Marcus & Millichap, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019. The filing also provides unaudited quarterly results, including fourth-quarter comparisons. The company is a commercial real estate brokerage and financing firm; revenue is primarily transaction-based, with real estate brokerage commissions contributing about 90% of FY2019 revenue.
Financial and operating highlights
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $806.4 million | $814.8 million | Down 1.0% |
| Operating income / margin | $96.4 million / 12.0% | $112.3 million / 13.8% | Income down 14.1% |
| Net income / margin | $76.9 million / 9.5% | $87.3 million / 10.7% | Down 11.8% |
| Diluted EPS | $1.95 | $2.22 | Down 12.2% |
| Adjusted EBITDA | $115.6 million | $129.5 million | Down 10.7% |
| Cash from operations | $25.3 million | $117.3 million | Down $92.0 million |
- Revenue mix and activity: Brokerage commissions were $729.4 million, down 2.4%, despite brokerage sales volume rising 2.2% to $36.9 billion. The average commission rate declined to 1.98% from 2.07%, partly reflecting larger average transactions. Financing fees rose 14.7% to $66.3 million as financing volume increased 15.1% to $7.2 billion; other revenue was $10.8 million.
- The company closed 9,726 sales, financing and other transactions, with approximately $49.7 billion in sales volume, versus 9,472 transactions and $46.4 billion in 2018. It ended the year with 2,021 investment sales and financing professionals and 82 offices.
- Fourth quarter: Revenue was $237.9 million versus $230.3 million in Q4 2018; operating income was $27.1 million versus $32.5 million, and net income was $20.7 million versus $26.2 million. Diluted EPS was $0.52 versus $0.66.
- Cash and liquidity: Cash and cash equivalents were $232.7 million at year-end; marketable securities totaled $211.6 million, for combined cash and securities of about $444.2 million. Operating cash flow fell substantially; management cited payment and receipt timing, increased advances to professionals, higher bonus payments, reduced deferral of commissions and lower revenue relative to expenses.
- Debt and obligations: No amounts were drawn on the $60 million revolving credit facility, which matures June 2022; $0.5 million of its letter-of-credit sublimit was used. Notes payable to former stockholders were $6.6 million, due in 2020. The company also reported $80.9 million of operating lease liabilities and $20.2 million of stock-appreciation-rights liabilities. It reported compliance with credit-facility covenants.
- Total assets were $709.0 million, total liabilities $214.1 million and stockholders’ equity $494.9 million. The current ratio was approximately 4.0, based on reported current assets and current liabilities.
Changes, outlook and risks
- Revenue edged lower, while operating and net income declined more sharply as selling, general and administrative costs rose 5.0% to $203.1 million and depreciation and amortization increased 27.3% to $8.0 million. Other income rose to $12.5 million, partly offsetting lower operating income. The effective tax rate increased to 28.4% from 25.6%.
- Management described the U.S. economy as continuing moderate growth and characterized commercial property fundamentals and capital availability as broadly supportive. It also noted cautious buyers, seller price expectations that remained elevated, a bid-ask gap and potentially longer marketing and closing timelines. Commentary cited election and geopolitical uncertainty and emerging coronavirus concerns; the filing provides no numerical 2020 revenue or earnings guidance.
- Principal risks include economic and commercial real estate cycles, changes in interest rates and financing availability, transaction-volume and property-value declines, intense competition, and the ability to recruit and retain key professionals. California generated about 32% of revenue, creating geographic concentration risk. Other disclosed risks include independent-contractor classification, technology and cybersecurity, regulatory and tax changes, litigation, and seasonality.
- In Q4 2019, the company completed one acquisition with aggregate consideration of $8.5 million. A January 2020 acquisition and subsequent commitments of $48.2 million, of which $33.6 million had been paid by the financial-statement issuance date, are disclosed as subsequent events. Lease accounting adoption materially increased reported balance-sheet assets and liabilities but did not materially affect FY2019 earnings.
- The company reported no off-balance-sheet arrangements and stated that ordinary-course legal proceedings were not expected to materially affect its financial position, results or cash flows. The auditor gave unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether brokerage transaction volume and commission rates recover, and how transaction mix affects commissions and margins.
- Whether financing-fee growth continues and how refinancing activity responds to interest-rate and credit-market changes.
- The drivers and sustainability of the sharp decline in operating cash flow, including professional advances and deferred commissions.
- Acquisition-related commitments, contingent consideration, and the timing and effect of the January 2020 acquisition.
- Lease obligations, the 2020 former-stockholder note maturity, and the terms and covenant headroom of the unused revolving facility.
- How the disclosed market uncertainties, California concentration, and professional-retention and classification risks affect results.