Welcome to Douglas Elliman Fourth Quarter and Full Year 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 An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.elliman.com for one year.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 loss 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 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, Howard Lorber. Please go ahead.

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. Before turning to financial results, we want to reference the ongoing Sitzer/Burnett and other resulting litigation in the residential real estate brokerage industry. Given this is active litigation, we are not going to comment or speak to potential outcomes. We also intend to decline to answer questions on these matters. Since the verdict, more than 20 cases have been filed nationally, of which Douglas Elliman is currently aware of seven that involve us or one of its subsidiaries as a defendant. The plaintiffs in those actions are seeking to centralize these lawsuits before the federal judge who presided over the Sitzer/Burnett trial in Missouri. The judicial panel will hear the matter on March 28th, 2024. In addition, we understand that the Department of Justice is reviewing industry practices on setting buyer broker commissions, including by weighing in on settlements reached by other companies. Douglas Elliman is currently defending the cases pending against it and has a number of pre-trial motions that will or have been brought. We believe the lawsuits, which are still in the very early stages and will likely take years to litigate, lack merit, and we intend to challenge them. As we begin to discuss our fourth quarter performance, we are enormously proud to share that Douglas Elliman was recently named the most trusted real estate brokerage firm in the United States as part of the America's Most Trusted series by Life Story Research. This tremendous accomplishment is a testament to the hard work of our world-class agents and their unwavering commitment to our clients across the markets we serve. Now, turning to Douglas Elliman's financial results for the three months ended December 31st, 2023. Please note that all numbers presented this morning will be as of December 31st, 2023 unless otherwise stated. We are pleased that Douglas Elliman continued to outperform many of its peers in the fourth quarter of 2023. Despite ongoing industry-wide headwinds and impact results. We attribute our solid performance to three factors: stable pricing in our luxury markets where buyers are less sensitive to interest rate pressures, the competitive advantage provided by Douglas Elliman's strong development marketing business, and our world-class agents. For the fourth quarter of 2023, Douglas Elliman reported $214.1 million in revenues compared to $207.3 million in the fourth quarter of 2022. Net loss attributed to Douglas Elliman for the fourth quarter was $14.8 million or $0.18 per diluted share, compared to $18.4 million or $0.23 per diluted share in the 2022 period. Adjusted EBITDA attributed to Douglas Elliman in the fourth quarter was a loss of $17.5 million compared to $17.1 million in the 2022 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $16.4 million this quarter compared to $15.6 million in the 2022 period. Adjusted EBITDA attributed to the segment was approximately a loss of $12.5 million compared to $12.6 million in the 2022 period. Adjusted net loss attributed to Douglas Elliman in the fourth quarter was $14.5 million or $0.18 per share compared to $18.4 million or $0.23 per share in the 2022 period. Now, turning to Douglas Elliman results for the year ended December 31st, 2023. Douglas Elliman reported $956 million in revenues for the year ended December 31st, 2023, compared to $1.15 billion in 2022. Net loss attributed to Douglas Elliman was $42.6 million or $0.52 per diluted share compared to $5.6 million or $0.08 per diluted share in 2022. Adjusted EBITDA attributed to Douglas Elliman for the year was a loss of $40.7 million compared to income of $15 million in 2022. Our real estate brokerage segment reported an operating loss of $36.8 million for the year compared to operating income of $22 million in 2022. Adjusted EBITDA attributed to the real estate brokerage segment was a loss of $21.5 million compared to income of $34.5 million in 2022. Adjusted net loss attributed to Douglas Elliman was $40.9 million or $0.50 per share for the year, compared to $6.2 million or $0.08 per share in 2022. 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. We have previously discussed the cyclical nature of our industry. Generationally high mortgage rates have driven sustained listing inventory shortages across our luxury markets for almost two years. These shortages have resulted in significantly lower transactions during this time. While we expect these industry-wide challenges will continue to impact our results for the first quarter of 2024, we remain encouraged by improvements in the fourth quarter of 2023 specifically. The fourth quarter marked our first increase in year-over-year quarterly revenues since the first quarter of 2022, which was driven by higher activity across the markets we serve, particularly in Florida. Generally, the strongest markets tend to be the first markets to emerge from a downturn. This trend has continued in 2024 as our commission receipts have improved on a year-over-year basis in January and February of 2024. We believe this signals that the market is beginning to adjust to higher interest rates. Nonetheless, buyers are feeling encouraged after the Federal Reserve signaled in January that it is nearing a long-awaited shift toward cutting interest rates. Importantly, total listing volume also improved in the fourth quarter of 2023, up 25% from the 2022 period with gains and listings reported in Florida, California, New York, and Colorado, all increasing significantly compared to the fourth quarter of 2022. Because we recognize revenues when the sale closes, we expect that we will begin to see the impact of increased listings in the second half of 2024. Our gross transaction value increased to $7.9 billion in the fourth quarter of 2023 from $7.5 billion in the fourth quarter of 2022, and transaction volume increased by approximately 5.2% in the fourth quarter. Consistent with the increase in transactions, our average sales price per transaction remained an industry best $1.58 million in the fourth quarter. This was flat compared to the third quarter of 2023 and the fourth quarter of 2022. We believe the consistency in the average price per transaction reflects the strength of the luxury markets we operate in, as well as Douglas Elliman's reputation for offering the finest properties and client experience in real estate. Due to our solid 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 in managing various market conditions. We have maintained ample liquidity with cash and cash equivalents of approximately $120 million or $1.31 per common share and zero debt. Throughout the year, we have continued to adjust our cost structure to better fit our business, including additional headcount reductions, cutting costly sponsorships, streamlining advertising, and commencing a program to consolidate office space. Our cost reduction efforts have been judicious and the results of our strategy are beginning to flow to the bottom line. Our real estate brokerage segment reduced its operating expenses, including commission expense and restructuring other non-cash expenses by $2.2 million in the fourth quarter of 2023, representing a decline of approximately 3.2% compared to the prior year period. We believe these efforts will continue to create a more nimble Douglas Elliman without significantly impacting the agent experience. We are proud to share that our agent retention rate stands at 92%, and we continue to attract the industry's best talent. Looking ahead, we remain focused on continuing to capture market share by leveraging our key strengths, including our world-class network of agents and our development marketing business. We believe our development marketing business is creating a foundation for long-term value at transactions close over the next several years and provides a competitive advantage, particularly at premium residences, especially considering the limited inventory of existing home sales available. As of December 31st, 2023, our development marketing business had an active pipeline of signed and new projects of $21.6 billion gross transaction value, including $13.8 billion of gross transaction value in Florida alone. Further, $9.7 billion of additional transaction value from our development marketing business is scheduled to come to market in the next year. We believe this bodes well for the future, as we will recognize commission income from these projects as they close in the coming years. In summary, Douglas Elliman continues to meet the current macroeconomic challenges and we believe our differentiated platform and the underlying strength of our business positions us 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 brokers.

We'll be happy to answer questions. Operator? Our first question is from Soham Bhonsle. Please go ahead.

Can you all hear me?

Yes, now we can.

This looks like it is the second quarter in a row where you've taken some market share, at least compared to the national stats, which is great. But I know you're not in every market in the U.S. today either. So, I guess the question is are you seeing market share take on a local level as well, or should we sort of think about this more of a function of your end markets just outperforming sort of the national markets here?

I would say that generally speaking, the high-end markets do perform better. That's why we've pretty much stuck to the high-end markets, and our expansion is going to be the same. We are not interested in going to every single market just to say that we have more markets, more brokers, but they don't have anywhere near what we have in average price on sales. We think that this is the right strategy for our company.

Got it. Okay. It looks like your commission split was up another 210 basis points this quarter. It was sort of in the same ballpark last quarter. So, can you just maybe speak to the drivers of the increase there and are you seeing more competition for agents today or is that just a function of mix and should we sort of expect this trend to continue?

Well, I think it's both those things you mentioned. Surely there's been a lot of competition. Companies are trading agents back and forth, and many times they're giving cash bonuses when they sign up and higher splits. And this has been going on now for a number of years, probably for about six or seven years. And I think it's sort of slowed down at this particular point. And my guess is that as the market improves and brokers are doing better and better, that maybe will come down. It is not positive that I would say it'll come down because it's hard to take something back that you've already given, but at least on new agents and so forth will be at a lower level and that will help mediate these increases.

And then Bryant, on the operating expenses, looks like the G&A line was a little higher quarter to quarter. Was there any one-time items to call out there? And then how should we think about sort of the quarterly run rate for just total OpEx ex commissions in 2024?

Soham, good morning first. You're correct, the G&A line was higher. Some of that relates to the timing of expenses particularly between the third quarter and fourth quarter related to events that we sponsor as well as insurance, and obviously also there was an increase in professional fees during the quarter. Going forward, we would say we like where we are, but we are going to be making more meaningful cuts in 2024. In particular, we discussed in our prior calls about the $4 million lease running off and in addition to that, we are making meaningful cuts in our property management division and expect some of those cuts to go over to the other areas of the business.

And then just lastly, is Scott on the call? He is right. This one's for Scott. I guess Scott or Howard. I guess just wondering, you guys all speak to agents daily, can you just maybe give us a feel for where conversations with agents are going like today? Is there concern around sort of just uncertain environment today or do you feel like they feel good about adapting to whatever may come ahead?

I think that most of them are adapting to whatever may come ahead. I assume, as I said, we're not going to comment on the litigation. But I feel that, look, we have a great group of agents in high-end markets that do very high-end sales, and of course, we have markets that are lower-end, but still high compared to the whole country. Like Long Island where the company really started, is a lower-end market, but still that's a market probably that averages about $600,000 for transaction. So, it's not extremely low market, but I think that the agents are happier anyway doing well. I guess there's been a little disappointment because I think most of us thought that we'd have a rate cut in the first quarter, which obviously is not going to happen now, but I think once that happens, which hopefully now will be the second quarter, it's going to be a great boom for the industry.

We’ll go next to Ahmed Mehri with Jefferies.

This is Ahmed from Jefferies. I guess my first question is about the macro environment. I was just hoping you could share some color on what you're seeing there and when comps start to accelerate in terms of volume this year?

So, you're talking about compared to our competitors?

No, in terms of like call like year-over-year?

Yes, year-over-year, there's a shortage of inventory in most markets, particularly in strong markets and low tax states. I believe that once there is a rate cut, it will bring more activity to the market, leading to significantly more business as rates decrease. Our new development sector is a crucial aspect of Douglas Elliman, and it is performing well, especially at the high end of the market. We are still relatively new to markets like Texas, where there is substantial potential. Currently, we have three orders in Austin, Dallas, and Houston, and we are considering expanding into additional Texas markets. We see Texas as a promising area. Additionally, we are exploring other markets, primarily focusing on low tax or no tax states for broader expansion.

Got it. That's great color on the market. Actually, if you could maybe expand a little more on just what markets are seeing better demand or which markets maybe you're more concerned about?

I think the markets we are most worried about are those that are causing people to leave their states. We're based in California, which presents significant challenges due to continuous tax increases. Additionally, California historically offered higher commission payouts to brokers compared to the East Coast, making it particularly challenging. I believe it's the toughest market we operate in. BK, would you like to add anything?

Yes, I'll be happy to. I think one part about our story is our luxury brand is permeating throughout the country as there are shifts in the population. If you look at Florida, California, new market, they increased from 41% of revenues in the fourth quarter last year to 46% this year. Florida alone went from 20.5% to 25% of our total revenues. So that was a significant increase. And we are continuing to see a lot of strong demand in Florida. As Howard mentioned earlier, the $13.8 billion in inventory that we have that we're currently selling in development marketing.

And the backlog of others that will be coming on to the market.

Yes. And that number in Florida, I believe, is $5.8 billion, $5.8 billion.

Got it. That's helpful. Just one last question from me. I couldn't find the information in your filings, so apologies if I missed it, but I'm trying to understand your development business. Could you explain the timing for recognizing cash and revenue in that area?

Yes. I'll be happy to take that. Generally, when a deposit is received in development marketing, we record that as a liability or deferred revenue, and we recognize the commission that we pay to our agent as a cost, as a deferred cost. So, we do not recognize profit on the new development until units start to close because under the accounting rules a sale occurs when all the items have been met to close that sale. So that's when revenue was recognized. So, there is a deferred liability on the books. I believe the number is about $63 million and the deferred cost related to commissions we paid on is about $41 million. The difference of that $20 million will be recognized over time, generally the next four years.

And the other advantage is, and this is going to help our margins. Commissions on new development sales are less than regular resales.

Yes, I gave a number earlier, coming to market on development this year is $9.7 billion. Florida of that is $5.1 billion.

That's not including what's already on the market.

That's correct.

It hasn't closed yet.

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