Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q4 2022 Earnings Presentation
38 slides from Marcus & Millichap's earnings presentation, Feb 17, 2023
Slide 1: Fourth Quarter 2022 Earnings Conference Call
FOURTH QUARTER 2022 EARNINGS CONFERENCE CALL - February 17, 2023 1
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This release includes forward-looking statements, including the Company’s business outlook for 2023, the anticipation of further interest rate increases and inflation, the execution of our capital return program, including the initiation of a semi-annual dividend plan, the
Slide 3: Conference Call Participants
CONFERENCE CALL PARTICIPANTS HESSAM NADJI President, Chief Executive Officer and Director STEVE DEGENNARO Chief Financial Officer 3
Slide 4: MMI Financial Highlights
MMI FINANCIAL HIGHLIGHTS Marcus ¢ Millichap 4
Slide 5: 2022 Fourth Quarter Highlights
Financial Highlights YoY Revenue $262.4 million (47.0)% Net Income $7.9 million (87.2)% 2022 FOURTH Adjusted EBITDA $14.1 million (84.0)% QUARTER HIGHLIGHTS Operational Highlights YoY Sales Volume $16.4 billion (52.1)% Transaction Closings 2,698 (37.4)% Number of Investment Sales and Financing 1,904
Slide 6: Full-Year 2022 Highlights
Financial Highlights YoY Revenue $1,301.7 million 0.4% Net Income $104.2 million (26.8)% Adjusted EBITDA $165.5 million (22.3)% FULL-YEAR 2022 HIGHLIGHTS Operational Highlights YoY Sales Volume $86.3 billion 2.3% Transaction Closings 12,272 (7.4)% Number of Investment Sales and Financing 1,904 (4.5)
Slide 7: 2022 Fourth Quarter Brokerage Highlights
2022 FOURTH Sales Volume $13.1 billion YoY (54.2)% QUARTER Transaction Closings 2,043 (37.7)% BROKERAGE Number of Investment Sales Professionals as 1,818 (5.0)% HIGHLIGHTS of December 31, 2022 Real Estate Brokerage Commissions Revenue $235.8 million (48.2)% Revenue by Transactions by Transactions by
Slide 8: Full-Year 2022 Brokerage Highlights
YoY Sales Volume $68.1 billion 0.9% FULL-YEAR 2022 Transaction Closings 9,111 (5.6)% BROKERAGE Number of Investment Sales Professionals as 1,818 (5.0)% HIGHLIGHTS of December 31, 2022 Real Estate Brokerage Commissions Revenue $1,170.3 million (0.1)% Revenue by Transactions by Transactions by Transac
Slide 9: 2022 Fourth Quarter Financing Highlights
YoY 2022 FOURTH Sales Volume $2.4 billion (37.5)% QUARTER Transaction Closings 408 (41.4)% FINANCING Number of Financing Professionals as of 86 7.5% HIGHLIGHTS December 31, 2022 Financing Fees Revenue $21.6 million (36.9)% Transactions by Transactions by Property Type Region Other, 17% Northeast / M
Slide 10: Full-Year 2022 Financing Highlights
YoY Sales Volume $12.8 billion 10.5% FULL-YEAR 2022 Transaction Closings 2,143 (13.4)% FINANCING Number of Financing Professionals as of 86 7.5% HIGHLIGHTS December 31, 2022 Financing Fees Revenue $113.0 million 3.0% Transactions by Transactions by Property Type Region Other, 13% Northeast / Mid-Atl
Slide 11: Market Highlights
MARKET HIGHLIGHTS Marcus Millichap 1
Slide 12: Job growth continues with employment surpassing pre-pandemic levels
Total Employment (Millions) * Forecast per Economy.com 115.0 155.0 125.0 145.0 150.0 120.0 130.0 135.0 140.0 Sources: BLS, Moody’s Analytics 20-Jan 20-Feb 20-Mar 20-Apr 20-May -21.9Million PANDEMIC LEVELS 20-Jun 20-Jul 2023 forecast to add 1.3 million jobs* 20-Aug 20-Sep 20-Oct 20-Nov 20-Dec 21-Jan
Slide 13: Labor shortage weighs on hiring; inflation pressure beginning to abate
LABOR SHORTAGE WEIGHS ON HIRING; INFLATION PRESSURE BEGINNING TO ABATE BUT STILL ELEVATED Job Openings vs. Unemployed Inflation vs. Treasury Rates Job Openings Unemployed Core PCE 10-Year Treasury 24 6.0% Job Openings/Unemployed (Millions) 18 4.5% Rate 12 3.0% 6 1.5% 0 0.0% 20 16 19 22 18 21 17 13 0
Slide 14: Inflation, steel prices and home sales
SEPT. 2021: FED TOOK NO ACTION CALLING INFLATION “TRANSITORY” SEPT. 2022: AGGRESSIVE ACTION DESPITE LEADING INDICATORS TURNING Inflation Rate Steel Price Single-Family Home Sales CPI Core PCE 10.0% $2,000 7 Annual Home Sales (Millions, SAAR) 7.5% $1,600 6 Y-O-Y Percent Change Price per Ton 5.0% $1,2
Slide 15: Most aggressive Fed tightening since 1980 disrupted CRE markets
MOST AGGRESSIVE FED TIGHTENING SINCE 1980 DISRUPTED CRE MARKETS 10-Year Treasury vs. Fed Funds Rate Inflation Adjusted Fed Balance Sheet 10-Year Treasury Fed Funds Rate Notes & Bonds MBS 6.0% TIPS/TIPS Inflation Compensation/Agencies/Bills $8.8 Fed Holdings (Trillions Dec. 2022 Dollars) 4.5% $6.6 Ra
Slide 16: Elevated interest rates, recession fears challenging rent growth
ELEVATED INTEREST RATES, RECESSION FEARS CHALLENGING RENT GROWTH 10-Year Treasury 5-Year Average Rent Growth vs. 2023 Forecast 4.8% 5-Year Average Rent Growth 2023 Forecast 10.0% 3.6% 7.5% Rent Growth Rate 2.4% 5.0% 1.2% 2.5% 0.0% 0.0% 18 19 20 21 22 23* Industrial Apartment Retail Self- Office Stor
Slide 17: Private investors dominate U.S. commercial real estate
PRIVATE INVESTORS DOMINATE U.S. COMMERCIAL REAL ESTATE; INSTITUTIONAL INVESTORS MORE HESITANT IN CURRENT WINDOW 100% 3% 5% 6% 5% 5% 4% 4% 5% 4% 4% 5% 3% 8% 9% 8% 9% 9% 9% 12% 12% 10% 14% 17% 20% 18% 25% 75% 26% 25% 28% 27% 28% 24% 27% 25% 32% 27% Percent of Dollar Volume 26% 5% 29% User/Other 9% 9%
Slide 18: Employment remains sound; space demand remains stable
EMPLOYMENT REMAINS SOUND; Employment Growth vs. Unemployment Rate SPACE DEMAND REMAINS STABLE AS PROSPECT OF ECONOMIC ‘SOFT Employment Growth Unemployment Rate LANDING’ IMPROVES 12.0 8.0% Employment Growth (Mil.) Unemployment Rate • Labor shortage still restraining job creation 6.0 6.0% but record 7
Slide 19: Property fundamentals sound by historical standards; variations widening
PROPERTY FUNDAMENTALS SOUND BY HISTORICAL STANDARDS; Occupancy Trends HOWEVER, VARIATIONS WIDENING 100% • Multifamily and industrial aggressively 95% Occupancy (%) delivering record new completions as the 90% economy slows. 85% • Supply chain disruptions still posing some challenges; companies have
Slide 20: CRE market responding to interest rate shock
CRE MARKET RESPONDING TO INTEREST RATE SHOCK; GOING FORWARD, FED WILL REMAIN A KEY Annual U.S. Commercial Real Estate Sales Trends(1) FACTOR 60 • Transaction counts in 2022 estimated to have Total Transactions (000s) dipped, falling 25% year-over-year. In 4Q, 45 estimates point to a 57% decline year
Slide 21: Commercial real estate yield spreads challenged
COMMERCIAL REAL ESTATE Cap Rate/10-Year Treasury Spreads YIELD SPREADS CHALLENGED; CRE Cap Rate 10 Year Treasury Rate HOWEVER, INFLATION HEDGE 12% Cap Rate Long-Term Avg. PROFILE COMPELLING 10% 440 bps 430 bps 480 bps 8% Average Rate • Rapid rise of interest rates, tightened lender 480 bps 210 bps 5
Slide 22: MMI Market Position
MMI MARKET POSITION Marcus Millichap 22
Slide 23: Private Client Market Segment
• Market segment consists of sales $1 million to <$10 million. PRIVATE CLIENT • Largest and most active market segment, accounting for 80%+ of MARKET SEGMENT transactions. • Primarily driven by high-net worth individuals, partnerships and smaller private fund managers. Largest Transaction and Commis
Slide 24: MMI Financial Details
MMI FINANCIAL DETAILS Marcus Millichap 24
Slide 25: Total Revenue
TOTAL REVENUE ($ IN MILLIONS) Q4 ‘21 vs Q4 ‘22 Full-Year ‘21 vs ‘22 $495.1 $500 $1,350 0.4% $1,301.7 $1,296.4 $450 $1,200 (47.0)% $400 $1,050 $350 $900 $300 $262.4 $750 $250 $600 $200 $450 $150 $100 $300 $50 $150 $0 $0 4Q'21 4Q'22 YTD '21 YTD '22 25
Slide 26: Brokerage Operating Metrics Q4
BROKERAGE OPERATING METRICS Q4 2021 vs Q4 2022 Total Sales Volume Total Number of Transactions ($ in billions) $35 $28.6 4,000 $30 3,278 $25 (54.2)% (37.7)% $20 2,043 $15 $13.1 2,000 $10 $5 $0 4Q'21 4Q'22 0 4Q'21 4Q'22 Average Number of Investment Sales Professionals Average Commission Per Transacti
Slide 27: Brokerage Operating Metrics Full-Year
BROKERAGE OPERATING METRICS FULL-YEAR 2021 vs 2022 Total Sales Volume Total Number of Transactions ($ in billions) $80 (5.6)% 0.9% 9,652 $67.5 $68.1 10,000 9,111 $70 $60 8,000 $50 6,000 $40 $30 4,000 $20 2,000 $10 $0 0 YTD '21 YTD '22 YTD '21 YTD '22 Average Number of Investment Sales Professionals
Slide 28: Brokerage Revenue by Market Segment Q4
BROKERAGE REVENUE BY MARKET SEGMENT Q4 2021 vs Q4 2022 Private Client Market ($1 - <$10 million) <$1 million ($ in thousands) ($ in thousands) $10,000 $9,506 $247,404 $250,000 (41.2)% (46.4)% $200,000 $145,586 $5,098 $150,000 $5,000 $100,000 $50,000 $0 $0 4Q'21 4Q'22 4Q'21 4Q'22 Larger Transaction M
Slide 29: Brokerage Revenue by Market Segment Full-Year
BROKERAGE REVENUE BY MARKET SEGMENT FULL-YEAR 2021 vs 2022 Private Client Market ($1 - <$10 million) <$1 million ($ in thousands) ($ in thousands) $35,000 $693,996 (1.7)% $30,681 $682,019 (19.1)% $700,000 $30,000 $24,809 $600,000 $25,000 $500,000 $20,000 $400,000 $15,000 $300,000 $10,000 $200,000 $5
Slide 30: Operating Expense
OPERATING EXPENSE ($ IN MILLIONS) Q4 2021 vs Q4 2022 Full-Year 2021 vs 2022 $500 $1,250 $1,164.3 $1,107.1 $413.2 $400 $1,000 $300 $750 $850.9 65.4% of Rev $256.6 64.8% of Rev $840.2 67.3% of Rev $333.3 $200 $500 $180.7 68.9% of Rev $100 $250 $300.0 23.0% of Rev 19.7% of Rev $255.2 15.6% of Rev $77.0
Slide 31: Net Income and Adjusted EBITDA Performance Q4
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q4 2021 vs Q4 2022 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $70.0 $100.0 $65.0 $62.0 $88.2 $60.0 $55.0 $80.0 $50.0 $45.0 (87.2)% $60.0 $40.0 (84.0)% $35.0 $30.0 $40.0 $25.0 $20.0 $15.0 $20.0 $10.0 $7.9 $14.1 $5.0 $— $— 4Q'21 4Q'22 4Q'21 4Q
Slide 32: Net Income and Adjusted EBITDA Performance Full-Year
NET INCOME AND ADJUSTED EBITDA PERFORMANCE FULL-YEAR 2021 vs 2022 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $175.0 $240.0 $213.0 $150.0 $142.5 $210.0 (22.3)% (26.8)% $125.0 $180.0 $165.5 $104.2 $150.0 $100.0 $120.0 $75.0 $90.0 $50.0 $60.0 $25.0 $30.0 $— $— YTD '21 YTD '22 YTD '21 YT
Slide 33: Cash Flow Provided by Operating Activities
CASH FLOW PROVIDED BY OPERATING ACTIVITIES QTD Cash Flow Provided By YTD Cash Flow Provided By Operating Activities Operating Activities (1) ($ in millions) ($ in millions) $175.0 $300.0 $156.3 $255.9 $150.0 $250.0 $125.0 $200.0 (94.7)% $100.0 (83.7)% $150.0 $75.0 $100.0 $50.0 $25.4 $50.0 $25.0 $13.
Slide 34: Liquidity Position
LIQUIDITY POSITION Cash and Cash Equivalents and Marketable Debt Securities, Available-For-Sale ($ in millions) $800 $700 $678.6 (17.8)% $600 $557.9 $296.5 $500 $400 $322.0 $300 $200 $382.1 $100 $235.9 $0 12/31/2021 12/31/2022 Cash and Cash Equivalents Marketable Debt Securities, Available-For-Sale
Slide 35: Appendix
APPENDIX Marcus Millichap 35
Slide 36: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA Three Months Ended December 31, Twelve Months Ended December 31, RECONCILIATION 2022 2021 2022 2021 Adjusted EBITDA, which the Company defines as net income before (i) interest income and other, including net realized gains (losses) on Net income $7,911 $62,002 $104,225 $142,470 mark
Slide 37: Company Overview
NATIONAL PLATFORM FOCUSED ON REAL ESTATE INVESTMENT BROKERAGE • 52-year old platform dedicated to perfecting real estate investment brokerage • Designed to maximize real estate value, facilitate investment options by geography and property type, and create liquidity for investors MARKET LEADER IN TH
Slide 38: Illustrative MMI Earnings Model
ILLUSTRATIVE MMI EARNINGS MODEL Investment Transaction Commission Agents Productivity Sales Value Rate Revenue Investment Financing & Cost of Sales Other SG&A(1) EBITDA(2) Services Revenue Revenue 1. Includes stock-based compensation 2. EBITDA is not a measurement of our financial performance under