Douglas Elliman Inc.: Form 10-Q for the period ended Mar 31, 2025

(Dollars in Thousands, Except Per Share Amounts or Stated Otherwise)

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, 2024 and Notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”), and our Condensed Consolidated Financial Statements and related Notes as of and for the quarterly period ended March 31, 2025. 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 2024 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. References to “Douglas Elliman” or “Company” refer to Douglas Elliman Inc. Certain references to “Douglas Elliman Realty” refer to the Company’s residential real estate brokerage business, including the operations of Douglas Elliman Realty, LLC and Douglas Elliman of California Inc., unless otherwise specified.

Overview

Douglas Elliman Realty operates the largest residential brokerage company in the New York metropolitan area and also conducts residential real estate brokerage operations in Florida, California, Texas, Colorado, Nevada, Massachusetts, Connecticut, Maryland, Virginia, Washington, D.C., Arizona, New Hampshire and Michigan. We also operate our investment business that invests in select PropTech opportunities through our New Valley Ventures subsidiary.

Change in Reportable Segments

We now manage our business as a single business segment. Therefore, prior business segments were recast because our Chief Executive Officer, who became CEO in October 2024 and acts as the Chief Operating Decision Maker, or CODM, began reviewing the operating performance of our business as a whole, instead of on a segment basis as was done prior to January 1, 2025.

Furthermore, the CODM now evaluates the operating results and revenue of our business as total real estate services to make decisions. As a result of this change, the nature and substance of information regularly provided to and used by the CODM have been revised. The CODM uses and compares results, which include operating loss and investment and other income, to prior periods and, based on these results, assesses business performance and identifies trends of ongoing operations on a consolidated basis.

As a result, beginning in the first quarter of 2025, our business began to report our financial results as a single reportable segment. Presentation of our financial information for the three months ended March 31, 2025 and 2024, and year ended December 31, 2024 is reported as one segment. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. Prior period information has been recast to conform to the current presentation.

Key Business Metrics 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, Adjusted EBITDA attributed to Douglas Elliman Margin and financial measures for the last twelve months ended March 31, 2025 (“Non-GAAP Financial Measures”), which are financial measures not prepared in accordance with GAAP.

Key Business Metrics

(1) We calculate total transactions by taking the sum of all transactions closed that 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 transaction value per transaction is the quotient of (x) gross transaction value divided by (y) total transactions.

(4) The number of Principal Agents is determined as of the last day of the specified period. We use the number of Principal Agents, in combination with our other key business metrics such as total transactions and gross transaction value, as a measure of agent productivity.

(5) 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. Adjusted EBITDA attributed to Douglas Elliman Margin is the quotient of (x) Adjusted EBITDA attributed to Douglas Elliman divided by (y) revenue. Last twelve months 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 the 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 (in thousands).

Computation of Adjusted EBITDA attributed to Douglas Elliman

(a) Represents amortization of stock-based compensation. For the last twelve months ended March 31, 2025, $4,181 of stock-based compensation is included within General and administrative expenses and $1,073 is included within Operations and support expenses on the condensed consolidated statements of operations. For the three months ended March 31, 2025, $1,770 of stock-based compensation is included within General and administrative expenses and $265 is included within Operations and support expenses on the condensed consolidated statements of operations. For the three months ended March 31, 2024, $3,099 of stock-based compensation is included within General and administrative expenses and $256 is included within Operations and support expenses on the condensed consolidated statements of operations. For the year ended December 31, 2024, $5,510 of stock-based compensation is included within General and administrative expenses and $1,064 is included within Operations and support expenses on the consolidated statements of operations.

(b) Represents equity in (earnings) losses recognized from our investment in an equity method investment that is accounted for under the equity method and is not consolidated in our financial results.

(c) Represents unusual litigation expense, settlement and related expenses incurred in connection with industry-wide antitrust class action lawsuits and other matters related to employees and agents. For the last twelve months and three months ended March 31, 2025, $16,836 and $1,898 are included within General and administrative expenses on the condensed consolidated statements of operations, respectively. For the three months ended March 31, 2024, we incurred such expenses of $18,395 with $645 being included in General and administrative expenses and $17,750 being included in Antitrust litigation settlement expense in the condensed consolidated statement of operations. For the year ended December 31, 2024, we incurred unusual litigation expense, settlement and related expenses of $33,333 with $15,583 being included in General and administrative expenses and $17,750 being included in Antitrust litigation settlement expense on the consolidated statement of operations.

(d) For the last twelve months and three months ended March 31, 2025, $2,420 and $410 are included within General and administrative expenses on the condensed consolidated statement of operations, respectively. For the year ended December 31, 2024, $2,010 is included within General and administrative expenses on the consolidated statement of operations.

Results of Operations

The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report.

The primary components of our operating expenses, the changes, which are described in the following discussion of our results of operations, are summarized below:

• Sales and marketing. Sales and marketing expense consists primarily of marketing and advertising expenses, compensation and other personnel-related costs for employees supporting sales, marketing, expansion and related functions, occupancy-related costs and agent acquisition incentives.
• Operations and support. Operations and support expense consists primarily of compensation and other personnel-related costs for employees supporting agents, third-party consulting and professional services costs (not included in general and administrative or technology), commissions related to escrow transactions, fair value adjustments to contingent consideration for our acquisitions and other related expenses.
• General and administrative. General and administrative expense consists primarily of compensation, stock-based compensation expense and other personnel-related costs for administrative employees, including executives, finance and accounting, legal, human resources, communications, property management and escrow services as well as the occupancy costs for our headquarters and other offices supporting our administrative functions and, for the three months ended March 31, 2024, transition service fees paid to our former parent, Vector Group, for the use of office space and employees, professional services fees for legal and finance, insurance expenses and talent acquisition expenses.
• Technology. Technology expense consists primarily of compensation and other personnel-related costs for employees in the product, engineering and technology functions, website hosting expenses, software licenses and equipment, third-party consulting costs, data licenses of PropTech and other related expenses associated with the implementation of our technology initiatives.

Three months ended March 31, 2025 Compared to Three months ended March 31, 2024

As discussed above, effective on January 1, 2025, we began to report our financial results as a single operating and reportable segment. Therefore, the presentation of our business’s financial information for the three months ended March 31, 2025 and 2024 will be reported as one segment. For more information, see Note 11. “Segment Information” to our condensed consolidated financial statements.

The following table sets forth our revenue and operating loss for the three months ended March 31, 2025 compared to the three months ended March 31, 2024:

(Dollars in thousands)

Revenues. Our revenues were $253,403 for the three months ended March 31, 2025 compared to $200,239 for the three months ended March 31, 2024. The $53,164 increase in revenues was primarily due to higher commissions and other brokerage income, driven by an increased number of transactions and higher transaction values from existing home sales in both the New York City and Florida markets compared to the 2024 period.

Our revenues from commission and other brokerage income totaled $241,143 for the three months ended March 31, 2025, compared to $188,265 for the three months ended March 31, 2024, representing an increase of $52,878. In 2025, our commission and other brokerage income from existing homes sales increased by $16,977 in New York City, $11,769 in the Florida market, $8,409 in the Northeast region (excluding New York City), and $1,143 in the West region. Additionally, our revenues from Development Marketing increased by $14,580, primarily related to the Florida market during the 2025 period compared to 2024.

Operating expenses. Our operating expenses were $258,752 for the three months ended March 31, 2025, compared to $241,703 for the three months ended March 31, 2024. The $17,049 increase was primarily due to higher real estate brokerage commissions of $37,509 resulting from increased revenues, partially offset by lower operating expenses, mainly related to a $17,750 litigation settlement incurred in 2024.

Real Estate Agent Commissions. As a result of increased commissions and other brokerage income, our real estate agent commissions expense was $186,525 for the three months ended March 31, 2025, compared to $149,016 for the three months ended March 31, 2024, representing an increase of $37,509, or 25.2%. Real estate agent commissions expense as a percentage of revenues decreased to 73.6% for the three months ended March 31, 2025, compared to 74.4% for the three months ended March 31, 2024. This decline was primarily driven by a higher percentage of commission revenues derived from the Development Marketing division as well as existing home sales in the New York City region, which generally pay lower commission rates than those generated in the Southeast (Florida) and West regions.

Sales and Marketing. Sales and marketing expenses were $19,739 for the three months ended March 31, 2025, compared to $21,298 for the three months ended March 31, 2024.

Operations and support. Operations and support expenses were $17,728 for the three months ended March 31, 2025, compared to $18,799 for the three months ended March 31, 2024.

General and administrative. General and administrative expenses were $27,325 for the three months ended March 31, 2025, compared to $27,016 for the three months ended March 31, 2024.

Technology. Technology expenses were $5,535 for the three months ended March 31, 2025, compared to $5,843 for the three months ended March 31, 2024.

Operating loss. Operating loss was $5,349 for the three months ended March 31, 2025, compared to $41,464 for the three months ended March 31, 2024. The $36,115 decrease in operating loss was primarily due to increased revenues and reduced operating expenses, partially offset by higher commission expenses and the $17,750 litigation settlement.

Other (expense) income. Other expense was $935 for the three months ended March 31, 2025, compared to other income of $974 for the three months ended March 31, 2024. For the three months ended March 31, 2025, other expense primarily consisted of interest expense of $1,530, a $746 loss from changes in the fair value of the derivative embedded within convertible debt, and net losses realized on investment securities of $22. These were partially offset by interest income of $1,361.

Loss before provision for income taxes. Loss before income taxes was $6,284 for the three months ended March 31, 2025, and $40,490 for the three months ended March 31, 2024.

Income tax expense. There was no income tax expense for the three months ended March 31, 2025. The income tax expense for the three months ended March 31, 2024 was $1,195.

We calculate 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. We did not record an income tax provision for the three months ending March 31, 2025 because we have established a valuation allowance for the full amount of the deferred tax assets. During the three months ending March 31, 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 and recorded a charge of $977. We refine annual estimates as current information becomes available.

Summary of PropTech Investments

As of March 31, 2025, New Valley Ventures had investments (at a carrying value) of approximately $11,344 in PropTech companies. This amounts to approximately 2% of the value of Douglas Elliman’s total assets, which totaled approximately $494 million as of March 31, 2025.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash increased by $3,164 to $145,385, which included $8,614 of restricted cash, during the three months ended March 31, 2025. This compares to a decrease of $29,449, to $100,068, which included restricted cash of $8,617, during the three months ended March 31, 2024.

Cash used in operations was $5,617 for the three months ended March 31, 2025, compared to $27,291 for the three months ended March 31, 2024. The decline in the cash used in the 2025 period was attributable to a lower operating loss and favorable changes in working capital, primarily due to increases in other current liabilities. This was partially offset by the absence of income tax refunds and the $17,750 litigation settlement in the three months ended March 31, 2025.

Cash provided by investing activities was $8,781 for the three months ended March 31, 2025, compared to cash used in investing activities of $2,158 for the three months ended March 31, 2024. For the three months ended March 31, 2025, cash provided by investing activities was comprised of the proceeds from sale of short-term investments of $54,416 and proceeds from the sale of investments of $78 in our PropTech business. These inflows were partially offset by the purchase of short-term investments of $44,612, long-term investments of $67, and capital expenditures of $1,034. For the three months ended March 31, 2024, cash used in investing activities was comprised of capital expenditures of $2,081 and the purchase of investments of $85 in our PropTech business. This was partially offset by distributions of $8 from our investments in equity securities.

Our investment philosophy is to maximize return on investments by seeking reasonable expectations for return when investing in equity-method investments and PropTech investments, as well as when making capital expenditures.

We continue to evaluate our capital structure and current market conditions related to our capital structure. We may acquire, or seek to acquire, additional operating businesses through a merger, purchase of assets, stock acquisition or other means, or to make other revisions to our capital structure, including, if authorized by our Board of Directors and holders of our Convertible Notes, the repurchase of our common stock in open market transactions. These initiatives may limit our liquidity otherwise available.

Real Estate Brokerage Litigation. On April 26, 2024, we entered into a settlement agreement to resolve all claims on a nationwide basis in the pending class action litigations, Gibson v. NAR, No. 4:23-cv-00788-SRB (W.D. Mo.) and Umpa v. NAR, 4:23-cv-00945-SRB (W.D. Mo.) alleging claims on behalf of sellers against Douglas Elliman Inc. and our subsidiaries. Under the settlement agreement, we agreed to pay $7,750 within 30 business days of preliminary approval of the settlement by the court, as well as two $5,000 contingent payments subject to certain financial contingencies through December 31, 2027.

Other litigation. Two real estate salespersons formerly associated with us as independent contractors, have, together or separately, been named as defendants in multiple complaints by women accusing them of sexual assault and related wrongdoing, and face criminal charges related to similar alleged conduct. Recently, we and our former Chief Executive Officer were named as defendants in one of these lawsuits. Plaintiffs have brought claims against us under the New York Gender-Motivated Violence Act and sex trafficking, negligence, and negligent hiring, retention, and supervision claims. We deny liability and intend to defend vigorously against these claims. We are aware that other claims may be asserted against us and possibly against certain former Company leadership arising out of the matters related to the two former real estate salespersons.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending and other cases, including antitrust lawsuits.

Management cannot predict the cash requirements related to any future settlements or judgments, including cash required to bond any appeals, and there is a risk that those requirements will not be able to be met. Management is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome of the cases pending against our business or the costs of defending such cases. It is possible that our consolidated financial position, results of operations or cash flows in any future period could be materially adversely affected by an unfavorable outcome in any such litigation. For more information, see Note 8. “Contingencies” to our condensed consolidated financial statements.

We had cash and cash equivalents of approximately $136,771 as of March 31, 2025 and, in addition to any 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, together with expected cash flows from our operations and proceeds from any available financings, should be sufficient to meet our liquidity needs over the next twelve months. We may acquire or seek to acquire additional operating businesses through mergers, asset purchases, stock acquisitions, or other means, or pursue other investments, which could limit the liquidity otherwise available to us.

On July 2, 2024, we issued Convertible Notes due 2029 in the aggregate principal amount of $50,000. The Convertible 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. For more information, see Note 7. “Notes Payable and Other Obligations” to our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

We have various agreements in which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights. Payment by us under such indemnification clauses is generally conditioned on the other party making a claim that is subject to challenge by us and dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential number of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, payments made by us under these agreements have not been material. As of March 31, 2025, we were not aware of any indemnification agreements that would or are reasonably expected to have a current or future material adverse impact on our financial position, results of operations or cash flows.

As of March 31, 2025, we had outstanding approximately $2,990 of letters of credit, which are collateralized by certificates of deposit. The letters of credit have been issued as security deposits for leases of office space.

As a service to its customers, Portfolio Escrow Inc., a subsidiary of Douglas Elliman, administers escrow and trust deposits which represent undisbursed amounts received for the settlement of real estate transactions. Deposits at FDIC-insured institutions are insured up to $250. Portfolio Escrow Inc. had escrow funds on deposit in the amount of $30,043 and $37,967 as of March 31, 2025 and December 31, 2024, respectively, and corresponding escrow funds in holding of the same amount. These deposits are not assets of Portfolio Escrow Inc., the subsidiary of Douglas Elliman (and, therefore, are excluded from the accompanying condensed consolidated balance sheets).

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 material market risks for our market risk sensitive financial instruments.

New Accounting Pronouncements

Refer to Note 1. “Summary of Significant Accounting Policies” to our financial statements for further information on New Accounting Pronouncements.

Legislation and Regulation

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 2024 Annual Report.

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,” “may be,” “objective,” “opportunistically,” “plan,” “potential,” “predict,” “project,” “prospects,” “seek,” and “will be” 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 therein, including due to macroeconomic conditions, interest rate fluctuations, inflation, acts of war and terrorism or otherwise,
• governmental regulations and policies, including with respect to regulation of the real estate market or monetary and fiscal policy and its effect on overall economic activity, in particular, mortgage interest rates,
• the impact of enacted and proposed tariffs and other trade policies, and related uncertainties in the global economy resulting from such policies,
• the impacts of banks not honoring the escrow and trust deposits held by our subsidiaries,
• litigation risks, the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire,
• adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises (and responses to them),
• the impacts of the Inflation Reduction Act of 2022 and the Tax Cuts and Jobs Act of 2017, including the continued impact on the markets of our business,
• effects of industry competition, severe weather events or natural or man-made disasters, including the increasing severity or frequency of such events due to climate change or otherwise, or other catastrophic events that may disrupt our business and have an unfavorable impact on home sale activity,
• the tax-free treatment of the Distribution,
• the failure of Vector Group to satisfy its respective obligations under the agreements entered into in connection with the Distribution, and
• the additional factors described under “Risk Factors” in our 2024 Annual Report filed with the Securities and Exchange Commission as updated in this report.

Further information on the risks and uncertainties to our business includes 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 2024 Annual Report filed with the Securities and Exchange Commission.

Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be attained and that any deviations will be material. The forward-looking statements speak only as of the date they are made.

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk” is incorporated herein by reference.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on their evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

There are no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report.