Douglas Elliman Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

DOUGLAS ELLIMAN INC.

(Exact name of registrant as specified in its charter)


Delaware	1-41054	87-2176850
(State or other jurisdiction of incorporation	Commission File Number	(I.R.S. Employer Identification No.)
incorporation or organization)

4400 Biscayne Boulevard

Miami, Florida 33137

305-579-8000

(Address, including zip code and telephone number, including area code,

of the principal executive offices)

Securities Registered Pursuant to 12(b) of the Act:


Title of each class:	Trading	Name of each exchange
	Symbol(s)	on which registered:
Common stock, par value $0.01 per share	DOUG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes x No

At November 3, 2023, Douglas Elliman Inc. had 88,707,320 shares of common stock outstanding.

DOUGLAS ELLIMAN INC.

FORM 10-Q

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION

Item 1. Douglas Elliman Inc. Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			2

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022			3



Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2023 and 2022			4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			6

Notes to Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22

Item 3. Quantitative and Qualitative Disclosures About Market Risk			33

Item 4. Controls and Procedures			33

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			34

Item 1A. Risk Factors			34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35

Item 5. Other Information			35

Item 6. Exhibits			36

SIGNATURE			37

DOUGLAS ELLIMAN INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	September 30, 2023		December 31, 2022
ASSETS:
Current assets:
Cash and cash equivalents	$	126,340	$	163,859
Receivables	26,824		22,162
Agent receivables, net	13,978		12,826
Income taxes receivable, net	6,154		7,547
Restricted cash and cash equivalents	5,011		4,985
Other current assets	18,732		13,680
Total current assets	197,039		225,059
Property, plant and equipment, net	40,724		41,717
Operating lease right-of-use assets	112,067		117,773
Long-term investments (includes $4,195 and $6,219 at fair value)	13,129		12,932
Contract assets, net	34,099		38,913
Goodwill	32,230		32,230
Other intangible assets, net	73,139		73,666
Equity-method investments	1,984		1,629
Other assets	6,695		6,483
Total assets	$	511,106	$	550,402
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:

Current operating lease liability	$	22,153	$	22,328

Accounts payable	4,753		5,456
Commissions payable	25,215		22,117
Accrued salaries and benefits	9,981		18,228
Contract liabilities	10,500		8,222
Other current liabilities	20,380		13,607
Total current liabilities	92,982		89,958

Deferred income taxes, net	5,756		14,467
Non-current operating lease liabilities	114,371		120,508
Contract liabilities	50,178		54,706
Other liabilities	77		306
Total liabilities	263,364		279,945
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized	—		—
Common stock, par value $0.01 per share, 250,000,000 shares authorized, 88,682,319 and 80,881,022 shares issued and outstanding	887		809
Additional paid-in capital	278,466		273,111
Accumulated deficit	(32,709)		(5,000)
Total Douglas Elliman Inc. stockholders' equity	246,644		268,920
Non-controlling interest	1,098		1,537
Total stockholders' equity	247,742		270,457
Total liabilities and stockholders' equity	$	511,106	$	550,402

The accompanying notes are an integral part of the condensed consolidated financial statements.

DOUGLAS ELLIMAN INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues:
Commissions and other brokerage income	$	239,255	$	259,977	$	703,780	$	903,917
Property management	8,697		8,541		26,849		27,786
Other ancillary services	3,596		4,070		10,813		14,144
Total revenues	251,548		272,588		741,442		945,847

Expenses:
Real estate agent commissions	185,845		195,836		546,749		686,440
Sales and marketing	20,770		22,703		64,170		64,145
Operations and support	17,121		18,218		53,338		55,872
General and administrative	28,817		33,522		92,371		99,227
Technology	5,602		5,527		17,777		16,809
Depreciation and amortization	1,999		1,968		6,031		6,033
Restructuring	215		—		1,932		—
Operating (loss) income	(8,821)		(5,186)		(40,926)		17,321

Other income (expenses):
Interest income, net	1,785		493		4,260		564
Equity in earnings (losses) from equity-method investments	10		(895)		(143)		(477)
Investment and other income	27		1,055		109		3,026
(Loss) income before provision for income taxes	(6,999)		(4,533)		(36,700)		20,434
Income tax (benefit) expense	(1,869)		(290)		(8,552)		8,173

Net (loss) income	(5,130)		(4,243)		(28,148)		12,261

Net loss attributed to non-controlling interest	264		280		439		532

Net (loss) income attributed to Douglas Elliman Inc.	$	(4,866)	$	(3,963)	$	(27,709)	$	12,793

Per basic common share:

Net (loss) income applicable to common shares attributed to Douglas Elliman Inc.	$	(0.06)	$	(0.05)	$	(0.34)	$	0.15

Per diluted common share:

Net (loss) income applicable to common shares attributed to Douglas Elliman Inc.	$	(0.06)	$	(0.05)	$	(0.34)	$	0.15

The accompanying notes are an integral part of the condensed consolidated financial statements.

DOUGLAS ELLIMAN INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in Thousands, Except Share Amounts)

Unaudited


	Douglas Elliman Inc. Stockholders' Equity
				Additional Paid-In				Non-controlling
	Common Stock					Retained
	Shares	Amount		Capital		Earnings		Interest		Total
Balance as of July 1, 2023	88,632,319	$	886	$	275,025	$	(27,843)	$	1,362	$	249,430
Net loss	—	—		—		(4,866)		(264)		(5,130)

Restricted stock grants	50,000	1		(1)		—		—		—


Stock-based compensation	—	—		3,442		—		—		3,442

Balance as of September 30, 2023	88,682,319	$	887	$	278,466	$	(32,709)	$	1,098	$	247,742


	Douglas Elliman Inc. Stockholders' Equity
				Additional Paid-In				Non-controlling
	Common Stock					Retained
	Shares	Amount		Capital		Earnings		Interest		Total
Balance as of July 1, 2022	81,275,626	$	813	$	283,810	$	9,252	$	2,062	$	295,937
Net income (loss)	—	—		—		(3,963)		(280)		(4,243)
Distributions and dividends on common stock ($0.05 per share)	—	—		—		(4,062)		—		(4,062)
Withholding of shares as payment of tax liabilities in connection with restricted stock vesting	(27,463)	—		(163)		—		—		(163)


Stock-based compensation	—	—		3,165		—		—		3,165

Balance as of September 30, 2022	81,248,163	$	813	$	286,812	$	1,227	$	1,782	$	290,634

The accompanying notes are an integral part of the condensed consolidated financial statements.


	Douglas Elliman Inc. Stockholders' Equity
				Additional Paid-In				Non- controlling
	Common Stock					Accumulated
	Shares	Amount		Capital		Deficit		Interest		Total
Balance as of January 1, 2023	80,881,022	$	809	$	273,111	$	(5,000)	$	1,537	$	270,457
Net loss	—	—		—		(27,709)		(439)		(28,148)
Distributions and dividends on common stock ($0.05 per share)	(372)	—		(4,222)		—		—		(4,222)
Restricted stock grants	3,585,000	36		(36)		—		—		—
Withholding of shares as payment of tax liabilities in connection with restricted stock vesting	(3,935)	—		(11)		—		—		(11)
Effect of stock dividend	4,220,604	42		(42)		—		—		—
Stock-based compensation	—	—		9,666		—		—		9,666


Balance as of September 30, 2023	88,682,319	$	887	$	278,466	$	(32,709)	$	1,098	$	247,742


	Douglas Elliman Inc. Stockholders' Equity
				Additional Paid-In				Non- controlling
	Common Stock					Retained
	Shares	Amount		Capital		Earnings		Interest		Total
Balance as of January 1, 2022	81,210,626	$	812	$	278,500	$	622	$	1,939	$	281,873
Net income (loss)	—	—		—		12,793		(532)		12,261
Dividends on common stock ($0.15 per share)	—	—		—		(12,188)		—		(12,188)
Restricted stock grants	65,000	1		(1)		—		—		—
Withholding of shares as payment of tax liabilities in connection with restricted stock vesting	(27,463)	—		(163)		—		—		(163)
Stock-based compensation	—	—		8,476		—		—		8,476
Contributions from non-controlling interest	—	—		—		—		375		375
Balance as of September 30, 2022	81,248,163	$	813	$	286,812	$	1,227	$	1,782	$	290,634

The accompanying notes are an integral part of the condensed consolidated financial statements.

DOUGLAS ELLIMAN INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

Unaudited


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(28,148)	$	12,261
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	6,031		6,033
Non-cash stock-based compensation expense	9,666		8,476
Loss on sale of assets	37		11
Deferred income taxes	(8,552)		193
Net gains on investment securities	(109)		(2,445)
Equity in losses from equity-method investments	143		477
Distributions from equity-method investments	—		653
Non-cash lease expense	16,587		15,227

Provision for credit losses	3,645		2,692
Changes in assets and liabilities:
Receivables	(9,459)		(1,446)
Income taxes receivables, net	1,393		(2,481)
Accounts payable and accrued liabilities	9,168		(11,212)
Operating right-of-use assets and operating lease liabilities, net	(17,193)		(18,045)
Accrued salary and benefits	(8,247)		(7,954)
Other	(2,735)		2,768
Net cash (used in) provided by operating activities	(27,773)		5,208
Cash flows from investing activities:
Investments in equity-method investments	—		(300)
Distributions from equity-method investments	—		75
Purchase of debt securities	(25)		(701)
Proceeds from sale or liquidation of long-term investments	408		—
Purchase of equity securities	(300)		(1,575)
Purchase of long-term investments	(190)		(959)
Capital expenditures	(5,380)		(6,207)
Net cash used in investing activities	(5,487)		(9,667)
Cash flows from financing activities:
Repayment of debt	—		(9,396)
Dividends on common stock	(4,222)		(12,120)
Contributions from non-controlling interest	—		375
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting	(11)		—
Earn out payments	—		(1,600)
Net cash used in financing activities	(4,233)		(22,741)
Net decrease in cash, cash equivalents and restricted cash	(37,493)		(27,200)
Cash, cash equivalents and restricted cash, beginning of period	171,382		228,866
Cash, cash equivalents and restricted cash, end of period	$	133,889	$	201,666

The accompanying notes are an integral part of the condensed consolidated financial statements.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Basis of Presentation:

Douglas Elliman Inc. (“Douglas Elliman” or the “Company”) is engaged in the real estate services and property technology investment business and is seeking to acquire or invest in additional real estate services and property technology, or PropTech, companies. The condensed consolidated financial statements of Douglas Elliman include the accounts of DER Holdings LLC and New Valley Ventures LLC (“New Valley Ventures”), directly and indirectly wholly owned subsidiaries of the Company. DER Holdings LLC owns Douglas Elliman Realty, LLC and Douglas Elliman of California, Inc., which are engaged in the residential real estate brokerage business with their subsidiaries. The operations of New Valley Ventures consist of minority investments in innovative and cutting-edge PropTech companies.

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.

The unaudited, interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in management’s opinion, contain all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. References to U.S. GAAP issued by the Financial Accounting Standards Board (“FASB”) are to the FASB Accounting Standards Codification, also referred to as the “Codification” or “ASC.” These condensed consolidated financial statements should be read in conjunction with the combined consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the entire year.

In presenting the condensed consolidated financial statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.

(b) Principles of Consolidation:

The condensed consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows of DER Holdings LLC and New Valley Ventures as well as all other entities in which Douglas Elliman has a controlling financial interest. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

When evaluating an entity for consolidation, Douglas Elliman first determines whether an entity is within the scope of the guidance for consolidation of variable interest entities (“VIE”) and if it is deemed to be a VIE. If the entity is considered to be a VIE, Douglas Elliman determines whether it would be considered the entity’s primary beneficiary. Douglas Elliman consolidates those VIEs for which it has determined that it is the primary beneficiary. Douglas Elliman will consolidate an entity that is not deemed a VIE upon a determination that it has a controlling financial interest. For entities where Douglas Elliman does not have a controlling financial interest, the investments in such entities are classified as available-for-sale securities or accounted for using the equity or cost method, as appropriate.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates subject to material changes in the near term include impairment charges and valuation of intangible assets. Actual results could differ from those estimates.

(d) (Loss) Earnings Per Share (“EPS”):

The Company has restricted stock awards which will provide dividends at the same rate as paid on the common stock with respect to the shares underlying the restricted stock awards. These outstanding restricted stock awards represent participating securities under authoritative guidance. The participating securities holders do not participate in the Company’s net losses. The Company paid a cash dividend during each of the quarters beginning with the quarter ended March 31, 2022 through March 31, 2023. As a result, in its calculation of basic EPS and diluted EPS for the three and nine months ended September 30, 2022, the Company adjusted its net income for the effect of these participating securities. There were no outstanding non-participating securities during the three and nine months ended September 30, 2023.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net (loss) income attributed to Douglas Elliman Inc.	$	(4,866)	$	(3,963)	$	(27,709)	$	12,793
Income attributable to participating securities	—		(175)		(307)		(555)
Net (loss) income available to common stockholders attributed to Douglas Elliman Inc.	$	(4,866)	$	(4,138)	$	(28,016)	$	12,238

Basic EPS is computed by dividing net (loss) income available to common stockholders attributed to Douglas Elliman Inc. by the weighted-average number of shares outstanding, which will include vested restricted stock.

Information concerning the Company’s common stock has been adjusted to give retroactive effect to the 5% stock dividend distributed to Company stockholders on June 30, 2023. All per share amounts and references to share amounts have been updated to reflect the retrospective effect of the stock dividend.

Basic and diluted EPS were calculated using the following shares of common stock for the periods presented below:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
Weighted-average shares for basic EPS	82,199,757	81,622,347	82,196,583	81,574,063
Incremental shares related to non-vested restricted stock	—	—	—	37,882
Weighted-average shares for diluted EPS	82,199,757	81,622,347	82,196,583	81,611,945

(e) Reconciliation of Cash, Cash Equivalents and Restricted Cash:

Restricted cash amounts included in current assets and other assets represent cash and cash equivalents required to be deposited into escrow for amounts required for letters of credit related to office leases, and certain deposit requirements for banking arrangements. The restrictions related to the letters of credit will remain in place for the duration of the respective lease. The restrictions related to the banking arrangements will remain in place for the duration of the arrangement. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	126,340	$	163,859
Restricted cash and cash equivalents included in current assets	5,011		4,985
Restricted cash and cash equivalents included in other assets	2,538		2,538
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	133,889	$	171,382

(f) Goodwill and Other Intangible Assets:

Goodwill is evaluated for impairment annually on October 1 or whenever the Company identifies certain triggering events or circumstances that would more likely than not reduce the fair value of the Company below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting unit specific economic factors (for example, interest rate and foreign exchange rate fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.

In the three months ended September 30, 2023, the Company utilized third-party valuation specialists to prepare a quantitative assessment of its goodwill and trademark intangible assets, based on the current market conditions in the residential real estate brokerage industry. While the quantitative assessments did not result in impairment charges to goodwill or to the trademark intangible assets as of September 30, 2023, the Company could experience an impairment of goodwill and other intangible assets if current market conditions continue to deteriorate. Such situation could then result in an impairment loss.

(g) Related Party Transactions:

Agreements with Vector Group Ltd. (“Vector Group”) The Company paid Vector Group $1,050 and $3,150 under the Transition Services Agreement during the three and nine months ended September 30, 2023 and 2022, respectively, and $452 and $1,748 under the Aircraft Lease Agreements during the three and nine months ended September 30, 2023 and $352 and $1,529 for the three and nine months ended September 30, 2022, respectively.

Vector Group has agreed to indemnify the Company for certain tax matters under the Tax Disaffiliation Agreement. The Company received $581 as of September 30, 2022 and recorded $28 and $581 as a component of “Investment and other income” in its condensed combined consolidated statements of operations for three and nine months ended September 30, 2022 related to the tax indemnification and did not record any income for the three and nine months ended September 30, 2023 related to the tax indemnification.

Real estate commissions. Real estate commissions include commissions of approximately $104 and $946 for the three and nine months ended September 30, 2023 and $115 and $1,216 for the three and nine months ended September 30, 2022, respectively, from projects where the Company has been engaged by certain developers as the sole broker or the co-broker for real estate development projects that Vector Group owns an interest in through its real estate venture investments.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

(h) Investment and Other Income:

Investment and other income consists of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net gains recognized on PropTech convertible trading debt securities	$	—	$	1,110	$	187	$	1,785
Net gains (losses) recognized on long-term investments at fair value	27		(83)		(78)		660

Income related to Tax Disaffiliation indemnification	—		28		—		581
Investment and other income	$	27	$	1,055	$	109	$	3,026

(i) Restructuring:

Employee severance and benefits expensed for the three and nine months ended September 30, 2023 relate entirely to the reduction in staff and are cash charges. All of the amounts expensed for the three and nine months ended September 30, 2023 are included in Restructuring expense in the Company’s condensed consolidated statements of operations. The following table presents the changes in the employee severance and benefits liability under the Real Estate Brokerage segment restructuring plan for the nine months ended September 30, 2023:


	Employee Severance and Benefits
Severance liability balance at January 1, 2023	$	—
Severance expense	1,932
Severance payments	(1,037)
Severance liability at September 30, 2023	$	895

(j) Other Comprehensive Income:

The Company does not have any activity that results in Other Comprehensive Income; therefore, no statement of Comprehensive Income is included in the condensed consolidated financial statements.

(k) Subsequent Events:

The Company has evaluated subsequent events through November 9, 2023, the date the financial statements were issued. See Note 7. “Contingencies” for additional information.

(l) New Accounting Pronouncements:

Accounting Standards Updates (“ASUs”) adopted in 2023:

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

SEC Proposed Rule Changes

On March 21, 2022, the SEC proposed rule changes that would require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant's greenhouse gas emissions, which have become a commonly used metric to assess a registrant's exposure to such risks. In addition, under the proposed rules, certain climate-related financial metrics would be required in a registrant's audited financial statements. The Company is currently evaluating the impact of the proposed rule changes.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

2. REVENUE RECOGNITION

Disaggregation of Revenue

In the following tables, revenue is disaggregated by major services line and primary geographical market:


	Three Months Ended September 30, 2023
	New York City		Northeast		Southeast		West		Total
Revenues:
Commission and other brokerage income - existing home sales	$	70,997	$	52,138	$	57,261	$	45,010	$	225,406
Commission and other brokerage income - development marketing	7,453		50		5,616		730		13,849
Property management revenue	8,509		188		—		—		8,697
Escrow and title fees	258		158		—		3,180		3,596
Total revenue	$	87,217	$	52,534	$	62,877	$	48,920	$	251,548


	Three Months Ended September 30, 2022
	New York City		Northeast		Southeast		West		Total
Revenues:
Commission and other brokerage income - existing home sales	$	95,854	$	50,811	$	50,426	$	43,624	$	240,715
Commission and other brokerage income - development marketing	17,060		—		1,820		382		19,262
Property management revenue	8,394		147		—		—		8,541
Escrow and title fees	792		322		—		2,956		4,070
Total revenue	$	122,100	$	51,280	$	52,246	$	46,962	$	272,588


	Nine Months Ended September 30, 2023
	New York City		Northeast		Southeast		West		Total
Revenues:
Commission and other brokerage income - existing home sales	$	211,243	$	134,191	$	178,604	$	133,004	$	657,042
Commission and other brokerage income - development marketing	22,116		911		21,893		1,818		46,738
Property management revenue	26,284		565		—		—		26,849
Escrow and title fees	1,183		595		—		9,035		10,813
Total revenue	$	260,826	$	136,262	$	200,497	$	143,857	$	741,442


	Nine Months Ended September 30, 2022
	New York City		Northeast		Southeast		West		Total
Revenues:
Commission and other brokerage income - existing home sales	$	295,898	$	163,602	$	223,135	$	158,088	$	840,723
Commission and other brokerage income - development marketing	46,237		—		14,004		2,953		63,194
Property management revenue	27,328		458		—		—		27,786
Escrow and title fees	2,699		1,029		—		10,416		14,144
Total revenue	$	372,162	$	165,089	$	237,139	$	171,457	$	945,847

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Contract Balances

The following table provides information about contract assets and contract liabilities from development marketing and commercial leasing contracts with customers:


	September 30, 2023		December 31, 2022

Receivables, which are included in receivables	$	1,979	$	3,063
Contract assets, net, which are included in other current assets	5,584		4,453
Contract assets, net, which are in other assets	34,099		38,913
Payables, which are included in other current liabilities	1,448		2,291
Contract liabilities, which are in current liabilities	10,500		8,222
Contract liabilities, which are in other liabilities	50,178		54,706

The Company recognized revenue of $7,688 and $14,085 for the three and nine months ended September 30, 2023, respectively, that were included in the contract liabilities balances at December 31, 2022. The Company recognized revenue of $623 and $5,978 for the three and nine months ended September 30, 2022, respectively, that were included in the contract liabilities balances at December 31, 2021.

3. CURRENT EXPECTED CREDIT LOSSES

Real estate broker agent receivables: Douglas Elliman Realty is exposed to credit losses for various amounts due from real estate agents, which are included in Other current assets on the condensed consolidated balance sheets, net of an allowance for credit losses. The Company estimates its allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, historical experience of collections from the individual agents, and current and expected future market trends. The Company estimated that the credit losses for these receivables were $12,666 and $10,916 at September 30, 2023 and December 31, 2022, respectively.

The following table summarizes changes in the allowance for credit losses for the nine months ended September 30, 2023:


	January 1, 2023		Current Period Provision			Write-offs		Recoveries		September 30, 2023
Allowance for credit losses:

Real estate broker agent receivables	$	10,916	$	3,645	(1)	$	1,895	$	—	$	12,666

_____________________________

(1) The current period provision for the real estate broker agent receivables is included in “General and administrative expenses” in the Company’s condensed consolidated statements of operations.

The following table summarizes changes in the allowance for credit losses for the nine months ended September 30, 2022:


	January 1, 2022		Current Period Provision			Write-offs		Recoveries		September 30, 2022
Allowance for credit losses:

Real estate broker agent receivables	$	8,607	$	2,692	(1)	$	736	$	—	$	10,563

_____________________________

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

4. LEASES

The Company has operating leases for corporate and sales offices and equipment. The components of lease expense were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Operating lease cost	$	8,539	$	8,365	$	25,184	$	24,834
Short-term lease cost	296		269		948		807
Variable lease cost	1,161		1,106		3,291		3,034
Less: Sublease income	(189)		(147)		(498)		(420)
Total lease cost	$	9,807	$	9,593	$	28,925	$	28,255

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended
	September 30,
	2023		2022
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	25,861	$	27,766

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	10,881		12,065

Supplemental balance sheet information related to leases was as follows:



	September 30,		December 31,
	2023		2022
Weighted average remaining lease term:
Operating leases	6.53		7.03

Weighted average discount rate:
Operating leases	8.62	%	8.73	%

As of September 30, 2023, maturities of lease liabilities were as follows:


	Operating Leases
Period Ending December 31:
Remainder of 2023	$	8,874
2024	32,456
2025	27,914
2026	25,482
2027	22,461
2028	19,403
Thereafter	46,053
Total lease payments	182,643
Less imputed interest	(46,119)
Total	$	136,524

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

As of September 30, 2023, the Company had no undiscounted lease payments relating to operating leases for office space and equipment that have not yet commenced.

5. LONG-TERM INVESTMENTS

Long-term investments consisted of the following:


	September 30, 2023		December 31, 2022
PropTech convertible trading debt securities	$	1,321	$	2,957
Long-term investment securities at fair value (1)	2,874		3,262
PropTech investments at cost	9,164		8,588
PropTech investments at equity method	588		—
Total investments	13,947		14,807
Less PropTech current convertible trading debt securities (2)	230		1,875
Less PropTech investments accounted for under the equity method	588		—
Total long-term investments	$	13,129	$	12,932

_____________________________

(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.

(2) These amounts are included in Other current assets on the condensed consolidated balance sheets.

Net realized and unrealized gains recognized on long-term investment securities were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net realized gains recognized on PropTech convertible trading debt securities	$	—	$	1,110	$	187	$	1,785
Net unrealized gains (losses) recognized on long-term investments at fair value	27		(83)		(78)		660
Net realized and unrealized gains recognized on long-term investment securities	$	27	$	1,027	$	109	$	2,445

(a) PropTech Convertible Trading Debt Securities:

These securities are classified as trading debt securities and are accounted for at fair value. The maturities of all convertible notes range from December 2023 to February 2025.

(b) Long-Term Investment Securities at Fair Value:

The following is a summary of unrealized gains (losses) recognized in net income on long-term investment securities at fair value during the three and nine months ended September 30, 2023 and 2022, respectively:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net unrealized gains (losses) recognized on long-term investment securities	$	27	$	(83)	$	(78)	$	660

The Company has unfunded commitments of $895 related to long-term investment securities at fair value as of September 30, 2023.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Equity securities without readily determinable fair values that do not qualify for the NAV practical expedient consisted of investments in various limited liability companies at September 30, 2023. During the nine months ended September 30, 2023, New Valley Ventures invested $250 into one new PropTech venture and $50 into an existing PropTech venture. The total carrying value of equity securities without readily determinable fair values that do not qualify for the NAV practical expedient was $9,164 as of September 30, 2023. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the nine months ended September 30, 2023.

6. EQUITY METHOD INVESTMENTS

Equity method investments consisted of the following:


	September 30, 2023		December 31, 2022
Ancillary services ventures	$	1,984	$	1,629

At September 30, 2023, the Company’s ownership percentages in these investments ranged from 10.9% to 50.0%; therefore, the Company accounts for these investments under the equity method of accounting.

VIE Consideration:

The Company has determined that the Company is not the primary beneficiary of any of its equity method investments because it does not control the activities that most significantly impact the economic performance of each investment. The Company determined that the entities were VIEs but the Company was not the primary beneficiary. Therefore, the Company’s equity method investments have been accounted for under the equity method of accounting.

In July 2023, Douglas Elliman Realty entered into an agreement to acquire a 50% interest in ClearPoint Mortgage, LLC. The joint venture plans to operate a mortgage brokerage business in the state of Florida. The venture is a VIE; however Douglas Elliman Realty is not the primary beneficiary. Douglas Elliman Realty accounts for this investment under the equity method of accounting. Douglas Elliman Realty has no exposure to loss as a result of its investment in ClearPoint Mortgage, LLC as of September 30, 2023.

Maximum Exposure to Loss:

The Company’s maximum exposure to loss from its equity method investments consists of the net carrying value of the investments adjusted for any future capital commitments and/or guarantee arrangements. The maximum exposure to loss was $1,984 as of September 30, 2023.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

7. CONTINGENCIES

The Company is involved in litigation through the normal course of its business. The majority of claims are covered by the Company’s insurance policies in excess of any applicable retention. Some claims are not covered by the Company’s insurance policies. The Company believes that the resolution of ordinary course matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

On October 31, 2023, individual plaintiffs filed an action on behalf of a putative national class of home sellers from October 2019 through the present in the Western District of Missouri against the National Association of Realtors (“NAR”) and certain real estate brokerage firms, including the Company, alleging anticompetitive behavior in violation of federal antitrust laws arising from the NAR’s requirement that sellers’ agents for Multiple Listing Service (“MLS”) listed properties offer to pay a portion of commissions received on the sale of such properties to buyers’ agents (the Gibson case). Also, on November 2, 2023, additional individual plaintiffs filed an action on behalf of a putative national class of home buyers from December 1996 through the present in the Northern District of Illinois against certain real estate brokerage firms, including the Company, alleging anticompetitive behavior, similar to the Gibson case, in violation of federal antitrust laws, state antitrust and consumer protection laws, as well as asserting an unjust enrichment claim (the Batton case).

On November 8, 2023, additional individual plaintiffs filed an action on behalf of a putative class of home sellers in Manhattan from November 2019 through the present in the Southern District of New York against certain real estate brokerage firms, including the Company, alleging anticompetitive behavior, similar to the Gibson case, in violation of federal antitrust and state antitrust laws, as well as asserting an unjust enrichment claim (the March case). The Company may become involved in additional litigation or other legal proceedings concerning the same or similar claims.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending cases. With the commencement of any new case, the defense costs and the risks relating to the unpredictability of litigation increase. Management reviews on a quarterly basis with counsel all pending litigation and evaluates the probability of a loss being incurred and whether an estimate can be made of the possible loss or range of loss that could result from an unfavorable outcome. An unfavorable outcome or settlement of pending litigation could encourage the commencement of additional litigation. The Company is unable to reasonably estimate the financial impact of these litigations. The Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected from an unfavorable outcome in, or settlement of, any of these matters.

Accounting Policy. The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur: (i) management has concluded that it is not probable that a loss has been incurred in any of pending cases; or (ii) management is unable to reasonably estimate the possible loss or range of loss that could result from an unfavorable outcome of any pending cases and, therefore, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any.

8. INCOME TAXES

The Company’s income tax (benefit) expense consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
(Loss) income before provision for income taxes	$	(6,999)	$	(4,533)	$	(36,700)	$	20,434
Income tax (benefit) expense using estimated annual effective income tax rate	(1,631)		(1,814)		(8,552)		8,173

Changes in effective tax rates	(238)		1,524		—		—







Income tax (benefit) expense	$	(1,869)	$	(290)	$	(8,552)	$	8,173

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

9. INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities subject to fair value measurements were as follows:


	Fair Value Measurements as of September 30, 2023
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	66,079	$	66,079	$	—	$	—
U.S. treasury bills (2)	50,525		50,525		—		—
Certificates of deposit (3)	507		—		507		—
PropTech convertible trading debt securities	230		—		—		230
Long-term investments
PropTech convertible trading debt securities	1,091		—		—		1,091
Long-term investment securities at fair value (4)	2,874		—		—		—

Total long-term investments	3,965		—		—		1,091
Total assets	$	121,306	$	116,604	$	507	$	1,321

_____________________________

(1)Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets, except for $5,011 that is included in current restricted cash and cash equivalents and $2,538 that is included in non-current restricted assets.

(2)Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets.

(3)Amounts included in current restricted assets on the condensed consolidated balance sheets.

(4)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.


	Fair Value Measurements as of December 31, 2022
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	153,941	$	153,941	$	—	$	—
Certificates of deposit (2)	569		—		569		—
PropTech convertible trading debt securities	1,875		—		—		1,875
Long-term investments
PropTech convertible trading debt securities	1,082		—		—		1,082
Long-term investment securities at fair value (3)	3,262		—		—		—
Total long-term investments	4,344		—		—		1,082
Total assets	$	160,729	$	153,941	$	569	$	2,957

_____________________________

(1)Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets, except for $4,985 that is included in current restricted assets and $2,538 that is included in non-current restricted assets.

(2)Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheets.

(3)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The fair value of the Level 2 certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is the rate offered by the financial institution.

The fair values of the Level 3 PropTech convertible trading debt securities were derived using a discounted cash flow model utilizing a probability-weighted expected return method based on the probabilities of different potential outcomes for the convertible trading debt securities.

The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at September 30, 2023:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

September 30,
2023

Valuation
Technique

Unobservable
Input

Range
(Actual)

PropTech convertible trading debt securities

1,321

Discounted cash flow

Interest rate

4% and 5%

Maturity

Dec 2023 - Feb 2025

Volatility

56.9% - 76.2%

Discount rate

33.62% - 52.51%

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2022:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

December 31,
2022

Valuation Technique

Unobservable
Input

Range
(Actual)

PropTech convertible trading debt securities

2,957

Discounted cash flow

Interest rate

4% and 8%

Maturity

Mar 2023 - Feb 2025

Volatility

60.7% - 103.3%

Discount rate

29.39% - 186.15%

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a nonrecurring basis. Generally, assets and liabilities are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company had no nonrecurring nonfinancial assets subject to fair value measurements as of September 30, 2023 and December 31, 2022, respectively.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

10. SEGMENT INFORMATION

The Company’s business segments were Real Estate Brokerage and Corporate and Other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Financial information for the Company’s operations before taxes and non-controlling interests for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Real Estate Brokerage			Corporate and Other		Total
Three months ended September 30, 2023
Revenues	$	251,548		$	—	$	251,548
Operating loss	(1,992)		(1)	(6,829)		(8,821)
Adjusted EBITDA attributed to Douglas Elliman (2)	1,535			(4,562)		(3,027)
Depreciation and amortization	1,999			—		1,999

Three months ended September 30, 2022
Revenues	$	272,588		$	—	$	272,588
Operating income (loss)	1,503			(6,689)		(5,186)
Adjusted EBITDA attributed to Douglas Elliman (2)	5,067			(4,943)		124
Depreciation and amortization	1,968			—		1,968

Nine months ended September 30, 2023
Revenues	$	741,442		$	—	$	741,442
Operating loss	(20,349)		(3)	(20,577)		(40,926)
Adjusted EBITDA attributed to Douglas Elliman (2)	(8,968)			(14,266)		(23,234)
Depreciation and amortization	6,031			—		6,031
Capital expenditures	5,380			—		5,380

Nine months ended September 30, 2022
Revenues	$	945,847		$	—	$	945,847
Operating income (loss)	37,619			(20,298)		17,321
Adjusted EBITDA attributed to Douglas Elliman (2)	47,152			(15,100)		32,052
Depreciation and amortization	6,033			—		6,033
Capital expenditures	6,207			—		6,207

_____________________________

(1)Operating loss includes $215 of restructuring expense.

(2)The following table reconciles operating income to Adjusted EBITDA attributed to Douglas Elliman for the three and nine months ended September 30, 2023 and 2022.

(3)Operating loss includes $1,932 of restructuring expense.

DOUGLAS ELLIMAN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Real estate brokerage segment
Operating (loss) income	$	(1,992)	1,503		$	(20,349)	$	37,619
Depreciation and amortization	1,999		1,968		6,031		6,033
Stock-based compensation	1,175		1,419		3,355		3,278
Restructuring	215		—		1,932		—
Adjusted EBITDA	1,397		4,890		(9,031)		46,930
Adjusted EBITDA attributed to non-controlling interest	138		177		63		222
Adjusted EBITDA attributed to Douglas Elliman	$	1,535	$	5,067	$	(8,968)	$	47,152

Corporate and other segment
Operating loss	$	(6,829)	$	(6,689)	$	(20,577)	$	(20,298)
Stock-based compensation	2,267		1,746		6,311		5,198
Adjusted EBITDA attributed to Douglas Elliman	$	(4,562)	$	(4,943)	$	(14,266)	$	(15,100)

11. ESCROW FUNDS IN HOLDING

As a service to its customers, Portfolio Escrow Inc., a subsidiary of the Company, 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 $44,326 and $33,533 as of September 30, 2023 and December 31, 2022, respectively, and corresponding escrow funds in holding of the same amount. While these deposits are not assets of the Company (and, therefore, are excluded from the accompanying condensed consolidated balance sheets), the subsidiary of the Company remains contingently liable for the disposition of these deposits.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in Thousands, 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 Consolidated Financial Statements as of and for the year ended December 31, 2022 and Notes thereto, included in our 2022 Annual Report on Form 10-K, and our Condensed Consolidated Financial Statements and related Notes as of and for the quarterly period and nine months ended September 30, 2023.

Overview

We are a holding company and engaged principally in two business segments:

Real Estate Brokerage: the residential real estate brokerage services through our subsidiary Douglas Elliman Realty, which 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 and Washington, D.C.

Corporate and other: the operations of our holding company as well as our investment business that invests in select PropTech opportunities through our New Valley Ventures subsidiary.

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 September 30, 2023 (“Non-GAAP Financial Measures”), which are financial measures not prepared in accordance with GAAP.

Key Business Metrics


	Last twelve months ended			Nine months ended September 30,						Year ended December 31, 2022
	September 30, 2023			2023			2022
Key Business Metrics
Total transactions (1)	21,360			16,584			21,797			26,573
Gross transaction value (in billions) (2)	$	34.0		$	26.5		$	35.4		$	42.9
Average transaction value per transaction (in thousands) (3)	$	1,591.4		$	1,596.8		$	1,625.8		$	1,616.3
Number of Principal Agents (4)	5,307			5,307			5,342			5,407
Annual Retention (5)	90		%	N/A			N/A			87		%
Net (loss) income attributed to Douglas Elliman Inc.	$	(46,124)		$	(27,709)		$	12,793		$	(5,622)
Net (loss) income margin	(4.86)		%	(3.74)		%	1.35		%	(0.49)		%
Adjusted EBITDA attributed to Douglas Elliman	$	(40,335)		$	(23,234)		$	32,052		$	14,951
Adjusted EBITDA attributed to Douglas Elliman Margin	(4.25)		%	(3.13)		%	3.39		%	1.30		%

_____________________________

(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 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 that represents our net income adjusted for depreciation and amortization, investment and other income, stock-based compensation expense, benefit from income taxes, and other items. 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 (“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.

Computation of Adjusted EBITDA attributed to Douglas Elliman


	Last twelve months ended		Nine months ended September 30,				Year ended December 31, 2022
	September 30, 2023		2023		2022
Net (loss) income attributed to Douglas Elliman Inc.	$	(46,124)	$	(27,709)	$	12,793	$	(5,622)
Interest income, net	(5,475)		(4,260)		(564)		(1,779)
Income tax (benefit) expense	(10,222)		(8,552)		8,173		6,503
Net loss attributed to non-controlling interest	(684)		(439)		(532)		(777)
Depreciation and amortization	8,010		6,031		6,033		8,012
Stock-based compensation (a)	12,328		9,666		8,476		11,138
Equity in losses from equity method investments (b)	229		143		477		563
Restructuring	1,932		1,932		—		—
Other, net	(512)		(109)		(3,026)		(3,429)
Adjusted EBITDA	(40,518)		(23,297)		31,830		14,609
Adjusted EBITDA attributed to non-controlling interest	183		63		222		342
Adjusted EBITDA attributed to Douglas Elliman	$	(40,335)	$	(23,234)	$	32,052	$	14,951

Real estate brokerage segment
Operating (loss) income	$	(35,975)	$	(20,349)	$	37,619	$	21,993
Depreciation and amortization	8,010		6,031		6,033		8,012
Stock-based compensation	4,272		3,355		3,278		4,195
Restructuring	1,932		1,932		—		—
Adjusted EBITDA	(21,761)		(9,031)		46,930		34,200
Adjusted EBITDA attributed to non-controlling interest	183		63		222		342
Adjusted EBITDA attributed to Douglas Elliman	$	(21,578)	$	(8,968)	$	47,152	$	34,542

Corporate and other segment
Operating loss	$	(26,813)	$	(20,577)	$	(20,298)	$	(26,534)
Stock-based compensation	8,056		6,311		5,198		6,943
Adjusted EBITDA attributed to Douglas Elliman	$	(18,757)	$	(14,266)	$	(15,100)	$	(19,591)




Total adjusted EBITDA attributed to Douglas Elliman	$	(40,335)	$	(23,234)	$	32,052	$	14,951

_____________________________

(a)Represents amortization of stock-based compensation. $4,272, $3,355, $3,278, and $4,195 are attributable to the Real estate brokerage segment for the last twelve months ended September 30, 2023, the nine months ended September 30, 2023, and 2022, and the year ended December 31, 2022, respectively. $8,056, $6,311, $5,198, and $6,943 are attributable to the Corporate and other segment for the last twelve months ended September 30, 2023, the nine months ended September 30, 2023, and 2022, and the year ended December 31, 2022, respectively.

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

Recent Developments

Litigation. Following the federal jury decision in the Sitzer/Burnett case on October 31, 2023, several additional putative class action lawsuits have been filed against the National Association of Realtors and real estate brokerage firms, including Douglas Elliman, alleging anticompetitive conduct similar to that in the Sitzer/Burnett case in violation of federal and state antitrust laws and consumer protection claims as well as allegations of unjust enrichment. Presently, we are a defendant in three such matters in Missouri, Illinois and New York. We may become involved in additional legal proceedings concerning the same or similar claims. We are unable to reasonably estimate the financial impact of these matters. See Note 7 - “Contingencies” to our condensed consolidated financial statements.

Update on Expense Reduction. Since June 2022, our operating results have been negatively impacted by a reduction of revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates. As a result, during 2023, we have endeavored to adjust our cost structure to better fit our business, including through, among other things, reductions in personnel and incentive compensation expense, eliminating certain corporate sponsorship events, streamlining advertising expenditures and beginning a process of consolidating offices as leases expire. These efforts have been undertaken to increase the efficiency of our operations without significantly impacting the agent experience.

During the three months ended September 30, 2023, our real estate brokerage segment reduced its operating expenses, excluding commissions and restructuring expenses, by approximately $7,800 as compared to the 2022 period. These reductions included approximately $4,800 of general and administrative expenses, approximately $1,900 of sales and marketing expenses and approximately $1,100 of operations and support expenses. Compared to the third quarter of 2022, these actions resulted in a 10.5% reduction of operating expenses, excluding commissions and restructuring expenses.

During the nine months ended September 30, 2023, we reduced our headcount, on a net basis, by approximately 60 positions and have commenced a program of transitioning certain administrative support functions that do not impact the agent experience, which are expected to result in additional reductions of approximately 100 employees during 2024. These steps are intended to result in an approximate 18% reduction in headcount since December 31, 2022 and should contribute meaningfully to our expense reduction efforts. In addition, in the second quarter of 2024, a lease on property used by one of our subsidiaries will expire and it will move its operations to a new location resulting in an approximate $4,000 reduction in annual occupancy costs on an ongoing basis.

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.

Three months ended September 30, 2023 Compared to the Three months ended September 30, 2022

The following table sets forth our revenue and operating (loss) income by segment for the three months ended September 30, 2023 compared to the three months ended September 30, 2022:


	Three Months Ended September 30,
	2023		2022
	(Dollars in thousands)
Revenues by segment:
Real estate brokerage segment	$	251,548	$	272,588

Operating (loss) income by segment:
Real estate brokerage segment	$	(1,992)	$	1,503
Corporate and other segment	(6,829)		(6,689)
Total operating loss	$	(8,821)	$	(5,186)

Real estate brokerage segment
Operating (loss) income	$	(1,992)	$	1,503
Depreciation and amortization	1,999		1,968
Restructuring	215		—
Stock-based compensation	1,175		1,419
Adjusted EBITDA	1,397		4,890
Adjusted EBITDA attributed to non-controlling interest	138		177
Adjusted EBITDA attributed to Douglas Elliman	$	1,535	$	5,067

Corporate and other segment
Operating loss	$	(6,829)	$	(6,689)
Stock-based compensation	2,267		1,746
Adjusted EBITDA attributed to Douglas Elliman	$	(4,562)	$	(4,943)

Revenues. Our revenues were $251,548 for the three months ended September 30, 2023 compared to $272,588 for the three months ended September 30, 2022. The $21,040 decline in revenues was primarily due to declines in commission revenues which declined as a result of a reduction of revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates.

Operating expenses. Our operating expenses were $260,369 for the three months ended September 30, 2023 compared to $277,774 for the three months ended September 30, 2022. The decline of $17,405 was due primarily to declines in real estate brokerage commissions of $9,991 arising primarily from declines in commissions and other brokerage revenue.

Operating loss. Operating loss was $8,821 for the three months ended September 30, 2023 compared to $5,186 for the same period in 2022. The $3,635 increase in operating loss was due primarily to the net impact of declines in commission and other brokerage revenues.

Other income. Other income was $1,822 for the three months ended September 30, 2023 compared to $653 for the three months ended September 30, 2022. For the three months ended September 30, 2023, other income primarily consisted of interest income, net of $1,785, investment and other income, primarily associated with our PropTech investments of $27, and equity in earnings from equity method investments of $10.

Loss before provision for income taxes. Loss before income taxes was $6,999 and $4,533 for the three months ended September 30, 2023 and 2022, respectively.

Income tax benefit. Income tax benefit was $1,869 and $290 for the three months ended September 30, 2023 and 2022, respectively.

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 refine annual estimates as current information becomes available.

Real Estate Brokerage.

The following table sets forth our condensed consolidated statements of operations data for the Real Estate Brokerage segment for the three months ended September 30, 2023 compared to the three months ended September 30, 2022:


	Three Months Ended September 30,
	2023			2022
	(Dollars in thousands)
Revenues:
Commissions and other brokerage income	$	239,255	95.1%	$	259,977	95.4%
Property management	8,697		3.5%	8,541		3.1%
Other ancillary services	3,596		1.4%	4,070		1.5%
Total revenues	$	251,548	100%	$	272,588	100%

Operating expenses:
Real estate agent commissions	$	185,845	73.9%	$	195,836	71.8%
Sales and marketing	20,770		8.3%	22,703		8.3%
Operations and support	17,121		6.8%	18,218		6.7%
General and administrative	21,988		8.7%	26,833		9.8%
Technology	5,602		2.2%	5,527		2.0%
Depreciation and amortization	1,999		0.8%	1,968		0.7%

Restructuring	215		0.1%	—		—%
Operating (loss) income	$	(1,992)	(0.8)%	$	1,503	0.6%

Revenues. Our revenues were $251,548 for the three months ended September 30, 2023 compared to $272,588 for the three months ended September 30, 2022. The decline of $21,040 was primarily related to a decline in our commission and other brokerage income, which declined as a result of a reduction of revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates.

Our revenues from commission and other brokerage income were $239,255 for the three months ended September 30, 2023 compared to $259,977 for the three months ended September 30, 2022, a decline of $20,722. In the three months ended September 30, 2023, our commission and other brokerage income generated from the sales of existing homes declined by $24,857 in New York City compared to the 2022 period. This was partially offset by increases in our commission and other brokerage income generated from the sales of existing homes of $6,835 in the Florida market, $1,327 in the Northeast region, which excludes New York City, and $1,386 in the West region, in each case compared to the 2022 period. In addition, our revenues from Development Marketing declined by $5,413 in the 2023 period compared to the 2022 period.

Operating Expenses. Our operating expenses were $253,540 for the three months ended September 30, 2023 compared to $271,085 for the three months ended September 30, 2022, a decline of $17,545, due primarily to declines in real estate brokerage commissions, and reductions in operations and support expenses and general and administrative expenses. The primary components of operating expenses are described below.

Real Estate Agent Commissions. As a result of declines in our commissions and other brokerage income, our real estate agent commissions expense was $185,845 for the three months ended September 30, 2023 compared to $195,836 for the three months ended September 30, 2022. Real estate agent commissions expense, as a percentage of revenues, increased to 73.9% for the three months ended September 30, 2023 compared to 71.8% for the three months ended September 30, 2022. The increase in real estate agent commissions expense as a percentage of revenue in the 2023 period was primarily driven by a higher percentage of revenues being generated in the Southeast (Florida) and Western (primarily California), which traditionally pay higher commission rates than other regions, as well as a higher percentage of revenues being generated by top-performing agents and agent teams, who generally receive a higher commission percentage. In addition, our percentage of revenues from Development Marketing, which generally pays lower commissions, declined during three months ended September 30, 2023 compared to the prior year period.

Sales and Marketing. Sales and marketing expenses were $20,770 for the three months ended September 30, 2023 compared to $22,703 for the three months ended September 30, 2022.

Operations and support. Operations and support expenses were $17,121 for the three months ended September 30, 2023 compared to $18,218 for the three months ended September 30, 2022. The decline is primarily related to reductions in personnel as well as lower incentive compensation expense in the 2023 period.

General and administrative. General and administrative expenses were $21,988 for the three months ended September 30, 2023 compared to $26,833 for the three months ended September 30, 2022. The decline is primarily related to reductions in personnel as well as lower incentive compensation expense in the 2023 period.

Technology. Technology expenses were $5,602 for the three months ended September 30, 2023 compared to $5,527 for the three months ended September 30, 2022.

Operating (loss) income. Operating loss was $1,992 for the three months ended September 30, 2023 compared to operating income of $1,503 for the three months ended September 30, 2022. The decline in operating income is primarily associated with the net impact of declines in commission and other brokerage revenues.

Corporate and Other.

Corporate and Other loss. The operating loss at the Corporate and Other segment was $6,829 for the three months ended September 30, 2023 compared to $6,689 for the three months ended September 30, 2022. The increased loss was primarily attributable to increased non-cash stock compensation expense.

Nine months ended September 30, 2023 Compared to Nine months ended September 30, 2022

The following table sets forth our revenue and operating (loss) income by segment for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022:


	Nine Months Ended September 30,
	2023		2022
	(Dollars in thousands)
Revenues by segment:
Real estate brokerage segment	$	741,442	$	945,847

Operating (loss) income by segment:
Real estate brokerage segment	$	(20,349)	$	37,619
Corporate and other segment	(20,577)		(20,298)
Total operating (loss) income	$	(40,926)	$	17,321

Real estate brokerage segment
Operating (loss) income	$	(20,349)	$	37,619
Depreciation and amortization	6,031		6,033
Restructuring	1,932		—
Stock-based compensation	3,355		3,278
Adjusted EBITDA	(9,031)		46,930
Adjusted EBITDA attributed to non-controlling interest	63		222
Adjusted EBITDA attributed to Douglas Elliman	$	(8,968)	$	47,152

Corporate and other segment
Operating loss	$	(20,577)	$	(20,298)
Stock-based compensation	6,311		5,198
Adjusted EBITDA attributed to Douglas Elliman	$	(14,266)	$	(15,100)

Revenues. Our revenues were $741,442 for the nine months ended September 30, 2023 compared to $945,847 for the nine months ended September 30, 2022. The $204,405 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 and the volatility in the financial markets as well as increases in mortgage rates.

Operating expenses. Our operating expenses were $782,368 for the nine months ended September 30, 2023 compared to $928,526 for the nine months ended September 30, 2022. The decline of $146,158 was due primarily to declines in real estate brokerage commissions of $139,691. This was offset by increases in restructuring and non-cash stock compensation expenses.

Operating (loss) income. Operating loss was $40,926 for the nine months ended September 30, 2023 compared to operating income of $17,321 for the nine months ended September 30, 2022. The $58,247 decline in operating income was primarily due to the net impact of declines in commissions and other brokerage revenues.

Other income. Other income was $4,226 for the nine months ended September 30, 2023 compared to $3,113 for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, other income primarily consisted of interest income, net of $4,260 and investment and other income, primarily associated with our PropTech investments of $109. This was offset by equity losses from equity method investments of $143.

(Loss) income before provision for income taxes. Loss before income taxes was $36,700 for the nine months ended September 30, 2023 and income before income taxes was $20,434 for the nine months ended September 30, 2022.

Income tax (benefit) expense. Income tax benefit was $8,552 for the nine months ended September 30, 2023 and income tax expense was $8,173 for the nine months ended September 30, 2022.

Real Estate Brokerage.

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, 2023 compared to the nine months ended September 30, 2022:


	Nine Months Ended September 30,
	2023			2022
	(Dollars in thousands)
Revenues:
Commissions and other brokerage income	$	703,780	94.9%	$	903,917	95.6%
Property management	26,849		3.6%	27,786		2.9%
Other ancillary services	10,813		1.5%	14,144		1.5%
Total revenues	$	741,442	100%	$	945,847	100%

Operating expenses:
Real estate agent commissions	$	546,749	73.7%	$	686,440	72.6%
Sales and marketing	64,170		8.7%	64,145		6.8%
Operations and support	53,338		7.2%	55,872		5.9%
General and administrative	71,794		9.7%	78,929		8.3%
Technology	17,777		2.4%	16,809		1.8%
Depreciation and amortization	6,031		0.8%	6,033		0.6%


Restructuring	1,932		0.3%	—		—%
Operating (loss) income	$	(20,349)	(2.7)%	$	37,619	4.0%

Revenues. Our revenues were $741,442 for the nine months ended September 30, 2023 compared to $945,847 for the nine months ended September 30, 2022. The decline of $204,405 was primarily related to a decline in our commission and other brokerage income because of lower revenues from existing home sales caused, in part, by lower listing inventory and the volatility in the financial markets as well as increases in mortgage rates.

Our revenues from commission and other brokerage income were $703,780 for the nine months ended September 30, 2023 compared to $903,917 for the nine months ended September 30, 2022, a decline of $200,137. In 2023, our commission and other brokerage income generated from the sales of existing homes declined by $84,655 in New York City, $44,531 in our Florida market, $29,411 in the Northeast region, which excludes New York City, and $25,084 in the West region. In addition, our revenues from Development Marketing declined by $16,456 in the 2023 period compared to the 2022 period.

Operating Expenses. Our operating expenses were $761,791 for the nine months ended September 30, 2023 compared to $908,228 for the nine months ended September 30, 2022, a decline of $146,437, due primarily to declines in real estate brokerage commissions.

Real Estate Agent Commissions. As a result of declines in commissions and other brokerage income, our real estate agent commissions expense was $546,749 for the nine months ended September 30, 2023 compared to $686,440 for the nine months ended September 30, 2022, a decline of $139,691. Real estate agent commissions expense, as a percentage of revenues, increased to 73.7% for the nine months ended September 30, 2023 compared to 72.6% for the nine months ended September 30, 2022. The increase in real estate agent commissions expense as a percentage of revenue in the 2023 period was primarily driven by a higher percentage of revenues being generated in the Southeast (Florida) and Western (primarily California), which traditionally pay higher commission rates than other regions, as well as a higher percentage of revenues being generated by top-performing agents and agent teams, who generally receive a higher commission percentage. In addition, our percentage of revenues from Development Marketing, which generally pays lower commissions, declined during nine months ended September 30, 2023 compared to the prior year period.

Sales and Marketing. Sales and marketing expenses were $64,170 for the nine months ended September 30, 2023 compared to $64,145 for the nine months ended September 30, 2022.

Operations and support. Operations and support expenses were $53,338 for the nine months ended September 30, 2023 compared to $55,872 for the nine months ended September 30, 2022. The decline is primarily related to reductions in personnel as well as lower incentive compensation expense in the 2023 period.

General and administrative. General and administrative expenses were $71,794 for the nine months ended September 30, 2023 compared to $78,929 for the nine months ended September 30, 2022.The decline is primarily related to reductions in personnel as well as lower incentive compensation expenses.

Technology. Technology expenses were $17,777 for the nine months ended September 30, 2023 compared to $16,809 for the nine months ended September 30, 2022. The increase in the 2023 period was primarily related to agent-facing technology enhancements and improvements.

Operating (loss) income. Operating loss was $20,349 for the nine months ended September 30, 2023 compared to operating income of $37,619 for the nine months ended September 30, 2022. The decline in operating income is primarily associated with the decline in revenues, expenses associated with restructuring, non-cash stock compensation and expansion into new markets.

Corporate and Other.

Corporate and Other loss. The operating loss at the Corporate and Other segment was $20,577 for the nine months ended September 30, 2023 compared to $20,298 for the nine months ended September 30, 2022.

Summary of PropTech Investments

As of September 30, 2023, New Valley Ventures had investments (at a carrying value) of approximately $13,947 in PropTech companies. This amounts to approximately 3% of the value of Douglas Elliman’s total assets, which totaled approximately $511 million, as of September 30, 2023. During the nine months ended September 30, 2023 we made a new PropTech investment, which was a non-controlling interest investment, in Infinite Creator, a video production application that allows users to capture professional-quality videos from a smartphone in minutes.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash declined by $37,493 to $133,889, which included $7,549 of restricted cash, during the nine months ended September 30, 2023 and by $27,200 to $201,666 during the nine months ended September 30, 2022.

Cash used in operations was $27,773 for the nine months ended September 30, 2023 while cash provided by operations was $5,208 for the nine months ended September 30, 2022. The increase in the cash used in the 2023 period was related to lower operating income, which was primarily the result of the decline in revenues. This amount was offset by lower uses of working capital in the nine months ended September 30, 2023, due to lower accruals of incentive compensation for the nine months ended September 30, 2023 as well as higher payments of year-end incentive compensation during the nine months

ended September 30, 2022. We accrue incentive compensation during the year it is incurred and then pay the previously accrued amounts in the first quarter of the succeeding year.

Cash used in investing activities was $5,487 and $9,667 for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, cash used in investing activities was comprised of capital expenditures of $5,380 and the purchase of investments of $515 in our PropTech business. This was offset by $408 of distributions from our investments in equity securities. For the nine months ended September 30, 2022, cash used in investing activities was comprised of capital expenditures of $6,207, purchase of investments of $3,235 in our PropTech business, and investments of $300 in equity-method investments. This was offset by $75 of distributions from equity-method investments.

Our investment philosophy is to maximize return on investments using a reasonable expectation for return when investing in equity-method investments and PropTech investments as well as making capital expenditures.

Cash used in financing activities was $4,233 and $22,741 for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, cash used in financing activities was comprised of dividends and distributions on common stock of $4,222 and $11 for payroll tax liabilities associated with restricted stock withheld upon the vesting of restricted stock. For the nine months ended September 30, 2022, cash used in financing activities was comprised of dividends and distributions on common stock of $12,120, repayment of debt of $9,396 and earn-out payments, associated with acquisitions, of $1,600. These amounts were partially offset by contributions from a non-controlling interest associated with Douglas Elliman Texas of $375.

We paid a quarterly cash dividend of $0.05 per share from March 2022 to March 2023. On June 12, 2023, we announced that our Board had suspended the quarterly cash dividend, effective immediately. On June 12, 2023, our Board also declared an annual stock dividend on our common stock of 5%, which was paid on June 30, 2023 to stockholders of record as of the close of business on June 22, 2023. As part of the evaluation of our dividend policy, our Board determined that instating an annual stock dividend and suspending the quarterly cash dividend was in the best interest of us and our stockholders. This updated dividend policy is intended to strengthen our balance sheet and position us to deliver long-term stockholder returns. The amount and payment of an annual stock dividend and any quarterly cash dividend are subject to the Board’s regular evaluation of our dividend policy and capital allocation strategy.

We had cash and cash equivalents of approximately $126,340 as of September 30, 2023 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, 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 a 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.

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 September 30, 2023, 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 September 30, 2023, we had outstanding approximately $3,000 of letters of credit, collateralized by certificates of deposit. The letters of credit have been issued as security deposits for leases of office space, to secure the performance of our subsidiaries under various insurance programs and to provide collateral for various subsidiary borrowing and capital lease arrangements.

As a service to its customers, Portfolio Escrow Inc., a subsidiary of the Company, 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. The escrow funds on deposit at the subsidiary were $44,326 and $33,533 as of September 30, 2023 and December 31, 2022, respectively, and corresponding escrow funds in holding of the same amount. While these deposits are not assets of the Company (and, therefore, are excluded from the accompanying condensed consolidated balance sheets), the subsidiary of the Company remains contingently liable for the disposition of these deposits.

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 Annual Report on Form 10-K for the year ended December 31, 2022.

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 impacts of banks not honoring the escrow and trust deposits held by our subsidiaries,

•litigation risks,

•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 level of our expenses, including our corporate expenses as a standalone public company,

•the tax-free treatment of the Distribution,

•our lack of operating history as a public company and costs associated with being a standalone public company,

•the failure of Vector Group to satisfy its respective 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 year ended December 31, 2022, 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 Annual Report on Form 10-K for the year ended December 31, 2022, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Note 7 to our condensed consolidated financial statements, incorporated herein by reference, which contains a general description of certain legal proceedings to which our company or its subsidiaries are a party.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2022, except as set forth below:

Goodwill and indefinite-lived intangible asset impairment charges may adversely affect our operating results and financial condition.

We have a substantial amount of goodwill and other intangible assets on our balance sheet. As of September 30, 2023, we had approximately $32.2 million of goodwill and $73.1 million of trademarks and other intangible assets related to Douglas Elliman. Goodwill, trademarks and other identifiable intangible assets must be tested for impairment at least annually, or more frequently if indicators of potential impairment exist. The fair value of the goodwill assigned to a reporting unit could decline if projected revenues or cash flows were to be lower in the future due to the effects of the global economy or other causes. If the carrying value of intangible assets or of goodwill were to exceed its fair value, the asset would be written down to its fair value, with the impairment loss recognized as a non-cash charge in our consolidated statement of operations. Changes in our future outlook of the Douglas Elliman Realty, LLC reporting unit could result in an impairment loss.

The goodwill and indefinite-lived intangible asset impairment analyses are sensitive to changes in key assumptions used, such as discount rates, revenue growth rates, operating margin percentages of the business, and royalty rates as well as current market conditions affecting the residential real estate market industry including inventory levels and elevated mortgage rates. Disruptions in global credit and other financial markets and deteriorating economic conditions, including the impact of inflation or elevated interest rates, could, among other things, cause us to negatively adjust the key assumptions used in the valuations.

Given economic uncertainty and other factors affecting management’s assumptions underlying the valuation of our goodwill and indefinite-lived intangible assets, the assumptions and projections used in the analyses may not be realized and our current estimates could vary significantly in the future, which may result in an additional goodwill or indefinite-lived intangible asset impairment charge. We may experience additional unforeseen circumstances that adversely affect the value of our goodwill or intangible assets and trigger an evaluation of the amount of recorded goodwill and intangible assets. Future write-offs of goodwill or other intangible assets as a result of an impairment in the business could have a material adverse impact on our results of operations and stockholders’ equity.

In the quarterly period ended September 30, 2023, we utilized third-party valuation specialists to prepare a quantitative assessment of goodwill and trademark intangible assets related to Douglas Elliman, based on the current market conditions in the residential real estate brokerage industry. While the quantitative assessments did not result in impairment charges to goodwill or to the trademark intangible assets as of September 30, 2023, we could experience an impairment of goodwill and other intangible assets if current market conditions continue to deteriorate. Such situation could then result in an impairment loss.

Industry structure changes that disrupt the functioning of the residential real estate market could materially adversely affect our operations and financial results.

Through our brokerages, we participate in MLS and are a member of the NAR and state real estate associations and, accordingly, are subject to each group’s rules, policies, data licenses, and terms of service. The rules of each MLS and real estate association to which we belong can vary widely and are complex.

From time to time, certain industry practices, including NAR and MLS rules, have come under regulatory scrutiny. There can be no assurances as to whether the Department of Justice (the “DOJ”) or Federal Trade Commission (the “FTC”), their state counterparts, or other governmental body will determine that any industry practices or developments have an anti-competitive effect on the industry. Any such determination could result in industry investigations, legislative or regulatory action, private litigation or other actions, any of which could have the potential to disrupt our business.

On July 1, 2021, the DOJ announced its withdrawal from a settlement agreement reached during the prior administration with the NAR in relation to claims of anticompetitive behavior with respect to commissions received by buyers’ agents from

sellers’ agents. The settlement previously required the NAR to adopt certain rule changes, such as increased disclosure of commission offers from sellers’ agents to buyers’ agents. In January 2023, a federal district court ruled that the DOJ must uphold the settlement agreement. The DOJ appealed the district court’s January 2023 ruling, which has been fully briefed and is scheduled for oral argument on December 1, 2023. The withdrawal of the DOJ from this settlement and the executive order signed by President Biden on July 9, 2021, which, among other things, directs the FTC to consider additional rule making pertaining to the real estate industry, indicates increased regulatory scrutiny of the real estate industry.

In addition, private litigants have filed several antitrust suits against the NAR and certain real estate brokerage firms, some of which the DOJ has intervened in, that allege certain NAR and MLS rules are anti-competitive under federal and state antitrust laws and result in increased costs to consumers. Certain of these antitrust suits have resulted in settlement agreements, pursuant to which the settling real estate brokerage companies have agreed to injunctive relief that requires those companies to implement practice changes in their brokerage operations. On October 31, 2023, a federal jury in the Western District of Missouri found in favor of a class of plaintiffs of home sellers from April 2015 to June 2022 in three states, and awarded damages of approximately $1.78 billion (which is subject to statutory treble damages) for anticompetitive behavior in violation of federal antitrust laws arising from the NAR’s requirement that sellers’ agents for MLS-listed properties offer to pay a portion of commissions received on the sale of such properties to buyers’ agents (the Sitzer/Burnett case). Certain of the defendants have indicated that they intend to appeal the judgment in the Sitzer/Burnett case and final resolution is not expected in the near term. Douglas Elliman is not a defendant in the Sitzer/Burnett case.

Following the federal jury decision in the Sitzer/Burnett case on October 31, 2023, several additional putative class action lawsuits were filed against the NAR and additional real estate brokerage firms, including Douglas Elliman, alleging anticompetitive conduct similar to that in the Sitzer/Burnett case in violation of federal and state antitrust laws, consumer protection claims and allegations of unjust enrichment. Douglas Elliman is presently aware that it is a named defendant in three such matters in Missouri, Illinois and New York. Douglas Elliman may become involved in additional legal proceedings concerning the same or similar claims. We are unable to reasonably estimate the financial impact of these matters.

Any of the foregoing litigation (including any related settlement agreement) or subsequent regulatory action, if successful, could result in significant changes or disruptions to industry practices of the residential real estate market, including changes or disruptions to buyers’ agent’s commissions, and could negatively affect our financial condition and results of operations. Such consequences may reduce our revenues, require additional expenditure, or distract our management’s attention from pursuing our growth strategy.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No equity securities of ours which were not registered under the Securities Act have been issued or sold by us during the three months ended September 30, 2023. In addition, we did not repurchase any of our equity securities during the three months ended September 30, 2023.

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

In the quarter ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement for the purchase or sale of our securities, within the meaning of Item 408 of Regulation S-K. However, certain of our officers or directors have made, and may from time to time make elections to have shares withheld to cover withholding taxes or pay the exercise price of options, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements.

ITEM 6. EXHIBITS:


31.1			Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certifications of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


		DOUGLAS ELLIMAN INC.
		(Registrant)

		By: /s/ J. Bryant Kirkland III
		J. Bryant Kirkland III
		Senior Vice President, Treasurer and
		Chief Financial Officer
Date:	November 9, 2023