Marcus & Millichap, Inc. Reports Results for Second Quarter 2018
CALABASAS, Calif.--(BUSINESS WIRE)--Aug 7, 2018--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 second quarter ended June 30, 2018.
Second Quarter 2018 Highlights Compared to Second Quarter 2017Total revenues increased by 10.6% to $199.4 million compared to a 1.6% decline in the second quarter of 2017 Net income was $22.2 million compared to $15.6 million in the second quarter of 2017, while adjusted EBITDA grew 17.6% year over year Financing fees increased by 22.5% driven by significant growth in refinancing transactions Private Client Market segment brokerage transactions increased by 6.0% in contrast to estimates of essentially flat year over year sales in the market Brokerage revenue in the Larger Transaction Market segment increased by 29.0% compared to a 15.7% decline in the second quarter of 2017
Six Months 2018 Highlights Compared to Six Months 2017Total revenues increased by 12.1% to $373.9 million compared to a 4.0% decline in the first half of 2017 Net income was $40.2 million compared to $27.6 million in the first half of 2017; while adjusted EBITDA grew 19.7% Financing revenue increased by 11.1% Private Client Market segment brokerage transactions increased 5.2% and represented approximately 65.1% of the Company’s brokerage revenue Brokerage revenue in the Larger Transaction Market segment increased by 36.2% compared to a 27.7% decline in the first half of 2017 Total sales force expanded by 92 professionals, or 5.3% over the past 12 months
Hessam Nadji, President and CEO stated, “Marcus & Millichap delivered a strong second quarter with growth in each of the Company’s market segments. Our expanded client outreach campaigns over the past year enabled us to help more investors execute transactions in a changing market environment. We are also seeing contribution from our investments in proprietary tools, enhancements to our financing platform and ongoing hiring.” Mr. Nadji added, “Real estate fundamentals remain healthy and the benefits of last year’s Tax reform are trickling through the economy and the real estate market. At the same time, higher interest rates and buyer/seller price expectation gaps are keeping trading activity generally flat. The second half of this year will be a more challenging comparable for us as we finished the back half of 2017 strongly. We are strengthening our position to capture more share and create long-term shareholder value. Our strong balance sheet remains a competitive advantage with sufficient defensive capital and more importantly to actively pursue strategic acquisitions.”
Second Quarter 2018 Results Compared to Second Quarter 2017
Total revenues for the second quarter of 2018 were $199.4 million compared to $180.4 million for the same period in the prior year, increasing by $19.0 million, or 10.6%. The increase in total revenues was primarily driven by the increase in real estate brokerage commissions, which increased by 11.7% to $181.6 million. This increase in brokerage commissions was primarily due to an increase in overall sales volume generated by the increase in the number of investment sales transactions and increase in average transaction size. Average commission rates declined due to a higher proportion of transactions from the Larger Transaction and Middle Market segments, which generate lower commission rates.
Total operating expenses for the second quarter of 2018 increased by 9.7% to $170.5 million, compared to $155.4 million for the same period in the prior year. The increase was primarily driven by an 8.6% increase in cost of services and a 12.3% increase in selling, general and administrative expense. Cost of services as a percent of total revenues improved by 110 basis points to 60.1% compared to the same period in the prior year.
Selling, general and administrative expenses for the second quarter of 2018 increased by 12.3% to $49.1 million, compared to the same period in the prior year. The increase was primarily due to increased costs associated with (i) sales and promotional marketing expenses; (ii) compensation related costs, including salaries and related benefits; (iii) expansion of existing offices; (iv) stock-based compensation expense and (v) other expense categories primarily driven by an increase in professional fees.
Net income for the second quarter of 2018 was $22.2 million, or $0.57 per common share basic and $0.56 per common share diluted, compared to net income of $15.6 million, or $0.40 per common share (basic and diluted) for the same period in the prior year. Adjusted EBITDA for the second quarter of 2018 increased by 17.6% to $33.7 million, compared to adjusted EBITDA of $28.7 million for the same period in the prior year.
Six Months 2018 Results Compared to Six Months 2017
Total revenues for the six months ended June 30, 2018, were $373.9 million, compared to $333.6 million for the same period in the prior year, an increase of $40.4 million, or 12.1%. Total operating expenses for the six months ended June 30, 2018, increased by 11.1% to $321.5 million compared to $289.5 million for the same period in the prior year. Cost of services as a percent of total revenues decreased to 59.2%, down 80 basis points compared to the first six months of 2017. The Company reported net income for the six months ended June 30, 2018 of $40.2 million, or $1.03 per common share basic and $1.02 per common share diluted, compared with net income of $27.6 million, or $0.71 per common share basic and $0.70 per common share diluted, for the same period in the prior year. Adjusted EBITDA for the six months ended June 30, 2018, increased by 19.7% to $61.2 million, from $51.1 million for the same period in the prior year. As of June 30, 2018, the Company had 1,841 investment sales and financing professionals, a net gain of 92 over the prior year.
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 during the balance of 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 trendsPossible boost to investor sentiment and sales activity based on the Tax Cuts and Jobs Act, regulatory easing and economic initiatives which are expected to increase real estate investor demandPossible regional legislation that promote affordable housing may initially decrease 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 The potential for acquisition activity and subsequent integration
In addition, the reduction of MMI’s effective corporate tax rate to the 25.5%-27.5% 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. The factors above, 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, August 7, 2018, through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on Tuesday, August 21, 2018, by dialing (844) 512-2921 in the United States and Canada or (412) 317-6671 internationally and entering passcode 13681319.
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 June 30, 2018, the Company had over 1,800 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 4,442 transactions for the six months ended June 30, 2018, with a sales volume of approximately $21.1 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 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 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. KEY OPERATING METRICS SUMMARY (Unaudited)
Total sales volume was $11.4 billion for the three months ended June 30, 2018, encompassing 2,357 transactions consisting of $8.9 billion for real estate brokerage (1,752 transactions), $1.6 billion for financing (433 transactions) and $0.9 billion in other transactions, including consulting and advisory services (172 transactions). Total sales volume was $21.1 billion for the six months ended June 30, 2018, encompassing 4,442 transactions consisting of $16.9 billion for real estate brokerage (3,337 transactions), $2.6 billion for financing (757 transactions) and $1.6 billion in other transactions, including consulting and advisory services (348 transactions). As of June 30, 2018, the Company had 1,739 investment sales professionals and 102 financing professionals. Key metrics for real estate brokerage and financing are as follows:
The following table sets forth the number of transactions, sales volume and revenues by commercial real estate market segment for real estate brokerage:
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