Marcus & Millichap(MMI) - 2024 Q1 - Quarterly Results

Executive Summary & Company Overview This section provides an overview of Marcus & Millichap's Q1 2024 performance, including financial highlights, CEO commentary on market strategy, and a brief company description First Quarter 2024 Highlights Marcus & Millichap reported a decrease in total revenue and an increased net loss for Q1 2024 compared to Q1 2023, primarily due to an industry-wide reduction in transactions amidst a challenging market environment. Despite this, the company emphasizes its strategic positioning and long-term investments Q1 2024 Financial Highlights | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Total Revenue | $129.1 | $154.8 | -16.6% | | Brokerage Commissions | $109.5 | $135.0 | -18.9% | | Private Client Market Brokerage Revenue | $73.2 | $90.5 | -19.2% | | Middle Market & Larger Transaction Market Brokerage Revenue | $31.5 | $39.5 | -20.1% | | Financing Fees | $14.4 | $15.9 | -9.1% | | Net Loss | $(10.0) | $(5.8) | +72.4% | | Diluted EPS | $(0.26) | $(0.15) | +73.3% | | Adjusted EBITDA | $(10.1) | $(7.4) | +36.5% | - Earnings were primarily impacted by a lower number of transactions against a challenging market environment resulting in lower revenue[9] CEO Commentary CEO Hessam Nadji highlighted the company's strategic positioning to navigate the complex real estate market, emphasizing long-term investments in talent and business development, and expressed optimism for a market rebound once inflation and interest rate clarity emerge, supported by record capital on the sidelines and the company's strong market position - Strategically positioned to navigate the current climate as real estate markets gradually recover, reflecting ongoing industry-wide reduction in transactions and deliberate long-term investments in talent retention, acquisition, and business development[4] - Real estate transactions are poised to rebound with record capital on the sidelines, once clarity and stability on inflation and interest rates emerge, despite a delayed timeline[5] - Encouraged by appropriately priced assets generating multiple offers despite 'higher-for-longer' interest rates[5] - Healthy balance sheet enables strategic investments and consistent capital return to shareholders, leveraging market dislocation to enhance market position and create long-term value[5] About Marcus & Millichap, Inc. Marcus & Millichap is a Leading national real estate services firm specializing in commercial real estate investment sales, financing, research, and advisory services, with 1,722 professionals and 1,564 transactions totaling $9.7 billion in sales volume during Q1 2024 - Leading national real estate services firm specializing in commercial real estate investment sales, financing services, research, and advisory services[19] - As of March 31, 2024, the Company had 1,722 investment sales and financing professionals in more than 80 offices[19] - Closed 1,564 transactions during the three months ended March 31, 2024, with a sales volume of $9.7 billion[19] Financial Performance Analysis This section details Marcus & Millichap's Q1 2024 financial results, covering total revenue, operating expenses, segment performance, net loss, and Adjusted EBITDA Total Revenue and Operating Expenses Total revenue for Q1 2024 decreased by 16.6% year-over-year to $129.1 million, while total operating expenses also decreased by 12.7% to $149.2 million, driven by reductions in cost of services and selling, general and administrative expenses Revenue and Operating Expenses Summary | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Total Revenue | $129.1 | $154.8 | -16.6% | | Total Operating Expenses | $149.2 | $170.9 | -12.7% | | Cost of Services | $76.9 | $95.4 | -19.4% | | Selling, General and Administrative | $68.9 | $72.2 | -4.6% | - Cost of services as a percentage of total revenue decreased by 210 basis points to 59.5% compared to the same period during the prior year[9] - Reduction in selling, general and administrative expenses was primarily due to a reduction in marketing support and events attributable to the lower revenue level[10] Segment Performance Both real estate brokerage and financing segments experienced revenue declines in Q1 2024, primarily driven by a decrease in the number of transactions due to market disruption and constrained lending Real Estate Brokerage This segment's Q1 2024 revenue declined due to fewer transactions and a decrease in average transaction size, reflecting ongoing market disruption Real Estate Brokerage Performance Data | Metric | Q1 2024 | Q1 2023 | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | | Revenue (Millions) | $109.5 | $135.0 | -18.9% | | Number of Transactions | 1,102 | 1,279 | -13.8% | | Average Transaction Size (Millions) | $5.137 | $5.576 | -7.9% | | Average Commission per Transaction | $99,343 | $105,587 | -5.9% | - The decline in real estate brokerage revenue is primarily attributed to a 13.8% decrease in the number of transactions, reflecting ongoing market disruption driven by rapid interest rate rises and constrained lending[7] Financing Fees This segment experienced a revenue decline in Q1 2024, primarily due to a decrease in the number of transactions, despite an increase in average fee per transaction Financing Segment Performance Data | Metric | Q1 2024 | Q1 2023 | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | | Revenue (Millions) | $14.4 | $15.9 | -9.1% | | Number of Transactions | 234 | 279 | -16.1% | | Average Fee per Transaction | $47,178 | $46,548 | +1.4% | | Average Transaction Size (Millions) | $7.094 | $6.189 | +14.6% | - The decline in financing fees was partially offset by increases in average fee per transaction and average transaction size[8] Net Loss and Adjusted EBITDA Marcus & Millichap reported an increased net loss of $10.0 million and an Adjusted EBITDA loss of $10.1 million for Q1 2024, primarily due to lower operating income resulting from reduced transaction volumes Net Loss and Adjusted EBITDA Summary | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change (%) | | :---------------- | :------------------ | :------------------ | :--------- | | Net Loss | $(10.0) | $(5.8) | +72.4% | | Diluted EPS | $(0.26) | $(0.15) | +73.3% | | Adjusted EBITDA | $(10.1) | $(7.4) | +36.5% | - The increase in net loss and Adjusted EBITDA loss was primarily a result of the decrease in operating income, driven by a lower number of transactions against a challenging market environment[9][11] Capital Allocation This section outlines Marcus & Millichap's capital allocation strategies, including dividend declarations and share repurchase activities during Q1 2024 Dividends and Share Repurchases The Board of Directors declared a semi-annual regular dividend of $0.25 per share, and the company also repurchased 16,900 shares of common stock for $0.6 million during Q1 2024, with approximately $71.0 million remaining under its repurchase program - On February 8, 2024, the Board of Directors declared a semi-annual regular dividend of $0.25 per share, totaling $10.1 million, paid on April 5, 2024[12] Share Repurchase Activity | Metric | Q1 2024 | | :-------------------------------- | :------ | | Shares Repurchased | 16,900 | | Average Price Per Share | $32.77 | | Total Repurchase Price (Millions) | $0.6 | - Approximately $71.0 million remains available to repurchase shares under its program, with no time limit established[13] Business Outlook & Market Factors This section discusses Marcus & Millichap's perspective on current market conditions, long-term growth opportunities, and key factors expected to influence business performance in 2024 Market Conditions and Long-Term Growth The company anticipates persistent market challenges through much of 2024 due to delayed interest rate reductions, but expects long-term real estate demand to drive sales and financing volumes higher, believing it is well-positioned for growth, particularly in the fragmented Private Client Market - Market conditions, including ongoing price discovery, wider bid/ask spreads, and prolonged downturn in transaction volume, are likely to persist through much of 2024 due to delayed interest rate reductions[14] - Price adjustments, distressed situations, and maturing loans could drive additional transactions in the quarters ahead[14] - Long-term real estate demand is expected to return sales and financing volumes to higher than current levels, given record capital on the sideline and key advantages of real estate investments[14] - The company remains well-positioned for long-term growth, benefiting from its experienced management, infrastructure investments, market research, and proprietary technology[14][15] - The Private Client Market, accounting for over 80% of U.S. commercial property transactions and over 60% of the commission pool, offers long-term growth opportunities through consolidation[15] Key Factors Influencing 2024 Business Several factors are identified as potential influences on the company's business in 2024, including market volatility driven by economic conditions, interest rate uncertainty, and geopolitical events, as well as operational costs and potential acquisition activities - Volatility in transactional activity and investor sentiment driven by: elevated cost of debt capital, interest rate uncertainty, heightened bid-ask spread, risks of a potential recession, and possible impact of the presidential election and policy changes[16] - Increase in operating expenses driven by labor costs, insurance, taxes, and cost of materials[16] - Global geopolitical uncertainty, which may cause investors to refrain from transacting[16] - The potential for acquisition activity and subsequent integration[16] Detailed Operating Metrics This section presents a comprehensive breakdown of Marcus & Millichap's Q1 2024 operational performance, including transaction volumes, professional counts, and average values across different market segments Key Operating Metrics Summary The company's total sales volume for Q1 2024 was approximately $9.7 billion across 1,564 transactions, with this section providing detailed operating metrics for real estate brokerage and financing activities, highlighting changes in professional count, transaction efficiency, and average values - Total sales volume was approximately $9.7 billion for the three months ended March 31, 2024, encompassing 1,564 transactions[29] - Sales volume consisted of $5.7 billion for real estate brokerage (1,102 transactions), $1.6 billion for financing (234 transactions), and $2.4 billion in other transactions (228 transactions)[29] - As of March 31, 2024, the Company had 1,624 investment sales professionals and 98 financing professionals[29] Real Estate Brokerage Metrics This section provides detailed operational metrics for the real estate brokerage segment, including professional count, transaction efficiency, and average commission rates Real Estate Brokerage Operating Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :----------------------------------- | :------ | :------ | :------- | | Average Number of Investment Sales Professionals | 1,638 | 1,782 | -144 | | Average Number of Transactions per Investment Sales Professional | 0.67 | 0.72 | -0.05 | | Average Commission per Transaction | $99,343 | $105,587 | -$6,244 | | Average Commission Rate | 1.93% | 1.89% | +0.04% | | Average Transaction Size (in thousands) | $5,137 | $5,576 | -$439 | | Total Number of Transactions | 1,102 | 1,279 | -177 | | Total Sales Volume (in millions) | $5,661 | $7,132 | -$1,471 | Financing Metrics This section presents detailed operational metrics for the financing segment, covering professional count, transaction volume, and average fee rates Financing Operating Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :----------------------------------- | :------ | :------ | :------- | | Average Number of Financing Professionals | 99 | 92 | +7 | | Average Number of Transactions per Financing Professional | 2.36 | 3.03 | -0.67 | | Average Fee per Transaction | $47,178 | $46,548 | +$630 | | Average Fee Rate | 0.67% | 0.75% | -0.08% | | Average Transaction Size (in thousands) | $7,094 | $6,189 | +$905 | | Total Number of Transactions | 234 | 279 | -45 | | Total Financing Volume (in millions) | $1,660 | $1,727 | -$67 | Real Estate Brokerage by Market Segment This section breaks down real estate brokerage performance by transaction value, showing revenue, volume, and transaction count changes across different market segments Real Estate Brokerage Performance by Market Segment | Market Segment | Q1 2024 Number | Q1 2024 Volume (millions) | Q1 2024 Revenue (thousands) | Q1 2023 Number | Q1 2023 Volume (millions) | Q1 2023 Revenue (thousands) | Change Number | Change Volume (millions) | Change Revenue (thousands) | | :--------------- | :------------- | :------------------------ | :-------------------------- | :------------- | :------------------------ | :-------------------------- | :------------ | :----------------------- | :------------------------- | | <$1 million | 186 | $103 | $4,764 | 183 | $116 | $5,038 | 3 | $(13) | $(274) | | Private Client Market ($1 – <$10 million) | 808 | $2,590 | $73,163 | 970 | $3,254 | $90,503 | (162) | $(664) | $(17,340) | | Middle Market ($10 – <$20 million) | 59 | $802 | $15,093 | 66 | $900 | $17,368 | (7) | $(98) | $(2,275) | | Larger Transaction Market (≥**$20 million**) | 49 | $2,166 | $16,455 | 60 | $2,862 | $22,137 | (11) | $(696) | $(5,682) | | Total | 1,102 | $5,661 | $109,475 | 1,279 | $7,132 | $135,046 | (177) | $(1,471) | $(25,571) | Certain Adjusted Metrics This section presents adjusted financial metrics for Q1 2024, excluding large real estate brokerage transactions over $300 million, to provide a clearer view of core performance Adjusted Performance Metrics | Metric | Q1 2024 (actual) | Q1 2024 (as adjusted) | | :-------------------------- | :--------------- | :-------------------- | | Total Sales Volume Decrease | (20.6%) | (20.6%) | | Average Commission Rate Increase | 2.1% | 2.1% | | Average Transaction Size Decrease | (7.9%) | (7.9%) | - Adjusted metrics exclude any large transactions in real estate brokerage business in excess of $300 million, showing no change in these specific metrics for Q1 2024[37] Financial Statements This section provides Marcus & Millichap's unaudited condensed consolidated statements of operations and balance sheets for Q1 2024, detailing financial position and performance Condensed Consolidated Statements of Operations The unaudited condensed consolidated statements of operations show a net loss of $10.0 million for Q1 2024, compared to a net loss of $5.8 million in Q1 2023, on total revenue of $129.1 million Consolidated Statements of Operations | | Three Months Ended March 31, | | :----------------------------------- | :------------------ | :------------------ | | | 2024 | 2023 | | Revenue: | | | | Real estate brokerage commissions | $109,475 | $135,046 | | Financing fees | $14,427 | $15,868 | | Other revenue | $5,202 | $3,878 | | Total revenue | $129,104 | $154,792 | | Operating expenses: | | | | Cost of services | $76,868 | $95,427 | | Selling, general and administrative | $68,916 | $72,219 | | Depreciation and amortization | $3,422 | $3,207 | | Total operating expenses | $149,206 | $170,853 | | Operating loss | $(20,102) | $(16,061) | | Other income, net | $5,568 | $4,810 | | Interest expense | $(199) | $(215) | | Loss before benefit for income taxes | $(14,733) | $(11,466) | | Benefit for income taxes | $(4,746) | $(5,633) | | Net loss | $(9,987) | $(5,833) | | Net loss per share: | | | | Basic | $(0.26) | $(0.15) | | Diluted | $(0.26) | $(0.15) | | Weighted average common shares outstanding: | | | | Basic | 38,447 | 39,200 | | Diluted | 38,447 | 39,200 | Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets show total assets of $826.7 million as of March 31, 2024, a decrease from $878.4 million at December 31, 2023, with total liabilities also decreasing to $201.1 million from $233.1 million over the same period Consolidated Balance Sheets | | March 31, 2024 (unaudited) | December 31, 2023 | | :----------------------------------- | :-------------------------- | :------------------ | | Assets | | | | Cash, cash equivalents, and restricted cash | $90,556 | $170,753 | | Total current assets | $343,537 | $393,694 | | Property and equipment, net | $27,832 | $27,450 | | Operating lease right-of-use assets, net | $92,929 | $90,058 | | Marketable debt securities, available-for-sale | $198,314 (current) / $57,400 (non-current) | $168,881 (current) / $67,459 (non-current) | | Goodwill and other intangible assets, net | $50,041 | $51,183 | | Total assets | $826,651 | $878,411 | | Liabilities and stockholders' equity | | | | Total current liabilities | $92,592 | $105,269 | | Deferred compensation and commissions (non-current) | $27,304 | $47,771 | | Operating lease liabilities (non-current) | $73,935 | $69,407 | | Total liabilities | $201,096 | $233,137 | | Stockholders' equity: | | | | Common stock | $4 | $4 | | Additional paid-in capital | $155,157 | $153,740 | | Retained earnings | $471,670 | $492,298 | | Accumulated other comprehensive loss | $(1,276) | $(768) | | Total stockholders' equity | $625,555 | $645,274 | | Total liabilities and stockholders' equity | $826,651 | $878,411 | Supplemental Information This section offers additional financial disclosures, including a reconciliation of Adjusted EBITDA, a glossary of terms, and important disclaimers regarding forward-looking statements and webcast information Adjusted EBITDA Reconciliation This section defines Adjusted EBITDA as a non-GAAP measure used by the company to evaluate business performance, providing a reconciliation from net loss by excluding interest income/expense, income taxes, depreciation/amortization, and stock-based compensation - Adjusted EBITDA is defined as net (loss) income before interest income, interest expense, (benefit) provision for income taxes, depreciation and amortization, and stock-based compensation[33] - The company uses Adjusted EBITDA to evaluate business performance, develop budgets, and measure performance against those budgets, believing analysts and investors also use it as a supplemental measure[33] Adjusted EBITDA Reconciliation | | Three Months Ended March 31, | | :-------------------------- | :------------------ | :------------------ | | | 2024 | 2023 | | Net loss | $(9,987) | $(5,833) | | Adjustments: | | | | Interest income | $(4,765) | $(4,390) | | Interest expense | $199 | $215 | | Benefit for income taxes | $(4,746) | $(5,633) | | Depreciation and amortization | $3,422 | $3,207 | | Stock-based compensation | $5,795 | $5,011 | | Adjusted EBITDA | $(10,082) | $(7,423) | Glossary of Terms This section provides definitions for key market segments and terms used within the report, including Private Client Market, Middle Market, Larger Transaction Market, and Acquisitions - Private Client Market: transactions with values from $1 million to up to but less than $10 million[36] - Middle Market: transactions with values from $10 million to up to but less than $20 million[36] - Larger Transaction Market: transactions with values of $20 million and above[36] - Acquisitions: acquisition of businesses accounted for as a business combination in accordance with generally accepted accounting standards[36] Special Note Regarding Forward-Looking Statements This section serves as a disclaimer, highlighting that the release contains forward-looking statements based on current expectations and projections, which are subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on current expectations and projections about future events and financial trends, not guarantees of future performance or results[22] - Important factors that could cause actual performance or results to differ materially include general uncertainty in capital markets, worsening economic conditions, market trends in commercial real estate, ability to attract and retain talent, increased competition, technology changes, business interruptions, changes in government regulation, and ability to integrate acquisitions[22][24] - The company assumes no obligation to update forward-looking statements to reflect actual results or changes in assumptions, except as required by applicable laws[24] Webcast and Call Information Details for accessing the live webcast and telephonic replay of Marcus & Millichap's Q1 2024 financial results discussion are provided, encouraging webcast use due to potential dial-in wait times - A live webcast to discuss financial results was hosted on May 8, 2024, at 7:30 a.m. Pacific Time/10:30 a.m. Eastern Time, accessible via the Investor Relations section of Marcus & Millichap's website[16][17] - A telephonic replay of the call was available from May 8, 2024, through May 22, 2024, using specified dial-in numbers and a passcode[18]