Marcus & Millichap, Inc. Reports Third Quarter 2013 Financial Results

  Marcus & Millichap, Inc. Reports Third Quarter 2013 Financial Results

Business Wire

CALABASAS, Calif. -- November 13, 2013

Marcus & Millichap, Inc., (the “Company”) (NYSE: MMI), a leading national
brokerage firm specializing in commercial real estate investment sales,
financing, research and advisory services, today reported financial results
for its third quarter ended September 30, 2013. Highlights for the quarter
include:

  *Consolidated third quarter revenue increased 22.7% to $112.0 million
    compared to the third quarter of last year, with real estate brokerage
    commissions up 23.2% over the prior year third quarter.
  *Total sales volume increased 19.6% to $6.0 billion (includes real estate
    brokerage transactions of approximately $4.4 billion, financing
    transactions of approximately $0.7 billion and other transactions,
    including consulting and advisory services of approximately $0.9 billion)
    representing an increase in volume of $1.0 billion, when compared to the
    third quarter of last year.
  *Total number of transactions increased 13.3% to 1,699 transactions
    (includes 1,173 real estate brokerage, 300 financing and 226 other
    transactions, including consulting and advisory services) representing an
    increase of 200 in number of transactions, when compared to the third
    quarter of last year.
  *Net income of $7.3 million, compared to $6.4 million for the same period
    last year.
  *Non-GAAP adjusted EBITDA increased 13.6% to $15.7 million, from $13.8
    million for the third quarter of last year.

Commenting on results in the latest quarter, John J. Kerin, Marcus &
Millichap's President and Chief Executive Officer, said, “I am very pleased
with our performance in the third quarter, particularly our strong
year-over-year growth in revenue and adjusted EBTIDA. These results reflect
the continued momentum generated by our core brokerage operations, which
included a nearly 24.0% increase in total sales volume and a solid 6.5% uptick
in transaction size.”

Mr. Kerin continued, “We continue to benefit from improving commercial real
estate fundamentals and our focus on the private client segment of the
marketplace, which includes commercial real estate transactions in the $1
million to $10 million price range. In addition, we are also making good
progress on growing market share in larger transactions and expanding our
financing operations. With the completion of our initial public offering
earlier this month, we are well-positioned to continue to execute on this
growth strategy.”

The Spin-Off and Initial Public Offering

On November 5, 2013, the Company completed its initial public offering (the
“IPO”) of 6,900,000 shares of common stock at a price to the public of $12.00
per share, which consisted of 4,173,413 shares of common stock sold by the
Company, including 900,000 shares of common stock pursuant to the exercise of
the underwriters’ option to purchase additional shares and 2,726,587 shares of
common stock sold by the selling stockholders. The IPO generated net proceeds
to the Company of approximately $42.7 million, including the underwriters’
full exercise of their option to purchase additional shares and after
deducting total expenses of approximately $7.4million, consisting of $3.5
million of underwriters’ discounts and commissions and IPO related expenses
estimated to be $3.9million. We did not receive any proceeds from the sale of
the shares by the selling stockholders. Prior to the completion of the IPO,
the shareholders of Marcus and Millichap Real Estate Investment Services, Inc.
(“MMREIS”) contributed all of the outstanding shares of capital stock of
MMREIS to the Company in exchange for the Company’s common stock, pursuant to
which MMREIS became the Company’s wholly owned subsidiary, Thereafter, Marcus
& Millichap Company (“MMC”) distributed 80.0% of the shares of the Company’s
common stock to MMC’s shareholders and exchanged the remaining portion of its
shares of the Company’s common stock for cancellation of indebtedness. Mr.
Marcus, the Company’s Founder and Co-Chairman, continues to own indirectly
approximately 68.0% of the Company’s fully diluted shares.

Third Quarter 2013 Results

Total revenues for the third quarter of 2013 were $112.0 million, compared to
$91.2 million for the third quarter of 2012, an increase of $20.7 million, or
22.7%. The increase in total revenues is primarily a result of increases in
real estate brokerage commissions, which contributed 92.3% of the total
increase, as well as an increase in financing fees.

Revenues from real estate brokerage commissions increased to $101.8 million in
the third quarter of 2013, up 23.2% from $82.6 million in the same period last
year due a combination of a 16.5% increase in the number of investment sales
transactions and a 5.7% increase in the average commission. The increase in
average commission size was primarily due to an increase in the average
transaction size.

Revenues from financing fees increased to $6.8 million in the third quarter of
2013, up $1.6 million, or 30.6%, from $5.2 million in the third quarter of
2012. The increase was primarily driven by a 40.2% increase in the number of
loan transactions due to an increase in the number of financing professionals
combined with an increase in their productivity levels, partially offset by a
6.9% decrease in average loan commissions due in part to an increase in the
proportion of fees from smaller loan transactions.

Other revenues were $3.4 million for the third quarter of 2013 and 2012.

Operating expenses for the third quarter of 2013 totaled $99.3 million,
compared to $79.9 million for the same period last year, an increase of $19.4
million, or 24.3%. The increase was driven by an increase in cost of services
which is primarily commissions paid to our investment sales professionals and
compensation-related costs related to our financing activities. Selling,
general and administrative costs increased as well. This was in part due to
higher staff salaries, wages and related benefits expenses driven by an
increase in our average headcount to build and support our sales force,
including hiring of national and regional specialty directors and sales
recruiters. Legal costs were driven by an increase in legal settlements
combined with lower insurance recoveries in the current quarter as compared to
the same period last year and other administrative costs were higher primarily
due to an increase in professional fees driven by third party consulting
services fees in preparation of being a public company.

Net income for the third quarter of 2013 was $7.3 million, compared to net
income of $6.4 million in the third quarter of last year.

Nine Month Results

The Company reported total revenues of $286.8 million for the nine months
ended September 30, 2013, an increase of $48.7 million, or 20.5%, compared to
revenues of $238.1 million during the same period in 2012. Operating expenses
for the nine months ended September 30, 2013 was $257.3 million compared to
$212.0 million for the nine months ended September 30, 2012, representing an
increase of $45.3 million, or 21.4%. The Company reported net income for the
nine month period ended September 30, 2013 of $16.9 million, an increase of
approximately $2.0 million, or 13.6%, compared with $14.9 million for the nine
month period ended September 30, 2012. Adjusted EBITDA for the first nine
months of 2013 was $36.8 million, which represents an increase of $4.4
million, or 13.5%, as compared to $32.4 million for the first nine months of
2012.

Business Outlook

Commenting on the Company's business outlook, Mr. Kerin said, “Typically, the
fourth quarter generates approximately one-third of Marcus & Millichap’s full
year transaction volume and revenue—and we expect normal seasonal patterns to
continue in the fourth quarter of 2013. However, during the fourth quarter
last year, commercial real estate investors’ uncertainty associated with the
looming ‘fiscal cliff’ resulted in investors expediting transactions that
would have normally closed in 2013. Therefore, we do not expect to see the
same level of growth in the current fourth quarter.”

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. The Company has more than 1,100 investment sales and financial
professionals in 73 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 more than 6,149 transactions in 2012, with value of
approximately $22 billion. For additional information, please visit
www.MarcusMillichap.com.

Forward-Looking Statements

Certain statements in this earnings press release are “forward-looking
statements” within the meaning of the federal securities laws. Statements
about our beliefs and expectations and statements containing the words “may,”
“could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,”
“estimate,” “target,” “project,” “intend,” “well-positioned” and similar
expressions constitute forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the Company’s actual results and performance in future periods
to be materially different from any future results or performance suggested in
forward-looking statements in this earnings press release. Investors are urged
to consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements. Any forward-looking statements speak only as of
the date of this earnings press release and, except to the extent required by
applicable securities laws, the Company expressly disclaims any obligation to
update or revise any of them to reflect actual results, any changes in
expectations or any change in events. If the Company does update one or more
forward-looking statements, no inference should be drawn that it will make
additional updates with respect to those or other forward-looking statements.
Factors that could cause results to differ materially include, but are not
limited to: (1) general economic conditions and commercial real estate market
conditions, including the recent conditions in the global markets and, in
particular, the U.S. debt markets; (2) the Company’s ability to retain and
attract transaction professionals; (3) the Company’s ability to retain its
business philosophy and partnership culture; (4) competitive pressures; (5)
the Company’s ability to integrate new agents and sustain its growth; and (6)
other factors discussed in the Company’s public filings, including the risk
factors included in the Company’s Prospectus filed with the Securities and
Exchange Commission on October31, 2013.

                                                           
                                                                     
MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES, INC. AND SUBSIDIARIES
                                                                     
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(dollar amounts in thousands)
                                                                     
                                                                     
                            Three Months               Nine Months
                            Ended September 30,        Ended September 30,
                            2013          2012         2013          2012
                                                                     
Revenues:
Real estate brokerage       $ 101,757     $ 82,620     $ 258,720     $ 216,029
commissions
Financing fees                6,783         5,195        18,671        13,413
Other revenues               3,413        3,413       9,403        8,636
                                                                     
Total revenues                111,953       91,228       286,794       238,078
Operating expenses:
Cost of services              67,718        54,194       170,395       138,903
Selling, general, and
administrative                30,863        25,007       84,687        70,907
expense
Depreciation and             747          732         2,261        2,227
amortization expense
                                                                     
Total operating              99,328       79,933      257,343      212,037
expenses
                                                                     
Operating income              12,625        11,295       29,451        26,041
Other income, net            247          41          496          324
                                                                     
Income before
provision for income          12,872        11,336       29,947        26,365
taxes
Provision for income         5,597        4,931       13,025       11,469
taxes
                                                                     
Net income                  $ 7,275       $ 6,405      $ 16,922      $ 14,896
                                                                       
                                                                       

                                                           
                                                                      
MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES, INC. AND SUBSIDIARIES
                                                                      
KEY METRICS SUMMARY

(Unaudited)
                                                                      
                                                                      
                    Three Months Ended                Nine Months Ended
                    September 30,                     September 30,
Real Estate
Brokerage           2013            2012              2013            2012
Commissions
Average
Number of             1,139           985               1,101           977
Sales
Professionals
Average
Number of
Transactions          1.0             1.0               2.9             2.8
per
Sales
Professional
Average
Commission          $ 86,749        $ 82,046          $ 80,573        $ 79,335
per
Transaction
Average
Transaction         $ 3,790,048     $ 3,559,733       $ 3,568,151     $ 3,449,256
Size
Total Number
of                    1,173           1,007             3,211           2,723
Transactions
Total Sales
Volume (in          $ 4,446         $ 3,585           $ 11,457        $ 9,392
millions)
                                                                        
                                                                        

                                              
                   Three Months Ended              Nine Months Ended
                   September 30,                   September 30,
Financing Fees     2013          2012            2013          2012
Average Number
of Financing         72              58              69              57
Professionals
Average Number
of
Transactions         4.2             3.7             12.3            10.6
per
Financing
Professional
Average Fee
per                $ 22,609        $ 24,276        $ 22,017        $ 22,207
Transaction
Average
Transaction        $ 2,381,822     $ 2,435,981     $ 2,224,446     $ 2,294,702
Size
Total Number
of                   300             214             848             604
Transactions
Total Dollar
Volume (in         $ 715           $ 521           $ 1,886         $ 1,386
millions)
                                                                     
                                                                     

                                                            
                                                                  
MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES, INC. AND SUBSIDIARIES
                                                                  
CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands, except share and share amounts)
                                                                  
                                                                  
                                              September 30,       December 31,
                                              2013                2012
                                              (Unaudited)
                                                                  
Assets
Current assets:
Cash and cash equivalents                     $  28,679           $  3,107
Commissions receivable, net of allowance
for doubtful accounts of $100 and $129 at        4,308               5,764
September 30, 2013 and December 31, 2012,
respectively
Employee notes receivable                        156                 807
Prepaid expenses and other current assets       6,769             2,903   
                                                                  
Total current assets                             39,912              12,581
Prepaid rent                                     4,909               2,855
Investments held in rabbi trust account          3,832               2,905
Property and equipment, net of
accumulated depreciation of $18,370 and          8,476               6,688
$17,917 at September 30, 2013 and
December 31, 2012, respectively
Due from affiliates                              —                   60,389
Employee notes receivable                        228                 350
Other assets                                    3,431             3,965   
                                                                  
Total assets                                  $  60,788          $  89,733  
                                                                  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses         $  6,821            $  14,350
Commissions payable                              12,103              22,584
Due to affiliates                                13,528              —
Accrued employee expenses                       10,215            17,519  
                                                                  
Total current liabilities                        42,667              54,453
Deferred compensation and commissions            9,430               9,121
Other liabilities                               5,007             4,529   
                                                                  
Total liabilities                                57,104              68,103
                                                                  
                                                                  
Stockholders’ equity:
Series A redeemable preferred stock,             10                  10
$10.00 par value:
Authorized shares – 1,000; issued and
outstanding shares – 1,000 at September
30, 2013 and December 31, 2012; $10.00
redemption value per share at September
30, 2013 and December 31, 2012
Common stock, $1.00 par value:
Authorized shares – 1,000,000; issued and
outstanding shares –234,489 and 233,739          235                 234
at September 30, 2013 and December 31,
2012, respectively
Additional paid-in capital                       2,675               24,718
Stock notes receivable from employees            (13     )           (150    )
Retained earnings (accumulated deficit)         777               (3,182  )
                                                                  
Total stockholders’ equity                      3,684             21,630  
                                                                  
Total liabilities and stockholders’           $  60,788          $  89,733  
equity
                                                                             
                                                                             

  MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES, INC. AND SUBSIDIARIES

                        ADJUSTED EBITDA RECONCILIATION
                                 (Unaudited)

This press release includes a non-GAAP financial measure, Adjusted EBITDA,
which the Company defines as net income before interest income/expense, taxes,
depreciation and amortization and stock-based compensation. The Company uses
Adjusted EBITDA in its business operations to, among other things, evaluate
the performance of its business, develop budgets and measure its performance
against those budgets. 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. GAAP. The Company
finds Adjusted EBITDA as a useful tool to assist in evaluating performance
because it eliminates items related to capital structure and taxes and
non-cash stock-based compensation charges. 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 derived 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 Adjusted EBITDA to the most directly comparable GAAP
financial measure, net income, is as follows (in thousands):

                                                          
                                                     Nine
                     Three Months Ended              Months Ended
                     September 30,                   September 30,
                     2013           2012             2013           2012
Net income           $ 7,275        $ 6,405          $ 16,922       $ 14,896
Adjustments:
Interest               (4     )       (37    )         (88    )       (110   )
income
Provision for          5,597          4,931            13,025         11,469
income taxes
Depreciation
and                    747            732              2,261          2,227
amortization
Stock-based           2,053        1,760         4,679        3,943  
compensation
                                                                    
Adjusted             $ 15,668      $ 13,791       $ 36,799      $ 32,425 
EBITDA
                                                                             

Contact:

Investor Relations Contact:
Addo Communications
Lasse Glassen
(424) 238-6249
lasseg@addocommunications.com