Douglas Elliman (DOUG) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's discussion and analysis of financial condition, market risk disclosures, and internal controls Item 1. Financial Statements The company's financial statements for the period ended June 30, 2022, show decreased net income and operating cash flow, stable total assets, and slightly reduced total liabilities Condensed Consolidated Balance Sheet Data (Unaudited) | Balance Sheet Items | June 30, 2022 (thousands of USD) | December 31, 2021 (thousands of USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 202,134 | 211,623 | | Total current assets | 272,023 | 280,805 | | Total assets | 594,738 | 595,169 | | Liabilities & Equity | | | | Total current liabilities | 109,859 | 132,467 | | Total liabilities | 298,801 | 313,296 | | Total stockholders' equity | 295,937 | 281,873 | Condensed Consolidated Statements of Operations (Unaudited) | Metric (thousands of USD) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | 364,359 | 391,975 | 673,259 | 664,751 | | Operating income | 14,628 | 43,183 | 22,507 | 57,411 | | Net income | 10,219 | 39,472 | 16,504 | 53,437 | | Diluted EPS | $0.13 | $0.51 | $0.21 | $0.69 | Condensed Consolidated Statements of Cash Flows (Unaudited, Six Months Ended June 30) | Cash Flow Activity (thousands of USD) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | 2,837 | 72,107 | | Net cash used in investing activities | (6,543) | (6,915) | | Net cash used in financing activities | (14,109) | (1,399) | | Net (decrease) increase in cash | (17,815) | 63,793 | - The company's business is segmented into Real Estate Brokerage and Corporate and Other. For Q2 2022, the Real Estate Brokerage segment generated operating income of $21.6 million, while the Corporate and Other segment had an operating loss of $6.9 million[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the decline in Q2 2022 revenue and operating income due to market conditions and increased standalone public company expenses, while highlighting strategic investments and dividend initiation - The company operates through two business segments: Real Estate Brokerage (via Douglas Elliman Realty) and Corporate and other (holding company operations and PropTech investments via New Valley Ventures)[80] Key Business Metrics (Six Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total transactions | 15,001 | 15,558 | | Gross transaction value (billions of USD) | $25.3 | $25.3 | | Adjusted EBITDA attributed to Douglas Elliman (millions of USD) | $31.9 | $61.6 | - As of June 30, 2022, New Valley Ventures had investments with a carrying value of approximately $11.7 million in PropTech companies. New investments in H1 2022 include Envoy, Audience, and Tongo[110][111][112] - The company initiated a quarterly cash dividend of $0.05 per share in March 2022, expected to result in annual dividend payments of approximately $16.3 million[115] Results of Operations - Q2 2022 vs Q2 2021 Q2 2022 total revenues decreased by 7.0% to $364.4 million, with operating income falling sharply to $14.6 million due to lower home sales and increased operating costs Q2 Performance Comparison (thousands of USD) | Metric | Q2 2022 | Q2 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $364,359 | $391,975 | (7.0%) | | Operating Income | $14,628 | $43,183 | (66.1%) | - The decline in Real Estate Brokerage revenue was primarily due to a $30.1 million decrease in existing home sales in Florida and a $3.7 million decrease in the Northeast, partially offset by an $11.1 million increase in the West region (including Texas)[96] - The Corporate and Other segment reported an operating loss of $6.9 million in Q2 2022, reflecting expenses associated with operating as a standalone public company post-Distribution[99] Results of Operations - Six Months 2022 vs 2021 For the six months ended June 30, 2022, revenues increased by 1.3% to $673.3 million, but operating income significantly decreased by 60.8% due to higher operating expenses Six-Month Performance Comparison (thousands of USD) | Metric | Six Months 2022 | Six Months 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $673,259 | $664,751 | 1.3% | | Operating Income | $22,507 | $57,411 | (60.8%) | - The increase in commission and brokerage income was driven by strong performance in New York City (+$24.1 million) and the West region (+$21.9 million, including Texas), offsetting declines in Florida (-$24.8 million) and the Northeast (-$9.9 million) markets[106] - Technology expenses increased from $6.9 million to $11.3 million year-over-year due to enhancements to the 'MyDouglas' agent portal, increased use of StudioPro CRM, and the introduction of the Elliman Showroom platform[108] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate fluctuations, which it manages through its operating, financing, and long-term investment strategies - The company's principal market risk exposure stems from fluctuations in interest rates[116] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during Q2 2022 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[127] - There were no changes in internal control over financial reporting during Q2 2022 that materially affected, or are reasonably likely to materially affect, internal controls[128] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and information regarding unregistered sales of equity securities Item 1. Legal Proceedings The company is involved in routine litigation, but management anticipates no material adverse effect on its financial condition, as most claims are insurance-covered - The company is involved in litigation through the normal course of business, but does not expect the outcomes to have a material adverse effect on its financial condition[63][131] Item 1A. Risk Factors Key risks include reduced homebuyer financing due to rising interest rates and increased regulatory scrutiny on industry commission practices, potentially disrupting business operations - A significant risk is the lack of financing for homebuyers at favorable rates, as Federal Reserve policy has led to significantly increased mortgage interest rates, which could lower transaction volume or home prices[132][133][134] - The company faces risks from potential industry structure changes and increased regulatory scrutiny, with the Department of Justice's withdrawal from a settlement with the National Association of Realtors (NAR) indicating a focus on anticompetitive behavior related to commissions, which could disrupt the business[136][138][139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue or sell any unregistered equity securities during the three months ended June 30, 2022 - No unregistered equity securities were issued or sold by the company during the three months ended June 30, 2022[142]