your first question comes from the line of Daniel Fannon from Jefferies. Your line is open.

Thank you. Good morning. I wanted to just follow up and understand specifically maybe what you are doing differently in this type of backdrop. Clearly, as you said, the macroeconomic factors regarding rates and inventory are all working against what might be a more normalized activity and revenue environment. So as a management team and in terms of how you’re thinking about managing the business, you said – can you kind of give some general terms, but I was hoping you could get a little more specific in terms of what you guys are actually doing differently today and thinking about even into next year versus, say, six months ago?

We have been going through a process to evaluate costs related to leases, such as expenses related to travel, non-agent facing administrative support, and special events. The support and services we provide to our agents distinguish us from our competitors. We do not intend to reduce anything that’s agent-facing. That, we want to leave alone because that’s one of the reasons we are bringing in new agents and agents are staying with us.

Okay. And so you mentioned a couple of new markets and expanding. Is that – I guess, you mentioned Las Vegas, Nantucket, New Canaan; are those new here in the third quarter? And as you think about prospectively, we should still kind of continue to think about more markets and kind of the historical level of growth maybe that you’ve been putting forth in recent periods.

Yes. Yes, we’re looking at those new markets. And basically, we’re opening in markets in a slightly different way than those that just go out and buy other companies. We generally try to find a few good brokers in those markets and bring them in with us and rent, in many cases, temporary space or small space to get started. We do not spend a lot of money on opening or buying offices. We really never have. We bought a company once in California, and that was probably it. And then we made some very small purchases, money in the hundreds of thousands just to get some people to come over to us. So we’re really not big spenders when it comes to opening new businesses and new markets. We’re not going to just go there, hire space, or buy another company and hope that it works. So we’re very careful in opening new offices. So we’re going to continue if we find the right situation and the right people.

Understood. And as you think about the inventory challenges for the industry within the markets where you have strong market share, are there any differences? Are some a little bit better like Florida versus New York? Or just trying to get a sense of – I know it’s kind of what those are broad trends of higher rates and everything that’s happening across the U.S. But are you just hoping to have a little more delineation between the markets?

Yes. I mean, when you look at New York, New York is actually performing pretty well compared to some of the other markets. But then again, if you look back to last year, everyone likes to compare to 2021. And 2021 was something that I don’t think anyone really understands how it happened and what happened so quickly. To make comparisons compared to 2021 is really to me, doesn’t seem to make much sense because the real fact is, who said that 2021 is the base year? Yet 2014, 2015, 2016, 2017, 2018, and 2019 should also be looked at. And we are still, I believe, better than we were. 2019 was the last year before the pandemic. So I think we’re in pretty good shape. And I think that the luxury markets generally hold up pretty well as we’re talking about it now; it’s just a matter of the inventory. We still see lots of buyers at that level, but there’s very little inventory because the price has moved up a lot, and people are just holding on from last year. So that’s going to soften at some point.

Okay. And then just lastly, if you could provide an update on kind of the new development marketing and how that would kind of – prospects that shows today or if that’s also – I would assume also showing some signs of slowdown, but any update around that would be helpful.

Yes. I mean, there is not a lot of new development in New York because nothing started during the pandemic. So we do have projects that were left over from before and a few new projects coming up. But the most robust new development market for us is Florida, where we have a very big schedule of new projects coming on the market over the next 18 months, amounting to billions.

Thank you. And just to clarify, the next 18 months, is that more back half of next year that we should start seeing it come on or...

No, they’re starting now. They’re starting now. We’ve opened a couple in the last few months, projects. Usually in Florida, you’re not going to open them during the summer. So starting a couple of months ago, we’ve opened a couple. And we’re going to be opening more probably every month. We’re going to have things opening in Florida.

Great. Thank you for taking all my questions.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman’s Third Quarter 2022 Earnings Conference Call. This will conclude our call. We hope you have a good day, and you may now disconnect.