MMI - Earnings call transcript Q1 2019 | Marcus & Millichap, Inc.

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Operator

Greeting. Welcome to the Marcus & Millichap First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Evelyn Infurna, Investor Relations. Ms. begin. may you Infurna,

Evelyn Infurna

Financial afternoon, Earnings to today Conference Executive and and Good First are & Quarter Chief Chief Nadji; Hessam XXXX Call. Officer, Marty and you. Louie. Marcus welcome Millichap's President Officer, Thank With us

growth; results over turn may variations remember questions that management, I to ability to and company's competitive conditions believe, professionals; words to company's materially the could and statements. its transactional and filed including, retain annual forward-looking factors and Words remarks XXXX. Actual Before similar pressures; agents other to discussed to and may, to new retain responses to forward-looking partnership Securities the with economic estimate, on will, goal these prepared real the the such the in a on report Exchange expect, due commercial and sustain limited general and factors, differ please and March integrate intended Commission those culture statements ability attract of philosophy call identify the X, estate business and to contain by our are its market such of including implied as ability amidst anticipate, but Form from not its company's company's statements. expressions filings, forward-looking variety conditions; XX-K

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

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

with pleasure turn a is the Nadji. With on section reference may our slide available over along during call it's call the to The presentation webcast prepared this of to Finally, my website, the being Relations Hessam Investor www.marcusmillichap.com, you conference webcast. remarks. link is that,

Hessam Nadji

Thank earnings you, good Marcus XXXX Evelyn. thank afternoon, our call. quarter On behalf the Millichap you & team, for first everyone, entire joining and of

and for messaged XXXX the first was quarter financial growth first of results. As call, the and XXXX had quarter while depleted growth in closings we our of our in difficult was on of inventory last a quarter record transaction and MMI's anticipated XX% comparison, tax-adjusted earnings challenging XX% of fourth Revenue pipeline.

to the activity we of in As time amount of limited our quarter the brokers new the elevated business. discussed, fourth level had work on

transactions declined income such, As on XX%, year-over-year decreased our quarter net first basis, a roughly brokerage XX%. declined X% revenue roughly and

challenges deceleration. rooted experienced in Aside from basically our our larger XXXX the performance, internal a scale market robust

on a with reported a the Capital market, for a overall Real I In to into decline get growth MMI Analytics than fact, in quarter. factors first we're jump right the a in the let in what pronounced market more XX% behind drop back me decline doing first, but moment, discuss the transactions track. sales will

and marketing As growth pipeline inventory, numerous accelerate fully revenue MMI the other regional, recapitalization periods forums These a with market local, and and and similar in investor is These entire growth. and deployed to other execute buyers update sellers option acquisition videocasts. transactions changing long to our international periods strategies, drives, efforts measures XXXX proven have effective and disruption, actions include in market of team are environment. of initiatives These and in their our history. change we investor even engaged national expanded outreach cross-market evaluate in in helping campaigns,

of We're also recent real-time constantly acquisitions to current that early progress updated are issues reflect actively acquisition broaden strategic additional service market concerns with to coverage targets our strategies related for market are market will dialogue training and and investor offering. engaged conditions. in content, the Our with and pleased

to to interest dramatic impacted between and quarter the like hawkish Reserve's I'd direction market on put the Now the first XXXX dovish rates several context. The September results of additional of ways. January from shift into XXXX in Federal

it marketplace. sidelines and has urgency of the in XXXX to to half many rates second buyers the First, and into off motivated removed to of deals transact catalyst get interest the sellers done. rising the from Anticipation XXXX come

first and Many the quarter and line, fear first XXX-day investors extended typical secure timelines for time Secondly, take our volatility, to confirmation rates the least, extended in the quarter recapitalization and between market saw lag given quarter. lower renegotiate of rhetoric in interest took on loan in government our trade first sales. XX- falling revenue many stock to but business This increase not we reflected closing. rates. concerns recession transactions quarter war The interest investors missing during timelines out more interest significant lower postponed Last transaction as terms. buyers advantage as transaction our the to throughout dampened XX% shutdown to the financing marketing and in opted their down cases, intense is commercial increase in and also during of refinancing rates the a

incremental slowdown, amid deals pipeline improvement. market while gradual going showing replenishing forward, been under Now our contract the are new has both and overall looking inventory more

We priced. over The still and effect with our healthy but we still includes and several continue happening leading demand for as a Other buildup initiatives. point, positive strong estate realistically indicators are fundamentally real inventory also bid/ask performance offers and supportive now interest to thanks driven conservative expansion. spread of see deals This that Loan next months. rates, multiple internal which jobs, sales, growth in the healthy, this are is of fundamentals low underwriting remains steady expect growth the pipeline buyer wages lower remains business friction continued throughout inflation. by remains all spending, to retail

throughout first results importantly, a are first steady which of guide reminder of with a the key quarter, MMI viewing held remains the perspective. Shifting Most lows. deals, historical the Lastly, quarter ratio our importance long-term near our gears. of

pretax MMI's has has in XX%, was grown This years. sales XX%. first expanded revenue by a market at sales or As up the been by force of our point, quarter a in XX%, in income and achieved overall the case X declining last time flat out since is XXXX, by of the X of

the client I'm factors which investor up XX-year makes our XX% over highly foster levels added tradition observed impacted market, consistently say and year. a teams rate last are, activity Our conditions, as to dominant our given course, of Private well have and to market experienced any in this or individuals includes transactions. period professionals fluctuations is brand proud the company. private by in of sales first number brokers that other and continues this we joined within with X.X% hiring developing of growth, year. prominent to that in the and the XXX force quarter and interest sentiment vast of of MMI

that real However, the of support in size its often drivers sheer this fragmentation sector. in and transactions, the personal our segment estate this growth result vital future

Our these short-term growth, is to long-term increased from in transactions contributing and into penetration larger quarter-to-quarter. variability despite the transaction mid-market

expanding broker execute transaction is of element that types ultimately retention to the clients we in a larger range basis helped and ability on and and strategic service. a long-term Our key

demonstrated offering we capital Our and with the potential growth more financing increase markets division ever is as first than continues MMCC ahead. in expand today ample as alternatives in our to capability. shift grow refinancing, quarter's

the grew past professionals. team months, on XX an Over financing emphasis XXX with our to XX.X% experienced hiring

growing Richard X of Vice announced & and to our that proprietary targeting of Estate leadership executives, lender Executive will with We actively & acquisitions these the division pursuing Marcus are MMCC and and programs Matricaria, advisory have a brand the strengthened company, support Millichap research leverage and running part recently of of executives. operations managers the to expanding These The technology, and new new generation significantly scale. additional of services benefit Marcus growth on years. success relationships, of the strategy. extensive Investment initiatives strengthened and proprietary also Real past and been larger history client have J.D. of as product We over executives our We've Millichap experience management a our expanded the Services and in teams specialty X President execution we initiative. which for growth and Parker major promotion

us to ever valuation, As model believe with strategic supplementing we're we culturation process, appropriate In templates based and team a on our and than acquisitions going this X diligence acquisitions organic are positioned initial management assessment market completed the traditional external Through our pleased have experienced due stages company, From X months, ramp-up. MMI the before of perspective, our early we better coverage, of growth for growth platform. the enable developed their will growth to last and that with the have and forward. and we we're at achieve an scale power acquisition. long-term compete the

strong remains our be sheet, pursuit Given of on pattern. is acquisition dialogue resume targets. additional of In decisions deployment conditions. every on in priority informed continue investor growth remains by changing foremost strategic and first our pursuit light a make market will the focused balance to summary, MMI behalf of value-added of our for the encouraged client we of This how opportunities foundation with capital number we as top our entire the team services, their helping and long-term

driven being the growth best with path, real Our over long-term We're brokerage only XX our client-first has for not call continuing coupled committed for investment new quarter. our culture, value years. platform, shareholders. I passion this on Marty? to the turn our constantly for on clients over to will details we the looking for more now to Marty are and enhance for ways creation estate

Marty Louie

to in shared strong driven made key partially period The contributions decline results, the brokerage further in year. strong XX.X% the growth affected in decreased were X.X% challenging same real fell strategic services. $XXX last by well was comps our XX% million. revenue financing total brokerage financing X.X% in which XX.X% estate commissions, as increase and highlights of to compared year. in brokerage acquisitions was primarily due when XXXX. up quarter Delving a for our as million refinancing for factors growth The in real $XX.X $XXX to accounted into to our as expand Hessam year-over-year the grew a fees, This opportunity Hessam. last factors acquisition transactions by XX% as The revenues, decline estate revenue earlier additional that offset from to Thanks, also million to which first softness commissions various was total year-over-year

line, the $XX in metrics million, transactions. top X.X% our brokerage estate reflecting These quarter. Market XX% estate segment real fell account to first commissions commissions approximately at of Looking our the decline brokerage underlying revenue X.X% commissions in for driving real Client a for Private

market this segment We Market of growth Transaction by revenue $XX.X saw in challenging Middle finally, faced of particularly million, year-over-year Transactions XX.X% XX% Revenue increase year-over-year for segment to Our fell revenue And Large a a difficult $XX due XX% revenues from the approximately decreased QX also in comparison. segment million. in market XX.X% this QX given to XXXX. XXXX. to comparable

these be As we variable from segments consistently, have quarter-to-quarter. mentioned can market

that to long-term continue to Transactions they is of to into Expansion our However, emphasize Client want strategy show Larger supplement positive MMI. and to I our contribution growth Private business. part

sales executed transactions, first quarter, the the a the related due which year-over-year market offset to During of in due higher of we overall RCA's believe to by commissions commission. the sales decline decrease which market paid able from estate transactions. prior $XXX of the Total brokerage a first of Cost partially X.X% was X.X% primarily gain compensation of to SG&A. we services, to revenue X,XXX X.X% fell professionals was estimate slightly decrease in $XX.X the services, number million million. in expenses cost to when is investment year. real compared financing fell comprised the activities, Despite we share revenue from of for were operating lower to and lower company's to quarter transactions, XX% down to and The first quarter

as note services points is XXX was in promotions, offset slightly composition. the earn be partially commissions million to later professional additional of As as expansion X.X% that transaction professionals higher SG&A due XX.X%. certain on to by expenses cost offices costs, should to The after year-over-year support, and by may sales $XX.X certain These of It's and lower a thresholds. investment averages. percent increase size, cost certain viewed revenues, percent mix decrease performance in revenue meeting to existing total typically performance broker of of costs stock-based expense. during expenses, due increased the basis to also lower marketing quarter services fees. compensation compensation-related and long-term decreased of and a litigation an based including year first important It were

expectations be higher the our the first X% quarterly long-term with the year, of company's This the the X% our quarter's rate is to prior expect we to approximately actuals. SG&A line run in and seasonal consistent from towards remainder Looking than with quarter trends.

manage to controllable our certain of expense costs benefit tightly in continue variability categories. and We have the

For diluted same of XXX of pressure. reported the to to XX.X% period diluted while a EBITDA representing decreased adjusted a to to $X.XX points EBITDA earnings MMI Adjusted ago, first quarter per of $X.XX decrease XXXX, basis XX% share compared share decreased the top margin for $XX million during the quarter, per by line XX.X% year-over-year. year due our

EBITDA from until be our should to over discussed pressure adjusted overall be growth have long we margin And viewed expect there the variability adjusted term. could improves. we margin, revenue performance, in under past, the As our EBITDA like quarter-to-quarter, remain just as

the balance $XXX to of cash core liquidity cash levels million approximately sheet. Moving with the cash We equivalents of investments. quarter and strong and finished

As calls, and a capital for acquisitions. provides mentioned position on optionality remains market strategic of unexpected the our of strength point disruption an our event past in

the with reasonable coupled additional more area, Given for capital made deployment. our opportunities, top in priority and remain this expectations acquisitions have we progress valuation

of Before full our results. on have highlights may a and I'd impact QX to like XXXX number closing, point out year items key and an which

First, we saw QX which increase are facing year-over-year comparisons, nearly revenue XX%. difficult

made progress our Second, incremental replenishing we have in pipelines.

of number future our are initiatives expected in market be a to supportive of factors Additionally, growth. internal

succeeding to time around XXX before lead strategies a intra-quarter decrease transactions the environment time market days been has gradual interest have impact approximately in and taking rates. However, to a Since overall investors adjust quarter's can slower sales progress factors usually of due activity. closing, potentially

difficult respective that we Operator? year-over-year have variable call again, now these to Transaction XX% and Once next. have year's second market segments continue in established for to the period Larger last from the quarter Q&A. we the to the Middle like I'd can one Market Lastly, given comparisons and XX% up growth more the these for segments. be open during

Operator

Instructions] Heck comes Our Wells from [Operator question line first Blaine Fargo. of from the

Blaine Heck

financing the transaction. driven refinancing growth Hessam, you by how about talked fees in were strong

a would you more how business level we a driving And bit rate color environment, segments So the continue could to I we hoping any that get there refinancing whether the was that market specific activity of little assuming on and part of were activity. of that have low is? refinancing sustainable say

Hessam Nadji

any had option the Sure. to uncertainty broadly business We And component general. pretty were any around side macroeconomic there's to a the or it. we've of one business seen lot that versus in periods refi of rates other across wasn't refinance especially saw less There product one there propensity more down, if of type the things. is come initially going the of a transact, on when or

a will on it's I beyond increase first and what think, saw in change structural to So future. we it's really, for refi this, I trend be anything that really unusual the not But an to around foreseeable quarter. this the see not think probably do or

Blaine Heck

enough And as quarter, helpful. highlighted large there where way today again, you more versus then maybe I think, the granular spread year, volume. bid/ask to headwind to and that any transaction transaction? to the guys is the this And that low is increased get a That's Hessam, standards? throughout where guess [your] right. I and, All point historical tipping where spread on is is last spread that again quantify statement support

Hessam Nadji

more on that course, in an Fed consistent type, changed about range of took actually X% the been more their of look has last reversed dovish into of to delay few rates XXXX, a getting on in a and location market in transactions more of messaging as Fast rates urgency seen interest average, Sure. environment quarters. that had rising, rising stance, to a asset. that not the pretty Well, depending was when XX% radically financing. drove the Fed And created in a the in just that with was XXXX, in of the But we've property the because favorable be actually investors XXXX was well forward that but XXXX marketplace that fairly an time messaged to to created will though more difference lot there transactions. interest challenged. that The for

So be of by the strong expectation the rent bid/ask given interest forward helped growth. ongoing going spread growth, will lower actually very, very and ongoing rates job fundamentals

little contrast was So saw that XXXX. down the the going bit it's helpful actually closer, line, bid/ask spread XXXX bring a real quarter first the be we in but to to versus

Operator

from line question next of the Securities. JMP from Corey DeVito Our comes

Corey DeVito

the it expect the of remainder can was Is of sectors? be to in on wondering alternative we continued experienced kind I just and see emphasis producers trends about to property hiring going XXXX.

Hessam Nadji

you professionals emphasis proven reduced unexperienced hiring the shared actively emphasis we and much as has hiring people doing very experienced more Corey, of before, then growth have our with ongoing both. We're training on not them. the hiring on organic and in,

a So it's a strategy. change. that reason over years last shift a And combined force in X.X any sales we've X% we foresee it's pretty our seen success X%, in in growth strategy, don't of roughly the would so. the or rate steady not And really

to hiring, now there public more mainly been We X company brand having years, And favorable the for that's expanding. for actually us. more We've a very and because the who with are success been is we is experienced company's more are. visibility so

Corey DeVito

what XX multiples as on say? Okay. That's EBITDA those, seen within last let's And with it the far is as you've over to consistent pricing months, trends very helpful. M&A, the XX

Hessam Nadji

we've Millichap being The that ago. of tell a biggest been. to several bit a about wasn't is target bit ago, they of for in important terms Yes. little in M&A & of let's over shift sentiment view have say, XX companies practical actual become the every valuation. us year initial or were months frothy more a every changed discussion. I'll than last, it how so part What of that about the versus that heavily year before valuation multiple of for that a a was really upside seen the the in engage years XX That has expectations They really you Marcus the of to

just situations And importantly, a encouraged And reasonable a where and be X by expectations. we X X so of transactions, an based have of of to not as potential how company we've but equal a certainly executed the in it would part lot the the and of these MMI. understanding growth because more also the part that's of continued valuation, important on accretive coming becoming lot

Operator

next Our Lamers Josh from from Blair. line question William comes the of

Josh Lamers

quickly expectations XXXX? your Corey's as activity, in second I hiring for for adding Does expectations in change year? XXX just talked the first agents build about new question trends rest and QX, your you impact on want seen quarter hiring ago does about net for quarter result about XXXX. to trends a market the we've And what of the the through first for

Hessam Nadji

is narrow no. term. for very quarter a of a We're Obviously, The window is time. simple building long the answer

is continually our doing to plans, doing out jobs managers' people, in the here jobs more And hiring targets directors be their so like recruiting recruiting specialty efforts at our pursuing the in corporate ongoing. community their senior and all talented team

great at more all. nothing down capacity We that to is and opportunity slowing add and variety in a of property have types markets, a

Josh Lamers

Sure.

the rate from understood and at rates, fairly any interest some guess aspects we of at legislation I point, anything seem of tax delays some just the interest to are there's Okay. else in And year would movements impact? you Will you then be particular I'm call flow, QX delay a a still if that the to big wondering saw over that. there. mentioned this then this in deal And that delays or replenishment? baked out attributable if might is that point pipeline there that ago is beyond

Hessam Nadji

Sure.

right. have absolutely you're more details out. reform, tax the Regarding come and More

the hell on of even interest commercial its the course to and think long the is a of of saw we too change out the advantages run opportunity most a zones certainly part. that is in rates -- the law. an appreciation in for there changes process the came that not experienced has most here. there We in was of more lot the marketplace lot investing And profound in tax a I in real direction for think that clarity that ago, just due probably reaction that But so the is this the estate the quarter. more marketplace it's advantage first the in that element that's to XXXX of of I

of it's about concerns In initially market, whether in wars, it's whether inverted addition the noise in to the a just lot yield January, curve. trade the

gave to in other of that periods that strong shift, out was XX by element a I with the So in drama. a a It's But in and just that noise. in way never last January that case of more that that not any we've market basically, lot of there's And XX% long it say bets the pace of them. year -- coming unusual had bp current from of for one such a increases slowed XX, the January, was, just things XXXX. away X a market was rates." don't the first of rates little Fed is this September in we've expansion but being had was all, bit what the outlook, following hawkish would Fed quote movements. see been were at quarter, Fed So the was were moving out the combination not formally "We anticipation a the expecting "We're period interest in of first that created rate the and rate statement for -- interest because a But came That neutral." year. down And

Joshua Lamers

as revenue. from percentage Sure, and see other tick brokerage the a property of nice up continue to specialty me, it's to Last sure. types

can cetera, timeline the you cetera, into. impact other does that. just confident up-to-date look property two on market considering get the you you et moving are if I'm and some there to can before those that feel then questions still And of where results start related seeing et types general that knowledge, a wondering insights, types? like evaluating So what you're property

Hessam Nadji

of Sure. market of that in share having Ironically, plenty could the growth metros substantially. product there's country and which type, followed plenty is the retail largest fortune have in around even of increase room, our apartments good by our where we

growth have to with We've growth, on for lots done we of property we've and room are hospitality. our a two expand for important office sure. main in lot of specialty So very had core us into. types, made progress top you that shared niches that, industrial On a lot and of

We has presence business. very in seniors top growth. the for as these of in plenty Ranked one segments significant the of have of every room niche. a brokers one now that hospitality housing, Self-storage,

not be upside. across one our there's company room growth the So or say, industrial. where if most our out, advantages one board. presence of specialties in. we're the would to have no of stands is the that current that two is limited had But market significant minimal That's that we I would offers it and we really one share

Operator

[Operator the line Instructions] Rahmani, Our KBW. from next of Jade question comes

Ryan Tomasello

This Ryan Jade. is on actually for

bid/ask Just markets, widest property perhaps elaborate I the or if differences that earlier, today. types spread you're any wondering on was spread from commentary following seeing between where the you on notable certain can is up

Hessam Nadji

might demand, driver versus momentum has robust narrowest. that And us we apartment a really, surge really of in we sales have year, saw both market apartment people such recall, That the this to regained increase there that housing And And that for sale of buy. course, whole time the sudden at lot. there say have is that well. the apartments was last last a surge apartments, been of were on rent year market year. are a year, doing that the a a when in because slowing hasn't was if thing opting and seeing all changed new slowing will side one little last a of bit a you of for of rents the I really a is the, new

bid/ask of little of as last a of So in or spread secondary of job look of centers there's some been are multi-tenant from follow-on other that spectrum, the worked bid/ask the if tertiary slowdown, as have suburbs widest result shopping do centers and some they the spread. then markets. that end in big notes probably bit we've year, a the away hospitality have you And lowest still projects the at away but further boost on, and population from older the especially

wide to And a from to moving that product the clients taking of now, offers right or market range. opportunities, different type. in messages it's one So capital key that's market to we're the many from our so product we're that market type

Ryan Tomasello

across end? the And then in asset elaborate sales of quarter you and terms on prepared by brokerage quarter both can platform perhaps And spoke in and trended the the investment but you your business? how post debt product it remarks, your pipeline, to that this how through looks by type and

Hessam Nadji

Sure.

type. no really specific is pattern particular a there So to property

XX% for the, brokerage because of And We extremely our results where clients time a new basis. have amount our of quarter up depletion fourth revenue the XXXX year-over-year robust coming complete our limited the fourth a the on natural of XXXX pipeline loan of kind into work to doing and really amount business we're of in originators agents our to quarter business. the on the was had

talked of been XXXX, in just the that reasons depletion And pipeline. more our into about. it a was coming it challenged X had quarter the this overall would it the of that have compounded then than the a So by we've for was marketplace slowdown combination

And out. the the no just stood region really numbers. March more and for again, one February the start because of it's show takes product timing-wise, up it So time showed in slowdown extended type or to timelines to

Operator

session, We turn I for have the to remarks. to reached closing and like the call end would of the back question-and-answer management now

Hessam Nadji

our much, we Thank operator, who and you on you our in attended And look and road much seeing call. all the call. very to very Thank you you having much. of very forward thank you earnings for on you next

Operator

conference. today's concludes This

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

Marcus & Millichap (MMI) 11 May 192019 Q1 Earnings call transcript