HFF, Inc. (NYSE: HF) (the Company or HFF) reported today its
financial and production volume results for the fourth 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.
Fourth Quarter 2018
Highlights
- Revenue was $215.3 million, a 16.2%
increase year-over-year.
- Net income was $45.0 million, a 31.3%
increase as compared to $34.2 million in the prior year
period.
- Net income per diluted share grew 30.6%
to $1.11, as compared to $0.85 in the prior year period.
- Adjusted EBITDA improved 8.5% to $64.6
million versus $59.5 million in the prior year period.
Full Year 2018
Highlights
- Revenue was $662.0 million, an 8.6%
increase year-over-year.
- Net income was $116.0 million, a 22.1%
increase as compared to $95.0 million in the prior year
period.
- Net income per diluted share increased
20.5% to $2.88, as compared to $2.39 during the prior year
period.
- Adjusted EBITDA improved 3.3% to $168.9
million compared to $163.5 million in the prior year.
“We are pleased with the Company’s fourth quarter 2018 results
which were driven by increased volumes in our debt and investment
advisory business platforms. We remain confident in the industry’s
fundamental drivers and HFF’s market position, as we look beyond
our fourth quarter results. 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.
Based on the Company’s performance in 2018 and considerable
liquidity position, the board of directors declared a special cash
dividend on January 31, 2019 of $1.75 per share, or approximately
$68.7 million. Since 2012, the Company has returned approximately
$457.2 million, or $12.02 per share, to shareholders in the form of
special cash dividends.
Results for the Fourth Quarter Ended
December 31, 2018
The Company’s revenues grew 16.2% to $215.3 million for the
fourth quarter of 2018, which represents an increase of $30.0
million compared to the fourth quarter of 2017. The Company
generated operating income of $44.5 million during the fourth
quarter of 2018, an increase of $4.0 million, or 9.9% when compared
to the fourth quarter of 2017. This increase in operating income is
primarily due to the 16.2% increase in revenues which was partially
offset by (i) increases in the Company’s compensation-related costs
and other expenses associated with the net growth in headcount of
92 associates during the last twelve months, (ii) increased
interest on warehouse line of credit, (iii) increased amortization
of intangible assets (iv) an increase in non-cash stock
compensation and (v) increases in other operating expenses due to
the growth in transactional activity.
Interest and other income, net, was $18.8 million in the fourth
quarter of 2018, compared to $21.2 million in the fourth quarter of
2017. This decrease is primarily a result of a decrease in Freddie
Mac securitization compensation and other agency related income
which was partially offset by increased interest and other related
income.
The Company reported net income for the quarter ended December
31, 2018 of $45.0 million, an increase of approximately $10.7
million, or 31.3%, when compared to net income of $34.2 million for
the quarter ended December 31, 2017. For the quarter ended December
31, 2018, net income per diluted share increased 30.6% to $1.11
compared to $0.85 for the fourth quarter of 2017.
Adjusted EBITDA (a non-GAAP measure whose reconciliation to net
income can be found within this release) for the fourth quarter of
2018 grew 8.5% to $64.6 million, compared to $59.5 million in the
fourth quarter of 2017. The Adjusted EBITDA margin for the fourth
quarter of 2018 was 30.0%, a 210 basis point decrease compared to
the Adjusted EBITDA margin of 32.1% in the fourth quarter of
2017.
Results for the Full Year of
2018
The Company reported revenues of $662.0 million for the year
ended December 31, 2018, which represents an increase of $52.6
million, or 8.6% compared to revenues of $609.5 million in 2017.
The Company generated operating income of $94.7 million during
2018, a decrease of $10.6 million, or 10.1% when compared to
operating income of $105.3 million for 2017. This decrease in
operating income is primarily due to (i) increases in the Company’s
compensation-related costs and expenses associated with the net
growth in headcount of 92 associates during the last twelve months,
(ii) an increase in interest on warehouse line of credit, (iii) an
increase in amortization of intangible assets, (iv) an increase in
non-cash stock compensation, (v) the expense associated with the
non-recurring payment related to an additional compensation award
as approved by the Compensation Committee of the Board of Directors
of the Company in the first quarter of 2018 and (vi) increases in
other operating expenses due to the growth in transactional
activity. These cost increases were partially offset by the 8.6%
increase in revenue.
Interest and other income, net, totaled $60.0 million for the
year ended December 31, 2018 compared to $57.2 million for the year
ended December 31, 2017. This 4.9% increase is primarily a result
of increases from interest and other related income and mortgage
servicing rights income which were partially offset by decreases in
securitization compensation and other agency related income.
The Company reported net income for the year ended December 31,
2018 of $116.0 million, an increase of approximately $21.0 million,
or 22.1%, when compared to net income of $95.0 million for the year
ended December 31, 2017. For the year ended December 31, 2018, net
income per diluted share was $2.88, or a 20.5% increase when
compared to $2.39 for the year ended December 31, 2017.
Adjusted EBITDA for the year ended December 31, 2018 was $168.9
million, which represents an increase of $5.5 million, or 3.3%,
when compared to $163.5 million in the comparable period in 2017.
The Adjusted EBITDA margin for the year ended December 31, 2018 was
25.5%, a 130 basis point decrease, compared to an Adjusted EBITDA
margin of 26.8% in the comparable period in 2017.
HFF, Inc. Condensed Consolidated Operating
Results (dollars in thousands, except per share data)
(Unaudited)
For
the Three Months Ended Dec. 31, For the Twelve Months Ended
Dec. 31, 2018 2017 2018 2017
Revenue $ 215,299 $ 185,286 $ 662,042 $ 609,478 Operating
expenses: Cost of services 111,237 98,767 366,185 342,208
Operating, administrative and other 53,530 41,259 177,190 144,941
Depreciation and amortization 6,007 4,739
23,933 17,001 Total expenses
170,774 144,765 567,308 504,150 Operating income 44,525
40,521 94,734 105,328 Interest and other income, net 18,811
21,164 60,030 57,209 Interest expense (3 ) (4 ) (15 ) (21 )
(Increase) decrease in payable under the tax receivable agreement
– 38,733 (1,226 ) 39,212
Income before income taxes 63,333 100,414 153,523 201,728
Income tax expense 18,369 66,175 37,535 106,768
Net income $ 44,964 $ 34,239 $
115,988 $ 94,960 Earnings per share - basic $
1.15 $ 0.88 $ 2.96 $ 2.46 Earnings per share - diluted $ 1.11 $
0.85 $ 2.88 $ 2.39 Weighted average shares outstanding - basic
39,263,714 38,706,918 39,205,214 38,662,118 Weighted average shares
outstanding - diluted 40,488,310 40,144,642 40,276,729 39,673,152
Adjusted EBITDA $ 64,583 $ 59,534 $ 168,939 $ 163,468
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.
Fourth Quarter Production Volume
Results
Unaudited Production Volume
by Platform (dollars in thousands)
For the Three Months
Ended December 31, By Platform 2018
2017 Change
Production Volume
# of Trans.
Production Volume
# of Trans.
Production Volume
% chg.
# of Trans.
% chg. Debt Placement $ 18,279,364 470
$ 16,666,187 401 $ 1,613,177 9.7 % 69 17.2 %
Investment
Advisory 12,662,234 233 10,263,938 222 2,398,296 23.4 % 11 5.0
%
Equity Placement 2,220,216 71 3,691,197 40 (1,470,981 )
-39.9 % 31 77.5 %
Loan Sales 171,793 22
415,029 17 (243,236 ) -58.6 % 5 29.4 %
Total
Transaction Volume $ 33,333,607 796
$ 31,036,351 680 $
2,297,256 7.4 %
116 17.1 %
Average
Transaction Size $ 41,876 $ 45,642
$ (3,765 ) -8.2 %
Loan Balance
# of Loans
Loan Balance
# of Loans
Loan Balance % chg.
# of Loans
% chg. Loan Servicing Portfolio Balance $
81,165,871 3,368 $ 69,822,689
3,066 $ 11,343,182 16.2 %
302 9.8 %
Production volumes for the fourth quarter of 2018 totaled
approximately $33.3 billion on 796 transactions representing a 7.4%
increase in production volume and a 17.1% increase in the number of
transactions when compared to the production volumes of
approximately $31.0 billion on 680 transactions for the fourth
quarter of 2017. The average transaction size for the fourth
quarter of 2018 was $41.9 million, which is approximately 8.2%
lower than the comparable figure of approximately $45.6 million for
the fourth quarter of 2017.
- Debt Placement production volume was
approximately $18.3 billion in the fourth quarter of 2018,
representing an increase of 9.7% over the fourth quarter of 2017
volume of approximately $16.7 billion.
- Investment Advisory production volume
increased 23.4% to approximately $12.7 billion in the fourth
quarter of 2018 from the fourth quarter of 2017 volume of
approximately $10.3 billion.
- Equity Placement production volume was
approximately $2.2 billion in the fourth quarter of 2018, a
decrease of 39.9% from the fourth quarter of 2017 volume of
approximately $3.7 billion.
- Loan Sales production volume was
approximately $171.8 million for the fourth quarter of 2018, a
decrease of 58.6% from the $415.0 million of volume in fourth
quarter 2017.
- The principal balance of the Company’s
Loan Servicing portfolio reached $81.2 billion at the end of the
fourth quarter of 2018, representing an increase of approximately
$11.3 billion, or 16.2%, from $69.8 billion at the end of the
fourth quarter of 2017.
Full Year Production Volume
Results
Unaudited Production
Volume by Platform (dollars in thousands)
For the Twelve
Months Ended December 31, By Platform
2018 2017 Change
Production Volume
# of Trans.
Production Volume
# of Trans.
Production Volume
% chg.
# of Trans.
% chg. Debt Placement $ 54,463,693
1,555 $ 51,725,431 1,426 $ 2,738,262 5.3 % 129 9.0 %
Investment Advisory 37,386,312 807 34,482,775 768 2,903,537
8.4 % 39 5.1 %
Equity Placement 7,458,575 182 9,277,333 135
(1,818,758 ) -19.6 % 47 34.8 %
Loan Sales 390,626
43 568,255 29 (177,629 ) -31.3 % 14
48.3 %
Total Transaction Volume $ 99,699,206
2,587 $ 96,053,794 2,358
$ 3,645,412 3.8 %
229 9.7 %
Average
Transaction Size $ 38,539 $ 40,735
$ (2,197 ) -5.4 %
Loan Balance
# of Loans
Loan Balance
# of Loans
Loan Balance % chg.
# of Loans
% chg. Loan Servicing Portfolio Balance
$ 81,165,871 3,368 $ 69,822,689
3,066 $ 11,343,182 16.2 %
302 9.8 %
Production volumes for the year ended December 31, 2018 totaled
approximately $99.7 billion on 2,587 transactions, representing a
3.8% increase in production volume and a 9.7% increase in the
number of transactions when compared to the production volumes of
approximately $96.1 billion on 2,358 transactions for the
comparable period in 2017. The average transaction size for year
ended December 31, 2018 was $38.5 million, which is approximately
5.4% lower than the comparable figure of approximately $40.7
million for year ended December 31, 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 1,074 associates as of
December 31, 2018, which represents a net increase of 92, or 9.4%,
over the comparable total of 982 associates as of December 31,
2017. HFF’s total number of capital markets advisors was 392 as of
December 31, 2018, which represents a net increase of 21, or 5.7%
over the comparable total of 371 capital markets advisors as of
December 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 12 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
fourth quarter 2018 financial results on February 21, 2019 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 2571057. A replay
will become available after 9:00 p.m. Eastern Time on
February 21, 2019 and will continue through February 28,
2019, by dialing 855-859-2056 (U.S. callers) or 404-537-3406
(international callers) and entering the conference ID number
2571057.
The live broadcast of the Company’s quarterly conference call
will be available online on the HFF website at www.hfflp.com on
February 21, 2019 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)
December 31, December 31, 2018 2017
ASSETS Cash and
cash equivalents and restricted cash $ 307,278 $ 276,802 Accounts
receivable and prepaids 21,842 19,825 Mortgage notes receivable
351,194 450,821 Property, plant and equipment, net 17,196 17,897
Deferred tax asset, net 41,124 50,874 Intangible assets, net 82,374
67,525 Securities - held to maturity 25,000 – Other noncurrent
assets 12,045 8,461 Total assets $
858,053 $ 892,205
LIABILITIES AND
STOCKHOLDERS' EQUITY Warehouse line of credit $ 348,378 $
450,255 Accrued compensation, accounts payable and other current
liabilities 92,825 81,439 Long-term debt (includes current portion)
3,964 405 Deferred rent credit and other long-term liabilities
12,050 12,700 Payable under the tax receivable agreement
50,290 60,939 Total liabilities 507,507
605,738 Class A Common Stock, par value $0.01 per share,
175,000,000 shares authorized, 39,116,745 and 38,579,544 shares
outstanding, respectively 391 387 Additional paid in capital
159,636 144,304 Accumulated other comprehensive income, net of
taxes (743 ) 171 Treasury stock (1,220 ) (4,971 ) Retained earnings
192,482 146,576 Total equity
350,546 286,467 Total liabilities and
stockholders' equity $ 858,053 $ 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 and
twelve months ended December 31, 2018 and 2017:
Adjusted EBITDA for the
Company is calculated as follows: (dollars in thousands) For
the Three Months Ended December 31, For the Twelve Months Ended
December 31, 2018 2017 2018 2017 Net income $ 44,964 $
34,239 $ 115,988 $ 94,960 Add: Interest expense 3 4 15 21 Income
tax expense 18,369 66,175 37,535 106,768 Depreciation and
amortization 6,007 4,739 23,933 17,001 Stock-based compensation (a)
6,293 4,336 25,161 17,385 Valuation of mortgage servicing rights
(11,053 ) (11,226 ) (34,919 ) (33,455 ) Increase (decrease) in
payable under the tax receivable agreement -
(38,733 ) 1,226 (39,212 ) Adjusted EBITDA $
64,583 $ 59,534 $ 168,939 $ 163,468 (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 comprehensive 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
annual report on Form 10-K for the year ended December 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 annual report on
Form 10-K for the year ended December 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/20190221005956/en/
GREGORY R. CONLEYChief Financial Officer(412)
281-8714gconley@hfflp.com
MYRA F. MORENManaging Director, Investor Relations(713)
852-3500mmoren@hfflp.com
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