Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q2 2023 Earnings Presentation
39 slides from Marcus & Millichap's earnings presentation, Aug 4, 2023
Slide 1: Second Quarter 2023 Earnings Conference Call
SECOND QUARTER 2023 EARNINGS CONFERENCE CALL - August 4, 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, and expectations for market share growth. Statements about o
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: 2023 Second Quarter Highlights
Financial Highlights YoY Revenue $162.9 million (58.9)% Net Loss $(8.7) million (120.7)% 2023 SECOND Adjusted EBITDA $(1.1) million (101.7)% QUARTER HIGHLIGHTS Operational Highlights YoY Sales Volume $9.7 billion (63.1)% Transaction Closings 1,946 (46.5)% Number of Investment Sales and Financing 1,8
Slide 6: Year-to-Date 2023 Highlights
Financial Highlights YoY Revenue $317.7 million (55.6)% Net Loss $(14.6) million (119.4)% Year-to-Date Adjusted EBITDA $(8.5) million (107.4)% 2023 HIGHLIGHTS Operational Highlights YoY Sales Volume $20.2 billion (57.4)% Transaction Closings 3,753 (42.6)% Number of Investment Sales and Financing 1,8
Slide 7: 2023 Second Quarter Brokerage Highlights
2023 SECOND Sales Volume $7.5 billion YoY (62.0)% QUARTER Transaction Closings 1,422 (47.0)% BROKERAGE Number of Investment Sales Professionals as 1,768 (2.4)% HIGHLIGHTS of June 30, 2023 Real Estate Brokerage Commissions Revenue $140.3 million (60.4)% Revenue by Transactions by Transactions by Tran
Slide 8: Year-to-Date 2023 Brokerage Highlights
YoY Sales Volume $14.7 billion (60.4)% YEAR-TO-DATE Transaction Closings 2,701 (44.0)% 2023 BROKERAGE Number of Investment Sales Professionals as 1,768 (2.4)% HIGHLIGHTS of June 30, 2023 Real Estate Brokerage Commissions Revenue $275.4 million (57.1)% Revenue by Transactions by Transactions by Trans
Slide 9: 2023 Second Quarter Financing Highlights
YoY 2023 SECOND Sales Volume $1.6 billion (63.5)% QUARTER Transaction Closings 284 (59.3)% FINANCING Number of Financing Professionals as of 97 9.0% HIGHLIGHTS June 30, 2023 Financing Fees Revenue $17.9 million (51.4)% Transactions by Transactions by Property Type Region Other, 19% Northeast / Mid-A
Slide 10: Year-to-Date 2023 Financing Highlights
YoY YEAR-TO-DATE Sales Volume $3.4 billion (52.9)% 2023 Transaction Closings 563 (53.7)% FINANCING Number of Financing Professionals as of 97 9.0% HIGHLIGHTS June 30, 2023 Financing Fees Revenue $33.8 million (46.6)% Transactions by Transactions by Property Type Region Northeast / Other, 19% Multifa
Slide 11: Market Highlights
MARKET HIGHLIGHTS Marcus Millichap 1
Slide 12: Total Employment
Total Employment (Millions) * Forecast per Economy.com 115.0 155.0 125.0 150.0 120.0 130.0 135.0 145.0 140.0 160.0 Sources: BLS, Moody’s Analytics Jan-20 Feb-20 Mar-20 Apr-20 May-20 -21.9Million Jun-20 Jul-20 Aug-20 2023 forecast to add 2.4 million jobs* Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar
Slide 13: Labor shortage weighs on hiring; inflation pressure abating
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% 16 19 22 * 20 17 18 21 *
Slide 14: Inflation indicators ease; home sales drop
OTHER INFLATION INDICATORS CONFIRM EASING TREND; SIGNIFICANT DROP IN HOME SALES SHOWS INTEREST RATE IMPACT 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% $1,200 5 2.5% $800 4 0.0
Slide 15: Most aggressive Fed tightening since 1980
MOST AGGRESSIVE FED TIGHTENING SINCE 1980 DISRUPTING COMMERCIAL REAL ESTATE 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 $10.0 Fed Holdings (Trillions June 2023
Slide 16: Rent growth slowing after several strong years
RENT GROWTH SLOWING AFTER SEVERAL STRONG YEARS – TRENDS VARY BY PRODUCT TYPE; INTEREST RATES IMPACTING VALUES 10-Year Treasury 5-Year Average Rent Growth vs. 2023 Forecast 4.8% 5-Year Average Rent Growth 2023 Forecast 10.0% 7.5% 3.6% 5.0% Rent Growth Rate 2.4% 2.5% 0.0% 1.2% -2.5% 0.0% -5.0% 18 19 2
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% 5% 6% 5% 5% 4% 4% 5% 4% 4% 5% 3% 3% 5% 8% 9% 8% 5% 9% 9% 9% 12% 12% 10% 14% 17% 20% 18% 25% 17% 75% 26% 28% 25% 28% 27% 24% 27% 25% 12% 32% 27% Percent of Dollar Volume 26% 5% 29% Use
Slide 18: Employment positive but slowing
Employment Growth vs. Unemployment Rate EMPLOYMENT POSITIVE BUT SLOWING; BUT SPACE DEMAND DOWNSHIFTS AMID Employment Growth Unemployment Rate ECONOMIC UNCERTAINTY 12.0 8% Employment Growth (Mil.) Unemployment Rate • Labor shortage still restraining job creation 6.0 6% but 4.8 million jobs added in 2
Slide 19: Property fundamentals sound by historical standards
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. Risk of over-supply limited to select local markets with heavy 85% construct
Slide 20: Maturing CRE loan volumes concerning
Commercial Real Estate Loan Maturities* MATURING CRE LOAN VOLUMES CONCERNING; RISKS VARY WIDELY BY $800 PROPERTY TYPE Other Dollar Volume (Billions) $600 Healthcare • With the exception of office properties, rent Hotel/Motel growth and appreciation has been healthy in $400 most segments over the pas
Slide 21: Lender caution results 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 • Transaction counts in 1H 2023 estimated to have Total Transactions (000s) dipped 49% year-over-year; dollar volume 45 dropped by 5
Slide 22: CRE yield spreads challenged; pricing recalibrating
COMMERCIAL REAL ESTATE Cap Rate/10-Year Treasury Spreads YIELD SPREADS CHALLENGED; CRE Cap Rate 10 Year Treasury Rate PRICING RECALIBRATING TO 12% Cap Rate Long-Term Avg. HIGHER INTEREST RATES 10% 440 bps 430 bps 8% 480 bps Average Rate • Rapid rise of interest rates, tightened lender 480 bps 210 bp
Slide 23: MMI Market Position
MMI MARKET POSITION Marcus Millichap 23
Slide 24: Private Client Market Segment
• Market segment consists of sales $1 million to <$10 million. PRIVATE CLIENT • Largest and most active market segment, accounting for 75%+ of MARKET SEGMENT transactions. • Primarily driven by high-net worth individuals, partnerships and smaller private fund managers. Largest Transaction and Commis
Slide 25: MMI Financial Details
MMI FINANCIAL DETAILS Marcus Millichap 25
Slide 26: Total Revenue
TOTAL REVENUE ($ IN MILLIONS) Q2 ‘22 vs Q2 ‘23 Year-to-Date ‘22 vs ‘23 $500 $1,350 $450 $1,200 $396.0 $400 $1,050 $350 (58.9)% $900 $300 $750 $715.4 $250 (55.6)% $600 $200 $162.9 $450 $150 $317.7 $100 $300 $50 $150 $0 $0 Q2'22 Q2'23 YTD '22 YTD '23 26
Slide 27: Brokerage Operating Metrics Q2
BROKERAGE OPERATING METRICS Q2 2022 vs Q2 2023 Total Sales Volume Total Number of Transactions ($ in billions) $35 3,000 2,685 $30 (47.0)% $25 $19.9 (62.0)% $20 2,000 1,422 $15 $10 $7.5 1,000 $5 $0 Q2'22 Q2'23 0 Q2'22 Q2'23 Average Number of Investment Sales Professionals Average Commission Per Tran
Slide 28: Brokerage Operating Metrics Year-to-Date
BROKERAGE OPERATING METRICS YEAR-TO-DATE 2022 vs 2023 Total Sales Volume Total Number of Transactions ($ in billions) $80 $70 10,000 $60 8,000 $50 $37.1 6,000 (44.0)% $40 (60.4)% 4,822 $30 4,000 2,701 $20 $14.7 2,000 $10 $0 0 YTD '22 YTD '23 YTD '22 YTD '23 Average Number of Investment Sales Profess
Slide 29: Brokerage Revenue by Market Segment Q2
BROKERAGE REVENUE BY MARKET SEGMENT Q2 2022 vs Q2 2023 Private Client Market ($1 - <$10 million) <$1 million ($ in thousands) ($ in thousands) $7,500 $250,000 $6,672 (30.1)% $209,868 $200,000 (54.1)% $5,000 $4,665 $150,000 $96,238 $100,000 $2,500 $50,000 $0 $0 Q2'22 Q2'23 Q2'22 Q2'23 Larger Transact
Slide 30: Brokerage Revenue by Market Segment Year-to-Date
BROKERAGE REVENUE BY MARKET SEGMENT YEAR-TO-DATE 2022 vs 2023 Private Client Market ($1 - <$10 million) <$1 million ($ in thousands) ($ in thousands) $35,000 $700,000 $30,000 $600,000 $25,000 $500,000 $20,000 $400,000 $370,899 (49.7)% (22.1)% $15,000 $12,459 $300,000 $9,703 $186,741 $10,000 $200,000
Slide 31: Operating Expense
OPERATING EXPENSE ($ IN MILLIONS) Q2 2022 vs Q2 2023 Year-to-Date 2022 vs 2023 $400 $700 $614.4 $350 $339.2 $600 $300 $500 $250 $400 64.7% of Rev 63.3% of Rev $452.8 $256.1 $344.4 $200 $173.5 $300 $150 $196.6 61.9% of Rev $101.2 62.1% of Rev $200 $100 21.6% of Rev $154.4 20.2% of Rev $79.8 $141.1 44
Slide 32: Net Income and Adjusted EBITDA Performance Q2
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q2 2022 vs Q2 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $45.0 $70.0 $42.2 $62.9 $40.0 $60.0 $35.0 $30.0 $50.0 $25.0 (120.7)% (101.7)% $40.0 $20.0 $15.0 $30.0 $10.0 $20.0 $5.0 $— $10.0 $(5.0) $— $(10.0) $(8.7) $(1.1) $(15.0) $(10.0) Q2'
Slide 33: Net Income and Adjusted EBITDA Performance Year-to-Date
NET INCOME AND ADJUSTED EBITDA PERFORMANCE YEAR-TO-DATE 2022 vs 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $100.0 $140.0 $80.0 $75.0 $120.0 $114.8 $60.0 $100.0 (119.4)% $80.0 $40.0 (107.4)% $60.0 $20.0 $40.0 $— $20.0 $(20.0) $(14.6) $— $(8.5) $(40.0) $(20.0) YTD '22 YTD '23 YTD
Slide 34: Cash Flows Provided By (Used In) Operating Activities
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES QTD Cash Flows Provided By YTD Cash Flows Used In Operating Activities Operating Activities (1) ($ in millions) ($ in millions) $17.5 $— $15.7 $15.0 $(20.0) $12.5 (58.9)% 82.8% $(40.0) $10.0 $7.5 $(51.8) $6.4 $(60.0) $5.0 $(80.0) $2.5 $— $(100.0)
Slide 35: Liquidity Position
LIQUIDITY POSITION Cash and Cash Equivalents and Marketable Debt Securities, Available-For-Sale ($ in millions) $600 $557.9 (27.1)% $500 $406.8 $400 $322.0 $300 $235.6 $200 $235.9 $100 $171.2 $0 12/31/2022 6/30/2023 Cash and Cash Equivalents Marketable Debt Securities, Available-For-Sale Liquidity p
Slide 36: Appendix
APPENDIX Marcus Millichap 36
Slide 37: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA Three Months Ended June 30, Six Months Ended June 30, RECONCILIATION 2023 2022 2023 2022 Adjusted EBITDA, which the Company defines as net (loss) income before (i) interest income and other, including net realized gains Net (loss) income $(8,729) $42,168 $(14,562) $74,951 (losses) on
Slide 38: 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 39: 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