(in thousands of dollars, except per share amounts)
The following discussion should be read in conjunction with our Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") and audited financial statements as of and for the year ended
December 31, 2021 and Notes thereto, included in our 2021 Annual Report on Form
10-K, and our Condensed Combined Consolidated Financial Statements and related
Notes as of and for the quarterly period ended March 31, 2022 .
Insight
We are a holding company and we are engaged in two lines of business:
Real Estate Brokerage: the residential real estate brokerage services through our subsidiaryDouglas Elliman Realty , which operates the largest residential brokerage company in theNew York metropolitan area and conducts residential real estate brokerage operations inFlorida ,California ,Connecticut ,Massachusetts ,Colorado ,New Jersey andTexas .
Corporates and Others: the operations of our holding company as well as the PropTech investment activity investing in certain PropTech opportunities through our
Distribution and basis of presentation
OnDecember 29, 2021 , Vector Group distributed all of our common stock to its stockholders. Prior to the Distribution, we were a subsidiary of Vector Group and incurred indirect general and administrative costs allocated to us by Vector Group for certain functions and services including, but not limited to, executive office, finance and other administrative support. These expenses were allocated to us based on direct usage, when identifiable. After the Distribution, we are incurring expenses necessary to operate a standalone public company, including pursuant to a Transition Services Agreement entered into with Vector Group in connection with the Distribution. Therefore, for periods prior to the Distribution, our condensed combined consolidated results of operations, financial position and cash flows may not be indicative of our future performance and do not necessarily reflect what our combined consolidated results of operations, financial position and cash flows would have been had we operated as a separate, standalone entity during the periods presented, including changes in our operations and capitalization as a result of our separation and distribution from Vector Group.
Key Business Parameters and Non-GAAP Financial Measures
In addition to our financial results, we use the following business metrics to evaluate our business and identify trends affecting our business. To evaluate our operating performance, we also use Adjusted EBITDA attributed to Douglas Elliman and Adjusted EBITDA attributed toDouglas Elliman Margin and financial measures for the last twelve months endedMarch 31, 2022 ("Non-GAAP Financial Measures"), which are financial measures not prepared in accordance with GAAP. Key Business Metrics Last twelve Year ended months ended Three months ended March 31, December 31, March 31, 2022 2022 2021 2021 Key Business Metrics Total transactions (absolute) (1) 32,518 7,212 7,094 32,400 Gross transaction value (in billions) (2)$ 52.8 $ 11.7$ 10.1 $ 51.2 Average transaction value per transaction (in thousands) (3)$ 1,622.3 $ 1,620.4 $ 1,427.8 $ 1,580.0 Number of Principal Agents (4) 5,174 (5) 5,174 (5) 4,954 5,189 (5) Annual Retention (6) 94 % N/A N/A 94 % Net income attributed to Douglas Elliman Inc.$ 91,383 $ 6,510 $ 13,965 $ 98,838 Net income margin 6.58 % 2.11 % 5.12 % 7.30 % Adjusted EBITDA attributed to Douglas Elliman$ 107,075 $ 12,727 $ 16,351 $ 110,699 Adjusted EBITDA attributed to Douglas Elliman margin 7.71 % 4.12 % 5.99 % 8.18 % 19
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(1)We calculate total transactions by taking the sum of all transactions closed in which our agent represented the buyer or seller in the purchase or sale of a home (excluding rental transactions). We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. (2)Gross transaction value is the sum of all closing sale prices for homes transacted by our agents (excluding rental transactions). We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction.
(3) Average trade value per trade is the quotient of (x) gross trade value divided by (y) total trades.
(4) The number of main agents is determined on the last day of the specified period. We use the number of primary agents, in combination with our other key business metrics such as total transactions and gross transaction value, as a measure of agent productivity.
(5) Includes master agents acquired as part of the increase in the stake from 1% to 50% in Douglas Elliman Texas in
(6)Annual Retention is the quotient of (x) the prior year revenue generated by agents retained divided by (y) the prior year revenue generated by all agents. We use Annual Retention as a measure of agent stability.
Non-GAAP Financial Measures
Adjusted EBITDA attributed to Douglas Elliman is a non-GAAP financial measure that represents our net income adjusted for depreciation and amortization, investment income, net, stock-based compensation expense, benefit from income taxes, and other items. Adjusted EBITDA attributed toDouglas Elliman Margin is the quotient of (x) Adjusted EBITDA attributed to Douglas Elliman divided by (y) revenue. Last twelve months ("LTM") financial measures are non-GAAP financial measures that are calculated by reference to the trailing four-quarter performance for the relevant metric. We believe that Non-GAAP Financial Measures are important measures that supplement analysis of our results of operations and enhance an understanding of our operating performance. We believe Non-GAAP Financial Measures provide a useful measure of operating results unaffected by non-recurring items, differences in capital structures and ages of related assets among otherwise comparable companies. Management uses Non-GAAP Financial Measures as measures to review and assess operating performance of our business, and management and investors should review both the overall performance (GAAP net income) and the operating performance (Non-GAAP Financial Measures) of our business. While management considers Non-GAAP Financial Measures to be important, they should be considered in addition to, but not as substitutes for or superior to, other measures of financial performance prepared in accordance with GAAP, such as operating income, and net income. In addition, Non-GAAP Financial Measures are susceptible to varying calculations and our measurement of Non-GAAP Financial Measures may not be comparable to those of other companies.
Reconciliations of these non-GAAP measures are provided in the table below.
20
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Calculation of Adjusted EBITDA attributed to Douglas Elliman
Last twelve Year ended
months ended Three months ended March 31, December 31,
March 31, 2022 2022 2021 2021
Net income attributed to Douglas Elliman Inc. $ 91,383 $ 6,510 $ 13,965 $ 98,838
Interest income, net (75) (39) (47) (83)
Income tax expense 4,769 2,917 281 2,133
Net loss attributed to non-controlling interest (411) (225) - (186)
Depreciation and amortization 8,517 2,079 2,123 8,561
Stock-based compensation(a) 2,652 2,652 - -
Equity in (earnings) losses from equity method
investments(b) (254) (532) - 278
Change in fair value of contingent liability 1,720 - (73) 1,647
Other, net (1,383) (752) 102 (529)
Adjusted EBITDA 106,918 12,610 16,351 110,659
Adjusted EBITDA attributed to non-controlling
interest 157 117 - 40
Adjusted EBITDA attributed to Douglas Elliman
Adjusted EBITDA attributed to Douglas Elliman by segment: Real estate brokerage segment$ 112,010 $ 17,662 $ 16,351 $ 110,699 Corporate and other segment (4,935) (4,935) - - Total adjusted EBITDA attributed to Douglas Elliman$ 107,075 $
12,727
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(a)Represents amortization of stock-based compensation.$925 is attributable to the Real estate brokerage segment and$1,727 is attributable to the Corporate and other segment.
(b) Represents equity in losses (gains) recognized from the Company’s investment in an equity-accounted investment which is accounted for using the equity method and which is not consolidated in profit or loss financials of the Company.
Operating results
The following discussion provides an assessment of our results of operations,
capital resources and liquidity and should be read in conjunction with our
combined consolidated financial statements and related notes included elsewhere
in this report.
21
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Three months completed
The following table sets forth our revenue and operating income (loss) by segment for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 : Three Months Ended March 31, 2022 2021 (Dollars in thousands) Revenues by segment: Real estate brokerage segment$ 308,900 $ 272,776 Operating income (loss) by segment: Real estate brokerage segment$ 14,541 $ 14,228 Corporate and other segment (6,662) - Total operating income $ 7,879$ 14,228 EBITDA attributed to Douglas Elliman by segment: Real estate brokerage EBITDA attributed to Douglas Elliman$ 17,662 $ 16,351 Corporate and other EBITDA attributed to Douglas Elliman (4,935) - EBITDA attributed to Douglas Elliman $
12,727
Three months completed
Revenues. Our revenues were$308,900 for the three months endedMarch 31, 2022 compared to$272,776 for the three months endedMarch 31, 2021 . The$36,124 (13.2%) increase in revenues was primarily due to a$36,124 increase in the Real Estate Brokerage segment's revenues, which was primarily related to increased revenues from existing home sales caused by home-buying trends in our markets that began in the fourth quarter of 2020 as markets began reopening from lockdowns associated with the COVID-19 pandemic and vaccinations became available. Operating expenses. Our operating expenses were$301,021 for the three months endedMarch 31, 2022 compared to$258,548 for the three months endedMarch 31, 2021 . The increase of$42,473 was due to increases in real estate brokerage commissions of$26,405 , expenses associated with Douglas Elliman operating as a standalone public company after the Distribution, which occurred onDecember 29, 2021 , as well as increased expenses associated with our expansion into new markets and enhancements to our technology platform. Operating income. Operating income was$7,879 for the three months endedMarch 31, 2022 compared to$14,228 for the same period in 2021. The$6,349 decline in operating income was due to Douglas Elliman operating as a standalone public company after the distribution as well as non-cash stock compensation expense. Other income. Other income was$1,323 for the three months endedMarch 31, 2022 compared to$18 for the three months endedMarch 31, 2021 . For the three months endedMarch 31, 2022 , other income primarily consisted of investment income, primarily associated with our PropTech investments of$752 and equity earnings from equity method investments of$532 .
Earnings before provision for income taxes. Earnings before income taxes were
and
Income tax expense. Income tax expense was$2,917 and$281 for the three months endedMarch 31, 2022 and 2021, respectively. Our provision for income taxes in interim periods is based on expected income, statutory rates, permanent differences, valuation allowances against deferred tax assets, and any tax planning opportunities available to us. After the Distribution and for interim financial reporting for the three months endedMarch 31, 2022 , we now estimate the annual effective income tax rate based on full year projections and apply the annual effective income tax rate against year-to-date pretax income to record income tax expense, adjusted for discrete items, if any. We will refine annual estimates as current information becomes available.
Prior to the Distribution, we calculated our provision for income taxes based on the taxable income attributable to its business and the business of its subsidiaries during that period. or the periods presented before the distribution, we have calculated our
22 -------------------------------------------------------------------------------- provision for income taxes by using a separate-return method and elected not to allocate tax expense to single-member limited liability companies or partnerships that did not incur income tax liability because they were not severally liable for the taxes of their owners. Before the distribution,Douglas Elliman of California, Inc. , andDER Holdings II LLC were the only two entities taxed as corporations forU.S. Income Tax purposes while the remaining entities were pass through entities for federal income tax purposes. Therefore, no income tax expense was allocated to entities other thanDER Holdings II LLC ,Douglas Elliman of California, Inc. and, for purposes of New York City UBT only,Douglas Elliman Realty, LLC . Real Estate Brokerage. The following table sets forth our condensed combined consolidated statements of operations data for the Real Estate Brokerage segment for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 : Three Months Ended March 31, 2022 2021 (Dollars in thousands) Revenues: Commissions and other brokerage income$ 295,109 95.5%$ 259,100 95.0% Property management 9,199 3.0% 9,268 3.4% Other 4,592 1.5% 4,408 1.6% Total revenues$ 308,900 100%$ 272,776 100% Operating expenses: Real estate agent commissions 223,422 72.3% 197,017 72.2% Sales and marketing 19,306 6.2% 19,354 7.1% Operations and support 18,091 5.9% 17,250 6.3% General and administrative 26,168 8.5% 19,307 7.1% Technology 5,293 1.7% 3,497 1.3% Depreciation and amortization 2,079 0.7% 2,123 0.8% Operating income$ 14,541 4.7%$ 14,228 5.2% Revenues. Our revenues were$308,900 for the three months endedMarch 31, 2022 compared to$272,776 for the three months endedMarch 31, 2021 . The increase of$36,124 (13.2%) was primarily related to an increase of$36,009 in our commission and other brokerage income, which increased as a result of increased revenues from existing home sales caused by home-buying trends in our markets that began in the fourth quarter of 2020 as markets began reopening from lockdowns associated with the COVID-19 pandemic and vaccinations became available. Our revenues from commission and other brokerage income were$295,109 for the three months endedMarch 31, 2022 compared to$259,100 for the three months endedMarch 31, 2021 , an increase of$36,009 because of continuing home buying trends in ourNew York City ,Florida andColorado regions as well as our expansion into theTexas region. In 2022, our commission and other brokerage income generated from the sales of existing homes increased by$22,253 inNew York City ,$10,806 in the West region, which includesTexas andColorado ,$5,271 in the Southeast region and declined by$6,171 in the Northeast region, which excludesNew York City , in each case compared to the 2021 period. In addition, our revenues from Development Marketing increased by$3,850 in 2022 compared to 2021. Operating Expenses. Our operating expenses were$294,359 for the three months endedMarch 31, 2022 compared to$258,548 for the three months endedMarch 31, 2021 , an increase of$35,811 , due to increases in real estate brokerage commissions, general and administrative expenses associated with additional expenses from theTexas region, which we began consolidating inAugust 2021 , and expenses associated with technology. The primary components of operating expenses are described below. Real Estate Agent Commissions. As a result of our growth in commissions and other brokerage income, our real estate agent commissions expense was$223,422 for the three months endedMarch 31, 2022 compared to$197,017 for the three months endedMarch 31, 2021 , an increase of$26,405 (13.4%). Real estate agent commissions expense, as a percentage of revenues, were flat (72.3% for the three months endedMarch 31, 2022 compared to 72.2% for the three months endedMarch 31, 2021 ). Sales and Marketing. Sales and marketing expenses were$19,306 for the three months endedMarch 31, 2022 compared to$19,354 for the three months endedMarch 31, 2021 . 23 -------------------------------------------------------------------------------- Operations and support. Operations and support expenses were$18,091 for the three months endedMarch 31, 2022 compared to$17,250 for the three months endedMarch 31, 2021 . The increase related to our sales offices gradually reopening during 2021. General and administrative. General and administrative expenses were$26,168 for the three months endedMarch 31, 2022 compared to$19,307 for the three months endedMarch 31, 2021 . The increase in expenses was the result of the expansion into theTexas region, incremental expenses to support business growth, the gradual reopening of administrative offices during 2021 and non-cash stock compensation. Technology. Technology expenses were$5,293 for the three months endedMarch 31, 2022 compared to$3,497 for the three months endedMarch 31, 2021 . The increase related to refinements of our cloud-based "MyDouglas" agent portal and our StudioPro agent concierge service in 2022, as well as the introduction two new packaged applications to automate our payment processing and streamlined escrow services in 2022. Operating income. Operating income was$14,541 for the three months endedMarch 31, 2022 compared to$14,228 for the three months endedMarch 31, 2021 . The increase in operating income is primarily associated with the net impact of increased commission and other brokerage revenues offset by expenses associated with non-cash stock compensation, expansion into new markets and technology.
Businesses and others.
Corporate and Other loss. The operating loss at the Corporate and Other segment was$6,662 for the three months endedMarch 31, 2022 due to expenses, including non-cash stock compensation, associated with Douglas Elliman operating as a standalone publicly traded company after the Distribution.
Summary of PropTech Investments
As ofMarch 31, 2022 ,New Valley Ventures had investments (at a carrying value) of approximately$7,396 in PropTech companies. This amounts to approximately 1% of the value of Douglas Elliman's total assets, which totaled approximately$588 million , as ofMarch 31, 2022 . During the three months endedMarch 31, 2022 we made the following new PropTech investments:
?Envoy: a shared mobility company that sets up fleets of electric vehicles that can be shared by residents of a condominium, hotel or shared space.
?Audience: A subscription-based platform built around proprietary robotic arms that generate handwritten notes on behalf of sales-oriented professionals.
Cash and capital resources
Cash and cash equivalents declined by$15,429 and increased by$13,375 for the three months endedMarch 31, 2022 and 2021, respectively. Restricted Cash, which is included in cash and cash equivalents, was$9,768 , and$12,697 as ofMarch 31, 2022 and 2021, respectively. Cash used in operations was$6,780 for the three months endedMarch 31, 2022 while cash provided from operations was$13,993 for the three months endedMarch 31, 2021 . The decline in the 2022 period related to lower operating income associated with an increase in payments of discretionary compensation in 2022 compared to 2021, because of higher compensation accruals atDecember 31, 2021 compared to the previous year, and the inclusion of expenses associated with operating as a standalone public company in 2022. Cash used in investing activities was$1,815 and$597 for the three months endedMarch 31, 2022 and 2021, respectively. For the three months endedMarch 31, 2022 , cash used in investing activities was comprised of the purchase of investments of$926 in the Company's PropTech business, capital expenditures of$849 , and investments of$100 in equity-method investments. This was offset by$60 of distributions from equity-method investments. For the three months endedMarch 31, 2021 , cash used in investing activities was comprised of capital expenditures of$597 .
Our investment philosophy is to maximize return on investment using a reasonable expectation of return when investing in equity method investments and PropTech investments, as well as when making capital expenditures.
Cash used in financing activities was
24 -------------------------------------------------------------------------------- amounts were offset by contributions from non-controlling interest associated with Douglas Elliman Texas of$375 . For the three months endedMarch 31, 2021 , cash used in financing activities was comprised of earn-out payments of$21 . InMarch 2022 , we paid a cash dividend of$0.05 per share. We contemplate continuing to pay a quarterly cash dividend of$0.05 per share, subject to approval of our Board of Directors, which would result in annual dividends of approximately$16,200 . We had cash and cash equivalents of approximately$203,669 as ofMarch 31, 2022 and, in addition to cash provided from operations, such cash is available to be used to fund such liquidity requirements as well as other anticipated liquidity needs in the normal course of business. Management currently anticipates that these amounts, as well as expected cash flows from our operations and proceeds from any financings to the extent available, should be sufficient to meet our liquidity needs over the next twelve months. We may acquire or seek to acquire additional operating businesses through merger, purchase of assets, stock acquisition or other means, or to make or seek to make other investments, which may limit our liquidity otherwise available.
Market risk
We are exposed to market risks principally from fluctuations in interest rates and could be exposed to market risks from foreign currency exchange rates and equity prices in the future. We seek to minimize these risks through our regular operating and financing activities and our long-term investment strategy. Our market risk management procedures cover all market risk sensitive financial instruments.
New accounting statements
Refer to Note 1, Summary of Significant Accounting Policies, to our financial statements for additional information on new accounting pronouncements.
Legislation and regulations
There are no material changes from the Legislation and Regulation section set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS In addition to historical information, this report contains "forward-looking statements" within the meaning of the federal securities law. Forward-looking statements include information relating to our intent, belief or current expectations, primarily with respect to, but not limited to economic outlook, capital expenditures, cost reduction, cash flows, operating performance, growth expectations, competition, legislation and regulations, litigation, and related industry developments (including trends affecting our business, financial condition and results of operations).
We identify forward-looking statements in this report by using words or phrases such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend to ‘, ‘may be’, ‘goal’, ‘opportunistic’, ‘plan’, ‘potential’, ‘predict’, ‘project’, ‘prospects’, ‘seek’ or ‘will’ and similar words or phrases or their negatives .
Forward-looking statements involve important risks and uncertainties that could cause our actual results, performance or achievements to differ materially from our anticipated results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, without limitation, the following:
• general economic and market conditions and any changes thereto, whether due to acts of war and terrorism or otherwise,
• government regulations and policies,
• adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises,
• our ability to effectively manage the impacts of any government mandated or encouraged suspension of our business operations,
• the impacts of the Tax Cuts and Jobs Act of 2017, including the impact on the markets of our activity,
• effects of industrial competition,
25 -------------------------------------------------------------------------------- •severe weather events or natural or man-made disasters, including increasing the severity or frequency of such events due to climate change or otherwise, or other catastrophic events may disrupt our business and have an unfavorable impact on home sale activity,
•the level of our expenses, including our business expenses as a publicly traded stand-alone company,
• tax exemption for Distribution,
• our lack of operating history as a public company and the costs associated with being an independent public company,
•potential dilution to holders of our common stock as a result of issuances of additional shares of common stock to fund our financial obligations and other financing activities,
• failure by us or the Vector Group to perform our obligations under the Transition Services Agreement or other agreements entered into in connection with the Distribution; and
•the additional factors described under “Risk Factors” in our Annual Report on Form 10-K for the
Further information on the risks and uncertainties to our business include the risk factors discussed above in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSecurities and Exchange Commission .
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be achieved and that any deviations could be material. Forward-looking statements speak only as of the date they are made.
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