Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Marcus & Millichap, Inc. Reports Results for Second Quarter 2022


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 a record second quarter.

Second Quarter 2022 Highlights Compared to Second Quarter 2021

Six Months 2022 Highlights Compared to Six Months 2021

"The second quarter was another record for MMI as our sales and financing professionals effectively navigated a changing macroeconomic environment, and we benefited from ongoing investments into the business," said Hessam Nadji, President and CEO. "We saw increased activity across the board driven by our client outreach and marketing initiatives as well as investors' heightened motivation to transact before additional interest rate increases. These factors led to the significant increase in transactions compared to a year ago, including many transaction closings pulling forward into the quarter. There was also significant rotation both between property types and regions as equity built over the past few years was redeployed."

Mr. Nadji continued, "Looking ahead, we anticipate that the effect of rapid interest rate increases, and expectations of additional rate hikes will further widen the bid/ask spread and tighten lender underwriting. Notwithstanding this market transition and time needed for valuation expectations to reset, capital is still attracted to commercial real estate as an inflation hedge with healthy supply-demand fundamentals and solid long-term growth prospects. Our fortress balance sheet enables us to continue to support our growth strategy through internal initiatives to further strengthen the MMI platform, such as enhancing technology to increase sales force efficiency, continuing to bolster the team with experienced professionals, and making targeted accretive acquisitions. With our capabilities, broad relationships, and deep industry expertise, we believe we are well positioned for long-term growth and building shareholder value."

Dividends

In the six months ended June 30, 2022, the Company paid $50.1 million in dividends to outstanding shareholders. As of June 30, 2022, accrued dividends related to unvested restricted stock units totaled $2.0 million.

On August 2, 2022, the Board of Directors declared a semi-annual regular dividend of $0.25 per share, or approximately $10.4 million, payable on October 6, 2022, to stockholders of record at the close of business on September 15, 2022.

Second Quarter 2022 Results Compared to Second Quarter 2021

Total revenues for the second quarter of 2022 reached $396.0 million, compared to $284.9 million for the same period during the prior year, an increase of 39.0%. The growth in total revenues was driven by increases in real estate brokerage commissions and financing fees. Real estate brokerage commissions increased 40.2% to $354.7 million from the same period in the prior year primarily due to an increase in overall volume of investment sales and average transaction size, and revenue growth of 58.5% in the combined Middle Market and Larger Transaction Market and 32.7% in the Private Client Market. Financing fees increased by 30.5% to $36.8 million due to an overall increase in volume of financing transactions and an increase in average transaction size.

Total operating expenses for the second quarter of 2022 were $339.2 million, an increase of 39.4% compared to $243.3 million for the same period in the prior year. The change was primarily driven by a 43.4% increase in cost of services and a 29.2% increase in selling, general and administrative expense. Cost of services as a percent of total revenues increased by 200 basis points to 64.7% compared to the same period during the prior year, primarily due to senior investment sales and financing professionals earning additional commissions as certain annual revenue thresholds were achieved earlier than in prior years.

Selling, general and administrative expense for the second quarter of 2022 increased by $18.0 million to $79.8 million, compared to the same period in the prior year. The change was primarily due to increases in (i) compensation related costs, primarily driven by increases in performance compensation due to significant year-over-year growth in operating results; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) a return to in-person agent and client business events, conferences, and meetings.

Net income for the second quarter of 2022 was $42.2 million, or $1.04 per common share, diluted, compared to $31.5 million, or $0.78 per common share, diluted, for the same period in the prior year. Adjusted EBITDA for the second quarter of 2022 was $62.9 million, compared to $48.1 million for the same period in the prior year.

Six Months 2022 Results Compared to Six Months 2021

Total revenues for the six months ended June 30, 2022 were $715.4 million, compared to $468.9 million for the same period in the prior year, an increase of $246.5 million, or 52.6%. Total operating expenses for the six months ended June 30, 2022 increased by 50.9% to $614.4 million compared to $407.1 million for the same period in the prior year. Cost of services as a percent of total revenues increased to 63.3%, up 190 basis points compared to the first six months of 2021. The Company's net income for the six months ended June 30, 2022 of $75.0 million, or $1.85 per common share, diluted, compared with net income of $46.5 million, or $1.16 per common share, diluted, for the same period in the prior year. Adjusted EBITDA for the six months ended June 30, 2022 increased to $114.8 million, from $73.8 million for the same period in the prior year. As of June 30, 2022, the Company had 1,901 investment sales and financing professionals, a net loss of 121 over the prior year.

Business Outlook

Notwithstanding the potential ongoing impact of the COVID-19 pandemic, the Company believes it is well positioned to achieve long-term growth. However, short-term macroeconomic forces have become increasingly fluid, particularly inflationary pressure and interest rate movements, and these have the potential to influence economic growth and investor sentiment.

The Company benefits from its experienced management team, recent 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 highly fragmented market segment consistently accounts for 80% of all commercial property sales transactions and over 59% of the commission pool. The top 10 brokerage firms, led by MMI, have an estimated 21% share of this segment by transaction count.

Key factors that may influence the Company's business during the rest of 2022 include:

Webcast and Call Information

Marcus & Millichap will host a live webcast today to discuss the financial results at 7:30 a.m. Pacific Time/10:30 a.m. Eastern Time. The webcast will be accessible through the Investor Relations section of Marcus & Millichap's website at ir.marcusmillichap.com and will be archived upon completion of the call. The Company encourages the use of the webcast due to potential extended wait times to access the conference call via dial-in.

For those unable to access the webcast, callers from the United States and Canada should dial 1-877-407-9208 ten minutes prior to the scheduled call time. International callers should dial 1-201-493-6784.

Replay Information

For those unable to participate during the live broadcast, a telephonic replay of the call will also be available from 1:30 p.m. Eastern Time on Friday, August 5, 2022 through 11:59 p.m. Eastern Time on Friday, August 19, 2022 by dialing 1-844-512-2921 in the United States and Canada or 1-412-317-6671 internationally and entering passcode 13731197.

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 June 30, 2022, the Company had 1,901 investment sales and financing professionals in 82 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 6,540 transactions during the six months ended June 30, 2022, with a sales volume of $47.4 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 2022, the potential continuing impact of the COVID-19 pandemic, the anticipation of interest rate increases, the execution of our capital return program, and expectations for 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:

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. We have not filed our Form 10-Q for the quarter ended June 30, 2022. As a result, all financial results described in this earnings release should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates, that are identified prior to the time we file our Form 10-Q.

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Revenues:

Real estate brokerage commissions

$

354,685

$

252,903

$

641,594

$

415,699

Financing fees

36,811

28,214

63,264

46,057

Other revenues

4,461

3,829

10,563

7,167

Total revenues

 

395,957

 

284,946

 

715,421

 

468,923

Operating expenses:

Cost of services

256,042

178,585

452,810

287,688

Selling, general and administrative

79,841

61,797

154,376

113,474

Depreciation and amortization

3,332

2,959

7,243

5,956

Total operating expenses

 

339,215

 

243,341

 

614,429

 

407,118

Operating income

56,742

41,605

100,992

61,805

Other (expense) income, net

(461)

1,370

(11)

2,414

Interest expense

(158)

(146)

(318)

(292)

Income before provision for income taxes

 

56,123

 

42,829

 

100,663

 

63,927

Provision for income taxes

13,955

11,297

25,712

17,383

Net income

$

42,168

$

31,532

$

74,951

$

46,544

 

Other comprehensive loss:

Marketable debt securities, available-for-sale:

Change in net unrealized gains/losses

(1,558)

146

(3,915)

(475)

Less: reclassification adjustment for net gains

included in other (expense) income, net

7

3

(77)

3

Net change, net of tax of $528 and $1,366 for the

three and six months ended June 30, 2022, and $(51) and

$164 for the three and six months ended June 30, 2021,

respectively

(1,551)

149

(3,992)

(472)

Foreign currency translation gain (loss), net of tax of

$0 for each of the three and six months ended June 30, 2022

and 2021, respectively

179

(217)

120

(330)

Total other comprehensive loss

 

(1,372)

 

(68)

 

(3,872)

 

(802)

Comprehensive income

$

40,796

$

31,464

$

71,079

$

45,742

 

Earnings per share:

Basic

$

1.05

$

0.79

$

1.87

$

1.17

Diluted

$

1.04

$

0.78

$

1.85

$

1.16

Weighted average common shares outstanding:

Basic

40,048

39,877

40,018

39,817

Diluted

40,342

40,139

40,390

40,112

 

MARCUS & MILLICHAP, INC.
KEY OPERATING METRICS SUMMARY
(Unaudited)

Total sales volume was approximately $26.4 billion for the three months ended June 30, 2022, encompassing 3,636 transactions consisting of $19.9 billion for real estate brokerage (2,685 transactions), $4.5 billion for financing (697 transactions) and $2.0 billion in other transactions, including consulting and advisory services (254 transactions). Total sales volume was $47.4 billion for the six months ended June 30, 2022, encompassing 6,540 transactions consisting of $37.1 billion for real estate brokerage (4,822 transactions), $7.2 billion for financing (1,217 transactions) and $3.1 billion in other transactions, including consulting and advisory services (501 transactions). As of June 30, 2022, the Company had 1,812 investment sales professionals and 89 financing professionals. Key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

 

Three Months Ended
June 30,

Six Months Ended
June 30,

Real Estate Brokerage

2022

2021

2022

2021

Average Number of Investment Sales Professionals

 

1,822

 

 

1,934

 

 

1,839

 

 

1,946

 

Average Number of Transactions per Investment Sales Professional

 

1.47

 

 

1.20

 

 

2.62

 

 

2.01

 

Average Commission per Transaction

$

132,099

 

$

108,542

 

$

133,056

 

$

106,100

 

Average Commission Rate

 

1.79

%

 

1.87

%

 

1.73

%

 

1.85

%

Average Transaction Size (in thousands)

$

7,399

 

$

5,820

 

$

7,688

 

$

5,723

 

Total Number of Transactions

 

2,685

 

 

2,330

 

 

4,822

 

 

3,918

 

Total Sales Volume (in millions)

$

19,868

 

$

13,560

 

$

37,073

 

$

22,424

 

 

 

 

 

 

 

Three Months Ended
June 30,

Six Months Ended
June 30,

Financing (1)

2022

2021

2022

2021

Average Number of Financing Professionals

 

87

 

 

85

 

 

86

 

 

86

 

Average Number of Transactions per Financing Professional

 

8.01

 

 

8.05

 

 

14.15

 

 

13.70

 

Average Fee per Transaction

$

44,985

 

$

34,783

 

$

44,198

 

$

32,972

 

Average Fee Rate

 

0.70

%

 

0.82

%

 

0.75

%

 

0.86

%

Average Transaction Size (in thousands)

$

6,453

 

$

4,228

 

$

5,882

 

$

3,824

 

Total Number of Transactions

 

697

 

 

684

 

 

1,217

 

 

1,178

 

Total Financing Volume (in millions)

$

4,498

 

$

2,892

 

$

7,158

 

$

4,504

 

(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 June 30,

 

 

2022

2021

Change

Real Estate Brokerage

Number

Volume

Revenues

Number

Volume

Revenues

Number

Volume

Revenues

 

 

(in millions)

(in thousands)

 

(in millions)

(in thousands)

 

(in millions)

(in thousands)

<$1 million

279

$

168

$

6,672

297

$

200

$

7,618

(18)

$

(32)

$

(946)

Private Client Market ($1 - <$10 million)

2,021

 

7,348

 

209,868

1,767

 

5,675

 

158,136

254

 

1,673

 

51,732

Middle Market ($10 - <$20 million)

209

 

2,819

 

56,456

156

 

2,134

 

41,745

53

 

685

 

14,711

Larger Transaction Market (?$20 million)

176

 

9,533

 

81,689

110

 

5,551

 

45,404

66

 

3,982

 

36,285

 

2,685

$

19,868

$

354,685

2,330

$

13,560

$

252,903

355

$

6,308

$

101,782

 

 

Six Months Ended June 30,

 

 

2022

2021

Change

Real Estate Brokerage

Number

Volume

Revenues

Number

Volume

Revenues

Number

Volume

Revenues

 

 

(in millions)

(in thousands)

 

(in millions)

(in thousands)

 

(in millions)

(in thousands)

<$1 million

485

$

296

$

12,459

524

$

349

$

13,756

(39)

$

(53)

$

(1,297)

Private Client Market ($1 - <$10 million)

3,627

 

13,044

 

370,899

2,967

 

9,343

 

263,559

660

 

3,701

 

107,340

Middle Market ($10 - <$20 million)

393

 

5,322

 

103,216

234

 

3,201

 

62,346

159

 

2,121

 

40,870

Larger Transaction Market (?$20 million)

317

 

18,411

 

155,020

193

 

9,531

 

76,038

124

 

8,880

 

78,982

 

4,822

$

37,073

$

641,594

3,918

$

22,424

$

415,699

904

$

14,649

$

225,895

 

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for shares and par value)

 

June 30, 2022
(Unaudited)

December 31,
2021

Assets

Current assets:

Cash and cash equivalents

$

211,651

$

382,140

Accounts receivable, net

14,138

17,230

Prepaid expenses

10,046

13,220

Marketable debt securities, available-for-sale (includes amortized cost of $254,487 and

$183,915 at June 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)

253,040

183,868

Advances and loans, net

3,605

6,403

Other assets, current

5,880

 

5,270

Total current assets

 

498,360

608,131

Property and equipment, net

25,338

23,192

Operating lease right-of-use assets, net

84,351

81,528

Marketable debt securities, available-for-sale (includes amortized cost of $80,767 and $111,858

at June 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)

77,588

112,610

Assets held in rabbi trust

9,587

11,508

Deferred tax assets, net

35,233

33,736

Goodwill and other intangible assets, net

58,263

48,105

Advances and loans, net

164,469

113,242

Other assets, non-current

13,573

13,146

Total assets

$

966,762

$

1,045,198

 

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued expenses

$

13,022

$

15,487

Deferred compensation and commissions

55,387

114,685

Income tax payable

2,848

17,853

Operating lease liabilities

18,632

18,973

Accrued bonuses and other employee related expenses

30,586

 

49,848

Other liabilities, current

 

7,567

 

 

8,784

Total current liabilities

 

128,042

225,630

Deferred compensation and commissions

48,096

53,536

Operating lease liabilities

63,366

58,334

Other liabilities, non-current

10,088

11,394

Total liabilities

 

249,592

 

348,894

Commitments and contingencies

-

-

Stockholders' equity:

Preferred stock, $0.0001 par value:

Authorized shares ? 25,000,000; issued and outstanding shares ? none at June 30, 2022 and

December 31, 2021, respectively

-

-

Common stock, $0.0001 par value:

Authorized shares ? 150,000,000; issued and outstanding shares ? 39,964,292 and

39,692,373 at June 30, 2022 and December 31, 2021, respectively

4

4

Additional paid-in capital

123,767

121,844

Retained earnings

596,361

573,546

Accumulated other comprehensive (loss) income

(2,962)

 

910

Total stockholders' equity

 

717,170

696,304

Total liabilities and stockholders' equity

$

966,762

$

1,045,198

 

MARCUS & MILLICHAP, INC.
OTHER INFORMATION
(Unaudited)

Adjusted EBITDA Reconciliation

Adjusted EBITDA, which the Company defines as net income before (i) interest income and other, including net realized gains (losses) on marketable debt securities, available-for-sale and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation, and (vi) non-cash mortgage servicing rights ("MSRs") activity. The Company uses Adjusted EBITDA in its business operations to evaluate the performance of its business, develop budgets and measure its performance against those budgets, among other things. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate its overall operating performance. However, Adjusted EBITDA has material limitations as a supplemental metric and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under U.S. generally accepted accounting principles ("U.S. GAAP"). The Company finds Adjusted EBITDA to be a useful management metric to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and non-cash items. Considering the foregoing limitations, the Company does not rely solely on Adjusted EBITDA as a performance measure and also considers its U.S. GAAP results. Adjusted EBITDA is not a measurement of the Company's financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies.

A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Net income

$

42,168

$

31,532

$

74,951

$

46,544

Adjustments:

 

 

 

Interest income and other (1)

 

(979)

 

(436)

 

(1,594)

 

(967)

Interest expense

 

158

 

146

 

318

 

292

Provision for income taxes

 

13,955

 

11,297

 

25,712

 

17,383

Depreciation and amortization

 

3,332

 

2,959

 

7,243

 

5,956

Stock-based compensation

 

4,275

 

2,662

 

8,131

 

4,950

Non-cash MSR activity (2)

 

-

 

(50)

 

-

 

(353)

Adjusted EBITDA

$

62,909

$

48,110

$

114,761

$

73,805

(1)

Other includes net realized gains (losses) on marketable debt securities available-for-sale.

(2)

Non-cash MSR activity includes the assumption of new servicing obligations.

Glossary of Terms

Certain Adjusted Metrics

Real Estate Brokerage

During the six months ended June 30, 2022, we closed a portfolio of large transactions in our real estate brokerage business in excess of $300 million. Following are actual and as adjusted metrics excluding those transactions:

 

Three Months Ended
June 30, 2022

Six Months Ended
June 30, 2022

(actual)

(as adjusted)

(actual)

(as adjusted)

Total Sales Volume Increase

46.5

%

39.4

%

65.3

%

54.1

%

Average Commission Rate Reduction

(4.3

)%

(0.2

)%

(6.6

)%

(2.0

)%

Average Transaction Size Increase

27.1

%

21.1

%

34.3

%

25.3

%

 


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