Marcus & Millichap, Inc. Reports First Quarter 2014 Financial Results

  Marcus & Millichap, Inc. Reports First Quarter 2014 Financial Results

Business Wire

CALABASAS, Calif. -- May 8, 2014

Marcus & Millichap, Inc., (the “Company,” “Marcus and Millichap”) (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 first quarter ended March 31, 2014.

First Quarter 2014 Highlights

  *Revenue increased 65.2% to $114.6 million compared to the first quarter of
    the prior year, with real estate brokerage commissions up 71.2%.
  *Sales volume was $6.2 billion representing an increase in volume of $2.0
    billion, or 47.6% compared to the first quarter of the prior year.
  *Number of transactions was 1,638 representing an increase of 343
    transactions, or 26.5% as compared to the first quarter of the prior year.
  *Average number of investment sales and financing professionals grew from
    the first quarter of the prior year by 16.5% and 15.2%, respectfully. As
    of March 31, 2014, the Company had 1,252 investment sales professionals
    and 75 financing professionals.
  *Net income was $6.8 million, compared to $1.6 million in the first quarter
    of the prior year. Earnings per common share was $0.17 (Basic and
    Diluted).
  *Adjusted EBITDA was $13.5 million, compared to $4.1 million in the first
    quarter of the prior year.

Commenting on the Company’s results, John J. Kerin, Marcus & Millichap's
President and Chief Executive Officer, said, “The Company’s excellent first
quarter results are indicative of our ongoing success in focusing on executing
our strategic growth plan, and normalization of the real estate market
environment. Sales in the first quarter of 2013 were adversely impacted in the
aftermath of many transactions being pulled into 2012 in anticipation of the
rise in capital gains tax rates.”

Kerin continued, “Our performance during the quarter reflects ongoing strength
in our core apartment and retail property types within the private client
segment of the market, which includes commercial real estate transactions in
the $1 million to $10 million price range. We are also pleased with our
progress in growing our presence in the various specialty segments,
particularly office, hospitality and seniors housing all of which generated
impressive growth during the quarter. Furthermore, our efforts to diversify
geographically in the eastern United States are also bearing fruit as sales
volume in these regions showed significant growth in the first quarter of
2014.”

First Quarter 2014 Results

Total revenues for the first quarter of 2014 were $114.6 million, compared to
$69.4 million for the same period in the prior year, an increase of $45.2
million, or 65.2%. The increase in total revenues is primarily a result of
increases in revenues from real estate brokerage commissions. Revenues from
real estate brokerage commissions increased to $104.7 million for the three
months ended March 31, 2014 from $61.2 million for the same period in the
prior year, an increase of $43.6 million or 71.2%. This increase was primarily
driven by a combination of an increase in the number of investment sales
transactions (37.2%), an increase in the average commission size (24.8%) and
an increase in average transaction size (10.0%) during the three months ended
March 31, 2014 as compared to the same period in the prior year. Financing
fees and other revenues contributed the remaining increase in total revenues.

Total operating expenses for the first quarter of 2014 were $102.5 million,
compared to $66.7 million for the same period in the prior year, an increase
of $35.8 million, or 53.7%. The increase was primarily driven by cost of
services, which increased by $27.2 million during the first quarter, or 65.9%
to $68.4 million, compared to the same period in the prior year. Cost of
services are mainly variable commissions paid to the Company’s investment
sales professionals and compensation-related costs in connection with our
financing activities. Cost of services as a percent of total revenues remained
stable at 59.7% compared to 59.4% for the same period in the prior year. In
addition, selling, general and administrative expense increased by $8.6
million, or 34.9% due primarily to (i) an increase in management performance
related compensation driven by the increase in operating results during the
first quarter of 2014 as compared to the same period in the prior year; (ii)
an increase in salaries and related benefits driven by an increase in
headcount in the areas of recruiting, sales force support and corporate in
connection with our projected growth and with being a public company; (iii) an
increase in legal costs and reserves and (iv) an increase in third party
service fees primarily driven by operating as a public company.

Net income for the first quarter of 2014 was $6.8 million or $0.17 per common
share (Basic and Diluted) compared to net income of $1.6 million for the same
period in the prior year. Adjusted EBITDA for the first quarter of 2014 was
$13.5 million compared to adjusted EBITDA of $4.1 million for the same period
in the prior year.

Business Outlook

Commenting on the Company's business outlook, Mr. Kerin said, “Although we’re
off to a great start in 2014, we expect the remainder of the year to be more
balanced. We expect interest rates, property fundamentals and general economy
to remain favorable. Our initiatives to grow market share in our core private
client business, our expansion into various specialty segments and adding
professionals to our sales force should produce solid results for our clients
and shareholders,” he added.

Conference Call Details

Marcus & Millichap will host a conference call today to discuss its 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)
407-4018 ten minutes prior to the scheduled call time. International callers
should dial + 1 (201) 689-8471. 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 Thursday, May 8, 2014 through
8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Thursday, May 22, 2014 by
dialing (877) 870-5176 in the United States and Canada or +1 (858) 384-5517
internationally and entering passcode 13579920.

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 1,300 investment sales and financial
professionals in 76 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 6,608 transactions in 2013, with a sales volume of
approximately $24.0 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, including our
business outlook for 2014. 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
conditions in the global markets and, in particular, the U.S. debt markets;
(2) the Company’s ability to attract and retain 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
Form 10-K filed with the Securities and Exchange Commission on March 21, 2014.


MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET
AND COMPREHENSIVE INCOME
(dollar and share amounts in thousands, except per share amounts)
(Unaudited)
                                                               
                                                    Three Months
                                                    Ended March 31,
                                                    2014              2013
                                                                      
Revenues:
Real estate brokerage commissions                   $ 104,748         $ 61,198
Financing fees                                        6,100             5,014
Other revenues                                       3,742           3,158
Total revenues                                        114,590           69,370
                                                                        
Operating expenses:
Cost of services                                      68,396            41,221
Selling, general, and administrative expense          33,357            24,732
Depreciation and amortization expense                775             760
Total operating expenses                             102,528         66,713
                                                                      
Operating income                                      12,062            2,657
Other (expense) income, net                           (61     )         242
Interest expense                                     (404    )        —
Income before provision for income taxes              11,597            2,899
Provision for income taxes                           4,815           1,261
Net income                                            6,782             1,638
                                                                      
Other comprehensive income:
Foreign currency translation gain, net of tax
of $30 and $0 for the three months ended
March 31, 2014 and 2013, respectively                42              —
Total other comprehensive income                     42              —
                                                                      
Comprehensive income                                $ 6,824          $ 1,638
                                                                      
Earnings per share ^(1):
Basic                                               $ 0.17              —
Diluted                                             $ 0.17              —
                                                                      
Weighted average common shares
outstanding^(1):
Basic                                                 38,847            —
Diluted                                               38,907            —
                                                                        

(1) Earnings per share information has not been presented for periods prior to
the IPO on October 31, 2013.


                           MARCUS & MILLICHAP, INC.
                             KEY METRICS SUMMARY
                                 (Unaudited)

Total sales volume was $6.2 billion for the first quarter of 2014 encompassing
1,638 transactions consisting of $4.4 billion for real estate brokerage (1,181
transactions), $0.6 billion for financing (288 transactions) and $1.2 billion
in other transactions, including consulting and advisory services (169
transactions). Key metrics for Real Estate Brokerage and Financing are as
follows:

                                             
                                                Three Months
                                                Ended March 31,
Real Estate Brokerage Commissions               2014           2013
Average Number of Sales Professionals             1,236             1,061
Average Number of Transactions per
Sales Professional                                1.0               0.8
Average Commission per Transaction              $ 88,694          $ 71,077
Average Transaction Size                        $ 3,746,384       $ 3,406,706
Total Number of Transactions                      1,181             861
Total Sales Volume (in millions)                $ 4,424           $ 2,933
                                                                    
                                                                    
                                                  Three Months
                                                  Ended March 31,
Financing Fees                                    2014              2013
Average Number of Financing Professionals         76                66
Average Number of Transactions per
Financing Professional                            3.8               3.5
Average Fee per Transaction                     $ 21,181          $ 21,517
Average Transaction Size                        $ 2,160,611       $ 1,943,969
Total Number of Transactions                      288               233
Total Dollar Volume (in millions)               $ 622             $ 453
                                                                    


MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except share amounts)

                                              March 31,     
                                                 2014              December
                                                 (Unaudited)       31, 2013
Assets
Current assets:
Cash and cash equivalents                        $ 83,298          $ 100,952
Commissions receivable, net of allowance
for doubtful accounts of $81 and $99 at
March
31, 2014 and December 31, 2013,                    3,309             4,115
respectively
Employee notes receivable                          221               229
Prepaid expenses and other current assets          4,499             5,204
Deferred tax assets, net                          7,494           8,663   
Total current assets                               98,821            119,163
Prepaid rent                                       4,401             4,999
Investments held in rabbi trust account            4,134             4,067
Property and equipment, net of accumulated
depreciation of $19,714 and $19,412 at
March
31, 2014 and December 31, 2013,                    8,537             8,560
respectively
Employee notes receivable                          189               189
Deferred tax assets, net                           27,040            27,185
Other assets                                      3,040           3,146   
Total assets                                     $ 146,162        $ 167,309 
                                                                   
                                                                   
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses            $ 8,180           $ 6,911
Accounts payable and accrued expenses –            433               506
related party
Income tax payable                                 3,296             6,459
Notes payable to former stockholders               891               851
Commissions payable                                11,358            25,086
Accrued employee expenses                         7,460           16,947  
Total current liabilities                          31,618            56,760
Deferred compensation and commissions              29,010            32,177
Notes payable to former stockholders               11,464            11,504
Other liabilities                                 4,032           4,371   
Total liabilities                                  76,124            104,812
                                                                   
Stockholders’ equity:
Preferred stock, $0.0001 par value:                —                 —
Authorized shares – 25,000,000; issued and
outstanding shares – none at March 31,
2014
and December 31, 2013, respectively
Common Stock $0.0001 par value:
Authorized shares – 150,000,000; issued
and outstanding shares – 36,600,897 at
March 31,
2014 and December 31, 2013, respectively           4                 4
Additional paid-in capital                         71,162            70,445
Stock notes receivable from employees              (13     )         (13     )
Accumulated deficit                                (1,157  )         (7,939  )
Accumulated other comprehensive income            42              —       
Total stockholders’ equity                        70,038          62,497  
Total liabilities and stockholders’ equity       $ 146,162        $ 167,309 
                                                                             

                           MARCUS & MILLICHAP, INC
                        ADJUSTED EBITDA RECONCILIATION
                                 (Unaudited)

Adjusted EBITDA, which the Company defines as net income before interest
income/expense, taxes, depreciation and amortization and stock-based
compensation is a non-GAAP financial measure. 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):

                                 Three Months Ended
                                    March 31,
                                    2014          2013
Net income                          $ 6,782          $ 1,638
Adjustments:
Interest income                       (3     )         (41   )
Interest expense                      404              —
Provision for income taxes            4,815            1,261
Depreciation and amortization         775              760
Stock-based compensation             717            436   
                                                     
Adjusted EBITDA                     $ 13,490        $ 4,054 

Contact:

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