Douglas Elliman Inc. (DOUG) FY 2024 MD&A

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All dollar amounts included herein are presented in thousands, except as otherwise noted)

The following discussion should be read in conjunction with the consolidated financial statements and corresponding notes, elsewhere in this Form 10-K. Any forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Any forward-looking statements are subject to several important factors, including those factors discussed under “Risk Factors” and “Special Note on Forward-Looking Statements,” that could cause our actual results to differ materially from those indicated in such forward-looking statements.

Overview

Douglas Elliman Inc. is a holding company and is engaged principally in two business segments:

Real Estate Brokerage: the residential real estate brokerage services through our subsidiary Douglas Elliman Realty, which operates one of the largest residential brokerage companies in the New York metropolitan area and also conducts residential real estate brokerage operations in Florida, California, Texas, Colorado, Nevada, Massachusetts, Connecticut, Maryland, Virginia, Washington, D.C. Arizona, New Hampshire and Michigan. We also offer, including through our subsidiaries and ventures, ancillary services, such as property management, title and escrow services.

Corporate Activities 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.

See Item 1. “Business” for detailed overview and description of our principal operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from our management’s perspective. Our MD&A is organized as follows:

Business Overview. This section provides a general description of our business, as well as other matters, including recent developments, that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.

Critical Accounting Estimates. This section includes a discussion of accounting estimates considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, our significant accounting estimates, including our critical accounting estimates, are discussed in the notes to our audited consolidated annual financial statements included elsewhere in this Form 10-K.

Results of Operations. This section provides an analysis of our results of operations for the years ended December 31, 2024 and 2023. Certain discussions of the changes in our results of operations and liquidity and capital resources from the year ended December 31, 2023 as compared to the year ended December 31, 2022 have been omitted from this Form 10-K and may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission on March 16, 2023.

Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the years ended December 31, 2024 and 2023, as well as certain contractual obligations and off-balance sheet arrangements that existed at December 31, 2024.

Business Overview

Since its inception in 1911, Douglas Elliman has challenged the status quo of the real estate industry. We were founded on Douglas L. Elliman’s vision that New Yorkers would shift their preference for traditional homes to favor luxury apartments that were both sold and managed by comprehensive real estate companies. More than a century later, the Douglas Elliman brand is still associated with service, luxury and forward thinking — our markets are primarily international finance and technology

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hubs that are densely populated and offer housing inventory at premium price points. The average transaction value of a home we sold in 2024 was approximately $1.67 million — significantly higher than our principal competitors.

We are building on our record of innovation. We are focused on digitizing, integrating and simplifying real estate activities for agents and elevating their clients’ experiences. We are bringing innovative, technology driven PropTech solutions to Douglas Elliman by adopting new PropTech solutions for agents and their clients and investing in select PropTech opportunities through our subsidiary, New Valley Ventures LLC. Our model is to source and use best-of-breed products and services that we believe will increase our efficiency. In addition to entering business relationships with these PropTech companies, we are committed to creating over time a dynamic portfolio of PropTech companies by leveraging relationships to provide them access to our agents and their clients, as well as our knowledge and experience. We believe these collaborative relationships are mutually beneficial because they keep Douglas Elliman both asset light and on the cutting edge by offering our agents innovative solutions and services that can be integrated into our technology. Furthermore, we maintain upside potential in the success of our PropTech partners in which we invest through minority stakes in their capital structures.

We boast a prestigious luxury brand that is complemented by a comprehensive suite of technology-enabled real estate services and investments. These distinguishing qualities position us to capitalize on opportunities in the U.S. residential real estate market. Despite various “agentless” models such as “iBuying,” approximately 90% of sellers and 88% of buyers were assisted by a real estate agent or broker when selling or purchasing their home between July 2023 and June 2024, according to the National Association of Realtors, or NAR, highlighting the central role agents continue to play in real estate transactions. Agents are able to generate significant repeat business from clients and referrals, with 66% of home sellers between July 2023 and June 2024 choosing to collaborate with an agent they had used in the past or from a referral, according to the NAR. Repeat business, as well the ability to provide ancillary services, allows agents to extend their client relationships and generate significant lifetime value.

Industry trends in 2024 After a strong 2021, when existing home sales reported by the NAR reached their highest level since 2006, the residential real estate brokerage industry began experiencing significant challenges in the second quarter of 2022, which have continued to date. These challenges have been marked by a reduced inventory of homes available for sale, which we believe has been caused by elevated mortgage rates since early 2022. According to the NAR, sales of existing homes of 4.06 million in 2024, which was the lowest amount since 1995, declined from 4.09 million in 2023 and 5.03 million in 2022. By comparison, our transactions increased by 1% to 21,781 in 2024 from 21,606 in 2023. We began to see a stabilization in our revenues during 2023. This trend continued throughout 2024, and our revenues were 4% more than in 2023. Based on cash receipts in January and February 2025, we expect these increases to continue in the first quarter of 2025 and the NAR and other real estate industry consortiums are forecasting similar increases in the U.S. residential real estate market in 2025.

Despite these recent changes, we believe our competitive advantages in the luxury markets distinguish us from our competitors and our comprehensive suite of real estate solutions, our industry-leading brand name, and our talented team of employees and agents set us apart in the industry. We were recently named the most trusted real estate brokerage firm in the United States as part of the America's Most Trusted Series by Lifestory Research. As the real estate brokerage industry evolves and addresses challenges related to constrained inventory of homes as well as higher mortgage rates, we continue to pursue profitable growth opportunities through the expansion of our footprint, investments in cutting-edge PropTech companies through New Valley Ventures, continued recruitment of best-in-class talent, acquisitions (acqui-hires), and operational efficiencies. We will continue to employ a disciplined capital allocation strategy aimed at generating sustainable long-term value for our stockholders.

Distribution

On December 29, 2021, Vector Group distributed all our common stock to its stockholders. Since the Distribution, we have been incurring expenses necessary to operate a standalone public company, including pursuant to the Transition Services Agreement entered into with Vector Group in connection with the Distribution, which was terminated in December 2024.

Key Business Metrics and Non-GAAP Financial Measures

In addition to our financial results, prepared in accordance with GAAP, 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 and Adjusted EBITDA attributed to Douglas Elliman Margin and financial measures for the year ended December 31, 2024 (“Non-GAAP Financial Measures”), which are financial measures not prepared in accordance with GAAP.

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(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. Total transactions by quarter for the year ended December 31, 2024 were 4,477 for the three months ended March 31, 2024, 5,885 for the three months ended June 30, 2024, 6,082 for the three months ended September 30, 2024 and 5,337 for the three months ended December 31, 2024.

(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. Gross Transaction Value by quarter for the year ended December 31, 2024 was $7.1 billion for the three months ended March 31, 2024, $10.7 billion for the three months ended June 30, 2024, $9.8 billion for the three months ended September 30, 2024 and $8.8 billion for the three months ended December 31, 2024.

(3)Average transaction value per transaction is the quotient of (x) Gross Transaction Value divided by (y) total transactions.

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

(5)Annual Retention is the quotient of (x) the prior year revenue generated by agents retained divided by (y) the prior year revenue generated by all agents. We use Annual Retention as a measure of agent stability.

Non-GAAP Financial Measures

Adjusted EBITDA attributed to Douglas Elliman is a non-GAAP financial measure. Adjusted EBITDA attributed to Douglas Elliman Margin is the quotient of (x) Adjusted EBITDA attributed to Douglas Elliman divided by (y) revenue.

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 have been provided in the table below (in thousands).

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Computation of Adjusted EBITDA attributed to Douglas Elliman

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(a)Represents amortization of stock-based compensation. $4,325 is attributable to the Real estate brokerage segment and $2,249 is attributable to the Corporate activities and other segment.

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

(c)Represents unusual litigation expense, settlement and related expenses incurred in connection with industry-wide antitrust class action lawsuits and other matters related to employees and agents. We have increased unusual litigation expense, settlement and related expenses amounts previously reported in our Annual Report on Form 10-K for the year ended December 31, 2023 by $770 and in our Quarterly Report on Form 10-Q for each of the three months ended March 31, 2024, June 30, 2024 and September 30, 2024, respectively, by $770, $645, $534 and $3,774, respectively.

(d)     $17,750 is included within Antitrust litigation settlement expense line and $15,583 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2024. $770 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2023.

(e)     $2,010 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2024.

Recent Developments

Management changes. On October 21, 2024, our former Chairman of the Board of Directors, President and Chief Executive Officer, notified our Board of his resignation as Chairman of the Board, President and Chief Executive Officer, effective immediately. In connection with his cessation of employment with us, we cancelled 2,965,625 unvested shares of common stock subject to vesting pursuant to our 2021 Management Incentive Plan. On October 25, 2024, the former President and Chief Executive Officer of our subsidiary, Douglas Elliman Realty LLC, was terminated effective immediately. On October 30, 2024, we agreed to mutually terminate the employment of our Chief Technology Officer, effective immediately. On December 13, 2024, our Chief Operating Officer notified our Board of Directors of his decision to retire voluntarily, effective immediately. He continues to serve following his retirement as a non-employee member of our Board of Directors. In connection with his retirement, we cancelled 1,181,250 unvested shares of common stock subject to vesting pursuant to our 2021 Management Incentive Plan.

On November 24, 2024 and October 30, 2024, we entered into employment agreements, as of October 22, 2024 and October 7, 2024, respectively, with each of our Chief Executive Officer and our Chief Financial Officer, which are each filed as exhibits to this Annual Report on Form 10-K.

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Assumption Miami Office. On December 20, 2024, we entered into an amendment to office lease agreement with Vector Group, our former parent, and Frost Real Estate Holdings, LLC, our landlord, and agreed to assume the rent balance of our Miami headquarters space through the lease’s expiration on April 30, 2028. An affiliate of the Landlord, Dr. Phillip Frost, beneficially owns more than 5% of our common stock.

Aircraft Leases. On October 17, 2024, we delivered notices of termination to terminate, effective as of November 16, 2024, two aircraft lease agreements with Vector Group.

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

Litigation Settlement. On April 26, 2024, we entered into a settlement agreement to resolve, on a nationwide basis, the Gibson and Umpa cases. The settlement resolves all claims, on a nationwide basis, by the plaintiffs and proposed settlement class members in the Lawsuits, which includes, but is not limited to, all claims concerning brokerage commissions by the proposed settlement class members (sellers of residential real estate) that were asserted in other lawsuits against us and our subsidiaries, and releases us, our subsidiaries, and affiliated agents from all Claims. The settlement is not an admission of liability, nor does we concede or validate any of the claims asserted against it. Under the Settlement Agreement, we paid $7,750, into an escrow fund, on June 12, 2024 and agreed to pay two $5,000 contingent payments subject to certain financial contingencies on or before December 31, 2027. The contingent payments may be accelerated under certain circumstances. We recognized an expense of $17,750 for the year ended December 31, 2024. In addition, we agreed to make certain changes to its business practices and emphasize certain practices that have been a part of its longstanding policies and practices, including: reminding its brokerages and agents that the Company has no rule requiring agents to make or accept offers of compensation; requiring its brokerages and agents to clearly disclose to clients that commissions are not set by law and are fully negotiable; prohibiting its brokerages and buyer agents from claiming buyer agent services are free; requiring its brokerages and agents to disclose to the buyer the listing broker’s offer of compensation for prospective buyers’ agents as soon as possible; prohibiting our brokerages and agents from using any technology (or manual methods) to sort listings by offers of compensation, unless requested by the client; reminding its brokerages and agents of their obligation to show properties regardless of compensation for buyers’ agents for properties that meet the buyer’s priorities; and developing training materials for its brokerages and agents that support all the practice changes outlined in the injunctive relief. See Note 14 - “Contingencies” to our consolidated financial statements. The Settlement Agreement is currently being challenged on appeal in the U.S. Court of Appeals for the Eighth Circuit. In the event the appeal is successful, we could be subject to further liabilities in the various seller class action litigation that is pending or that could be filed. In addition, we are a defendant in the Lutz case pending in the United States District Court for the Southern District of Florida, No. 4:24-cv-10040 (KMM), an action on behalf of a putative national class of home buyers from December 1996 through the present, alleging violations of federal antitrust laws, state antitrust and consumer protection laws, as well as asserting an unjust enrichment claim. As this case was brought by a putative national class of home buyers, it is not subsumed within the Settlement Agreement, except to the extent that the class includes home buyers who also are part of the home sellers settling class referenced above that released their claims as home buyers.

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 and 2024, 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 2024, we reduced our operating expenses, excluding commissions, litigation settlement and related expenses, restructuring, executive severance and separation expenses and non-cash stock compensation expenses by approximately $19,725 (6.8%) as compared to 2023. These reductions during 2024 included approximately $17,996 of general and administrative expenses. In 2023, we actively executed expense reduction programs that reduced expenses in our business, including our headcount by approximately 100 employees in 2023. These programs continued in 2024. In addition, in the second quarter of 2024, a lease on property used by one of our subsidiaries expired and it has moved its operations to a new location resulting in an approximate $4,000 reduction in annual occupancy costs on an ongoing basis.

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Critical Accounting Estimates

General. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 revenue recognition, impairment charges, valuation of intangible assets, deferred tax liabilities, and valuation of investments, including other-than-temporary impairments to such investments. Actual results could differ from those estimates.

Revenue Recognition. Revenue is measured based on a consideration specified in a contract with a customer and excludes any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time.

Real estate commissions earned by our Real Estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues.

Contracts in our development marketing business provide us with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold.

Under development marketing service arrangements, dedicated staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized at the time of the completed sale of each unit.

Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. We capitalize costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. We use an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit in the subject property and expensing these costs as each unit sold is closed over the contract.

Commission revenue is recognized at the time the performance obligation is met for our Real Estate commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms.

Our Real Estate property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month. Our Real Estate title insurance commission fee revenue is earned when the sale of the title insurance is completed, which corresponds to the point in time when the underlying real estate sale transaction closes and the payment is received.

Accounting for Leases. Under Accounting Standards Committee (“ASC”) 842, we determine if an arrangement is a lease at contract inception. At lease commencement, we record and recognize right-of-use (“ROU”) assets for the lease liability amount and initial direct costs incurred, offset by lease incentives received. We record lease liabilities for the net present value of future lease payments over the lease term. The discount rate we use is generally our estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. We calculate discount rates periodically to estimate the rate we would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We recognize operating lease expense on a straight-line basis over the lease term. Operating leases are included in operating lease ROU assets and lease liabilities on the consolidated balance sheets.

Embedded Derivatives. We measure all derivatives, including certain derivatives embedded in other contracts, at fair value and recognize them in the consolidated balance sheet as an asset or a liability, depending on our rights and obligations under the applicable derivative contract. During 2024, we have issued variable interest senior convertible debt in a series of private placements where a portion of the total interest payable on the debt is computed by reference to our common stock. This portion of the interest payment is considered an embedded derivative within the convertible debt, which we are required to

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separately value. As a result, we have bifurcated this embedded derivative and estimated the fair value of the embedded derivative liability. The resulting discount created by allocating a portion of the issuance proceeds to the embedded derivative is then amortized to interest expense over the term of the debt using the effective interest method.

As of December 31, 2024, the fair value of derivative liabilities was estimated at $30,253. Changes to the fair value of the embedded derivative are reflected on our consolidated statements of operations as “Changes in fair value of derivatives embedded within convertible debt.” The value of the embedded derivative is contingent on changes in interest rates of debt instruments maturing over the duration of the convertible debt as well as projections of future cash. We recognized a loss of $14,978 in 2024 due to changes in the fair value of the embedded derivatives. After giving effect to the recording of embedded derivative liabilities as a discount to the convertible debt, our common stock had a fair value at the issuance date of the notes in excess of the conversion price, resulting in a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was recorded as additional paid-in capital and as a further discount on the debt. The discount is then amortized to interest expense over the term of the debt using the effective interest rate method.

We recognized non-cash interest expense of $983 in 2024, due to the amortization of the debt discount attributable to the embedded derivatives and $80 in 2024, due to the amortization of the debt discount attributable to the beneficial conversion feature.

Stock-Based Compensation. We have granted stock-based compensation to employees and recognize expense on such grants. Our stock-based compensation uses a fair-value-based method to recognize non-cash compensation expense for share-based transactions. Under the fair value recognition provisions, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award.

Current Expected Credit Losses. We are exposed to credit losses for various amounts due from real estate agents, which are included in Agent receivables, net on the consolidated balance sheets, net of an allowance for credit losses. We historically estimated our allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, and historical experience of collections from the individual agents. We estimated that the credit losses for these receivables were $4,783 and $5,575 at December 31, 2024 and December 31, 2023, respectively.

Goodwill and Indefinite Life Assets. Goodwill and intangible assets with indefinite lives are not amortized and are tested for impairment on an annual basis, as of October 1, or whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. We follow ASC 350, Intangibles — Goodwill and Other, and subsequent updates including Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment and ASU 2017-14, Simplifying the Test for Goodwill Impairment. The amendments permit entities to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying value or choose to bypass the optional qualitative assessment, we will then assess recoverability by comparing the fair value of the reporting unit to our carrying amount; otherwise, no further impairment test would be required. The fair value of the intangible asset associated with the Douglas Elliman trademark is determined using a “relief from royalty payments” method. This approach involves two steps: (i) estimating reasonable royalty rates for its trademark associated with the Douglas Elliman trademark and (ii) applying these royalty rates to a net sales stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of the trademark.

In the three months ended September 30, 2024, we utilized third-party valuation specialists to prepare a quantitative assessment of the Company’s goodwill and trademark intangible assets, based on the current market conditions in the residential real estate brokerage industry which did not result in impairment charges related to its goodwill or trademark for the year ended December 31, 2024. If we fail to achieve the financial projections used in the quantitative assessments of fair value and current market conditions deteriorate, impairment charges could result in future periods, and such impairment charges could be material.

Income Taxes. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. Therefore, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time and, as a result, changes in our subjective assumptions and judgments may materially affect amounts recognized in our consolidated financial statements.

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We are taxed as a corporation for purposes of U.S. and state and local income taxes and calculate our provision for income taxes based upon our consolidated taxable income at current income tax rates.

ASC 740, Income Taxes, requires us to establish a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. We have established a valuation allowance because we believe it will be more likely than not that the benefits of these deductible differences will not be realized, and as a result are required to maintain a valuation allowance for the full amount of the deferred tax assets.

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 consolidated financial statements and related notes included elsewhere in this Form 10-K.

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

•Sales and marketing. Sales and marketing expense consists primarily of marketing and advertising expenses, compensation and other personnel-related costs for employees supporting sales, marketing, expansion and related functions, occupancy-related costs and agent acquisition incentives.

•Operations and support. Operations and support expense consists primarily of compensation and other personnel-related costs for employees supporting agents, third-party consulting and professional services costs (not included in general and administrative or technology), fair value adjustments to contingent consideration for our acquisitions and other related expenses.

•General and administrative. General and administrative expense consists primarily of compensation, stock-based compensation expense and other personnel-related costs for executive management and administrative employees, including finance and accounting, legal, human resources and communications, the occupancy costs for our headquarters and other offices supporting our administrative functions and, including, until December 2024, transition service fees paid to our former parent, Vector Group, for the use of office space and employees, professional services fees for legal and finance, insurance expenses and talent acquisition expenses.

•Technology. Technology expense consists primarily of compensation and other personnel-related costs for employees in the product, engineering and technology functions, website hosting expenses, software licenses and equipment, third-party consulting costs, data licenses of PropTech and other related expenses associated with the implementation of our technology initiatives.

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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

The following table sets forth our revenue and operating (loss) income by segment for the year ended December 31, 2024 compared to the year ended December 31, 2023:

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(a)     Represents unusual litigation expense, settlement and related expenses incurred in connection with industry-wide antitrust class action lawsuits and other matters related to employees and agents. For the Real estate brokerage segment, $17,750 is included within Antitrust litigation settlement expense line and $2,738 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2024. For the Corporate activities and other segment, $12,845 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2024. For the Real estate brokerage segment, $770 is included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2023.

(b)     For the Real estate brokerage segment, $1,175 and for the corporate activities and other segment $835 are included within general and administrative expenses on the Consolidated Statement of Operations for the year ended December 31, 2024.

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Year ended December 31, 2024 Compared to Year ended December 31, 2023

Unless the context suggests otherwise, figures in the below discussion are presented in thousands.

Revenues. Our revenues were $995,627 for the year ended December 31, 2024 compared to $955,578 for the year ended December 31, 2023. The $40,049 increase in revenues was primarily due to an increase in commissions and other brokerage income because of increased commissions from existing home sales.

Operating expenses. Our operating expenses were $1,064,453 for the year ended December 31, 2024 compared to $1,020,075 for the year ended December 31, 2023. The $44,378 increase was due primarily to an increase in the real estate brokerage commissions of $37,657 as well as increases in litigation expense, settlement and related expenses of $32,563 and was partially offset by a decline in general and administrative expenses, after adjusting for the increase in litigation expense, settlement and related expenses. Please refer to “Recent Developments,” “Update on Expense Reductions” in this section.

Operating loss. Operating loss was $68,826 for the year ended December 31, 2024 compared to a loss of $64,497 for the year ended December 31, 2023. The $4,329 increase in operating loss was primarily due to unusual litigation expense, settlement and related expenses and was offset by increases in brokerage revenues and a decline in other operating expenses. Please refer to “Recent Developments,” “Update on Expense Reductions” in this section.

Other (expenses) income. Other expense was $7,059 for the year ended December 31, 2024 compared to other income of $6,278 for the year ended December 31, 2023. For the year ended December 31, 2024, other expenses primarily consisted of the change in fair value of derivatives embedded within convertible debt of $14,978 associated with the issuance of the new financing debt and interest expense of $2,939. This was partially offset by interest income of $5,533 and investment and other income associated with our investments of our PropTech business of $5,289.

Loss before provision for income taxes. Loss before income taxes was $75,885 for the year ended December 31, 2024 and loss before income taxes was $58,219 for the year ended December 31, 2023.

Income tax (benefit) expense. Income tax expense was $1,117 for the year ended December 31, 2024 and income tax benefit was $15,053 for the year ended December 31, 2023. Our income tax rates for the years ended December 31, 2024 and 2023 do not bear a customary relationship to statutory income tax rates due to the impact of changes in valuation allowances, state income taxes, certain nondeductible expenses and excess tax benefits of stock-based compensation. During 2024, we analyzed the likelihood of utilizing our deferred tax assets, which were primarily related to the benefits of net operating loss carryforwards, and determined it will be more likely than not that the benefits of these deductible differences will not be realized, and as a result we established a valuation allowance for the full amount of the deferred tax assets. We will continue to evaluate the realizability of our net deferred tax assets using all available evidence, which may result in a future change to our valuation allowances.

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Real Estate Brokerage.

The following table sets forth our consolidated statements of operations data for the Real Estate Brokerage segment for the year ended December 31, 2024 compared to the year ended December 31, 2023:

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(1)     For the year ended December 31, 2024, $3,261 of stock-based compensation is included within General and administrative expenses and $1,064 is included within Operations and support expenses on the consolidated statements of operations. For the year ended December 31, 2023, $3,609 of stock-based compensation is included within General and administrative expenses and $930 is included within Operations and support expenses on the consolidated statements of operations.

Revenues. Our revenues were $995,627 for the year ended December 31, 2024 compared to $955,578 for the year ended December 31, 2023. The $40,049 increase was primarily related to an increase of $40,488 in our commission and other brokerage. The increase in revenues was driven by an increased average price per transaction of $1.67 million per home sale in 2024 compared to $1.59 million per home sale in 2023.

Our revenues from commission and other brokerage income were $946,557 for the year ended December 31, 2024 compared to $906,069 for the year ended December 31, 2023, an increase of $40,488. In 2024, our commission and other brokerage income generated from the sales of existing homes increased by $22,386 in our Florida market, $12,403 in the Northeast region, which excludes New York City, and $2,761 in the West region, offset by $8,649 in New York City, in each case compared to the 2023 period. In addition, our revenues from our development marketing division increased by $11,587 in 2024 compared to 2023 and this was primarily related to increased closings in our Florida market.

Operating Expenses. Our operating expenses were $1,032,981 for the year ended December 31, 2024 compared to $992,347 for the year ended December 31, 2023, an increase of $40,634, due primarily to the litigation settlement and increase in real estate brokerage commissions. This was partially offset by a decrease in general and administrative expenses. The primary components of operating expenses are described below.

Real Estate Agent Commissions. Because of increases in commissions and other brokerage income, our real estate agent commissions expense was $743,819 for the year ended December 31, 2024 compared to $706,162 for the year ended December 31, 2023, an increase of $37,657 (5.3%). Real estate agent commissions expense, as a percentage of revenues, increased to 74.7% for the year ended December 31, 2024 compared to 73.9% for the year ended December 31, 2023. The increase in real estate agent commissions expense as a percentage of revenue in 2024 was primarily driven by a higher percentage of revenues being generated in the Southeast (Florida), which customarily pays higher commission rates than the New York City and Northeast regions.

Sales and Marketing. Sales and marketing expenses were $82,606 for the year ended December 31, 2024 compared to $83,670 for the year ended December 31, 2023.

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Operations and support. Operations and support expenses were $70,342 for the year ended December 31, 2024 compared to $70,605 for the year ended December 31, 2023.

General and administrative. General and administrative expenses were $86,726 for the year ended December 31, 2024 compared to $97,719 for the year ended December 31, 2023. The decline is primarily related to reductions in personnel as well as lower incentive compensation expense in 2024 and was offset by litigation expenses, settlement and related expenses.

Technology. Technology expenses were $23,386 for the year ended December 31, 2024 compared to $23,788 for the year ended December 31, 2023.

Operating loss. Operating loss was $37,354 for the year ended December 31, 2024 compared to operating loss of $36,769 for the year ended December 31, 2023. The change in operating loss is primarily due to increase in revenues, and reduction of operating expenses, partially offset by increases in commission expenses and the litigation settlement.

Corporate Activities and Other.

Corporate Activities and Other loss. The operating loss at the Corporate activities and other segment was $31,472 for the year ended December 31, 2024 compared to $27,728 for the year ended December 31, 2023. The increase was primarily related to an increase in litigation expense, settlement and related expenses in 2024 and was offset by lower stock-based compensation expense associated with the cancellation of restricted stock awards in connection with the resignation and retirement of two executive officers.

Summary of PropTech Investments

As of December 31, 2024, New Valley Ventures had investments in PropTech companies and funds (at a carrying value) of approximately $11,400. This amounts to approximately 2% of the value of our total assets, which totaled approximately $493,888, as of December 31, 2024. As of December 31, 2024 our PropTech investments included (together, where applicable, investments monetized in 2024):

■Rechat: a lead-to-close fully mobile technology dashboard for real estate agents including marketing, customer relationship management and transaction-management software. We have a multi-year services agreement with Rechat for its agents, who are increasingly requesting and requiring superior access to technology and back-office support services. The Rechat technology is a key element of MyDouglas, our primary agent portal designed to be our agents’ technology front door, and StudioPro, the cloud-based agent portal and marketing tool recently launched by Douglas Elliman that helps integrate all agent resources in one user-friendly suite.

■Purlin: an automated intelligence company that powers multiple platforms for Douglas Elliman including: a personalized collaboration platform to aid in home discovery for agents’ clients, an agent “paid social media” integration into MyDouglas that enables intelligent campaigns to promote specific listings, and client and agent portals and automated communications for Portfolio Escrow that also integrate with MyDouglas.

■LiveEasy: a client- and customer-facing digital concierge service designed to assist clients and customers moving into and “setting up” their new homes, while offering additional services to maintain their homes. In partnership with residential real estate brokerages, LiveEasy is delivered in a white-labeled format that features the name and contact information of the selling agent. New Valley Ventures monetized its investment in LiveEasy in 2024 and received approximately $6,351 and recorded a gain of approximately $4,601.

■Fyxify: a tech-enabled platform that utilizes direct scheduling and operating technology to avoid the inefficiencies of home repairs.

■Bilt: a leading loyalty program and co-branded credit card for renters to earn points on their rent payments. Douglas Elliman has joined the Bilt Rewards Alliance, a network of more than two million rental units across the country where renters can enroll in the loyalty program to earn points on rent paid. This platform enhances Douglas Elliman’s suite of offerings for both the renters and landlords it represents. New Valley Ventures monetized 50% of its $500,000 investment in Bilt in 2024 and received approximately $1,282 and recorded a gain of approximately $959.

■Persefoni AI: a software-as-a-service (“SaaS”) platform built to enable enterprises of all sizes to measure their carbon footprint accurately, dynamically and regularly across all operations.

■Tongo: a financial program that gives real estate agents instant access to future commissions up to 60 days before closing.

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■Guest House: a tech-enabled company focused on the home staging market.

■Alpaca: investment in Getaway House, Inc., a start-up company that provides cabin rental services in rural areas throughout the United States.

■Infinite Creator: a Do-it-Yourself video creation app that allows any agent with a phone to walk through a guided process and film the key pieces for a high-end luxury presentation video.

■PropTech Venture Capital Funds: investments in the following venture capital funds providing us exposure to opportunities in the emerging PropTech industry.

■Camber Creek Venture Capital Funds: two funds that invest in a diversified pipeline of new PropTech ventures. Camber Creek’s portfolio includes Notarize, a digitized notary service, and Curbio, a renovation firm designed to increase a property’s selling price.

■Sum Ventures: a fund that invests in growth companies in PropTech, FinTech, and CleanTech industries.

■MetaProp Venture Capital Fund: a fund advised or managed by a New York-based venture capital firm.

■The Lab PropTech Fund: a fund advised or managed by a Miami-based firm that aims to invest in emerging technologies with a focus on residential real estate and construction services.

Other than the five private funds listed above in which New Valley Ventures invests as a limited partner, all of these companies currently provide technology or services to Douglas Elliman. Because these PropTech companies and funds are accounted for as investments, we have not recognized revenue from these PropTech investments to date and do not anticipate recognizing revenue from these PropTech investments in the future. However, we target earning an attractive rate of return from the capital appreciation of our PropTech investments.

Liquidity and Capital Resources

Cash and cash equivalents was $135,657 and $119,808 as of December 31, 2024 and 2023, respectively, an increase of $15,849. Restricted cash was $6,564 and $9,709 as of December 31, 2024 and 2023, respectively.

Cash used in operations was $25,962 and $30,415 in 2024 and 2023, respectively. The decline in the cash used in the 2024 period was related to the receipt of income tax refunds and lower uses of working capital. This was partially offset by lower operating income in the year ended December 31, 2024.

Cash used in investing activities was $6,786 and $5,238 in 2024 and 2023, respectively. In 2024, cash used in investing activities was comprised of capital expenditures of $5,534 and the purchase of investments of $330 in our PropTech business. This was offset by $8,882 of proceeds from the sale of liquidation of long-term investments. In 2023, cash used in investing activities was comprised of capital expenditures of $6,143 and the purchase of investments of $515 in our PropTech business. This was offset by $1,420 of proceeds from the sale of liquidation of long-term 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 provided by financing activities was $45,452 in 2024, compared to cash used in financing activities of $6,212 in 2023. In 2024, cash provided by financing activities was primarily a result of the proceeds of the debt issuance of 48,750. This was partially offset by the deferred finance charges. In 2023, cash used in financing activities was comprised of dividends and distributions on common stock of $4,222 and the withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting of $1,990.

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 a 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.

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Real Estate Brokerage Litigation. On April 26, 2024, we entered into a settlement agreement to resolve all claims on a nationwide basis in the pending seller class action litigations, Gibson v. NAR, No. 4:23-cv-00788-SRB (W.D. Mo.) and Umpa v. NAR, 4:23-cv-00945-SRB (W.D. Mo.) alleging claims on behalf of sellers against Douglas Elliman Inc. and our subsidiaries. (That settlement agreement is currently being challenged on appeal in the U.S. Court of Appeals for the Eighth Circuit.) Under the settlement agreement, we paid $7,750 into an escrow fund on June 12, 2024, and agreed to pay two $5,000 contingent payments subject to certain financial contingencies on or before December 31, 2027 (collectively, the “Settlement Amount”). The contingent payments may be accelerated under certain circumstances. We recognized an expense of $17,750 for the year ended December 31, 2024. Litigation is subject to uncertainty and it is possible that there could be adverse developments in the Gibson/Umpa appeals and other pending cases, including in the buyer-side class action Lutz lawsuit, pending in the United States District Court for the Southern District of Florida, No. 4:24-cv-10040 (KMM). See Note 14 Contingencies for a complete discussion of Real Estate Brokerage Litigation and related litigation.

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

Management cannot predict the cash requirements related to any future settlements or judgments, including cash required to bond any appeals, and there is a risk that those requirements will not be able to be met. Management is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome of the cases pending against the real estate brokerage segment or the costs of defending such cases. It is possible that our consolidated financial position, results of operations or cash flows in any future period could be materially adversely affected by an unfavorable outcome in any such brokerage-related litigation.

We had cash and cash equivalents of approximately $135,657 as of December 31, 2024 and, in addition to 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 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 amount 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 December 31, 2024, 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 December 31, 2024, we had outstanding approximately $2,990 of letters of credit, collateralized by certificates of deposit. The letters of credit have been issued as security deposits for leases of office space.

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.

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New Accounting Pronouncements

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

Legislation, Regulation, Taxation and Litigation

See Item 1. “Business,” Item 1A. “Risk Factors,” Item 3. “Legal Proceedings” and Note 14 to our consolidated financial statements, which contain a description of litigation.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information included in this annual report on Form 10-K, 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, the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire,

•adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises (and responses to them),

•the impacts of the Inflation Reduction Act of 2022 and the Tax Cuts and Jobs Act of 2017, including the continued impact on the markets of our business,

•effects of industry competition, severe weather events or natural or man-made disasters, including the increasing severity or frequency of such events due to climate change or otherwise, or other catastrophic events that may disrupt our business and have an unfavorable impact on home sale activity,

•the tax-free treatment of the Distribution, and

•the failure of Vector Group to satisfy its respective obligations under the agreements entered into in connection with the Distribution.

Further information on the risks and uncertainties to our business includes the risk factors discussed above under Item 1A. “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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.

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