Marcus & Millichap, Inc. Reports Results for Fourth Quarter and Full-Year 2018

Record Quarterly and Annual Financial Performance

Q4 Revenues Increased 13.6%

Q4 Net Income Increased over 200%; or 16.8% (on a Tax Adjusted
Basis)

CALABASAS, Calif.–(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 fourth
quarter and full year ended December 31, 2018.

Fourth Quarter 2018 Highlights

  • Total revenues increased by 13.6% to $230.3 million
  • Net income increased by 209.3% to $26.2 million, or $0.66 per common
    share, diluted
  • Financing fees increased by 6.8% to $16.6 million
  • Private Client Market segment brokerage revenue increased by 15.5%
  • Middle Market and Larger Transaction brokerage revenue increased by
    14.4% and 41.3%, respectively
  • Completed two acquisitions during the fourth quarter of 2018

Full Year 2018 Highlights

  • Total revenues increased by 13.2% to $814.8 million
  • Net income increased by 69.4% to $87.3 million, or $2.22 per common
    share, diluted
  • Financing fees increased by 16.4% to $57.8 million
  • Private Client Market segment brokerage revenue increased by 9.0%
  • Middle Market and Larger Transaction brokerage revenue increased by
    28.4% and 35.4%, respectively
  • Sales force expanded by 158 professionals, or 8.7% to a total of 1,977
    professionals
  • Completed four acquisitions during 2018

Hessam Nadji, President and CEO stated, “Marcus & Millichap concluded
2018 with strong growth across all market segments, achieving record
revenue, earnings and expanded market coverage. Our client outreach
initiatives and investments in brokerage support and proprietary tools
positively impacted these results. Our brokerage sales volume increased
18.4% for the year in contrast with the broader market sales increase of
an estimated 6-8% pointing to market share gains.” Mr. Nadji added, “We
believe the unexpected interest rate trend reversal in the fourth
quarter improved investor sentiment and contributed to our ability to
bring more buyers and sellers together for a strong finish.”

Mr. Nadji continued, “2018 was also a pivotal year as we completed four
strategic acquisitions with anticipation of further capital deployment
in accretive, high quality businesses to support our growth plan. We are
encouraged by the sustained strength of real estate fundamentals,
apparent pause in interest rate hikes by the Fed and real estate-related
benefits of the recent tax law changes, all of which bode well for the
outlook. Our strong balance sheet, industry-leading brand and various
growth opportunities provide us with key competitive advantages to
create shareholder value.”

Fourth Quarter 2018 Results Compared to Fourth Quarter 2017

Total revenues for the fourth quarter of 2018 were $230.3 million,
compared to $202.8 million for the same period in the prior year,
increasing by $27.5 million, or 13.6%. The improvement in total revenues
was primarily driven by the increase in real estate brokerage
commissions and, to a lesser extent, growth in financing fees. These
increases were partially offset by a decrease in other revenues. Real
estate brokerage commissions increased by 19.1% to $211.2 million
primarily due to a rise in overall sales volume generated by the
increase in the number of investment sales transactions and average
transaction size. Average commission rates increased primarily due to a
higher average commission rate in the Larger Transaction market segment.
Financing fees increased by 6.8% to $16.6 million. Other revenues
decreased by 74.9% to $2.5 million primarily due to a large consulting
and advisory services fee incurred during the fourth quarter of 2017
with no comparable fee during the same period in 2018.

Total operating expenses for the fourth quarter of 2018 increased by
12.8% to $197.8 million, compared to $175.4 million for the same period
in the prior year. The increase was primarily driven by an increase in
cost of services and selling, general and administrative expenses. Cost
of services increased by 12.7% to $148.5 million. Cost of services as a
percent of total revenues decreased by 50 basis points to 64.5% compared
to the same period in the prior year. This was primarily due to a
decrease in the proportion of transactions closed by our more senior
investment sales professionals, who are generally compensated at higher
commission rates.

Selling, general and administrative expenses for the fourth quarter of
2018 increased by 12.5% to $47.6 million, compared to the same period in
the prior year. The increase was primarily due to increased costs
associated with (i) compensation related costs, including salaries and
related benefits; (ii) expansion of existing offices; (iii) sales and
promotional marketing expenses; (iv) professional fees; and (v)
stock-based compensation expense.

Net income for the fourth quarter of 2018 was $26.2 million, or $0.67
per common share, basic and $0.66 per common share, diluted, compared to
net income of $8.5 million, or $0.22 per common share (basic and
diluted), for the same period in the prior year. Tax adjusted net income
for the fourth quarter of 2017, which adjusts for the impact of the Tax
Cuts and Jobs Act (“the Act”) was $22.5 million, or $0.58 per common
share, basic and $0.57 per common share, diluted. Adjusted EBITDA for
the fourth quarter of 2018 was $36.1 million compared to adjusted EBITDA
of $32.1 million for the same period in the prior year.

Full Year 2018 Results Compared to Full Year 2017

Total revenues for 2018 were $814.8 million, compared to $719.7 million
for 2017, increasing by 13.2%. Total operating expenses for 2018 were up
12.7% to $702.5 million compared to $623.6 million for 2017. Cost of
services as a percent of total revenues decreased by 30 basis points to
61.7% compared to the same period in the prior year. Net income for 2018
was $87.3 million, or $2.23 per common share, basic and $2.22 per common
share, diluted compared with net income of $51.5 million, or $1.32
(basic and diluted) per common share for 2017. Tax adjusted net income
for 2017, which adjusts for the impact of the Act was $73.9 million, or
$1.89 (basic and diluted). Adjusted EBITDA for 2018 increased by 15.9%
to $129.5 million, from $111.7 million for 2017. As of December 31,
2018, the Company had 1,977 investment sales and financing professionals.

Business Outlook

We believe that the Company is positioned to achieve 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 25% share of this segment by transaction
count. The Company’s growth plan also includes further expansion into
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 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 and tax legislation impact 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
  • Challenging year-over-year comparables

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 Wednesday, February 20, 2019, through 8:59 p.m. Pacific
Time/11:59 p.m. Eastern Time on Wednesday, March 6, 2019, by dialing
(844) 512-2921 in the United States and Canada or (412) 317-6671
internationally and entering passcode 13686545.

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 December 31, 2018, the Company had
nearly 2,000 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 9,472 transactions in 2018, with a total sales volume
of approximately $46.4 billion. For additional information, please visit www.MarcusMillichap.com.

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 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.

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 December 31,

Year Ended

December 31,

2018   2017 2018   2017
Revenues:
Real estate brokerage commissions $ 211,210 $ 177,324 $ 747,355 $ 649,393
Financing fees 16,583 15,522 57,817 49,653
Other revenues   2,490     9,930     9,644     20,654  
Total revenues   230,283     202,776     814,816     719,700  
Operating expenses:
Cost of services 148,469 131,730 502,883 446,557
Selling, general and administrative expense 47,557 42,255 193,349 171,648
Depreciation and amortization expense   1,768     1,388     6,297     5,363  
Total operating expenses   197,794     175,373     702,529     623,568  
Operating income 32,489 27,403 112,287 96,132
Other income (expense), net 1,273 1,585 6,333 4,590
Interest expense   (346 )   (370 )   (1,400 )   (1,496 )
Income before provision for income taxes 33,416 28,618 117,220 99,226
Provision for income taxes   7,191     20,138     29,963     47,702  
Net income 26,225 8,480 87,257 51,524
Other comprehensive income (loss):
Marketable securities, available-for-sale:
Change in unrealized gains (losses) 243 (132 ) (536 ) 193
Less: reclassification adjustment for net (gains) losses included in
other income (expense), net
  (1 )       7      
Net change, net of tax of $82, $(103), $(177) and $139 for the three
months ended December 31, 2018 and 2017 and the years ended December
31, 2018 and 2017, respectively
242 (132 ) (529 ) 193
Foreign currency translation gain (loss), net of tax of $0 for each
of the three months ended December 31, 2018 and 2017 and each of the
years ended December 31, 2018 and 2017
  333     2     377     (63 )
Total other comprehensive income (loss)   575     (130 )   (152 )   130  
Comprehensive income $ 26,800   $ 8,350   $ 87,105   $ 51,654  
Earnings per share:
Basic $ 0.67 $ 0.22 $ 2.23 $ 1.32
Diluted $ 0.66 $ 0.22 $ 2.22 $ 1.32
Weighted average common shares outstanding:
Basic 39,157 38,966 39,149 38,988
Diluted 39,469 39,230 39,383 39,100
 

MARCUS & MILLICHAP, INC.
KEY OPERATING
METRICS SUMMARY

(Unaudited)

Total sales volume was $13.2 billion for the three months ended December
31, 2018, encompassing 2,603 transactions consisting of $9.9 billion for
real estate brokerage (1,933 transactions), $1.8 billion for financing
(487 transactions) and $1.5 billion in other transactions, including
consulting and advisory services (183 transactions). Total sales volume
was $46.4 billion for the year ended December 31, 2018, encompassing
9,472 transactions consisting of $36.1 billion for real estate brokerage
(7,079 transactions), $6.2 billion for financing (1,678 transactions)
and $4.1 billion in other transactions, including consulting and
advisory services (715 transactions). As of December 31, 2018, the
Company had 1,866 investment sales professionals and 111 financing
professionals. Key metrics for real estate brokerage and financing are
as follows:

  Three Months

Ended December 31,

  Year Ended

December 31,

Real Estate Brokerage 2018   2017 2018   2017
Average Number of Investment Sales Professionals 1,801 1,682 1,726 1,649
Average Number of Transactions per Investment Sales Professional 1.07 1.04 4.10 3.98
Average Commission per Transaction $ 109,265 $ 101,212 $ 105,574 $ 98,963
Average Commission Rate 2.13 % 2.04 % 2.07 % 2.13 %
Average Transaction Size (in thousands) $ 5,126 $ 4,972 $ 5,095 $ 4,644
Total Number of Transactions 1,933 1,752 7,079 6,562
Total Sales Volume (in millions) $ 9,908 $ 8,711 $ 36,070 $ 30,475
 
Three Months

Ended December 31,

Year Ended

December 31,

Financing (1) 2018 2017 2018 2017
Average Number of Financing Professionals 107 93 100 95
Average Number of Transactions per Financing Professional 4.55 5.37 16.78 17.97
Average Fee per Transaction $ 32,811 $ 30,669 $ 33,176 $ 28,960
Average Fee Rate 0.88 % 0.88 % 0.89 % 0.88 %
Average Transaction Size (in thousands) $ 3,715 $ 3,481 $ 3,716 $ 3,299
Total Number of Transactions 487 499 1,678 1,707
Total Financing Volume (in millions) $ 1,809 $ 1,737 $ 6,236 $ 5,632
(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 December 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 313 $ 206 $ 8,858 300 $ 189 $ 7,842 13 $ 17 $ 1,016
Private Client Market ($1 – $10 million) 1,411 4,606 133,905 1,263 3,845 115,904 148 761 18,001
Middle Market (≥$10 – $20 million) 122 1,673 30,866 103 1,405 26,988 19 268 3,878
Larger Transaction Market (≥$20 million) 87   3,423   37,581 86   3,272   26,590 1   151   10,991
1,933 $ 9,908 $ 211,210 1,752 $ 8,711 $ 177,324 181 $ 1,197 $ 33,886
 
  Year Ended December 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 1,077 $ 695 $ 29,677 1,062 $ 661 $ 27,952 15 $ 34 $ 1,725
Private Client Market ($1 – $10 million) 5,230 16,645 483,967 4,891 15,029 444,081 339 1,616 39,886
Middle Market (≥$10 – $20 million) 472 6,462 116,850 361 4,906 91,035 111 1,556 25,815
Larger Transaction Market (≥$20 million) 300   12,268   116,861 248   9,879   86,325 52   2,389   30,536
7,079 $ 36,070 $ 747,355 6,562 $ 30,475 $ 649,393 517 $ 5,595 $ 97,962
 

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands, except per share amounts)

   
December 31, 2018

(Unaudited)

December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 214,683 $ 220,786
Commissions receivable 4,948 9,586
Prepaid expenses 7,904 9,661
Income tax receivable 1,308
Marketable securities, available-for-sale 137,436 73,560
Other assets, net   6,368     5,529  
Total current assets 371,339 320,430
Prepaid rent 13,892 15,392
Property and equipment, net 19,550 17,153
Marketable securities, available-for-sale 83,209 52,099
Assets held in rabbi trust 8,268 8,787
Deferred tax assets, net 22,959 22,640
Goodwill and other intangible assets, net 15,385
Other assets   31,778     23,163  
Total assets $ 566,380   $ 459,664  
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other liabilities $ $ 11,035 $ 9,202
Notes payable to former stockholders 1,087 1,035
Deferred compensation and commissions 47,910 49,180
Income tax payable 4,486
Accrued bonuses and other employee related expenses   28,338     23,842  
Total current liabilities 92,856 83,259
Deferred compensation and commissions 49,887 49,361
Notes payable to former stockholders 6,564 7,651
Deferred rent and other liabilities   7,499     4,505  
Total liabilities   156,806     144,776  
 
Commitments and contingencies

 

Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and outstanding shares – none
at December 31, 2018, and 2017, respectively
Common stock, $0.0001 par value:

Authorized shares – 150,000,000; issued and outstanding shares –
38,814,464 and 38,374,011 at December 31, 2018, and 2017,
respectively

4 4
Additional paid-in capital 97,458 89,877
Stock notes receivable from employees (4 ) (4 )
Retained earnings 311,341 224,071
Accumulated other comprehensive income   775     940  
Total stockholders’ equity   409,574     314,888  
Total liabilities and stockholders’ equity $ 566,380   $ 459,664  
 

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 and 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
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 December 31,

  Year Ended

December 31,

2018   2017 2018   2017
Net income $ 26,225 $ 8,480 $ 87,257 $ 51,524
Adjustments:
Interest income and other (1) (2,426 ) (1,221 ) (7,052 ) (3,514 )
Interest expense 346 370 1,400 1,496
Provision for income taxes (2) 7,191 20,138 29,963 47,702
Depreciation and amortization 1,768 1,388 6,297 5,363
Stock-based compensation 3,064 2,972 11,983 9,145
Non-cash MSRs activity (3)   (20 )       (391 )    
Adjusted EBITDA(4) $ 36,148   $ 32,127   $ 129,457   $ 111,716  

(1)

  Other for the three and twelve months ended December 31, 2018 and
2017 includes net realized gains (losses) on marketable securities
available-for-sale.

(2)

The three and twelve months ended December 31, 2017 includes a
one-time charge in the amount of $11.6 million in connection with
the remeasurement of deferred tax assets, net due to enactment of
the Act, which reduced the U.S. federal statutory corporate tax rate
from 35% to 21% starting in 2018.

(3)

Non-cash MSRs activity includes the assumption of servicing
obligations following the completion of our business acquisition in
2018.

(4)

The increase in Adjusted EBITDA in 2018 compared to 2017 is
primarily due to higher total revenues.
 

Contacts

Investor Relations:
ICR, Inc.
Evelyn Infurna, 203-682-8265
[email protected]

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