Douglas Elliman Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Douglas Elliman provides residential real estate brokerage and property management services and invests in PropTech through New Valley Ventures. The company became independent of Vector Group in December 2021; 2021 comparative results reflect allocated former-parent costs and may not be comparable to standalone results.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $364.4 | $392.0 | $673.3 | $664.8 |
| Operating income | $14.6 | $43.2 | $22.5 | $57.4 |
| Net income attributable to Douglas Elliman | $10.2 | $39.5 | $16.8 | $53.4 |
| Diluted earnings per share | $0.13 | $0.51 | $0.21 | $0.69 |
| Adjusted EBITDA attributable to Douglas Elliman (non-GAAP) | $19.2 | $45.3 | $31.9 | $61.6 |
- Q2 revenue declined 7.0%, while first-half revenue rose 1.3%. Q2 operating margin was approximately 4.0% versus 11.0%; first-half margin was 3.3% versus 8.6%. First-half net income margin was 2.5% versus 8.0%.
- Q2 commission and brokerage revenue fell $27.2 million, mainly from existing-home sales and lower development-marketing revenue. For the first half, commission and brokerage revenue increased $8.8 million, partly reflecting stronger first-quarter activity and the consolidation of Texas beginning in August 2021.
- Operating costs and investment in standalone-company operations, agent support, new markets and technology pressured earnings. The first-half tax provision rose to $8.5 million from $1.0 million, in part because the company became a separate taxpayer after the Distribution.
Cash, debt and liquidity
- At June 30, 2022, cash and cash equivalents were $202.1 million, with an additional $8.9 million of restricted cash. Cash and cash equivalents were $211.6 million at December 31, 2021.
- First-half operating cash flow was $2.8 million, down from $72.1 million. Management attributed the decline to lower operating income, standalone-company and brokerage costs, higher tax payments and discretionary compensation payments.
- First-half investing cash outflow was $6.5 million, including $4.4 million of capital expenditures. Financing cash outflow was $14.1 million, including $8.1 million in dividends and $6.3 million in debt repayments.
- Notes payable and other obligations totaled $6.4 million at June 30, including $6.25 million of principal due in 2022. Operating lease liabilities totaled approximately $150.8 million; these are lease obligations, not reported notes payable.
- Management expected cash, operating cash flows and financing proceeds, if available, to meet liquidity needs for the next 12 months. The company began paying a quarterly dividend of $0.05 per share in March 2022 and said it contemplated continuing it, subject to Board approval.
Outlook, risks and notable items
- The filing provides no formal revenue or earnings guidance. Management cited higher mortgage rates, financial-market volatility and low listing inventory as factors weighing on home sales; it also noted that higher rates could further reduce buyer financing availability and transaction volume or prices.
- Other risks include cost increases as a standalone public company, competition, and regulatory or litigation-driven changes to MLS/NAR rules and industry commission practices. The company warned such changes could reduce fees, raise costs or disrupt operations.
- Q2 other income included $0.553 million of tax-indemnification income from Vector Group and investment gains; the first-half PropTech investment gains were $1.418 million. The filing also reports $5.3 million of stock-based compensation for the first half.
- Routine litigation was disclosed; management did not expect its resolution to materially adversely affect financial position, results or cash flows. Management reported disclosure controls as effective and no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether weaker Q2 brokerage activity and higher mortgage rates continued after June 30, especially in Florida and other markets with declining revenue.
- How much of the earnings decline reflects recurring standalone, growth and technology costs versus stock compensation and other items; compare GAAP results with the company’s non-GAAP Adjusted EBITDA.
- Whether operating cash flow improves and whether the company repaid the $6.25 million note due in 2022 while sustaining the contemplated dividend.
- The valuation and performance of PropTech investments, including $3.6 million of Level 3 convertible debt securities, which rely on significant unobservable valuation inputs.
- Potential effects of industry rule changes, regulatory scrutiny of commissions, and further mortgage-rate increases on transaction volumes and commission revenue.