Marcus & Millichap, Inc. Reports Results for First Quarter 2021

Rhea-AI Summary

Marcus & Millichap (MMI) reported Q1 2021 results, revealing a 3.5% decrease in total revenues to $184.0 million compared to Q1 2020. Net income rose 14.9% to $15.0 million or $0.37 per diluted share, while Adjusted EBITDA grew 14.8% to $25.7 million. Financing fees increased 16.2% to $17.8 million, but Private Client brokerage revenue saw a 7.7% decrease. The company anticipates further growth opportunities in various segments and emphasizes the impact of the pandemic on market conditions.

Positive

• Net income increased by 14.9% to $15.0 million.
• Adjusted EBITDA grew by 14.8% to $25.7 million.
• Financing fees rose by 16.2% to $17.8 million.
• Operating expenses decreased by 4.3% to $163.8 million.

Negative

• Total revenues decreased by 3.5% compared to Q1 2020.
• Private Client brokerage revenue decreased by 7.7%.
• Real estate brokerage commissions decreased by 5.3%.

Marcus & Millichap, Inc. (the “Company”, “Marcus & Millichap”, “MMI”) (NYSE: MMI), a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services, today reported financial results for the first quarter ended March 31, 2021.

First Quarter 2021 Results and Highlights

• Compared to a record first quarter of 2020, total revenues decreased by 3.5% to $184.0 million
• Net income increased by 14.9% to $15.0 million, or $0.37 per common share, diluted
• Adjusted EBITDA increased by 14.8% to $25.7 million
• Revenue from financing fees increased by 16.2% to $17.8 million
• Private Client brokerage revenue decreased by 7.7% against a difficult comparison of 19.0% growth in the first quarter of 2020
• Larger Transaction brokerage revenue increased by 5.1% compared to 45.7% growth in the first quarter of 2020

Hessam Nadji, President and CEO commented, “Our first quarter results set a positive tone for 2021 with net income and Adjusted EBITDA well ahead of last year. The strong quarter is noteworthy coming on the heels of a record revenue milestone in the first quarter of 2020 and a record fourth quarter, which reduced our pipeline and inventory. The results are a testament of our team’s ability to complete transactions in a challenging market as well as our expanded investor outreach from the outset of the pandemic. We have seen investor demand steadily rise in anticipation of a vaccine rollout, growing confidence in the economic recovery, still-low interest rates and ample liquidity. The market recovery, coupled with our cost containment efforts, led to a nearly 15% improvement in earnings and over a two hundred basis point expansion in our Adjusted EBITDA margin.”

Nadji continued, “Looking forward, all business segments are expected to show further strength at varying degrees with the most pandemic-impacted sectors still needing time for price discovery. Apartments and single-tenant net-lease, among the most stable sectors, are seeing pre-COVID pricing and investor demand in many markets. We believe we are well positioned for future growth and shareholder value creation given our expanded investor outreach capacity, leading brand, strategic acquisitions and continued investment in technology.”

First Quarter 2021 Results Compared to First Quarter 2020

Total revenues for the first quarter of 2021 were $184.0 million, compared to $190.7 million for the same period in the prior year, decreasing 3.5%. The reduction in total revenues was primarily driven by a decrease in real estate brokerage commissions, partially offset by an increase in financing fees. Other revenues were relatively comparable to prior year. Real estate brokerage commissions decreased 5.3% to $162.8 million from the same period in the prior year primarily due to a decrease in average commission rates, partially offset by an increase in sales volume. Financing fees increased 16.2% to $17.8 million primarily due to our recent acquisitions and other ancillary fees.

Total operating expenses for the first quarter of 2021 decreased 4.3% to $163.8 million, compared to $171.1 million for the same period in the prior year. The change was primarily driven by a 4.1% decrease in cost of services and a 5.8% decrease in selling, general and administrative expense. Cost of services as a percent of total revenues decreased 30 basis points to 59.3% compared to the same period in the prior year, primarily due to a higher proportion of transactions closed by our more senior investment sales and financing professionals at the start of the pandemic during the three months ended March 31, 2020. Traditionally, cost of services as a percent of total revenues is lower during the three-month period ended March 31 as certain investment professionals may earn a higher commission rate later in the year after meeting annual revenue thresholds.

Selling, general and administrative expense for the first quarter of 2021 decreased 5.8% to $51.7 million, compared to the same period in the prior year. The decrease was primarily due to reductions in (i) the Company’s annual sales recognition event being cancelled due to ongoing concerns about the pandemic; and (ii) legal costs. These decreases were partially offset by increases in (i) operating costs related to acquired businesses in the last 12 months; (ii) compensation related costs, including variable employee incentive compensation as a result of our performance and deferred compensation obligations; and (iii) facilities expenses.

Net income for the first quarter of 2021 was $15.0 million, or $0.38 per common share, basic and $0.37 per common share, diluted, compared to $13.1 million, or $0.33 per common share, basic and diluted, for the same period in the prior year. Adjusted EBITDA for the first quarter of 2021 was $25.7 million, compared to $22.4 million for the same period in the prior year. As of March 31, 2021, the Company had 2,038 investment sales and financing professionals.

Business Outlook

Notwithstanding the continuing impact of the COVID-19 pandemic on the current business environment, we believe that the Company is positioned to achieve long-term growth by leveraging a number of factors. These include our leading national brand and market position within the Private Client Market segment, growth opportunities in the Middle Market and Larger Transaction Market segments, significant growth potential in our financing division, Marcus & Millichap Capital Corporation, and supplementing our organic growth through incremental strategic acquisitions. The Company’s growth plan also includes further expansion of investment brokerage services in office, industrial and various specialty property types such as hospitality, self-storage and seniors housing.

The Company benefits from its experienced management team, infrastructure investments, industry-leading market research and proprietary technology. The size and fragmentation of the Private Client Market segment continues to offer long-term growth opportunities through consolidation. This market segment consistently accounts for over 80% of all commercial property sales transactions and over 60% of the commission pool and is highly fragmented. The top 10 brokerage firms led by MMI have an estimated 23% share of this segment by transaction count.

Key factors that may influence the Company’s business during the remainder of 2021 include:

• Uneven recovery among markets we operate in and certain real estate asset types
• Volatility in market sales and investor sentiment driven by:
  • Slowdown in market sales of asset types impacted by COVID-19, interest rate fluctuations, increasing bid-ask spread between buyers and sellers and economic trends
  • Boost to investor sentiment and sales activity based on favorable interest rates, easing cycle, increased COVID-19 vaccine supply and distribution and economic initiatives which may increase real estate investor demand, particularly in the second half of 2021
  • Possible impediment to investor sentiment related to regulatory and tax law changes at the local, state and national level
• Experienced sales and financing professionals’ larger share of revenue production in a more challenging market environment, resulting in a higher cost of services
• Volatility in each of the Company’s market segments
• Global geopolitical uncertainty, which may cause investors to refrain from transacting
• The potential for accretive acquisition activity and subsequent integration

Conference Call Details

Marcus & Millichap will host a conference call today to discuss the results at 7:30 a.m. Pacific Time/10:30 a.m. Eastern Time. To participate in the conference call, callers from the United States and Canada should dial (855) 327-6837 ten minutes prior to the scheduled call time. International callers should dial (631) 891-4304. For those unable to participate during the live broadcast, a telephonic replay of the call will also be available from 10:30 a.m. Pacific Time/1:30 p.m. Eastern Time on Friday, May 7, 2021, through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Friday, May 21, 2021, by dialing (844) 512-2921 in the United States and Canada or (412) 317-6671 internationally and entering passcode 10013991.

About Marcus & Millichap, Inc.

Marcus & Millichap, Inc. is a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of March 31, 2021, the Company had 2,038 investment sales and financing professionals in 84 offices who provide investment brokerage and financing services to sellers and buyers of commercial real estate. The Company also offers market research, consulting and advisory services to our clients. Marcus & Millichap closed 2,332 transactions during the three months ended March 31, 2021, with a sales volume of approximately $12.0 billion. For additional information, please visit www.MarcusMillichap.com.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This release includes forward-looking statements, including the Company’s business outlook for 2021, the potential continuing impact of the COVID-19 pandemic, and expectations for changes (or fluctuations) in market share growth. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

• uncertainties relating to the continuing impact of the COVID-19 pandemic, including the timing and ultimate success of the vaccine rollout, the potential impact of the federal government’s recently approved stimulus response package, and the pace of recovery following such pandemic;
• general uncertainty in the capital markets and a worsening of economic conditions and the rate and pace of economic recovery following an economic downturn;
• changes in our business operations, including restrictions on business activities, resulting from the COVID-19 pandemic;
• market trends in the commercial real estate market or the general economy;
• our ability to attract and retain qualified senior executives, managers and investment sales and financing professionals;
• the effects of increased competition on our business;
• our ability to successfully enter new markets or increase our market share;
• our ability to successfully expand our services and businesses and to manage any such expansions;
• our ability to retain existing clients and develop new clients;
• our ability to keep pace with changes in technology;
• any business interruption or technology failure and any related impact on our reputation;
• changes in interest rates, tax laws, including potential increases in corporate taxes by the Biden Administration, employment laws or other government regulation affecting our business;
• our ability to successfully identify, negotiate, execute and integrate accretive acquisitions; and
• other risk factors included under “Risk Factors” in our most recent Annual Report on Form 10-K.

In addition, in this release, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential,” “should” and similar expressions, as they relate to our company, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Forward-looking statements speak only as of the date of this release. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

MARCUS & MILLICHAP, INC. CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME (in thousands, except per share amounts) (Unaudited)
	Three Months Ended March 31,
		2021			2020
Revenues:
Real estate brokerage commissions	$	162,796		$	171,829
Financing fees		17,843			15,351
Other revenues		3,338			3,537
Total revenues		183,977			190,717
Operating expenses:
Cost of services		109,103			113,757
Selling, general and administrative		51,677			54,860
Depreciation and amortization		2,997			2,464
Total operating expenses		163,777			171,081
Operating income		20,200			19,636
Other income (expense), net		1,044			(366	)
Interest expense		(146	)		(283	)
Income before provision for income taxes		21,098			18,987
Provision for income taxes		6,086			5,917
Net income		15,012			13,070
Other comprehensive (loss) income:
Marketable debt securities, available-for-sale:
Change in net unrealized – (losses) gains		(621	)		(497	)
Less: reclassification adjustment for net losses included in other income (expense), net		—			11
Net change, net of tax of $(215) and $(168) for the three months ended March 31, 2021 and 2020, respectively		(621	)		(486	)
Foreign currency translation (loss) gain, net of tax of $0 for the three months ended March 31, 2021 and 2020		(113	)		891
Total other comprehensive (loss) income		(734	)		405
Comprehensive income	$	14,278		$	13,475
Earnings per share:
Basic	$	0.38		$	0.33
Diluted	$	0.37		$	0.33
Weighted average common shares outstanding:
Basic		39,757			39,541
Diluted		40,124			39,646

MARCUS & MILLICHAP, INC.

KEY OPERATING METRICS SUMMARY

(Unaudited)

Total sales volume was $12.0 billion for the three months ended March 31, 2021, encompassing 2,332 transactions consisting of $8.9 billion for real estate brokerage (1,588 transactions), $1.6 billion for financing (494 transactions) and $1.5 billion in other transactions, including consulting and advisory services (250 transactions). As of March 31, 2021, the Company had 1,953 investment sales professionals and 85 financing professionals. Key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

	Three Months Ended March 31,
Real Estate Brokerage		2021			2020
Average Number of Investment Sales Professionals		1,959			1,889
Average Number of Transactions per Investment Sales Professional		0.81			0.85
Average Commission per Transaction	$	102,517		$	106,396
Average Commission Rate		1.84	%		2.04	%
Average Transaction Size (in thousands)	$	5,582		$	5,227
Total Number of Transactions		1,588			1,615
Total Sales Volume (in millions)	$	8,864		$	8,442
	Three Months Ended March 31,
Financing (1)		2021			2020
Average Number of Financing Professionals		86			89
Average Number of Transactions per Financing Professional		5.74			5.37
Average Fee per Transaction	$	30,464		$	30,900
Average Fee Rate		0.93	%		0.84	%
Average Transaction Size (in thousands)	$	3,263		$	3,670
Total Number of Transactions		494			478
Total Financing Volume (in millions)	$	1,612		$	1,754
(1) Operating metrics exclude certain financing fees not directly associated to transactions.

The following table sets forth the number of transactions, sales volume and revenues by commercial real estate market segment for real estate brokerage:

	Three Months Ended March 31,
	2021								2020								Change
Real Estate Brokerage	Number		Volume			Revenues			Number		Volume			Revenues			Number			Volume				Revenues
			(in millions)			(in thousands)					(in millions)			(in thousands)						(in millions)				(in thousand)
<$1 million	227		$	149		$	6,138		216		$	136		$	5,742		11			$	13			$		396
Private Client Market ($1 - <$10 million)	1,200			3,668			105,423		1,242			4,001			114,264		(42	)			(333	)				(8,841	)
Middle Market ($10 - <$20 million)	78			1,067			20,601		91			1,222			22,668		(13	)			(155	)				(2,067	)
Larger Transaction Market (≥$20 million)	83			3,980			30,634		66			3,083			29,155		17				897					1,479
	1,588		$	8,864		$	162,796		1,615		$	8,442		$	171,829		(27	)		$	422			$		(9,033	)

MARCUS & MILLICHAP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for shares and par value)
	March 31, 2021 (Unaudited)			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	221,708		$	243,152
Commissions receivable, net		8,205			10,391
Prepaid expenses		10,084			10,153
Marketable debt securities, available-for-sale (includes amortized cost of $134,460 and $158,148 at March 31, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)		134,494			158,258
Advances and loans, net		2,106			2,413
Other assets		5,642			4,711
Total current assets		382,239			429,078
Property and equipment, net		22,931			23,436
Operating lease right-of-use assets, net		81,105			84,024
Marketable debt securities, available-for-sale (includes amortized cost of $65,114 and $45,181 at March 31, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)		66,931			47,773
Assets held in rabbi trust		10,574			10,295
Deferred tax assets, net		20,629			21,374
Goodwill and other intangible assets, net		50,817			52,053
Advances and loans, net		111,781			106,913
Other assets		4,075			4,176
Total assets	$	751,082		$

FAQ

What are the financial results for MMI in Q1 2021?

In Q1 2021, MMI reported total revenues of $184.0 million, a decrease of 3.5% from Q1 2020. Net income increased by 14.9% to $15.0 million.

How did MMI's brokerage revenue change in Q1 2021?

In Q1 2021, MMI's Private Client brokerage revenue decreased by 7.7%, while Larger Transaction brokerage revenue increased by 5.1%.

What growth opportunities does MMI see for the future?

MMI expects growth in various segments, including financing, investments in technology, and strategic acquisitions.

What was MMI's Adjusted EBITDA for Q1 2021?

MMI's Adjusted EBITDA for Q1 2021 was $25.7 million, representing a 14.8% increase compared to the previous year.

What factors could influence MMI's business in 2021?

Factors include market recovery pace, interest rate fluctuations, regulatory changes, and potential acquisition activity.