Douglas Elliman Inc

Previous wording

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 Consolidated Financial Statements as of and for the year ended December 31, 2023 and Notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”), and our Condensed Consolidated Financial Statements and related Notes as of and for the quarterly period and six months ended June 30, 2024.

Current wording

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 Consolidated Financial Statements as of and for the year ended December 31, 2023 and Notes thereto, included in our 2023 Annual Report filed with the SEC, and our Condensed Consolidated Financial Statements and related Notes as of and for the quarterly period and nine months ended September 30, 2024. Any forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Any forward-looking statements are subject to several important factors, including those factors discussed under “Risk Factors” in our 2023 Annual Report and this Quarterly Report and “Special Note on Forward-Looking Statements,” that could cause our actual results to differ materially from those indicated in such forward-looking statements.

Previous wording

(a)Represents amortization of stock-based compensation. $4,712, $2,353,$2,180, and$4,539 are attributable to the Real estate brokerage segment for the last twelve months ended June 30, 2024, the six months ended June 30, 2024, and 2023, and the year ended December 31, 2023, respectively. $8,969, $4,477,$4,044, and$8,536 are attributable to the Corporate and other segment for the last twelve months ended June 30, 2024, the six months ended June 30, 2024, and 2023, and the year ended December 31, 2023, respectively.

Current wording

(a)Represents amortization of stock-based compensation. $4,795, $3,611,$3,355, and$4,539 are attributable to the Real estate brokerage segment for the last twelve months ended September 30, 2024, the nine months ended September 30, 2024, and 2023, and the year ended December 31, 2023, respectively. $9,331, $7,106,$6,311, and$8,536 are attributable to the Corporate and other segment for the last twelve months ended September 30, 2024, the nine months ended September 30, 2024, and 2023, and the year ended December 31, 2023, respectively.

Previous wording

Convertible Debt. On July 2, 2024, we issued $50,000 in aggregate principal amount of senior secured convertible notes due on July 2, 2029 (the “Convertible Notes”) to funds advised by KLIM. The Convertibles Notes bear interest at a rate of 7.0% per annum payable in cash, or, at the our election, 8.0% per annum paid in kind, due semi-annually. The convertible notes are convertible into common stock at an initial conversion rate equal to $1.50 per share, subject to certain customary anti-dilution adjustments. We intend to use the net proceeds from the sale of the Convertible Notes for general corporate purposes.

Current wording

Convertible Debt. On July 2, 2024, we issued $50,000 in aggregate principal amount of senior secured convertible notes due on July 2, 2029 (the “Convertible Notes”) to funds advised by KLIM. The Convertibles Notes bear interest at a rate of 7.0% per annum payable in cash, or, at our election, 8.0% per annum paid in kind, due semi-annually. The convertible notes are convertible into common stock at an initial conversion rate equal to $1.50 per share, subject to certain customary anti-dilution adjustments. We intend to use the net proceeds from the sale of the Convertible Notes for general corporate purposes.

Previous wording

Under the Settlement Agreement, we paid$7,750, into an escrow fund, on June 12, 2024 and agreed to pay two $5,000 contingent payments subject to certain financial contingencies on or before December 31, 2027 (collectively, the “Settlement Amount”). The contingent payments may be accelerated under certain circumstances. We recognized an expense of$17,750 in the six months ended June 30, 2024.

Current wording

Under the Settlement Agreement, we paid$7,750, into an escrow fund, on June 12, 2024 and agreed to pay two $5,000 contingent payments subject to certain financial contingencies on or before December 31, 2027 (collectively, the “Settlement Amount”). The contingent payments may be accelerated under certain circumstances. We recognized an expense of$17,750 in the nine months ended September 30, 2024.

Previous wording

The Settlement Agreement remains subject to final court approval and will, if approved, become effective at that time. See Note 7 - “Contingencies” to our condensed consolidated financial statements.

Current wording

See Note 8 - “Contingencies” to our condensed consolidated financial statements.

Previous wording

During the six months ended June 30, 2024, our real estate brokerage segment reduced its operating expenses, excluding commissions, litigation settlement, restructuring expenses and non-cash stock compensation expenses by approximately $11,300 (7.9%) as compared to the corresponding period in 2023. These reductions during the six months ended June 30, 2024 included approximately $10,700 of general and administrative expenses.

Current wording

During the nine months ended September 30, 2024, our real estate brokerage segment reduced its operating expenses, excluding commissions, litigation settlement, restructuring expenses and non-cash stock compensation expenses by approximately $11,900 (5.9%) as compared to the corresponding period in 2023. These reductions during the nine months ended September 30, 2024 included approximately $11,900 of general and administrative expenses.

Previous wording

The following table sets forth our revenue and operating (loss) income by segment for the three months ended June 30, 2024 compared to the three months ended June 30, 2023:

Current wording

The following table sets forth our revenue and operating income (loss) by segment for the three months ended September 30, 2024 compared to the three months ended September 30, 2023:

Previous wording

Revenues. Our revenues were $285,751 for the three months ended June 30, 2024 compared to $275,912 for the three months ended June 30, 2023. The $9,839 increase in revenues was primarily due to increases in commission and other brokerage revenues which primarily related to increases in revenues from existing home sales.

Current wording

Revenues. Our revenues were $266,316 for the three months ended September 30, 2024 compared to $251,548 for the three months ended September 30, 2023. The $14,768 increase in revenues was primarily due to increases in commission and other brokerage revenues which primarily related to increases in commissions from existing home sales and development marketing.

Previous wording

Operating expenses. Our operating expenses were $289,424 for the three months ended June 30, 2024 compared to $284,209 for the three months ended June 30, 2023. The increase of $5,215 was due primarily to an increase in real estate agent commissions of $11,655 arising primarily from increases in commissions and other brokerage revenue partially offset by declines in general and administrative expenses.

Current wording

Operating expenses. Our operating expenses were $273,747 for the three months ended September 30, 2024 compared to $260,369 for the three months ended September 30, 2023. The increase of $13,378 was due primarily to an increase in real estate agent commissions of $13,288 arising primarily from increases in commissions and other brokerage revenue partially offset by declines in general and administrative expenses.

Previous wording

Operating loss. Operating loss was $3,673 for the three months ended June 30, 2024 compared to $8,297 for the same period in 2023. The $4,624 decline in operating loss was due to the net impact of increases in commission and other brokerage revenues partially offset by the increases in operating expenses.

Current wording

Operating loss. Operating loss was $7,431 for the three months ended September 30, 2024 compared to $8,821 for the same period in 2023. The $1,390 decline in operating loss was due to the net impact of increases in commission and other brokerage revenues partially offset by the increases in operating expenses.

Previous wording

Other income. Other income was $2,066 for the three months ended June 30, 2024 compared to $1,826 for the three months ended June 30, 2023. For the three months ended June 30, 2024, other income primarily consisted of interest income, net of $1,048, investment and other income, primarily associated with our PropTech investments of $1,020. This was partially offset by equity in losses from equity method investments of $2.

Current wording

Other (losses) income. Other losses was $20,018 for the three months ended September 30, 2024 compared to income of $1,822 for the three months ended September 30, 2023. For the three months ended September 30, 2024, other losses primarily consisted of the change in fair value of embedded derivative of $20,166, interest expense of $1,461, primarily associated with the debt issuance, and investment and other losses, primarily associated with our PropTech investments of $4. This was offset by interest income of $1,551 and equity in earnings from equity method investments of $62.

Previous wording

Loss before provision for income taxes. Loss before income taxes was $1,607 and $6,471 for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Loss before provision for income taxes. Loss before income taxes was $27,449 and $6,999 for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Income tax expense (benefit). Income tax expense was $173 compared to income tax benefit of $1,293 for the three months ended June 30, 2024 and 2023, respectively.

Current wording

Income tax expense (benefit). Income tax expense was $0 compared to income tax benefit of $1,869 for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Revenues. Our revenues were $285,751 for the three months ended June 30, 2024 compared to $275,912 for the three months ended June 30, 2023. The increase of $9,839 was primarily related to an increase in our commission and other brokerage income, as a result of an increase in revenues from existing home sales.

Current wording

Revenues. Our revenues were $266,316 for the three months ended September 30, 2024 compared to $251,548 for the three months ended September 30, 2023. The increase of $14,768 was primarily related to an increase in our commission and other brokerage income, as a result of an increase in commissions from existing home sales and development marketing. The increase in revenues was driven by an increased average price per transaction of $1.61 million per homesale in three months ended September 30, 2024 compared to $1.57 million per homesale in the comparable 2023 period.

Previous wording

Our revenues from commission and other brokerage income were $272,313 for the three months ended June 30, 2024 compared to $262,489 for the three months ended June 30, 2023, an increase of $9,824. In the three months ended June 30, 2024, our commission and other brokerage income generated from the sales of existing homes increased by $11,193 in the Florida market, $3,590 in the West region, and $1,672 in the Northeast region, which excludes New York City. This was partially offset by declines of $3,662 in New York City. In addition, our revenues from Development Marketing declined by $2,969 in the 2024 period compared to the 2023 period.

Current wording

Our revenues from commission and other brokerage income were $254,074 for the three months ended September 30, 2024 compared to $239,255 for the three months ended September 30, 2023, an increase of $14,819. In the three months ended September 30, 2024, our commission and other brokerage income generated from the sales of existing homes increased by $6,939 in New York City, $1,143 in the Northeast region, which excludes New York City. This was partially offset by declines of $3,231 in the Florida market, and $740 in the West region. In addition, our revenues from Development Marketing increased by $10,708 in the 2024 period compared to the 2023 period and was primarily from an increase in closed sales in the Florida market.

Previous wording

Operating Expenses. Our operating expenses were $282,804 for the three months ended June 30, 2024 compared to $276,926 for the three months ended June 30, 2023, an increase of $5,878, due primarily to increases in real estate brokerage commissions, partially offset by reductions in general and administrative and technology expenses. The primary components of operating expenses are described below.

Current wording

Operating Expenses. Our operating expenses were $265,862 for the three months ended September 30, 2024 compared to $253,540 for the three months ended September 30, 2023, an increase of $12,322, due primarily to increases in real estate brokerage commissions, partially offset by reductions in general and administrative and technology expenses. The primary components of operating expenses are described below.

Previous wording

Real Estate Agent Commissions. As a result of increases in our commissions and other brokerage income, our real estate agent commissions expense was $216,457 for the three months ended June 30, 2024 compared to $204,802 for the three months ended June 30, 2023. Real estate agent commissions expense, as a percentage of revenues, increased to 75.8% for the three months ended June 30, 2024 compared to 74.2% for the three months ended June 30, 2023. The increase in real estate agent commissions expense as a percentage of revenue in the 2024 period was primarily driven by a higher percentage of revenues being generated in the Southeast (Florida), which traditionally pay higher commission rates than other regions, as well as a lower percentage of commission revenues derived from Development Marketing, which generally pays lower commission rates.

Current wording

Real Estate Agent Commissions. As a result of increases in our commissions and other brokerage income, our real estate agent commissions expense was $199,133 for the three months ended September 30, 2024 compared to $185,845 for the three months ended September 30, 2023. Real estate agent commissions expense, as a percentage of revenues, increased to 74.8% for the three months ended September 30, 2024 compared to 73.9% for the three months ended September 30, 2023.

Previous wording

Sales and Marketing. Sales and marketing expenses were $22,153 for the three months ended June 30, 2024 compared to $22,161 for the three months ended June 30, 2023.

Current wording

Sales and Marketing. Sales and marketing expenses were $19,240 for the three months ended September 30, 2024 compared to $20,770 for the three months ended September 30, 2023.

Previous wording

Operations and support. Operations and support expenses were $17,999 for the three months ended June 30, 2024 compared to $17,324 for the three months ended June 30, 2023. The increase is primarily related to an increase in legal expense in the 2024 period.

Current wording

Operations and support. Operations and support expenses were $18,774 for the three months ended September 30, 2024 compared to $17,121 for the three months ended September 30, 2023. The increase is primarily related to higher professional fees in the 2024 period.

Previous wording

General and administrative. General and administrative expenses were $18,235 for the three months ended June 30, 2024 compared to $23,976 for the three months ended June 30, 2023. The decline is primarily related to reductions in personnel as well as lower incentive compensation expense in the 2024 period.

Current wording

General and administrative. General and administrative expenses were $20,774 for the three months ended September 30, 2024 compared to $21,988 for the three months ended September 30, 2023. The decline is primarily related to reductions in personnel as well as lower incentive compensation expenses offset by higher professional fees.

Previous wording

Technology. Technology expenses were $5,433 for the three months ended June 30, 2024 compared to $6,163 for the three months ended June 30, 2023. The decline resulted from continued expense reduction efforts in 2024, which included the negotiation of existing licensing agreements in an effort to improve our technology efficiency

Current wording

Technology. Technology expenses were $6,025 for the three months ended September 30, 2024 compared to $5,602 for the three months ended September 30, 2023. The increase resulted from continued expense reduction efforts in 2024, which included the negotiation of existing licensing agreements in an effort to improve our technology efficiency.

Previous wording

Operating income (loss). Operating income was $2,947 for the three months ended June 30, 2024 compared to operating loss of $1,014 for the three months ended June 30, 2023. The increase in operating income is primarily associated with the net impact of increased commission and other brokerage revenues and partially offset by increases in operating expenses.

Current wording

Operating income (loss)Operating income was $454 for the three months ended September 30, 2024 compared to operating loss of $1,992 for the three months ended September 30, 2023. The increase in operating income is primarily associated with the net impact of increased commission and other brokerage revenues and partially offset by increases in operating expenses.

Previous wording

Corporate and Other loss. The operating loss at the Corporate and Other segment was $6,620 for the three months ended June 30, 2024 compared to $7,283 for the three months ended June 30, 2023. The decline was primarily attributable to a decline in operating expenses.

Current wording

Corporate and Other loss. The operating loss at the Corporate and Other segment was $7,885 for the three months ended September 30, 2024 compared to $6,829 for the three months ended September 30, 2023. The increase was primarily attributable to increases in operating expenses.

Previous wording

The following table sets forth our revenue and operating loss by segment for the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

Current wording

The following table sets forth our revenue and operating loss by segment for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

Previous wording

Revenues. Our revenues were $485,990 for the six months ended June 30, 2024 compared to $489,894 for the six months ended June 30, 2023. The $3,904 decline in revenues was primarily due to a decline in commissions and other brokerage income because of lower revenues from existing home sales caused, in part, by lower listing inventory associated with continued high mortgage rates.

Current wording

Revenues. Our revenues were $752,306 for the nine months ended September 30, 2024 compared to $741,442 for the nine months ended September 30, 2023. The $10,864 increase in revenues was primarily due to an increase in commissions and other brokerage income because of increased commissions from existing home sales.

Previous wording

Operating expenses. Our operating expenses were $531,127 for the six months ended June 30, 2024 compared to $521,999 for the six months ended June 30, 2023. The increase of $9,128 was due primarily to the litigation settlement of $17,750 and increases in real estate brokerage commissions of $4,569 partially offset by a decline in other operating expenses of $13,191.

Current wording

Operating expenses. Our operating expenses were $804,874 for the nine months ended September 30, 2024 compared to $782,368 for the nine months ended September 30, 2023. The increase of $22,506 was due primarily to the litigation settlement of $17,750 and increases in real estate brokerage commissions of $17,857 partially offset by a decline in other operating expenses of $13,101.

Previous wording

Operating loss. Operating loss was $45,137 for the six months ended June 30, 2024 compared to $32,105 for the six months ended June 30, 2023. The $13,032 increase in operating loss was primarily due to the litigation settlement and the net impact of declines in commissions and other brokerage revenues partially offset by a decline in operating expenses.

Current wording

Operating loss. Operating loss was $52,568 for the nine months ended September 30, 2024 compared to $40,926 for the nine months ended September 30, 2023. The $11,642 increase in operating loss was primarily due to the litigation settlement and the net impact of declines in commissions and other brokerage revenues partially offset by a decline in operating expenses.

Previous wording

Other income. Other income was $3,040 for the six months ended June 30, 2024 compared to $2,404 for the six months ended June 30, 2023. For the six months ended June 30, 2024, other income primarily consisted of interest income, net of $2,424 and $629 of investment and other losses primarily associated with our PropTech investments. This was partially offset by equity losses from equity method investments of $13.

Current wording

Other (loss) income. Other loss was $16,978 for the nine months ended September 30, 2024 compared to income of $4,226 for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, other losses primarily consisted of the change in fair value of derivatives embedded within convertible debt of $20,166 associated with the issuance of the new financing debt, and interest expense of $1,475. This was partially offset by interest income of $3,989, $625 of investment and other income primarily associated with our PropTech investments, and equity earnings from equity method investments of $49.

Previous wording

Loss before provision for income taxes. Loss before income taxes was $42,097 for the six months ended June 30, 2024 and $29,701 for the six months ended June 30, 2023.

Current wording

Loss before provision for income taxes. Loss before income taxes was $69,546 for the nine months ended September 30, 2024 and $36,700 for the nine months ended September 30, 2023.

Previous wording

Income tax expense (benefit). Income tax expense was $1,368 for the six months ended June 30, 2024 compared to income tax benefit of $6,683 for the six months ended June 30, 2023.

Current wording

Income tax expense (benefit). Income tax expense was $1,368 for the nine months ended September 30, 2024 compared to income tax benefit of $8,552 for the nine months ended September 30, 2023.

Previous wording

Wecalculate our provision for income taxes based upon our estimate of 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. During the six months ended June 30, 2024, we analyzed the likelihood of utilizing our deferred tax assets and determined it will be more likely than not that the benefits of these deductible differences will not be realized, and as a result we established a valuation allowance for the full amount of the deferred tax assets. We refine annual estimates as current information becomes available.

Current wording

Wecalculate our provision for income taxes based upon our estimate of 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. During the nine months ended September 30, 2024, we analyzed the likelihood of utilizing our deferred tax assets and determined it will be more likely than not that the benefits of these deductible differences will not be realized, and as a result we established a valuation allowance for the full amount of the deferred tax assets. We refine annual estimates as current information becomes available.

Previous wording

The following table sets forth our condensed consolidated statements of operations data for the Real Estate Brokerage segment for the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

Current wording

The following table sets forth our condensed consolidated statements of operations data for the Real Estate Brokerage segment for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

Previous wording

Our revenues from commission and other brokerage income were $460,578 for the six months ended June 30, 2024 compared to $464,525 for the six months ended June 30, 2023, a decline of $3,947. In 2024, our commission and other brokerage income generated from the sales of existing homes declined by $12,220 in New York City. This was partially offset by increases of $14,369 in our Florida market, $5,944 in the West region and $3,153 in the Northeast region, which excludes New York City. In addition, our revenues from Development Marketing declined by $15,193 in the 2024 period compared to the 2023 period.

Current wording

Our revenues from commission and other brokerage income were $714,652 for the nine months ended September 30, 2024 compared to $703,780 for the nine months ended September 30, 2023, an increase of $10,872. In 2024, our commission and other brokerage income generated from the sales of existing homes increased by $15,357 and this consisted of increases of $11,138 in our Florida market, $5,204 in the West region and $4,296 in the Northeast region, which excludes New York City; these increases were offset by declines of $5,281 in New York City. In addition, our revenues from Development Marketing declined by $4,485 in the 2024 period compared to the 2023 period.

Previous wording

Operating Expenses. Our operating expenses were $518,329 for the six months ended June 30, 2024 compared to $508,251 for the six months ended June 30, 2023, an increase of $10,078, due primarily to the litigation settlement partially offset by declines in other operating expenses.

Current wording

Operating Expenses. Our operating expenses were $784,191 for the nine months ended September 30, 2024 compared to $761,791 for the nine months ended September 30, 2023, an increase of $22,400, due primarily to the litigation settlement partially offset by declines in other operating expenses.

Previous wording

Real Estate Agent Commissions. Our real estate agent commissions expense was $365,473 for the six months ended June 30, 2024 compared to $360,904 for the six months ended June 30, 2023, an increase of $4,569. Real estate agent commissions expense, as a percentage of revenues, increased to 75.2% for the six months ended June 30, 2024 compared to 73.7% for the six months ended June 30, 2023. The increase in real estate agent commissions expense as a percentage of revenue in the 2024 period was primarily driven by a lower percentage of commission revenues derived from Development Marketing, which generally pays lower commission rates, during six months ended June 30, 2024 compared to the prior year period. In addition, during the six months ended June 30, 2024, a higher percentage of our revenues was generated from locations (primarily Florida, California, Texas, Colorado and Nevada) which generally pay higher commission rates.

Current wording

Real Estate Agent Commissions. Our real estate agent commissions expense was $564,606 for the nine months ended September 30, 2024 compared to $546,749 for the nine months ended September 30, 2023, an increase of $17,857. Real estate agent commissions expense, as a percentage of revenues, increased to 75.1% for the nine months ended September 30, 2024 compared to 73.7% for the nine months ended September 30, 2023. The increase in real estate agent commissions expense as a percentage of revenue in the 2024 period was primarily driven by a higher percentage of our revenues was generated from locations (primarily Florida, California, Texas, Colorado and Nevada) which generally pay higher commission rates and a lower percentage of commission revenues derived from Development Marketing, which generally pays lower commission rates, during nine months ended September 30, 2024 compared to the prior year period.

Previous wording

Sales and Marketing. Sales and marketing expenses were $43,451 for the six months ended June 30, 2024 compared to $43,400 for the six months ended June 30, 2023.

Current wording

Sales and Marketing. Sales and marketing expenses were $62,691 for the nine months ended September 30, 2024 compared to $64,170 for the nine months ended September 30, 2023.

Previous wording

Operations and support. Operations and support expenses were $36,798 for the six months ended June 30, 2024 compared to $36,217 for the six months ended June 30, 2023.

Current wording

Operations and support. Operations and support expenses were $55,572 for the nine months ended September 30, 2024 compared to $53,338 for the nine months ended September 30, 2023.

Previous wording

General and administrative. General and administrative expenses were $39,073 for the six months ended June 30, 2024 compared to $49,806 for the six months ended June 30, 2023.The decline is primarily related to reductions in personnel as well as lower incentive compensation expenses.

Current wording

General and administrative. General and administrative expenses were $59,847 for the nine months ended September 30, 2024 compared to $71,794 for the nine months ended September 30, 2023. The decline is primarily related to reductions in personnel as well as lower incentive compensation expenses.

Previous wording

Technology. Technology expenses were $11,276 for the six months ended June 30, 2024 compared to $12,175 for the six months ended June 30, 2023.

Current wording

Technology. Technology expenses were $17,301 for the nine months ended September 30, 2024 compared to $17,777 for the nine months ended September 30, 2023.

Previous wording

Operating loss. Operating loss was $32,339 for the six months ended June 30, 2024 compared to $18,357 for the six months ended June 30, 2023. The increase in operating loss is primarily associated with the litigation settlement of $17,750 and decline in revenues partially offset by a decline in operating expenses.

Current wording

Operating loss. Operating loss was $31,885 for the nine months ended September 30, 2024 compared to $20,349 for the nine months ended September 30, 2023. The increase in operating loss is primarily associated with the litigation settlement of $17,750 and decline in revenues partially offset by a decline in operating expenses.