Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q4 2023 Earnings Presentation
38 slides from Marcus & Millichap's earnings presentation, Feb 16, 2024
Slide 1: Fourth Quarter 2023 Earnings Conference Call
2023 Earnings Conference Call February 16, 2024 Fourth Quarter 2023
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation includes forward-looking statements, including the Company’s business outlook for 2024, market consensus on interest rate decreases in 2024 and for the 2024 economic forecast, our expectations of 2024 commercial real estate sales activity in the wake of r
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
Slide 5: 2023 Fourth Quarter Highlights
2023 FOURTH QUARTER HIGHLIGHTS Financial Highlights YoY Revenue $166.2 million (36.7)% Net Loss $(10.2) million (229.4)% Adjusted EBITDA $(4.5) million (131.9)% Operational Highlights YoY Sales Volume $11.9 billion (27.4)% Transaction Closings 1,947 (27.8)% Number of Investment Sales and Financing 1
Slide 6: Full-Year 2023 Highlights
FULL-YEAR 2023 HIGHLIGHTS Financial Highlights YoY Revenue $645.9 million (50.4)% Net Loss $(34.0) million (132.7)% Adjusted EBITDA $(19.6) million (111.9)% Operational Highlights YoY Sales Volume $43.6 billion (49.5)% Transaction Closings 7,546 (38.5)% Number of Investment Sales and Financing 1,783
Slide 7: 2023 Fourth Quarter Brokerage Highlights
2023 FOURTH QUARTER BROKERAGE HIGHLIGHTS YoY Sales Volume $8.7 billion (33.4)% Transaction Closings 1,413 (30.8)% Number of Investment Sales Professionals as 1,684 (7.4)% of December 31, 2023 Real Estate Brokerage Commissions Revenue $144.6 million (38.7)% Revenue by Transactions by Transactions by
Slide 8: Full-Year 2023 Brokerage Highlights
FULL-YEAR 2023 BROKERAGE HIGHLIGHTS YoY Sales Volume $30.8 billion (54.7)% Transaction Closings 5,475 (39.9)% Number of Investment Sales Professionals as 1,684 (7.4)% of December 31, 2023 Real Estate Brokerage Commissions Revenue $559.8 million (52.2)% Revenue by Transactions by Transactions by Tran
Slide 9: 2023 Fourth Quarter Financing Highlights
2023 FOURTH QUARTER FINANCING HIGHLIGHTS YoY Sales Volume $1.4 billion (41.7)% Transaction Closings 237 (41.9)% Number of Financing Professionals as of 99 15.1% December 31, 2023 Financing Fees Revenue $15.9 million (26.5)% Transactions by Transactions by Property Type Region Northeast / Other, 20%
Slide 10: Full-Year 2023 Financing Highlights
FULL-YEAR 2023 FINANCING HIGHLIGHTS YoY Sales Volume $6.7 billion (47.5)% Transaction Closings 1,076 (49.8)% Number of Financing Professionals as of 99 15.1% December 31, 2023 Financing Fees Revenue $66.9 million (40.8)% Transactions by Transactions by Property Type Region Other, 17% Northeast / Mul
Slide 11: Market Highlights
Market Highlights
Slide 12: Total Employment Well Above Pre-Pandemic Level, Could Delay Fed Rate Easing
TOTAL EMPLOYMENT WELL ABOVE PRE-PANDEMIC LEVEL, COULD DELAY FED RATE EASING Total Employment Job Openings vs. Unemployed Total Employment Job Openings Unemployed 160 24 +26.9M 604K Jobs Added/Month in 2021 377K Jobs Added/Month in 2022 2.6M Labor Shortage Job Openings/Unemployed (Millions) 255K Jobs
Slide 13: Inflation Continues to Trend Lower
INFLATION CONTINUES TO TREND LOWER; WHILE STILL ELEVATED ON A Y-O-Y BASIS, 6- AND 3-MONTH TRENDS SUGGEST CORE PCE IS ON TARGET CPI Inflation 10-Year Treasury Core PCE 10% 8% Rate 5% 3% 0% 21 22 23 16 17 18 19 20 20 20 20 20 20 20 20 20 Sources: BLS, Federal Reserve, BEA 13
Slide 14: Most Aggressive Fed Rate Hikes Since 1980 Disrupting CRE Markets
MOST AGGRESSIVE FED RATE HIKES SINCE 1980 DISRUPTING CRE MARKETS; QUANTITATIVE TIGHTENING INCREASING LONG-TERM RATES 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 Fed Hol
Slide 15: Private Investors Dominate U.S. Commercial Real Estate
PRIVATE PRIVATEINVESTORS DOMINATE INVESTORS DOMINATE U.S. U.S. COMMERCIAL COMMERCIAL REAL REAL ESTATE; ESTATE; INSTITUTIONAL INVESTORSMORE INSTITUTIONAL INVESTORS MORE HESITANT HESITANT IN CURRENT IN CURRENT WINDOW WINDOW 100% 5% 4% 4% 5% 4% 4% 5% 3% 3% 5% 9% 9% 8% 90% 12% 9% 12% 9% 10% 7% 17% 80% 1
Slide 16: Employment Positive but Slowing; Space Demand Downshifts
EMPLOYMENT POSITIVE BUT SLOWING; SPACE DEMAND DOWNSHIFTS AMID ECONOMIC UNCERTAINTY Employment Growth vs. Unemployment Rate • Labor shortage still restraining Employment Growth Unemployment Rate employment growth; 4.5 million 12.0 8% Employment Growth (Mil.) jobs were added in 2022 and a Unemployment
Slide 17: Property Fundamentals Sound by Historical Standards
PROPERTY FUNDAMENTALS SOUND BY HISTORICAL STANDARDS; Occupancy Trends HOWEVER, VARIATIONS WIDENING 100% • Multifamily and industrial aggressively 95% delivering record new completions as the Occupancy (%) economy slows. Risk of over-supply limited 90% to select local markets with heavy construction.
Slide 18: Maturing CRE Loan Volumes Concerning
MATURING CRE LOAN VOLUMES CONCERNING; RISKS VARY WIDELY BY PROPERTY TYPE Commercial Real Estate Loan Maturities* • With the exception of office properties, rent $800 growth and appreciation has been healthy in Other Dollar Volume (Billions) most segments over the past 5-7 years. $600 Healthcare • Th
Slide 19: Lender Caution Resulting in Major Reduction in Sales/Financing
LENDER CAUTION AND TIGHTENED UNDERWRITING, WIDENED BID/ASK SPREAD RESULTING IN MAJOR Annual U.S. Commercial Real Estate Sales Trends(1) REDUCTION IN SALES/FINANCING 60 Total Transactions (000s) • Transaction count in 2023 estimated to have 45 dipped 41% year-over-year; dollar volume dropped by 51% y
Slide 20: Commercial Real Estate Yield Spreads Challenged
COMMERCIAL REAL ESTATE YIELD SPREADS CHALLENGED; PRICING Cap Rate/10-Year Treasury Spreads RECALIBRATING TO HIGHER CRE Cap Rate 10-Year Treasury Rate INTEREST RATES 12% • Rapid rise of interest rates, tightened lender 10% underwriting, and slowing economic growth ahead has fueled uncertainty in valu
Slide 21: MMI Market Position
MMI Market Position
Slide 22: Private Client Market
PRIVATE CLIENT MARKET Largest Transaction and Commission Pool Opportunity • Private client market consists of sales $1 million to <$10 • Influenced by personal drivers that result in buying/selling/ million. refinancing properties, as well as market conditions. Should be • Largest and most active ma
Slide 23: MMI Financial Details
MMI Financial Details
Slide 24: Total Revenue
TOTAL REVENUE ($ IN MILLIONS) Q4'22 vs Q4'23 Full-Year ‘22 vs ‘23 $400 $1,350 $1,301.7 $350 $1,200 (50.4)% $300 $1,050 $262.4 $250 (36.7)% $900 $750 $200 $645.9 $166.2 $600 $150 $450 $100 $300 $50 $150 $0 $0 Q4'22 Q4'23 '22 '23 24
Slide 25: Brokerage Operating Metrics Q4
BROKERAGE OPERATING METRICS Q4 2022 vs Q4 2023 Total Sales Volume Total Number of Transactions ($ in billions) $20 3,000 $15 $13.1 (33.4)% 2,043 (30.8)% 2,000 $10 $8.7 1,413 $5 1,000 $0 Q4'22 Q4'23 0 Q4'22 Q4'23 Average Number of Investment Sales Professionals Average Commission Per Transaction ($ i
Slide 26: Brokerage Operating Metrics Full-Year
BROKERAGE OPERATING METRICS FULL-YEAR 2022 vs 2023 Total Sales Volume Total Number of Transactions ($ in billions) $80 $68.1 10,000 9,111 $70 (39.9)% $60 8,000 (54.7)% $50 5,475 6,000 $40 $30.8 $30 4,000 $20 2,000 $10 $0 0 '22 '23 '22 '23 Average Number of Investment Sales Professionals Average Comm
Slide 27: Brokerage Revenue by Market Segment Q4
BROKERAGE REVENUE BY MARKET SEGMENT Q4 2022 vs Q4 2023 <$1 million Private Client Market ($1 - <$10 million) ($ in thousands) ($ in thousands) $7,500 $200,000 11.4% $6,000 $5,680 $145,586 $5,098 (34.9)% $150,000 $4,500 $94,772 $100,000 $3,000 $50,000 $1,500 $0 $0 Q4'22 Q4'23 Q4'22 Q4'23 Middle Marke
Slide 28: Brokerage Revenue by Market Segment Full-Year
BROKERAGE REVENUE BY MARKET SEGMENT FULL-YEAR 2022 vs 2023 <$1 million Private Client Market ($1 - <$10 million) ($ in thousands) ($ in thousands) $30,000 $800,000 $24,809 (15.8)% $682,019 $25,000 $700,000 (45.3)% $20,894 $600,000 $20,000 $500,000 $372,979 $15,000 $400,000 $300,000 $10,000 $200,000
Slide 29: Operating Expense
OPERATING EXPENSE ($ IN MILLIONS) Q4'22 vs Q4'23 ‘22 vs ‘23 $300 $1,250 $1,164.3 $256.6 $250 $1,000 $200 $183.4 $750 $850.9 $705.2 68.9% of Rev $180.7 63.4% of Rev 65.4% of Rev $150 $105.4 $500 $406.6 62.9% of Rev $100 27.7% of Rev $72.6 $74.7 44.9% of Rev $300.0 $250 $285.0 $50 44.1% of Rev 23.0% o
Slide 30: Net Income and Adjusted EBITDA Performance Q4
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q4 2022 vs Q4 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $10.0 $17.5 $7.9 $15.0 $14.1 $5.0 (229.4)% $12.5 $10.0 (131.9)% $— $7.5 $5.0 $(5.0) $2.5 $— $(10.0) $(2.5) $(10.2) $(5.0) $(4.5) $(15.0) $(7.5) Q4'22 Q4'23 Q4'22 Q4'23 30
Slide 31: Net Income and Adjusted EBITDA Performance Full-Year
NET INCOME AND ADJUSTED EBITDA PERFORMANCE FULL-YEAR 2022 vs 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $120.0 $180.0 $104.2 $165.5 $100.0 $160.0 $140.0 $80.0 $120.0 $60.0 $100.0 (132.7)% $40.0 $80.0 (111.9)% $20.0 $60.0 $40.0 $— $20.0 $(20.0) $— $(40.0) $(34.0) $(20.0) $(19.6)
Slide 32: Cash Flows Provided by (Used in) Operating Activities
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Q4 Cash Flows Provided By Annual Cash Flows Provided By (Used In) Operating Activities Operating Activities (1) ($ in millions) ($ in millions) $30.0 $20.0 $13.6 (631.4)% $25.4 $25.0 $— (42.2)% $20.0 $(20.0) $14.7 $15.0 $(40.0) $10.0 $(60.0) $5.0
Slide 33: Liquidity Position
LIQUIDITY POSITION Cash and Cash Equivalents and Marketable Debt Securities, Available-For-Sale ($ in millions) $600 $557.9 (27.0)% $500 $407.1 $400 $322.0 $300 $236.3 $200 $235.9 $100 $170.8 $0 12/31/2022 12/31/2023 Cash and Cash Equivalents Marketable Debt Securities, Available-For-Sale Liquidity
Slide 34: Appendix
Appendix
Slide 35: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Adjusted EBITDA, which the Company defines as net (loss) income Three Months Ended Twelve Months Ended before (i) interest income and other, including net realized gains December 31, December 31, (losses) on marketable debt securities, available-for-sale and cash, cash
Slide 36: Company Overview
NATIONAL PLATFORM FOCUSED ON REAL ESTATE INVESTMENT BROKERAGE • Over 50 years of experience 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 LEADE
Slide 37: Illustrative MMI Earnings Model
ILLUSTRATIVE MMI EARNINGS MODEL Investment Productivity Transaction Commission Sales Agents 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
Slide 38: Fourth Quarter 2023
Marcus ¢ Millichap Fourth Quarter 2023