Marcus & Millichap, Inc. Reports Results for Second Quarter 2019

Second Quarter Total Revenues Increased By 5.1%

CALABASAS, Calif.–(BUSINESS WIRE)–Marcus & Millichap, Inc. (the “Company”, “Marcus & Millichap”, “MMI”) (NYSE: MMI), a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services, today reported financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Highlights Compared to Second Quarter 2018

  • Total revenues increased by 5.1% to $209.6 million
  • Net income was $21.3 million, or $0.54 per common share, diluted, compared to $22.2 million, or $0.56 per common share, diluted, in the second quarter of 2018
  • Adjusted EBITDA was $32.0 million compared to $33.7 million in the second quarter of 2018
  • Revenue from financing fees increased by 14.0% to $17.7 million
  • Private Client Market segment brokerage revenue increased by 8.8%
  • Middle Market and Larger Transaction Market segments combined brokerage revenue decreased by 6.6%, compared to growth of 31.9% in the second quarter of 2018

Six Months 2019 Highlights Compared to Six Months 2018

  • Total revenues were $370.3 million compared to $373.9 million in the first half of 2018
  • Net income was $36.9 million, or $0.93 per common share, diluted, compared to $40.2 million, or $1.02 per common share, diluted, in the first half of 2018
  • Adjusted EBITDA was $55.2 million compared to $61.2 million in the first half of 2018
  • Revenue from financing fees increased by 24.5% to $31.5 million
  • Private Client Market segment brokerage revenue was flat compared to growth of 5.6% in the first half of 2018
  • Middle Market and Larger Transaction Market segments combined brokerage revenue decreased by 9.2%, compared to growth of 37.4% in the first half of 2018
  • Total salesforce grew by 124 professionals or 6.7% over the past 12 months

Hessam Nadji, President and CEO stated, “Progress in replenishing our inventory and transaction pipelines after record closing volumes last year continued in the second quarter. We achieved revenue growth of just over 5% and nearly 9% in our Private Client Market segment as result of elevated marketing campaigns, steady hiring and acquisitions. These efforts helped offset a 7% decline in sales transactions as reported by Real Capital Analytics. Various initiatives to expand our financing business resulted in nearly 25% revenue growth in the first half.”

Mr. Nadji continued, “The Fed course reversal this year and heightened macroeconomic concerns moved many investors into a ‘wait-and-see’ mode in anticipation of declining interest rates. We believe the Fed’s renewed dovish stance to support the economic expansion, coupled with strong property fundamentals bode well for the real estate investment market outlook. The MMI team remains focused on leveraging our time-tested platform and transaction expertise to help investors make informed decisions and leverage ample market opportunities. We continue to make strategic investments in technology and brokerage support, as well as synergistic acquisitions to strengthen the Company and create long-term shareholder value.”

Second Quarter 2019 Results Compared to Second Quarter 2018

Total revenues for the second quarter of 2019 were $209.6 million compared to $199.4 million for the same period in the prior year, increasing by $10.2 million, or 5.1%. The increase in total revenues was primarily driven by the increase in real estate brokerage commissions, which increased by 3.9% to $188.7 million. This increase in brokerage commissions was primarily due to an increase in overall sales volume generated by the increase in the number of investment sales transactions. Financing fees and other revenues also increased by 14.0% and 44.2%, respectively.

Total operating expenses for the second quarter of 2019 increased by 7.1% to $182.6 million, compared to $170.5 million for the same period in the prior year. The increase was primarily driven by a 6.7% increase in cost of services and a 7.7% increase in selling, general and administrative expense. Cost of services as a percent of total revenues increased by 90 basis points to 61.0% compared to the same period in the prior year, primarily driven by transaction size, mix and brokerage compensation.

Selling, general and administrative expenses for the second quarter of 2019 increased by 7.7% to $52.8 million, compared to the same period in the prior year. The increase was primarily due to increased costs associated with (i) compensation related costs, including salaries and related benefits; (ii) sales operations support and promotional marketing expenses; (iii) net other expense categories, primarily driven by the increase in certain licensing fees; and (iv) facilities expenses due to expansion of existing offices. These increases were partially offset by decreases in legal costs and stock-based compensation.

Net income for the second quarter of 2019 was $21.3 million, or $0.54 per common share (basic and diluted), compared to net income of $22.2 million, or $0.57 per common share basic and $0.56 per common share diluted for the same period in the prior year. Adjusted EBITDA for the second quarter of 2019 decreased by 5.1% to $32.0 million, compared to adjusted EBITDA of $33.7 million for the same period in the prior year.

Six Months 2019 Results Compared to Six Months 2018

Total revenues for the six months ended June 30, 2019, were $370.3 million, compared to $373.9 million for the same period in the prior year, a decrease of $3.6 million, or 1.0%. Total operating expenses for the six months ended June 30, 2019, increased by 1.1% to $325.1 million compared to $321.5 million for the same period in the prior year. Cost of services as a percent of total revenues increased to 59.3%, up 10 basis points compared to the first six months of 2018. The Company reported net income for the six months ended June 30, 2019 of $36.9 million, or $0.94 per common share basic and $0.93 per common share diluted, compared with net income of $40.2 million, or $1.03 per common share basic and $1.02 per common share diluted for the same period in the prior year. Adjusted EBITDA for the six months ended June 30, 2019, decreased by 9.8% to $55.2 million, from $61.2 million for the same period in the prior year. As of June 30, 2019, the Company had 1,965 investment sales and financing professionals, a net gain of 124 over the prior year.

Business Outlook

We believe that the Company is positioned to continue long-term growth by leveraging a number of factors. These include our leading national brand and market position within the Private Client Market segment, growth opportunities in the Middle Market and Larger Transaction Market segments, significant growth potential in our financing division, Marcus & Millichap Capital Corporation, and supplementing our organic growth with additional strategic acquisitions. The Company benefits from its experienced management team, infrastructure investments, industry-leading market research and proprietary technology. The size and fragmentation of the Private Client Market segment continues to offer long-term growth opportunities. This market segment consistently accounts for over 80% of commercial property sales transactions and approximately 60% of the commission pool and is highly fragmented. Top brokerage firms led by MMI have an estimated 24% share of this segment by transaction count. The Company’s growth plan also includes further expansion of investment brokerage services in office, industrial and various specialty property types such as hospitality, self-storage and seniors housing.

Key factors that may influence the Company’s business during the remainder of 2019 include:

  • Volatility in market sales and investor sentiment driven by:

    • Slowdown in market sales in the short- to mid-term in view of a maturing cycle, interest rate fluctuations, increasing bid-ask spread gap between buyers and sellers and economic trends
    • Possible boost to investor sentiment and sales activity based on economic initiatives which may increase real estate investor demand
  • Experienced agents’ larger share of revenue production in a more challenging market environment, resulting in a higher average commission payout
  • Volatility in the Company’s Middle and Larger Transaction Market segments
  • Global geopolitical uncertainty which may cause investors to refrain from transacting
  • The potential for feasible acquisition activity and subsequent integration

Conference Call Details

Marcus & Millichap will host a conference call today to discuss the results at 2:00 p.m. Pacific Time/5:00 p.m. Eastern Time. To participate in the conference call, callers from the United States and Canada should dial (877) 407-9208 ten minutes prior to the scheduled call time. International callers should dial (201) 493-6784. For those unable to participate during the live broadcast, a telephonic replay of the call will also be available from 5:00 p.m. Pacific Time/8:00 p.m. Eastern Time on Tuesday, August 6, 2019, through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Tuesday, August 20, 2019, by dialing (844) 512-2921 in the United States and Canada or (412) 317-6671 internationally and entering passcode 13691951.

About Marcus & Millichap, Inc.

Marcus & Millichap, Inc. is a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of June 30, 2019, the Company had over 1,900 investment sales and financing professionals in 80 offices who provide investment brokerage and financing services to sellers and buyers of commercial real estate. The Company also offers market research, consulting and advisory services to our clients. Marcus & Millichap closed 4,485 transactions for the six months ended June 30, 2019, with a sales volume of approximately $22.8 billion. For additional information, please visit www.MarcusMillichap.com.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This release includes forward-looking statements, including the Company’s business outlook for 2019 and beyond and expectations for market share growth. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

  • market trends in the commercial real estate market or the general economy;
  • our ability to attract and retain qualified managers, senior executives and investment sales and financing professionals;
  • the effects of increased competition on our business;
  • our ability to successfully enter new markets or increase our market share;
  • our ability to successfully expand our services and businesses and to manage any such expansions;
  • our ability to retain existing clients and develop new clients;
  • our ability to keep pace with changes in technology;
  • any business interruption or technology failure and any related impact on our reputation;
  • changes in interest rates, tax laws, including the Tax Cuts and Jobs Act, employment laws or other government regulation affecting our business; and
  • other risk factors included under “Risk Factors” in our most recent Annual Report on Form 10-K.

In addition, in this release, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential,” “should” and similar expressions, as they relate to our company, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Forward-looking statements speak only as of the date of this release. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

June 30,

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

Real estate brokerage commissions

$

188,680

 

$

181,640

 

$

333,617

 

$

344,165

 

Financing fees

 

17,742

 

 

15,563

 

 

31,474

 

 

25,287

 

Other revenues

 

3,171

 

 

2,199

 

 

5,209

 

 

4,491

 

Total revenues

 

209,593

 

 

199,402

 

 

370,300

 

 

373,943

 

Operating expenses:

 

 

 

 

Cost of services

 

127,847

 

 

119,869

 

 

219,535

 

 

221,518

 

Selling, general and administrative expense

 

52,836

 

 

49,080

 

 

101,754

 

 

97,133

 

Depreciation and amortization expense

 

1,932

 

 

1,503

 

 

3,764

 

 

2,878

 

Total operating expenses

 

182,615

 

 

170,452

 

 

325,053

 

 

321,529

 

Operating income

 

26,978

 

 

28,950

 

 

45,247

 

 

52,414

 

Other income (expense), net

 

3,119

 

 

1,724

 

 

6,494

 

 

2,933

 

Interest expense

 

(340

)

 

(352

)

 

(689

)

 

(712

)

Income before provision for income taxes

 

29,757

 

 

30,322

 

 

51,052

 

 

54,635

 

Provision for income taxes

 

8,478

 

 

8,155

 

 

14,135

 

 

14,457

 

Net income

 

21,279

 

 

22,167

 

 

36,917

 

 

40,178

 

Other comprehensive income (loss):

 

 

 

 

Marketable securities, available-for-sale:

 

 

 

 

Change in unrealized gains (losses)

 

856

 

 

(172

)

 

1,714

 

 

(664

)

Less: reclassification adjustment for net (gains) losses included in other income (expense), net.

 

(9

)

 

8

 

 

(18

)

 

8

 

Net change, net of tax of $283, $(57), $571 and $(221) for the three and six months ended June 30, 2019 and 2018, respectively

 

847

 

 

(164

)

 

1,696

 

 

(656

)

Foreign currency translation (loss) gain, net of tax of $0 for each of the three and six months ended June 30, 2019 and 2018

 

(216

)

 

34

 

 

(314

)

 

73

 

Total other comprehensive income (loss)

 

631

 

 

(130

)

 

1,382

 

 

(583

)

Comprehensive income

$

21,910

 

$

22,037

 

$

38,299

 

$

39,595

 

Earnings per share:

 

 

 

 

Basic

$

0.54

 

$

0.57

 

$

0.94

 

$

1.03

 

Diluted

$

0.54

 

$

0.56

 

$

0.93

 

$

1.02

 

Weighted average common shares outstanding:

 

 

 

 

Basic

 

39,395

 

 

39,154

 

 

39,353

 

 

39,124

 

Diluted

 

39,527

 

 

39,385

 

 

39,524

 

 

39,298

 

 

 

 

 

 

MARCUS & MILLICHAP, INC.

KEY OPERATING METRICS SUMMARY

(Unaudited)

Total sales volume was $13.0 billion for the three months ended June 30, 2019, encompassing 2,535 transactions consisting of $9.2 billion for real estate brokerage (1,834 transactions), $1.9 billion for financing (484 transactions) and $1.9 billion in other transactions, including consulting and advisory services (217 transactions). Total sales volume was $22.8 billion for the six months ended June 30, 2019, encompassing 4,485 transactions consisting of $16.3 billion for real estate brokerage (3,239 transactions), $3.3 billion for financing (872 transactions) and $3.2 billion in other transactions, including consulting and advisory services (374 transactions). As of June 30, 2019, the Company had 1,862 investment sales professionals and 103 financing professionals. Key metrics for real estate brokerage and financing are as follows:

 

Three Months Ended

June 30,

Six Months Ended

June 30,

Real Estate Brokerage

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Average Number of Investment Sales Professionals

 

1,834

 

 

1,694

 

 

1,826

 

 

1,682

 

Average Number of Transactions per Investment Sales Professional

 

1.00

 

 

1.03

 

 

1.77

 

 

1.98

 

Average Commission per Transaction

$

102,879

 

$

103,676

 

$

103,000

 

$

103,136

 

Average Commission Rate

 

2.04

%

 

2.03

%

 

2.04

%

 

2.04

%

Average Transaction Size (in thousands)

$

5,034

 

$

5,107

 

$

5,044

 

$

5,054

 

Total Number of Transactions

 

1,834

 

 

1,752

 

 

3,239

 

 

3,337

 

Total Sales Volume (in millions)

$

9,233

 

$

8,948

 

$

16,336

 

$

16,864

 

 

 

 

 

 

 

Three Months Ended

June 30,

Six Months Ended

June 30,

Financing (1)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Average Number of Financing Professionals

 

104

 

 

96

 

 

106

 

 

94

 

Average Number of Transactions per Financing Professional

 

4.65

 

 

4.51

 

 

8.23

 

 

8.05

 

Average Fee per Transaction

$

35,406

 

$

35,125

 

$

34,576

 

$

32,519

 

Average Fee Rate

 

0.92

%

 

0.93

%

 

0.91

%

 

0.93

%

Average Transaction Size (in thousands)

$

3,851

 

$

3,774

 

$

3,812

 

$

3,490

 

Total Number of Transactions

 

484

 

 

433

 

 

872

 

 

757

 

Total Financing Volume (in millions)

$

1,864

 

$

1,634

 

$

3,324

 

$

2,642

 

(1) Operating metrics calculated excluding certain financing fees not directly associated to transactions.

 

 

 

 

The following table sets forth the number of transactions, sales volume and revenues by commercial real estate market segment for real estate brokerage:

 

Three Months Ended June 30,

 

 

2019

2018

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

258

$

170

$

7,137

251

$

161

$

6,727

7

 

$

9

 

$

410

 

Private Client Market ($1 – $10 million)

1,392

 

4,582

 

128,526

1,299

 

4,096

 

118,152

93

 

 

486

 

 

10,374

 

Middle Market (≥$10 – $20 million)

111

 

1,523

 

26,944

118

 

1,602

 

27,555

(7

)

 

(79

)

 

(611

)

Larger Transaction Market (≥$20 million)

73

 

2,958

 

26,073

84

 

3,089

 

29,206

(11

)

 

(131

)

 

(3,133

)

 

1,834

$

9,233

$

188,680

1,752

$

8,948

$

181,640

82

 

$

285

 

$

7,040

 

 

Six Months Ended June 30,

 

 

2019

2018

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

459

$

301

$

12,425

496

$

323

$

13,595

(37

)

$

(22

)

$

(1,170

)

Private Client Market ($1 – $10 million)

2,452

 

7,902

 

224,584

2,467

 

7,656

 

224,164

(15

)

 

246

 

 

420

 

Middle Market (≥$10 – $20 million)

203

 

2,768

 

50,524

231

 

3,208

 

54,826

(28

)

 

(440

)

 

(4,302

)

Larger Transaction Market (≥$20 million)

125

 

5,365

 

46,084

143

 

5,677

 

51,580

(18

)

 

(312

)

 

(5,496

)

 

3,239

$

16,336

$

333,617

3,337

$

16,864

$

344,165

(98

)

$

(528

)

$

(10,548

)

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for shares and par value)

 

 

June 30, 2019

(Unaudited)

December 31, 2018

Assets

 

 

Current assets:

 

 

Cash and cash equivalents

$

206,758

 

$

214,683

 

Commissions receivable

 

5,768

 

 

4,948

 

Prepaid expenses

 

9,593

 

 

7,904

 

Income tax receivable

 

4,762

 

Marketable securities, available-for-sale

 

118,909

 

 

137,436

 

Other assets, net

 

6,233

 

 

6,368

 

Total current assets

 

352,023

 

 

371,339

 

Prepaid rent

 

13,892

 

Property and equipment, net

 

20,854

 

 

19,550

 

Operating lease right-of-use assets, net

 

93,090

 

Marketable securities, available-for-sale

 

80,329

 

 

83,209

 

Assets held in rabbi trust

 

9,119

 

 

8,268

 

Deferred tax assets, net

 

18,525

 

 

22,959

 

Goodwill and other intangible assets, net

 

14,889

 

 

15,385

 

Other assets

 

50,845

 

 

31,778

 

Total assets

$

639,674

 

$

566,380

 

 

 

 

Liabilities and stockholders’ equity

 

 

Current liabilities:

 

 

Accounts payable and other liabilities

$

11,115

 

$

11,035

 

Notes payable to former stockholders

 

6,564

 

 

1,087

 

Deferred compensation and commissions

 

31,638

 

 

47,910

 

Income tax payable

 

4,486

 

Operating lease liabilities

 

17,400

 

Accrued bonuses and other employee related expenses

 

14,050

 

 

28,338

 

Total current liabilities

 

80,767

 

 

92,856

 

Deferred compensation and commissions

 

38,964

 

 

49,887

 

Notes payable to former stockholders

6,564

 

 

Operating lease liabilities

 

67,429

 

Deferred rent and other liabilities

 

2,001

 

 

7,499

 

Total liabilities

 

189,161

 

 

156,806

 

 

 

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

Preferred stock, $0.0001 par value:

 

 

Authorized shares – 25,000,000; issued and outstanding shares – none at June 30, 2019, and December 31, 2018, respectively

 

 

Common stock, $0.0001 par value:

Authorized shares – 150,000,000; issued and outstanding shares – 39,090,861 and 38,814,464 at June 30, 2019 and December 31, 2018, respectively

 

4

 

 

4

 

Additional paid-in capital

 

100,098

 

 

97,458

 

Stock notes receivable from employees

 

(4

)

 

(4

)

Retained earnings

 

348,258

 

 

311,341

 

Accumulated other comprehensive income

 

2,157

 

 

775

 

Total stockholders’ equity

 

450,513

 

 

409,574

 

Total liabilities and stockholders’ equity

$

639,674

$

566,380

MARCUS & MILLICHAP, INC.

OTHER INFORMATION

(Unaudited)

Adjusted EBITDA Reconciliation

Adjusted EBITDA, which the Company defines as net income before (i) interest income and other, including net realized gains (losses) on marketable securities, available-for-sale and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation and (vi) non-cash mortgage servicing rights (“MSRs”) activity. The Company uses Adjusted EBITDA in its business operations to evaluate the performance of its business, develop budgets and measure its performance against those budgets, among other things. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate its overall operating performance. However, Adjusted EBITDA has material limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under U.S. generally accepted accounting principles (“U.S. GAAP”). The Company finds Adjusted EBITDA as a useful tool to assist in evaluating performance because Adjusted EBITDA eliminates items related to capital structure, taxes and non-cash items. In light of the foregoing limitations, the Company does not rely solely on Adjusted EBITDA as a performance measure and also considers its U.S. GAAP results. Adjusted EBITDA is not a measurement of the Company’s financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies.

A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):

 

Three Months Ended

June 30,

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

$

21,279

 

$

22,167

 

$

36,917

 

$

40,178

 

Adjustments:

 

 

 

Interest income and other (1)

 

(2,562

)

 

(1,574

)

 

(5,103

)

 

(2,802

)

Interest expense

 

340

 

 

352

 

 

689

 

 

712

 

Provision for income taxes

 

8,478

 

 

8,155

 

 

14,135

 

 

14,457

 

Depreciation and amortization

 

1,932

 

 

1,503

 

 

3,764

 

 

2,878

 

Stock-based compensation

 

2,585

 

 

3,159

 

 

4,926

 

 

5,772

 

Non-cash MSRs activity (2)

 

(36

)

 

(41

)

 

(153

)

 

(41

)

Adjusted EBITDA(3)

$

32,016

 

$

33,721

 

$

55,175

 

$

61,154

 

 

 

 

 

 

(1) Other for the three and six months ended June 30, 2019 and 2018 includes net realized gains (losses) on marketable securities, available-for-sale.
(2) Non-cash MSRs activity includes the assumption of servicing obligations.
(3) The decrease in Adjusted EBITDA for the three months ended June 30, 2019 compared to the same period in 2018 is primarily due to higher proportion of operating expenses compared to revenues. The decrease in Adjusted EBITDA for the six months ended June 30, 2019 compared to the same period in 2018 is primarily due to lower total revenues and a higher proportion of operating expenses compared to revenues.

Contacts

Investor Relations:

ICR, Inc.

Evelyn Infurna, 203-682-8265

evelyn.infurna@icrinc.com

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