(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, the words "Marcus & Millichap," "MMI," "we," the "Company," "us" and "our" refer to Marcus & Millichap, Inc., and its consolidated subsidiaries. Forward-Looking Statements The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to any continuing impact of the COVID-19 pandemic. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021, including the "Risk Factors" section and the consolidated financial statements and notes included therein. Overview We are a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of September 30, 2021, we had 1,982 investment sales and financing professionals that are primarily exclusive independent contractors operating in 82 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and nine months ended September 30, 2021, we closed 3,325 and 8,942 investment sales, financing and other transactions with total sales volume of approximately $20.8 billion and $50.2 billion, respectively. During the year ended December 31, 2020, we closed 8,954 investment sales, financing and other transactions with total sales volume of approximately $43.4 billion. We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing, of commercial properties, and by providing equity advisory services, loan sales and consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended September 30, 2021, approximately 90% of our revenues were generated from real estate brokerage commissions, 9% from financing fees and 1% from other real estate related services. During the nine months ended September 30, 2021, approximately 89% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 1% from other real estate related services. During the year ended December 31, 2020, approximately 88% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 2% from other real estate related services. We divide commercial real estate into four major market segments, characterized by price:
Properties priced less than $1 million;
Private client market:
Larger transaction market:
Our strength is in serving private clients in the $1-$10 million
Three Months Ended September 30, 2021 2020 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 267 $ 183 $ 7,419 241 $ 156 $ 6,290 26 $ 27 $ 1,129 Private client market ($1 - <$10 million) 1,894 6,296 183,033 1,168 3,592 97,856 726 2,704 85,177 Middle market ($10 - <$20 million) 136 1,940 35,353 70 945 17,643 66 995 17,710 Larger transaction market ( � $20 million) 159 8,088 73,954 48 2,302 19,055 111 5,786 54,899 2,456 $ 16,507 $ 299,759 1,527 $ 6,995 $ 140,844 929 $ 9,512 $ 158,915
Table of Contents
Nine Months Ended September 30, 2021 2020 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 791 $ 532 $ 21,175 649 $ 410 $ 16,550 142 $ 122 $ 4,625 Private client market ($1 - <$10 million) 4,861 15,639 446,592 3,203 10,207 282,937 1,658 5,432 163,655 Middle market ($10 - <$20 million) 370 5,141 97,699 204 2,785 51,902 166 2,356 45,797 Larger transaction market ( � $20 million) 352 17,619 149,992 161 7,459 64,655 191 10,160 85,337 6,374 $ 38,931 $ 715,458 4,217 $ 20,861 $ 416,044 2,157 $ 18,070 $ 299,414
COVID-19 pandemic on all aspects of our business and in the regions we operate. We continue to follow the local guidelines in cities where our offices are located, and all of our offices have re-opened. Our business was impacted by the COVID-19 pandemic during most of 2020, with the total number of transactions and total revenues declining 7.9% and 11.1%, respectively, in the year ended December 31, 2020 compared to the same period in 2019. During the nine months ended September 30, 2021, total revenues and total number of transactions increased 71.7% and 49.6%, respectively, compared to the same period in 2020 and 40.9% and 29.2%, respectively, compared to the same period in 2019. While our total revenues were significantly above prior years' levels, some uncertainty exists in our ability to sustain the growth rates experienced during the three and nine months ended September 30, 2021. Due to the continuing uncertainty around the COVID-19 pandemic, we are unable to predict its potential impact on our financial condition, results of operations and cash flows. These uncertainties include the scope, severity and duration of the pandemic; variants in the virus, vaccination rates and the effects thereof; expectation gaps among buyers and sellers on pricing and property operation, vulnerability to economic weakness and/or slow recovery; the direct and indirect economic effects of the actions taken by state and local governments to continue to contain the pandemic or mitigate its impact; and the impact of these and other factors on our employees, independent contractors, clients and potential clients. Cybersecurity In August 2021, we were subject to a cybersecurity attack on our information technology systems. We immediately engaged cybersecurity experts to secure and restore all essential systems and were able to do so with no material disruption to our business. At this time, there is no evidence of any material risk or misuse relating to personal information. We continue to work with our external cybersecurity experts to assess and enhance the security of our systems and personal information. We maintained cyber insurance, which has covered the majority of costs related to this incident. Factors Affecting Our Business Our business and our operating results, financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period. The number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals, identify and contract properties for sale and identify those that need financing and refinancing. We principally monitor the commercial real estate market through four factors, which generally drive our business. The factors are the economy, commercial real estate supply and demand, capital markets and investor sentiment and investment activity. The Economy Our business is dependent on economic conditions within the markets in which we operate. Changes in the economy on a global, national, regional or local basis can have a positive or a negative impact on our business. Economic indicators and projections related to job growth, unemployment, interest rates, retail spending and confidence trends can have a positive or a negative impact on our business. Overall market conditions, including global trade, interest rate changes and job creation, can affect investor sentiment and, ultimately, the demand for our services from investors in real estate.
Table of Contents
Table of Contents
COVID-19 surge could potentially disrupt the return to office timetable again, creating a new round of pricing instability. Another area of investor uncertainty centers on potential tax reform, but recent communications from the House of Representatives suggests that changes to very important commercial real estate focused tax policies such as the 1031 tax deferred exchange and the step-up basis are improbable at this time. This has bolstered investor confidence, but until the final version of any tax policy changes are officially adopted, commercial real estate investors could remain wary. Despite these areas of uncertainty, we believe the overall enthusiasm for commercial real estate investment as demonstrated by increasing transaction activity remains positive. Seasonality Our real estate brokerage commissions and financing fees have tended to be seasonal and, combined with other factors, can affect an investor's ability to compare our financial condition and results of operations on a quarter-by-quarter basis. Historically, this seasonality has generally caused our revenue, operating income, net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year, particularly in the fourth quarter. The concentration of earnings and cash flows in the last six months of the year, particularly in the fourth quarter, is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year. This historical trend can be disrupted both positively and negatively by major economic events, political events, natural disasters or pandemics such as the COVID-19 pandemic, which may impact, among other things, investor sentiment for a particular property type or location, volatility in financial markets, current and future projections of interest rates, attractiveness of other asset classes, market liquidity and the extent of limitations or availability of capital allocations for larger property buyers, among others. Private client investors may accelerate or delay transactions due to personal or business-related reasons unrelated to economic events. In addition, our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals. These senior investment sales and financing professionals are on a graduated commission schedule that resets annually, pursuant to which higher commissions are paid for higher sales volumes. Our historical pattern of seasonality may or may not continue to the same degree experienced in prior years. Operating Segments We follow the guidance for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute only one operating segment for financial reporting purposes. Key Financial Measures and Indicators Revenues Our revenues are primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenues from financing fees and from other revenues, which are primarily comprised of consulting and advisory fees. Because our business is transaction oriented, we rely on investment sales and financing professionals to continually develop leads, identify properties to sell and finance, market those properties and close the sale timely to generate a consistent flow of revenue. While our sales volume is impacted by seasonality factors, the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction, particularly clients transacting in the $1-$10 million private client market segment. These factors can cause transactions to be accelerated or delayed beyond our control. Further, commission rates earned are generally inversely related to the value of the property sold. As a result of our expansion into the middle and larger transaction market segments, we have seen our overall commission rates fluctuate from period-to-period as a result of changes in the relative mix of the number and volume of investment sales transactions closed in the middle and larger transaction market segments as compared to the $1-$10 million private client market segment. These factors may result in period-to-period variations in our revenues that differ from historical patterns.
Table of Contents
Table of Contents
Nov 05, 2021
Is there a problem with this press release? Contact the source provider Comtex at email@example.com. You can also contact MarketWatch Customer Service via our Customer Center.
(c) 1995-2021 Cybernet Data Systems, Inc. All Rights Reserved