Third Quarter Diluted Earnings Per Share Of
$0.53, Including $0.03 of Foreign Currency Exchange Loss
19.5% Increase in Year-To-Date Diluted
Earnings Per Share
Marcus & Millichap, Inc. (the “Company”, “Marcus &
Millichap”, “MMI”) (NYSE: MMI), a leading national brokerage firm
specializing in commercial real estate investment sales, financing,
research and advisory services, reported today its third quarter
results.
Third Quarter 2022 Highlights Compared to Third Quarter
2021
- Net income was $21.4 million, or $0.53 per common share,
diluted, including $0.03 of foreign currency exchange loss
- Total revenues of $323.8 million, compared to $332.4
million
- Adjusted EBITDA of $36.6 million, compared to $51.0
million
- Brokerage commissions of $292.9 million, compared to $299.8
million
- Private Client brokerage revenue of $165.5 million, compared to
$183.0 million
- Middle Market and Larger Transaction Market brokerage revenue
of $120.1 million, increasing by 9.9%
- Financing fees of $28.1 million, compared to 29.4 million
Nine Months 2022 Highlights Compared to Nine Months
2021
- Total revenues increased by 29.7% to $1.0 billion
- Net income increased to $96.3 million, or $2.39 per common
share, diluted, compared to $80.5 million, or $2.00 per common
share, diluted
- Adjusted EBITDA increased by 21.3% to $151.4 million compared
to $124.8 million
- Brokerage commissions grew to $934.5 million, or 30.6%, from
$715.5 million
- Private Client brokerage revenue increased by 20.1% to $536.4
million
- Middle Market and Larger Transaction Market brokerage revenue
rose 52.7% to 378.3 million
- Financing fees increased by 21.1% to $91.4 million
“MMI continued to generate healthy earnings and cash flow in the
third quarter, further strengthening the company’s financial
position. However, revenue and earnings growth were impacted by the
most aggressive monetary policy tightening since 1980, resulting in
fewer transactions,” said Hessam Nadji, President and Chief
Executive Officer. “Despite the rapid shift in the macro
environment, MMI closed 3,034 total transactions in the quarter and
outperformed the overall marketplace. Based on data from Real
Capital Analytics, we estimate a 24% year over year decline in
sales transactions in the broader market compared to an 8.6%
brokerage transaction drop off from our record third quarter in
2021. We see the market disruption as another catalyst showcasing
our client value proposition and unique ability to help investors
solve problems and leverage opportunities that arise in every
market cycle,” he added.
“The short-term outlook remains challenging given additional
rate increases, including the Federal Reserve’s sixth move
announced this week, and heightened recession risk,” Nadji
continued. “At the same time, healthy real estate fundamentals,
expectations of a moderate recession in light of a strong labor
market, and consumer strength bode well for commercial real estate
beyond a period of recalibration and repricing. We believe the lag
effect of interest rate increases will materialize over the next
several months, reducing the pressure on the Federal Reserve, which
already hinted at more moderate increases ahead. We are proud of
how our team navigated the fast-changing macroeconomic environment
to produce strong results. We have always managed the company with
a long-term view and will continue to do so by making the right
investments in our platform, pursuing strategic acquisitions, and
growing the MMI brand,” he concluded.
Third Quarter 2022 Results Compared to Third Quarter
2021
Total revenues for the third quarter of 2022 were $323.8
million, compared to $332.4 million for the same period during the
prior year, a decrease of 2.6%. In real estate brokerage, the
average transaction size and the average commission per transaction
increased by 18.7% and 6.8%, respectively. However, the number of
transactions decreased by 8.6%, reducing the real estate brokerage
commissions by 2.3% to $292.9 million from the same period in the
prior year. The combined Middle Market and Larger Transaction
Market revenue grew by 9.9%, while the Private Client Market
decreased by 9.6%. Financing activity followed a similar trend to
real estate brokerage, with an increase in the average transaction
size and the average fee per transaction of 15.4% and 5.7%,
respectively, while the number of transactions decreased by 13.7%,
resulting in a decrease in financing fees of 4.4% to $28.1 million
from the same period in the prior year.
Total operating expenses for the third quarter of 2022 were
$293.3 million, an increase of 2.3% compared to $286.7 million for
the same period in the prior year. The change was primarily driven
by a 12.9% increase in selling, general and administrative expense,
partially offset by a 0.8% decrease in cost of services. Cost of
services as a percent of total revenues increased by 120 basis
points to 67.1% compared to the same period during the prior year,
primarily due to senior investment sales and financing
professionals earning additional commissions as certain annual
revenue thresholds were achieved earlier than in prior years.
Selling, general and administrative expenses for the third
quarter of 2022 increased by $8.3 million to $73.0 million,
compared to the same period in the prior year. The change was
primarily due to increases in (i) compensation related costs; (ii)
business development, marketing and other support related to the
long-term retention of our sales and financing professionals; and
(iii) a return to in-person agent and client business events,
conferences, and meetings.
Net income for the third quarter of 2022 was $21.4 million, or
$0.53 per common share, diluted, compared to $33.9 million, or
$0.84 per common share, diluted, for the same period in the prior
year. Adjusted EBITDA for the third quarter of 2022 was $36.6
million, compared to $51.0 million for the same period in the prior
year, primarily as a result of the decrease in operating
income.
Nine Months 2022 Results Compared to Nine Months 2021
Total revenues for the nine months ended September 30, 2022 were
$1.0 billion, compared to $801.3 million for the same period in the
prior year, an increase of $238.0 million, or 29.7%. Total
operating expenses for the nine months ended September 30, 2022
increased by 30.8% to $907.7 million compared to $693.8 million for
the same period in the prior year. Cost of services as a percent of
total revenues increased to 64.5%, up 120 basis points compared to
the first nine months of 2021. The Company’s net income for the
nine months ended September 30, 2022 was $96.3 million, or $2.39
per common share, diluted, compared with net income of $80.5
million, or $2.00 per common share, diluted, for the same period in
the prior year. Adjusted EBITDA for the nine months ended September
30, 2022 increased to $151.4 million, from $124.8 million for the
same period in the prior year. As of September 30, 2022, the
Company had 1,880 investment sales and financing professionals, a
net loss of 102 compared to the prior year.
Capital Allocation Strategies
On August 2, 2022, the Board of Directors declared a semi-annual
regular dividend of $0.25 per share, payable on October 6, 2022, to
stockholders of record at the close of business on September 15,
2022.
During the nine months ended September 30, 2022, the Company
paid $50.2 million in dividends to outstanding shareholders. As of
September 30, 2022, the dividend payable was $12.4 million, of
which $10.0 million was paid on October 6, 2022 and $2.4 million
remains to be paid upon vesting of stock awards.
During the three and nine months ended September 30, 2022, the
Company repurchased 226,795 shares of common stock at an average
price of $33.41 per share for a total price of $7.6 million.
Business Outlook
The Company believes it is well positioned to achieve long-term
growth. However, short-term macroeconomic forces have become
increasingly challenging, particularly ongoing inflationary
pressures, recent interest rate increases and the potential for
further interest rate increases in 2022 and 2023. All of these
forces have the potential to adversely influence economic growth
and investor sentiment.
The Company benefits from its experienced management team,
recent infrastructure investments, industry-leading market research
and proprietary technology. The size and fragmentation of the
Private Client Market segment continues to offer long-term growth
opportunities through consolidation. This highly fragmented market
segment consistently accounts for 80% of all commercial property
sales transactions and over 59% of the commission pool. The top 10
brokerage firms, led by MMI, have an estimated 21% share of this
segment by transaction count.
Key factors that may influence the Company’s business during the
rest of 2022 include:
- Volatility in sales and financing activity and investor
sentiment driven by:
- Slowdown in sales and financing activity of asset types
impacted by elevated inflation, interest rate increases, tightened
lender underwriting, an increasing bid-ask spread between buyers
and sellers, and economic trends including a potential
recession
- Possible impact to investor sentiment related to the outcome of
the midterm elections and any potential policy or tax law changes
that may contribute to future fluctuations in sales and financing
activity
- Potential higher cost of services resulting from more
experienced investment sales and financing professionals closing a
larger share of revenue and surpassing revenue thresholds earlier
in the year
- Volatility in each of the Company’s market segments
- Reduced institutional activity in the Larger Transaction Market
segment due to changes in the macro economy and capital market
conditions
- Increase in costs related to inflation and the return of
in-person events, client meetings, and conferences
- The impact of a rapid increase in interest rates that could
affect acquisition, financing and refinance activity
- Global geopolitical uncertainty, which may disrupt financial
markets or cause investors to refrain from transacting
- Global economic and financial market uncertainty driven by
energy shortages, currency valuations and the durability of
financial institutions
Webcast and Call Information
Marcus & Millichap will host a live webcast today to discuss
the financial results at 7:30 a.m. Pacific Time/10:30 a.m. Eastern
Time. The webcast will be accessible through the Investor Relations
section of Marcus & Millichap's website at
ir.marcusmillichap.com and will be archived upon completion of the
call. The Company encourages the use of the webcast due to
potential extended wait times to access the conference call via
dial-in.
For those unable to access the webcast, callers from the United
States and Canada should dial 1-877-407-9208 ten minutes prior to
the scheduled call time. International callers should dial
1-201-493-6784.
Replay Information
For those unable to participate during the live broadcast, a
telephonic replay of the call will also be available from 1:30 p.m.
Eastern Time on Friday, November 4, 2022 through 11:59 p.m. Eastern
Time on Friday, November 18, 2022 by dialing 1-844-512-2921 in the
United States and Canada or 1-412-317-6671 internationally and
entering passcode 13733100.
About Marcus & Millichap, Inc.
Marcus & Millichap, Inc. is a leading national brokerage
firm specializing in commercial real estate investment sales,
financing, research and advisory services. As of September 30,
2022, the Company had 1,880 investment sales and financing
professionals in 82 offices who provide investment brokerage and
financing services to sellers and buyers of commercial real estate.
The Company also offers market research, consulting and advisory
services to our clients. Marcus & Millichap closed 9,574
transactions during the nine months ended September 30, 2022, with
a sales volume of $69.9 billion. For additional information, please
visit www.MarcusMillichap.com.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This release includes forward-looking statements, including the
Company’s business outlook for 2022, the anticipation of interest
rate increases, the execution of our capital return program, and
expectations for market share growth. We have based these
forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the
financial condition of our business. Forward-looking statements
should not be read as a guarantee of future performance or results
and will not necessarily be accurate indications of the times at,
or by, which such performance or results may be achieved.
Forward-looking statements are based on information available at
the time those statements are made and/or management’s good faith
belief as of that time with respect to future events and are
subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors
that could cause such differences include, but are not limited
to:
- general uncertainty in the capital markets and a worsening of
economic conditions and the rate and pace of economic recovery
following an economic downturn;
- changes in our business operations;
- market trends in the commercial real estate market or the
general economy, including the impact of rising inflation;
- our ability to attract and retain qualified senior executives,
managers and investment sales and financing professionals;
- the effects of increased competition on our business;
- our ability to successfully enter new markets or increase our
market share;
- our ability to successfully expand our services and businesses
and to manage any such expansions;
- our ability to retain existing clients and develop new
clients;
- our ability to keep pace with changes in technology;
- any business interruption or technology failure, including
cyber and ransomware attacks, and any related impact on our
reputation;
- changes in interest rates, availability of capital, tax laws,
employment laws or other government regulation affecting our
business;
- our ability to successfully identify, negotiate, execute and
integrate accretive acquisitions;
- potential continuing impact of the COVID-19 pandemic; and
- other risk factors included under “Risk Factors” in our most
recent Annual Report on Form 10-K.
In addition, in this release, the words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,”
“predict,” “potential,” “should” and similar expressions, as they
relate to our company, our business and our management, are
intended to identify forward-looking statements. In light of these
risks and uncertainties, the forward-looking events and
circumstances discussed in this release may not occur and actual
results could differ materially from those anticipated or implied
in the forward-looking statements.
Forward-looking statements speak only as of the date of this
release. You should not put undue reliance on any forward-looking
statements. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information,
except to the extent required by applicable laws. If we update one
or more forward-looking statements, no inference should be drawn
that we will make additional updates with respect to those or other
forward-looking statements. We have not filed our Form 10-Q for the
quarter ended September 30, 2022. As a result, all financial
results described in this earnings release should be considered
preliminary, and are subject to change to reflect any necessary
adjustments or changes in accounting estimates, that are identified
prior to the time we file our Form 10-Q.
MARCUS & MILLICHAP,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF NET INCOME
(in thousands, except per
share amounts)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Revenues:
Real estate brokerage commissions
$
292,889
$
299,759
$
934,483
$
715,458
Financing fees
28,099
29,391
91,363
75,448
Other revenues
2,852
3,233
13,415
10,400
Total revenues
323,840
332,383
1,039,261
801,306
Operating expenses:
Cost of services
217,360
219,194
670,170
506,882
Selling, general and administrative
73,004
64,673
227,380
178,147
Depreciation and amortization
2,924
2,850
10,167
8,806
Total operating expenses
293,288
286,717
907,717
693,835
Operating income
30,552
45,666
131,544
107,471
Other income, net
978
323
967
2,737
Interest expense
(229
)
(144
)
(547
)
(436
)
Income before provision for income
taxes
31,301
45,845
131,964
109,772
Provision for income taxes
9,939
11,921
35,651
29,304
Net income
$
21,362
$
33,924
$
96,313
$
80,468
Earnings per share:
Basic
$
0.53
$
0.85
$
2.40
$
2.02
Diluted
$
0.53
$
0.84
$
2.39
$
2.00
Weighted average common shares
outstanding:
Basic
40,086
39,940
40,038
39,859
Diluted
40,302
40,241
40,358
40,148
MARCUS & MILLICHAP, INC. KEY
OPERATING METRICS SUMMARY (Unaudited)
Total sales volume was approximately $22.6 billion for the three
months ended September 30, 2022, encompassing 3,034 transactions
consisting of $17.9 billion for real estate brokerage (2,246
transactions), $3.3 billion for financing (518 transactions) and
$1.4 billion in other transactions, including consulting and
advisory services (270 transactions). Total sales volume was $69.9
billion for the nine months ended September 30, 2022, encompassing
9,574 transactions consisting of $55.0 billion for real estate
brokerage (7,068 transactions), $10.4 billion for financing (1,735
transactions) and $4.5 billion in other transactions, including
consulting and advisory services (771 transactions). As of
September 30, 2022, the Company had 1,794 investment sales
professionals and 86 financing professionals. Key metrics for real
estate brokerage and financing activities (excluding other
transactions) are as follows:
Three Months Ended September
30,
Nine Months Ended September
30,
Real Estate Brokerage
2022
2021
2022
2021
Average Number of Investment Sales
Professionals
1,792
1,909
1,823
1,934
Average Number of Transactions per
Investment
Sales Professional
1.25
1.29
3.88
3.30
Average Commission per Transaction
$
130,405
$
122,052
$
132,213
$
112,246
Average Commission Rate
1.63
%
1.82
%
1.70
%
1.84
%
Average Transaction Size (in
thousands)
$
7,981
$
6,721
$
7,781
$
6,108
Total Number of Transactions
2,246
2,456
7,068
6,374
Total Sales Volume (in millions)
$
17,926
$
16,507
$
54,999
$
38,931
Three Months Ended September
30,
Nine Months Ended September
30,
Financing (1)
2022
2021
2022
2021
Average Number of Financing
Professionals
87
86
86
86
Average Number of Transactions per
Financing
Professional
5.95
6.98
20.17
20.67
Average Fee per Transaction
$
44,751
$
42,319
$
44,363
$
36,126
Average Fee Rate
0.70
%
0.77
%
0.74
%
0.82
%
Average Transaction Size (in
thousands)
$
6,350
$
5,503
$
6,021
$
4,390
Total Number of Transactions
518
600
1,735
1,778
Total Financing Volume (in millions)
$
3,289
$
3,302
$
10,447
$
7,806
(1)
Operating metrics exclude certain financing fees not
directly associated to transactions.
The following table sets forth the number of transactions, sales
volume and revenues by commercial real estate market segment for
real estate brokerage:
Three Months Ended September
30,
2022
2021
Change
Real Estate Brokerage
Number
Volume
Revenues
Number
Volume
Revenues
Number
Volume
Revenues
(in millions)
(in thousands)
(in millions)
(in thousands)
(in millions)
(in thousands)
<$1 million
243
$
154
$
7,252
267
$
183
$
7,419
(24
)
$
(29
)
$
(167
)
Private Client Market
($1 – <$10 million)
1,658
5,885
165,534
1,894
6,296
183,033
(236
)
(411
)
(17,499
)
Middle Market
($10 – <$20 million)
188
2,527
46,901
136
1,940
35,353
52
587
11,548
Larger Transaction
Market (≥$20 million)
157
9,360
73,202
159
8,088
73,954
(2
)
1,272
(752
)
2,246
$
17,926
$
292,889
2,456
$
16,507
$
299,759
(210
)
$
1,419
$
(6,870
)
Nine Months Ended September
30,
2022
2021
Change
Real Estate Brokerage
Number
Volume
Revenues
Number
Volume
Revenues
Number
Volume
Revenues
(in millions)
(in thousands)
(in millions)
(in thousands)
(in millions)
(in thousands)
<$1 million
728
$
450
$
19,711
791
$
532
$
21,175
(63
)
$
(82
)
$
(1,464
)
Private Client Market
($1 – <$10 million)
5,285
18,929
536,433
4,861
15,639
446,592
424
3,290
89,841
Middle Market
($10 – <$20 million)
581
7,849
150,117
370
5,141
97,699
211
2,708
52,418
Larger Transaction
Market (≥$20 million)
474
27,771
228,222
352
17,619
149,992
122
10,152
78,230
7,068
$
54,999
$
934,483
6,374
$
38,931
$
715,458
694
$
16,068
$
219,025
MARCUS & MILLICHAP,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except for
shares and par value)
September 30, 2022
(unaudited)
December 31, 2021
Assets
Current assets:
Cash and cash equivalents
$
270,864
$
382,140
Commissions receivable
11,768
17,230
Prepaid expenses
8,665
13,220
Income tax receivable
3,253
—
Marketable debt securities,
available-for-sale (includes amortized cost of $213,042 and
$183,915 at September 30, 2022 and
December 31, 2021, respectively, and $0
allowance for credit losses)
211,759
183,868
Advances and loans, net
3,484
6,403
Other assets, current
5,964
5,270
Total current assets
515,757
608,131
Property and equipment, net
26,823
23,192
Operating lease right-of-use assets,
net
83,972
81,528
Marketable debt securities,
available-for-sale (includes amortized cost of $94,727 and
$111,858 at September 30, 2022 and
December 31, 2021, respectively, and $0 allowance
for credit losses)
89,329
112,610
Assets held in rabbi trust
9,222
11,508
Deferred tax assets, net
37,883
33,736
Goodwill and other intangible assets,
net
57,092
48,105
Advances and loans, net
164,640
113,242
Other assets, non-current
15,170
13,146
Total assets
$
999,888
$
1,045,198
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
$
10,237
$
15,487
Deferred compensation and commissions
62,547
114,685
Income tax payable
—
17,853
Operating lease liabilities
18,683
18,973
Accrued bonuses and other employee related
expenses
34,572
49,848
Other liabilities, current
20,603
8,784
Total current liabilities
146,642
225,630
Deferred compensation and commissions
55,825
53,536
Operating lease liabilities
62,837
58,334
Other liabilities, non-current
10,623
11,394
Total liabilities
275,927
348,894
Commitments and contingencies
—
—
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and
outstanding shares – none at September 30,
2022 and December 31, 2021,
respectively
—
—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued
and outstanding shares – 39,797,423 and
39,692,373 at September 30, 2022 and
December 31, 2021, respectively
4
4
Additional paid-in capital
128,174
121,844
Retained earnings
599,710
573,546
Accumulated other comprehensive (loss)
income
(3,927
)
910
Total stockholders’ equity
723,961
696,304
Total liabilities and stockholders’
equity
$
999,888
$
1,045,198
MARCUS & MILLICHAP, INC. OTHER
INFORMATION (Unaudited)
Adjusted EBITDA Reconciliation
Adjusted EBITDA, which the Company defines as net income before
(i) interest income and other, including net realized gains
(losses) on marketable debt securities, available-for-sale and cash
and cash equivalents, (ii) interest expense, (iii) provision for
income taxes, (iv) depreciation and amortization, (v) stock-based
compensation, and (vi) non-cash mortgage servicing rights (“MSRs”)
activity. The Company uses Adjusted EBITDA in its business
operations to evaluate the performance of its business, develop
budgets and measure its performance against those budgets, among
other things. The Company also believes that analysts and investors
use Adjusted EBITDA as a supplemental measure to evaluate its
overall operating performance. However, Adjusted EBITDA has
material limitations as a supplemental metric and should not be
considered in isolation or as a substitute for analysis of the
Company’s results as reported under U.S. generally accepted
accounting principles (“U.S. GAAP”). The Company finds Adjusted
EBITDA to be a useful management metric to assist in evaluating
performance, because Adjusted EBITDA eliminates items related to
capital structure, taxes and non-cash items. Considering the
foregoing limitations, the Company does not rely solely on Adjusted
EBITDA as a performance measure and also considers its U.S. GAAP
results. Adjusted EBITDA is not a measurement of the Company’s
financial performance under U.S. GAAP and should not be considered
as an alternative to net income, operating income or any other
measures calculated in accordance with U.S. GAAP. Because Adjusted
EBITDA is not calculated in the same manner by all companies, it
may not be comparable to other similarly titled measures used by
other companies.
A reconciliation of the most directly comparable U.S. GAAP
financial measure, net income, to Adjusted EBITDA is as follows (in
thousands):
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Net income
$
21,362
$
33,924
$
96,313
$
80,468
Adjustments:
Interest income and other (1)
(2,365
)
(503
)
(3,959
)
(1,470
)
Interest expense
229
144
547
436
Provision for income taxes
9,939
11,921
35,651
29,304
Depreciation and amortization
2,924
2,850
10,167
8,806
Stock-based compensation
4,544
2,703
12,675
7,653
Non-cash MSR activity (2)
—
(54
)
—
(407
)
Adjusted EBITDA
$
36,633
$
50,985
$
151,394
$
124,790
(1)
Other includes net realized gains (losses) on marketable
debt securities available-for-sale.
(2)
Non-cash MSR activity includes the assumption of new
servicing obligations.
Glossary of Terms
- Private Client Market segment: transactions with values from $1
million to up to but less than $10 million
- Middle Market segment: transactions with values from $10
million to up to but less than $20 million
- Larger Transaction Market segment: transactions with values of
$20 million and above
- Acquisitions: acquisition of businesses accounted for as a
business combination in accordance with generally accepted
accounting standards.
Certain Adjusted Metrics
Real Estate Brokerage
During the nine months ended September 30, 2022, we closed a
portfolio of large transactions in our real estate brokerage
business in excess of $300 million. Following are actual and as
adjusted metrics excluding those transactions:
Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
(actual)
(as adjusted)
(actual)
(as adjusted)
Total Sales Volume Increase (decrease)
8.6
%
(0.5
)%
41.3
%
33.1
%
Average Commission Rate Reduction
(10.4
)%
(7.1
)%
(7.6
)%
(4.3
)%
Average Transaction Size Increase
18.7
%
8.9
%
27.4
%
20.0
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221104005143/en/
Investor Relations: Investor Relations
InvestorRelations@marcusmillichap.com
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