Douglas Elliman Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts below are in millions unless stated otherwise. Douglas Elliman provides residential real estate brokerage services and invests in property technology (PropTech). It became an independent public company after its December 2021 distribution from Vector Group, which affects comparison with 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $308.9 | $272.8 |
| Operating income | $7.9 | $14.2 |
| Net income attributed to Douglas Elliman | $6.5 | $14.0 |
| Diluted EPS | $0.08 | $0.18 |
| Adjusted EBITDA attributed to Douglas Elliman (non-GAAP) | $12.7 | $16.4 |
| Operating cash flow | $(6.8) | $14.0 |
- Revenue rose 13.2%, primarily from existing-home brokerage sales and development marketing. Commission and other brokerage income increased to $295.1 million from $259.1 million.
- Operating margin was approximately 2.6%, versus 5.2%. Brokerage-segment operating income was $14.5 million, up slightly from $14.2 million, but its margin declined to 4.7% from 5.2%. The Corporate and Other segment recorded a $6.7 million operating loss, reflecting standalone-company costs and stock compensation.
- General and administrative expense increased to $32.8 million from $19.3 million; technology expense rose to $5.3 million from $3.5 million. Agent commissions increased with brokerage revenue and remained broadly stable as a share of revenue.
- Income tax expense was $2.9 million versus $0.3 million. The filing attributes the difference in part to the change from pre-distribution tax accounting, when certain pass-through income was not allocated tax expense, to the company’s post-distribution tax provision. Net income margin attributed to the company was 2.11% versus 5.12%.
- Cash, cash equivalents and restricted cash totaled $213.4 million at quarter-end, down from $228.9 million at year-end 2021; unrestricted cash and cash equivalents were $203.7 million. Current assets were $276.3 million and current liabilities $124.3 million.
- Notes payable and other obligations totaled $9.6 million, including $9.4 million current; the remaining $9.375 million principal on acquisition-related notes was due in 2022. Operating lease liabilities totaled $153.3 million, including imputed interest in the disclosed maturity schedule.
- Q1 cash uses included $1.8 million in investing activities and $6.8 million in financing activities, including a $4.1 million dividend and $3.1 million of debt repayment.
Changes, outlook and risks
- Key operating metrics increased: transactions were 7,212 versus 7,094 and gross transaction value was $11.7 billion versus $10.1 billion. Average transaction value was approximately $1.62 million versus $1.43 million.
- Management said home-buying trends in its markets, Texas expansion and development marketing supported revenue growth. It cited standalone public-company expenses, market expansion, technology investment and non-cash stock compensation as factors weighing on operating income.
- Management expects cash, operating cash flows and financing proceeds, if available, to be sufficient for liquidity needs over the next 12 months. It contemplates a continuing quarterly dividend of $0.05 per share, subject to board approval; no earnings or revenue guidance is provided.
- Risks highlighted include changes in economic and housing-market conditions, competition, regulation, pandemics and catastrophic events, standalone-company costs, and the ability to meet obligations under separation-related agreements. The company reports exposure principally to interest-rate fluctuations.
- The company is involved in litigation in the ordinary course and says it does not expect resolution to materially adversely affect its financial position, results or cash flows. It recorded a $0.965 million receivable for a contingent liability for which Vector Group agreed to indemnify it.
Important facts for investors to verify
- Whether brokerage volume, transaction values and agent retention remain resilient as housing-market conditions change.
- How standalone-company, expansion and technology costs affect margins and whether operating cash flow recovers from the Q1 outflow.
- The timing and funding of the remaining $9.375 million note repayment, and the company’s lease commitments and contemplated dividends.
- How the post-distribution tax profile compares with the pre-distribution period; 2021 results include allocated former-parent costs and are not necessarily indicative of standalone results.
- The valuation and performance of PropTech investments, including Level 3 convertible securities, and any changes in contingent liabilities or litigation.