Douglas Elliman Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts below are in millions of dollars unless stated otherwise. The company provides residential real estate brokerage services and invests in PropTech through New Valley Ventures.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $200.2 | $214.0 | Down 6.4% |
| Operating loss | $(41.5) | $(23.8) | Loss widened |
| Net loss attributable to Douglas Elliman | $(41.5) | $(17.6) | Loss widened |
| Loss per diluted share | $(0.50) | $(0.22) | Loss widened |
| Adjusted EBITDA attributable to Douglas Elliman | $(18.2) | $(17.6) | Loss widened |
| Adjusted EBITDA margin | (9.1)% | (8.3)% | Down 0.9 percentage points |
| Cash, cash equivalents and restricted cash at period end | $100.1 | $131.6 | Down $31.5 year over year |
| Cash used in operating activities | $(27.3) | $(31.6) | Use narrowed |
Commissions and other brokerage income fell to $188.3 million from $202.0 million. Property management revenue increased to $9.0 million from $8.8 million; ancillary revenue declined to $2.9 million from $3.2 million. The filing attributes weaker brokerage revenue in part to lower listing inventory and continued high mortgage rates. Revenue from development marketing declined to $6.6 million from $18.8 million, while existing-home sales revenue was $181.7 million versus $183.3 million.
Real estate agent commissions were 74.4% of revenue, compared with 73.0% a year earlier, reflecting a lower mix of development-marketing revenue and a higher mix of markets with generally higher commission rates. The company recorded a $17.75 million litigation settlement expense and a $0.49 million impairment of a PropTech investment written down to zero. General and administrative expense declined, primarily due to lower personnel and incentive compensation costs. Income tax expense was $1.2 million versus a $5.4 million benefit in Q1 2023; the company established a full valuation allowance against deferred tax assets.
Cash and cash equivalents were $91.5 million, including $8.6 million of restricted cash. Current assets were $154.8 million and current liabilities were $92.5 million. No conventional borrowings are shown on the balance sheet; operating lease liabilities totaled $128.8 million. Management said available cash, expected operating cash flows and financing proceeds, if available, are expected to meet liquidity needs over the next 12 months. The company used $2.2 million in investing activities, mainly for capital expenditures, and had no financing cash flows in the quarter. Its quarterly cash dividend remains suspended.
Material changes and operating indicators
- Operating loss increased by $17.7 million year over year, principally due to the settlement charge and lower revenue, partly offset by lower operating costs.
- Total transactions declined to 4,477 from 4,627, and gross transaction value fell to $7.1 billion from $7.3 billion. Average transaction value increased to approximately $1.595 million from $1.580 million.
- Principal agents numbered 5,095 at quarter end, versus 5,389 a year earlier. Annual retention was 90% for the 12 months ended March 31, 2024, compared with 92% for the year ended December 31, 2023.
- Operating cash use improved year over year, which management attributed to income tax refunds and lower working-capital uses, partly offset by weaker operating results. Cash, cash equivalents and restricted cash declined $29.4 million during Q1 2024.
Outlook, risks and unusual items
The filing provides no formal earnings or revenue guidance. Management cited high mortgage rates, lower listing inventory and market volatility as pressures on existing-home sales. It reported that brokerage operating expenses, excluding commissions and restructuring, declined about $5.4 million year over year in Q1 and about $18.9 million over the 12 months ended March 31, 2024. Cost reductions are continuing; a lease move in Q2 2024 is expected to reduce annual occupancy costs by approximately $4 million on an ongoing basis.
On April 26, 2024, the company agreed to settle the Gibson and Umpa commission-related class actions. The settlement provides for a $7.75 million escrow payment and two contingent $5 million payments subject to financial contingencies through December 31, 2027; payments may be accelerated in certain circumstances. The court preliminarily approved the settlement on April 30, 2024, but final approval remains pending, with a hearing scheduled no later than November 26, 2024. The company also agreed to specified brokerage practice changes. Other litigation remains, and the company says it cannot reasonably estimate the potential financial impact of remaining matters.
Other risks include continued weakness in housing activity, potential changes to commission practices or regulation, litigation costs and outcomes, and the possibility that PropTech or trademark goodwill valuations could require future impairment. The company reported that its disclosure controls were effective and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the commission-litigation settlement receives final court approval, and whether contingent payments become payable or are accelerated.
- Whether brokerage revenue, transaction activity and agent retention stabilize amid mortgage-rate and inventory pressures.
- Cash burn and liquidity following the settlement payment, ongoing operating lease commitments and any future financing needs.
- Whether cost reductions are sustainable without adversely affecting agent retention or business activity, and whether the expected occupancy savings are realized.
- Future recoverability of deferred tax assets and PropTech investments, including possible additional impairment charges.
- The status and potential exposure from other commission-related litigation and regulatory developments.