Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q4 2018 Earnings Presentation
33 slides from Marcus & Millichap's earnings presentation, Feb 20, 2019
Slide 1: Fourth Quarter 2018 Earnings Conference Call
FOURTH QUARTER 2018 EARNINGS CONFERENCE CALL February 20, 2019 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 2019 and beyond and expectations for market share growth. Statements about our beliefs and expectations and statem
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: 2018 Fourth Quarter Highlights
Financial Highlights YOY Revenue $230.3 million 13.6% Net Income $26.2 million 209.3% 2018 FOURTH Tax Adjusted Net Income Growth Rate(1) $26.2 million 16.8% Adjusted EBITDA $36.1 million 12.5% QUARTER HIGHLIGHTS Operational Highlights YOY Sales Volume $13.2 billion 7.9% Transaction Closings 2,603 6.
Slide 6: Full Year 2018 Highlights
Financial Highlights YOY Revenue $814.8 million 13.2% Net Income $87.3 million 69.4% Tax Adjusted Net Income Growth Rate(1) $87.3 million 18.1% FULL YEAR 2018 Adjusted EBITDA $129.5 million 15.9% HIGHLIGHTS Operational Highlights YOY Sales Volume $46.4 billion 9.9% Transaction Closings 9,472 5.5% In
Slide 7: 2018 Fourth Quarter Brokerage Highlights
2018 FOURTH YOY Sales Volume $9.9 billion 13.7% QUARTER Transaction Closings 1,933 10.3% BROKERAGE Investment Sales Professionals as of December 31, 1,866 8.3% 2018 HIGHLIGHTS Real Estate Brokerage Commissions Revenue $211.2 million 19.1% Revenue by Transactions by Transactions by Transaction Size P
Slide 8: Full Year 2018 Brokerage Highlights
YOY FULL YEAR 2018 Sales Volume $36.1 billion 18.4% BROKERAGE Transaction Closings 7,079 7.9% HIGHLIGHTS Investment Sales Professionals as of December 31, 2018 1,866 8.3% Real Estate Brokerage Commissions Revenue $747.4 million 15.1% Revenue by Transactions by Transactions by Transaction Size Proper
Slide 9: 2018 Fourth Quarter Financing Highlights
2018 FOURTH YOY QUARTER Sales Volume $1.8 billion 4.1% Transaction Closings 487 (2.4%) FINANCING Financing Professionals as of December 31, 111 15.6% HIGHLIGHTS 2018 Financing Fees Revenue $16.6 million 6.8% Transactions by Transactions by Property Type Region Northeast/ Other, Mid-Atlantic, 11% 16%
Slide 10: Full Year 2018 Financing Highlights
YOY FULL YEAR 2018 Sales Volume $6.2 billion 10.7% FINANCING Transaction Closings 1,678 (1.7%) HIGHLIGHTS Financing Professionals as of December 31, 2018 111 15.6% Financing Fees Revenue $57.8 million 16.4% Transactions by Transactions by Property Type Region Northeast/ Other, Mid-Atlantic, 12% 15%
Slide 11: Market Highlights
Marcus ¢ Millichap MARKET HIGHLIGHTS
Slide 12: U.S. Employment Gains Driving Real Estate Demand
U.S. EMPLOYMENT GAINS DRIVING REAL ESTATE DEMAND U.S. Employment Growth Accelerated in 2018 2019 forecast to add 2.2 million jobs* 0.9 -8.7 Million 0.0 Quarterly Job Growth (Millions) +8.3 Million +20.6 Million -0.9 -1.8 -2.7 2015 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 13: Employment and Space Demand Remain Strong
Employment Growth vs. Unemployment Rate EMPLOYMENT AND SPACE Employment Growth Unemployment Rate DEMAND REMAIN STRONG Employment Growth (Mil.) 3.2 7% Unemployment Rate 2.4 6% • Employment growth totaled more than 2.6 million jobs in 2018 1.6 5% • Total employment stands 11.8 million 0.8 4% above the
Slide 14: Property Fundamentals Remain Healthy; Construction Trends Vary
PROPERTY FUNDAMENTALS REMAIN HEALTHY; CONSTRUCTION TRENDS VARY Occupancy Trends BY PROPERTY TYPE 100% Occupancy (%) • Property fundamentals demonstrate healthy 95% performance across all property types 90% • Multifamily and industrial properties led the 85% recovery – new supply in both sectors incr
Slide 15: Investment Sales Remain Stable at Healthy Levels
U.S. Commercial Real Estate: Total Transaction Activity(1) INVESTMENT SALES REMAIN STABLE AT HEALTHY LEVELS 40 Total Transactions (000s) 30 • Investment sales at healthy levels and 20 rising moderately; still below 2015 peak 10 • 2018 sales modestly outpaced 2017 based on preliminary estimates(1) 0
Slide 16: 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 Average Rate 480 bps • Overall, cap rates have maintained 480 bps 580 bps 210 bps stability despite interest rate fluctuations 6% 350 bps • The
Slide 17: Private Client Market Segment
• Market segment consists of sales $1 million - $10 million; is the largest and most active, accounting for 80%+ of transactions PRIVATE CLIENT MARKET • Primarily driven by high-net worth individuals, SEGMENT partnerships and smaller private fund managers • Influenced by personal drivers that result
Slide 18: MMI Financial Details
Marcus ¢ Millichap MMI FINANCIAL DETAILS
Slide 19: Total Revenues
TOTAL REVENUES ($ in millions) Q4 2017 vs. Q4 2018 Full Year 2017 vs. 2018 $280 $900 $814.8 $230.3 $800 $240 $719.7 $202.8 $700 $200 $600 $160 $500 $120 $400 $300 $80 $200 $40 $100 $0 $0 Q4 '17 Q4 '18 2017 2018 19
Slide 20: Brokerage Operating Metrics Q4 2018
BROKERAGE OPERATING METRICS Q4 2018 Total Sales Volume Total Number of Sales Transactions ($ in billions) $9.9 $10.0 2,400 $8.7 1,933 $8.0 2,000 1,752 1,600 $6.0 1,200 $4.0 800 $2.0 400 $0.0 0 Q4 '17 Q4 '18 Q4 '17 Q4 '18 Average Number of Investment Sales Professionals Average Commission Per Transac
Slide 21: Brokerage Revenue by Market Segment Q4 2018
BROKERAGE REVENUE BY MARKET SEGMENT Q4 2018 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $10,000 $8,858 $175,000 $7,842 $133,905 $8,000 $140,000 $115,904 $6,000 $105,000 $4,000 $70,000 $2,000 $35,000 $0 $0 Q4 '17 Q4 '18 Q4 '17 Q4 '18 Larger Transaction Market (≥ $
Slide 22: Brokerage Operating Metrics Full Year 2018
BROKERAGE OPERATING METRICS Full Year 2018 Total Sales Volume Total Number of Sales Transactions ($ in billions) $42.0 $36.1 8,000 7,079 6,562 $35.0 $30.5 6,000 $28.0 $21.0 4,000 $14.0 2,000 $7.0 $0.0 0 2017 2018 2017 2018 Average Commission Per Transaction Average Number of Investment Sales Profess
Slide 23: Brokerage Revenue by Market Segment Full Year 2018
BROKERAGE REVENUE BY MARKET SEGMENT Full Year 2018 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $40,000 $600,000 $29,677 $483,967 $27,952 $444,081 $30,000 $400,000 $20,000 $200,000 $10,000 $0 $0 2017 2018 2017 2018 Middle Market (≥ $10 - $20 million) Large Transac
Slide 24: Operating Expenses
OPERATING EXPENSES ($ in millions) Q4 2017 vs. Q4 2018 Full Year 2017 vs. 2018 $240 $780 $720 $702.5 $197.8 $660 $200 $623.6 $175.4 $600 $160 $540 $480 $446.6 62.0% of Rev $502.9 61.7% of Rev 65.0% of Rev 64.5% of Rev $420 $120 $131.7 $148.5 $360 $300 $80 $240 $180 23.8% of Rev $193.3 23.7% of Rev $
Slide 25: Net Income and Adjusted EBITDA Performance Q4 2018
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q4 2018 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $28 $26.2 $42 $22.5(1) $36.1 $24 $36 $32.1 $20 $30 $16 $14.0 $24 $12 $18 $8 $12 $8.5 $4 $6 $0 $0 Q4 '17 Q4 '18 Q4 '17 Q4 '18 (1) Due to the enactment of the Act, the U.S. federal statutory c
Slide 26: Net Income and Adjusted EBITDA Performance Full Year 2018
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Full Year 2018 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $100 $140 $129.5 $90 $87.3 $73.9(1) $120 $111.7 $80 $70 $100 $60 $22.4 $80 $50 $40 $60 $30 $40 $51.5 $20 $10 $20 $0 $0 2017 2018 2017 2018 (1) Due to the enactment of the Act, the U.S
Slide 27: Cash Flow Provided by Operating Activities
CASH FLOW PROVIDED BY OPERATING ACTIVITIES QTD Cash Flow Provided by YTD Cash Flow Provided by Operating Activities Operating Activities ($ in millions) ($ in millions) $70.0 $140 $62.3 $60.0 $120 $117.3 $50.0 $100 $41.2 $40.0 $80 $66.5 $30.0 $60 $20.0 $40 $10.0 $20 $0.0 $0 Q4 '17 Q4 '18 2017 2018 (
Slide 28: Strong Liquid Capital Position
STRONG LIQUID CAPITAL POSITION Cash on Hand and Core-Cash Investments ($ in millions) $450 $399.4(2) $400 $350 $310.9 $300 $184.7(1) $250 $90.1 (1) $200 $150 $100 $220.8 $214.7 $50 $0 12/31/2017 12/31/2018 12/31/2017 12/31/2017 Cash and Cash Equivalents Core-Cash Investments (1) Relates to investmen
Slide 29: Appendix
APPENDIX 29
Slide 30: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Three Months Ended December 31, Year Ended December 31, Adjusted EBITDA, which the Company defines as net income before 2018 2017 2018 2017 (i) interest income and other, including net realized (losses) gains on marketable securities, available-for-sale and cash and ca
Slide 31: Tax Adjusted Net Income Reconciliation
Three Months Year Ended Ended December 31, December 31, % % TAX ADJUSTED NET INCOME 2018 2017 Change 2018 2017 Change RECONCILIATION Income before provision for income taxes $33,416 $28,618 16.8% $117,220 $99,226 18.1% Provision for income (7,191) (20,138) (64.3)% (29,963) (47,702) (37.2)% taxes Net
Slide 32: Company Overview
NATIONAL PLATFORM FOCUSED ON INVESTMENT BROKERAGE • 48-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 33: 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 33 (2) EBITDA is not a measurement of our financial performance u