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, today reported its first quarter
results.
First Quarter 2023 Highlights Compared to First Quarter
2022
- Total revenue of $154.8 million decreased 51.5%, a tough
comparable to a record first quarter 2022 where revenue was up
73.6% compared to first quarter 2021
- Brokerage commissions of $135.0 million, decreased 52.9%
compared to first quarter 2022, which was up 76.2% compared to
first quarter 2021
- Private Client brokerage revenue of $90.5 million, decreased
43.8% compared to first quarter 2022, which was up 52.7% compared
to first quarter 2021
- Middle Market and Larger Transaction Market brokerage revenue
of $39.5 million, decreased 67.1% compared to first quarter 2022,
which was up 134.4% compared to first quarter 2021
- Financing fees of $15.9 million, decreased 40.0% compared to
first quarter 2022, which was up 48.3% compared to first quarter
2021
- Net loss was $5.8 million, or $0.15 per common share, diluted,
compared to net income of $32.8 million, or $0.81 per common share,
diluted
- Earnings were impacted by expensing of previous investments
made in growth initiatives, particularly including talent
acquisition and retention
- Adjusted EBITDA of $(7.4) million, compared to $51.9
million
“Amid a challenging market environment, exacerbated in the first
quarter by banking concerns, we are operating from a position of
strength with an unwavering focus on our long-term strategy,”
stated Hessam Nadji, Marcus & Millichap’s president and chief
executive officer. “Valuations are resetting as a result of the
interest rate shock, a widened bid/ask spread and tightened
underwriting by lenders. Our financial results were particularly
impacted by a significant slowdown in larger transactions, which
had seen exceptional growth in the past few years. Expensing of
capital invested in various growth initiatives, including talent
acquisition and business development, were also key factors. We
executed a major reduction of workforce in December and continue to
reduce costs while making investments that keep MMI on
offense.”
Mr. Nadji continued, “Easing inflation, the Fed nearing the end
of tightening and clarity on a labor market soft landing should
lead to recovery in real estate transactions. Although the timing
is difficult to predict, we see record capital on the sidelines and
a return of multiple offers for appropriately priced assets. We are
confident that our expanded talent pool, technology and strong
brand will help set new milestones as the market recovers. Our
healthy balance sheet enables us to further invest in the platform,
pursue talent and add accretive acquisitions. At the same time, we
are consistently returning capital to shareholders in the form of
dividends and share repurchases. We believe this balanced approach
will allow us to leverage the market dislocation to further enhance
our market position and create long-term value for our
shareholders.”
First Quarter 2023 Results Compared to First Quarter
2022
Total revenue for the first quarter 2023 was $154.8 million, a
decrease of 51.5% compared to $319.5 million for the first quarter
2022, which was up 73.6% compared to the first quarter 2021. The
record revenue of first quarter 2022 provides for a difficult
comparison with the first quarter 2023.
In real estate brokerage, the average transaction size and the
average commission per transaction decreased by 30.7% and 21.4%,
respectively, compared to the first quarter 2022. The number of
transactions decreased by 40.1%, reducing real estate brokerage
commissions to $135.0 million, a 52.9% reduction from the same
period in the prior year, which increased 76.2% over the first
quarter 2021. Compared to the first quarter 2022, the combined
Middle Market and Larger Transaction Market revenue decreased by
67.1%, and the Private Client Market decreased by 43.8%, while the
first quarter 2022 increased by 52.7% and 134.4%, respectively,
compared to the first quarter 2021.
Financing activity experienced an increase in the average
transaction size and the average fee per transaction of 21.0% and
7.9%, respectively, while the number of transactions decreased by
46.3%, resulting in a decrease in financing fees to $15.9 million,
a 40.0% reduction from the same period in the prior year, which
increased 48.3% compared to the same period in 2021.
Total operating expenses for the first quarter 2023 were $170.9
million, compared to $275.2 million for the same period in the
prior year. The change was primarily due to reductions of 51.5% in
cost of services and 3.1% in selling, general and administrative
expense. Cost of services as a percentage of total revenue remained
constant at 61.6% during both periods.
Selling, general and administrative expenses for the first
quarter 2023 were $72.2 million, compared to $74.5 million, in the
same period in 2022. The change was primarily due to a reduction in
compensation related costs, specifically performance-based bonuses
for the first quarter 2023, partially offset by an increased
investment in business development, marketing and other support
related to the long-term talent acquisition and retention of sales
and financing professionals.
Net loss for the first quarter 2023 was $5.8 million, or $0.15
per common share, diluted, compared to net income of $32.8 million,
or $0.81 per common share, diluted, for the same period in 2022. In
the first quarter 2022, net income was up 118.4% from the first
quarter 2021. Adjusted EBITDA for the first quarter 2023 was $(7.4)
million, compared to $51.9 million for the same period in the prior
year, primarily as a result of the decrease in operating
income.
Capital Allocation
On February 9, 2023, the Board of Directors declared a
semi-annual regular dividend of $0.25 per share, or $10.3 million,
with a payment date of April 6, 2023, to stockholders of record at
the close of business on March 14, 2023.
During the three months ended March 31, 2023, the Company
repurchased 559,923 shares of common stock at an average price of
$31.73 per share for a total price of $17.8 million.
On May 2, 2023, the Board of Directors approved an additional
$70 million to repurchase common stock under its stock repurchase
program. After accounting for shares repurchased through April 28,
2023, and the increased authorization, Marcus & Millichap has
approximately $80 million available to repurchase shares under its
program. No time limit has been established for the completion of
the program, and the repurchases are expected to be executed from
time to time, subject to general business and market conditions and
other investment opportunities, through open market purchases or
privately negotiated transactions, including through Rule 10b5-1
plans.
Business Outlook
The economy and commercial real estate transaction market are
expected to remain choppy through the first half of 2023 as
interest rate fluctuations and lender caution lengthen the price
discovery process and the buyer/seller expectation gap remains
wide. However, the Company believes it remains well positioned to
achieve long-term growth.
The Company benefits from its experienced management team,
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 over 80% of all commercial
property sales transactions and over 60% 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
2023 include:
- Volatility in market sales and investor sentiment driven by:
- The elevated cost and availability of debt capital
- Interest rate fluctuations and the heightened bid-ask spread
between buyers and sellers
- Risks of an impending recession and the resulting reduction of
CRE space demand that results from uncertainty
- Possible impact to investor sentiment related to potential tax
and other policy changes which may contribute to transaction
acceleration and/or future fluctuations in sales and financing
activity
- Rising operating costs driven by wages, insurance, taxes and
construction materials
- Volatility in each of the Company’s market segments
- Increase in costs related to in-person events, client meetings,
and conferences as the economy opens further
- Global geopolitical uncertainty, which may cause investors to
refrain from transacting
- The potential for acquisition activity and subsequent
integration
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, May 5, 2023 through 11:59 p.m. Eastern Time
on Friday, May 19, 2023 by dialing 1-844-512-2921 in the United
States and Canada or 1-412-317-6671 internationally and entering
passcode 13737358
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 March 31, 2023,
the Company had 1,864 investment sales and financing professionals
in 80 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 1,807
transactions during the three months ended March 31, 2023, with a
sales volume of $10.4 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 2023, the anticipation of further
interest rate increases and inflation, 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, 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 and
higher interest rates;
- 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; and
- other risk factors included under “Risk Factors” in our most
recent Annual Report on Form 10-K and Quarterly Report on Form
10-Q.
In addition, in this release, the words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “intend,” "goal,"
“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 March 31, 2023. 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 OPERATIONS
(in thousands, except per
share amounts)
(Unaudited)
Three Months Ended March 31,
2023
2022
Revenue:
Real estate brokerage commissions
$ 135,046
$ 286,909
Financing fees
15,868
26,453
Other revenue
3,878
6,102
Total revenue
154,792
319,464
Operating expenses:
Cost of services
95,427
196,768
Selling, general and administrative
72,219
74,535
Depreciation and amortization
3,207
3,911
Total operating expenses
170,853
275,214
Operating (loss) income
(16,061)
44,250
Other income, net
4,810
450
Interest expense
(215)
(160)
(Loss) income before (benefit) provision
for income taxes
(11,466)
44,540
(Benefit) provision for income taxes
(5,633)
11,757
Net (loss) income
$ (5,833)
$ 32,783
(Loss) earnings per share:
Basic
$ (0.15)
$ 0.82
Diluted
$ (0.15)
$ 0.81
Weighted average common shares
outstanding:
Basic
39,200
39,989
Diluted
39,200
40,474
MARCUS & MILLICHAP, INC.
KEY OPERATING METRICS SUMMARY
(Unaudited)
Total sales volume was approximately $10.4 billion for the three
months ended March 31, 2023, encompassing 1,807 transactions
consisting of $7.1 billion for real estate brokerage (1,279
transactions), $1.7 billion for financing (279 transactions) and
$1.6 billion in other transactions, including consulting and
advisory services (249 transactions). As of March 31, 2023, the
Company had 1,772 investment sales professionals and 92 financing
professionals. Key metrics for real estate brokerage and financing
activities (excluding other transactions) are as follows:
Three Months Ended March 31,
Real Estate Brokerage
2023
2022
Average Number of Investment Sales
Professionals
1,782
1,856
Average Number of Transactions per
Investment Sales Professional
0.72
1.15
Average Commission per Transaction
$ 105,587
$ 134,258
Average Commission Rate
1.89 %
1.67 %
Average Transaction Size (in
thousands)
$ 5,576
$ 8,051
Total Number of Transactions
1,279
2,137
Total Sales Volume (in millions)
$ 7,132
$ 17,205
Three Months Ended March 31,
Financing (1)
2023
2022
Average Number of Financing
Professionals
92
84
Average Number of Transactions per
Financing Professional
3.03
6.19
Average Fee per Transaction
$ 46,548
$ 43,144
Average Fee Rate
0.75 %
0.84 %
Average Transaction Size (in
thousands)
$ 6,189
$ 5,115
Total Number of Transactions
279
520
Total Financing Volume (in millions)
$ 1,727
$ 2,660
(1)
Operating metrics exclude certain
financing fees not directly associated to transactions.
The following table sets forth the number of transactions, sales
volume and revenue by commercial real estate market segment for
real estate brokerage:
Three Months Ended March 31,
2023
2022
Change
Real Estate Brokerage
Number
Volume
Revenue
Number
Volume
Revenue
Number
Volume
Revenue
(in millions)
(in thousands)
(in millions)
(in thousands)
(in millions)
(in thousands)
<$1 million
183
$
116
$
5,038
206
$
128
$
5,787
(23
)
$
(12
)
$
(749
)
Private Client Market ($1 – <$10
million)
970
3,254
90,503
1,606
5,696
161,031
(636
)
(2,442
)
(70,528
)
Middle Market ($10 – <$20 million)
66
900
17,368
184
2,503
46,760
(118
)
(1,603
)
(29,392
)
Larger Transaction
Market (≥$20 million)
60
2,862
22,137
141
8,878
73,331
(81
)
(6,016
)
(51,194
)
1,279
$
7,132
$
135,046
2,137
$
17,205
$
286,909
(858
)
$
(10,073
)
$
(151,863
)
MARCUS & MILLICHAP,
INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in
thousands, except for shares and par value)
March 31, 2023 (unaudited)
December 31, 2022
Assets
Current assets:
Cash, cash equivalents, and restricted
cash
$
228,026
$
235,873
Commissions receivable
9,782
8,453
Prepaid expenses
8,740
9,411
Income tax receivable
18,053
8,682
Marketable debt securities,
available-for-sale (includes amortized cost of $133,178 and
$254,682 at March 31, 2023 and December 31, 2022,
respectively, and $0 allowance for credit
losses)
132,520
253,434
Advances and loans, net
3,045
4,005
Other assets, current
5,052
7,282
Total current assets
405,218
527,140
Property and equipment, net
28,223
27,644
Operating lease right-of-use assets,
net
107,891
87,945
Marketable debt securities,
available-for-sale (includes amortized cost of $73,822 and
$72,819 at March 31, 2023 and December 31, 2022,
respectively, and $0 allowance for credit
losses)
70,493
68,595
Assets held in rabbi trust
9,953
9,553
Deferred tax assets, net
37,427
41,321
Goodwill and other intangible assets,
net
54,551
55,696
Advances and loans, net
179,443
169,955
Other assets, non-current
17,293
15,859
Total assets
$
910,492
$
1,003,708
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
$
12,392
$
11,450
Deferred compensation and commissions
46,253
75,321
Operating lease liabilities
16,911
16,984
Accrued bonuses and other employee related
expenses
6,578
38,327
Other liabilities, current
20,781
9,933
Total current liabilities
102,915
152,015
Deferred compensation and commissions
34,422
64,461
Operating lease liabilities
82,768
65,109
Other liabilities, non-current
8,229
8,614
Total liabilities
228,334
290,199
Commitments and contingencies
—
—
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and
outstanding shares – none at March 31, 2023 and December 31, 2022,
respectively
—
—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued
and outstanding shares – 38,876,354 and 39,255,838 at March 31,
2023 and December 31, 2022, respectively
4
4
Additional paid-in capital
132,905
131,541
Retained earnings
551,696
585,581
Accumulated other comprehensive loss
(2,447
)
(3,617
)
Total stockholders’ equity
682,158
713,509
Total liabilities and stockholders’
equity
$
910,492
$
1,003,708
MARCUS & MILLICHAP, INC.
OTHER INFORMATION
(Unaudited)
Adjusted EBITDA Reconciliation
Adjusted EBITDA, which the Company defines as net income (loss)
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 March 31,
2023
2022
Net (loss) income
$
(5,833
)
$
32,783
Adjustments:
Interest income and other (1)
(4,390
)
(615
)
Interest expense
215
160
(Benefit) provision for income taxes
(5,633
)
11,757
Depreciation and amortization
3,207
3,911
Stock-based compensation
5,011
3,856
Adjusted EBITDA
$
(7,423
)
$
51,852
(1)
Other includes net realized gains (losses)
on marketable debt securities available-for-sale.
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 three months ended March 31, 2023, 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 March 31,
2023
(actual)
(as adjusted)
Total Sales Volume Decrease
(58.5
) %
(54.4
) %
Average Commission Rate Increase
13.2
%
7.4
%
Average Transaction Size Decrease
(30.7
) %
(23.9
) %
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version on businesswire.com: https://www.businesswire.com/news/home/20230505005098/en/
Investor Relations: Investor Relations
InvestorRelations@marcusmillichap.com
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