Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to Marcus & Millichap Second Quarter 2023 Earnings Conference Call.

As a reminder, this call is being recorded.

I would now like to turn the conference over to your host, Jacques Cornet. Thank you.

You may begin.

Jacques Cornet

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

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

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

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

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

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

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

Hessam Nadji

our welcome second good estate commercial the The call. real quarter Millichap restricted of widened entire trading Thank Marcus and XXXX bid/ask hindered to in behalf and financing you, Jacques. severely morning, & spread earnings and team, the On environment lending quarter. second volumes

market, repricing shock the MMI's transaction asset the reflected results was interest due frequent and this marked economic elevated to cancellations listing which uncertainty. and rate for by and quarter challenging

an highest comparison growth the XXXX, revenue MMI also faced the to revenue was quarter which second our of in tough XX% exceptionally second quarter outsized and of had history.

lower to the the salesforce, Adjusted for was million of XXXX expanded in past million, over Revenue technology EBITDA of came was development quarter investments years by made at several in year-over-year. infrastructure. related and expenses second to $XXX loss proprietary $X.X our XX% which due acquisitions,

cost expense believe previous reductions and this will the playing prolonged a recovery competitive in offense and market we beyond. advantage management, for Notwithstanding disruption company the ongoing during create

sharing during Marcus the hallmarks while and force, been outreach, downturns. client are in experienced that made pursuing effective practice down communication, development. includes all on professionals our These extremely retaining strategy best progress collaborative doubling internal to second have culture and sales report acquisitions. of strategic of & elevating skills previous and Millichap's Our fronts adding we and supporting quarter I'm on proud

to long addition the term. several in platform, add will In value expanding believe made the investments developments we in

originators. and increased markedly, our difficult is lender the professionals knowledge example, For and collaboration sales financing accentuating of market relationships between has the financing as loan the our

assets inventory. and division, specialists, is our auction aging XX with more adding of alternative certain rapid channel by integrated provide force. Auctions months industry-leading ago for marketing just becoming Our created sales an

assets. of valuation portfolios partnering professionals government loan Our financing and are sales and and our sales on and special division loan with to lenders, servicers actively advise disposition agencies

coverage helping ever-expanding and Our clients develop strategies number pursue content media reaching investors of and is research opportunities. and record a

specific how These disruption and listings expanding are our current dividends advances technology initiatives the fundamentally our leverage beyond and recovery. clients are least, pay which on not and far execution, connect leads. will our but Last we enhancing with

continued rate shock, in exposure the to From Bank the interest drop been lenders lowest distressed most and leading a estate trading a particularly Fed's pushed market rate the and to apartments, price has Valuations cap by discovery. the hawkish standpoint, assets, impacted volumes. the market. quarter many active first stance intensified have disruption for major in failures real of the the has out

values, the expectations the past with of uncertainty buyers interest still doubling lower rates on price loan have misaligned year. of been with to Sellers' and struggling in top

in RCA. broad drop converging nature. of These overall decline XX% a marks in pronounced the to sales a marketplace fourth transactions volume the a reflecting dislocation's and quarter industry-wide the in in This forces manifested current according in activity, XX% drop consecutive

volume outperformed XXXX, and as kept mentioned earlier, quarter the this of second transactions, volume was the that in company's brokerage declined quarter. sales in year-over-year XX% our market But of with which in XX% brokerage XX% the line MMI in perspective. The broader on should the sales into in decline market. be increase a is

personal by revenue XX%. but wide still for trade a a spread also is smaller bid/ask fell quarter more Client volumes driven is Private options. to to and Private in many Nonetheless, lowering motivations segment lesser Client has deals, the much The available extent. financing

respectively, transaction investors declined sidelines. the larger private and institutions market middle XX% on major and XX%, sales as from remained Revenue and

was from Given extremely off conditions, financing fees tight XX%. revenue credit

our Yet quarter, our lenders force, regardless conditions. we separate the market brings and in investors and of team the financing illustrating skill, tenacity own with XXX sales to access transacted

of second want highlight over that, during challenging despite factors, all closed X,XXX I nearly company and the brokerage the transactions to financings these quarter. XXX

commitment brokerage we've year, continues company by the rank the brokerage XXX MMI top client of the hard transactions the is transaction and of and and count. result support of and This half persistence force our first closed our as to over financings. teams. sales X,XXX work, the For skill

from in in paying the for using markets cash no positive another capital real cases, multiple that shortage buyers the clients to these is right long-term equity generating for demand and priced be our commercial In and, right On estate or of all we're appropriately their there fetch note, more assets assets. cases, offers fit some strategies.

leaving to refinancing. outlier demand has asset structures Office over in price financing fostered more well-priced fundamentals themselves retail years short-term ironically buyer class. makes seeing the in the buyers future improving with secure assets and several a past desired discovery, remain properties and while for also solutions highly flexibility retail We're

the means take in time will rates notion recalibrating the the more way Looking go to forward, in long light higher work still through X% marketplace. in to of has This Fed's rates been interest there's simply major reach in target. of values estate real to near inflation, progress to table. the taken a lowering term interest pivot Fed rating a off the Despite

soft with shift of bode expectation from recession sustained in property concerns buyer office Healthy fundamentals, exception the an an and economic to of well for landing, interest. a sentiment

avoid Although much distressed expected, maturing to as the possible to the sales Fed extend encouraged lenders loans some and as are FDIC the have write-downs. specifically

buyers price in As a trigger marketplace that a come reversal realistic in realize will trends. correction to pricing, volume and a trading unlikely is realignment widespread more sellers the on become

the the that clarity shift. foster The We activity. the will declares cycle or of Fed predict the cannot more the line control for time tightening come also should when end

the meantime. However, on own strategy laser-focused we are our in executing

leverage solve investors MMI, assess and them. prolonged more opportunities an can For market this our to disruption market for making benefit we help from problems, services portfolios is and uncover opportunity and value-added

clients will us, more eventually, share. and our with By mind share their of gain navigate confidence, market will this we environment, and partnering

today net One in other are from and college by newer previous wages market the new unusually is rising the and strong professionals than exacerbated industries. of market professionals. factors greater challenges key downturn in hiring The recent cycles attracting sales of job graduates

At to the into for a making same new the our is break challenging business. it time, market harder trainees

hiring. system continued initiatives, past our enhance and to push organic calls, recruiters committed to and are hiring return As adding mentioned training and outreach various are I've positive on to corporate development to we candidate net

proving the ideal meantime, be MMI the for careers. professionals, many In is enhance their to experienced platform to

have in of this momentum. New announce will continue build with capabilities. pandemic additions happy on addition many further to most elevate that the We I'm mutual our recent through capital our this and market-leading demonstrated York the such markets to finance team results positive since

also advantages strategic market that We're potential with and we believe active MMI. coverage targets in acquisition discussions to would bring

forces sheet through dividends to share capital and repurchases. shareholders continuing offensive while to to balance return foundation strong Our remain the

the increasing our and to will an best to further acquisition of highest use assess We capital shift valuation target eye with continue expectations pipeline as reasonable. as conditions market more become

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

Steve DeGennaro

Thank you, Hessam.

reminder important and provide half transact to we this a year and a an the year, further context rate the fueled interest quarter's ahead interest by to first ago. As still market of was of investor low demand In of landscape results, hikes. last at rates urgency it's look

over actions aggressive Fed's the impeding restricted and from resulting environment, past rate volumes. higher markets, today's credit months contrast, are In XX trading the severely

are in the also that With current turn by quarter QX the company's XXXX skewed the let's revenue was in year history. fact to that mind, second backdrop results. comparisons Year-over-year highest the

million the $XXX the Revenue quarter for compared year to in prior $XXX was quarter. million

million six-month $XXX million versus $XXX last the period, was revenue For year.

decrease brokerage $X.X On million XX%, the year, second which for is a to respectively. of XX% total of sales transactions, from basis, and across was quarter million volume $XXX $XXX revenue compared a down segment represents of XX% year-over-year. accounted estate commissions last revenue real total X,XXX quarter billion XX% The for and

total was revenue $XXX estate million months to $XXX year-over-year. compared six year, real decrease million the of and accounted a For year-to-date, of revenue XX% commissions last XX% for from brokerage

XX%, $XX.X down reflective Year-to-date larger X,XXX transactions, of as second billion size the $X.X year and volume transaction million a approximately respectively. ago, $X.X total million XX% during to sales across quarter compared was was Average fewer transactions.

the $XX compares brokerage Client revenue of for or year. million. business quarter, our last brokerage, of XX% to Private This Within XX% contributed core revenue

Private the $XXX versus of For Client year. XX% six-month revenue contributed or million last the business XX% period, brokerage

larger XX% quarter brokerage Our together million experienced past which $XX years, middle during second accounted of the growth to the XX% for year. or and last transaction revenue couple compared market over outsized segments, of

compared the period, further reflect six-month out last XX% $XX institutional middle again, market, are Once that of of the XX% results segments and or revenue represented these pricing. larger to on pending year. many buyers fact rates clarity the million For market brokerage and the transaction

in the financing volume closed compared $X.X XXX prior financing last year. transactions $X.X billion in MMCC, in $XX to including volume QX was segment, year. XXX for Revenue our quarter, transactions million the $XX in to In we in billion compared totaling million

for totaling revenue months last compared X,XXX to last $X.X the volume this year. represents $X.X in and Financing compared XXX volume million transactions billion Year-to-date, to $XX in was $XX X billion million year. transactions

revenue, primarily fees, $XX.X to compared with revenue million quarter $X.X along consulting of compared the was referral Year-to-date, fees, year. year. this $X.X million last to second million year was other comprised last and million advisory Other in $X.X

Year-to-date, year. Moving operating quarter were to total last for lower second million, on to result year. XX% were the $XXX lower expenses, total prior XX% compared a lower operating the Lower expenses of expenses were expenses $XXX largely than revenue. million,

million revenue, improvement Year-to-date, Cost points the total or XXX last with over total revenue, XXX services or lower of compared services of an $XXX was million points to an last of improvement basis of year, $XXX of was revenue. year. consistent second XX.X% XX.X% quarter basis cost of

SG&A during over year. the the of prior quarter was million, a decrease XX% $XX

client X% was For of to business reflect talent variable period, This performance related decrease well as tied to the six six-month in lower and SG&A decreases over year. cost and new the months. SG&A acquisition as retention as offset compensation expenses a well development support. as reductions last The to implemented by million, business was marketing $XXX partially past compared

last As technology of years, the to combination certain the past the have few revenue, impacts expenses the the nature calls, infrastructure growing with fixed over related force, lower and of over sales we profitability. discussed few

million or prior net net $X.X recorded of we compared $XX.X For share $X.XX to quarter, earnings share the of year. in loss a million or per second per loss $X.XX income the

loss $XX.X $X.XX prior the six-month $XX share income net to year. of compared per loss per in million the or was share period, For net earnings million the $X.XX or

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

in the first adjusted EBITDA months, to positive year. compared $XXX.X a $X.X prior the million negative For was million X

for rate relation alignment and the therefore, for the nondeductible into projected quarter year. full bring change fluctuate. The effective that we in sensitive year-to-date expenses annual income rate to pretax the to the of expected tax the year, amount The purposes are can reflects rate rate for to the full tax necessary the expect with is for

of current rate full expectation Our approximately tax year is the XX%.

well-capitalized remain securities we and Moving to debt totaling marketable balance cash the million. cash, sheet, and with $XXX no equivalents

and While of our dividends $XX $XX to cash in share includes that quarter, combination a in decreased balance million shareholders through the returning repurchases. capital million

week, our shareholders to this Xth of Continuing to on of theme, declared $X.XX allocation paid as on record Board of share a capital per the September earlier XXth. October semiannual dividend be

total of for at a repurchased million. an XXX,XXX price repurchased $XX.X $XX.XX nearly million. the to share share average quarter, of Year-to-date, per at brings average an common shares million we price shares And total total $X.X nearly during of $XX.X per of of a for stock $XX.XX this

of is on As repurchase remaining approximately today, $XX current the million authorization.

done strategy acquisitions, months that ago, to capital approach As XX since want investments including our remains to we emphasize capital strategic in recruitment shareholders. have our and technology, of talent top returning allocation expanding balanced, I

to remain a messaged to it to market. strong labor for higher raise inflation that expected response now rates outlook. stubbornly continue Turning the rates has longer. will Fed and near-term The are to Therefore, high in

out. availability, recovery play means This, the in take coupled to price with credit and reduced time will that gap expectations

to metrics conditions, stay vigilant we expense management. continue key and our in these will Given monitor

QX as quarter higher SG&A the QX should and Cost the rate line expected the pattern in be is be range. the modestly sequentially of than for as spend quarter. increase XX% the and due client-related revenue usual And events. services should seasonal currently third agent I quarter in of tax be previously, from mentioned the to for second the to a follow and percentage with

Our clients, operational and excellence opportunities with to focus exploring growth continues proactively strategic driving throughout engaging business. the primary be

positioning important conditions in once talent investments ongoing growth market Our for steps systems, market coverage robust and are for improve. the ourselves

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

Operator

question-and-answer [Operator Instructions] a time, Thank be we conducting and will gentlemen, at session. you. this Ladies

question first question. the Wells line your proceed from of Heck Blaine with Fargo. with comes Our Please

Blaine Heck

the the factors institutional you it private is Great. morning Or do out macroeconomic less size talk about opposite? larger group Thanks. Hessam, different sensitive I find than volume client you transaction in Good there. in can to relative the is guess, resiliency that players? segments?

Hessam Nadji

as profit is when times Hi definitely of entrepreneurship many private to on. across circumstances, client of kind investment to and into divorce, XXXX comes a the before, clients. personal to sensitivity the rates, it we've spectrum growth as take the needing direction so full more the of trade and in private take liquidity exchange Blaine. one But breakups, from the job There of reflection the to interest property opportunities partnership economy, has one another create group of order discussed advantage death, out of

in smaller just And right for so facing more are environment a like opportunity deals financing creates difficult that now. we're transactional and us more financeable

in the decline of less trading spectrum. isn't $X across there there full a the mean That activity $XX bid/ask Private So, necessarily the that in in us. million transactions, course, than the pronounced to million marketplace and, been definitely both Client spread, is for segment larger the doesn't has

everybody the industry And related interest the faced the uncertainty impacted direction has that to and down rates entire the of economy has spectrum. up the and

private clients kind So, that's, in among our institutions. the way, of a attitudes versus of the view the

A to among priced are clients up, starting come capitalized to ready of assets We're respond and interest lot opportunities lot acquiring they're an if that clients. well private see to correctly. of in a more private our

comments, see more that And as the said to sell go the activity. ways align. quite in spread a we we're and side comes price have my more adjustment realism I to But starting before generate bid/ask really to on

Blaine Heck

any low. how broker helpful forward? with And us little color. hiring in Can how came about market? retention unemployment count you're can think really stubbornly more rate a we results, morning give on should bit that's report mixed but this in that's this about Obviously, an thoughts tight your some jobs Great, and you talk the moving labor about you thinking

Hessam Nadji

Sure.

so help that to well chance for It support. many on more so have we're organic & time, market more dislocation And Millichap the Marcus and same with committed has through management years. through more professionals actions worked the newer it better our growth We additional taking for those at to making of training model. us mentorship, are board a are

launch careers they of effectively, they if you market XXXX, we their environment as Because normal this skill really and more we will, will sets even that know XXXX, the really than market. in a survive, their frankly, that develop experienced if relationships a type

with very it time, on employment in as are newer the helping the industries of coverage and the our college priority salaries on we sales defensive to factor macro risk commercial professionals other in that, against being and stress of lot the is is unusual starting a the and from for professionals lot market side doing uncertainty a about and the many commercial economy we're a through even make where of to and performance we're of competing media banks where both same estate So, real committed industry. around ways this course, our real downturn, the of terms of estate overblown different very base candidates at of around concerned kind which more recent with the many graduates making bridge industries

over a So, immediately, launching as the will job initiatives been with but manager's at turnaround conditions we're that begin with don't I to career and nights, a time, I or individual results both career change level is improve. the that it. with candidates know and to our different all fairs, the overcome that employment local combat job our these difference, make expect interactions launching have to and

joined and a and the now. the experienced that healthy side actively with the very professional speaking success, and both experienced I see should the those in of company we continue of to add, studies of pipeline case side additional past have Blaine, testimonials the financing we're right the side the over on four both to brokerage three the equation, years great on that professionals

Blaine Heck

front, be talk you reflect little enough of adjusted to rate might how for Okay, do any a Can guys that has second half environment? more of acquisitions M&A in you bit about the higher think this kind helpful. activity year? you have are you that's pricing on focus think likely And whether a investors. the continues to

Hessam Nadji

Sure.

messaged to to that fruition, and I've targets increase. had, with As pipeline come last conversations. we of didn't before some dialogue some had began time, targets we have those And that our includes resurrected of that

would would prices, last when ways before so that But we've just and beginning into real valuation earnings expectations the with pandemic a then say fact And are they, that therefore, that the I they come we such I estate to three line believe is go like with and improve. as performance fair a have the too, to of say because what on, and production especially a of you and lumpy revenue look at valuation, benchmark had the years post-pandemic. period the

beyond very And last you in revenue key company's the those way even for forward. the have three to we a retention of manage earnings and sustainability producers and that have all to years risk look of and going metrics

should having. So, number and XX seller's come believe their in evaluations to answer. where and based current when do be ever, factor conversations active me the we're really encouraged a you some of And really gap out we're kind the results our underwriting expectation on if let And that dialogue. that good that's all comes But of to I he that best wants the of anything will ask add Steve by months in.

Steve DeGennaro

three I've been that add Yes. largest Thanks. be I seen Blaine, would couple or around I've the comments now pipeline emphasize that It's years here. or the would the funnel. the the in only of

I'm encouraged So, by that.

paused certainly last the maybe said, six nine And and core opportunities months were space. these a financing of are to our brokerage opportunities that number over potentially within Hessam resurrected. As

in And space, our that that spread still to comments, to similar add bid/ask our value spread, around we're closing. as exists. it core a is I Client areas poking Private bit relates constituents. are say that are that much But to the but still that, adjacent would But very little also

Blaine Heck

me. Okay. for Good to hear. Last one

XXXX? you think was with you the talk to can partnership alluded I have this your in might M&T established remarks, prepared but that in about

on quantify that of guys to your benefit relative the whether of partnership otherwise expectations? comment production way any have you the kind to of partnership And initial that or

Hessam Nadji

with course, limited a M&T overall for The has, normal would in sure. lending that downturn market the market we Blaine. agency of volume have Sure in achieved environment,

our and the two said the was we a industry which partnership in M&T But was last the year able active ago, the about more having to last that partnership have that, Eisendrath now together. or apartments Financial almost leverage and board half years acquire because we the leader M&T with in since have with business six have major were for half number we and a bring done Group, one agencies production been on the in put year in to months the or market, because agency

performing And with financing still do top we very M&T our the also agencies are division, that qualify have origination within to and capacity Eisendrath our the have a because firm. that the subsector brought has the healthy would pipeline the Group because partnership and as active we

bring sales partner a They're that targeted very always really to combined investment but also really for capabilities to now markets. include to value clients, well sales that multifamily in integrating way with create very expanding our them our had, to capital we've teams research IPA the by streamlined and a bring management effort in proposition a

larger to solutions a come financings and position for years through down refinancing next do the well bridge the when loans And that as and trying our frankly down. as up current of mid-market actual and execution lot lot to with are maturing the because interest to a get advice couple clients includes environment road and consulting of of back come financing rates themselves of

a that front puts beneficial strategic wouldn't have having to level clients of in touch it actually be at So, the in we reason is that very because capability a with. us normally

Blaine Heck

great. the Okay, much so all Thanks time. for

Hessam Nadji

Thank you, Blaine.

Operator

hand it to for to remarks. further the I'd no back in are closing queue. There questions management like

Hessam Nadji

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

Operator

today's participation. conclude teleconference. gentlemen, and you this Thank your does Ladies for

time day. your and may at You this have a wonderful disconnect lines

Marcus & Millichap (MMI) 4 Aug 232023 Q2 Earnings call transcript