Good day and welcome to Douglas Elliman's Q1 2024 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 An archived version of the webcast will be available on the investor relations section of the company's website, located at investors.elliman.com for one year.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 would like to turn the call over to the Chairman, President, and Chief Executive Officer of Douglas Elliman, Howard M. Lorber. Please go ahead. Good morning and thank you for joining us. With me today are Richard Lampen, our Chief Operating Officer; J. Bryant Kirkland III, 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 the current operating environment and Douglas Elliman's financial results for the three months ended 31 March, 2024. All numbers presented this morning will be as of 31 March, 2024, unless otherwise stated. We will then provide closing comments and open the call for questions. Before I turn to our Q1 2024 results, I want to begin with an update on industry brokerage commission litigations. We are pleased to have recently announced a settlement agreement to resolve, on a nationwide basis, the pending class action litigation relating to real estate brokerage fees in the Gibson and Umpa cases pending in the Western District of Missouri, which will also resolve other similar pending litigation. The settlement agreement reflects our commitment to mitigating future uncertainties and limiting legal costs. It is not an admission of liability or of the validity of any claim. 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 discussed, generationally high interest rates have driven sustained listing inventory shortages across our luxury markets for almost two years. These shortages have resulted in significantly lower transaction volumes during this time. While we expect these industry-wide challenges will continue to impact our results in 2024, we remain encouraged by recent improvements. First, although our commission receipts were down in March compared to the prior year, they were up from the prior year in January, February, and April 2024. This continues a trend that began in October 2023. We believe this signals that the market is in the early stages of adjusting to higher interest rates. Second, we are also seeing promising momentum in our development marketing business, a platform that further differentiates Douglas Elliman from our principal competitors. As a reminder, through its development marketing division, Douglas Elliman employs a hybrid broker model where our top resale residential real estate agents work in tandem with our development marketing professionals and leverage their extensive industry relationships for the benefit of our developer clients. Our agents can market and sell high-profile developments that enhance their brands and provide additional commission potential for years to come, as they are often hired to resell or rent those very same units. We believe this model provides a competitive advantage to our development marketing business while also increasing the attractiveness of the Douglas Elliman platform to current and prospective agents. Our development marketing division is sought after by well-known real estate developers and continues to create a foundation for long-term value over the next several years. This division has an active pipeline of signed and new projects of approximately $25 billion gross transaction value, including approximately $15 billion of gross transaction value in Florida alone. Further, approximately $5 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 when they close in the future. Third, consistent with the trend we saw in the Q4 2023, total listing volume improved in the Q1 2024, up 6.7% from the 2023 Q1, with gains in listings reported in California, The Hamptons, Florida, and Long Island compared to the Q1 2023. This followed a 25% increase in total listing volume in the Q4 2023 compared to the Q4 2022. Because we recognize revenues when a sale closes, we expect that we will begin to see the impact of increased listing volume in the second half of 2024. Consistent with the increase in listings, our average sales price per transaction remained in industry best $1.595 million in the Q1. Over the past three quarters, this remained flat and was $1.58 million for the Q1 of 2023. We believe the consistency in 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. Finally, our cost reduction efforts have been judicious, and the results of our strategy are beginning to flow to the bottom line. Over the past year, we have continued to adjust our cost structure to benefit our business, including additional headcount reductions, cutting costly sponsorships, streamlining advertising, and commencing a program to consolidate office space. Our real estate brokerage segment reduced its operating expenses, including commission expenses, litigation settlement expenses, restructuring, and other non-cash expenses, by $5.4 million in the Q1 of 2024, representing a decline of approximately 7.6% compared to the prior year period. Over the last 12 months ended 31 March, 2024, our real estate brokerage segment has reduced its operating expenses, excluding commission expenses, litigation, settlement expenses, restructuring, and other non-cash expenses, by $18.9 million or 6.6%. We believe these efforts enable Douglas Elliman to meet industry challenges head-on without significantly impacting the agent experience. We are proud to share that our agent retention rate stands at 90%, and we continue to attract the industry's best talent. Now turning to Douglas Elliman's financial results for the three months ended 31 March, 2024. For the Q1 of 2024, Douglas Elliman reported $200.2 million in revenue compared to $214 million in the Q1 of 2023. Net loss attributed to Douglas Elliman for the Q1 was $41.5 million or $0.50 per diluted share compared to $17.6 million or $0.22 per diluted share in the 2023 period. Net loss attributed to Douglas Elliman in the Q1 2024 included a $17.75 million litigation settlement charge, of which we have agreed to pay $7.75 million by June 12, 2024, and up to two additional $5 million contingent payments between December 31, 2025, and December 31, 2027. Adjusted EBITDA attributed to Douglas Elliman in the Q1 were a loss of $18.2 million compared to $17.6 million in the 2023 period. For comparison purposes, our real estate brokerage segment reported an operating loss of $32.8 million this quarter compared to $17.3 million in the 2023 period, which included the $17.75 million litigation settlement charge in the 2024 period. Adjusted EBITDA attributed to the segment were a loss of $14.2 million compared to $13 million in the 2023 period. Adjusted Net Loss attributed to Douglas Elliman in the Q1 was $23.7 million or $0.28 per share compared to $16.8 million or $0.21 per share in the 2023 period. Douglas Elliman has maintained ample liquidity with cash and cash equivalents of approximately $91.5 million or $1 per common share and no debt. In summary, despite industry-wide headwinds, we are confident that Douglas Elliman is positioned for long-term success with its differentiated platform, continued cost reduction efforts, and strong luxury brand. 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. With that, we will be happy to answer questions. Operator? The floor is now open for your questions. If you would like to ask a question at this time, please press star one on your telephone keypad. You may remove yourself at any time by pressing star two. Once again, to ask a question, please press star one. Our first question will come from Soham Bhonsle with Compass. Please go ahead. Hey guys. Good morning. Hope you're all doing well. Look, so I know it's a tough market out there, especially with rates and just being so volatile and inventory being so tight. But look, we could be here for a while just depending on where inflation ends up and how the Fed reacts. So can you maybe just talk about your desire to get the business to break even or even modest profitability if we sort of hang around these levels for a little longer? Well, that's what we're doing in our cost cutting. We're not going to sit here and just keep it the way it is now and hope that the market changes quicker than it may or may not. But we're also trying to do it judiciously, not doing everything at once and spreading it out and also making sure that we're not affecting the experience, our customers' experience, obviously our customers to us or our brokers. So that's really what we're working on. Okay. And then, Bryant, I guess on expenses, can you maybe just talk about how we should think about the run rate for the various OpEx lines as we go through the year and any items that we should be thinking about? Thank you. Well, I mean, as you know, this is a seasonal business at times, so expenses move from quarter to quarter in a different way. However, we have cut expenses $18.9 million over the last 12 months. About $3 million of that was advertising. The majority, the remainder, was in personnel and sponsorships and travel. We're continuing to look at that. We did eliminate 100 positions in 2023. We're continuing to look at ways to deliver excellent customer service to our agents more efficiently, and we'll be updating you that in future quarters. Okay. And then if I could just squeeze one more in. It looks like just if I look at unit share this quarter, at least on a national basis, it was down. But I know you guys aren't in all the markets across the country. So can you maybe just talk about your share in some of your core markets like New York, Florida, and California, and any other trends we should be sort of thinking about? Thank you. Well, look, our market share in New York is down, I think, a small amount. Florida has been very strong, and that's basically because of our new development business. It's amazing how it's transitioned from the best new development marketing revenue for us was always from New York, and now it's Florida, substantially above what's going on in New York on new development. So California is really very little new development. It's never really been a great place for high-rise construction. My own view of that is that the problem really is usually when people are going from a house to a condo, they want to bank some money. They want to sell their house for, let's say, $10 million and buy something for $5 million. The problem is the new construction there, you're going to sell your house for $10 million, and you're going to have to spend $15 million to get something you live in. So that's not a great market. So we really now are really concentrating on the new development business in Texas. Texas is a good place for new development. Also, Las Vegas, we have, I think, a couple of projects there. We just opened in the last couple of years. So we think we're in good spots as it relates to where we are in the country. Yeah. If you look at our proportion of revenues, the southern and western regions, which is Florida, Nevada, California, Texas, went from about 50.5% of revenues - excuse me - on existing home sales to 54% of existing home sales for the three-month period. If you look at the year-over-year period, that actually would be consistent with the fact that mortgage rates dipped in the Q4, and those markets are more mortgage rate sensitive than the New York market, which is primarily cash buyers. Yep. If I could just one more, Bryant. On the commission split, 79%. It's trended up a little higher. What should we expect going forward? Maybe just talk about some of the trends within that number, some of the drivers. So that's a great question. We are watching commission splits very closely as we do all expenses. It is an effort that management is watching very closely. Now, if you have to look at us, we're different than some of our national competitors because of our limited number of markets. So the three buckets that impact commission splits for us are new development, which is by far our highest margin, New York and Long Island, which are higher margins than Florida and California. What happened this quarter was, as you know, there was a 189 basis points decline in gross margin, and that was driven by a 45% shift in the mix that I mentioned earlier in existing home sales in Florida and California, going from 50% of our revenues from existing homes to 54%. Then in addition to that, because, as you know, we only recognize revenues on development marketing when the earnings process is complete or when a home sells, we're in a period where we're not recognizing significant revenues because we're bringing in significant cash from deposits. But the things that would normally be closing now were things that began construction in 2020 and 2021, where you know the whole country was closed during that time. So that was the other impact on commission splits. That was about 145 basis points. Now, the bottom line is when we look at region to region, the commission splits were consistent from 2023 Q1 to 2024 Q1. So we're not seeing any competitive pressures in that. Okay. Perfect. Thank you so much. Thank you. We'll take our next question from Peter Abramowitz with Jefferies. Please go ahead. Thank you. Yes. So I just want to go back to some comments. I think you said total listings were up year-over-year versus the Q1 of 2023. So I just want to kind of unpack that. Does that kind of imply that even though total listings were up, your transaction volume's still down pretty significantly? Does that just kind of imply that kind of decision-making from buyers and sellers is happening a little bit more slowly? I just want to kind of get a little more context and understanding of the dynamic there. Yeah. I think that the listings may be up, but what happens is that the buyers, you have sort of a lack of buyers because someone that's going to buy today generally has something to sell. So they're stuck. It's a quandary because they can buy something and pay a higher rate, and then what they're going to sell probably has a lower rate on it because they've owned it for a while. And that sort of puts a damper on their thinking and process of whether they should move or not move. Right. And we are more immune to that pressure than some of our competitors because we have such a high percentage of our sales are ultra-luxury and cash. However, what I think you're seeing is with the 25% increase in the Q4 and the 7% increase in the Q1, you're now starting to see the markets are loosening up. People didn't have to do anything for two years after 2021 when mortgage rates were at historical lows and then went to generational highs, as we know. Now we're seeing people have reasons to move, and they're going to list their homes, and that's going to create more volume for us in the future. Our average sales price continues to be very strong at almost $1.6 million per home. So we have a lot of competitive advantages in this area. Okay. That's helpful. Do you have a breakdown of what percentage of the buyers within transactions that you're involved in are all cash versus using financing? That's more difficult to say because many times people will make a cash offer and actually use financing when interest rates are low. But in New York, it's clearly still a significant percentage, and also in the ultra-luxury in Florida because you have just a different character of buyer. Yeah. And And in these markets, in the high-end markets, you don't have people making offers subject to mortgage contingencies because the seller doesn't want to see that, doesn't want to hear about that, okay, because that's troublesome. So we really don't have an idea. And I agree with what BK is saying, is that many people just say, "Make an all-cash offer," but then they're financing it outside of that. Right. Got it. And then last one for me. I know you're still working on some of these kind of operational improvements and improving the cost structure. I guess just trying to think about the timing and trajectory of when you can kind of get the brokerage segment back to break-even and positive territory from an EBITDA perspective. Is it kind of a trajectory of rates? Is it an absolute level of transaction volume that you need to see? And I guess just any comments around possible timing of when you expect that to happen. Well, look, the quicker rates go down is going to really prove how fast it's going to happen. But we don't look at it that way because what if they stay where they are now or go up or go down and drop? That may not be that meaningful. We just have to focus on getting the business to make money for the shareholders and not wait and worry about where the volume is at any particular point. So I think that that's what we're really, it's really much more of a, it's not guesswork because one way or another, it's going to happen. But we want to keep trimming down the business until we really can't trim anymore. And we started a new series of cuts, and we're happy about that. And we're going to continue doing that into the foreseeable future. With our strong balance sheet, we do have time to do this right. We're not going to be under pressure from debt covenants or from historical losses because of our strong balance sheet, so. Right. I guess just one more as a follow-up then to Howard's comments. I mean, in terms then of what rates mean for transaction volume, say they are stable but high on an absolute level, do you think that stability would be enough to kind of see the markets start to loosen up, or do you think rates need to be going down for that to happen? I think people are used to these rates, starting to get used to these rates already, and no one really trusts what anyone else says. What were they saying? Six or seven cuts. They were saying six or seven cuts this year, and that was maybe three, four months ago. Now, all of a sudden, it's no cuts. Then someone starts talking about there may be being one cut. So I don't think you could run well, I know for sure you can't run we can't run our business by worrying about that. We worry about it. We hope that we're going to have cuts, but we're going to try to get ourselves in a position that no matter which way it goes or even if it stays this way for a while, that we'll be profitable. All right. That's all for me. Thank you. Thank you, Peter. Thank you. 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. This will conclude our call.