Marcus & Millichap, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company is a commercial real estate brokerage and financing firm operating 82 U.S. and Canadian offices, with 1,982 investment sales and financing professionals at quarter-end. Unless noted, amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $332.4 million | $158.6 million | $801.3 million | $466.7 million |
| Operating income | $45.7 million | $6.5 million | $107.5 million | $23.6 million |
| Operating margin | 13.7% | 4.1% | 13.4% | 5.0% |
| Net income | $33.9 million | $6.0 million | $80.5 million | $19.2 million |
| Net margin | 10.2% | 3.8% | 10.0% | 4.1% |
| Diluted EPS | $0.84 | $0.15 | $2.00 | $0.48 |
| Adjusted EBITDA (non-GAAP) | $51.0 million | $12.2 million | $124.8 million | $38.8 million |
- Revenue mix: Q3 brokerage commissions were $299.8 million, financing fees $29.4 million, and other revenue $3.2 million. Brokerage represented about 90% of quarterly revenue.
- Cash flow: Nine-month operating cash flow was $99.6 million, versus cash used of $28.3 million in 2020. Investing used $55.8 million and financing used $6.1 million. Cash increased $37.9 million to $281.0 million.
- Liquidity: Cash and available-for-sale marketable debt securities totaled $528.4 million at September 30. The company reported $59.5 million of available borrowing capacity on its $60 million revolving facility, with $533,000 used for letters of credit.
- Debt and obligations: No revolver borrowings were outstanding. The facility matures June 1, 2022; the company reported covenant compliance. Operating lease liabilities totaled $80.7 million. Contingent and deferred acquisition consideration had maximum undiscounted payments of $30.3 million.
- Other financial items: Nine-month effective tax rate was 26.7%, compared with 29.1% in 2020. Interest expense was $0.4 million. The investment portfolio’s fair value was $247.4 million and weighted-average credit rating was AA.
Changes versus prior comparable periods
- Revenue rose 109.6% in Q3 and 71.7% for the first nine months year over year. The filing attributes growth primarily to higher transaction counts and average transaction sizes, alongside increased financing activity.
- Q3 brokerage sales volume was $16.5 billion, up 136.0%; brokerage transactions increased 60.8%. For nine months, brokerage volume was $38.9 billion, up 86.6%, and transactions increased 51.2%.
- Financing fees increased 88.2% in Q3 and 72.8% year to date. Cost of services rose faster than revenue in both periods, reflecting commissions and senior professionals reaching annual commission thresholds earlier; it increased to 65.9% of revenue in Q3 from 62.9%, and to 63.3% year to date from 61.5%.
- Despite higher SG&A in dollars, SG&A declined as a share of revenue: 19.5% in Q3 versus 31.4%, and 22.2% year to date versus 31.7%. Management cited higher performance compensation, business development and retention spending, office expansion, and acquisition-related fair-value changes.
- Management also reported nine-month revenue and transaction growth of 40.9% and 29.2%, respectively, compared with the same period in 2019, indicating the rebound was not solely against the pandemic-affected 2020 comparison.
Outlook, commentary, risks and unusual items
- Outlook: No numerical company guidance was provided. Management said strong capital availability and commercial real estate activity could support transactions through 2021 and into 2022, barring a major capital-markets disruption, but cautioned that 2021 growth rates may not be sustainable.
- Market risks: COVID-19, variants and vaccination rates, economic recovery, labor shortages and inflation, potential interest-rate increases, supply-chain constraints, changing buyer/seller pricing expectations, and tax-policy uncertainty could affect transaction volumes and pricing. Office properties and pandemic-affected sectors remained areas of uncertainty.
- Seasonality: Revenue and cash flow have historically been stronger in the second half, particularly Q4; margins may be lower in the second half because of graduated commission arrangements. Past seasonality may not continue.
- Cybersecurity: An August 2021 attack was contained and essential systems restored without material business disruption. The company reported no evidence at that time of material risk or misuse of personal information; cyber insurance covered the majority of incident costs. The filing highlights potential future disruption, data loss, liability and reputational risks.
- Unusual item: The contingent-consideration liability increased to $8.1 million, including a $3.2 million increase in fair value during the first nine months, with changes recorded in SG&A. The company reported no goodwill or intangible-asset impairment after considering COVID-19 impacts.
- Contingencies and controls: The company is involved in ordinary-course legal matters, including brokerage, employment-classification and other claims; it did not expect the outcomes to materially harm consolidated results based on information then available. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Assess whether the unusually strong transaction activity and revenue growth can persist, including against pre-pandemic comparisons and across property segments.
- Track commission expense as a share of revenue, senior-professional commission thresholds, and whether operating-margin gains are sustainable.
- Review transaction mix: larger deals lifted volume and average transaction size but reduced average commission rates.
- Monitor the June 2022 revolver maturity, covenant compliance, and liquidity available after lease and acquisition-related payments.
- Follow interest-rate, inflation, COVID-19, tax-policy and office-market developments, as well as cybersecurity remediation and any subsequent incident updates.
Adjusted EBITDA is a company-defined non-GAAP measure; it should be considered alongside, not as a substitute for, GAAP results. Interim results are not necessarily indicative of full-year performance.