Exhibit 99.1

 

LOGO

MARCUS & MILLICHAP, INC. REPORTS RESULTS FOR

FIRST QUARTER 2018

TOTAL REVENUES INCREASED BY 13.9%

NET INCOME INCREASED BY 50.1%

NET INCOME INCREASED BY 24.7% WHEN ADJUSTED FOR THE NEW TAX LAW

ADJUSTED EBITDA INCREASED BY 22.3%

CALABASAS, Calif., May 8, 2018 — (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 first quarter ended March 31, 2018.

First Quarter 2018 Highlights

 

    Total revenues increased by 13.9% to $174.5 million compared to a 6.7% decline in the first quarter of 2017.

 

    Net income increased by 50.1%. Net income when adjusted for the new tax law increased by 24.7%.

 

    Adjusted EBITDA increased by 22.3%.

 

    Private Client Market segment brokerage commissions and transactions increased by 6.3% and 4.2%, respectively. Transaction growth indicates further market share gains in a flat to moderately positive market sales based on preliminary reports.

 

    Middle Market and Larger Transaction Market segments combined brokerage commissions and transactions increased by 44.3% and 36.5%, respectively.

Hessam Nadji, President and CEO stated, “We are pleased that our expanded client out-reach, increased business development activities and investments in the Marcus & Millichap platform generated strong first quarter results.” Mr. Nadji continued, “Over the past year, our team demonstrated agility and expertise in helping clients navigate heightened market volatility, culminating in revenue growth of nearly 14% in the first quarter. Our brokerage revenue showed healthy growth in all market segments, including a 6.3% increase in private client revenue. We believe we took additional share in the first quarter, since market sales were flat to modestly higher due to higher interest rates and persistent bid/ask spread.” Mr. Nadji added, “Looking forward, clarity on various aspects of the new tax law should gradually manifest in transactions as investors view the new tax law as favorable toward commercial real estate. This, coupled with steady job growth and still-healthy fundamentals, should counter higher interest rates. Marcus & Millichap is well positioned to deliver best in class service to our clients, grow share and revenues; albeit at a more tempered pace given the sequential improvements we achieved last year starting in the second quarter. Our balance sheet provides strength in the event of an unexpected market disruption and flexibility for strategic acquisitions as we continue to create long-term shareholder value.”

First Quarter 2018 Results Compared to First Quarter 2017

Total revenues for the first quarter of 2018 were $174.5 million compared to $153.2 million for the same period in the prior year, increasing by $21.3 million, or 13.9%. The increase in total revenues was primarily driven by the increase in real estate brokerage commissions, which increased by 16.0% to $162.5 million. This increase in brokerage commissions was primarily due to an increase in sales volume and number of transactions. This increase was partially offset by a decrease in average commission rates due to a higher proportion of transactions from the Larger Transaction Market segment, which generate lower commission rates. The increase in brokerage commissions were partially offset by a slight decrease in financing fees and other revenues.

Total operating expenses for the first quarter of 2018 increased by 12.6% to $151.1 million compared to $134.2 million for the same period in the prior year. The increase was primarily driven by a 13.4% increase in cost of services, which are primarily 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 decreased by 30 basis points to 58.2% compared to the same period in the prior year.

 

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Selling, general and administrative expenses for the first quarter of 2018 increased by 11.2% to $48.1 million compared to the same period in the prior year primarily due to higher costs associated with (i) sales operations support and promotional marketing expenses; (ii) compensation related costs, including salaries and related benefits and management performance compensation; (iii) stock-based compensation expense and (iv) expansion of existing offices.

Net income for the first quarter of 2018 was $18.0 million, or $0.46 per common share (basic and diluted), compared to net income of $12.0 million, or $0.31 per common share (basic and diluted) for the same period in the prior year. Adjusted EBITDA for the first quarter of 2018 increased by 22.3% to $27.4 million, compared to adjusted EBITDA of $22.4 million for the same period in the prior year. As of March 31, 2018, the Company had 1,769 investment sales and financing professionals.

Business Outlook

We believe that the Company is positioned to continue to gain market share by leveraging a number of factors, including our leading national brand predominantly within our Private Client Market segment and specialty groups, experienced management team, infrastructure investments and proprietary technology. The size and fragmentation of the Private Client Market segment, in particular, continues to offer long-term growth opportunities with the top ten brokerage firms making up only 25.2% market share. This market segment consistently accounts for over 80% of commercial property sales transactions and over 60% of the commission pool. The Company’s growth plan also includes further expansion into various specialty property types such as hospitality, self-storage, seniors housing and the Larger Transaction Market segment, as well as expansion of its financing division, Marcus & Millichap Capital Corporation.

Key factors likely to influence the Company’s business in 2018 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, rising interest rates, bid-ask spread gap between buyers and sellers and economic trends.

 

      Possible boost to investor sentiment and sales activity based on Tax Cuts and Jobs Act, regulatory easing and proposed economic initiatives which are expected to increase real estate 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.

 

    The potential for merger and acquisition activity and subsequent integration.

In addition, the reduction of MMI’s effective corporate tax rate to the 25.5%-26.5% range from nearly 40% in prior years as a result of the enactment of the Tax Cuts and Jobs Act may also affect the Company’s business in 2018. These factors, in addition to the business’s typical transaction closing date variability, highlight the importance of viewing the Company’s business through a long-term, at least annual, perspective.

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, May 8, 2018, through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Tuesday, May 22, 2018, by dialing (844) 512-2921 in the United States and Canada or (412) 317-6671 internationally and entering passcode 13678069.

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 March 31, 2018, the Company had 1,769 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 2,085 transactions for the three months ended March 31, 2018, with a sales volume of approximately $9.8 billion. For additional information, please visit www.MarcusMillichap.com.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This release includes forward-looking statements, including the Company’s business outlook for 2018 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 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 interpretations of and amendments to the recently enacted 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.

 

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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,
 
     2018     2017  

Revenues:

  

Real estate brokerage commissions

   $ 162,525     $ 140,137  

Financing fees

     9,724       10,054  

Other revenues

     2,292       3,021  
  

 

 

   

 

 

 

Total revenues

     174,541       153,212  
  

 

 

   

 

 

 

Operating expenses:

    

Cost of services

     101,649       89,647  

Selling, general, and administrative expense

     48,053       43,220  

Depreciation and amortization expense

     1,375       1,297  
  

 

 

   

 

 

 

Total operating expenses

     151,077       134,164  
  

 

 

   

 

 

 

Operating income

     23,464       19,048  

Other income (expense), net

     1,209       836  

Interest expense

     (360     (382
  

 

 

   

 

 

 

Income before provision for income taxes

     24,313       19,502  

Provision for income taxes

     6,302       7,502  
  

 

 

   

 

 

 

Net income

     18,011       12,000  

Other comprehensive (loss) income:

    

Unrealized (losses) gains on marketable securities, net of tax of $(164) and $65 for the three months ended March 31, 2018 and 2017, respectively

     (492     47  

Foreign currency translation gain (loss), net of tax of $0 for each of the three months ended March 31, 2018 and 2017

     39       (2
  

 

 

   

 

 

 

Total other comprehensive (loss) income

     (453     45  
  

 

 

   

 

 

 

Comprehensive income

   $ 17,558     $ 12,045  
  

 

 

   

 

 

 

Earnings per share:

    

Basic

   $ 0.46     $ 0.31  

Diluted

   $ 0.46     $ 0.31  

Weighted average common shares outstanding:

    

Basic

     39,095       38,948  

Diluted

     39,250       39,108  

 

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MARCUS & MILLICHAP, INC.

KEY OPERATING METRICS SUMMARY

(Unaudited)

Total sales volume was $9.8 billion for the three months ended March 31, 2018, encompassing 2,085 transactions consisting of $7.9 billion for real estate brokerage (1,585 transactions), $1.0 billion for financing (324 transactions) and $0.9 billion in other transactions, including consulting and advisory services (176 transactions). As of March 31, 2018, the Company had 1,678 investment sales professionals and 91 financing professionals. Key metrics for real estate brokerage and financing are as follows:

 

     Three Months Ended
March 31,
 
Real Estate Brokerage    2018     2017  

Average Number of Investment Sales Professionals

     1,670       1,629  

Average Number of Transactions per Investment Sales Professional

     0.95       0.91  

Average Commission per Transaction

   $ 102,539     $ 94,115  

Average Commission Rate

     2.05     2.16

Average Transaction Size (in thousands)

   $ 4,994     $ 4,359  

Total Number of Transactions

     1,585       1,489  

Total Sales Volume (in millions)

   $ 7,915     $ 6,490  
     Three Months Ended
March 31,
 
Financing (1)    2018     2017  

Average Number of Financing Professionals

     91       100  

Average Number of Transactions per Financing Professional

     3.56       3.91  

Average Fee per Transaction

   $ 29,040     $ 25,714  

Average Fee Rate

     0.93     0.86

Average Transaction Size (in thousands)

   $ 3,111     $ 2,990  

Total Number of Transactions

     324       391  

Total Sales Volume (in millions)

   $ 1,008     $ 1,169  

 

(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 March 31,         
     2018      2017      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

     245      $ 162      $ 6,868        242      $ 142      $ 5,994        3      $ 20      $ 874  

Private Client Market ($1 - $10 million)

     1,168        3,559        106,012        1,121        3,398        99,750        47        161        6,262  

Middle Market (³$10 - $20 million)

     113        1,605        27,271        88        1,202        19,154        25        403        8,117  

Larger Transaction Market (³$20 million)

     59        2,589        22,374        38        1,748        15,239        21        841        7,135  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,585      $ 7,915      $ 162,525        1,489      $ 6,490      $ 140,137        96      $ 1,425      $ 22,388  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands, except per share amounts)

 

     March 31,
2018
(Unaudited)
    December 31,
2017
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 199,370     $ 220,786  

Commissions receivable

     2,851       9,586  

Prepaid expenses

     7,432       9,661  

Income tax receivable

     —         1,308  

Marketable securities, available-for-sale

     94,826       73,560  

Other assets, net

     4,624       5,529  
  

 

 

   

 

 

 

Total current assets

     309,103       320,430  

Prepaid rent

     15,193       15,392  

Property and equipment, net

     17,097       17,153  

Marketable securities, available-for-sale

     35,573       52,099  

Assets held in rabbi trust

     8,756       8,787  

Deferred tax assets, net

     21,054       22,640  

Other assets

     26,191       23,163  
  

 

 

   

 

 

 

Total assets

   $ 432,967     $ 459,664  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable and accrued expenses

   $ 6,482     $ 9,202  

Notes payable to former stockholders

     1,035       1,035  

Deferred compensation and commissions

     26,913       49,180  

Income tax payable

     3,131        

Accrued bonuses and other employee related expenses

     10,741       23,842  
  

 

 

   

 

 

 

Total current liabilities

     48,302       83,259  

Deferred compensation and commissions

     38,969       49,361  

Notes payable to former stockholders

     7,651       7,651  

Deferred rent and other liabilities

     4,636       4,505  
  

 

 

   

 

 

 

Total liabilities

     99,558       144,776  
  

 

 

   

 

 

 

Commitments and contingencies

     —         —    

Stockholders’ equity:

    

Preferred stock, $0.0001 par value:

    

Authorized shares – 25,000,000; issued and outstanding shares – none at March 31, 2018 and December 31, 2017, respectively

     —         —    

Common stock, $0.0001 par value:

    

Authorized shares – 150,000,000; issued and outstanding shares – 38,578,834 and 38,374,011 at March 31, 2018 and December 31, 2017, respectively

     4       4  

Additional paid-in capital

     90,840       89,877  

Stock notes receivable from employees

     (4     (4

Retained earnings

     242,095       224,071  

Accumulated other comprehensive income

     474       940  
  

 

 

   

 

 

 

Total stockholders’ equity

     333,409       314,888  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 432,967     $ 459,664  
  

 

 

   

 

 

 

 

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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 (losses) gains on marketable securities, available-for-sale and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization and (v) stock-based compensation. 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 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 U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2018      2017  

Net income

   $ 18,011      $ 12,000  

Adjustments:

     

Interest income and other (1)

     (1,228      (625

Interest expense

     360        382  

Provision for income taxes (2)

     6,302        7,502  

Depreciation and amortization expense

     1,375        1,297  

Stock-based compensation

     2,613        1,866  
  

 

 

    

 

 

 

Adjusted EBITDA(3)

   $ 27,433      $ 22,422  
  

 

 

    

 

 

 

 

(1)  Other for the three months ended March 31, 2018 and 2017 includes net realized gains (losses) on marketable securities, available-for-sale and cash and cash equivalents.
(2)  Provision for income taxes for the three months ended March 31, 2018 was calculated using a revised 21% U.S. federal corporate tax rate due to the enactment of the Tax Cuts and Jobs Act, which reduced the U.S. federal corporate tax rate from 35% to 21%.
(3)  The increase in Adjusted EBITDA for the three months ended March 31, 2018 compared to the same period in the prior year is primarily due to higher total revenues and a lower proportion of operating expenses compared to revenues.

Tax Adjusted Net Income Reconciliation

Due to the enactment of the Tax Cuts and Jobs Act, the U.S. federal statutory corporate tax rate was reduced from 35% to 21% starting in 2018. For the three months ended March 31, 2017, the Company calculated tax adjusted net income using the effective income tax rate for the three months ended March 31, 2018 of 25.92%. The adjustment was made to illustrate what the growth rate would have been had the effective income tax rate been the same in both periods. A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to tax adjusted net income for the three months ended March 31, 2017 is as follows (in thousands):

 

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     Three Months Ended
March 31,
     Change  
     2018      2017      Percentage  

Income before provision for income taxes

   $ 24,313      $ 19,502        24.7

Provision for income taxes

     (6,302      (7,502      (16.0
  

 

 

    

 

 

    

 

 

 

Net income

   $ 18,011      $ 12,000        50.1
  

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

   $ 24,313      $ 19,502        24.7

Provision for income taxes (1)

     (6,302      (5,055      (24.7
  

 

 

    

 

 

    

 

 

 

Tax adjusted net income (1)

   $ 18,011      $ 14,447        24.7
  

 

 

    

 

 

    

 

 

 

 

(1)  Provision for income taxes for the three months ended March 31, 2017 was calculated using the effective income tax rate of 25.92% for the three months ended March 31, 2018.

Glossary of Terms

 

    Private Client Market segment: transactions with values from $1 million to up to but less than $10 million

 

    Middle Market segment: transactions with values from $10 million to up to but less than $20 million

 

    Larger Transaction Market segment (previously Institutional Market segment): transactions with values $20 million and above

 

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