Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q1 2020 Earnings Presentation
30 slides from Marcus & Millichap's earnings presentation, May 8, 2020
Slide 1: First Quarter 2020 Earnings Conference Call
FIRST QUARTER 2020 EARNINGS CONFERENCE CALL May 7, 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 impact of the COVID-19 pandemic, and expectations for changes (or fluctuations) in
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 First Quarter Highlights
Financial Highlights YOY Revenue $190.7 million 18.7% Net Income $13.1 million (16.4)% 2020 FIRST Adjusted EBITDA $22.4 million (3.4)% QUARTER HIGHLIGHTS Operational Highlights YOY Sales Volume $11.8 billion 19.4% Transaction Closings 2,250 15.4% Number of Investment Sales and Financing 1,993 3.9% P
Slide 6: 2020 First Quarter Brokerage Highlights
YOY 2020 FIRST QUARTER Sales Volume $8.4 billion 18.9% BROKERAGE Transaction Closings 1,615 14.9% HIGHLIGHTS Number of Investment Sales Professionals as of March 31, 2020 1,904 5.0% Real Estate Brokerage Commissions Revenue $171.8 million 18.6% Revenue by Transactions by Transactions by Transaction
Slide 7: 2020 First Quarter Financing Highlights
2020 FIRST YOY QUARTER Sales Volume $1.8 billion 20.2% FINANCING Transaction Closings 478 23.2% HIGHLIGHTS Number of Financing Professionals as of March 31, 2020 89 (16.0)% Financing Fees Revenue $15.4 million 11.8% Transactions by Transactions by Property Type Region Other, Northeast/ 9% Mid-Atlant
Slide 8: COVID-19 Update
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Slide 9: COVID-19 Update: Priorities, Business Continuity, Actions
COVID-19 Update • 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 Priorities • Reduce expenses and preserve capital while continuing to invest in strategic initiatives • P
Slide 10: Market Highlights
Marcus ¢ Millichap MARKET HIGHLIGHTS
Slide 11: 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 Created a Major Shock to the Labor Market 2020 forecast to lose 9.3 million jobs** 0.9 -8.7 Million Quarterly Job Growth (Millions) 0.
Slide 12: Recovery Timeline Difficult to Forecast
RECOVERY TIMELINE DIFFICULT TO FORECAST; HOWEVER POST ’08-’09 TRENDS SUGGEST CRE SALES/FINANCING COULD LEAD JOB GROWTH 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
Slide 13: Employment and Space Demand Face Significant Impact
Employment Growth vs. Unemployment Rate EMPLOYMENT AND SPACE DEMAND Employment Growth Unemployment Rate FACE SIGNIFICANT IMPACT 3.2 7% Employment Growth (Mil.) • Labor market strong prior to onset of Unemployment Rate 2.4 6% pandemic, adding 490,000 jobs in first two months of 2020. 1.6 5% • Job los
Slide 14: Property Fundamentals Unexpectedly Challenged
PROPERTY FUNDAMENTALS UNEXPECTEDLY CHALLENGED TO VARYING DEGREE; EASING Occupancy Trends CONSTRUCTION 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 re
Slide 15: CRE Sales/Financing Significantly Hampered by Market Disruption
CRE SALES/FINANCING SIGNIFICANTLY HAMPERED BY MARKET DISRUPTION; ROBUST RECOVERY EXPECTED AS Annual U.S. Commercial Real Estate Sales Trends(1) CONDITIONS IMPROVE – TIMELINE DIFFICULT TO FORECAST 40 Total Transactions (000s) 30 • Sales activity started 2020 with positive momentum but dropped signifi
Slide 16: CRE Yields Compelling – Ample Capital, Reset Pricing Expectations
CRE YIELDS COMPELLING – AMPLE CAPITAL, RESET PRICING EXPECTATIONS SHOULD EVENTUALLY FUEL REBOUND IN SALES/CAPITAL FLOWS ONCE Cap Rate/10-Year Treasury Spreads ECONOMIC CLARITY EMERGES, 12% CRE Cap Rate 10-Year Treasury Rate FINANCING AVAILABILITY IMPROVES Cap Rate Long-Term Avg. 440 bps 9% 430 bps 4
Slide 17: MMI Market Position
Marcus ¢ Millichap MMI MARKET POSITION
Slide 18: Private Client Market Segment
• Market segment consists of sales $1 million - $10 million. • Largest and most active market segment, accounting for PRIVATE CLIENT MARKET 80%+ of transactions. • Primarily driven by high-net worth individuals, SEGMENT partnerships and smaller private fund managers. • Influenced by personal drivers
Slide 19: MMI Financial Details
Marcus ¢ Millichap MMI FINANCIAL DETAILS
Slide 20: Total Revenues
TOTAL REVENUES ($ in millions) Q1 2019 vs. Q1 2020 $240 $200 $190.7 $160.7 $160 $120 $80 $40 $0 Q1 '19 Q1 '20 20
Slide 21: Brokerage Operating Metrics
BROKERAGE OPERATING METRICS Q1 2020 Total Sales Volume Total Number of Sales Transactions ($ in billions) $10.0 2,000 $8.4 1,615 $8.0 $7.1 1,600 1,405 $6.0 1,200 $4.0 800 $2.0 400 $0.0 0 Q1 '19 Q1 '20 Q1 '19 Q1 '20 Average Number of Investment Sales Professionals Average Commission Per Transaction (
Slide 22: Brokerage Revenue by Market Segment
BROKERAGE REVENUE BY MARKET SEGMENT Q1 2020 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $6,000 $5,742 $120,000 $114,264 $5,288 $96,058 $100,000 $4,000 $80,000 $60,000 $2,000 $40,000 $20,000 $0 $0 Q1 '19 Q1 '20 Q1 '19 Q1 '20 Larger Transaction Market (≥ $20 millio
Slide 23: Operating Expenses
OPERATING EXPENSES ($ in millions) Q1 2019 vs. Q1 2020 $200 $171.1 $160 $142.4 $120 $113.8 59.6% of Rev $91.7 57.1% of Rev $80 $40 $48.9 30.4% of Rev $54.9 28.8% of Rev $1.8 1.1% of Rev $2.5 1.3% of Rev $0 Q1 '19 Q1 '20 Depreciation SG&A COS 23
Slide 24: Net Income and Adjusted EBITDA Performance
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q1 2020 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $20 $30 $16 $15.6 $24 $23.2 $22.4 $13.1 $12 $18 $8 $12 $4 $6 $0 $0 Q1 '19 Q1 '20 Q1 '19 Q1 '20 24
Slide 25: Cash Flow Used in Operating Activities
CASH FLOW USED IN OPERATING ACTIVITIES QTD Cash Flow Used in Operating Activities ($ in millions) $0 -$10 -$20 -$30 -$40 ($38.6) -$50 ($52.8) -$60 Q1 '19 Q1 '20 (1) Net cash used in operating activities is driven by our net income adjusted for non-cash items and changes in operating assets and liabi
Slide 26: Strong Liquid Capital Position
STRONG LIQUID CAPITAL POSITION Cash on Hand and Core-Cash Investments ($ in millions) $450 $399.0 $400 $350 $336.9 $300 $166.3 (1) $250 $147.1(1) $200 $150 $232.7 $100 $189.8 $50 $0 12/31/2019 3/31/2020 12/31/2017 12/31/2019 Cash and Cash Equivalents Core-Cash Investments (1) Relates to investments
Slide 27: Appendix
APPENDIX 27
Slide 28: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Three Months Ended March 31 2020 2019 Net Income $13,070 $15,638 Adjusted EBITDA, which the Company defines as net income before (i) interest income and other, including net realized gains (losses) Adjustments: on marketable debt securities, available-for-sale and cash
Slide 29: 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 30: 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 30 (2) EBITDA is not a measurement of our financial performance u