Marcus & Millichap(US:MMI)2024-05-08 21:26PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2024, detailing financial position and performance - The company is a real estate services firm specializing in commercial real estate investment sales, financing, research, and advisory services, operating over 80 offices in the United States and Canada as of March 31, 202423 Condensed Consolidated Balance Sheets Total assets decreased from $878.4 million to $826.7 million due to lower cash, while total liabilities and stockholders' equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $826,651 | $878,411 | | Cash, cash equivalents, and restricted cash | $90,556 | $170,753 | | Marketable debt securities, available-for-sale | $255,714 | $236,340 | | Total Liabilities | $201,096 | $233,137 | | Deferred compensation and commissions | $67,815 | $103,540 | | Total Stockholders' Equity | $625,555 | $645,274 | Condensed Consolidated Statements of Operations Q1 2024 net loss increased to $10.0 million on a 16.6% revenue decline to $129.1 million, leading to a larger operating loss Q1 2024 vs Q1 2023 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $129,104 | $154,792 | | Real estate brokerage commissions | $109,475 | $135,046 | | Total Operating Expenses | $149,206 | $170,853 | | Operating Loss | $(20,102) | $(16,061) | | Net Loss | $(9,987) | $(5,833) | | Diluted Loss Per Share | $(0.26) | $(0.15) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $51.0 million, with overall cash and equivalents decreasing by $80.2 million Q1 2024 vs Q1 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(51,021) | $(101,207) | | Net cash (used in) provided by investing activities | $(21,601) | $117,356 | | Net cash used in financing activities | $(7,500) | $(24,015) | | Net decrease in cash | $(80,197) | $(7,847) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, investments, stock-based compensation, related-party transactions, and commitments, including a $0.25 per share dividend - Revenue from real estate brokerage commissions and financing fees is recognized when the transaction closes, as the company's performance is complete at that point3637 - The company has a strategic alliance with MTRCC, where it may indemnify a portion of MTRCC's guarantee obligations on loans. As of March 31, 2024, the maximum aggregate guarantee obligation was $186.8 million129 - On February 8, 2024, the Board declared a semi-annual dividend of $0.25 per share, totaling $10.1 million, paid on April 5, 2024102 - The company repurchased 16,900 shares for $0.6 million in Q1 2024. As of March 31, 2024, $71.0 million remained authorized for future repurchases106 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 performance, attributing the 16.6% revenue decline to challenging market conditions and analyzing liquidity and capital resources Overview and Key Metrics The company, with 1,722 professionals, closed 1,564 transactions totaling $9.7 billion in Q1 2024, with brokerage commissions forming 85% of revenue Q1 2024 Real Estate Brokerage Transactions by Market Segment | Market Segment | Number of Transactions | Sales Volume (in millions) | Revenue (in thousands) | | :--- | :--- | :--- | :--- | | <$1 million | 186 | $103 | $4,764 | | Private Client ($1 – <$10M) | 808 | $2,590 | $73,163 | | Middle Market ($10 – <$20M) | 59 | $802 | $15,093 | | Larger Transaction (≥$20M) | 49 | $2,166 | $16,455 | | Total | 1,102 | $5,661 | $109,475 | Key Real Estate Brokerage Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Average Number of Investment Sales Professionals | 1,638 | 1,782 | | Total Number of Transactions | 1,102 | 1,279 | | Total Sales Volume (in millions) | $5,661 | $7,132 | Factors Affecting Our Business Business is influenced by economic outlook, mixed commercial real estate supply/demand, constrained capital markets, and cautious investor sentiment - Economic Outlook: A "soft landing" is still expected, but persistent inflation has led to a "higher for longer" interest rate stance from the Federal Reserve, contrary to investor hopes144145 - Capital Markets: The transaction slowdown is primarily due to sustained higher interest rates, tighter lending, and reduced debt availability, which has widened the buyer/seller expectation gap150 - Investor Sentiment: The market has seen five consecutive quarters of below-average sales activity. A significant volume of capital remains undeployed as investors await clarity on economic, geopolitical, and real estate pricing factors154 Results of Operations Comparison (Q1 2024 vs Q1 2023) Total revenue decreased 16.6% to $129.1 million, driven by lower brokerage commissions and financing fees, widening the operating loss to $20.1 million Revenue and Expense Comparison (in thousands) | Line Item | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $129,104 | $154,792 | -16.6% | | Real estate brokerage commissions | $109,475 | $135,046 | -18.9% | | Financing fees | $14,427 | $15,868 | -9.1% | | Total Operating Expenses | $149,206 | $170,853 | -12.7% | | Cost of services | $76,868 | $95,427 | -19.4% | | Selling, general and administrative | $68,916 | $72,219 | -4.6% | | Operating Loss | $(20,102) | $(16,061) | +25.2% | Liquidity and Capital Resources Primary liquidity sources are cash and marketable securities, totaling $346.3 million, with cash decreasing by $80.2 million during the quarter - Total liquidity, including cash, cash equivalents, restricted cash, and marketable securities, was $346.3 million as of March 31, 2024194 - Cash used in operating activities decreased to $51.0 million in Q1 2024 from $101.2 million in Q1 2023, primarily due to lower bonus and commission payments190 - The company has an off-balance sheet arrangement with MTRCC, with a maximum aggregate loan guarantee obligation of $186.8 million as of March 31, 2024196 Non-GAAP Financial Measure Adjusted EBITDA, a non-GAAP measure, was a loss of $10.1 million for Q1 2024, compared to a loss of $7.4 million in Q1 2023 Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(9,987) | $(5,833) | | 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) | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from its $255.7 million investment portfolio; a 1% rate increase would decrease fair value by $2.4 million - The company's investment portfolio in marketable debt securities was valued at $255.7 million as of March 31, 2024, with a weighted average credit rating of AA-201 Interest Rate Sensitivity Analysis (in thousands) | Change in Interest Rates | Approximate Change in Fair Value of Investments | | :--- | :--- | | 2% Decrease | $4,834 | | 1% Decrease | $2,417 | | 1% Increase | $(2,416) | | 2% Increase | $(4,832) | Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures are effective at a reasonable assurance level206 - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2024207 PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal actions, not expecting a material adverse effect on its financial position or results - The company is involved in ordinary course legal actions, most of which are covered by insurance, and does not expect a material adverse effect from their outcome210 Risk Factors No material changes to risk factors were reported since the Annual Report on Form 10-K for December 31, 2023 - No material changes to risk factors were reported since the last Annual Report on Form 10-K211 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 16,900 shares at $32.77 per share in Q1 2024, with $71.0 million remaining for future repurchases Share Repurchase Activity for Q1 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | Jan 2024 | 0 | N/A | $71,505,492 | | Feb 2024 | 0 | N/A | $71,505,492 | | Mar 2024 | 16,900 | $32.77 | $70,951,742 | | Total | 16,900 | $32.77 | $70,951,742 | Defaults Upon Senior Securities No defaults upon senior securities Mine Safety Disclosures Not applicable Other Information President and CEO Hessam Nadji adopted a Rule 10b5-1 trading plan to sell up to 30,000 shares - President and CEO Hessam Nadji adopted a Rule 10b5-1 trading plan on March 14, 2024, to sell up to 30,000 shares of common stock215 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files