Douglas Elliman Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unless noted otherwise, financial amounts below are in millions of dollars. The company operates a residential real estate brokerage business and invests in PropTech through its New Valley Ventures subsidiary.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $251.5 | $272.6 | $741.4 | $945.8 |
| Operating income (loss) | ($8.8) | ($5.2) | ($40.9) | $17.3 |
| Net income (loss) attributable to Douglas Elliman | ($4.9) | ($4.0) | ($27.7) | $12.8 |
| Diluted EPS | ($0.06) | ($0.05) | ($0.34) | $0.15 |
| Adjusted EBITDA attributed to Douglas Elliman (non-GAAP) | $1.5 | $5.1 | ($23.2) | $32.1 |
Revenue declined 7.7% in Q3 and 21.6% for the first nine months year over year. Brokerage commissions and other brokerage income fell 8.0% in Q3 and 22.1% year to date. Management cited lower existing-home sales revenue, constrained listing inventory, financial-market volatility and higher mortgage rates. Nine-month operating results also included $1.9 million of cash restructuring charges.
Operating margin was approximately (3.5)% in Q3 versus (1.9)% a year earlier, and (5.5)% for the first nine months versus 1.8%. Brokerage agent commissions were 73.9% of revenue in Q3, up from 71.8%; management attributed the increase to regional and agent mix and a lower share of development-marketing revenue.
Cash, liquidity and capital
- Cash and cash equivalents were $126.3 million at September 30, 2023; cash, cash equivalents and restricted cash totaled $133.9 million, down $37.5 million from year-end 2022.
- Operating cash flow was negative $27.8 million for the first nine months, versus positive $5.2 million in the comparable 2022 period. Investing and financing cash outflows were $5.5 million and $4.2 million, respectively.
- The balance sheet reports no borrowings or debt balance at September 30, 2023. Operating lease liabilities totaled $136.5 million, including $22.2 million current.
- Current assets were $197.0 million and current liabilities $93.0 million. Total stockholders’ equity was $247.7 million.
- The company paid $4.2 million in dividends/distributions during the nine-month period. The board suspended the quarterly cash dividend in June 2023 and declared a 5% stock dividend, distributed June 30.
Management stated that available cash, expected operating cash flows and financing proceeds, if available, should be sufficient for liquidity needs over the next 12 months. No specific revenue or earnings guidance was provided.
Changes, outlook and risks
- Management said brokerage operating expenses, excluding commissions and restructuring, were down approximately $7.8 million, or 10.5%, in Q3 year over year. Cost actions include staff and incentive-compensation reductions, lower sponsorship and advertising spending, and office consolidation as leases expire.
- Headcount fell by approximately 60 positions net during the first nine months. The company expects administrative-function transitions to reduce staffing by approximately 100 additional employees during 2024; it also expects a lease move in Q2 2024 to lower annual occupancy costs by approximately $4 million. These are forward-looking expectations.
- Third-party quantitative assessments found no goodwill or trademark impairment at September 30, 2023. The filing cautions that continued deterioration in market conditions could lead to impairment; goodwill was $32.2 million and other intangible assets $73.1 million.
- After quarter-end, the company was named in three putative class actions alleging antitrust violations related to real estate commissions, in Missouri, Illinois and New York. The company cannot reasonably estimate the financial impact; an unfavorable outcome could materially affect results, financial condition or cash flows. The filing also discusses the separate Sitzer/Burnett verdict against other defendants, not Douglas Elliman.
- Other stated risks include elevated mortgage rates, market and economic conditions, competition, regulatory changes, litigation, and possible disruption to real estate industry practices. The filing reports no material change in other risk factors from the 2022 Form 10-K.
Most important facts for investors to verify
- Whether sales activity, listing inventory and commission revenue stabilize, particularly in New York City.
- Whether cost reductions and planned 2024 savings are achieved without harming agent retention or service.
- Cash burn and liquidity trends, including the effect of the suspended cash dividend and any future capital allocation or acquisitions.
- Developments in the commission-related litigation and any resulting financial exposure or changes to industry practices.
- Whether deteriorating market conditions trigger goodwill or intangible-asset impairment.