HFF, Inc. (NYSE: HF) (the Company or HFF) reported today its
financial and production volume results for the first quarter of
2018. Based on transaction volume, HFF is one of the leading and
largest full-service commercial real estate financial
intermediaries, providing commercial real estate and capital
markets services to both the consumers and providers of capital in
the commercial real estate sector.
First Quarter 2018
Highlights
- Revenue was $131.6 million, a 5.2%
decrease year-over-year.
- Net income was $17.1 million, as
compared to $19.7 million in the prior year period.
- Net income per diluted share was $0.42,
as compared to $0.50 in the prior year period.
- Adjusted EBITDA was $20.7 million
versus $32.5 million in the prior year period.
“We remain confident in the industry’s fundamental drivers and
HFF’s market position, as we look beyond our first quarter results.
Many of the factors that impacted this quarter’s results primarily
pertain to the Company’s continued investment in its platform and
people, which historically have proven effective. We believe the
combination of our unique partnership culture, the synergies and
diversification afforded by our capital markets centric business
model, our strong balance sheet, and the strategic investments we
continue to make enable us to add value and provide best in class
services to our clients while positioning the Company for future
growth,” said Mark Gibson, chief executive officer of HFF.
Results for the First Quarter Ended
March 31, 2018
The Company’s revenues were $131.6 million for the first quarter
of 2018, which represents a decrease of $7.2 million, or 5.2%
compared to revenue of $138.8 million for the first quarter of
2017. The Company generated operating income of $2.7 million during
the first quarter of 2018, a decrease of $18.1 million, or 87.0%
when compared to operating income of $20.8 million for the first
quarter of 2017. This decrease in operating income is primarily due
to the 5.2% decrease in revenues and additionally, due to (i)
increases in the Company’s compensation-related costs and other
expenses associated with the net growth in headcount of 85
associates during the last twelve months, (ii) the payment of an
additional compensation award, as described below, (iii) an
increase in non-cash stock compensation and (iv) increases in other
operating expenses due to the increase in headcount.
Interest and other income, net, grew 40.6% to $15.2 million in
the first quarter of 2018, compared to $10.8 million in the first
quarter of 2017. This increase is primarily a result of an increase
in securitization compensation and higher income from the valuation
of the Company’s mortgage servicing rights which was partially
offset by a decrease in other agency-related income. The Company
reported net income for the quarter ended March 31, 2018 of $17.1
million, a decrease of approximately $2.6 million, or 13.2%, when
compared to net income of $19.7 million for the quarter ended March
31, 2017. For the quarter ended March 31, 2018 net income per
diluted share was $0.42 compared to $0.50 for the first quarter of
2017. Net income per diluted share benefited by approximately $0.06
from the reduction in statutory corporate federal tax rates from
the enactment of the Tax Reform Act and benefited by $0.11 from the
additional tax deductions related to equity compensation.
Adjusted EBITDA (a non-GAAP measure whose reconciliation to net
income can be found within this release) for the first quarter of
2018 decreased 36.2% to $20.7 million, compared to $32.5 million in
the first quarter of 2017. This decrease in Adjusted EBITDA is
primarily attributable to the decrease in operating income. The
Adjusted EBITDA margin for the first quarter of 2018 was 15.7%,
compared to the Adjusted EBITDA margin of 23.4% in the first
quarter of 2017.
Additional Compensation
Award
In the first quarter 2018, the Compensation Committee of the
Board of Directors of the Company (the Compensation Committee)
approved an additional compensation award which included cash
payments and restricted stock awards (the Omnibus Awards) with a
total award value of $8.4 million to certain members of the
Company's Leadership Team. The award recognized those individuals
who played key roles in the Company’s growth and extraordinary
operating performance, and also the Company’s future leaders. The
additional compensation award included cash payments in the amount
of approximately $4.2 million, which amount was included in the
operating expenses for the first quarter of 2018. The impact of
these cash payments was a decrease in operating income and Adjusted
EBITDA for the first quarter by $4.2 million. The cash payments
associated with the additional compensation award also decreased
earnings for the first quarter 2018 by approximately $0.08 per
diluted share.
The additional compensation award granted by the Compensation
Committee under the Omnibus Awards included restricted stock awards
with a grant date value of $4.2 million, which are subject to
vesting conditions. The equity compensation expense associated with
the Omnibus Awards had no material impact to operating income or
net income for the first quarter 2018.
HFF, Inc. Condensed
Consolidated Operating Results (dollars in thousands, except
per share data) (Unaudited)
For the Three Months
Ended Mar. 31, 2018 2017
Revenue $ 131,618 $ 138,806 Operating
expenses: Cost of services 78,644 80,131 Operating, administrative
and other 44,786 34,244 Depreciation and amortization 5,481
3,667 Total expenses 128,911 118,042
Operating income 2,707 20,764 Interest and other income, net
15,171 10,794 Interest expense (5 ) (7 ) (Increase) decrease in
payable under the tax receivable agreement – –
Income before income taxes 17,873 31,551 Income tax
expense 805 11,895 Net income $ 17,068 $
19,656 Earnings per share - basic $ 0.44 $ 0.51
Earnings per share - diluted $ 0.42 $ 0.50 Weighted average shares
outstanding - basic 39,041,492 38,538,641 Weighted average shares
outstanding - diluted 40,201,900 39,166,361 Adjusted EBITDA
$ 20,706 $ 32,457
Production Volume and Loan Servicing
Summary
The reported volume data presented below (provided for
informational purposes only) is estimated based on the Company’s
internal database.
First Quarter Production Volume
Results
Unaudited Production Volume by Platform
(dollars in thousands)
For the Three Months Ended March 31,
By Platform 2018
2017 Change
ProductionVolume
# ofTrans.
ProductionVolume
# ofTrans.
ProductionVolume
% chg.
# ofTrans.
% chg. Debt Placement $ 10,383,212 325
$ 11,230,079 329 $ (846,867 ) -7.5 % (4 ) -1.2 %
Investment
Advisory 6,015,952 164 8,645,335 176 (2,629,383 ) -30.4 % (12 )
-6.8 %
Equity Placement 1,070,140 37 1,363,413 26 (293,273 )
-21.5 % 11 42.3 %
Loan Sales 79,864 5 14,275 1
65,589 459.5 % 4 400.0 %
Total Transaction
Volume $ 17,549,168 531 $
21,253,102 532 $ (3,703,934 )
-17.4 %
(1 ) -0.2 %
Average Transaction Size
$ 33,049 $ 39,949 $
(6,900 ) -17.3 %
Loan Balance
# ofLoans
Loan Balance
# ofLoans
Loan Balance % chg.
# ofLoans
% chg. Loan Servicing Portfolio Balance $
72,046,856 3,128 $ 60,704,650
2,812 $ 11,342,206 18.7 %
316 11.2 %
Production volumes for the first quarter of 2018 totaled
approximately $17.5 billion on 531 transactions representing a
17.4% decrease in production volume and a 0.2% decrease in the
number of transactions when compared to the production volumes of
approximately $21.3 billion on 532 transactions for the first
quarter of 2017. The average transaction size for the first quarter
of 2018 was $33.0 million, which is approximately 17.3% lower than
the comparable figure of approximately $39.9 million for the first
quarter of 2017.
- Debt Placement production volume was
approximately $10.4 billion in the first quarter of 2018,
representing a decrease of 7.5% from the first quarter of 2017
volume of approximately $11.2 billion.
- Investment Advisory production volume
was approximately $6.0 billion in the first quarter of 2018, a
decrease of 30.4% from the first quarter of 2017 volume of
approximately $8.6 billion.
- Equity Placement production volume was
approximately $1.1 billion in the first quarter of 2018, a decrease
of 21.5% over the first quarter of 2017 volume of approximately
$1.4 billion.
- Loan Sales production volume was
approximately $80.0 million for the first quarter of 2018, an
increase of 459.5% from the $14.3 million of volume in first
quarter 2017.
- The principal balance of the Company’s
Loan Servicing portfolio reached $72.0 billion at the end of the
first quarter of 2018, representing an increase of approximately
$11.3 billion, or 18.7%, from $60.7 billion at the end of the first
quarter of 2017.
Employment Comments
Consistent with its strategic growth initiatives, the Company
continued to expand its total employment and production ranks to
the highest levels since the Company went public in January 2007.
The Company’s total employment reached 1,009 associates as of March
31, 2018, which represents a net increase of 85, or 9.2%, over the
comparable total of 924 associates as of March 31, 2017. HFF’s
total number of capital markets advisors was 385 as of March 31,
2018, which represents a net increase of 40, or 11.6% over the
comparable total of 345 capital markets advisors as of March 31,
2017. Over the past twelve months, the Company continued to add
capital markets advisors to existing lines of business and product
specialties through the promotion and recruitment of associates in
16 of the Company’s 26 offices.
Non-GAAP Financial
Measures
This earnings press release contains a non-GAAP measure,
Adjusted EBITDA, which as calculated by the Company is not
necessarily comparable to similarly-titled measures reported by
other companies. Additionally, Adjusted EBITDA is not a measurement
of financial performance or liquidity under GAAP and should not be
considered as an alternative to the Company’s other financial
information determined under GAAP. For a description of the
Company’s use of Adjusted EBITDA and a reconciliation of Adjusted
EBITDA with net income, see the section of this press release
titled “Adjusted EBITDA Reconciliation.”
Earnings Conference Call
The Company’s management will hold a conference call to discuss
first quarter 2018 financial results on April 24, 2018 at 6:00
p.m. Eastern Time. To listen, participants should dial
844-420-8188- (U.S. callers) or 478-219-0768 (international
callers) approximately 10 minutes prior to the start of the
call and enter the conference ID number 9639736. A replay
will become available after 9:00 p.m. Eastern Time on
April 24, 2018 and will continue through May 1, 2018, by
dialing 855-859-2056 (U.S. callers) or 404-537-3406 (international
callers) and entering participant code 9639736.
The live broadcast of the Company’s quarterly conference call
will be available online on the HFF website at www.hfflp.com on
April 24, 2018 beginning at 6:00 p.m. Eastern Time. A recording of
the broadcast will be available for replay on the Company’s website
for one year. Related presentation materials will be posted to the
“Investor Relations” section of the Company’s website prior to the
call. The presentation materials will be available in Adobe Acrobat
format.
About HFF, Inc.
Through its subsidiaries, Holliday Fenoglio Fowler, L.P., HFF
Real Estate Limited, HFF Securities L.P. and HFF Securities
Limited, HFF operates out of 26 offices and is one of the leading
and largest full-service commercial real estate financial
intermediaries, providing commercial real estate and capital
markets services to both the consumers and providers of capital in
the commercial real estate sector. The Company offers clients a
fully-integrated capital markets platform including debt placement,
investment advisory, equity placement, funds marketing, M&A and
corporate advisory, loan sales and commercial loan servicing.
Certain statements in this earnings press release are
“forward-looking statements” within the meaning of the federal
securities laws. Statements about our beliefs and expectations and
statements containing the words “may,” “could,” “would,” “should,”
“believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,”
“project,” “intend” and similar expressions constitute
forward-looking statements. These forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the Company’s actual results and performance in
future periods to be materially different from any future results
or performance suggested in forward-looking statements in this
earnings press release. Investors, potential investors and other
readers are urged to consider these factors carefully in evaluating
the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. Any forward-looking
statements speak only as of the date of this earnings press release
and, except to the extent required by applicable securities laws,
the Company expressly disclaims any obligation to update or revise
any of them to reflect actual results, any changes in expectations
or any change in events. If the Company does update one or more
forward-looking statements, no inference should be drawn that it
will make additional updates with respect to those or other
forward-looking statements. Factors that could cause results to
differ materially include, but are not limited to: (1) general
economic conditions and commercial real estate market conditions,
including the recent conditions in the global markets and, in
particular, the U.S. debt markets; (2) the Company’s ability to
retain and attract capital markets advisors; (3) the Company’s
ability to retain its business philosophy and partnership culture;
(4) competitive pressures; (5) the Company’s ability to integrate
and sustain its growth; and (6) other factors discussed in the
Company’s public filings, including the risk factors included in
the Company’s most recent Annual Report on Form 10-K.
Additional information concerning factors that may influence
HFF, Inc.'s financial information is discussed under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Quantitative and Qualitative Disclosures About Market
Risk" and "Forward-Looking Statements" in the Company’s most recent
Annual Report on Form 10-K, as well as in the Company's press
releases and other periodic filings with the Securities and
Exchange Commission. Such information and filings are available
publicly and may be obtained from the Company's web site at
www.hfflp.com or upon request from the HFF, Inc. Investor Relations
Department at investorrelations@hfflp.com.
HFF, Inc. Condensed Consolidated Balance
Sheets (dollars in thousands) (Unaudited)
March 31, December 31, 2018 2017
ASSETS Cash and cash equivalents $ 191,084 $ 272,801
Restricted cash 1,744 4,001 Accounts receivable, receivable from
affiliate and prepaids 23,478 19,825 Mortgage notes receivable
961,720 450,821 Property, plant and equipment, net 17,263 17,897
Deferred tax asset, net 50,208 50,874 Intangible assets, net 70,484
67,525 Other noncurrent assets 7,302 8,461
Total assets $ 1,323,283 $ 892,205
LIABILITIES AND STOCKHOLDERS' EQUITY Warehouse line of
credit $ 958,841 $ 450,255 Accrued compensation, accounts payable
and other current liabilities 57,120 81,439 Long-term debt
(includes current portion) 343 405 Deferred rent credit and other
liabilities 12,391 12,700 Payable under the tax receivable
agreement 60,939 60,939 Total
liabilities 1,089,634 605,738 Class A Common Stock, par value $0.01
per share, 175,000,000 shares authorized, 39,102,820 and 38,579,544
shares outstanding, respectively 391 387 Additional paid in capital
140,878 144,304 Accumulated other comprehensive income, net of
taxes 666 171 Treasury stock (1,799 ) (4,971 ) Retained earnings
93,513 146,576 Total equity
233,649 286,467 Total liabilities and
stockholders' equity $ 1,323,283 $ 892,205
Adjusted EBITDA
Reconciliation
The Company defines Adjusted EBITDA as net income before (i)
interest expense, (ii) income tax expense, (iii) depreciation and
amortization, (iv) stock-based compensation expense, which is a
non-cash charge, (v) income recognized on the initial recording of
mortgage servicing rights that are acquired with no initial
consideration and the inherent value of servicing rights, which are
non-cash income amounts and (vi) the increase (decrease) in payable
under the tax receivable agreement, which represents changes in a
liability recorded on the Company’s consolidated balance sheet
determined by the ongoing remeasurement of related deferred tax
assets and, therefore, can be income or expense in the Company’s
consolidated statement of income in any individual period. 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 GAAP. The Company finds Adjusted EBITDA to be a useful tool
to assist in evaluating performance because it eliminates items
related to capital structure and taxes, including the Company’s tax
receivable agreement. Note that the Company classifies the interest
expense on its warehouse lines of credit as an operating expense
and, accordingly, it is not eliminated from net income in
determining Adjusted EBITDA. Some of the items that the Company has
eliminated from net income in determining Adjusted EBITDA are
significant to the Company’s business. For example,
(i) interest expense is a necessary element of the Company’s
costs and ability to generate revenue because it incurs interest
expense related to any outstanding indebtedness, (ii) payment
of income taxes is a necessary element of the Company’s costs and
(iii) depreciation and amortization are necessary elements of
the Company’s costs.
Any measure that eliminates components of the Company’s capital
structure and costs associated with the Company’s operations has
material limitations as a performance measure. In light of the
foregoing limitations, the Company does not rely solely on Adjusted
EBITDA as a performance measure and also considers its GAAP
results. Adjusted EBITDA is not a measurement of the Company’s
financial performance under GAAP and should not be considered as an
alternative to net income, operating income or any other measures
derived in accordance with 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.
Set forth below is an unaudited reconciliation of consolidated
net income to Adjusted EBITDA for the Company for the three months
ended March 31, 2018 and 2017:
Adjusted EBITDA for the Company is calculated
as follows: (dollars in thousands) For the Three Months
Ended March 31, 2018 2017 Net
income $ 17,068 $ 19,656 Add: Interest expense 5 7 Income tax
expense 805 11,895 Depreciation and amortization 5,481 3,667
Stock-based compensation (a) 5,752 3,906 Valuation of mortgage
servicing rights (8,405 ) (6,674 )
Increase (decrease) in payable under the
taxreceivable agreement
- - Adjusted EBITDA $ 20,706 $
32,457 (a) Amounts do not reflect expense associated
with the stock component of estimated incentive payouts under the
Company’s firm profit participation plan, office profit
participation plans and executive bonus plan that are anticipated
to be paid in respect of the applicable year. Such expense is
recorded as incentive compensation expense within personnel
expenses in the Company’s consolidated statements of income during
the year to which the expense relates. Following the award, if any,
of the related incentive payout, the stock component expense is
reclassified as stock compensation costs within personnel expenses.
See Note 2 to the Company’s consolidated financial statements
included in the quarterly report on Form 10-Q for the three months
ended March 31, 2018 to be filed with the Securities and Exchange
Commission for further information regarding the Company’s
accounting policies relating to its firm profit participation plan,
office profit participation plans and executive bonus plan. See
Note 3 to the Company’s consolidated financial statements included
in the quarterly report on Form 10-Q for the three months ended
March 31, 2018 to be filed with the Securities and Exchange
Commission for further information regarding the Company’s
accounting policies relating to its stock compensation.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180424006452/en/
HFF, Inc.GREGORY R. CONLEY, 412-281-8714Chief
Financial Officergconley@hfflp.comorMYRA F. MOREN,
713-852-3500Managing Director, Investor
Relationsmmoren@hfflp.com
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