Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q1 2023 Earnings Presentation
33 slides from Marcus & Millichap's earnings presentation, May 5, 2023
Slide 1: First Quarter 2023 Earnings Conference Call
FIRST QUARTER 2023 EARNINGS CONFERENCE CALL - May 5, 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, including the initiation of a semi-annual dividend plan, the
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 First Quarter Highlights
Financial Highlights YoY Revenue $154.8 million (51.5)% Net Loss $(5.8) million (117.8)% 2023 FIRST Adjusted EBITDA $(7.4) million (114.3)% QUARTER HIGHLIGHTS Operational Highlights YoY Sales Volume $10.4 billion (50.2)% Transaction Closings 1,807 (37.8)% Number of Investment Sales and Financing 1,8
Slide 6: 2023 First Quarter Brokerage Highlights
2023 FIRST Sales Volume $7.1 billion YoY (58.5)% QUARTER Transaction Closings 1,279 (40.1)% BROKERAGE Number of Investment Sales Professionals as 1,772 (4.0)% HIGHLIGHTS of March 31, 2023 Real Estate Brokerage Commissions Revenue $135.0 million (52.9)% Revenue by Transactions by Transactions by Tran
Slide 7: 2023 First Quarter Financing Highlights
YoY 2023 FIRST Sales Volume $1.7 billion (35.1)% QUARTER Transaction Closings 279 (46.3)% FINANCING Number of Financing Professionals as of 92 8.2% HIGHLIGHTS March 31, 2023 Financing Fees Revenue $15.9 million (40.0)% Transactions by Transactions by Property Type Region Other, 19% Northeast / Multi
Slide 8: Market Highlights
MARKET HIGHLIGHTS Marcus Millichap 8
Slide 9: Total Employment Well Above Pre-Pandemic Level
TOTAL EMPLOYMENT WELL ABOVE PRE-PANDEMIC LEVEL; RECENT EASING IN GROWTH RATE TAKES PRESSURE OFF THE FED 2023 forecast to add 1.4 million jobs* -21.9Million +25.1 Million 160.0 155.0 150.0 Total Employment (Millions) 145.0 140.0 135.0 130.0 125.0 120.0 115.0 20-Jan 21-Jun 20-Jun 21-Nov 22-Apr 20-Nov
Slide 10: 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% 19 18 16 17 * 22 21 20 03
Slide 11: Fed Action on Inflation and Home Sales
SEPT. 2021: FED TOOK NO ACTION CALLING INFLATION “TRANSITORY” SEPT. 2022: AGGRESSIVE ACTION DESPITE LEADING INDICATORS TURNING 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% $1,2
Slide 12: Most Aggressive Fed Tightening Since 1980 Disrupting CRE Markets
MOST AGGRESSIVE FED TIGHTENING SINCE 1980 DISRUPTING CRE 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 $8.8 Fed Holdings (Trillions Dec. 2022 Dollars) 4.5% $6.6 R
Slide 13: 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% 3.6% 7.5% Rent Growth Rate 2.4% 5.0% 1.2% 2.5% 0.0% 0.0% 18 19 20 21 22 23*
Slide 14: 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% 3% 9% 9% 9% 12% 12% 10% 14% 17% 20% 16% 18% 25% 75% 26% 28% 25% 28% 27% 24% 27% 25% 18% 32% 27% Percent of Dollar Volume 26% 5% 29% Use
Slide 15: Employment Remains Sound, Space Demand Downshifts
EMPLOYMENT REMAINS SOUND, BUT Employment Growth vs. Unemployment Rate SPACE DEMAND DOWNSHIFTS AMID ECONOMIC UNCERTAINTY AND BANKING Employment Growth Unemployment Rate SECTOR CONCERNS 12.0 8% Employment Growth (Mil.) Unemployment Rate • Labor shortage still restraining job creation 6.0 6% but 4.8 mi
Slide 16: 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. 85% • Supply chain disruptions declining; companies have begun reducing thei
Slide 17: 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 18: CRE Market Responding to Interest Rate Shock and Banking Instability
CRE MARKET RESPONDING TO INTEREST RATE SHOCK AND BANKING INSTABILITY; FED Annual U.S. Commercial Real Estate Sales Trends(1) REMAINS A KEY FACTOR 60 • Transaction counts in 1Q 2023 estimated to have Total Transactions (000s) dipped 44% year-over-year; dollar volume 45 dropped by 56% year-over-year.
Slide 19: Commercial Real Estate Yield Spreads Challenged
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 480 bps 8% Average Rate • Rapid rise of interest rates, tightened lender 480 bps 210 bp
Slide 20: MMI Market Position
MMI MARKET POSITION Marcus Millichap 20
Slide 21: Private Client Market Segment
• Market segment consists of sales $1 million to <$10 million. PRIVATE CLIENT • Largest and most active market segment, accounting for 75%+ of MARKET SEGMENT transactions. • Primarily driven by high-net worth individuals, partnerships and smaller private fund managers. Largest Transaction and Commis
Slide 22: MMI Financial Details
MMI FINANCIAL DETAILS Marcus Millichap 22
Slide 23: Total Revenue
TOTAL REVENUE ($ IN MILLIONS) Q1 ‘22 vs Q1 ‘23 $500 $450 $400 $350 $319.5 $300 (51.5)% $250 $200 $154.8 $150 $100 $50 $0 Q1'22 Q1'23 23
Slide 24: Brokerage Operating Metrics
BROKERAGE OPERATING METRICS Q1 2022 vs Q1 2023 Total Sales Volume Total Number of Transactions ($ in billions) $35 3,000 $30 $25 2,137 (40.1)% (58.5)% $20 $17.2 2,000 $15 1,279 $10 $7.1 1,000 $5 $0 Q1'22 Q1'23 0 Q1'22 Q1'23 Average Number of Investment Sales Professionals Average Commission Per Tran
Slide 25: Brokerage Revenue by Market Segment
BROKERAGE REVENUE BY MARKET SEGMENT Q1 2022 vs Q1 2023 Private Client Market ($1 - <$10 million) <$1 million ($ in thousands) ($ in thousands) $7,500 $250,000 (12.9)% $5,787 $200,000 $5,038 $161,031 $5,000 (43.8)% $150,000 $100,000 $90,503 $2,500 $50,000 $0 $0 Q1'22 Q1'23 Q1'22 Q1'23 Larger Transact
Slide 26: Operating Expense
OPERATING EXPENSE ($ IN MILLIONS) Q1 2022 vs Q1 2023 $300 $275.2 $250 $200 $196.8 $170.9 $150 61.6% of Rev $95.4 $100 61.6% of Rev $74.5 $72.2 $50 23.3% of Rev 46.7% of Rev 1.2% of Rev $3.9 $3.2 2.1% of Rev $0 Q1'22 Q1'23 Depreciation SG&A COS 26
Slide 27: Net Income and Adjusted EBITDA Performance
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q1 2022 vs Q1 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $35.0 $60.0 $32.8 $51.9 $30.0 $50.0 $25.0 $40.0 $20.0 (117.8)% (114.3)% $30.0 $15.0 $20.0 $10.0 $10.0 $5.0 $— $— $(5.0) $(10.0) $(7.4) $(5.8) $(10.0) $(20.0) Q1'22 Q1'23 Q1'22 Q1'
Slide 28: Cash Flow Used in Operating Activities
CASH FLOW USED IN OPERATING ACTIVITIES QTD Cash Flow Used In Operating Activities (1) ($ in millions) $— $(25.0) 49.9% $(50.0) $(75.0) $(67.5) $(100.0) $(101.2) $(125.0) Q1'22 Q1'23 (1) Cash flows used in operating activities were $101.2 million for the three months ending March 31, 2023 compared to
Slide 29: Liquidity Position
LIQUIDITY POSITION Cash and Cash Equivalents and Marketable Debt Securities, Available-For-Sale ($ in millions) $600 $557.9 (22.7)% $500 $431.0 $400 $322.0 $203.0 $300 $200 $235.9 $228.0 $100 $0 12/31/2022 3/31/2023 Cash and Cash Equivalents Marketable Debt Securities, Available-For-Sale Liquidity p
Slide 30: Appendix
APPENDIX Marcus Millichap 30
Slide 31: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA Three Months Ended March 31, RECONCILIATION 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 $(5,833) $32,783 (losses) on marketable debt securities, available-for-sale and c
Slide 32: 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 33: 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