Marcus & Millichap (MMI) 16 Feb 242023 Q4 Earnings call transcript

Greetings, and welcome to Marcus & Millichap's Fourth Quarter and Year-End 2023 Earnings Conference Call.

As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you.

You may begin.

operator. you, Thank welcome Year-end and & Fourth Millichap's Good Earnings to Conference and XXXX Call. Quarter morning, Marcus With us today Nadji, are President and Chief Financial Steven the Executive Officer, DeGennaro. Chief Officer, Hessam

remember expressions responses to these and may the forward-looking to call may, Before such statements. variations are words questions identify prepared estimate, will, statements. I the management, of expect, contain turn believe, please intended and to remarks that Words over similar as forward-looking and our goal anticipate,

amid from materially to annual company's the differ real can integrate its pressures, XX-K and on implied business discussed factors, company's by its and but transaction culture its philosophy due agents results filed Actual conditions, new the on the to, and other ability partnership including report commercial statements forward-looking those XXXX. and retain attract to conditions in professionals; a filings growth including, the Exchange such XX, retain factors estate sustain market and Commission of the and Securities variety February Form to with to public general company's ability not limited economic company's competitive ability

otherwise. a can company of its company upon in are reflected Although reasonable obligation result future the to assurance no or expectations undertakes statement, no such statements as assumptions, new forward-looking forward-looking believes the will whether expectations be The it make that based attained. any events update information,

believes reconciliation to measures presented appropriate on the and release, non-GAAP measures on financial to useful call is information earnings morning a which are investors. the explains measures. why GAAP website, addition, In this company's represents the company's company and non-GAAP issued such certain this represents financial was The available

www.marcusmillichap.com, the webcast. during with link being remarks. along the reference company's is Investor the at website The on webcast call section presentation slide may of conference you the Relations available is This

pleasure Hessam CEO, my Nadji. the call to it's that, With turn over to

welcome most periods and and The pushed of Marcus the quarter caused and year-end & in to real up the industry. of commercial sidelines. to earnings sellers soaring and morning, the Millichap ended Thank call. team, rates alike challenging buyers good On the for behalf valuations breakdown effect interest a of XXXX volatility and our you, residual Jacques. estate fourth one as

widened deals and usual restricted by before The impact of to severely the urgency was the close illustrated spreads quarter bid-ask financing year-end. of investor fourth lack

quarter loss transaction $XXX quarter MMI's For financing sources. fourth volumes estimated came by market-wide the modestly revenue the and declined million, at an was XX% based $X.X in EBITDA on and for adjusted the third million. up year, from third-party

year, the $XX of EBITDA $XXX For revenue prior year with adjusted of was of just million, the for million. an short decrease a XX% loss

team, these X,XXX still environment, our more last once results roughly are important again this is year, While closed for it despite MMI firm. extremely challenging any that than other note to frustrating transactions

a Our interest unique highlights closings of even our nationally, going in in to and buyer marketing generate locally which system and culture buyers, ability XX% to of our disrupted collaboration out-of-state market. resulted

billion $XX.X and of to in markets product solve across uncover opportunities clients our a problems resulted Our for ability and movement types.

Markets believe for advantages relationships lender and network that for be would vast major among originators financial our stronger and financing we this real-time company's Leveraging the significantly exchange are challenges numbers are lenders. closed IPA experts results X at separate financing our company's this Capital MMCC key temporary. in market. not XXX These with of X,XXX The clients information transactions nearly in if

have our put been on The price contract. productivity. and taking Listings the market's difficult impact are appropriately under to and longer to is first market

more of getting going for done buyer new impact than times another to multiple a lender for environment, deal reduced is issue essentially clients in our same the to out the fallen contract contract an development. An difficult time The in many job of and/or having elevated net business and due remarket portion of our This deals once. have reach closing. with is actual to

The over the sound production few past will second made at for of when is expenses talent time, growth confident headwinds. as retaining their long-term top-tier We're acquiring long-term the revenue strategy to entirely which producers market challenge that the to a related years investments drive well higher averages, underwriting made and is below market behind all recovers. were due top-level with

not has but more the Lastly, transactions also nature it's transactions, private past market of institutional than the cycles. client broad impeded only larger disruption impacted

and less client Although have the trading. spreads uncertainty across transactions, percentage than all decline in pricing deals property is far bid-ask larger still types, private widened private client lowered

buyers bring at The alignment. banks to rates back hopes deals client the brought prices of in previously from that is reset news into majority market realistic challenge. valuation to be to unions assets factor the quarters private financing more passage for The that usually that credit is our anticipate interest better are and of record the and good pullback in is and lows the the particular by that starting market provide market's We to contributing the of to this time necessary withheld realization return a will sellers the to pricing spur ahead. unlikely

particularly maturing were by few past as This that aggressively shift well is the deals as underwritten issues, being in debt over years. prompted operational

institutional an on strategy being our seeing while inventory Our continues investment to remain on as uptick into side. owners management XXXX. underwriting the coming cautious buy is the market by meantime, diligent on division as offense, [ cost ] well and In IPA interest in

property NMHC, Multifamily conferences such organizations Some examples National events covering Housing every presence our leading types. and include industry NAEP at major other key Council, ] ICSC, [ and as

relationships. year and provide Our value various content drew clients. add client force expanded publications research programs client our expansions, X,XXX client their enhance connected continue Service and including over alternative sales sales ways our through investors which webcast, auction XX,XXX loan last outreach to and to help to stay

and and teams top in We remain local highly acquisition sourcing attracting on groups continue to focused have opportunities. success

business within opportunity as negotiations growth lines reinforced Recent firms complementary service external the interest as core well and MMI. in with our

confident However, more mid-term by to a market opportunities ongoing additional pursue terms as degree and uncertainty. priority. growth. of time, resources M&A-related hampered sellers realism we gaps by to containment short- cost will measures we're they've between Notwithstanding this that investing more remains We're expectations accelerate there been in be the in high our pricing given area as

Another key priority and is expanding programs. recruiting resources

across highly brought and as types. Washington, a Angeles and board year, Our acquisitions capital major targeting Dallas, experienced Recent major D.C. country market and on and product team IPA professional examples the last team in well that added in Los experienced institutional include to Toronto, leaders just few. In our as experienced the joined success. continued show to numerous markets teams joined and that Nashville, individuals a office New we in York name apartment

Our newer newer fallout of agents the elevated. to ratio keeping net professionals be continues a hiring is of as disruption challenge market the

we net initiated part proactive actually to fourth encouraging, terminate those, quarter, flow our who become the return to and associates. new to of is In we're of candidates training a increasing positive to expanding very is are hiring new our unlikely The which internship, push as programs commitment and of productive. mentorship

be growing off higher-than-expected the inflation further that Fed's and the higher easing, eventual pointed we last rising rates activity. in strong confidence have to the pressure the will Persistently trading fueling forward, longer lowering out soft data taken key investors' believe January's on landing Fed Looking in and catalyst interest job trend start the economic the we of numbers our for call.

our we're meantime, team. best However, sharing to underway midyear, drives half tools, as the of in the optimistic cautiously of real and In theme interest as applied well improving best-in-class brokerage Fed by an providing the expected controllable rate by to with estate easing practices market our management's environment second focus pricing the reset of year. this education, some degree for control internal services and as the

strategy. same through the external continue time, opportunities acquisition pursue At growth to we our

of Our continues investments playbook focused in XX business, past recent the a with in technology, down from effectively and revenue strong market brand returning years growing with each on Throughout shareholders. laser time growth. to improve shifts, benefit strategic the economic cycles we've and capital and balanced of to being

MMI has high-quality economic have of flows through earnings strong multiple producing a that cash long history cycles. generated

The to position value. brand balance strong of our market and foundation our combination with dividends our leading The sheet for shareholder and exceptionally combined an commitment share reflect form repurchases of strength our maximizing success. long-term

Steve And the to call with Steve? for on that, insights our over financial results. additional will I turn

Thank Hessam. you,

to As compared previously mentioned, $XXX revenue million. for the fourth last year's quarter was million $XXX

$X.X million For estate or $XXX fourth year, of last total XX% last record compared for Revenue brokerage total the of year, $XXX billion. million was from real high to the revenue compared year-over-year. was XX% to quarter full decrease of year's million $XXX a commissions revenue

X,XXX was volume sales total down XX%, quarter, $X.X the XX% transactions, across respectively. and billion For

$X.X revenue commissions brokerage estate $XX.X X,XXX a million XX% to real across was transactions, approximately from volume XX%, XX% fourth and sales $X.X last billion billion revenue $X.X year XXXX, down during Average for total $XXX year to a accounted size of was million nearly full of decrease the respectively. ago. transaction compared quarter For XX% the year Full year-over-year. and was million year, compared

size million in the year. full the For to prior was year, average $X.X transaction compared million $X.X

contributed as reflects impact our well disruption Within size larger institutional of transactions, for quarter, business. $XX in XX% market brokerage of values or lower middle to market the the in revenue year. a coming private average the from of XX% decrease disproportionate business million client property as year-over-year The last due a decline transaction core and on mix revenue versus brokerage,

last larger Client for of quarter couple brokerage together XX% [ to last brokerage XX% of $XX and market $XXX year, strong during the million XX% revenue year. the transactions, accounted year. over for contributed past fourth business Private the growth million Middle which experienced For of the versus XX% compared or full ] revenue years,

middle of XX% or full brokerage the compared revenue larger XX% million For transactions represented year, $XXX last to market year. and

middle transactions quarter, larger the while market declined XX% XX%, Client and Private respectively. For XX%, and business declined

respectively. from was with full middle and declining larger the XX% pronounced more and year, XX% private transactions XX%, away declining market large the deals and client For trend

including million MMCC, Revenue million fourth was compared in to the $XX quarter in our financing $XX last year. business,

transactions compared billion volume in transactions we quarter, closed year. the $X.X XXX billion in financing prior volume During to XXX in or $X.X the totaling

was revenue for last billion $XXX billion year. Financing the quarter fourth $X to and million full in Other with $X compared $XX X,XXX comprised X,XXX million achieved transactions fees, was compared and transactions year This last totaling referral $X.X consulting of fees across revenue year. $XX.X was compared in to last volume in primarily advisory million million to along the volume year.

the million compared $XX For $XX to year, revenue last year. full other million was this year

operating XX% expenses. lower for expense than the was fourth year. last to quarter Total $XXX Turning million,

was services million, expense related XX.X% For compared quarter, XX% to were Cost primarily expenses Lower total a $XXX year. prior for compared a total to XXX or lower full prior variable million operating the lower decrease points revenue the was revenue. the year, of to expenses due in $XXX to year. basis of reduction of

of the fewer cost XX% thresholds. XXX commission For surpassed compared year. of $XXX rates revenue, year, revenue The total as services as or a of reduction million lower of a cost to percentage services full lower last basis was reflects points revenue of agents

in of markets. office space fourth to year, of an million, due was the compensation $XX SG&A increased in increase over certain prior consolidation primarily quarter stock the X.X% and

marketing compensation well retention infrastructure. For impacted decreases $XXX and as our partially expenses along to lower last growth, impact business technology offset and and Despite cost attributable by on remain force the a new sales The with ongoing performance the full to X% support. conditions, SG&A earnings, business committed full market by market year, we decrease year tied The were decrease talent variable year. to as our compared operating development related in million, investing near-term was platform, disruption of reductions. was and its to acquisition to

enhancements downturn Based value. on multiple these to cycles, through drive during our have proven experience long-term a

these We strategic near-term working diligently to are with profitability balance investments.

reported quarter, a or share loss or million $XX.X $X.XX the During year. the loss net income $X.X $X.XX compared of we per per with net in million prior of fourth share

share loss loss last year, year. totaled income $X.XX to or full million per $X.XX compared million net per $XXX.X or net the of share $XX For

EBITDA the year. prior negative $XX.X compared was in the positive million quarter, $X.X For adjusted to million

for For positive was million $XXX.X full in rate the XX% EBITDA XX%. quarter full tax year compared year, negative $XX.X was the and adjusted prior for million was year. to effective the The the

million. equivalents capitalized debt prior We down the only remain cash, to and $XXX modestly with sheet. on cash $XXX securities, from no in Moving well million and marketable the quarter's balance

shareholders quarter, price of million the During dividends $XX.X to at we a total an through and of capital per returned share share. repurchases $XX.XX average of

in million is our $XX to shareholders, For our $XX a strength balance of we the dividends environment. and repurchases $XX full sheet This million year, and including outlook we business. conviction despite remaining programs the shareholders the million in authorization. capital of market the $XXX testament than returned million share to challenging inception the have repurchase Since the for returned in the to of $XX ago, return million roughly more current still long-term share nearly years have on X capital and

Finally, Board on dividend X, $X.XX $XX last XXXX. our declared of week, March record that XX on share per approximately April million of shareholders payable to a announced we semiannual or XXXX,

Looking headwinds year. the are ahead through remain first half of XXXX, the to a likely facing market challenge the to the

year our same addition, momentum going not did In the the it into pipeline XXXX. deal coming have into did

the rate half lead the the of Fed's However, we latter improving hikes of that are aggressive cautiously year. end conditions optimistic the will in to

the services pattern in of XX% of first current revenue. follow down This given of for and slightly last of lower is to expect reset first to quarter XX% and range from We Cost quarter first the seasonal the usual market should QX. be the seasonal quarter be than year dynamics. the sequentially revenue follow

practices tied SG&A XXXX drive quarter activity for market position and navigate platform the to growth, through to market revenue. lower conditions, committed should We across internally, to continue organization. today decrease support lower helping costs continue us normalize transactional dollars, when capture to we investments best external conditions operational we consistent while in to revenue clients know with in make We absolute that year-over-year and the agent resumes. remain the efficiency first the

for now up can Q&A. the we call open operator, that, With

Our is question [Operator Belcher from Jason Fargo. with Wells first Instructions]

So you you particular on about deal revenue, if are size lead Can you for more different little comment bucket wondering relates a that I'm expecting just the it size commission talk buckets to any just as can recovery? recovery transaction to that? particularly, any -- potential

financing to when first on on lot that recover seller market basically then all smaller and the private carry of it on like we've financing past seen have creative In the is at in because Jason, things to entrepreneurial they afford good put acquire recoveries, you side times of the nature assets a most through and because with constrained, client the sell and the do to headwinds call. is cycles. work can cash

cycle, banks the smaller which are I cap this the seeing source formal In and credit of of of transactions, unions, are as that constraints recovery. nature the dislocation of in and small transactions, we're mentioned hindering because primary among really credit broad remarks, private my because mid-cap, client that the

transaction far institutional Now having is said and that, of course, points the magnitude price $XX the than the segment the of decline segment. less the or smaller million-plus

are nature showing predicting, uptick to it's to to first, the expect factors inventory in the the entrepreneurial million, prices segment come of readjusting, is the feed fact Client far million As that as would sub those I Private going $XX are And $XX start more of an where marketplace. expectations readjusting, still market. the because usually coming

since spikes institutional years interest rent from back start to attitude the rent or in in the especially -- overbuilding last the in to it's showing interest, into impacted year, last see X pockets the the more last some to that declines have market. by the markets a the And away in the X just institutions we're in months last XX of been that of a pencils seeing is encouraging shift to or so. of lot big interesting getting beginning down reversal What's in days really,

the I but So private to to would far expect I recovery. institutional the clients market going think don't be still is the lead behind,

follow-up helpful. there. That's to just And

a shoots just seeing there? markets some had few You Can that of where those green in depressed. been uptick referenced encouraging an share you're certain you markets

you lot has many One is give that I'll is market with more market. years, a other for beta high supply-constrained the buyer X a market been Absolutely. preferred and a examples. a of demand of

that's now despite the the in others. The rent lacked that we're to demand because from that is interest in investor 'XX, diamond lacked more investor Bay rough yet, we first it ways, in of an lot other Area. recovery in very saw many basis, interesting region point see San in than seeing Francisco kind like is in apples-to-apples one into supply-constrained markets a recovery, the a didn't benefit And market on many a job it market being and And 'XX. that the out

with kind is of the or has jobs, the pronounced peak Phoenix, correction fire therefore, where was has on other course, employment pullback momentum strong, volatility of those reversal some dramatic. of of the the the more example The have absorption like in even from and a we've been And lot price and Atlanta, markets see to of overbuilding, when a been trough more market on construction you and of some the there. been seen units

that buyer in interest a again, a looking replacement they're Phoenix, long constrained, really now again, so they're a on because that's cost with very Nonetheless, now. that market or lot of look price trend great seeing that we're through adjustment in Conversely, in because market long-term at to replacement that been like seeing like Phoenix ups you're the it competitive seeing. is window the a And the cost this they're downs per in even picking makes is benefit. a even unit that growth at basis and price up investors and believe acquisitions. This if of And like Southern market. supply California over term, markets, benefit for a be area

more And really follow-up may. to one just helpful. -- I Again, there, if

you're just see way Could might leading any you that be property sectors there? interest. increased markets, starting these to comment particular On on the where

preferred There back last of pullback itself way ways, been e-commerce ahead curve remains come years. are and The years a as in XX new the consumer or a very power having a out the over for the destination in of the entertainment well strong. experiential We retail, and is because construction over retail force. continue and reinvented to full asset see asset. in Retail XX retail has and retail XX in in now major of some marketplace

brick-and-mortar ICS that as see more with into owners. perhaps level of is And has expand major very a of behalf XX to trustee, been retailers fascinating there in on We're rediscovered seeing it's as XX last retail. the to the [ confidence of pricing I'm involved power the expand to part essential years. and And looking an brick-and-mortar. retailers ]

interesting circle with evolution And so brick-and-mortar that go it's retail. see full to really

adjusted interest that rate spread starting to curve. rates So interest to lots as and of wasn't and again, because, alignment see as And cap there. industrial. the Prices have dramatic buyers between way a further in of kind you're the the ahead sellers of they're apartments

before So usually drop and is in more interest band dislocation in rate stable, rates tightening of because a cap seeing trading we're cycle to marketplace, which activity that multifamily the the a tight began. of most the

delivered the same out. funds financing a That maturing multifamily. And loans from terming and sifting lot market that have for significant options debt through very time, of it. is short-term valuation are disruption the you At a

north of that's warehouse be would of industrial you becoming a where I of creating pockets in definitely to XX years. at distressed side that's urban been active. The those say have in think judged built much vacancies general. on office investment look pressure. pockets are are that But some investments very more you course, be so temporary then the phenomenal And of Those around office product office, And you multifamily specific and suburban if really And is is industrial there's equation, the but XX%. And product vacancies getting course, very at XX all more of are favored, lastly, continues much And and overbilling the long-term we're of last to a of XX%. newer look XX%, basis. well still really overbuilding. is on incorrectly. types, I'd this But

Velocity doing with have from the would hospitality and that's a much well, being spread probably but is is really say situation. way storage tale down. is type, self So demand. well. doing generalization. I Other too markets product sector just is we within bid-ask the a But there's where office, types, most perspective the product judged of fundamental investor difficult X

of a those as There well. So market storage are basis. with a a is doing as some well products is happening lot garnering whole, attention. still But it local on overbuilding

So that of I idea product hope little you a different gives types.

bit. Switching color. Great little gears a

get you investment Can initiatives you related think I quarter. what a about of bit that little in what technology to was kind to that? you from benefit the in more mentioned and talk hope

internal of our agent that a an the it Jason. that to, years. the all is the development. effort whether for it's productivity process, basically meet sales the preparation X past of a the around proposal goes system process There initiative And over is Happy great done office We've supports force, deal out prospect. an to before level with of underwriting back proprietary

shifting that productivity office, to internal the back And of our them marketing from listings.

a alerted and of and website quite application an looking well content searches also does of called on what & application industry with a not much and listing our save We work have investors over search as we Marcus it. They alerted a potential geography. investors range, of kind the us, registered their notifications efficient. system price get too finding done criteria. register in research enables MMI property type, of XXX,XXX to Millichap us between make bit that's has and buyer more to they're match And our introduced events. We the is ease our linkage investors The now brokers that inventory. agent tell much, My real-time basically upcoming by our towards that long and for, geared our is That ago listing

then to And potential within easily. internal the website out it system marketing new to buyers to for monitor with be of in get And very able we campaigns from e-mail to a is from of launch simple to fantastic proprietary our that's being example so various our really able brokers center that making coming MNet called level investors, listings automation in introduced them inventory potential example touch we of and and application our interest continue and our refine. an screened an is

in looking at distributions they targeting of all what smart is basically interest of clients equity multiple raise of ability they lot sponsor movement may new examples. We huge audience, for have system new audience this a of that listings more we phenomenal add. a capital right or funding product Knowing which is to harnessing and have audience. of as right because quickly clients type quarter, announced our of last makes tracking great creating really to to These to that activity raise the listings are a level a efficient, type, it who's need our and couple a value our the the their out lot constantly to platform equity investors what to target very as invested of as reach by sponsors have our also crowd just equity shortfalls and

a multifamily, brokers submarket, and more stages -- that of happening preparing or broker down synthetic value very happening efficient initial with a our of BOV, interesting that investment And the opinion predominantly it And estimate our NOI doing what's right much the made highly which client every sit around a Archer, NOI key know we're whole in brokers. sources to what's out of now where synthetic it's multiple every also, accurate that a of introducing streamlining really an just data into rolling modeled a we early and in the for to start-up in metro. in is makes stages notion accurate

to are, so to the on price of lot that what rent to we're And the a on units a looking the units assessment that our market, per a are, is process market this office, what's automated analytics what have helpful. become know back can analysts their very our on efficient. the per validation build tool as of but kind They more

internal make those of efficient just leveraging how are more we're examples to business the So external and technology powerful. more and a few

the and last decided And saw liked those PropTech technology on and that evaluated in internal make on. those Jason, elaborated commercial at relationships, as the we just the of as synergistic we out the reasons X, for that those what to firms. We investments, investments point, started those each like elaborate opportunity we to Hessam

for one appreciate Really lastly, And maybe then all Steve. you, more that detail.

gears jumped this switching interest line and income Just higher quarter. little your I a to the other noticed income statement.

mainly if investments driven higher Just else short-term behind was curious was that or if by rates that? your interest there something on

$XXX Higher the and plus million We that's on sheet during various investment our cash balance the quarter, exactly Yes, between some swap got to lower we've did, shorter-term, elect it. rates, vehicles. rate obviously, out cash X% Still a our for above longer-term well swapping But investments earning some horizon longer X%. time within bit it's vehicles. to little earning was for investment X% that out policy.

below So we're active pressured strength be higher And happens in the it that vehicles regard, our us market. even never for opportunity We're sheet. of balance it lower-performing to anything, if obviously, with gives sell performing. to the to swap

vehicles, what X looking we And longer-time kind there are X that, on year, of the duration years? horizon just helpful. That's

max that months. go the range, think XX out in Yes, is we I something like

There any back at to hand over the floor to closing further are questions this time. like comments. for no I'd Nadji Hessam

next seeing and the having on you everyone Thank forward and road you, the you look call. back on our you who to We you earnings much. very thank operator, joined call. to Thank

conference. today's concludes This

You for disconnect your this may at your time. lines you Thank participation.