MMI - Earnings call transcript Q4 2019 | Marcus & Millichap, Inc.

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Operator

Greetings, and welcome to Marcus & Millichap's Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the former presentation. [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

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

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

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

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

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

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

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

Hessam Nadji

call. Marcus entire of positive quarter fourth afternoon, achieving in key behalf the you on XX% Thank period, our and of the thank joining you, & finished Private strong top XX.X%. growing expanded prior financing the X% for X.X% year-over-year everyone, earnings quarter good behind a Millichap revenue for in Evelyn. on and Client of our nearly On the We XXXX XXXX. XX.X% were in XXXX team, Private growth forces up quarter revenue note, brokerage brokerage revenue finish. fees and Client revenue fourth Strength was after financing the

to outreach, downshifted. market benefited of year consummate quarter our as and first the These expanded fourth replenish efforts launched as inventory. The in from the initiatives throughout that been slow XXXX as were quarter much had well of client transactions marketing campaigns to the

sources. brokerage reported of third-party sales volume XX% in market decline by Our contrast X% a increased to nearly

refinancing Our financing volume by supported rose more nearly transactions. XX%

in strength office opportunity saw industrial, a retail, but We which represents significant growth and for currently hospitality, base a small us.

navigated total the year, just X% we was For our record market through as aberration. XXXX below revenue

course reversal in resulted Federal increases, Client but aggressive sharp rates. early essentially This in flat sales transaction lower of impacted followed As particularly XXXX, in a urgency declines mix. to interest as our by revenue throughout our These reminder, Reserve's by paused transact to interest in XXXX many Private offset XXXX. in dynamics contributed rate was investors the anticipation a the business

XXXX declined revenue subsequently records transaction jumped had to respectively, and by and in middle company's The market in X.X% XXXX. and X.X% new XX.X% XX.X%, and large

We expansion MMCC with welcomed transaction a a reduction as X.X% room experienced individuals. net despite XX.X% We to volume with Financing such XXX of year. the we additional results on MMCC, plenty division, for and we the capture momentum year basis to roster as gain of of XX%. rate. growth of firm points full increase financing of fees number these share originators revenue reorganized grew throughout increase our hiring a total internal continued Our with last revenue to achieved emphasis

Our recent force target. broker and expansion years sales our annual was below

teams. call, higher success light quarter's of XXX last termination sales and market our to per primarily is our on agents professionals recent mentioned grow on by standards build more established to to in environment. a continue in newer a competitive this of due our a is in I goal employment force Despite market, professionals As attracting challenging year and performance the

Florida. Just brokerage and closed and over Form, acquisition of Los the the Angeles, Boston, months, acquired Philadelphia, firm, a Vancouver-based brokers groups in we past retail major Nashville X and

As our Shelton team a the Florida acquisition highlight, Granade to multifamily brought our IPA division.

partners among with and top multifamily record its a stellar XX-plus-year and the are groups Southeast track relationships. client in institutional the Shelton entire

last excited are throughout very their and synergies to benefit for the with fruition. financial encouraging investments. force early results, see of encouraged the acquisitions our with momentum senior-level quarter, existing I'm strategic to the the and of rest our recruiting Notwithstanding acquisition IPA of improved fourth We Canada XXXX. pipelines and and year's that to happy Florida the our rest from recent in and the are sales U.S. active by come frustration report contributions we're across

XXXX Growth take produce in counteract measures headwinds quarterly to to trends. initiatives results, and as time short-term our reflected

record on through believe best long-term long-term However, that its is build company's this We viewed of growth lens. the is our commitment business to unwavering. track

components. beyond, and let Looking growth at value me major X and shareholder emphasize XXXX our strategy for long-term with ahead achieving

enhancing of model. our First, organic growth execution we're constantly the

growth and business capital and which financing same also Investing productivity and propelling another is priority infrastructure of by service and market and in brokerage enhancing investor client brands. very increasing technology acquisition outreach our a major repeat time, with well support The our is adding services, strategic focus, advantage. fourth supplementing Growing proprietary the strategy share to accretive revenue fill capabilities gap through component advisory-based the geographic aligns remain further firm's competitive acquisitions At and and enhance our that coverage growth markets our provide opportunities. more and strategy. we're business diversification

augmenting least, to not culture and certainly talented preserving the but professionals actively industry. our of the and best last in attract the most retain we're And

with our light strategic growth controllable by footprint. tight growing proprietary given earnings financial meaningfully brokerage are compensation all costs and these investments year the investments development technology higher Virtually keenly in marketing, investments Last to the and business results. are increased directly impacted under and strengthening flat at any need position acquisitions, the our ahead. in aimed kept earnings growth last management We adversely company's elevated development, controls revenue reduced related in of market year, were We our years to aware balance in of costs year.

in This this We're in now the cautious of growth supply-demand cycles, done, new deals in set believe market and optimism. Well-priced a unlike interest for we XXth is is seeing year plantable. likely balance. are other reduction. with commercial overall to real and of performance rent estate We incrementally The believe the fundamentals is stage an year steady economy construction. estate rate is pullback but improved real but remain bottoming more given getting disciplined transact and healthy, remains propensity capital the expansion,

premium simply buyers may assets the credit a of year advisory replace In is persistent services. stage. Our at and a flow, requires clients, and current higher education, favorable. skew bid-ask nutshell, biggest presenting but advising deeper while gyrations want challenge overall contact the is where sellers Election late-cycle clearly more to returns risk, and justify process market enhance seek transaction a a options strategies investment environment time, value to

acquisitions We positioned our and firm. synergistic are as are to top the clients our provide this of across and continue level evaluate remains well opportunities. day investors to strategic Executing doing to every for large service deployment priority capital high-quality and so we

As risk. added we to and capacity on applying have and scale diligence mitigating we're resources company's previous the thorough while acquisition shared calls, underwriting have

X,XXX organic of to over is with the sharing its in a ability tools brand and development additional professionals pipeline MMI of with quality new complementary of effective the of and look as a kind a an number proven XXXX a sales industry, supplement acquisitions. active details proceed force to in comprising dialogue through stronger with than targets our entered a the are ever, We we model technology growth that year. host in largest forward

With detail. that, to over I discuss Marty? will results Marty the call to turn in more

Marty Louie

total primarily commissions, which the driven for real brokerage approximately revenues increasing In revenues quarter, was million. to of estate X.X% account year-over-year Hessam. by million. $XXX total XX% X.X% increased $XXX This fourth Thanks, to

by Client business, Private Our revenues our $XXX which million. transaction results led to were quarterly increase saw brokerage

Market In throughout business fourth addition, has year revenues prior from Middle down $XX.X grew of in X.X% to the business Middle the million been Market a The quarter XXXX. XX%. record after XXXX growth to compared year's

the XXXX, Transaction in outsized Transaction to which remained a Our records million. growth to the in $XX year-over-year challenged decline X.X% XX%. important of XXXX, fourth with that in segment Market note the quarter of business, fourth set of It's Larger quarter experienced also Larger

which decreased revenues partially offset to and improvement to offset our Middle revenues. X% by real Transaction business, We million decreasing estate For year-over-year other Client increases our $XXX it brokerage in X.X%, slight due was total and in fees a was XXXX, but Private financing saw by revenues Larger businesses.

from to working to the more Middle and deals specialty quarter-to-quarter. been Transaction our through have tend businesses larger variable IPA and cultivate we While be these niches, Larger division

from MMI executed a X,XXX fourth transactions the the year. prior X.X% improvement in quarter,

increased grew XX.X% of for For million. X,XXX. refinancing sales increased $XX increased X% financing to the primarily Financing result X.X% volume in XXXX, sales while XX.X% a the finance, improvement from to to billion. quarter billion, of This volume $XX loan double-digit the quarter total transactions fourth fourth to Total total was volume number in approximately transaction $XX and fee growth activities. year,

finished the to or $XX.X For revenues year revenue. increased nearly XXXX, as total strong business financing X.X% our million of XX%

acceleration overall came This volume higher activities. strong from in refinancing an and result

primarily estate compared strategy. remains business to with period. $X.X the other quarter advisory ago in referral long-term our financing a and increased brokers, of point revenues, fees XX% focal million consulting from real Other of comprised along the fees growth year fourth to Our

closely about XXXX, by $XX.X consulting to clients. advisory driven million revenues assignments XX% For tied increased other brokerage to activities and and

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

annually. XXX X at However, the when looking previous net we've years, averaged hires

experienced by continue to professionals XX our over months X,XXX. We to headcount sales to professionals investment our increasing the team, XX more last add

on professionals. financing professionals and reorganize head of our continued the experienced year team emphasis standards However, as the more with and to part during hiring to XX by our efforts XX fine-tune count financing performance shrunk professionals

solid in XXXX, produced the head MMCC Notwithstanding count reduction results. in

During the services cost year-over-year $XXX the total $XXX expenses of quarter and the to million revenues. increase an total services of In increase cost million fourth quarter, to XXXX, SG&A. in X.X% to primarily X.X% operating due rose due in of increased to

XX.X% mix and revenues, As a to percent due cost of XX senior deal rose of professionals. basis by services total to points execution

is of investment commissions and to comprised primarily cost for services financing reminder, professionals of paid company's sales a team. compensation As our the

recently and with and related associated acquisitions costs for higher marketing decreases amortization, to and costs, cost rose total legal operating licensing to due increase and by and certain million our business were operating $XX stock-based their executed partially offset marketing basis, and of and services, development compensation. fees. full These increases an of SG&A to year analytics year-over-year costs, XX% million. expansion On depreciation support data in force, which include increased X.X% $XXX SG&A a expenses, payroll offices sales in

while controllable This long-term in tightly reflects expenses the our firm's to areas ongoing strategic success. vital effort to manage investing

the It $X.XX a For noted compared versus certain fourth rate onetime last ago to XX.X% expense was tax tax was income XX.X% our that year net $X.XX law new year. the share for for XXXX, that to be to eliminates per $XX.X or deductions. operating due $XX.X the diluted per This the million period. diluted or million share adjustment related quarter quarter should was

to related low activity period due recorded was XXXX. fourth addition, In large units XXXX's was XXXX during to a rate tax settling no quarter such that in the benefit deferred windfall with stock during tax

net year, or quarter $XX.X million per XX.X%. with $XX.X XXXX. $X.XX $XX.X share diluted was to diluted in income per the share Adjusted net EBITDA or a was $X.XX million For of compared the million during of income margin

lower slightly XX.X%. with ended growing compensation. a million of The long lower supporting period increases in costs a due our ago our at term the $XXX.X with stock-based year, to For margin margin the related adjusted full from revenues, was decrease expense associated acquisition business partially offset activities, for and year to EBITDA by

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

underwriting be to will look top acquisitions a for deals. to that XXXX, built we sourcing, As our now have for deployment scale our we capital executing priority foundation and

expected appears several factors to flat like remain an our closing, to sources, Before may have results which and foreseeable essentially and be for on transaction based the I'd market to impact point key the future. XXXX. our so on out third-party opinion In in

market challenging. believe has gaining overall pipeline our we remains While improved growth are somewhat share, and we

Second, we during of acknowledge the similar each expenses brokers recognition SG&A year, of for programs The their year. note previous cadence first due SG&A be our in XXXX. should award expense achievement. to quarter our anticipate that throughout the leverage Also, increased to year's

quarter's than higher to As SG&A approximately the of XXXX. fourth to be quarter expect first we such, X% X%

XX.X% cost services of quarter in at historically of of low Third, the XXXX first were revenue.

expect of XXXX of XX% first We the be range expect And XX% to tax quarter in in of to to our services we cost XX.X%. approximately rate be lastly, and XX%. the

now the Operator? Q&A. up open for We'd call like to

Operator

Our Josh Lamers first question Instructions] [Operator with from Blair. comes William

Josh Lamers

look search. role, the kick a That's transition your off, commentary for new on curious bit maybe top are you call. in the things Marty, us to provide as Maybe commentary CFO could you better on framing help margin Yes. priorities could Thanks your in you just new the helpful what if the year? And to to XXXX. some frame

Hessam Nadji

Let and any Marty me can weigh add in comments. then first,

Our since financial has been there both real search and general. the within industry there's year in candidates out interesting looking are services of produced going And a and of are some very the number on we considering. at the that beginning has estate we that talent now

CFO engaged role the Marty's and As appropriate board be and brought on-boarding a XXX% found period on until as person fully and his had is has transition some and and reminder, Martin help. focused with on is will

has that related be is us organize be growth a will manage in to he function all essential all better to sound going detailed very initiatives. the helping really and done new fashion. not until company And over he's of taken projects his to So the will, to on moving and that

very lot a as and we sure another of post-closing includes that as somebody making supported the participant and history launched process, we've as companies both background bandwidth That being groups we in of integration, end helping in everybody and well firm, well a projects that our well. familiar could internal in use who's with acquire of integrating the to being front are projects additional its acquisition the where and different sort in in the from and all the resource and that

Josh Lamers

Sure, sure.

Hessam Nadji

to anything Marty, to add that?

Marty Louie

gets My, first right. new is make to speed. and really my Yes, foremost, this up job CFO to sure that

smooth a spending it's new that time with my And as this to transition transitioning person sure well as so I'll role. to be of lot make a very

I'm really forward Thanks. to So looking it.

Josh Lamers

you yes. Maybe Sure, progress turning some to MMCC, noted in hiring there.

refinance that continue tenured professionals the gain that's whether we some wondering the noted of the productivity year volumes in departures, if if hired gross more guys it's but combination quarter. should a the the to So sequential experienced into some and And I'm on on attributable the just wondering and mostly strong basis, expect count. the beyond. you in of gain that in segment, also head some saw a then to had and to bringing productivity in And decline quarter in you whether due new you professionals, I'm this or year-over-year really and

Hessam Nadji

Sure, Josh.

take me question. the part of Let first your

MMCC of On experienced both great we've the success equation, success shift had more more and attracting the side top continue new and to talent toward brokerage going the line and and have professionals. hiring for operation,

both with those expedite terminations performance us net to high, our accurate very very always the So environment, not assessment have your you part do as attrition market and decline it's slower for had some departures. number our on in proactive some of been that are unusual to a in and standards

and team to well both as the our continue that team. we'll we finance as able quality improve to brokerage confident to so And investment continue the hire of be are very

effect increase general be productivity productivity gradually. replicatable quarter. wouldn't certainly, continue productivity in the we for of improve expect spike productivity On to without of to doubt. line we every a an should the the on MMCC front, be refi the quarter to had And I fourth rise. on the saw kind expect But would and the that the trend don't, grow

Josh Lamers

turn Sure. a just more, down some and in did commentary I if multifamily provided. sneak that on quarter it class. It's And you marginal, can that year-over-year asset to basis, the again tick of just then given I I'll but exposure to one in guess the the

talked you're the that types the you alternative just balance that I'm the given it see so prioritizing class you're versus about And within how broader whether and wondering control opportunity approaching asset right, how multifamily, of there. measures versus opportunity some you the that or you asset rent value

So yes, that if and just sum you up. could

Hessam Nadji

and have The the have in multifamily. still are front, advantage not client we private we of private we in and only Sure, especially within firm in who that market the evolution broader you is the bet. our the opportunity where dominance sector, both are client we within of sector substantial this growth multifamily do

So marketplace about than more the deploying United States. market. multifamily into throughout more more that grow twice us of Remember, better capturing and there agents XX is that of there no units the job do ability change in a share, the apartment to would make million are

It's and very one. a somewhere of year, a industry active between to $XXX there huge billion upwards $XXX Last was trades. apartment billion of

leader topic we ahead of market, in York one lot it. X of anything, a and our probably years. massive sellers leader assets New in influence rent we a increase to some has stay Oregon. plan California, if saw of The in control clearly decide in past it's concerns leadership In it, an been in over margin XXXX, sell are the it. and serious in to the We a rent control So the and

of will some in markets. has sales those laws market Some of substantially the those recalibrate. have and passed, velocity dropped But

no us short-term that the change very other for but plan growth is to time, related pains, multifamily some as centers and a the speak. office, are multi-tenant There's our market recalibrating there product doubt same types. makes at industrial, is diversifying strategy there we into nothing and, It from shopping aggressive that

So across have growth the we of this having opportunity tremendous board. advantage

Operator

[Operator Instructions].

Our Brendan next question Fargo. Wells with comes Finn from

Brendan Finn

well? potential I you're but upon more release in your pipeline you noted in of recognize get terms you and an maybe what guess, terms as expand and of have acquisitions acquisitions. So you in what's I that probably maybe that of in for specific, encouraging pipeline just could of looking geography press specifically, you can't size too

Hessam Nadji

on a we've the very Brendan. Sure, focus And or positive. very encouraging we over that have been And their capability strategy gap. to have been past so. by all been fortunate come have months performance to The where has XX service and areas acquired those very we've firms geographically across acquisition, and and early integration the

financing colleagues where then, financing different we this to delivery So about that the bring existing new whole are our excited property no bring and, course, have complementary geographic continuing really collaborate as coverage clients. our that acquiring that value new we cover expand or with our very service cover overlap of a well little firms internally and sales types and course, strategy of can very to force of

other strategy more they're mitigate toward there that the any but So effectively pipeline risk within brokerage conversations careful investment financing business. be a understanding been detailed definitely to bit their sides. may firms, but resources the of development, very our heavily with behind there's more as only strategy. If some a we scale acquired. in have Right dialogue core bit also process see added just able are happening firms further driving it investment and groups little little both of be in both is tilted but to anything, that's brokerage these infrastructure and on change And what's of opportunities our segments active some some financing. before to in don't well not brought with as We and see this deals opportunities order we and that on more both underwriting do do now,

really that a growth just supplement our to Let organic me model. strategy acquisition emphasize is also this

the the on internal technology That's time. a any gas best that really and around better and in organic where go shared not, training taken better enhancements, communications with improving are an our in better work in our things practices, top form, growth lot foot We organic continued that shape execution. business all you our doing of core our off better our is way, And enhancements, executing we've past, and fashion priority. absolutely the mission or to our of this the

Brendan Finn

Got then of And kind Transaction Larger you. the That's is notoriously helpful. segment volatile.

expecting segment I more So guess market in relative kind XXXX strength to year XXXX, a that in XXXX? down guys after in are of you

Hessam Nadji

Yes, of brokers. retention look us our at part larger on strategy a business for of that is basis I the it One that longer-term for in to transactions penetrate our a reasons. X is would

the engage they That's with you of they over the it's the want company, As coming the years. that. term, done we line over transactions, X past we've if to much now how transactions, of our look to do enable naturally to mature brand at the what to platform, long the them the steadily need in And from and larger grown. tools, overall larger these trend business provide is

institutional ups course, downs of remember, a some a it institutional of our has clients service ventures even capital. are true service the are we given and lot lot market of private through that of have investors year And with that transactions clients them And clients. we larger joint in most are IPA of because A them division. private conditions. So in

that that So X affect the client movements because sales market conditions in be to up changing larger could private the shows year and of the nature there transactions, from next.

new this out, both more of adding of how through hiring more external we to larger do terms growth the and internally playing and In more deals. organic through brokers, talent see continually we're

the it to me declines very growth. think to a business show over period, to about between grew will XX% in to segment were you XX% X% the segment because But continues the we that very It volatile. more tends that be XXXX, around to So XXXX, give be to for XXXX forecast wouldn't fact healthy somewhere expand in you those if X-year the that continue be and in strategy to X to is it. forecast. hard X% responsible segments

Operator

question-and-answer the time, this turn end the back have for the to Nadji session. call like Hessam over We At to closing reached comments. of I would

Hessam Nadji

you some much, you look forward look call. on of Thank We our to all much. you of you you having and to on thanks operator, the of forward our back next for all and very quarterly Thank to joining seeing road call. very

Operator

This conference. concludes today's

may at You time, we your you your participation. lines and thank disconnect this for

Marcus & Millichap (MMI) 23 Feb 202019 Q4 Earnings call transcript