Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Q3 2023 Earnings Presentation
38 slides from Marcus & Millichap's earnings presentation, Nov 3, 2023
Slide 1: Third Quarter 2023 Earnings Conference Call
2023 Earnings Conference Call November 3, 2023 Third Quarter 2023 1
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This release includes forward-looking statements, including the Company’s business outlook for 2023, expectation for future interest rates and inflation, the execution of our capital return program, including the initiation of a semi-annual dividend plan, the stock repurch
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
Slide 5: 2023 Third Quarter Highlights
2023 THIRD QUARTER HIGHLIGHTS Financial Highlights YoY Revenue $162.0 million (50.0)% Net Loss $(9.2) million (143.3)% Adjusted EBITDA $(6.6) million (118.1)% Operational Highlights YoY Sales Volume $11.4 billion (49.7)% Transaction Closings 1,846 (39.2)% Number of Investment Sales and Financing 1,8
Slide 6: 2023 Year to Date Highlights
2023 YEAR TO DATE HIGHLIGHTS Financial Highlights YoY Revenue $479.7 million (53.8)% Net Loss $(23.8) million (124.7)% Adjusted EBITDA $(15.1) million (110.0)% Operational Highlights YoY Sales Volume $31.7 billion (54.8)% Transaction Closings 5,599 (41.5)% Number of Investment Sales and Financing 1,
Slide 7: 2023 Third Quarter Brokerage Highlights
2023 THIRD QUARTER BROKERAGE HIGHLIGHTS YoY Sales Volume $7.4 billion (58.5)% Transaction Closings 1,361 (39.4)% Number of Investment Sales Professionals as 1,723 (4.0)% of September 30, 2023 Real Estate Brokerage Commissions Revenue $139.8 million (52.3)% Revenue by Transactions by Transactions by
Slide 8: 2023 Year to Date Brokerage Highlights
2023 YEAR TO DATE BROKERAGE HIGHLIGHTS YoY Sales Volume $22.1 billion (59.8)% Transaction Closings 4,062 (42.5)% Number of Investment Sales Professionals as 1,723 (4.0)% of September 30, 2023 Real Estate Brokerage Commissions Revenue $415.2 million (55.6)% Revenue by Transactions by Transactions by
Slide 9: 2023 Third Quarter Financing Highlights
2023 THIRD QUARTER FINANCING HIGHLIGHTS YoY Sales Volume $1.9 billion (42.1)% Transaction Closings 276 (46.7)% Number of Financing Professionals as of 97 12.8% September 30, 2023 Financing Fees Revenue $17.3 million (38.6)% Transactions by Transactions by Property Type Region Northeast / Other, 13%
Slide 10: 2023 Year to Date Financing Highlights
2023 YEAR TO DATE FINANCING HIGHLIGHTS YoY Sales Volume $5.3 billion (49.5)% Transaction Closings 839 (51.6)% Number of Financing Professionals as of 97 12.8% September 30, 2023 Financing Fees Revenue $51.0 million (44.2)% Transactions by Transactions by Property Type Region Other, 17% Northeast / M
Slide 11: Market Highlights
Market Highlights
Slide 12: Total Employment Well Above Pre-Pandemic Level
TOTAL EMPLOYMENT WELL ABOVE PRE-PANDEMIC LEVEL; RECENT EASING IN GROWTH RATE TAKES PRESSURE OFF THE FED Total Employment Job Openings vs. Unemployed Total Employment Job Openings Unemployed 160 24 +26.4M 606K Jobs Added/Month in 2021 400K Jobs Added/Month in 2022 3.2M Labor Shortage Job Openings/Une
Slide 13: Inflation Remains Elevated Despite Sharp Decline
INFLATION REMAINS ELEVATED DESPITE SHARP DECLINE; FED’S INDICATION OF ‘HIGHER FOR LONGER’ PROLONGING CRE DOWNTURN CPI Inflation 10-Year Treasury Core PCE 10% 8% Rate 5% 3% 0% 17 19 21 * 16 18 20 22 23 20 20 20 20 20 20 20 20 * Through September Sources: BLS, Federal Reserve, BEA 13
Slide 14: Most Aggressive Fed Rate Hikes Since 1980 Disrupting CRE Markets
MOST AGGRESSIVE FED RATE HIKES SINCE 1980 DISRUPTING CRE MARKETS; QUANTITATIVE TIGHTENING INCREASING LONG-TERM RATES 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 F
Slide 15: Private Investors Dominate U.S. Commercial Real Estate
PRIVATE PRIVATEINVESTORS DOMINATE INVESTORS DOMINATE U.S. U.S. COMMERCIAL COMMERCIAL REAL REAL ESTATE; ESTATE; INSTITUTIONAL INVESTORSMORE INSTITUTIONAL INVESTORS MORE HESITANT HESITANT IN CURRENT IN CURRENT WINDOW WINDOW 100% 3% 5% 4% 4% 4% 4% 4% 5% 3% 5% 9% 8% 90% 9% 9% 9% 7% 12% 12% 10% 17% 80% 1
Slide 16: Employment Positive but Slowing; Space Demand Downshifts
EMPLOYMENT POSITIVE BUT SLOWING; SPACE DEMAND DOWNSHIFTS AMID ECONOMIC UNCERTAINTY Employment Growth vs. Unemployment Rate • Labor shortage still restraining employment Employment Growth Unemployment Rate growth; 4.8 million jobs were added in 2022 12.0 8% Employment Growth (Mil.) and a further 2.3
Slide 17: Property Fundamentals Sound by Historical Standards
PROPERTY FUNDAMENTALS SOUND BY HISTORICAL STANDARDS; Occupancy Trends HOWEVER, VARIATIONS WIDENING 100% • Multifamily and industrial aggressively 95% delivering record new completions as the Occupancy (%) economy slows. Risk of over-supply limited 90% to select local markets with heavy construction.
Slide 18: Maturing CRE Loan Volumes Concerning
MATURING CRE LOAN VOLUMES CONCERNING; RISKS VARY WIDELY BY PROPERTY TYPE Commercial Real Estate Loan Maturities* • With the exception of office properties, rent $800 growth and appreciation has been healthy in Other Dollar Volume (Billions) most segments over the past 5-7 years. $600 Healthcare • Th
Slide 19: Lender Caution Resulting 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 Total Transactions (000s) • Transaction count YTD through 3Q 2023 45 estimated to have dipped 44% year-over-year; dollar volume drop
Slide 20: Commercial Real Estate Yield Spreads Challenged
COMMERCIAL REAL ESTATE YIELD SPREADS CHALLENGED; PRICING Cap Rate/10-Year Treasury Spreads RECALIBRATING TO HIGHER CRE Cap Rate 10-Year Treasury Rate INTEREST RATES 12% 10% • Rapid rise of interest rates, tightened lender 8% Average Rate underwriting, slowing economic growth ahead still adversely im
Slide 21: MMI Market Position
MMI Market Position
Slide 22: Private Client Market
PRIVATE CLIENT MARKET Largest Transaction and Commission Pool Opportunity • Private client market consists of sales $1 million to <$10 • Influenced by personal drivers that result in buying/selling/ million. refinancing properties, as well as market conditions. Should be • Largest and most active ma
Slide 23: MMI Financial Details
MMI Financial Details
Slide 24: Total Revenue
TOTAL REVENUE ($ IN MILLIONS) Q3'22 vs Q3'23 Year-to-Date ‘22 vs ‘23 $500 $1,350 $450 $1,200 $400 $1,039.3 $1,050 $350 $323.8 $900 $300 (53.8)% (50.0)% $750 $250 $600 $200 $162.0 $479.7 $450 $150 $100 $300 $50 $150 $0 $0 Q3'22 Q3'23 YTD '22 YTD '23 24
Slide 25: Brokerage Operating Metrics Q3 2022 vs Q3 2023
BROKERAGE OPERATING METRICS Q3 2022 vs Q3 2023 Total Sales Volume Total Number of Transactions ($ in billions) $25 3,000 $20 $17.9 2,246 (58.5)% (39.4)% $15 2,000 1,361 $10 $7.4 1,000 $5 $0 Q3'22 Q3'23 0 Q3'22 Q3'23 Average Number of Investment Sales Professionals Average Commission Per Transaction
Slide 26: Brokerage Operating Metrics Year-to-Date 2022 vs 2023
BROKERAGE OPERATING METRICS YEAR-TO-DATE 2022 vs 2023 Total Sales Volume Total Number of Transactions ($ in billions) $70 $55.0 10,000 $60 $50 8,000 7,068 (59.8)% $40 6,000 (42.5)% $30 4,062 $22.1 4,000 $20 $10 2,000 $0 0 YTD '22 YTD '23 YTD '22 YTD '23 Average Number of Investment Sales Professiona
Slide 27: Brokerage Revenue by Market Segment Q3
BROKERAGE REVENUE BY MARKET SEGMENT Q3 2022 vs Q3 2023 <$1 million Private Client Market ($1 - <$10 million) ($ in thousands) ($ in thousands) $10,000 $250,000 $7,252 $200,000 $7,500 (24.0)% $165,534 $5,511 (44.7)% $150,000 $5,000 $100,000 $91,466 $2,500 $50,000 $0 $0 Q3'22 Q3'23 Q3'22 Q3'23 Middle
Slide 28: Brokerage Revenue by Market Segment Year-to-Date
BROKERAGE REVENUE BY MARKET SEGMENT YEAR-TO-DATE 2022 vs 2023 <$1 million Private Client Market ($1 - <$10 million) ($ in thousands) ($ in thousands) $30,000 $700,000 $25,000 $600,000 $536,433 $19,711 (22.8)% $20,000 $500,000 $15,214 (48.1)% $15,000 $400,000 $278,207 $300,000 $10,000 $200,000 $5,000
Slide 29: Operating Expense
OPERATING EXPENSE ($ IN MILLIONS) Q3'22 vs Q3'23 Year-to-Date ‘22 vs ‘23 $350 $1,000 $907.7 $300 $293.3 $800 $250 $600 $200 $670.2 67.1% of Rev $177.4 64.5% of Rev $521.8 $217.4 $150 $400 $104.6 $301.2 62.8% of Rev 64.6% of Rev $100 $200 $227.4 22.5% of Rev $73.0 $69.2 $210.3 43.8% of Rev $50 42.7%
Slide 30: Net Income and Adjusted EBITDA Performance Q3
NET INCOME AND ADJUSTED EBITDA PERFORMANCE Q3 2022 vs Q3 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $25.0 $40.0 $36.6 $21.4 $20.0 $30.0 $15.0 (143.3)% $10.0 (118.1)% $20.0 $5.0 $— $10.0 $(5.0) $— $(10.0) $(9.2) $(6.6) $(15.0) $(10.0) Q3'22 Q3'23 Q3'22 Q3'23 30
Slide 31: Net Income and Adjusted EBITDA Performance Year-to-Date
NET INCOME AND ADJUSTED EBITDA PERFORMANCE YEAR-TO-DATE 2022 vs 2023 Net Income Adjusted EBITDA ($ in millions) ($ in millions) $100.0 $96.3 $160.0 $151.4 $140.0 $80.0 $120.0 $60.0 $100.0 (124.7)% $40.0 $80.0 (110.0)% $60.0 $20.0 $40.0 $— $20.0 $— $(20.0) $(23.8) $(20.0) $(15.1) $(40.0) $(40.0) YTD
Slide 32: Cash Flows Provided by (Used in) Operating Activities
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES QTD Cash Flows Provided By YTD Cash Flows Used In Operating Activities Operating Activities (1) ($ in millions) ($ in millions) $50.0 $— $40.1 $(11.8) $40.0 $(20.0) (80.9)% $30.0 $(40.0) 639.8% $20.0 $(60.0) $10.0 $7.7 $(80.0) $(87.1) $— $(100.0)
Slide 33: Liquidity Position
LIQUIDITY POSITION Cash and Cash Equivalents and Marketable Debt Securities, Available-For-Sale ($ in millions) $600 $557.9 (26.3)% $500 $411.4 $400 $322.0 $187.2 $300 $200 $235.9 $224.2 $100 $0 12/31/2022 9/30/2023 Cash and Cash Equivalents Marketable Debt Securities, Available-For-Sale Liquidity p
Slide 34: Appendix
Appendix
Slide 35: Adjusted EBITDA Reconciliation
ADJUSTED EBITDA RECONCILIATION Adjusted EBITDA, which the Company defines as net (loss) income Three Months Ended Nine Months Ended before (i) interest income and other, including net realized gains September 30, September 30, (losses) on marketable debt securities, available-for-sale and cash, cash
Slide 36: 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 37: Illustrative MMI Earnings Model
ILLUSTRATIVE MMI EARNINGS MODEL Investment Productivity Transaction Commission Sales Agents 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
Slide 38: Third Quarter 2023
Marcus ¢ Millichap Third Quarter 2023