Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q4 2017 Earnings Presentation
35 slides from Marcus & Millichap's earnings presentation, Mar 8, 2018
Slide 1: Fourth Quarter 2017 Earnings Conference Call
FOURTH QUARTER 2017 EARNINGS CONFERENCE CALL March 8, 2018 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 2017 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: 2017 Fourth Quarter Highlights
Financial Highlights YOY Revenue $202.8 million 7.2% Net Income $8.5 million (50.6)% 2017 FOURTH Adjusted Net Income(1) $20.1 million 16.9% Adjusted EBITDA $32.1 million 2.7% QUARTER HIGHLIGHTS Operational Highlights YOY Sales Volume $12.3 billion 12.1% Transaction Closings 2,443 5.8% Investment Sal
Slide 6: Full Year 2017 Highlights
Financial Highlights YOY Revenue $719.7 million 0.3% Net Income $51.5 million (20.3)% Adjusted Net Income(1) $63.2 million (2.3)% FULL YEAR 2017 Adjusted EBITDA $111.7 million (5.6)% HIGHLIGHTS Operational Highlights YOY Sales Volume $42.2 billion (0.3)% Transaction Closings 8,979 (0.2)% Investment
Slide 7: 2017 Fourth Quarter Brokerage Highlights
2017 FOURTH YOY QUARTER Sales Volume $8.7 billion 5.1% BROKERAGE Transaction Closings 1,752 4.8% HIGHLIGHTS Investment Sales Professionals as of Dec. 31, 2017 Real Estate Brokerage Commissions Revenue 1,723 $177.3 million 5.4% 2.7% Revenue by Transactions by Transactions by Transaction Size Property
Slide 8: Full Year 2017 Brokerage Highlights
YOY FULL YEAR 2017 Sales Volume(1) $30.5 billion (4.7)% BROKERAGE Transaction Closings 6,562 1.3% HIGHLIGHTS Investment Sales Professionals as of Dec. 31, 2017 Real Estate Brokerage Commissions Revenue 1,723 $649.4 million 5.4% (1.9)% Revenue by Revenue by Revenue by Transaction Size Property Type R
Slide 9: 2017 Fourth Quarter Financing Highlights
2017 FOURTH YOY QUARTER Sales Volume $1.7 billion 24.2% FINANCING Transaction Closings 499 13.2% HIGHLIGHTS Financing Professionals as of Dec. 31, 2017 Financing Fees Revenue 96 $15.5 million (6.8)% 22.6% Transactions by Transactions by Property Type Region Northeast/ Other, Mid-Atlantic, 11% 14% Of
Slide 10: Full Year 2017 Financing Highlights
YOY FULL YEAR 2017 Sales Volume $5.6 billion 10.3% FINANCING Transaction Closings 1,707 3.4% HIGHLIGHTS Financing Professionals as of Dec. 31, 2017 Financing Fees Revenue 96 $49.7 million (6.8)% 14.3% Transactions by Transactions by Property Type Region Other, Northeast/ 13% Mid-Atlantic, 15% Office
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 Has Expanded Well Above Prior Peak 2018 forecast to add 2.3 million jobs* 0.9 -8.7 Million 0.0 Quarterly Job Growth (Millions) +8.3 Million +17.9 Million -0.9 -1.8 -2.7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2
Slide 13: Employment and Space Demand Remain Strong
Employment Growth vs. Unemployment Rate EMPLOYMENT AND SPACE Employment Growth Unemployment Rate DEMAND REMAIN STRONG 3.2 8% Employment Growth (Mil.) Unemployment Rate 2.4 7% • Employment growth totaled nearly 2.2 million jobs in the past 12 months 1.6 6% • Total employment stands 9.2 million above
Slide 14: Property Fundamentals Remain Healthy; Construction Trends Vary by Property Type
PROPERTY FUNDAMENTALS REMAIN HEALTHY; CONSTRUCTION TRENDS VARY Occupancy Trends BY PROPERTY TYPE 100% 95% Occupancy (%) • Property fundamentals demonstrate healthy performance across all property types 90% • Multifamily properties led the recovery, 85% followed by industrial – new supply in both sec
Slide 15: Investment Sales Have Slowed Moderately; Remain at Healthy Levels
INVESTMENT SALES HAVE U.S. Commercial Real Estate: Total Dollar Volume (1) SLOWED MODERATELY; REMAIN AT HEALTHY LEVELS $600 Total Dollar Volume ($ Bil.) $450 • Throughout 2017, sales volume slowed by $300 an estimated 7%-10% (1) as uncertainty restrained some investors $150 • Interest rate volatilit
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. 9% 430 bps 440 bps Average Rate 480 bps • Cap rates have maintained stability despite 480 bps 210 bps 580 bps interest rate volatility 6% 390 bps • The spread bet
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; 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 19: MMI: Private Client Market Leader with Growth Opportunity
MMI: PRIVATE CLIENT MARKET LEADER WITH GROWTH OPPORTUNITY Marcus & Millichap 8.8% • Top 10 U.S. Brokerage Firms by Market Share (Private Client Market Segment CBRE 4.4% $1M – $10M) (1) Cushman & Wakefield 2.6% Colliers International 2.3% NAI 1.7% NGKF 1.4% Keller Williams 1.1% Coldwell Banker 1.1% L
Slide 20: Market Share Growth Opportunity by Property Type
MARKET SHARE GROWTH OPPORTUNITY BY PROPERTY TYPE MMI 2017 Transactions by Property Type (1) • Leverage platform, relationships, brand to Volume Property Type Transactions grow in various sectors ($Billion) • Growth opportunity remains in leading Multifamily 3,322 $21.5 property types (multifamily an
Slide 21: MMI Financial Details
Marcus ¢ Millichap MMI FINANCIAL DETAILS
Slide 22: Total Revenues
TOTAL REVENUES ($ in millions) Q4 2016 vs. Q4 2017 Full Year 2016 vs. 2017 $240 $800 $717.5 $719.7 $202.8 $700 $189.2 $200 +0.3% % $600 +7.2 $160 $500 $120 $400 $300 $80 $200 $40 $100 $0 $0 Q4 '16 Q4 '17 2016 2017 22
Slide 23: Brokerage Operating Metrics Q4 2017
BROKERAGE OPERATING METRICS Q4 2017 Total Sales Volume Total Number Of Sales Transactions ($ in billions) $10.0 2,000 1,671 1,752 $8.3 $8.7 $8.0 1,600 +4.8% +5.1% $6.0 1,200 $4.0 800 $2.0 400 $0.0 0 Q4 '16 Q4 '17 Q4 '16 Q4 '17 Average Number of Investment Sales Professionals Average Commission Per T
Slide 24: Brokerage Revenue by Market Segment Q4 2017
BROKERAGE REVENUE BY MARKET SEGMENT Q4 2017 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $7,842 $8,000 $6,771 $140,000 $116,881 $115,904 $6,000 +15. 8% $105,000 -0.8% $4,000 $70,000 $2,000 $35,000 $0 $0 Q4 '16 Q4 '17 Q4 '16 Q4 '17 Larger Transaction Market (≥ $20
Slide 25: Brokerage Operating Metrics Full Year 2017
BROKERAGE OPERATING METRICS Full Year 2017 Total Sales Volume Total Number Of Sales Transactions ($ in billions) $32.0 6,476 6,562 $35.0 $30.5 7,000 $28.0 -4.7% (1 +1.3% ) $21.0 3,500 $14.0 $7.0 $0.0 0 2016 2017 2016 2017 Average Commission Per Transaction Average Number of Investment Sales Professi
Slide 26: Brokerage Revenue by Market Segment Full Year 2017
BROKERAGE REVENUE BY MARKET SEGMENT Full Year 2017 <$1 million Private Client Market ($1 - $10 million) ($ thousands) ($ thousands) $40,000 $500,000 $447,366 $444,081 $29,217 $27,952 $30,000 -0.7% -4.3% $20,000 $250,000 $10,000 $0 $0 2016 2017 2016 2017 Middle Market (≥ $10 - $20 million) Large Tran
Slide 27: Operating Expenses
OPERATING EXPENSES ($ in millions) Q4 2016 vs. Q4 2017 Full Year 2016 vs. 2017 $200 $660 $610.9 $623.6 $175.4 $600 $161.3 $160 $540 $480 64.3% of Rev $420 62.0% of Rev $120 $444.8 $446.6 $131.7 65.0% of Rev $360 62.0% of Rev $121.6 $300 $80 $240 $180 $40 $161.8 $171.6 23.8% of Rev $42.3 20.8% of Rev
Slide 28: Net Income and Adjusted EBITDA Performance Q4 2017
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q4 2017 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $24 $36 $20.1(2) $31.3 $32.1 $20 $30 $17.2 $16 $24 $11.6 $12 $18 $8 $12 $8.5(1) $4 $6 $0 $0 Q4 '16 Q4 '17 Q4 '16 Q4 '17 (1) Includes a one-time charge in the amount of $11.6M in connection w
Slide 29: Net Income and Adjusted EBITDA Performance Full Year 2017
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Full Year 2017 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $70 $64.7 $63.2(2) $140 $118.3 $111.7 $60 $120 $11.6 $50 $100 $40 $80 $30 $60 $51.5(1) $20 $40 $10 $20 $0 $0 2016 2017 2016 2017 (1) Includes a one-time charge in the amount of $11.6M
Slide 30: Cash Flow Provided by Operating Activities
CASH FLOW PROVIDED BY OPERATING ACTIVITIES QTD Cash Flow Provided by YTD Cash Flow Provided by Operating Activities Operating Activities ($ in millions) ($ in millions) $45 $80 $74.5 $41.2 $40 $70 $66.5 $33.0 $35 $60 -10 .0 % .7 % (1) $30 25 + $50 $25 $40 $20 $15 $30 $10 $20 $5 $10 $0 $0 Q4 '16 Q4 '
Slide 31: Strong Liquid Capital Position
STRONG LIQUID CAPITAL POSITION Cash on Hand and Core-Cash Investments ($ in millions) $350 $310.9 $300 $261.0 +19.1 % $90.1(1) $250 $73.6 (1) $200 $150 $100 $220.8 $187.4 $50 $0 12/31/2016 12/31/2017 12/31/2016 Cash and Cash Equivalents Core-Cash Investments (1) Relates to investments designated by
Slide 32: Appendix
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Slide 33: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Three Months Year Ended Dec. 31 Ended Dec. 31 2017 2016 2017 2016 Adjusted EBITDA, which the Company defines as net income before Net Income $8,480 $17,174 $51,524 $64,657 (i) interest income and other, including net realized gains (losses) on marketable securities, av
Slide 34: Company Overview
NATIONAL PLATFORM FOCUSED ON INVESTMENT BROKERAGE • 47-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 35: 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 35 (2) EBITDA is not a measurement of our financial performance u