Welcome to Douglas Elliman's Second Quarter 2023 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 An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.elliman.com for one year.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 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 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 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 would like to turn the call over to the 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 Douglas Elliman's financial results for the second quarter and first six months of 2023, as well as our thoughts on the current operating environment and trends in residential real estate. All numbers presented this morning will be as of June 30, 2023, unless otherwise stated. We will then provide closing comments and open the call for questions. Starting first with Douglas Elliman's financial results for the three months ended June 30, 2023. We are pleased that Douglas Elliman continued to outperform many of its competitors in the second quarter of 2023, even during the challenging backdrop of the current U.S. residential real estate market. We attribute this to stable pricing in our luxury markets, where buyers are more immune to interest rate pressures, the competitive advantage provided by Douglas Elliman's strong development marketing business, and the unwavering dedication of our world-class agents. Still, our results over the past 12 months reflect these industry-wide headwinds, which I'll discuss in further detail shortly. In the second quarter of 2023, Douglas Elliman reported $275.9 million in revenues, compared to $364.4 million in the 2022 period. Net loss attributed to Douglas Elliman for the second quarter was $5.2 million, or $0.06 per diluted share, compared to net income of $10.2 million, or $0.12 per diluted share, in the 2022 period. Adjusted EBITDA attributed to Douglas Elliman was a loss of $2.6 million in the second quarter of 2023, compared to income of $19.2 million in the 2022 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $1 million in the second quarter of 2023, compared to operating income of $21.6 million in the second quarter of 2022. Adjusted EBITDA attributed to Douglas Elliman's real estate brokerage segment was $2.5 million in the second quarter of 2023, compared to $24.4 million in the second quarter of 2022. Adjusted net loss attributed to Douglas Elliman was $4.9 million, or $0.06 per share, in the second quarter, compared to adjusted net income of $9.7 million, or $0.11 per share, in the 2022 period. Now turning to Douglas Elliman's results for the six months ended June 30, 2023, Douglas Elliman reported $489.9 million in revenues for the six months ended June 30, 2023, compared to $673.3 million in the 2022 period. Net loss attributed to Douglas Elliman for the 6-month period was $22.8 million, or $0.28 per diluted share, compared to net income of $16.8 million, or $0.20 per diluted share, in the 2022 period. Adjusted EBITDA attributed to Douglas Elliman for the 6-month period was a loss of $20.2 million, compared to income of $31.9 million in the 2022 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $18.4 million for the 6-month period of 2023, compared to operating income of $36.1 million in the 2022 period. Adjusted EBITDA attributed to Douglas Elliman's real estate brokerage segment was a loss of $10.5 million in the 2023 6-month period, compared to income of $42.1 million in the 2022 period. Adjusted net loss attributed to Douglas Elliman was $21.6 million, or $0.27 per share, in the 6-month period, compared to adjusted net income of $16.2 million, or $0.19 per share, in the 2022 period. Now we will discuss our outlook on the current operating environment for Douglas Elliman as well as trends we are seeing in residential real estate. As we have mentioned on previous calls, our industry is cyclical, and the last year has been a difficult part of the cycle due to sharp increases in mortgage rates, which have created sustained listing inventory shortages in the luxury markets we serve. We're expecting these industry-wide challenges to continue and to impact our results in the second half of 2023. However, as we touched on last quarter, we are encouraged by some improvements in trends we are seeing. Specifically, first, our average sales price per transaction remained strong at $1.64 million for the second quarter and was the highest quarterly average since the second quarter of 2022. We believe this improvement validates both the expertise of our agents and the luxury markets we serve, as well as the stability of the luxury markets more broadly. As we have stated before, the luxury markets in which Douglas Elliman operates are usually the first markets to emerge from a down cycle as buyers are less mortgage-reliant. We also expect listings to increase and the tight supply of inventory to gradually ease as consumers adjust to higher interest rates, sellers adjust pricing expectations, and traditional life milestones require buyers and sellers to transact. Second, we continue to see sequential improvement in our financial and operating results. Our second quarter 2023 results showed improvement from the previous three quarters in terms of revenue and average selling price per home, and our second quarter 2023 results improved from the previous two quarters in terms of operating income, adjusted EBITDA, number of transactions, and gross transaction value. We have also seen sequential improvements in total listings for the first and second quarters of 2023, with first quarter listings up 40% compared to the fourth quarter of 2022 and second quarter listings up 12% compared to the first quarter of 2023. Given the conversion of listings to revenues usually takes three to nine months, this is an encouraging sign for the fourth quarter of 2023. Importantly, due to our strong financial position and cost reduction strategy, Douglas Elliman is well positioned to successfully navigate near-term industry challenges. Douglas Elliman's strong balance sheet underscores our long history of profitability and managing various market conditions. We maintain ample liquidity with cash and cash equivalents of approximately $130 million, or $1.47 per common share, and no debt, which we believe provides us flexibility to adjust to various market conditions. This liquidity also continues to provide us with a competitive advantage in expanding our core brokerage business as well as scaling our overhead expenses when entering new markets. In the second quarter of 2023, our Board made the decision to suspend our quarterly cash dividend of $0.05 per share and declare an annual stock dividend on our common stock of 5%, which was paid on June 30, 2023. We believe the updated dividend policy will strengthen our balance sheet and position us to deliver long-term stockholder returns. Related to our cost reduction strategy, in the first half of 2023, we continued to make thoughtful efforts to adjust our cost structure to fit our business, including reducing headcount by approximately 45 positions, cutting costly sponsorships, streamlining advertising, and commencing a program to begin consolidating office space. As a result of these efforts, when comparing the second quarter of 2023 to the second quarter of 2022, our real estate brokerage segment reduced its general and administrative expenses by $2 million and its operations and support expenses by $2.2 million, 9.2% of the two categories. On a sequential basis, from the first quarter of 2023, our real estate brokerage segment reduced its general and administrative expenses by $1.9 million and its operations and support expenses by $1.6 million, or 7.7% of the two categories. We expect the impact of our cost reduction efforts to continue and firmly believe these actions will create a more nimble Douglas Elliman without significantly impacting the agent experience. These encouraging trends and our solid financial profile make us optimistic about Douglas Elliman and the significant growth opportunities we see in our luxury markets. We remain focused on continuing to capture market share by leveraging our key strengths, which include, first and most importantly, our global network and our strong relationships with our 6,900 outstanding agents, which include some of the industry's most celebrated teams and individuals. We remain very proud of our 87% agent retention rate. Our preeminent Douglas Elliman development marketing business also provides a competitive advantage, especially considering the limited inventory of existing homes available for resale. For the 12 months ended June 30, 2023, our development marketing business signed and brought to market $4.7 billion of gross transaction value, including $4.2 billion of gross transaction value added in the 12 months ended June 30, 2023, in Florida alone. This will provide a foundation and create long-term value as these transactions close over the next several years. In summary, Douglas Elliman continues to weather the current macroeconomic challenges, and we believe our differentiated platform and the underlying strength of our business make us well positioned for long-term growth and success. Our proven management team has a successful history of navigating many economic cycles and applying financial discipline that balances the importance of maintaining revenues 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, continued recruitment of outstanding talent, and further adoption of innovative solutions to empower our agents.

Ladies and gentlemen, we will now begin the question-and-answer session. Operator, please open for questions.

Can you hear me?

Yes.

Great. So, I was just hoping to get a little bit more color on some of the current environment, maybe by region. You talked about the number of new listings still being low, but starting to pick up. Obviously, average sales price is also holding in there. So, maybe if you could talk a bit about your strengths within, obviously, the Northeast as well as Florida, if there's just any differences as you think about the pockets where you have presence today in terms of some of the activity?

Well, over the last couple of years, for sure, our two biggest markets are New York and Florida. Florida has sort of come close to overtaking New York, but not quite yet. What we see in the New York market – I speak to brokers every day. The lower end is still doing well. The higher end is doing well in certain parts of New York, predominantly downtown. The weaker markets are the Upper East Side right now, which traditionally were the better markets. So, that has changed. In Florida, South Florida, pretty much the story is that there is business. We go week by week, and we see, like last week, for instance, was a very strong week for business. Our new development is doing very well. Just to give you some numbers, on one particular project in Miami Beach, we started sales about seven months ago. It's around 21st Street in the ocean and Collins Avenue. We sold, as of just recently, over $600 million at an average price in the high 4s, which is very strong for Florida. Most of our Florida new developments are selling well. Maybe not as quickly as the one I'm talking about, but they're selling well. Our business in Texas, we've opened now where we're now in Austin, Houston, and Dallas is starting to move forward. We're still pretty new there, but we started to pick up a couple of new developments also there. California is slow right now. It's been a tough market, I'd say, for a while. Other than the one year that we all loved, this probably will never happen again, is 2021, and they picked up then. But we've engaged in other initiatives as well. We have an escrow company there, and we're exploring additional revenue-generating activities. Our entry into Las Vegas, specifically in Summerlin, marks a new venture for us, and we are on the verge of securing a significant new development there, the second one following our first. Some of the other markets we're exploring are relatively new and smaller, like Nantucket, where we won’t have a clearer picture until the season wraps up. We adopted a low-cost strategy to enter that market. Our business in Boston has seen growth, and we are looking into a few more markets, including Nashville. We prefer to focus on low-tax or no-tax states, as we believe that is the most advantageous approach, especially in the current environment.

That's helpful. Regarding seasonality and current activity levels at this point in the year, as new listings begin to improve, how do you view the second half of the year compared to the first half? Although you don't anticipate any significant recovery in the short term, do you believe we have reached the lowest point in terms of activity levels as we move into the second half and into 2024?

I hope so. We are very optimistic about having a better second half of the year. Traditionally, what has been the best quarter?

Traditionally, the best quarters are the second and third quarter, and then it goes to the fourth quarter, and then the first quarter is generally the weakest.

Yes. That's because of holiday times and so forth and people traveling. So, we're hoping, we're very hopeful for a good closing to the year.

Okay. Regarding costs, I appreciate the details on the expenses that have been cut. As we consider the exit run rate for the second quarter, is most of what was planned already reflected in the expense base? Also, could you clarify the timing of those expenses in the second quarter, since it seems there might be some carryover into the third quarter? I'm just trying to understand what the fixed cost structure looks like moving forward.

I'll let BK share the specifics on our current numbers, but I want to emphasize that we are always examining ways to reduce costs. However, we need to be cautious not to implement cuts that could negatively affect our agents. BK, go ahead.

Yes. Both Dan and Howard, you expressed it well. We are entering a phase of cost reduction. I anticipate that we have reached a run rate that will remain lower. As Howard mentioned during the call, compared to last year, we saw a reduction of about $4.2 million in our two main expenses within the brokerage segment, which are general and administrative costs and operations and support. We expect this trend to continue for the remainder of the year. Additionally, as we move into 2024 and our leases expire, we anticipate further cost reductions ahead.

Yes, we have identified a significant lease in our management company, which will result in a major change. We have already found smaller and more affordable space, and we are in the process of securing that. I believe our lease will expire in the first or second quarter of next year, and the current lease has been quite costly.

Yes. And Howard, I think it's important to note that we've had a luxury that many of our competitors have not because we have had such a strong balance sheet and we have been very deliberate in this cost-cutting not to impact the agent experience.

Yes.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman's second quarter 2023 earnings conference call. We hope you have a good day, and this will conclude our call.