Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q3 2020 Earnings Presentation
38 slides from Marcus & Millichap's earnings presentation, Nov 6, 2020
Slide 1: Third Quarter 2020 Earnings Conference Call
THIRD QUARTER 2020 EARNINGS CONFERENCE CALL NOVEMBER 5, 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 STEVE DEGENNARO Chief Financial Officer 3 3
Slide 4: MMI Financial Highlights
Marcus ¢ Millichap MMI FINANCIAL HIGHLIGHTS
Slide 5: 2020 Third Quarter Highlights
2020 THIRD Financial Highlights YOY QOQ Revenue $158.6 million (20.0)% 35.1% QUARTER Net Income $6.0 million (68.7)% NM HIGHLIGHTS Adjusted EBITDA $12.2 million (56.1)% 194.7% SEQUENTIAL Operational Highlights YOY QOQ QUARTER Sales Volume Transaction Closings $9.1 billion 2,139 (24.8)% (12.2)% 30.9%
Slide 6: Year-to-Date Highlights
Financial Highlights YOY Revenue $466.7 million (17.9)% Net Income $19.2 million (65.8)% YEAR-TO-DATE Adjusted EBITDA $38.8 million (53.3)% 2020 HIGHLIGHTS Operational Highlights YOY Sales Volume $27.8 billion (20.4)% Transaction Closings 5,976 (13.6)% Number of Investment Sales and Financing 1,999
Slide 7: 2020 Third Quarter/Sequential Brokerage Highlights
2020 THIRD YOY QOQ QUARTER/ Sales Volume $7.0 billion (26.9)% 29.0% SEQUENTIAL Transaction Closings Number of Investment Sales Professionals as of 1,527 (12.9)% 42.0% BROKERAGE September 30, 2020 1,920 4.0% (2.2)% HIGHLIGHTS Real Estate Brokerage Commissions Revenue $140.8 million (21.8)% 36.3% Reve
Slide 8: Year-to-Date Brokerage Highlights
YOY YEAR-TO-DATE 2020 Sales Volume $20.9 billion (19.5)% BROKERAGE Transaction Closings 4,217 (15.5)% HIGHLIGHTS Number of Investment Sales Professionals as of September 30, 2020 1,920 4.0% Real Estate Brokerage Commissions Revenue $416.0 million (19.0)% Revenue by Transactions by Transactions by Tr
Slide 9: 2020 Third Quarter/Sequential Financing Highlights
2020 THIRD YOY QOQ QUARTER/ Sales Volume $1.7 billion (0.4)% 47.0% SEQUENTIAL Transaction Closings 442 (10.0)% 16.0% FINANCING Number of Financing Professionals as of September 30, 2020 79 (20.2)% (7.1)% HIGHLIGHTS Financing Fees Revenue $15.6 million (2.5)% 23.0% Transactions by Transactions by Pro
Slide 10: Year-to-Date Financing Highlights
YOY YEAR-TO-DATE 2020 Sales Volume $4.6 billion (8.5)% FINANCING Transaction Closings 1,301 (4.5)% HIGHLIGHTS Number of Financing Professionals as of September 30, 2020 79 (20.2)% Financing Fees Revenue $43.7 million (8.0)% Transactions by Transactions by Property Type Northeast/ Mid- Region Atlanti
Slide 11: COVID-19 Update
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Slide 12: Proactive Pandemic Response
PROACTIVE PANDEMIC RESPONSE • Immediately focused on retention and productivity of team • Activated extended financing network to facilitate transactions amid initial Priorities • market disruption in March/April Reduced expenses and took measures to preserve capital while continuing to invest in st
Slide 13: Market Highlights
Marcus ¢ Millichap MARKET HIGHLIGHTS
Slide 14: Employment Recovery Slow but Steady
EMPLOYMENT RECOVERY SLOW BUT STEADY Economic Foundation Leading Up to the Pandemic Was Historically Strong; Economic Shutdown in Response to Health Crisis Dealt Unprecedented Blow to the Labor Market. Jobs recovery making slow gains. 2020 forecast to lose 9.9 million jobs* -22.2 Million 155.0 150.0
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% YOY Job Growth (Millions) YOY 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 12 3Q
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.) Unemployment Rate • Employment market was particularly 0.0 9% strong prior to onset of pandemic, adding 465,000 jobs in first two months of
Slide 17: Property Fundamentals Vary; Construction Slowdown
PROPERTY FUNDAMENTALS VARY; CONSTRUCTION SLOWDOWN IN KEY SECTORS AND GEOGRAPHIES Occupancy Trends A POSITIVE 100% 95% Occupancy (%) • Property fundamentals entered economic shutdown in very strong position. Crisis 90% impact varies by property type. 85% • Necessity-based retail, single-tenant retail
Slide 18: Investment Sales Begin to Recover After Initial Shock
INVESTMENT SALES BEGIN TO RECOVER AFTER INITIAL SHOCK; Annual U.S. Commercial Real Estate Sales Trends(1) ECONOMIC UNCERTAINTY, PRICING GAP STILL HAMPER TRADES 40 Total Transactions (000s) 30 • Sales activity started 2020 with positive momentum but began to drop significantly in 20 March as shelter-
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 • Pricing discovery still in process and cap 480 bps Average Rate rate adjustment likely to vary significantly 480 bps 200 bps 580 bps 6% by pr
Slide 20: MMI Market Position
Marcus ¢ Millichap MMI MARKET POSITION
Slide 21: Private Client Market Segment
• Market segment consists of sales $1 million - <$10 million. • Largest and most active market segment, accounting for PRIVATE CLIENT MARKET 80%+ of transactions. • Primarily driven by high-net worth individuals, SEGMENT partnerships and smaller private fund managers. • Influenced by personal driver
Slide 22: MMI Financial Details
Marcus ¢ Millichap MMI FINANCIAL DETAILS
Slide 23: Total Revenues
TOTAL REVENUES ($ in millions) Q3 2019 vs. Q3 2020 Q2 2020 vs. Q3 2020 Year-to-Date 2019 vs. 2020 $240 $200 $600 $568.5 $198.2 $200 $158.6 $160 $500 $466.7 $158.6 (1 $160 7 (2 $117.4 $400 .9 $120 )% 0 .1% .0 )% $120 35 $300 $80 $80 $200 $40 $40 $100 $0 $0 $0 Q3 '19 Q3 '20 Q2 '20 Q3 '20 YTD '19 YTD '
Slide 24: Brokerage Operating Metrics Q3 2019 vs. Q3 2020
BROKERAGE OPERATING METRICS Q3 2019 vs. Q3 2020 Total Sales Volume Total Number of Transactions ($ in billions) $10.0 $9.6 2,000 1,753 1,600 1,527 $8.0 (2 $7.0 6 .9 (12. 9)% $6.0 )% 1,200 $4.0 800 $2.0 400 $0.0 0 Q3 '19 Q3 '20 Q3 '19 Q3 '20 Average Number of Investment Sales Professionals Average Co
Slide 25: Brokerage Operating Metrics Q2 2020 vs. Q3 2020
BROKERAGE OPERATING METRICS Q2 2020 vs. Q3 2020 Total Sales Volume Total Number of Transactions ($ in billions) $10.0 2,000 1,600 1,527 $8.0 $7.0 $6.0 $5.4 1,200 1,075 0% .0 % $4.0 800 42 29. $2.0 400 $0.0 0 Q2 '20 Q3 '20 Q2 '20 Q3 '20 Average Number of Investment Sales Professionals Average Commiss
Slide 26: Brokerage Revenue by Market Segment Q3 2019 vs. Q3 2020
BROKERAGE REVENUE BY MARKET SEGMENT Q3 2019 vs. Q3 2020 <$1 million Private Client Market ($1 - <$10 million) ($ thousands) ($ thousands) $8,000 $7,182 $140,000 $121,228 $6,290 $120,000 $6,000 $100,000 $97,856 (12.4) (19 % .3 ) % $80,000 $4,000 $60,000 $2,000 $40,000 $20,000 $0 $0 Q3 '19 Q3 '20 Q3 '
Slide 27: Brokerage Revenue by Market Segment Q2 vs. Q3 2020
BROKERAGE REVENUE BY MARKET SEGMENT Q2 2020 vs. Q3 2020 <$1 million Private Client Market ($1 - <$10 million) ($ thousands) ($ thousands) $8,000 $120,000 $6,290 $100,000 $97,856 $6,000 $4,518 $80,000 $70,817 .2 % $4,000 .2 % $60,000 38 39 $40,000 $2,000 $20,000 $0 $0 Q2 '20 Q3 '20 Q2 '20 Q3 '20 Larg
Slide 28: Brokerage Operating Metrics Year-to-Date 2020
BROKERAGE OPERATING METRICS Year-to-Date 2020 Total Sales Volume Total Number of Transactions ($ in billions) $30.0 6,000 $25.9 4,992 $20.9 4,217 $20.0 (19. 4,000 (15.5 5)% )% $10.0 2,000 $0.0 0 YTD '19 YTD '20 YTD '19 YTD '20 Average Number of Investment Sales Professionals Average Commission Per T
Slide 29: 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) $25,000 $400,000 $345,812 $19,607 $20,000 $300,000 $282,937 $16,550 (18 $15,000 (15 .2 ) % .6 ) % $200,000 $10,000 $5,000 $100,000 $0 $0 YTD '19 YTD '20 YTD '19 YTD
Slide 30: Operating Expenses
OPERATING EXPENSES ($ in millions) Q3 2019 vs. Q3 2020 Year-To-Date 2019 vs. 2020 $200 $540 $499.2 $174.1 $480 $443.1 $160 $152.0 $420 $360 $120 $124.1 $343.7 $300 60.5% of Rev 62.6% of Rev $287.2 61.5% of Rev $99.7 $240 $80 62.9% of Rev $180 $40 $120 $149.8 $148.1 $48.1 24.3% of Rev $49.7 31.4% of
Slide 31: Net Income and Adjusted EBITDA Performance Q3 2020
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q3 2020 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $24 $30 $27.9 $20 $19.3 $24 $16 $18 $12 $12.2 $12 $8 $6.0 $6 $4 $0 $0 Q3 '19 Q3 '20 Q3 '19 Q3 '20 31
Slide 32: Net Income and Adjusted EBITDA Performance Year-to-Date
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Year-to-Date 2020 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $60 $90 $56.2 $83.0 $80 $50 $70 $40 $60 $50 $30 $40 $38.8 $19.2 $20 $30 $20 $10 $10 $0 $0 YTD '19 YTD '20 YTD '19 YTD '20 32
Slide 33: Cash Flow Provided By (Used In) Operating Activities
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES QTD Cash Flow Provided By YTD Cash Flow Used In Operating Activities (1) Operating Activities (2) ($ in millions) ($ in millions) $25.0 $23.6 $0 $18.3 -$5 $20.0 ($6.1) -$10 $15.0 -$15 $10.0 -$20 -$25 $5.0 -$30 ($28.3) $0.0 -$35 Q3 '19 Q3 '20 YTD '
Slide 34: Strong Liquid Capital Position
STRONG LIQUID CAPITAL POSITION Cash on Hand and Core-Cash Investments ($ in millions) $450 $375.8 $399.0(2) $400 $342.8(2) $350 $322.1(2) $166.3(1) $300 $149.7 $250 $169.7(1) $167.2 $200 $150 $226.1 $232.7 $100 $154.9 $173.1 $50 $0 9/30/2019 12/31/2019 6/30/2020 12/31/2017 9/30/2020 9/30/2019 Cash a
Slide 35: Appendix
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Slide 36: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Adjusted EBITDA, which the Company defines as net income before Three Months Ended Nine Months Ended (i) interest income and other, including net realized gains (losses) on marketable debt securities, available-for-sale and cash and cash Sept. 30, June 30, Sept. 30, Se
Slide 37: Company Overview
NATIONAL PLATFORM FOCUSED ON REAL ESTATE INVESTMENT BROKERAGE • 49-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 THE
Slide 38: 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 38 (2) EBITDA is not a measurement of our financial performance u