Marcus & Millichap, Inc. Q3 FY2024 earnings call

• MMI's results showed modest improvement in Q3, with revenue up 4% y-o-y, setting the stage for a recovery.
• Key catalysts for capital movement include price adjustments, Fed rate cuts, healthy supply-demand dynamics, and pent-up demand.
• Closed over 1,300 brokerage transactions totaling $8.5 billion in volume; financing revenue up 19.3% with 300+ financing transactions.
• Invested in talent, technology, and business development; top professionals expected to drive growth in recovery.
• Supply-demand healthy across most property types, with construction starts set to decline, benefiting multifamily and industrial.

Revenue for the third quarter was $169 million, up 4% compared to last year. Real estate brokerage commissions were $142 million, accounting for 84% of total revenue, up 2% y-o-y. Brokerage revenue came from $8.5 billion in sales volume across 1,331 transactions. Financing segment revenue grew 19% to $21 million, with 318 financing transactions totaling $2.1 billion. Other revenue, primarily leasing, consulting, and advisory fees, was $6 million, up 20% y-o-y. Private client contributed 62% of brokerage revenue ($87.5 million) in Q3, down from 65% last year. Middle market and larger transaction segments accounted for 35% of brokerage revenue ($49 million), up from 31% last year, with a 36% increase in dollar volume and 23% increase in transactions.

• Cautiously optimistic outlook with sequential revenue growth expected in Q4.
• Cost of services as a percentage of revenue likely to increase sequentially in Q4.
• SG&A expected to be relatively consistent in absolute dollar terms compared to Q3 and favorable vs Q4 last year.
• Full-year tax rate expected to be in the 13% to 16% range.

• Interest rate volatility impacting commercial real estate trading and finance volumes.
• Restrictive lending and persistent bid-ask spreads hampering certain transaction segments.
• Elevated new agent fallout rate due to market volatility, requiring expanded talent acquisition and training channels.

Q: Talk about the financing environment for commercial real estate deals, especially private client markets and comparison to middle market/larger segments A: Banks/credit unions are easing slightly but have less capacity and are more conservative; restrictive lending and bid-ask spreads hinder private clients. Middle market/larger transactions are driven by institutional investors with cash/private capital, less reliant on bank financing, and motivated by price adjustments.

Q: Expansion to long-term average run rate A: Market is 35%-40% below 5-10 year averages; gradual recovery expected, not all in 2025, but will regain averages with solid US economy supporting demand.

Q: Election impacts on commercial real estate laws/regulations A: Uncertainty around 1031 exchanges, carried interest, and 2017 tax act provisions reduced; Prop 33 in California failed, positive for multifamily market as rent control chokes supply.

Q: Update on M&A opportunity set A: Focus on complementary businesses like appraisal, valuation, consultation; active on teams/boutiques in brokerage markets with low coverage; selective and opportunistic, looking for synergies with existing business to expand service capabilities for private clients