Exhibit 99.1

 

LOGO

MARCUS & MILLICHAP, INC. REPORTS RESULTS FOR

FIRST QUARTER 2019

CALABASAS, Calif., May 7, 2019 — (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, 2019.

First Quarter 2019 Highlights

 

   

Total revenues decreased by 7.9% to $160.7 million

 

   

Private Client Market segment brokerage revenue decreased by 9.4%

 

   

Middle Market and Larger Transaction Market segments combined brokerage revenue decreased by 12.2%, compared to growth of 44.3% in the same period last year

 

   

Financing fees increased by 41.2% to $13.7 million

 

   

Total salesforce grew by 150 professionals or 8.5% over the past 12 months

Hessam Nadji, President and CEO stated: “As we discussed on our last earnings call, MMI faced a particularly challenging quarter in light of Q1-2018’s revenue growth of 14% and earnings growth of 50% or 25% when tax adjusted. This was coupled with a reduced pipeline due to record closings in the fourth quarter of last year. At the same time, replenishing our pipeline has been gradual as investors take their time to secure more favorable financing amid falling interest rates driven by the Fed’s shift to a dovish stance in the past few months. This was also reflected in the broader market which had a 22% decline in sales transactions during the first quarter as reported by RCA. We also observed more investors opting to refinance which was a key factor behind the 41% jump in our financing revenues.”

Mr. Nadji continued, “Looking forward, we believe lower interest rates, solid real estate fundamentals, steady job growth and competitive yields will support a healthy real estate market environment. The entire MMI team is actively engaged in expanding marketing campaigns, increasing investor outreach and cross-marketing events to bring more buyers and sellers together. We are executing on a 48-year tradition of long-term growth achieved through helping clients execute successfully through changing market dynamics. While we continue to face a tough comparable given last year’s record results, we believe our consistent hiring, increased business development initiatives and active dialogue with additional acquisition targets will continue to generate long-term growth and shareholder value.”

First Quarter 2019 Results Compared to First Quarter 2018

Total revenues for the first quarter of 2019 were $160.7 million compared to $174.5 million for the same period in the prior year, decreasing by $13.8 million, or 7.9%. The change in total revenues was primarily driven by a 10.8% decline in real estate brokerage commissions, to $144.9 million and was partially offset by an increase in financing fees. The decrease in brokerage commissions was primarily due to lower year over year sales volume resulting from fewer transactions.

Total operating expenses for the first quarter of 2019 decreased by 5.7% to $142.4 million compared to $151.1 million for the same period in the prior year. The year over year change was primarily driven by a 9.8% decrease 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 fell to 57.1% compared to 58.2% in the same period in the prior year due to this quarter’s transaction size, mix and broker compensation. Traditionally, cost of services as a percent of total revenues is lower during the three-month period ended March 31 as certain investment professionals may earn additional commissions later in the year after meeting annual revenue thresholds.

Selling, general and administrative expenses for the first quarter of 2019 increased by 1.8% to $48.9 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) expansion of existing offices and (iii) professional and other fees; which were partially offset by lower costs associated with (i) litigation costs; (ii) compensation related costs, including management performance compensation and (iii) stock-based compensation expense.

 

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Net income for the first quarter of 2019 was $15.6 million, or $0.40 per common share (basic and diluted), compared to net income of $18.0 million, or $0.46 per common share (basic and diluted) for the same period in the prior year. Adjusted EBITDA for the first quarter of 2019 decreased by 15.6% to $23.2 million, compared to adjusted EBITDA of $27.4 million for the same period in the prior year. As of March 31, 2019, the Company had 1,919 investment sales and financing professionals.

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 over 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, May 7, 2019, through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Tuesday, May 21, 2019, by dialing (844) 512-2921 in the United States and Canada or (412) 317-6671 internationally and entering passcode 13689750.

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, 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 1,950 transactions for the three months ended March 31, 2019, 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 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.

 

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)

 

     Three Months
Ended March 31,
 
     2019     2018  

Revenues:

  

Real estate brokerage commissions

   $ 144,937     $ 162,525  

Financing fees

     13,732       9,724  

Other revenues

     2,038       2,292  
  

 

 

   

 

 

 

Total revenues

     160,707       174,541  
  

 

 

   

 

 

 

Operating expenses:

    

Cost of services

     91,688       101,649  

Selling, general and administrative expense

     48,918       48,053  

Depreciation and amortization expense

     1,832       1,375  
  

 

 

   

 

 

 

Total operating expenses

     142,438       151,077  
  

 

 

   

 

 

 

Operating income

     18,269       23,464  

Other income (expense), net

     3,375       1,209  

Interest expense

     (349     (360
  

 

 

   

 

 

 

Income before provision for income taxes

     21,295       24,313  

Provision for income taxes

     5,657       6,302  
  

 

 

   

 

 

 

Net income

     15,638       18,011  
  

 

 

   

 

 

 

Other comprehensive income (loss):

    

Marketable securities, available-for-sale:

    

Change in unrealized gains (losses)

     858       (492

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

     (9     —    
  

 

 

   

 

 

 

Net change, net of tax of $288 and $(164) for the three months ended March 31, 2019 and 2018, respectively

     849       (492

Foreign currency translation (loss) gain, net of tax of $0 for each of the three months ended March 31, 2019 and 2018

     (98     39  
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     751       (453
  

 

 

   

 

 

 

Comprehensive income

   $ 16,389     $ 17,558  
  

 

 

   

 

 

 

Earnings per share:

    

Basic

   $ 0.40     $ 0.46  

Diluted

   $ 0.40     $ 0.46  

Weighted average common shares outstanding:

    

Basic

     39,311       39,095  

Diluted

     39,515       39,250  

 

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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, 2019, encompassing 1,950 transactions consisting of $7.1 billion for real estate brokerage (1,405 transactions), $1.5 billion for financing (388 transactions) and $1.2 billion in other transactions, including consulting and advisory services (157 transactions). As of March 31, 2019, the Company had 1,813 investment sales professionals and 106 financing professionals. Key metrics for real estate brokerage and financing are as follows:

 

     Three Months
Ended March 31,
 
Real Estate Brokerage    2019     2018  

Average Number of Investment Sales Professionals

     1,818       1,670  

Average Number of Transactions per Investment Sales Professional

     0.77       0.95  

Average Commission per Transaction

   $ 103,158     $ 102,539  

Average Commission Rate

     2.04     2.05

Average Transaction Size (in thousands)

   $ 5,056     $ 4,994  

Total Number of Transactions

     1,405       1,585  

Total Sales Volume (in millions)

   $ 7,103     $ 7,915  
     Three Months
Ended March 31,
 

Financing (1)

     2019       2018  

Average Number of Financing Professionals

     106       91  

Average Number of Transactions per Financing Professional

     3.66       3.56  

Average Fee per Transaction

   $ 33,541     $ 29,040  

Average Fee Rate

     0.89     0.93

Average Transaction Size (in thousands)

   $ 3,763     $ 3,111  

Total Number of Transactions

     388       324  

Total Financing Volume (in millions)

   $ 1,460     $ 1,008  

 

(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,        
    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

    201     $ 131     $ 5,288       245     $ 162     $ 6,868       (44   $ (31   $ (1,580

Private Client Market ($1 - $10 million)

    1,060       3,320       96,058       1,168       3,559       106,012       (108     (239     (9,954

Middle Market (³$10 - $20 million)

    92       1,245       23,580       113       1,605       27,271       (21     (360     (3,691

Larger Transaction Market (³$20 million)

    52       2,407       20,011       59       2,589       22,374       (7     (182     (2,363
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,405     $ 7,103     $ 144,937       1,585     $ 7,915     $ 162,525       (180   $ (812   $ (17,588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for shares and par value)

 

     March 31,
2019
(Unaudited)
    December 31,
2018
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 198,132     $ 214,683  

Commissions receivable

     6,119       4,948  

Prepaid expenses

     8,833       7,904  

Marketable securities, available-for-sale

     121,059       137,436  

Other assets, net

     6,031       6,368  
  

 

 

   

 

 

 

Total current assets

     340,174       371,339  

Prepaid rent

     —         13,892  

Property and equipment, net

     19,937       19,550  

Operating lease right-of-use assets, net

     83,913       —    

Marketable securities, available-for-sale

     75,044       83,209  

Assets held in rabbi trust

     8,939       8,268  

Deferred tax assets, net

     20,428       22,959  

Goodwill and other intangible assets, net

     15,133       15,385  

Other assets

     39,948       31,778  
  

 

 

   

 

 

 

Total assets

   $ 603,516     $ 566,380  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable and other liabilities

   $ 13,175     $ 11,035  

Notes payable to former stockholders

     1,087       1,087  

Deferred compensation and commissions

     25,923       47,910  

Income tax payable

     7,603       4,486  

Operating lease liabilities

     17,358       —    

Accrued bonuses and other employee related expenses

     8,217       28,338  
  

 

 

   

 

 

 

Total current liabilities

     73,363       92,856  

Deferred compensation and commissions

     36,906       49,887  

Notes payable to former stockholders

     6,564       6,564  

Operating lease liabilities

     58,494       —    

Deferred rent and other liabilities

     2,097       7,499  
  

 

 

   

 

 

 

Total liabilities

     177,424       156,806  
  

 

 

   

 

 

 

Commitments and contingencies

     —         —    

Stockholders’ equity:

    

Preferred stock, $0.0001 par value:

    

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

     —         —    

Common stock, $0.0001 par value:

    

Authorized shares – 150,000,000; issued and outstanding shares – 39,042,434 and 38,814,464 at March 31, 2019 and December 31, 2018, respectively

     4       4  

Additional paid-in capital

     97,587       97,458  

Stock notes receivable from employees

     (4     (4

Retained earnings

     326,979       311,341  

Accumulated other comprehensive income

     1,526       775  
  

 

 

   

 

 

 

Total stockholders’ equity

     426,092       409,574  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 603,516     $ 566,380  
  

 

 

   

 

 

 

 

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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 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 March 31,
 
     2019      2018  

Net income

   $ 15,638      $ 18,011  

Adjustments:

     

Interest income and other (1)

     (2,541      (1,228

Interest expense

     349        360  

Provision for income taxes

     5,657        6,302  

Depreciation and amortization

     1,832        1,375  

Stock-based compensation

     2,341        2,613  

Non-cash MSRs activity (2)

     (117      —    
  

 

 

    

 

 

 

Adjusted EBITDA(3)

   $ 23,159      $ 27,433  
  

 

 

    

 

 

 
(1)

Other for the three months ended March 31, 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 in 2019 compared to 2018 is primarily due to lower total revenues.

 

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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):

 

     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 of $20 million and above

 

   

Acquisitions: acquisitions of teams and/or acquisitions as business combinations under accounting standards

 

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