Marcus & Millichap, Inc. Reports Third Quarter 2014 Financial Results
- Third Quarter Revenue Increased 34.8% Over Third Quarter of 2013 -
- Sales Volume Up 62.5% on 16.4% Increase in Transactions, Compared to Same Period of Prior Year -
CALABASAS, Calif.--(BUSINESS WIRE)-- Marcus & Millichap, Inc. (the “Company”, “Marcus & 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 the third quarter ended September 30, 2014. Highlights include:
Third Quarter 2014 Results Compared to Third Quarter 2013
- Revenue increased 34.8% to $150.9 million, with real estate brokerage commissions up 37.8%.
- Sales volume grew 62.5% to $9.9 billion.
- Number of transactions increased by 16.4%.
- Net income increased to $13.5 million, compared to $7.3 million in the third quarter of the prior year. Earnings per common share was $0.35 (Basic and Diluted).
- Adjusted EBITDA was $25.6 million, compared to $15.7 million in the third quarter of the prior year.
Nine Months 2014 Results Compared to Nine Months 2013
- Revenue increased 39.4% to $399.7 million, with real estate brokerage commissions up 42.3%.
- Net income increased to $33.1 million, compared to $16.9 million in the same period of the prior year. Earnings per common share was $0.85 (Basic and Diluted).
- Adjusted EBITDA was $63.1 million, compared to $36.8 million in the same period of the prior year.
“During the third quarter, we benefited from a favorable market environment, and more importantly, from successful execution of our growth plan, which resulted in a 63% increase in total sales volume over the same period last year,” commented John J. Kerin, Marcus & Millichap's President and Chief Executive Officer. “We experienced solid increases in our core, private client multi-family and retail business during the quarter. Our real estate investment sales also reflected the results of our diversification strategy into specialty niches with triple digit sales volume increases in the hospitality, self-storage and senior housing property types. Geographically, we achieved significant growth in transaction volume in high-density markets, particularly the Northeast which has been a focus for expanding our market coverage. Looking ahead, we believe there are further opportunities inherent in our business model and growth plan and we remain focused on driving shareholder value.”
Third Quarter 2014 Results Compared to Third Quarter 2013
Total revenues for the third quarter of 2014 were $150.9 million, compared to $112.0 million for the same period in the prior year, an increase of $38.9 million, or 34.8%. The increase in total revenues is primarily a result of increases in revenues from real estate brokerage commissions which increased to $140.2 million for the three months ended September 30, 2014 from $101.8 million for the same period in the prior year, an increase of $38.5 million or 37.8%. This increase was primarily driven by both an increase in the number of investment sales transactions, as well as an increase in the average commission size, partially offset by a slight decrease in average commission rates during the three months ended September 30, 2014 as compared to the same period in the prior year. The average commission rate was impacted by one large transaction during the three months ended September 30, 2014 for which the commission rate was lower than our typical transactions as larger transactions generally earn a lower commission rate. Increased financing fees primarily contributed the remaining increase in total revenues.
Total operating expenses for the third quarter of 2014 were $127.2 million, compared to $99.3 million for the same period in the prior year, an increase of $27.8 million, or 28.0%. The increase was primarily driven by a $24.6 million increase in cost of services, which are 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 increased to 61.2% compared to 60.5% for the same period in the prior year primarily due to an increase in the proportion of transactions closed by our more senior investment sales professionals who are compensated at higher commission rates.
In addition, selling, general and administrative expense increased by $3.2 million, or 10.4% during the third quarter of 2014 as compared to the same period in the prior year. The increase was due primarily to (i) an increase in management performance related compensation driven by the increase in operating results; (ii) an increase in sales and marketing expenses incurred to support increased sales activity; (iii) an increase in salaries and related benefits driven by an increase in headcount in corporate support in connection with our growth and with being a public company; and (iii) increases in other expense categories primarily driven by our expansion and business growth. The increases were partially offset by a decrease in legal costs and a decrease in stock-based compensation expense due to the replacement of the pre-IPO stock-based compensation award program.
Net income for the third quarter of 2014 was $13.5 million or $0.35 per common share (Basic and Diluted) compared to net income of $7.3 million for the same period in the prior year. Adjusted EBITDA for the third quarter of 2014 was $25.6 million compared to adjusted EBITDA of $15.7 million for the same period in the prior year.
Nine Months 2014 Results Compared to Nine Months 2013
The Company reported total revenues of $399.7 million for the nine months ended September 30, 2014, an increase of $113.0 million, or 39.4%, compared to revenues of $286.8 million for the same period in the prior year. Operating expenses for the nine months ended September 30, 2014 were $342.2 million compared to $257.3 million for the same period in the prior year, representing an increase of $84.9 million, or 33.0%. Cost of services as a percent of total revenues increased to 60.1% compared to 59.4% for the same period in the prior year. The Company reported net income for the nine months ended September 30, 2014 of $33.1 million compared with net income of $16.9 million for the same period in the prior year. Adjusted EBITDA for the nine months ended September 30, 2014 was $63.1 million, which represents an increase of $26.3 million, or 71.6%, as compared to $36.8 million for the same period in the prior year.
Business Outlook
Commenting on the Company's business outlook, Mr. Kerin said, “We are very pleased with our year-over-year growth thus far in 2014, as we have been effective in our efforts to expand both our core business and our specialty groups. Given that we typically experience strong transaction activity and resulting revenue increases in the fourth quarter, we believe we are well positioned for a solid finish to 2014.”
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, November 6, 2014 through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Thursday, November 20, 2014 by dialing (877) 870-5176 in the United States and Canada or +1 (858) 384-5517 internationally and entering passcode 13592452.
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 September 30, 2014, the Company has more than 1,400 investment sales and financial professionals in 78 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.
| 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 | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
|
2014 |
2013 |
2014 |
2013 |
||||||
| Revenues: | |||||||||
| Real estate brokerage commissions |
$140,220 |
$101,757 |
$368,246 |
$258,720 |
|||||
| Financing fees |
7,864 |
6,783 |
22,348 |
18,671 |
|||||
| Other revenues |
2,805 |
3,413 |
9,150 |
9,403 |
|||||
| Total revenues |
150,889 |
111,953 |
399,744 |
286,794 |
|||||
| Operating expenses: | |||||||||
| Cost of services |
92,269 |
67,718 |
240,266 |
170,395 |
|||||
| Selling, general, and administrative expense |
34,086 |
30,863 |
99,570 |
84,687 |
|||||
| Depreciation and amortization expense |
813 |
747 |
2,399 |
2,261 |
|||||
| Total operating expenses |
127,168 |
99,328 |
342,235 |
257,343 |
|||||
| Operating income |
23,721 |
12,625 |
57,509 |
29,451 |
|||||
| Other (expense) income, net |
(308) |
247 |
(39) |
496 |
|||||
| Interest expense |
(397) |
- |
(1,202) |
- |
|||||
| Income before provision for income taxes |
23,016 |
12,872 |
56,268 |
29,947 |
|||||
| Provision for income taxes |
9,493 |
5,597 |
23,167 |
13,025 |
|||||
| Net income |
13,523 |
7,275 |
33,101 |
16,922 |
|||||
| Other comprehensive income: | |||||||||
|
Foreign currency translation gain, net of tax of $38, $0, $40, and $0 for the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2014 and 2013, respectively |
57 |
- |
60 |
- |
|||||
| Total other comprehensive income |
57 |
- |
60 |
- |
|||||
| Comprehensive income |
$13,580 |
$7,275 |
$33,161 |
$16,922 |
|||||
|
Earnings per share(1): |
|||||||||
| Basic | 0.35 | 0.85 | |||||||
| Diluted | 0.35 | 0.85 | |||||||
|
Weighted average common shares outstanding(1): |
|||||||||
| Basic |
38,847 |
38,847 |
|||||||
| Diluted |
39,011 |
38,949 |
|||||||
(1) Earnings per share information has not been presented for periods prior to the IPO on October 31, 2013 as amounts were not meaningful.
MARCUS & MILLICHAP, INC.
KEY OPERATING
METRICS SUMMARY
(Unaudited)
Total sales volume was $9.9 billion for the three months ended September 30, 2014, encompassing 1,978 transactions consisting of $7.9 billion for real estate brokerage (1,444 transactions), $1.0 billion for financing (325 transactions) and $1.0 billion in other transactions, including consulting and advisory services (209 transactions). Total sales volume was $23.2 billion for the nine months ended September 30, 2014, encompassing 5,523 transactions consisting of $17.9 billion for real estate brokerage (4,017 transactions), $2.5 billion for financing (962 transactions) and $2.8 billion in other transactions, including consulting and advisory services (544 transactions). As of September 30, 2014, the Company had 1,341 investment sales professionals and 79 financing professionals. Key metrics for Real Estate Brokerage and Financing are as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
|
Real Estate Brokerage Commissions |
2014 | 2013 | 2014 | 2013 | |||||||||
| Average Number of Sales Professionals | 1,312 | 1,139 | 1,271 | 1,101 | |||||||||
| Average Number of Transactions per Sales Professional | 1.1 | 1.0 | 3.2 | 2.9 | |||||||||
| Average Commission per Transaction | $ | 97,105 | $ | 86,749 | $ | 91,672 | $ | 80,573 | |||||
| Average Transaction Size | $ | 5,500,284 | $ | 3,790,048 | $ | 4,463,755 | $ | 3,568,151 | |||||
| Total Number of Transactions | 1,444 | 1,173 | 4,017 | 3,211 | |||||||||
| Total Sales Volume (in millions) | $ | 7,942 | $ | 4,446 | $ | 17,931 | $ | 11,457 | |||||
|
|
|||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
|
Financing Fees |
2014 | 2013 | 2014 | 2013 | |||||||||
| Average Number of Financing Professionals | 79 | 72 | 77 | 69 | |||||||||
| Average Number of Transactions per Financing Professional | 4.1 | 4.2 | 12.5 | 12.3 | |||||||||
| Average Fee per Transaction | $ | 24,197 | $ | 22,609 | $ | 23,231 | $ | 22,017 | |||||
| Average Transaction Size | $ | 2,950,386 | $ | 2,381,822 | $ | 2,576,650 | $ | 2,224,446 | |||||
| Total Number of Transactions | 325 | 300 | 962 | 848 | |||||||||
| Total Dollar Volume (in millions) | $ | 959 | $ | 715 | $ | 2,479 | $ | 1,886 | |||||
|
MARCUS & MILLICHAP, INC. |
|||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
| (dollar amounts in thousands, except per share amounts) | |||||
| September 30, 2014 | December 31, | ||||
| (Unaudited) | 2013 | ||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ 134,010 | $ 100,952 | |||
| Commissions and other receivables, net of allowance for doubtful accounts of $62 and $99 at September 30, 2014 and December 31, 2013, respectively | 5,686 | 4,115 | |||
| Employee notes receivable | 220 | 229 | |||
| Prepaid expenses and other current assets | 5,475 | 5,204 | |||
| Deferred tax assets, net | 9,400 | 8,663 | |||
| Total current assets | 154,791 | 119,163 | |||
| Prepaid rent | 4,067 | 4,999 | |||
| Investments held in rabbi trust | 4,225 | 4,067 | |||
| Property and equipment, net of accumulated depreciation of $14,963 and $19,412 at September 30, 2014 and December 31, 2013, respectively | 7,829 | 8,560 | |||
| Employee notes receivable | 199 | 189 | |||
| Deferred tax assets, net | 24,967 | 27,185 | |||
| Other assets | 4,143 | 3,146 | |||
| Total assets | $ 200,221 | $ 167,309 | |||
| Liabilities and stockholders’ equity | |||||
| Current liabilities: | |||||
| Accounts payable and accrued expenses | $ 9,733 | $ 6,911 | |||
| Accounts payable and accrued expenses – related party | 172 | 506 | |||
| Income tax payable | 4,916 | 6,459 | |||
| Notes payable to former stockholders | 894 | 851 | |||
| Commissions payable | 17,195 | 25,086 | |||
| Accrued bonuses and other employee related expenses | 21,868 | 16,947 | |||
| Total current liabilities | 54,778 | 56,760 | |||
| Deferred compensation and commissions | 32,578 | 32,177 | |||
| Notes payable to former stockholders | 10,610 | 11,504 | |||
| Other liabilities | 2,473 | 4,371 | |||
| Total liabilities | 100,439 | 104,812 | |||
| Stockholders’ equity: | |||||
| Preferred stock, $0.0001 par value: |
- |
- |
|||
| Authorized shares – 25,000,000; issued and outstanding shares – none at September 30, 2014 and December 31, 2013, respectively | |||||
|
Common Stock $0.0001 par value: |
|||||
|
Authorized shares – 150,000,000; issued and outstanding shares – 36,623,781 and 36,600,897 at September 30, 2014 and December 31, 2013, respectively |
4 | 4 | |||
| Additional paid-in capital | 74,560 | 70,445 | |||
| Stock notes receivable from employees | (4) | (13) | |||
| Retained earnings (accumulated deficit) | 25,162 | (7,939) | |||
| Accumulated other comprehensive income | 60 |
- |
|||
| Total stockholders’ equity | 99,782 | 62,497 | |||
| Total liabilities and stockholders’ equity | $200,221 |
$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 the most directly comparable GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):
| Three Months | Nine Months | ||||||||
| Ended September 30, | Ended September 30, | ||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||
| Net income | $ 13,523 | $ 7,275 | $ 33,101 | $ 16,922 | |||||
| Adjustments: | |||||||||
| Interest income | (2) | (4) | (6) | (88) | |||||
| Interest expense | 397 |
- |
1,202 |
- |
|||||
| Provision for income taxes | 9,493 | 5,597 | 23,167 | 13,025 | |||||
| Depreciation and amortization | 813 | 747 | 2,399 | 2,261 | |||||
| Stock-based compensation | 1,417 | 2,053 | 3,275 | 4,679 | |||||
| Adjusted EBITDA | $ 25,641 | $ 15,668 | $ 63,138 | $ 36,799 | |||||
Investor Relations:
ICR, Inc.
Stephen Swett, (203) 682-8377
Stephen.Swett@icrinc.com
Source: Marcus & Millichap, Inc.
Released November 6, 2014