Welcome to Douglas Elements Inc.'s Fourth Quarter 2022 Earnings Conference Call. The 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 An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.element.com for one year. During the 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 income are contained in the company's earnings release, which have been posted to the Investor Relations section of the company's website. Before the call begins, I would like to read the 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 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 Chairman, President and Chief Executive Officer of Douglas Elliman, 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. On today's call, we will discuss trends in residential real estate, Douglas Elliman's financial results for the three months and year ended December 31, 2022, and performance in our luxury markets. All numbers presented this morning will be as of December 31, 2022, unless otherwise stated. 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. After reaching a generational peak in 2021, the residential real estate industry faced significant headwinds in 2022, with transaction volume and the value of existing home sales each declining by more than 30% according to the National Association of Realtors. Despite these trends, we are proud to report that Douglas Elliman outperformed the industry in 2022, with transaction volume and gross transaction volume declining by approximately 18% and 16%, respectively. These declines were driven by significant increases in mortgage interest rates, volatility in the financial markets, and listing inventory shortages in the luxury markets in which we are active. However, because of the limited inventory available in luxury markets, prices remain stable. Sudden increases in borrowing costs constrained supply from entering the housing market as homeowners remain reluctant to part with their lower mortgage rates obtained over the past several years. Looking ahead, we continue to believe tight supply will gradually ease as time passes and consumers adjust to higher interest rates and the sellers adjust price expectations 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 the cycle ends. Therefore, we see significant growth opportunities in Douglas Elliman's luxury markets when market uncertainty subsides. And we believe we will be well positioned in these markets to capture market share by leveraging our key strengths, which include first and most importantly, our global network and outstanding relationships with our outstanding agents. We increased our agent count by almost 400 agents in 2022, including some of the industry's most celebrated teams and individuals, and remain very proud of our 87% agent retention rate. We are also proud to operate our preeminent world-class Douglas Elliman development marketing business. This business provides an incentive for agents to join the Elliman team. In 2022, we added $3.5 billion of gross transaction value to our development and marketing business in Florida, New York, California, Massachusetts, and Texas, which will provide long-term value as these transactions close over the next several years. Our next strength is our approach to expansion and the exciting opportunities to expand the Douglas Elliman footprint. In 2022, we entered the Las Vegas, Dallas and D.C. venture markets as well as growing markets such as Ponte Vedra Beach, Vero Beach, Tuckahoe, Newport Beach, and Basalt, Colorado. These markets represent approximately $50 billion of total available annual gross transaction value. And along with our market share gains in our existing markets, they are a critical part of our growth proposition. As we expand, our distinct approach to technology will provide agents with state-of-the-art applications designed to increase their productivity and business. Douglas Elliman's agents continue to embrace these enhancements and technology remains a critical component in recruiting. And our financial profile will provide flexibility and competitive advantage to expand. As of December 31, 2022, our strong liquidity consisted of $164 million of cash and cash equivalents and no long-term debt. Our strong balance sheet underscores Douglas Elliman's long history of profitability and our ability to adjust to various market conditions. Our liquidity provides us with a competitive advantage to grow our core brokerage business as well as scale our overhead expenses when entering new markets. Turning to our stewardship of expenses. As you are aware, in 2020, we successfully reduced enterprise-wide non-activity based expenses across our regions. While we continue to monitor these expenses during 2021 and 2022, we also made opportunistic investments in our support network for agents as well as our technology infrastructure. While this increased total expenses from 2020 to 2022, we believe these investments will provide long-term value for our stockholders. Leveraging decades of real estate industry experience, Douglas Elliman's management team is taking additional steps to better position Douglas Elliman for the future without impacting the service level we provide to agents. For example, in 2023, thus far, we have frozen hiring, and by normal attrition, reduced head count. In the event of an opportunity to add a position that will serve our agent network, we have implemented policies to require senior approval for any new position, reduced sponsorships and streamlined advertising and have begun the process of consolidating office space, which we expect will begin to reduce rent expenses during 2023 and more meaningfully in the second half of 2024. We believe that these changes will result in a nimbler Douglas Elliman. Now returning to Douglas Elliman's financial results for the three months ended December 31, 2022. Douglas Elliman reported $207.3 million in revenues compared to $334 million in the 2021 quarter. Net loss attributed to Douglas Elliman for the three months ended was $18.4 million or $0.24 per diluted share compared to net income of $20.2 million or $0.26 per diluted share in the 2021 quarterly period. Adjusted EBITDA attributed to Douglas Elliman was a loss of $17.1 million compared to income of $21.3 million in the 2021 quarterly period. 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. For comparison purposes, our real estate brokered segment reported an operating loss of $15.6 million in 2022 compared to operating income of $19.2 million in the 2021 quarterly period. Adjusted EBITDA attributed to our real estate brokerage segment was a loss of $12.6 million in the 2022 period compared to income of $21.3 million in the 2021 quarterly period. Adjusted net loss attributed to Douglas Elliman was $18.4 million or $0.24 per share compared to adjusted net income of $18.6 million or $0.24 per share in the 2021 quarterly period. We anticipate that the results for the first quarter of 2023 will reflect the same trends of significant year-over-year declines. Moving now to Douglas Elliman's financial results for the year ended December 31, 2022. Douglas Elliman reported $1.15 billion in revenues in 2022 compared to $1.35 billion in 2021. Net loss attributed to Douglas Elliman was $5.6 million or $0.08 per diluted share compared to net income of $98.8 million or $1.27 per diluted share in 2021. Adjusted EBITDA attributed to Douglas Elliman was $15 million compared to $110.7 million in 2021. For comparison purposes, our real estate broker segment reported operating income of $22 million compared to $102.1 million in 2021. Adjusted EBITDA attributed to our real estate brokerage segment was $34.5 million compared to $110.7 million in 2021. Adjusted net loss attributed to Douglas Elliman was $6.2 million or $0.09 per share compared to adjusted net income of $100.5 million or $1.29 per share in 2021. In summary, Douglas Elliman weathered the macroeconomic challenges of 2022, and we believe our differentiated platform positions us for 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 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, the continued recruitment of outstanding talent, and further adoption of innovative solutions to empower our agents. Finally, during the fourth 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.

Our first question comes from the line of Daniel Fannon from Jefferies LLC. Please proceed.

Wanted to follow up on the comments of just around the current environment. I think you said in your prepared remarks that the first quarter would be similar to the fourth quarter. So hoping you could maybe expand upon regions or areas where there is some change or things that might be looking a little better or worse, more inventory, more activity? I guess if there's any delineation across the geographies, that would be helpful.

Sure. I think that when you look to New York, especially in Manhattan, it has probably performed the best, but that's because it has years of subpar performance even before the pandemic. So the comparison to 2021 realistically is not a really good comparison. Probably better comparisons are towards the years right before the pandemic, as I said, 2016, '17, '18, '19. So when you do a comparison there, Manhattan, New York City is looking pretty strong. The other markets which are markets such as Aspen, Aspen went up tremendously in 2021, has come down to a small degree. The real issue that I mentioned is the fact that there is very little inventory. The only place where we see inventory or new inventory is new development. That's why we're very strong and have signed up many new development projects. And the new development projects we are in the market with now are doing well. Again, I think there are a number of reasons for that. First of all, when you start selling a new development project, it's generally around three years until the project is finished and the closings are happening. And that gives people also about that period of time to hope that interest rates, mortgage rates will be lower during that three-year period of time. So that's why the market is producing the most new inventory. As we said, people are worried about selling what they have today because they may not be able to find something else to buy. And then, at the same time, even if they do, they're going to be giving up a low mortgage rate and going into a much higher mortgage rate environment.

I wanted to follow up just on the balance sheet. You mentioned the dividend, but obviously, you have a lot of cash. Thinking, given where the stock is, if there are any thoughts on a buyback potentially? And then also just looking at the change in cash, if I heard you correctly, I think you said $164 million. So that's around $29 million change quarter-over-quarter. I didn’t think you lost that much. I don't know, is there a lot of CapEx in the quarter? Just curious about the uses of cash and how we should think about that going forward?

B.K., do you want to go through that?

Well, in addition to the EBITDA loss, we also pay a dividend every quarter, which is about $4 million. So I think if you do that, along with working capital, that reconciles the cash change.

It was our internal buyback.

Yes. there was a debt repayment of $3 million in October.

Okay. And regarding the buyback or other uses of cash perspective.

As far as the perspective of internal buyback, because we were spun off from Vector Group at the end of 2021, our ability to buy back stock is somewhat limited until we get two years past that spinoff. After that, the company will always be opportunistic. You've seen the insiders have bought the stock over the last year. We always view this as a very good value because you're buying one of the best names in real estate and Douglas Elliman.

And then the — all the initiatives that you announced proactively around expenses, the frozen hiring, reduced sponsorship, consolidated office space. And I know it's going to come through later in the year, but is there a way to put a dollar amount around some of those initiatives?

Well, look, I mean, yes, we have eliminated certain expenses on the marketing and on the event side. I don't think we could give you really an exact amount at this particular moment. What we do know is we do know when leases expire, okay? And that's why we believe, for instance, that this year and next year will be the first couple of years that really show reductions in expenses with the consolidation of some of our offices. And they're somewhat large leases that we've been stuck with for many years, and we really don't need that space anymore. And so when those consolidations start happening, which they will over this year and next year, I think that will really be a big help to getting our numbers more in line with where we want to be.

And then just lastly, the—I think another number you threw out was an 87% retention rate. Was that for the fourth quarter? Or is that for the full year?

Full year.

And did that change much in the fourth quarter?

No, that was stable. I believe it was 88% in the — at September 30 — for the 12 months trailing September 30, 2022, Dan.

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