Marcus & Millichap(US:MMI)2025-05-07 21:19PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information, including statements, management's analysis, market risk disclosures, and internal controls Financial Statements This section presents Marcus & Millichap's unaudited condensed consolidated financial statements for Q1 2025, showing a net loss of $4.4 million, an improvement from the prior year Condensed Consolidated Balance Sheets Total assets decreased to $802.0 million and liabilities to $184.5 million by March 31, 2025, primarily due to changes in marketable securities and deferred compensation Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents, and restricted cash | $149,704 | $153,445 | | Marketable debt securities, available-for-sale (current & non-current) | $180,494 | $240,814 | | Total assets | $802,024 | $869,800 | | Liabilities | | | | Deferred compensation and commissions (current) | $29,523 | $67,197 | | Total liabilities | $184,471 | $238,982 | | Stockholders' equity | | | | Total stockholders' equity | $617,553 | $630,818 | Condensed Consolidated Statements of Operations Total revenues increased to $145.0 million in Q1 2025, resulting in a net loss of $4.4 million, a significant improvement from the prior year Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenue | $145,038 | $129,104 | | Real estate brokerage commissions | $123,622 | $109,475 | | Financing fees | $18,130 | $14,427 | | Total operating expenses | $162,749 | $149,206 | | Operating loss | $(17,711) | $(20,102) | | Net loss | $(4,422) | $(9,987) | | Diluted loss per share | $(0.11) | $(0.26) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss improved to $4.1 million in Q1 2025, driven by a smaller net loss and positive other comprehensive income Comprehensive Loss Summary (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net loss | $(4,422) | $(9,987) | | Total other comprehensive income (loss) | $353 | $(508) | | Comprehensive loss | $(4,069) | $(10,495) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $617.6 million in Q1 2025, primarily due to net loss and dividend payments, partially offset by stock-based compensation - Key activities affecting stockholders' equity in Q1 2025 included a net loss of $4.4 million, dividends of $10.2 million, and stock-based compensation of $6.2 million18 - The company repurchased 12,538 shares of common stock for $425,000 during the quarter18 Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $52.8 million, while investing activities provided $57.2 million, leading to a $3.7 million decrease in cash and equivalents Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,841) | $(51,021) | | Net cash provided by (used in) investing activities | $57,168 | $(21,601) | | Net cash used in financing activities | $(8,072) | $(7,500) | | Net decrease in cash, cash equivalents, and restricted cash | $(3,741) | $(80,197) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, single segment operations, and commitments, including a strategic alliance with MTRCC - The company's revenue is primarily from real estate brokerage commissions, recognized upon transaction completion, and financing fees, recognized when a loan closes3637 - The company operates as a single reportable segment: commercial real estate services127 - As part of a strategic alliance with MTRCC, the company has a maximum aggregate loan guarantee obligation of $326.3 million as of March 31, 2025, for which it has recorded an allowance for loss-sharing of $159,000133 - On February 6, 2025, the Board declared a semi-annual dividend of $0.25 per share, totaling $10.2 million105 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 performance, highlighting a 12.3% revenue increase, key market factors, and the company's liquidity position Overview The company, a leading commercial real estate services firm, closed 1,706 transactions totaling $9.4 billion in Q1 2025, with private client market as a key revenue driver Q1 2025 Real Estate Brokerage Transactions by Market (dollars in millions) | Market Segment | Number of Transactions | Sales Volume | Revenue (thousands) | | :--- | :--- | :--- | :--- | | <$1 million | 199 | $123 | $5,026 | | Private Client ($1 – <$10M) | 832 | $2,688 | $77,705 | | Middle Market ($10 – <$20M) | 85 | $1,202 | $20,889 | | Larger Transaction (≥$20M) | 59 | $2,646 | $20,003 | | Total | 1,175 | $6,659 | $123,623 | Factors Affecting Our Business Business performance is influenced by economic uncertainty, sturdy real estate fundamentals, capital market volatility, and increased transaction activity - Economic uncertainty increased in Q2 2025 due to new global trade policies and dramatic tariff increases, spurring caution among consumers and businesses149 - Commercial real estate fundamentals remain sturdy, with positive space absorption for most property types in Q1 2025. Apartment demand was particularly robust151 - Interest rate volatility has increased due to aggressive trade policies and threats to Federal Reserve independence, leading to increased lender caution despite strong debt capital liquidity159 - Commercial real estate transaction activity rose by 7% in Q1 2025 compared to Q1 2024, reflecting a narrowing of the buyer-seller expectation gap163 Key Financial Measures and Indicators Key metrics show increased transactions per professional in both real estate brokerage and financing activities for Q1 2025 Key Operating Metrics: Q1 2025 vs Q1 2024 | Metric (Real Estate Brokerage) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Average Number of Investment Sales Professionals | 1,578 | 1,638 | | Average Number of Transactions per Professional | 0.74 | 0.67 | | Average Commission per Transaction | $105,210 | $99,343 | | Average Commission Rate | 1.86% | 1.93% | | Metric (Financing) | Q1 2025 | Q1 2024 | | Average Number of Financing Professionals | 102 | 99 | | Average Number of Transactions per Professional | 3.30 | 2.36 | | Average Fee per Transaction | $42,702 | $47,178 | Results of Operations Total revenue increased 12.3% to $145.0 million in Q1 2025, narrowing the operating loss to $17.7 million and reducing net loss to $4.4 million Q1 2025 vs Q1 2024 Results of Operations (in thousands) | Line Item | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $145,038 | $129,104 | $15,934 | 12.3% | | Cost of services | $88,348 | $76,868 | $11,480 | 14.9% | | Selling, general and administrative | $71,552 | $68,916 | $2,636 | 3.8% | | Operating loss | $(17,711) | $(20,102) | $2,391 | (11.9)% | | Net loss | $(4,422) | $(9,987) | $5,565 | (55.7)% | | Adjusted EBITDA | $(8,742) | $(10,082) | $1,340 | 13.3% | - The increase in real estate brokerage commissions was driven by a 17.6% increase in total sales volume, partially offset by a lower average commission rate due to a shift in transaction mix towards larger deals185 - The effective income tax rate was 68.2% in Q1 2025, compared to 32.2% in Q1 2024, primarily due to the relationship of permanent items and changes in the valuation allowance relative to the pre-tax loss194 Liquidity and Capital Resources The company maintains strong liquidity with $149.7 million in cash and equivalents, an unused credit facility, and sufficient resources for the next 12 months Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,841) | $(51,021) | | Net cash provided by (used in) investing activities | $57,168 | $(21,601) | | Net cash used in financing activities | $(8,072) | $(7,500) | - The company has a $10 million senior secured revolving credit facility maturing June 1, 2025, which was undrawn as of March 31, 2025204 - The company has an off-balance sheet maximum aggregate guarantee obligation of $326.3 million related to its strategic alliance with MTRCC, with a recorded allowance for losses of $159,000205 Critical Accounting Estimates No significant changes were made to critical accounting estimates during Q1 2025 compared to the prior annual report - No significant changes were made to critical accounting estimates from the company's 2024 Annual Report on Form 10-K211 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $180.5 million marketable debt securities portfolio, with foreign currency risk deemed immaterial - The company's main market risk exposure is interest rate risk on its investment portfolio, valued at $180.5 million as of March 31, 2025212 Interest Rate Sensitivity Analysis on Investment Portfolio (in thousands) | Change in Interest Rates | Approximate Change in Fair Value of Investments | | :--- | :--- | | 2% Decrease | $3,657 | | 1% Decrease | $1,829 | | 1% Increase | $(1,830) | | 2% Increase | $(3,660) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures are effective at a reasonable assurance level216 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025217 PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings The company is involved in ordinary course legal actions, mostly insured, with no expected material adverse financial impact - The company is involved in ordinary course legal actions, most of which are covered by insurance, and does not expect a material adverse effect on its financial condition219 Risk Factors No material changes to previously disclosed risk factors were reported during the quarter - No material changes from the risk factors described in the 2024 Form 10-K were reported220 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 12,538 shares of common stock in Q1 2025, with $70.5 million remaining for future repurchases Share Repurchase Activity for Q1 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2025 | 12,538 | $33.89 | $70,526,870 | | Feb 1 - Feb 28, 2025 | 0 | $0.00 | $70,526,870 | | Mar 1 - Mar 31, 2025 | 0 | $0.00 | $70,526,870 | | Total | 12,538 | | $70,526,870 | Other Information CFO Steven F. DeGennaro adopted a Rule 10b5-1 trading plan on February 19, 2025, to sell up to 10,000 shares of common stock - On February 19, 2025, CFO Steven F. DeGennaro adopted a Rule 10b5-1 trading plan to sell up to 10,000 shares of common stock224 Exhibits This section lists filed exhibits, including CEO/CFO certifications and Inline XBRL financial statements - Filed exhibits include CEO/CFO certifications and Inline XBRL data files225