Earnings call transcript Q1 2023

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Operator

Greetings and welcome to the Marcus & Millichap’s First Quarter 2023 Earnings Conference Call.

As a reminder, this call is being recorded. And it is now my pleasure to turn the conference over to your host, Jacques Cornet. Thank you, sir.

You may begin.

Jacques Cornet

you. Thank welcome Millichap’s and earnings quarter Marcus call. conference to morning first & XXXX Good are Chief President Nadji; today us With and Financial Steve and Executive Officer, DeGennaro. Chief Hessam Officer,

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

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

to was on reconciliation measures you reference with company’s the The the financial at this prepared on conference available and website, during slide represents useful presentation why is In GAAP remarks. of company’s available This company information call the addition, presented morning financial being earnings Relations webcast appropriate The is explains may Investor the are website www.marcusmillichap.com, investors. which release, this is non-GAAP along on link the webcast. measures. issued non-GAAP section measures and of a believes such represents our certain the

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

Hessam Nadji

On earnings first of team, and Millichap & everyone, XXXX our quarter welcome Thank the entire behalf call. to good you, Jacques. Marcus morning,

challenging during exacerbated MMI anticipated, estate to which Fed’s by by due failures a rate caution faced repricing real ensuing disruption the first shock. the bank quarter bid-ask As and the quarter. market The was spread and elevated reduced interest of liquidity further lender caused

capital talent and prices of $XXX development lack on hampered sidelines. in significantly. acquisition business elevated to general loss million. Expensing adjusted million, of was of various a Revenue years, growth motivation initiatives Revenue many sell and the particularly investor the uncertainty, by $X.X over production $X.X in at came keeping invested EBITDA earnings pressured net of and buyers resulting several in reduced loss at million past

of Reduced loan sideline the but forces many increase price many by including did on extended our marketing priced $XX simply and all investor above closing were business out. These to values million transactions and pronounced pencil larger institutions challenged many and and as in points in frequent impacted remained our private lenders debt ratio metrics, repricing lines. and deal time an key segments deals not

help Capital to brokerage XX% based commitment Millichap’s the an tough estimated the dislocation. and of market in This Marcus our second is of in a declined of on even the quarter to broad X,XXX nearly and creativity market. transactions, transactions Analytics severe fell XX% quarter reflect First sales CoStar. broader trading for the quarter which which consecutive of market current execute testament nature a execution & brokerage the clients team’s reflects decline a data marks XX% and preliminary transactions in by to volume decline XX%, Real activity, with from

results by larger years comparison. growth therefore, particularly the very Our over posted sales, tough impacted had outsized a few which and had past was

while middle fell larger Private revenue declined sales from XX%, market Client respectively. XX% and revenue and XX%,

and For million help a business advisory integration The of combined to our value differentiator above two in and grown a quarter firm’s market perspective, XXX% flows these first in fully work of IPA clients private clear by believe challenging engaged when which opinions navigate XXXX. capital priced We serves revenue client providing and be investors with the segments had at of IPA from major the to resume. dynamics. primarily advantage core $XX these division, is institutional

Our and recovery. market in team to share their be new relationships will gain well-positioned

our side, creative Client and on with sellers price expansion seller Private equity realistic executing XXXX financing, and get the deals highly are include to expectations. solutions focused brokers exchanges. On motivation done for These

declined The Decisive contagion and revenue and to alleviated financing restricted as of to sources company’s these more due actions financing XX% the became degree. Treasury fears by the messaging fears. some Fed

However, have all a virtually cautious stance. more lenders taken

transactions XXX the passing tenacity in conditions. will lenders the higher to volumes brings and skill, that financing Fed-induced with market quarter, access eventual team XXX the reflecting Our amid our investors to through the lead currently repricing of perfect even storm tightening. and and financing sales credit closed believe We normalization separate as team of the the works still liquidity impeding

practices force on currently the in and with and These execution. training, sales and a continued through our research positioning milestones our communication all implementing. to to which to actions while We investors focus are MMI leveraging help strategies we’re strategy that is real-time support sharing, there best internal of reach recovery new include

being as our to commitment to to elect may adviser Our trade. postpone near term of not lead the clients trusted a transactions many in

business these reduction which this with our MMI the out is a The of new December more to drive expanding in offense. technology in directly from with which leads going a not milestones balancing prioritize continue investments to year, we’re To auction off our revenue, keep and cycles. and platform, lead this times expenses in during executed lowered and that that MMI rather resulted include force in strategically has a enhancements and growth approach critical These above-average to tightly into great we market partnering heavily cost every downturn, costs. at been market on to will the as significant a and key proprietary recovery bond lenders end, loan our new is for This start, and own client sales of page events. conferences recovers. in stronger playbook them it However, promoting of controls investors sustaining very critical. industry believe signature and company’s these potential pools presence are division our loan We investments all

being Additional executed. expense areas in cuts are select

accelerate levels again, elevated the term a information first helping to quarter. external in in financial performance but front will talent long-term on growth, weigh near pay and management their pursuing to the aggressively is needs. respond current some to key on clients However, support our in build view recovery. remain great in sustaining Taking To acquisition dividends we is hires critical believe sales the of our will made force

success elevated in ongoing of Our market and in due dropout newer attracting financing continues experienced to offset teams and the both conditions. professionals brokerage to individuals

actions a these other The of reach first revenue. difficulty obstacles quarter’s grow The the the are and market None candidate our of more pool in the particularly challenging headwind. candidates, originators wider faces environment added inflow and experiencing professions, to deterring are also commitment sales from and sales new new force. to generating brokers

remains experienced and intact. growth, organic team traditional acquisitions of and strategic strategy professionals additions multi-pronged Our

the pipeline and M&A encouraged fact, of to with some active by we’re discussions grow, continues In prospects targets. quality experienced

that largely forward, moderation cycle remain tightening capital of likely looking the of We line Now the bank out, availability. week market market. to of time Fed continued has message recovery the and optimistic cautiously the bring for failures pushed rates to due the inflation this will and clarity as further the tightening end

investors on shared slowdown. regain of with the the labor we call, will confidence on depth we visibility As our also last believe market

estate trading effects deceleration which the opposed should to for the the to interest This few improving price work for rates to severe As coincide setting It estate stage more emerge, and to losses. take through job most some major with should office as economy, to of is and rent higher correction have types exception X volume adjustments pressure robust X with the demand. of critical net many this real a experienced years. maturing job past of are face that months but The real price it property understandably critical a see system growth for continue of may activity. a more on the the we growth concerning categories, loans investors. loans remember Maturing strong is over banking in fundamentals

require be these focused to undoubtedly When loans loans on Fed appear to come and restructuring Lenders opposed at as in to working varying many to fresh will with market, year’s borrowers equity offloading discount. this the properties a maturing degrees.

a liquidity This prior XXXX-XXXX as point more last a liquidity This levels. in the X that difference to substantially bank also at pandemic. great of increased level when into out me system was liquidity to whole stark has the banking years. is a the Let fraction current the going recession has further the period

prudently balance team harvest This executed the be repurchase growth committed shareholders. this We our at capital difficult The relationships is the have to sheet and Marcus build fuel program in and through the return dislocation, same time, offensive strategy continuing as our during semiannual the market a to while to company to dividend & this will Millichap leveraging pent-up recovery. that stock time entire is announced to extended yesterday. client undoubtedly being demand

Steve? over to more details Steve will the I call With that, on quarter. turn for the

Steve DeGennaro

Hessam. you, Thank

the Before to delving I details, want context. into historical some provide

first market recall, best and QX three by XX-year anticipation over a comparable interest significantly. the an banks revenue has even the in a and basis that you XX markets different ago a fourth high of well as record increased consecutive of the increases tightened credit year driven was totaling XXX first first regional watermark overall to in marketplace XXXX. much conditions recent as The rising the history in failure urgency results If rate weeks outsized XXXX, where quarter, quarter the are quarter the creating rates. in company’s of points reflect XX% of transact quarter and XXXX tougher Today’s for were

$XXX volume the and as first first year, $XXX a down to down commissions $X.X our quarter. decrease buyers Average XX% XX% last billion million This reflective sales the $X.X $X.X first total from a given again sales size and compared the $XXX active transaction of quarter estate quarter the fewer total market mix shift represents across quarter X,XXX prior transactions, million first results. away volume move XX%, was year million and far for history. backdrop, year brokerage was let’s environment. the year a of institutional $XX in to million were in ago, revenues accounted billion current million, the of is last $XXX to add approximately compared year-over-year. segment, With of to down of for real for quarter Breaking revenue the that Revenue was by million in quarter To respectively. the XX% in which perspective, largest

revenue for Within brokerage, our brokerage This client and XX% core last year. accounted to XX% private million. compares or $XX $XXX business million of

and XX% of the for on Our the of last in institutional buyers $XX before accounted year. transaction segment, first for MMCC, market. $XXX have for middle $XX and brokerage pricing to million and million revenue last the million our QX, market to segments, including financing which in compared past compared sidelines years, year. XX% reentering in rates outsized was remained couple Revenue waiting clarity growth the interest $XX quarter million accounted on Many over together larger or

capital the quarter the the year, to the Despite revenue in increased by $X.X year. the the in year. fees rates advisory nearly last the financing and prior Other talent for fees, refinancing $X quarter, comprised along of last XXX million in quarter accounted size XXX rise past by XX% $X.X during transaction of driven $X the markets market top average volume our consulting XX% first XX% conditions, for in billion in sharp institutional was referral compared and In addition prior to year. primarily compared from of billion over million volume recapitalization Fees with year, closed we in group. interest financing compared segment to originations driven during transactions totaling the for the transactions loan

variable for or quarter. revenue of basis despite expenses attributable to lower first was of expenses the of of first the operating directly percentage of $XX lower XXXX primarily revenue, revenue. on Cost total expenses flat on a than a services $XXX million revenue. with a year Moving were million, lower XX.X% quarter Total to ago, XX% as result

this, share offset largely lower producers like to employee year-over-year company expensing talent was generated by revenue during acquisition markets support. the well the challenging resulted who to marketing senior was million In due quarter in as a tied lower headcount business to $X.XX retention complete or decrease and compensation share new million net million, client combination they in primarily per and in or of the December expense of a as development The the $X.XX year. compared and of us taken X% performance, actions net more quarter earnings costs The $XX.X have of and loss skill to of $XX operating in XXXX. per investments income deals. of first reduction proportionally larger of expertise expense the higher and in share by benefited $X.X revenue will a SG&A throughout quarter as

of historical in rate for amount positive to primarily For purposes in was to in the full that compared year. EBITDA The quarter non-deductible high income to tax to adjusted unusually our $XX.X due prior a million the negative expenses the was the for quarter, million tax effective pre-tax relation are lower $X.X range, the year. compared

Over the we even in greater return our But high tax long-term, likely the experience what to the effective for will similar the normal would to saw XXs. first mid quarter. than rates of the we expect to to current we the year, in or rate remainder range

the revenue cash, quarter usual decrease The The management outlay totaling over expected balance remain securities agent We the sheet. million. in cash than the the record XXXX, and commission deferred extremely was years. capitalized made equivalents share to current during marketable and retention and with and debt talent past investments well and acquisition to performance seasonal X performance-based given larger Moving no due for outlays $XXX in commissions, for bonuses was repurchases. deferred cash

quarter, the $XX.X of the a total declared $X.XX representing million was of paid we week During dividend semiannual per in share, of that first a April.

repurchased repurchased our approximately price per total. shares or In of initiating common stock average X.X we last of of million year, $XX.XX at shares repurchase program $XX.X at Since $XX.XX in XXX,XXX an price of for stock a have total addition, approximately million million. share an average mid $XX we

the authorized to additional to we Yesterday, remaining stock available an has Combined to authorization, advantage for our $XX with in producers near-term We returning of and recruiting dividends capital market strategy. includes stock and have program, under to technology, we announced which that capital This strategic through shareholders dislocations. a million of up and balanced Board allocation committed the the long-term while $XX remain combination retaining repurchase buybacks. provides investing a repurchases. best-in-class optionality take acquisitions stock million future open valuable to

second time of February. availability. need recent we in ahead, last out the market persist with issues current look requirements lending year, emerging pace in we was expect weeks half The As spoke early headwinds onset slower anticipated reduced in to tighter has recovery markets we at what to a the latter credit regional to the pushed likely than as even adjust gradually line and banking through the when albeit the improvements quarter of

week some this to earlier hikes, rate to clarity. which provide pause further are begins commentary ready seemed they Fed to the However, signal that

for be be support than to quarter. will is basis, corporate on conditions previously. have an operational us to professionals focused market the return of the services actions and make improve. best driving and with of first and pursuing growth expected in reflecting through made the practices cultivating staff. and taken strong cost our benefit sales We strategic position line SG&A first sequentially follow we remain largely growth investments excellence client to second absolute trust, the opportunities on as continue with quarter quarter The higher will pattern to Cost dollar usual the

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

Operator

of from question. with the Fargo. line proceed And Thank you, Wells your Instructions] the Heck with Please first question [Operator comes Blaine sir.

Blaine Heck

out Great. there. Thanks. Good morning

point recent So investment and clearly a trends. you have great guys vantage into the sales market

debt that a any And estate on be is guess So sweet important. I standpoint? region be what spot in-place to the geographical ask you which characteristics done in getting a seeing are this or the for likely market from wanted today? I where sector a in a to like real deal most deals just color standpoint, other for might more little might others environment trends and trade

Hessam Nadji

shock is morning, is variation interest activity unusual for the so type. asset the country Blaine. There lot of and property held happened the has because increase the the and shock industrial that were versus years during darling rate What’s resets disruptions. dramatic and cost a the multifamily cap of and What’s of to and of had across ironically And is market new lowest in trading drop-off gap in having industry Good the by been multifamily challenge between in basically and loans apartments many biggest the stable most secure rapid the the rates class the the the those environment. there in by properties. in debt this having debt maturing industry valuation

very factors of about, decision institutions side. – hard the always in a on multifamily the the buy-sell up showing but institutional are the scale, back based really quarter, has So way. that least that very quarter also the unusual solutions while will perspective, at in numbers in Lots completely an the financing at comment of has larger we been starting about many significantly to transactions, fourth to the into just that we’re coming see on of before same starting first in talked From that And approach really might canceled you that affected because got or creative recalibrating pencils are the trading course. starting down stabilization but an during close. postponed But they first been volumes multifamily be and our hit of the the hit is quarter. deals I really see I are tell restarting pipeline a that

the the what’s is strong retail other property in interest at as interesting types, looking ever. is as And

leveraging or open single-tenant they far more Our reimagining on years later was trading even X the type going in are putting retail still years of because space of and the been X investments reinvention other interest whole for their ago, well. investors retail down side that’s demand on keeping now simply XX because multi-tenant private options was on equity, refinance side, in significantly and plus as activity where of it’s product both to in that the ongoing rates, and the different e-commerce, a ahead it because But is fetching than want. less any on

on is bid/ask board And other coming any across so sustainable shortage But side, Now especially really hospitality, plan a of unique multi-tenant clearly to the I yet universal there relatively recovery, the there to very business and not isn’t just make is property now really one that showing spread pandemic side the of out very that of type. mention speaking, that is consumer strength holding on strongly self-storage to no travel is. comment or capital. areas the comparable up much will and that retail

it’s yet go in We the still the private market right. of done to higher, is if asset really spread that are are digestion that entrepreneurial fact but rate regenerating the groups, range, funds, so much of multiple the to especially, including encouraging And urban quite XX% creative see financing a the business of they of so and deal speaking, now And space the areas Georgia, investor course Geographically tight, period. the price continue through still it the continued office price starting the its Florida, on more a the that’s is goes still But right bid-ask new offers on. in finds get fact an migration, see the as marketplace, lagging, tours, through side capital equation price shock. that interest big the stop of the or a still the price are multiple capital are right. always areas of see see usage. growth and and the Carolinas, interest It’s a if the to is XX% way rates course, much working the the so way, country, private after group market. the not formations when really adjustments Nevada, want to Texas, we discovery to in to way on there forming are by doesn’t really The and Arizona, to

Francisco, you We from perspective. Chicago, Manhattan Downtown issues of more still a on there. course, that Downtown and, are seeing even gives Seattle But serious happening what’s in hopefully, that color little San bit out

Blaine Heck

all for Thanks that helpful. Very Hessam. color Yes.

have relative just capital update share to one stock the thinking do that pricing front, allocation, other the guys you allocation? sense relative and is are you an to how to for would your repurchase with you regard about think about to opportunities On where give when versus you can us where other? How acquisition external it trading opportunities yields shift about your increased or maybe makes from

Hessam Nadji

an as in and are first almost wanted possible. how course, it accelerate able more at of acquisitions. on driver there go not them as to We is as bigger a wanted get time important Those will to that the a And is us, to picture and the well. to the where company have that be of for external offense Steve our diverse and spent us I scale thinking in growth it And the this. maximize productive that including making We time, be in return of and the right the in at to to will. important able in one on We all any achieve platform, having things sales of a without we to have biggest time, in force platform. buckets, the the if able through Board. position now, slightly be fact find one of as we strong know sacrifice of shareholder own position strategy. sustainable We to balance be ask And to weigh adding been we a important feel favor same allocation lot the discussing create strongly a that another. a one to that to investing and are essentially is always to same why behind the we talent. firepower turbulence, really more it to To for that’s our We and very you be very the value keep every much returns, important, experiencing capital know to are considerations. basis, important, be of withstand if with we and kind very defensively, ongoing market those do those it’s have course, on more us investing point

my So, broader anything add? to that’s Steve, commentary.

Steve DeGennaro

I internal we think M&A allocation strongest and I us look investment, between little would that. three we that return diverse the of – is of internal shareholders, capital at can pull price, reiterate return speak at a certainly just greatest M&A there. that, those prongs to right those strategy, capital investments, for to the and the

As said on continues been and spread prior there to we calls, has bid/ask that be front. a on

of shareholders. opportunity it’s to with ample or us still capital And think return better to that getting leaves closing. I

back We last have in active We initiated where said of participants appropriate. August active. year been be program when we the would we that

report done think that, we side, of I job we three, a good good the those job at as M&A nothing think although have balancing I and have yet. on done at a to

Blaine Heck

distress us presentation you for around positioned? maturities in workouts little a to be earlier lender color maturities slide Okay. or other estate That’s looming real hearing for borrower most seem sectors on what helpful. you discussions commentary that and be on stress the sales give you And terms also, and and best which transactions? added of potential your seeing your I and in seeing very to bit appreciate guys the appear noticed on alternatively quarter topic. what But sectors more office or Great. than are debt We commercial can this a

Hessam Nadji

one X can that and that go Sure, about wanted get loans maturing added many also is see rent so looking you Blaine. concern XX%, show the We type, the retail about the that industrial price fact of the the of where there layer say, breakdown values loans XX% deeper time much the slide to are so type. today, Also growth. kind they almost story correction up X years. posted years, is by property we rents year are it, issuance XX% and because hospitality lower we years let’s peak, XX% increased rent immediately chart, a questions ago. just different than that from years a of the property were at Even the X and the of have past our even over these by so rents X that over at growth apartment ago significantly past fact with to And recent

is space. the in happening all book is what the overreaction related the being marketplace, of So, headlines judging concern cover the office because really the to whole by to

is a back chart XXXX, rent of lower buildings, as we year, If largest of part for low-quality the top that a major leaving or and you footprint the in up hardly buildings office any A smaller office you the operations maturities as the favor the volume had signing are Class shown properties in quality X the falling and at to isolate the rent can higher fact have growth last is, this years and of that the because for by leases obviously way, on going property segment gaps conclude be in there over valuation rolls added. which renewal

price So to would have to have of to distress a buildings. be reduced some be sale rescue capital. it when undoubtedly, level office there There comes

in that underwritten a very where to aggressively not we do but solution that agency years been and of nonetheless loans visible short-term multifamily front IPA multifamily from Part a seeing bad, into couple put in having were the the little are as have fund by side other bit of on debt Eisendrath is last that a more nearly of with the are been clients years a the of the Capital We that engineer work benefit been able creative partnership the MMCC ago. facing our able due. very Markets, on are with have originators past. ever lot our bridge to have ways within much agencies help place to those and our coming that than we the solutions maturities X fact, M&T Thankfully, team and active. And in we stress, different

really So, it’s than and other property type. that, varied case-by-case by

are as seeing are expect It’s shopping seems as distress much repositioned one much front retail, perceive. might not The but is, better. itself center to really you on there We on as say not would have center bad front to as the there they isn’t at issues shopping all. not

good other for price and of funding Lastly, that left what’s is stepping or balance XXX up private transactions Local cases, quarter really were have formal because closed incredible never with have is have those capital separate I in finding said deals. stepping many banks many heard my financing are what of sheet, regional you themselves XX% market XXX say the sources And almost unions lenders. remarks, up. in will like are of the I out, as are in credit banks. banks have originators our they

there the market clients what the So, solution, And the find worst creative is are feels we correction for should this, be to form a and like really help ways problem, foundation seeing cycle. recovery. actively of our we those for seeing bottom a through and every this are get working to hopefully,

Blaine Heck

your was decrease, a Last due about noticed pretty balance helpful. Can those value sales in $XXX you to We around to at quarter of that this year-end just million that or Very million whether in Great. decrease one $XXX the marketable Okay. on talk balance assets? maybe reduction the a debt XXst. me. securities significant March at sheet for from

Steve DeGennaro

Board. in Yes. in stated our investment with and grade, both value. our charter managed is reviewed portfolio, Steve. very accordance our internally Blaine, course this a From of investment standpoint, reduction with that’s Not our much

I outperformance is well our a view certain are folks in And aggregate, and did paid due year majority management. the We the think related aware, during as years. to of is short-term cash And couple long totality, paid marketable from last that cash another of as long-term commission change Just well a the balance for quarter. the and as and portion I of of currently. deferred payments are use, as recently incentive portion securities we both to or tool comp more you the was then balance commissions to last deferred great XX/XX deferred over outperformance down come variable view a in as where and overwhelming program

at know no – part news order meet we and to cash a there, to the and in but needs. lately, totality. short-term no it’s unusual no write-downs Nothing I us big balance long-term selling assets So, look of need be for the in need

Blaine Heck

time. Alright. so Great. much for the all Thanks

Hessam Nadji

Thanks Blaine.

Steve DeGennaro

Thanks Blaine.

Operator

time, this further questions. no are At there

floor like to the any back team to Marcus & closing would I Millichap over management the Now, turn for comments.

Hessam Nadji

joining our for to you operator earnings and you, our look look We thank is to call. the road seeing next Thank The forward and on forward adjourned. you call call.

Operator

you does This conference. everyone. conclude Thank today’s

Thank your and a day. your you disconnect at participation may for this time. have lines You great

Marcus & Millichap (MMI) 5 May 232023 Q1 Earnings call transcript