Marcus & Millichap, Inc. — FY2021 Form 10-K
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2021; it is not a standalone Q4 report. Marcus & Millichap is a commercial real estate brokerage, financing, research and advisory firm operating in the U.S. and Canada. At year-end, it had 82 offices and 1,994 investment sales and financing professionals. Its commission-based, transaction-oriented business is concentrated in the $1–$10 million private-client property market.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,296.4 million | $716.9 million | +80.8% |
| Operating income / margin | $189.4 million / 14.6% | $53.6 million / 7.5% | +253.2% operating income |
| Net income / margin | $142.5 million / 11.0% | $42.8 million / 6.0% | +232.6% |
| Diluted EPS | $3.55 | $1.08 | — |
| Adjusted EBITDA | $213.0 million | $75.7 million | +181.4% |
| Operating cash flow | $255.9 million | $38.1 million | — |
- Brokerage commissions were $1,171.0 million, up 84.9%; financing fees were $109.7 million, up 55.5%; other revenue was $15.8 million. Brokerage generated about 90% of revenue.
- Brokerage sales volume rose 110.6% to $67.5 billion, on 9,652 transactions; average transaction size increased 37.2%. Average commission rate fell 25 basis points to 1.73%, partly reflecting a greater share of larger transactions.
- Financing volume increased 51.3% to $11.6 billion across 2,474 transactions. The average financing fee rate declined four basis points to 0.81%.
- Cost of services rose 87.6% to $840.2 million and increased to 64.8% of revenue from 62.5%, reflecting commissions and senior professionals reaching incentive thresholds sooner. SG&A rose 24.8% to $255.2 million, but declined to 19.7% of revenue from 28.5%.
- Cash and cash equivalents were $382.1 million at year-end, versus $243.2 million. Marketable debt securities were $296.5 million; together with cash, these totaled $678.6 million. Total assets were $1,045.2 million, total liabilities $348.9 million and stockholders’ equity $696.3 million.
- The company reported no borrowings under its $60 million secured revolving facility and approximately $59.5 million of available borrowing capacity. The facility was scheduled to mature June 1, 2022. Interest expense was $0.6 million.
- Cash used in investing activities was $108.4 million, principally reflecting purchases of marketable securities. No material funded debt was reported; operating lease liabilities had a present value of $77.3 million.
Material changes versus the prior comparable period
FY2021’s strong rebound followed pandemic-related weakness: FY2020 revenue had fallen 11.1% from 2019, while FY2021 total transactions increased 48.0% and revenue increased 80.8% from FY2020. Management attributed the 2021 increase to higher transaction counts and sizes, deals delayed or cancelled during the pandemic that subsequently closed, and investors’ motivation to transact ahead of potential tax-code changes and rising rates. Results also benefited from 2020 acquisitions, particularly in financing. The company cautioned that 2021 growth rates may not be sustainable.
Operating cash flow improved substantially, but the filing attributes part of the increase to timing, higher deferrals of discretionary commissions and commission payables, lower bonus payments, and reduced advances to professionals; it should not be viewed as solely a recurring earnings conversion trend.
Outlook, commentary, risks and unusual items
- No specific numerical FY2022 revenue or earnings guidance is provided. Management described commercial real estate momentum and capital availability as supportive entering 2022, but noted that significant rate increases, renewed severe COVID-19 disruption or geopolitical shocks could weaken activity and widen buyer-seller pricing gaps.
- Management cited inflation above 7% at the time of the filing and expected Federal Reserve rate increases. Rising rates could affect transaction activity, financing availability and property valuations.
- The business is seasonal: revenue, income and operating cash flow have historically been higher in the second half, particularly Q4. Commission costs can also affect margins as senior professionals reach annual thresholds.
- In August 2021, the company experienced a cyberattack. It reported minimal business disruption, restoration of essential systems and subsequent security upgrades; future attacks could still cause significant disruption, costs or liability.
- A strategic alliance with M&T Realty Capital allows the company, at its option, to assume a portion of certain loan-loss indemnification obligations connected with Fannie Mae DUS loans. The company had accepted no such guarantee obligations as of December 31, 2021. The arrangement could create future exposure.
- Legal claims arising in the ordinary course include brokerage, disclosure, conflicts-of-interest, employment and independent-contractor classification matters. Management said it did not expect currently known proceedings to materially adversely affect financial position, results or cash flows.
- Material obligations include $69.3 million of deferred commissions, $21.0 million of stock appreciation rights principal and interest, and acquisition-related contingent and deferred consideration. Maximum undiscounted future acquisition consideration was $28.6 million; settlement amounts and timing depend on conditions and estimates.
- After year-end, the board declared a $0.25-per-share semi-annual regular dividend and a $1.00-per-share special dividend, totaling an estimated $52.1 million including dividend equivalents. These were declared February 16, 2022 and are not FY2021-period dividends; future dividends remain subject to board approval.
- The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The auditor identified deferred commissions payable as a critical audit matter, citing the complexity of testing eligibility populations and revenue-threshold calculations.
Important facts for investors to verify
- Whether transaction volumes, larger deal sizes and the 2021 rebound persist, given management’s warning that growth may not continue at the same pace.
- How higher interest rates, inflation, credit conditions and property-type-specific trends affect brokerage commissions and financing fees.
- The sustainability of cash conversion after accounting for commission deferrals, bonus-payment timing and other working-capital movements.
- The status and terms of the revolving credit facility following its June 2022 maturity date, and any subsequent borrowing or refinancing.
- Any future loan indemnification assumed under the M&T Realty Capital arrangement, and changes in acquisition consideration or professional advances.
- The impact of the declared dividends on cash and capital-return plans, and whether future distributions are approved.