MMI - Earnings call transcript Q3 2019 | Marcus & Millichap, Inc.

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Operator

Greetings. Welcome to Marcus & Millichap third-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 of ICR.

Ms. begin may you Infurna,

Evelyn Infurna

Officer afternoon, conference to are call. Officer Chief Chief Good third-quarter President & XXXX Executive Financial and Nadji earnings With Hessam Louie. and you. Marcus welcome Millichap’s and Martin Thank us today

management, Before our remember to may prepared over statements. responses that contain the please forward-looking I and call turn questions the to remarks

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

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

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

webcast. during website, you link prepared being the remarks. Investor section the Relations along webcast available this www.marcusmillichap.com, the presentation may of The is reference our is on call with conference Finally, slide

the turn Nadji. pleasure my is it call to Hessam over that, With to

Hessam Nadji

Thank joining On culminating of and declines entire of behalf income over the faced Marcus you good in the third-quarter for Millichap call. our during Evelyn. MMI and team, year Thank year. X.X% quarter, net headwinds you, earnings third revenue afternoon, everyone. X.X% some

time increasingly opted clouded while consecutive the marketplace as experienced essentially number urgency during postpone total messaging. flat anticipation also and bid-ask and of line, Internally, transactions in sentiment spread. despite recession decline persistent to interest the and variability with trade year, aggressive is volume contrast actually we transactions fed’s A of became forward a well the closing transaction fears headlines four saw many by as a on we hikes given more contributed the to Investor lower company’s last execution overall rates. This investors mix year. sharp the and in transaction rate in quarter revenue last to being the

past in This period same growth in XX%, Given real five versus year numbers have of five-year were five this this the the sales years results the XX% trailing XX-month MMI These the of out income natural continually revenue achieved is reflects company in quarter three the In estate to XX%. of of through transaction years. market, of we look sales growth short spirit, term flat force variability and at pre-tax of results nearly reinvesting the the optimizing market term. back a for growth while declining long based in balanced ago. of third on light the

number we’re of factors a forward, looking that let encouraged me about. Now highlight

growth. consistent in have to continues real overbuild not job during and growth, rent generate sales property expansion to economy despite real historical a First, across cycle. choppy solid leverage an and The estate fundamentals types. this The occurred fueling remain all environment, healthy virtually estate over demand tendencies

next are interest which basis volume and should over down from in result most have the to Secondly, quarters. trading XXX bottomed, growth year points importantly, a rates few appear ago, now

offers to priced. debt of that continue multiple of observe are assets We record amounts for capital ample sideline, the appropriately and capital on availability

Our generating more than and intensified are connectivity marketing borrowers client and with efforts outreach sellers expanded before. buyers, ever

one just several investors. we of viewed weeks negative market special As headlines, after overview was over September XX, X,XXX held webcast on example, a which

session solid points data The and economic fundamentals. was with goal grounded of facts concerns balanced elevated the to that share

and and exposure larger symposiums another a education presence now industry market As private-label expanded highlight, pivoted to integrate conferences, with our at buyer webcasts inventory investor have pool.

our seeing in As pipeline. a modest are result we efforts, steady but all growth of these

in and current and lenders educate, more together. sellers simply it takes However, time underwrite to environment, the bring buyers,

look were quarter. decline brokers reported sales of RCA, industrial declined Capital which more for breakdown Taking transactions forward. at market by further But also the and volume Analytics, X% up over brokerage the almost a Real year keeping excluding spending are XX% detailed more our shows of quarter, market X% moving X%. year. volume sales, time sales third declining Our increased deals XX.X% data RCA’s or

we in Industrial MMI. brokerage diversification sector. opportunity registered the was And growth and transaction year-over-year gain an sector of a for important nearly XX%

represents small base revenue However, for a us. currently it

the industrial, RCA that property in of Excluding share core suggest for type. numbers gains margin larger a MMI

larger their declined segments and gains revenue variability higher and we During mid-market revenue the outsized while quarter, to at year. last X.X%, larger a private decline by due these in client saw

late of large bid/ask third more quarter. several spread were postponed seeing or transactions also at higher price We’re in and delayed the a points,

quarter. transactions these fourth Some to the come fruition beyond may of

quality beyond is investors larger, further to expect Looking we short transactions higher our larger seek private poised company the of as the penetrate investments. term, to more

At more and clients secondary markets. points the assets are in institutional of price time, acquiring lower our at many same

this to migration. facilitate We ideally capital are positioned

our healthy. multifamily very a multifamily has of We cooling, slowed of view and revenue this has pricing property trading as challenged the terms post-record occupancies record as growth type, trends market year’s In last by the especially been rent normal aftermath in volume. and remain since

risk-adjusted metros simply were is sales bid/ask demand also impacting working its a Concerns regarding of is and strong, assets handful a some for return. Class to given There C and wider the limited still multifamily market spread rent measures markets. are concerns through. control B Overbuilding that in way the remains

California and passed sales is example, New the term. in in control For recently short rent exacerbating legislation, slowdown the which York

We low supply to they measures. control to time strong long-term vacancies and to expect is attributes vibrant creation attractive markets elected that as important over a that and demographics, rent are also segment due these drive which markets and long-term It’s have favorable investors. the have get overall job the also high worse to are barriers, multifamily recalibrate to even remember massive which market. many These

continued to Texas, Florida, Arizona, others. and Washington migration such markets seeing buyer We capital and as Nevada, are interest many

advantage. term. and a share every client America of long brokerage private secondary metro them over sales of view, opportunity primary comprehensive highly and point coverage North MMI’s additional growth growing the consistency are are fragmented, offers in major our execution multifamily virtually which From and

We are and leveraging position in space. our leadership building this upon important

financing as front, the expansion On technology MMCC lender the of we tailored marketing are relationships. as growing and well through our and enhancements, strengthening

have financing the number quarter’s third grew transaction revenue XX.X%. financing growth but to deals. transactions Year date, XX.X%, The our financing due the revenue to declined smaller modest volume XX%, is number increased was up of of and higher to attributed mix actually transactions largely as

our growth of added to the X%. metric. a force turning sales or We over past XX months professionals Now XX

addition going part our professionals Our experienced hiring has and strategy great growth emphasis remains a core of yielded on forward. more

mentorship We to a and taking on managers steps comprehensive team programs our talent additional Despite are recruiting management, are through build regional to labor market, local this and attracted we our further success. new training. competitive adding

Our seasonal terminations assessment standards. based increased performance performance led the has company’s to on

programmatic spurred months. organic last XX to to our platform our synergies and referrals of our contribution by that value the with we’ve practices to happy client that see over model. groups among and force the cycle. line in particularly sales of numerous traditional progress in opportunities our network, acquisitions, management and addition. growth the add growth With examples our companies integration is the and report acquired These This complement and to development provide for MMI opportunities continue maturing respect in recent I’m incremental brand we and light business

Let priority. turn to me now outlook and

will marketing client top to inventory, translate is foundation of the takes expansion this and as ongoing achieving the growth. continuation pipeline Our achieved sales of priority client and well for It This in be revenue as resume been advisory-based of nearly the our intensified long-term history outreach initiatives, of time growth expand revenue levels a has to XX-year into service force. our but through this market, growth. changing

priority. and tools support retention development. brokerage improvements Marcus major the remain for and investments sales systems and excited & of about under long-term development Ongoing a are we’re These force, number and productivity of essential Millichap our the new applications platform to

as acquisitions team, we are financing growth IPA is initiatives, penetration reasonable We expansion division. and transaction on well our the and expectations. the see our as our and strategic larger of infrastructure including further to well-positioned capabilities as expanding and valuation continue scale to more future targeting through MMI our optimize executing

evaluating types, seeing additional this top as we’re property executing and/or on in priority our as currently deployment well Based capital are that key time. market, opportunities additional expanded We in provide at market growth acquisition acquisitions what coverage financing. the remains

synergy, to our as Let of underwriting. our valuation key growth parameters reiterate accretive me long-term and sensitivity prospects

Given we both in and executive the key charge importance externally, of initiatives. growth-oriented a focuses, assigning are of our internally corporate

role. This helps includes integration. forward us the will and throughout plan with announce post transitioning streamline us helping his skills, to scale into current vital given us well this acquisitions communication vetting post-acquisition to underwriting the more is that goal effectively. firm. help I Marty excited and enterprise, implement and relationships Louie and is The to am of throughout tenure as more coordinating qualified from and efficiency and move the potential evaluation, projects his be and execution speed CFO He

over further our to we financial is results long points current I’d pursue remain we value closing, the initiating In like the until over At in remain plan his Marty? strength shortly. discuss in call replacement the to brand, his platform post growth balance sheet point, will our turn of will search and create more this term. shareholder and selected, CFO strategic as Marty to as and be detail. Marty growing

Martin Louie

Thanks, Hessam.

diving team next company Hessam excited opportunity company’s Before financial our toward for the board this very our level. and growth our new I’m the thank my me for now want attention to into initiatives. financial the results. help to I allowing the take And to results, to focus for

$XX which X,XXX MMI In period. year-ago was slightly than total quarter, higher volume the the for the sales third transactions executed of billion,

year. financing to $XXX XX which a X% our decreased commissions, came points over during XX% to Total which $XX a decline has which while estate per brokerage million. account million, X.X% transaction Our in modest over increased quarter, approximately average million lower revenue, $XXX grew mix transactions year Real third revenue of due last XX% for revenues year’s basis was reflected commissions to the quarter.

nearly We sales X.X% in of levels activity in immediate as experienced a as to respectively, for term a Revenue came in Market and/or after private revenue to million in a in assets Larger on opted a decline this increase environment to Transaction the and XX% slow refinance. in which year many and X%, Larger the slower robust continue hold investors result XXXX. at businesses client $XXX as Middle declined quarter, Transactions the

As over particularly private time. executed to variable larger we have noted, be tend deals, clients by more

we and the further messaging rates future. as aggressively rising, into year increases Additionally, last was the were were boosted interest fed

of As XXXX. businesses were nearly XX% Middle Transaction Larger our a from revenues quarter the Market in combined up and third comparison,

year to environment, the a in to In respectively. this date platform slightly Hessam Millichap we light volume & was and declining will seen by to the in shift year we transaction market rates. market X%, down Year interest the sales while revenue As continue we more X%, of and were down urgency less and of make brokerage and noted, gain competitive. slower market have and X% anticipation share count believe Marcus transact this changes

was of for sales investors revenue $XX quarter. refinancing with quarter size million for volume refinancing more decline The to transaction. options largely lower during, have financing other Financing the decrease a of transaction average in was in by This in the for supported due the which consistent periods rise liquidity. is

However, on financing revenue a year-to-date is actually basis, up our XX%.

of $X remains Our fees major estate for consulting fees brokers primarily comprised with along financing came focus referral in Other plan. a other our and at of real growth revenue million the from advisory business quarter. which is

professionals with months. of addition we quarter the a the XX last X,XXX Lastly, over net XX finished for

of last best head We increasing continue our to XX to count add and experience team, by more professionals sales XX to X.X% or X,XXX. over professionals months our the

an by sales We per of achieving remain XXX long-term confident year. in professionals force target average growing our of our

decreased to expenses over and commission operating total fell decrease services cost X.X% of million expenses, revenue. for of quarter, to year the SG&A. lower by X.X% the $XXX quarter driven lower in due During $XXX decline expenses Cost services million. due lower third operating was to The in the to year

of As to revenues, total of and mix basis size, points compensation. services a percent fell XX transaction brokerage cost XX.X% to by due

vigilant in includes compensation-related is cost financing lower over investments force, $XX increases support As professionals a while year platform remain comprised team. in services and our the our primarily investment reminder, paid improvements. revenue sales cost we’ve making costs, we development by to initiatives. support our offset and commissions of sales to This and marketing back for year million in compensation business decreased management office to as growth SG&A of

in key This expansion also includes planned growth for future markets. facility necessary

the $X.XX, $X.XX X.X% year a expenses. includes also over for last quarter year. diluted SG&A of Our per was year, share share representing earnings to per compared decrease Diluted acquisition-related

rate was the tax on the quarter the end for guidance which was quarter. previous our XX.X%, of Our lower from

the Due Adjusted EBITDA year expense tax the to operating XX.X%. expect rate effective law, of to elimination conforming $XX.X we range. the for quarter the to tax full our was EBITDA our million to to in decreased deductions while be changes the margin adjusted to XX.X% XXXX related XX% during certain states and

some and to to as our operating expenses improve key quarter, systems, well initiatives. While able to we broker as technology initiatives manage and we continue resources our growth of invest our acquisitions to scale other were this in

some just performance, be overall should like past, the quarter. be from as long-term the our our margin, in basis viewed could on adjusted quarter EBITDA variability discussed to there As

we to work we for further result, a as to the As EBITDA pressure expect year our our margin under adjusted pipeline. remainder to remain continue the grow of

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

our major capital organic continues our well our investments as to market earlier, as acquisitions. model, mentioned be position platform, in unexpected Hessam downturn, event As in an a the advantage of strategic additional improving

acquisition important This as our scale capacity. is particularly to we aim

stages forward In we working at are of quarter, on we addition during opportunities updating milestones on Form are a the in variety you different to of acquisition that coming Estate the which definitive currently the discussions. of look Advisors, to fourth closed months. Real We

an the of of impact our key closing, factors, a may Before the out I’d results like which to for point number on remainder have year.

increased nearly with First, up QX brokerage of XXXX revenue revenues XX%, XX.X%.

private year’s revenue grew this Middle is and client XX.X% grew the that our transaction Large slower and the year. During quarter, comparison challenging while Transaction XX.X% business XX.X%, market Last given respectively. especially

progress Second, and we make continue inventory to pipeline. our incremental in growing

lines delayed quarter. number However, that transaction impacted come beyond may take transactions fourth and expectation extended the to to fruition due remain A quarter of time postponed more third price closings time gaps. to the

Third, be recent the impacted especially slowdown to sales in in by near term in markets apartment the rent legislation. continues a control challenge

rent in rates, growth growth term. sales fundamentals, remain may support overall hampered healthy velocity While the to with lower strong short and in we recalibrate expect apartment market the from interest

to the of tend cost in to I the and levels our services for Q&A. at now be Lastly, call quarter. Operator? open higher like would fourth up SG&A

Operator

instructions] Stephen your [Operator first question William proceed Our Sheldon, Please question. is Blair. with from

Stephen Sheldon

Hi, for my taking on And role, guys. new Thanks questions. Marty. the congrats

boost You overall the to about the talked industry volumes. it industrial little opportunity sector the and probably had a in

but seen. an for you it near exposure, right you term? focus longer vertical term? vertical How do Or more you about in break opportunity? a do some I how talking you out that I major that lease now? industrial for going think that Is out you are And I’ve think don’t is think big the

Hessam Nadji

of your to very now, product the our Right the we a And plan segments. it. really last in in industrial aggressive we since have is metros smaller one some put thanks success together. expand had of Stephen, We’ve months a question. for number plan XX

It’s of lot to more little has sale-leaseback opportunities. that There’s our a shown a little billings, to a opportunity of we’ve there proposition user the market. and therefore, that bit approach is bit kind that tailor different. to a owner us client the value had is for And there’s of And a good base. in our penetrate very complicated lot us

of These that estate. up lot have are a a in lot businesses capital real small of their tied

significant ways bring there is good pretty fairway down used scale of shown that it’s these we’re have so it’s to the very different of be servicing. looking of success, They small And part to metros. a private from for a kind educational right investors, we’re And customer that in base it a standpoint, variety to to and we much businesses. the so very

penetration base when from a revenue perspective, to look outperform market, happened the why today, were us, headline out, little what’s had contracted industrial, it’s in our exclude a year-over-year normal we of to if market it compared a at look market base we by a for relatively pattern which perspective, you essentially a we small right the XX.X% market the a didn’t small why again, transaction how numbers. share performance perspective us. is that’s turns understand to deeper basis. for on And if But you the And flat we the when dig

So to it that’s out. important was it point why

Stephen Sheldon

sense. Makes Got it.

impact deal the much frame from of transaction any they line, And is may that have the any to On then expanded? pushout there the way potential you how elongated quantification degree time of noted?

Hessam Nadji

But We it. publish. quantify track that’s from it disclosure really a normally information we not don’t internally. perspective, certainly We that

However, year XX% expanded you somewhere lines between last so. that over I have X% tell time or to can transaction the

spread I remarks, given in spoke headlines of fact some a we’ve element timing, way get That of this it’s year uncertainty of more a a the my and certainly during seller bring our we that expectations formal things those so but to that the rates. and marketplace, to to of through. the the before. bid/ask than byproduct natural buyer new been just and negative of combination taken it’s all the a has time the seen And the that And factor because together, this it’s falling secured interest loan of more working are also

Martin Louie

this is Stephen, Marty.

things to levels. listings, at are historical you metrics were news, expired as low is died under good though, some that One contract, deals when of our of that is that look add like metrics the those I’d well other of like to as all that at the

pipeline So that’s our right part about the promising now.

Stephen Sheldon

thank Great, you.

Operator

[Operator from proceed question. JMP Germain, instructions] your Mitch next Our Securities. Please with is question

Mitch Germain

doing know your outreach, I based other on I’m you’re start marketing said some results you. client Thank until you how see – and you to and curious, efforts? long those from comments,

Hessam Nadji

Mitch, intensified buyer and marketing takes this that pools closings activities process compression reach of to come it out longer we that that of additional these two normally, and it’s lines maybe have all one the for over we kinds discussed when and to activities. past through implementing additional additional because have see time been earlier. or taking the campaigns months, listings bigger we little that the reasons six a of tend quarters In environment, we’ve

you direction. it, you tell really which I the for interest there, So quantify clients can’t the the are that there, are but tells looking definitely that I is our can level clients levels attendance of really

the conflicting and coming that clients decipher what Our are to all this to data them. are in mean does trying points

translate between out brand we’re and more all relationships, getting this for institutions and that – targeting longer and more private into taken is get so in to there people, the and standpoint dialogue listings more of closings. everything it’s for with open a And us really that investors, from to specific closer helping the but lot of

Mitch Germain

activity. talk sales curious where you you. Got I’m know I percentage to the that cross-regional used sits. about

Hessam Nadji

inventory-based. Capital half connectivity around very in also in point, much in U.S. only Global different representatives world regional United and about your initiative, a activities we engage through continued a dozen interested the more our predominantly and that the to Mitch, are lag of to have between States, Millichap’s world the those, but private international various internationally investors capturing But our real symposiums not brought around has become Well, & have we Markets the estate. to where regions our Marcus domestically, all from countries inventory

just Bay we had just an in had in the example, had event For event Florida, an we Area. an California, in we event Southern

markets events connecting to that these now cap from are or a one another, especially featuring of capital All buyers of inventory type are and rotate capital local buyers, we’re toward looking lot coastal product a and move to to pivoted getting higher rate traction.

of And both so the these time, much far, the an great last attendance, to been the a clients Mitch, some from events about as follow-up of one metrics was results comes and we the and expenses And that your related track physical how of from and eventually from have reminder, attendance these questions track all tracking And the are online it. business and every with activities. perspective.

Mitch Germain

about the I quarter. in pickup in a not I’m the I’m did just curious – about as cadence momentum see the like the it’s you know business. a progressed? of seems curious but the shared It transactions past, quarter you’ve metric in

Hessam Nadji

August and and activity the part of slowed sentiment part of September. in Actually, first latter the down

that So headwinds formal referenced in latter of of intensified my the the remarks the in a part lot really quarter. I

subsided, just our regarding that. which thankfully. lots If of request not headlines you of in as fears, the But August, a has reaction negative of of curve, there and a phone for a calls, was activity, a from all there information wars trade yield recall, to inverted lot clients lot recession was incoming

it a increased really the showed quarter later So part was concerns. of the that

Mitch Germain

apologize. I’m the believe, But close. mistaken, about one about your M&A and there’s four expectations. me. is kind performance to three I I curious newer the believe I’m Last just not have performance tracking of on of could which been relative Great. Curious been, one. be guess, absorbed, for how that, but I I if of off that’s I transactions,

Hessam Nadji

Sure, Mitch.

market say integrate our and about to XXXX. obviously, some nothing getting with get acclimated point transactions and system executed takes into a is time We chance listings, them, as it their have a June it on. of since us maturation And to so six these for of companies to have ramp-up key each

So they’re stages. at various

XXXX last closed early late our in of that transactions Some closed October. Form XXXX with being one in and the

amount at were stages. you especially can across it our of presence various Canadian at It’s we’ve for United – the is common opportunities already the types capital Canadian tell board, interconnectivity, into client they So you the States, is really But deploy encouraging. few I what some where expanded referrals. when of look has looking product is turned opportunities to a seen various

on to to our dedicate sides. And in energy key it looking very the cultures types Midwest our Cleveland think integration more it And financing is looking into resources has part were This of scale we’re very successful. encouraged. in it and and fashion, ground-up carefully very acquisitions, they brokerage the strategy. we’re been throughout organic we’re of drive the is interest all to and because a one experience reasons of of Marty’s calculated It’s dedicating And common time tied I that the doing right. that both to

Mitch Germain

the Marty wish I best. Well,

Operator

closing question-and-answer the session. the I will the over to Nadji remarks. of turn now for call reached end And Hessam have We

Hessam Nadji

everyone joining We and your us thank much. on to to Thank some you look seeing very our road quarterly quarter the call. on like for next attendance of I’d you for forward call. our third

Operator

This concludes teleconference. today’s

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

Marcus & Millichap (MMI) 9 Nov 192019 Q3 Earnings call transcript