Welcome to Douglas Elliman Fourth Quarter and Full Year 2023 Earnings Conference Call. This call is being recorded and simultaneously webcast. An archived version of the webcast will be available on the Investor Relations section of the company's website located at investors.elliman.com for one year. During this call, the terms adjusted EBITDA and adjusted net income will be used. These terms are non-GAAP financial measures and should be considered in addition to, but not as a substitute for, other measures of financial performance prepared in accordance with GAAP. Reconciliations to adjusted EBITDA and adjusted net loss are contained in the company's earnings release, which has been posted to the Investor Relations section of the company's website. Before the call begins, I would like to read a safe harbor statement. The statements made during this conference call that are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks are described in more detail in the company's Securities and Exchange Commission filings. Now I'd like to turn the call over to the Chairman, President and Chief Executive Officer of Douglas Elliman, Howard Lorber. Please go ahead.

Good morning, and thank you for joining us. With me today are Richard Lampen, our Chief Operating Officer; Bryant Kirkland, our Chief Financial Officer; and Scott Durkin, President and CEO of Douglas Elliman Realty, our Residential Real Estate Brokerage Business. Before turning to financial results, we want to reference the ongoing Sitzer/Burnett and other resulting litigation in the residential real estate brokerage industry. Given this is active litigation, we are not going to comment or speak to potential outcomes. We also intend to decline to answer questions on these matters. Since the verdict, more than 20 cases have been filed nationally, of which Douglas Elliman is currently aware of seven that involve us or one of its subsidiaries as a defendant. The plaintiff's uncertain of those actions are seeking to centralize these lawsuits before the federal judge who presided over the sit burner trial in Missouri. The judicial panel will hear the matter on March 28th, 2024. In addition, we understand that the Department of Justice is reviewing industry practices on setting buyers broker commissions, including by weighing in on settlements reached by other companies. Douglas Elliman is currently defending the cases pending against it and has a number of free trial motions that will or have been brought. We believe the lawsuits, which are still in the very early stages and will likely take years to litigate, lack merit, and we intend to challenge them. As we begin to discuss our fourth quarter performance, we are enormously proud to share that Douglas Elliman was recently named the most trusted real estate brokerage firm in the United States as part of the America's most trusted series by Life Story Research. This tremendous accomplishment is a testament to the hard work of our world-class agents and their unwavering commitment to our…

[Operator Instructions]. Our first question from Soham Bhonsle. Please go ahead.

Can you all hear me?

Yes, now we can.

This looks like it is the second quarter in a row where you've taken some market share, at least compared to the national stats, which is great. But I know you're not in every market in the U.S. today either. So, I guess the question is are you seeing market share take on a local level as well, or should we sort of think about this more of a function of your end markets just outperforming sort of the national markets here?

I would say that generally speaking, the high-end markets do perform better. That's why we've pretty much stuck to the high-end markets and our expansion is going to be the same. We are not interested in going to every single market just to say that we have more markets, more brokers, but they don't have anywhere near what we have an average price on sales. We think that this is the right strategy for our company.

Got it. Okay. It looks like your commission split was up another 210 basis points this quarter. It was sort of in the same ballpark last quarter. So, can you just maybe speak to the drivers of the increase there and are you seeing more competition for agents today or is that just a function of mix and should we sort of expect this trend to continue?

Well, I think it's both those things you mentioned, surely there's been a lot of competition. Companies are trading agents back and forth and many times they're giving cash bonuses when they sign up and, higher splits. And this has been going on now for a number of years, probably for about six or seven years. And I think it's sort of slowed down at this particular point. And my guess is that as the market improves and brokers are doing better and better, that maybe will come down. It is not positive that I would say it'll come down because it's hard to take something back that you've already given, but at least on new agents and so forth will be at a lower level and that will help mediate these increases.

And then Bryant, on the operating expenses, looks like the G&A line was a little higher quarter to quarter. Was there any one-time items to call out there? And then how should we think about sort of the quarterly run rate for just total OpEx ex commissions in 2024?

Soham, good morning first. You're correct, the G&A line was higher. Some of that relates to the timing of expenses particularly between the third quarter and fourth quarter related to. Events that we sponsor as well as insurance and obviously also there was an increase in professional fees during the quarter. Going forward, we would say we like where we are, but we are going to be making more meaningful cuts in 2024. In particular, we discussed in our prior calls about the $4 million lease running off and in addition to that, we are making meaningful cuts in our property management division and expect some of those cuts to go over to the other areas of the business.

And then just lastly, is Scott on the call? He is right. This one's for Scott. I guess Scott or Howard. I guess just wondering, you guys all speak to agents daily, can you just maybe give us a feel for where conversations with agents are going like today? Is there concern around sort of just uncertain environment today or do you feel like they feel good about adapting to whatever may come ahead?

I think that most of them are adapting to what will ever come ahead. I assume, as I said, we're not going to comment on the litigation. But I feel that, look, we have a great group of agents in high-end markets that do very high-end sales, and of course, we have markets that are lower-end, but still high compared to the whole country. Like Long Island where the company really started, is a lower-end market, but still that's a market probably that averages about $600,000 for transaction. So, it's not extremely low market, but I think that the agents are happier anyway doing well. I guess there's been a little disappointment because I think most of us thought that we'd have a rate cut in the first quarter, which obviously is not going to happen now, but I think once that happens, which hopefully now will be the second quarter, it's going to be a great boom for the industry.

We’ll go next Ahmed Mehri with Jefferies.

This is Ahmed from Jefferies. I guess my first question is about the macro environment. I was just hoping you could share some color on what you're seeing there and when comps start to accelerate in terms of volume this year?

So, you're talking about compared to our competitors?

No, in terms of like call like year-over-year?

Yes, again, year-over-year, obviously we have -- there's a lack of inventory in most markets, especially in strong markets and the low tax states. So that, I believe, once there is a rate cut that, that will push a lot more into the market, and we will be doing substantially more business as rates come down, and our new development business is a key part of Douglas Elliman. And we have a great very strong business there and that's generally speaking, at the high end of the market. And we're still pretty new in markets like Texas, and there's a great upside to Texas. We now have -- we have three orders. We have Austin, Dallas and Houston, and they we're looking at maybe another market or so in Texas. So, we think that's a great market to be in. We're also looking at other markets, but we're looking pretty much at the low tax or no tax states to expand it on a macro basis.

Got it. That's great color on the market. Actually, if you could maybe expand a little more on just what markets are seeing better demand or which markets maybe you're more concerned about?

I mean what -- I think the ones that we're more concerned about are the ones that are taxing people out of their states. We're in California, but California is very difficult, very difficult because they keep adding taxes. And it's pretty tough. And California was also a state that always had higher commission payouts to brokers than the East Coast. So that's a tough one. I think that's probably the toughest of the markets that we're in. But I think that -- look, I think -- BK, do you want to comment?

Yes, I'll be happy to. I think one part about our story is our luxury brand is permeating throughout the country as there are shifts in the population. If you look at Florida, California, new market, they increased from 41% of revenues in the fourth quarter last year to 46% this year. Florida alone went from 20.5% to 25% of the market -- of our total revenues. So that was a significant increase. And we are continuing to see a lot of strong demand in Florida. As Howard mentioned earlier, the $13.8 billion in inventory that we have that we're currently selling in development marketing.

And the backlog of others that will be coming on to the market.

Yes. And that number in Florida, I believe, is $5.8 million -- $5.8 billion, Howard.

Got it. That's helpful. And then just one last one for me. It's really like -- I guess I couldn't find -- so apologies if I missed this on your filings, but just trying to understand your development business. Could you maybe explain again what's like the timing of I guess recognition of cash and revenues on that?

Yes. I'll be happy to take that. Generally, when a deposit is received and in development marketing, we record that as a liability or deferred revenue, and we recognize the commission that we pay to our agent as a cost, as a deferred cost. So, we do not recognize profit on the new development until units start to close because under the accounting rules a sale occurs when all the items have been met to close that sale. So that's when revenue was recognized. So, there is a deferred liability on the books. I believe the numbers about $63 million and the deferred cost related to commissions we paid on is about $41 million. The difference of that $20 million will be recognized over time, generally the next four years.

And the other advantage is, and this is going to help our margins missions on new development sales are less than regular resales.

Yes, I gave a number earlier, coming to market on development this year is $9.7 billion. Florida of that is $5.1 billion.

That's not including what's already on the market.

That's correct.

It hasn't closed yet.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on Douglas Elliman's quarterly earnings conference call. We hope you have a good day and this will conclude our call.