Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q2 2020 Earnings Presentation
36 slides from Marcus & Millichap's earnings presentation, Aug 7, 2020
Slide 1: Second Quarter 2020 Earnings Conference Call
SECOND QUARTER 2020 EARNINGS CONFERENCE CALL AUGUST 6, 2020 1
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Certain statements in this presentation are “forward-looking statements” within the meaning of the federal securities laws, including our business outlook for 2020 and beyond, the potential continuing impact of the COVID-19 pandemic, and expectations for changes (or fluctu
Slide 3: Conference Call Participants
CONFERENCE CALL PARTICIPANTS HESSAM NADJI President, Chief Executive Officer and Director MARTY LOUIE Chief Financial Officer 3 3
Slide 4: MMI Financial Highlights
Marcus ¢ Millichap MMI FINANCIAL HIGHLIGHTS
Slide 5: 2020 Second Quarter Highlights
Financial Highlights YOY Revenue $117.4 million (44.0)% Net Income $106,000 (99.5)% 2020 SECOND Adjusted EBITDA $4.2 million (87.0)% QUARTER HIGHLIGHTS Operational Highlights YOY Sales Volume $6.9 billion (46.5)% Transaction Closings 1,587 (37.4)% Number of Investment Sales and Financing 2,048 4.2%
Slide 6: Year-to-Date 2020 Highlights
Financial Highlights YOY Revenue $308.1 million (16.8)% Net Income $13.2 million (64.3)% YEAR-TO-DATE Adjusted EBITDA $26.5 million (51.9)% 2020 HIGHLIGHTS Operational Highlights YOY Sales Volume $18.7 billion (18.0)% Transaction Closings 3,837 (14.4)% Number of Investment Sales and Financing 2,048
Slide 7: 2020 Second Quarter Brokerage Highlights
2020 SECOND YOY Sales Volume $5.4 billion (41.3)% QUARTER Transaction Closings 1,075 (41.4)% BROKERAGE Number of Investment Sales Professionals as of 1,963 5.4% June 30, 2020 HIGHLIGHTS Real Estate Brokerage Commissions Revenue $103.4 million (45.2)% Revenue by Transactions by Transactions by Transa
Slide 8: Year-to-Date 2020 Brokerage Highlights
YOY YEAR-TO-DATE 2020 Sales Volume $13.9 billion (15.1)% BROKERAGE Transaction Closings 2,690 (16.9)% HIGHLIGHTS Number of Investment Sales Professionals as of June 30, 2020 1,963 5.4% Real Estate Brokerage Commissions Revenue $275.2 million (17.5)% Revenue by Transactions by Transactions by Transac
Slide 9: 2020 Second Quarter Financing Highlights
2020 SECOND YOY Sales Volume $1.2 billion (38.3)% QUARTER Transaction Closings 381 (21.3)% FINANCING Number of Financing Professionals as of 85 (17.5)% June 30, 2020 HIGHLIGHTS Financing Fees Revenue $12.7 million (28.4)% Transactions by Transactions by Property Type Region Northeast/ Other, Mid-Atl
Slide 10: Year-to-Date 2020 Financing Highlights
YOY YEAR-TO-DATE 2020 Sales Volume $2.9 billion (12.6)% FINANCING Transaction Closings 859 (1.5)% HIGHLIGHTS Number of Financing Professionals as of June 30, 2020 85 (17.5)% Financing Fees Revenue $28.1 million (10.9)% Transactions by Transactions by Property Type Northeast/ Mid- Region Atlantic, Ot
Slide 11: COVID-19 Update
: iN \ y, - ; ) ; Q 7 US VY | | } sZ . / S< A _f ; | : >< | ek : BS : \e \ x Ta . = fo ( : , a / .& . ie a | / i = | S | |} | \ . . . s\ \ >< ay, SS | | COVID-19 Update
Slide 12: Health Crisis Response Plan
HEALTH CRISIS RESPONSE PLAN • Health and safety of our team and our clients • Continue service, support and education of our team and clients • Activate extended financing network to facilitate transactions • Reduce expenses and preserve capital while continuing to invest in strategic initiatives •
Slide 13: Market Highlights
MARKET HIGHLIGHTS 13
Slide 14: Record Employment Growth Cycle Comes to an End
RECORD EMPLOYMENT GROWTH CYCLE COMES TO AN END Economic Foundation Leading Up to the Pandemic Was Historically Strong; Economic Shutdown in Response to Health Crisis Dealt Unprecedented Blow to the Labor Market 2020 forecast to lose 11.1 million jobs* -22.2 Million 155.0 150.0 Total Employment (Mill
Slide 15: Recovery Timeframe Uncertain
RECOVERY TIMEFRAME UNCERTAIN – BOUNCE BACK FROM ’08-’09 SUGGESTS CRE SALES/FINANCING COULD LEAD SUSTAINABLE HIRING Job Growth Transaction Growth* 3.0 80% 1.5 40% Y-o-y Job Growth (Millions) Y-o-y Transaction Growth 0.0 0% -1.5 -40% -3.0 -80% 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 1
Slide 16: Employment and Space Demand Face Significant Impact
Employment Growth vs. Unemployment Rate EMPLOYMENT AND SPACE DEMAND Employment Growth Unemployment Rate FACE SIGNIFICANT IMPACT 5.0 12% Employment Growth (Mil.) • Employment market was particularly Unemployment Rate 0.0 9% strong prior to onset of pandemic, adding 490,000 jobs in first two months of
Slide 17: Property Fundamentals Challenged but Relatively Durable
PROPERTY FUNDAMENTALS CHALLENGED BUT RELATIVELY DURABLE; CONSTRUCTION Occupancy Trends SLOWDOWN A POSITIVE 100% Occupancy (%) • Property fundamentals entered economic 95% shutdown in very strong position. Crisis 90% impact varies by property type. 85% • Necessity-based retail, single-tenant retail,
Slide 18: Investment Sales Face Steep, Temporary Decline
INVESTMENT SALES FACE STEEP, TEMPORARY DECLINE DUE TO Annual U.S. Commercial Real Estate Sales Trends(1) SHELTER-IN-PLACE AND MARKET UNCERTAINTY 40 Total Transactions (000s) 30 • Sales activity started 2020 with positive momentum but began to drop significantly in 20 March as shelter-in-place orders
Slide 19: Commercial Real Estate Yields Compelling
Cap Rate/10-Year Treasury Spreads COMMERCIAL REAL ESTATE 12% CRE Cap Rate 10-Year Treasury Rate YIELDS COMPELLING Cap Rate Long-Term Avg. 440 bps 9% 430 bps 480 bps • Pricing discovery still in process and cap Average Rate 480 bps 200 bps 580 bps rate adjustment likely to vary significantly 6% 560 b
Slide 20: MMI Market Position
Marcus ¢ Millichap MMI MARKET POSITION
Slide 21: Private Client Market Segment
• Market segment consists of sales $1 million - $10 million. • Largest and most active market segment, accounting for PRIVATE CLIENT MARKET 80%+ of transactions. • Primarily driven by high-net worth individuals, SEGMENT partnerships and smaller private fund managers. • Influenced by personal drivers
Slide 22: MMI Financial Details
Marcus ¢ Millichap MMI FINANCIAL DETAILS
Slide 23: Total Revenues
TOTAL REVENUES ($ in millions) Q2 2019 vs. Q2 2020 Year-to-Date 2019 vs. 2020 $240 $400 $370.3 $209.6 $200 $308.1 $300 $160 $120 $117.4 $200 $80 $100 $40 $0 $0 Q2 '19 Q2 '20 YTD '19 YTD '20 23
Slide 24: Brokerage Operating Metrics Q2 2020
BROKERAGE OPERATING METRICS Q2 2020 Total Sales Volume Total Number of Transactions ($ in billions) $10.0 $9.2 2,000 1,834 $8.0 1,600 $6.0 $5.4 1,200 1,075 $4.0 800 $2.0 400 $0.0 0 Q2 '19 Q2 '20 Q2 '19 Q2 '20 Average Number of Investment Sales Professionals Average Commission Per Transaction ($ in t
Slide 25: Brokerage Revenue by Market Segment Q2 2020
BROKERAGE REVENUE BY MARKET SEGMENT Q2 2020 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $8,000 $7,137 $140,000 $128,526 $120,000 $6,000 $100,000 $4,518 $70,817 $80,000 $4,000 $60,000 $2,000 $40,000 $20,000 $0 $0 Q2 '19 Q2 '20 Q2 '19 Q2 '20 Larger Transaction Mark
Slide 26: Brokerage Operating Metrics Year-to-Date 2020
BROKERAGE OPERATING METRICS Year-to-Date 2020 Total Sales Volume Total Number of Transactions ($ in billions) $20.0 4,000 $16.3 3,239 $13.9 3,000 2,690 $10.0 2,000 1,000 $0.0 0 YTD '19 YTD '20 YTD '19 YTD '20 Average Number of Investment Sales Professionals Average Commission Per Transaction ($ in t
Slide 27: Brokerage Revenue by Market Segment Year-to-Date 2020
BROKERAGE REVENUE BY MARKET SEGMENT Year-to-Date 2020 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $15,000 $250,000 $224,584 $12,425 $200,000 $185,081 $10,260 $10,000 $150,000 $100,000 $5,000 $50,000 $0 $0 YTD '19 YTD '20 YTD '19 YTD '20 Middle Market (≥ $10 - $20
Slide 28: Operating Expenses
OPERATING EXPENSES ($ in millions) Q2 2019 vs. Q2 2020 Year-To-Date 2019 vs. 2020 $200 $360 $182.6 $325.1 $291.1 $300 $160 $120.0 $240 $120 $127.8 $219.5 59.3% of Rev 60.9% of Rev 61.0% of Rev $187.5 $180 $80 $73.7 62.8% of Rev $120 $40 $52.8 $101.8 27.5% of Rev $98.4 31.9% of Rev 25.2% of Rev $43.5
Slide 29: Net Income and Adjusted EBITDA Performance Q2 2020
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q2 2020 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $24 $36 $21.3 $32.0 $20 $30 $16 $24 $12 $18 $8 $12 $4 $6 $4.2 $0.1 $0 $0 Q2 '19 Q2 '20 Q2 '19 Q2 '20 29
Slide 30: Net Income and Adjusted EBITDA Performance Year-to-Date 2020
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Year-to-Date 2020 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $40 $60 $36.9 $55.2 $35 $50 $30 $40 $25 $20 $30 $26.5 $15 $13.2 $20 $10 $10 $5 $0 $0 YTD '19 YTD '20 YTD '19 YTD '20 30
Slide 31: Cash Flow Provided by (Used in) Operating Activities
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES QTD Cash Flow Provided By YTD Cash Flow Used In Operating Activities (1) Operating Activities (1) ($ in millions) ($ in millions) $16.0 $0 $14.2 $14.0 -$10 $12.0 $10.0 -$20 $8.0 -$30 ($24.4) $6.0 -$40 $4.0 $2.0 -$50 $0.9 ($51.8) $0.0 -$60 Q2 '19 Q
Slide 32: Strong Liquid Capital Position
STRONG LIQUID CAPITAL POSITION Cash on Hand and Core-Cash Investments ($ in millions) $450 $399.0 $400 $360.5 $350 $322.1(2) $166.3(1) $300 $153.7 $250 $167.2(1) $200 $150 $206.8 $232.7 $100 $154.9 $50 $0 6/30/2019 12/31/2019 6/30/2020 12/31/2017 6/30/2019 Cash and Cash Equivalents Core-Cash Investm
Slide 33: Appendix
SS / ao / 5 fi ae | | | \ ! i \\ | \\ APPENDIX
Slide 34: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Three Months Ended June 30 Six Months Ended June 30 2020 2019 2020 2019 Net Income $106 $21,279 $13,176 $36,917 Adjusted EBITDA, which the Company defines as net income before Adjustments: (i) interest income and other, including net realized gains (losses) on marketab
Slide 35: Company Overview
NATIONAL PLATFORM FOCUSED ON INVESTMENT BROKERAGE • 49-year old platform dedicated to perfecting real estate investment brokerage • Designed to facilitate the movement of capital providing liquidity to clients MARKET LEADER IN THE PRIVATE CLIENT MARKET SEGMENT • Only national brokerage firm focused
Slide 36: Illustrative MMI Earnings Model
ILLUSTRATIVE MMI EARNINGS MODEL Transaction Commission Investment Agents Productivity Value Rate Sales Revenue Investment Financing & Cost of SG&A(1) EBITDA(2) Sales Revenue Other Revenue Services (1) Includes stock-based compensation 36 (2) EBITDA is not a measurement of our financial performance u