Marcus & Millichap Inc (MMI) 2015 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Marcus & Millichap second-quarter 2015 earnings conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Mr. Steve Swett. Thank you. You may begin.

Thank you. Good afternoon and welcome to Marcus & Millichap's second-quarter earnings conference call. With us today are Marcus & Millichap's President and Chief Executive Officer, John Kerin; Senior Executive Vice President, Hessam Nadji; and Chief Financial Officer, Marty Louie.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal, and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors including, but not limited, to general economic conditions and commercial real estate market conditions, including the recent conditions in the global markets and in particular US debt markets; the Company's ability to retain and attract transactional professionals; the Company's ability to retain its business philosophy and partnership culture; competitive pressures; the Company's ability to integrate new agents and sustain its growth; and other factors discussed in the Company's public filings including the risk factors included in the Company's annual report on Form 10-K filed with the SEC on March 9, 2015.

Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update any forward-looking statement whether as a result of new information, future events, or otherwise.

In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The Company's earnings release, which was issued this afternoon and is available on the Company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

Finally, this conference call is being webcast. The webcast link is available in the investor relations section of our website at www.MarcusMillichap.com, along with a slide presentation you may reference during the prepared remarks.

With that, it's now my pleasure to turn the call over to Marcus & Millichap's President and Chief Executive Officer, John Kerin. John?

Thank you, Steve, and thank you all for joining us today as we discuss our results for the second quarter of 2015. I'll begin today's call with an overview of the Company's performance and review our operational highlights. Hessam Nadji, our Senior Executive Vice President, will follow with an update on market conditions; and Marty Louie, our Chief Financial Officer, will conclude by providing additional details on the Company's financial results. We will then open the call to your questions.

I am very pleased to share with everyone that we had a great quarter, thanks to the hard work of our brokers, managers, and support team. There is no question that the market still remains very strong and provides a great operating environment for us; but I'm particularly proud of our management team's execution of our growth plan.

As you know, we are focused on further growing our dominance in the private client segment, expanding into specialty segments, and growing our financing division, Marcus & Millichap Capital Corporation. To execute this plan we have added some key executives to our team over the past few years and implemented a number of marketing and technology initiatives.

I am very pleased to see all of these efforts come together and work to the benefit of our clients and brokers. Improving the Company and our services is an ongoing process for us, and we have more initiatives underway.

I would like now to share some of the highlights of the quarter and year-to-date performance. As expected, our second-quarter numbers showed a continuation of the momentum we saw in the first quarter of the year.

During the second quarter we realized revenue of $173.5 million, which was a 29.2% increase over the prior year. We also achieved net income of $17.6 million, a 37.2% increase. Adjusted EBITDA for the quarter was $33 million, which was approximately 37.6% higher than the same quarter last year.

On a year-to-date basis, revenues increased 28.6% to approximately $320 million. Real estate brokerage commissions were up 29.1%, and our financing fees grew 32.4%.

Year-to-date net income was $31.2 million. This reflects an increase of 59.5% over the prior year.

Our year-to-date adjusted EBITDA grew by 58.1% to $59.3 million. Our adjusted EBITDA margin for the period improved to 18.5% from 15.1% a year ago, as we continue to leverage our expenses.

Our year-to-date sales volume totaled $17 billion, which is an increase of 30.7% compared to the same period in 2014. Additionally, in the first six months of the year we closed 4,043 transactions, up 14% over the prior-year period.

One trend to note in our quarterly and year-to-date results is that our transaction volume growth is significantly greater than the growth in the number of transactions, which indicates that our average transaction size is larger. This happens for several reasons.

First, strong demand for real estate is driving property values higher. At the same time, many of the agents that we hired over the last five years have matured, expanded their business, and are capturing larger transactions as a result.

Last but not least, as we have shared with you in prior calls, our hiring has focused more on experienced agents over the past two years. This is resulting in a quicker ramp up and a tendency for larger transactions among this group.

Moving on to our agent count, during the quarter we averaged 1,494 total investment sales and financing professionals. This reflects an increase of 11.2% compared to the second quarter of 2014.

For the quarter, retail accounted for 41% of our real estate brokerage transactions. Multifamily came in at 38%, and office accounted for 6%.

Land, hospitality, self-storage, industrial, manufactured housing, senior housing, and mixed-use totaled approximately 15% of our total transactions. Our businesses in the larger property category, with sales prices generally greater than $15 million, also experienced strong growth during the quarter, with our specialty division institutional property advisors being a major growth factor.

Turning to geography, the Western region represented approximately 35% of total transactions; while the Midwest, Mountain South, Southwest represented 34% during the second quarter. The Northeast, mid-Atlantic, and Southeast regions each represented approximately 16% and 15% of total brokerage transactions, respectively, during the second quarter.

We continue to see our platform solidify in the Northeast and mid-Atlantic regions, which we have identified as meaningful opportunities for long-term growth. Our second quarter results showed 20.7% and 48.1% increases, respectively, in the number of transactions in these regions.

Finally, our mortgage brokerage business posted strong growth in the second quarter. We completed $1.2 billion in financing volume, which represents 415 transactions. Year-over-year this represents growth of 39.1% and approximately 18.9%. This growth has been driven by productivity gains of our existing agents and headcount growth of 7.7% year-over-year to an average of 84 financing professionals during the second quarter.

As we look to the second half of 2015 we expect a healthy market environment and further execution on our growth plan on all fronts. Our management team is committed not only to achieving our short-term goals, but to make sure we are doing the right things to position the Company for long-term growth.

With that I would like to turn the call over to Hessam Nadji to speak further about the overall market conditions and industry trends. Hessam?

Thank you, John, and good afternoon, everybody. My comments today are intended to provide an overview of the commercial real estate market and therefore are not necessarily specific to Marcus & Millichap.

The industry is at or above prior peaks in a number of ratings, but unlike the prior peak reached in 2007, the current market position has the benefit of a healthy supply/demand balance, tighter lending standards, and little threat of overbuilding during the next two to three years. All this points to the sustainability of this growth cycle.

What's more, global volatility in equity markets and other investment alternatives consistently points to US commercial real estate as a vehicle for attractive current yields, as well as strong prospects for solid performance in the foreseeable future. Combined with still-low interest rates and ample availability of financing, these factors led to an increase of 12% in commercial property transactions during the first half of 2015 and a 26% increase in sales volume.

The steady rise in sales activity has also resulted in healthy price appreciation in a broad range of product types and geographic markets. Lower-quality and higher-risk assets are now capturing a growing volume of capital in search of higher yields.

The interest rate picture remains mixed, in our view. On one hand, to manage expectations and stave off future inflation concerns the Fed is likely to raise short-term interest rates later this year. On the other hand, global issues and low energy prices continue to restrain long-term interest rates.

Overall, we believe investors should be prepared for moderate rate increases in the short to midterm, with the probability of rapid and significant increases remaining low. It should also be noted that, based on our client feedback and quarterly surveys, investors are already anticipating higher interest rates and see plenty of spread in the marketplace to absorb modest increases in interest rates without a significant market disruption.

Meanwhile, the US economy is now in its sixth year of expansion, with a favorable outlook. We're adding jobs at a healthy place, and demand for all categories of commercial space continues to grow as a result.

The first half of this year contributed approximately 1.2 million jobs, bringing total job additions since the beginning of the recovery to 12.2 million. Not only have we recovered the 8.7 million jobs lost, we have added a net total of 3.5 million positions on top of those losses. Furthermore, the top job-creating sectors during the recovery have provided a significant number of quality jobs in professional and business services, as well as healthcare and education.

We're seeing broad-based gains in space demand across all property types, with industrial once again leading the quarter, followed by office and retail. Corporate investment and space commitments have finally spread beyond large established companies to midsize and smaller firms as well as new business formations. In addition, job growth has now expanded to numerous secondary markets, supporting increased space requirements in many locations across the country.

The retail segment ended the quarter at 93.6% occupancy, followed by industrial at 93.1%, and office at 84.9%.

Apartments continue to show exceptional strength, with a national occupancy rate of 95.9%. Absorption has achieved better-than-expected results, with 190,000 units in the first half of the year. Apartment occupancies have been climbing steadily, despite the completion of 238,000 new units during the past 12 months, as consumers favor renting and as demographics provide a tailwind for rental demand.

The recent resurgence in single-family home sales has not come at the cost of lost renters as the share of first-time homebuyers remains below the long-term average. Specialty segments including hotels, self-storage, seniors housing all maintained momentum in the second quarter, with occupancies achieving postrecession peak levels.

Sales activity among private investors remains strong, as an increasing number of investors are now able to sell or exchange in and out of various property types, thanks to improved valuation, strong buyer demand, and lower interest rates. In terms of composition, the $1 million to $10 million private client market segment once again accounted for 82% of transactions and an estimated 59% of the commission pool in the marketplace for the trailing 12 months ended second quarter of 2015.

For Marcus & Millichap, this segment comprised approximately 89% of sales and 76% of revenues, which once again illustrates the alignment of our business with the largest and most active market segment.

Sales in secondary and tertiary markets continue to gain momentum and clearly outpace the overall market, showing an increase of 20% over the prior year. As we have noted before, the movement of capital in these markets in pursuit of higher yields is intensifying, which is another positive indicator for MMI, as 45% of our transactions were sold to out-of-state buyers.

For the remainder of 2015 we expect additional job gains, improvements to commercial property performance, and continued growth in property sales, albeit at a more measured pace. Commercial property yields are still very attractive compared to alternative investments and the key driver of capital flows into the sector.

In our view, the biggest risk to a favorable forecast this year is still limited to an unexpected event or economic shock.

With that, I'll turn the call over to Marty for an in-depth look at our finances. Marty?

Thanks, Hessam; and thanks again, everyone, for joining us today. I'd like to discuss our second-quarter results in more detail.

Total revenues in the second quarter of 2015 were $174 million, compared to $134 million for the same period in the prior year, for an increase of 29%. This increase in total revenues was primarily driven by an increase in our real estate brokerage commissions, which grew to $160 million from $123 million for the same period in 2014, for an increase of approximately 30%.

Revenues from financing fees, primarily from MMCC, increased to $11.2 million from $8.4 million in the same quarter of the prior year, or an increase of 33%. Other revenues of $2.1 million were down compared to $2.6 million from last year.

Now I'll provide more color on revenue drivers within real estate brokerage, which generated more than 92% of Marcus & Millichap's total revenue in the second quarter. We executed 1,552 transactions, which represents an increase of 11.5% from second-quarter 2014. Additionally, we recorded a significant increase in average transaction size of 18.4%.

The growth in total number of transactions, while still very strong, represents a deceleration in the pace of growth that we've seen over the past several quarters. As we have said, we expect our pace of transaction growth to normalize along with the broader market as we move through 2015, and our results are demonstrating this.

As John mentioned previously, we believe our growth in our average transaction size was driven by several factors including higher property values, the ability of our experienced sales professionals to execute larger transactions, and the maturation of our agents hired over the last five years.

Moving on to expenses. Total operating expenses for the second quarter of 2015 were $144 million compared to $113 million for the same period in the prior year, for an increase of $31 million or 28%. This was primarily driven by an increase in our cost of services.

Cost of services increased from $80 million in the second quarter of 2014 to $106 million in the second-quarter 2015. As a reminder, cost of services is primarily variable commissions paid to the Company's investment sales professionals and compensation-related costs in connection with our financing activities, which should track closely with our brokerage commissions and financing fees on a quarterly and annual basis.

Our selling, general, and administrative expense increased by $5.5 million or 17%, primarily due to four areas. First, management performance-related compensation driven by our operating results.

Second, stock-based compensation expense resulting from an increase in the Company's stock price, which impacted stock-based compensation expense of RSU grants to the Company's independent contractors, which are required to be measured at fair value; incremental stock-based awards grants granted since the second quarter of 2014; and the immediate vesting of certain RSU awards under provisions of the RSU agreement.

Third, sales, marketing, and promotional costs to support our increased sales activities. And finally, salaries and associated benefits related to higher headcount to support our growth. These increases were partially offset by a decrease in legal costs and related accruals.

Our effective tax rate was 40.5% for second quarter of 2015, which is roughly flat from the second quarter of the prior year. The Company's net income for the second quarter of 2015 was $17.6 million compared to $12.8 million in the second quarter of 2014.

The Company's adjusted EBITDA for the second quarter of 2015 was $33 million or 19% of total revenues, compared to $24 million or 17.9% of total revenues in the second quarter of the previous year.

Now turning to our balance sheet, our cash balance as of the quarter end was $84.2 million, compared to a cash balance of $149 million at the end of the fourth-quarter 2014. The Company's use of cash is typically related to limited working capital requirements during the year, the payment of taxes, and the purchases of office equipment as needed. Cash balance decreased primarily due to investment of a portion of our excess cash in money market funds, and in fixed and variable income debt securities in accordance with our investment policy, as approved by the Board of Directors.

Other than the outstanding principal balance of notes payable, totaling $10.6 million, and SARs liability of approximately $21 million, both resulting from the spinoff related to the IPO during 2013, the Company has virtually no debt outstanding.

In closing, our second-quarter results prove that we are executing on our strategic goals to maintain our dominance in the core private client market while gaining share in the specialty property types and larger transactions. Our focus on adding experienced professionals to our headcount is also driving our growth within a favorable commercial real estate market.

And finally, our balance sheet and cash position allows us maximum flexibility and positions us well to execute our strategy to drive value for all of our stakeholders. This concludes our prepared remarks at this time, and I'd like to open up the call for your questions. Operator?

(Operator Instructions) Mitch Germain, JMP Securities.

Hey, guys; good afternoon. I'm curious. I think, John, you mentioned last quarter there was a significant amount of what you consider to be a bit of a pull forward in sales volumes, given some concerns about rates. Is that a trend that was prevalent in the second quarter as well?

Not really. I think our second quarter, as -- I mean the rates -- the base has been going on for a period of time now. So I think that most of our investors understand that rates will go up at some point in time, so I don't believe there was any pull back or pull forward in this quarter.

I think you guys referenced in your prepared remarks about investors taking on a bit more risk. Can you elaborate a little on that?

Sure, Mitch, I'll jump in on that one. It's really showing up in the number of sales that we're seeing in secondary markets, Class B and Class C properties that are more in line with a value-add strategy. We're seeing not only investors want to basically chase that yield now that they have more confidence in the economic recovery, but also lenders are now more willing to lend in those situations.

They're still doing their homework, and so the underwriting is still pretty tight. But that's what we meant when we referenced the higher risk appetite.

if I look at your production volumes, is there a way to bifurcate primary versus secondary market?

We track all of our offices in all of our locations, of course, all the time. So we haven't really sliced it and diced it that way in terms of our internal data.

But the market indications are very clear that you have the primary markets, the favored coastal markets recover first. As the economy recovered and broadened to secondary and tertiary locations, you saw more and more metros add jobs and therefore attract more capital.

And now we're in the third basically stage of that expansion, with more appetite going to smaller markets and secondary and tertiary locations. Our experience has been that as the yields have tightened in the coastal market we're seeing more capital come into the Midwest, into Texas, into other markets that have higher yields. And that migration of capital is actually -- it's always very beneficiary for our platform.

Great. Then maybe last one for me, Marty, just maybe go over some of your -- the final remarks with regards to some of the cash, short-term cash investments you're doing right now.

Right. Yes, so basically what we're doing is we're moving some of our cash into some marketable securities in order to gain some sort of yield on them.

Okay. So but -- I mean, pretty short-term capital. So $135 million of cash on hand today, I mean: how much cash do you want to have on the balance sheet before you start considering a possible return of capital to shareholders?

Right now our cash is I think in the range of 30% to 35% of our operating expenses. So I think that if you compare it to all of our peers, that's pretty normal. So right now we don't think that there is a question or an issue at this time.

Great. Thank you.

Brad Burke, Goldman Sachs.

Hey, good evening, guys. Congratulations on the quarter. Actually just a couple follow-ups to Mitch's.

The first quarter you did indicate that there was going to be some pull forward, or there was some pull forward the first quarter. As you look at the second-quarter results, it just doesn't look like there was any pull forward whatsoever from the second quarter.

So just was trying to get a sense of whether or not -- I guess re-asking the question, whether or not we should expect there to be some sort of pull forward from the first two quarters from Q3 and Q4, versus what you would expect from just normal seasonality and, to your comments previously, deceleration in the market.

We're not anticipating anything else for the rest of the year. Again, it's pretty standardized at this point in time that our investors believe interest rates will go up at some point in time before the end of the year. So I think it's business as usual.

Okay. Then on the cash question again, I think last time, Marty, you had talked about potentially deploying some cash into opportunistic M&A. So I just was wanting to get an update on how you are thinking about potentially deploying cash in M&A.

Yes. Right now we're still working with the Board in developing our strategic plan, which includes how to deploy capital, which includes M&A. So we're still in that process.

But like I said before, I don't think our cash balance at this moment is at a red-flag level. I think, again, it provides us a strategic advantage for us.

Okay. Then one just on operating leverage. It seems like you would have had even higher EBITDA margins were it not for some chunkier items that were in SG&A this quarter, as it relates to mark-to-market on stock comp. So just wanted to get your thoughts on how you're thinking about the variability of the cost structure at this point in time.

And if we continue to see you have pretty substantial revenue growth, how you feel the infrastructure of the organization is set up at this point to be able to handle that.

Yes, I think at this moment I think SG&A came in at somewhere around 20% of revenues, and I don't think it's going to veer too far away from that. Yes; I think it's 22% of revenues and I don't think it's going to be much different for Q3 and Q4.

We'll continue to leverage our expenses. And as I always say, about 80% of our expenses are variable.

Okay, but we -- I mean, so if it was 22% this quarter and you think it will be around that level for Q3 and Q4, assuming that you have an increase in revenue in Q3 and Q4 you would expect there to be a one-for-one increase in percentage terms to SG&A; is that right?

Maybe it's a little bit of leveraging.

Got it. Okay. Then the last one is just on the average commission per dollar of transaction. With focusing on the higher-dollar-value transactions, have you started to see any push back in terms of the average commission rate? It doesn't seem like it's showing up yet in the second quarter.

No, we haven't really seen any at all. I mean, our average commission rate's been the same for the last several years.

Right, which is -- I would have expected, considering the mix moving to higher-dollar value, to have seen some pressure on that. I guess the question is just why we would not have seen some compression on the average commission rate.

Hey, Brad; it's Hessam. Let me jump in on that one. Part of it has to do with the fact that there is appreciation in the marketplace, number one. That's one of the drivers.

Number two, as the average size transaction has creeped up and gone up, that's not really indicative of a change in strategy. It's indicative of the fact that our more maturing agents are doing larger deals.

But they're not going from doing $4 million or $5 million deals to $50 million deals. They're maybe doing $7 million or $8 million deals.

So as that movement occurs both because of the marketplace and because of the maturing of our salesforce, it's not a drastic shift in strategy from small properties with higher fee percentages to $20 million-plus types of properties where fee percentages are a lot lower.

Okay, that makes sense. So you are still staying within that band where we wouldn't expect there to be a step down in the average commission rate.

Correct. Exactly.

Okay. That's very helpful. Thank you very much.

Brandon Dobell, William Blair.

Thanks; afternoon, guys. I want to touch on headcount for a second within the brokerage business. Stepped down a little bit -- and I know we're talking about averages here, but stepped down a little bit Q2 versus Q1. Any color around that dynamic and how you think we should look at headcount growth outside of MMCC through the back half of this year?

All right. We spoke for the last several calls or at least in the last couple years about going out to the marketplace and hiring experienced agents basically because their ramp-up is a lot quicker, their productivity is a lot better. And we've really focused in on that in the last 18 months.

So we're seeing good progress because their average commissions are a little bit higher, obviously, than the people who come in brand-new. And we've hired a number of people over the last couple years, and at certain points in time during their 12, 24 months in, they decide that this may not be the business for them, or we decide this may not be the business for them.

So we're continuing to focus on recruiting on all facets with newer people coming into the business and experienced people. So we're still moving along in that strategy.

So, fair to assume that the inbound or the recruiting efforts for experienced people haven't seen any change in trajectory; just maybe the number of people that decide it's not the right spot or just aren't cutting it may have gone up a little bit.

Kind of a two-part question, I want to make sure I get that part squared away. But as you think about inbound or additional headcount, should we think of that mix 70/30 in terms of experienced? 80/20? I know it's passed the 50/50 mark a while back, but how skewed is it now toward experienced people?

We're really focusing on -- it's getting closer to the 50/50 mark at this point in time than 70/30 or 80/20. I guess when we first started with the experienced agent initiative we were probably in the 80/20, 70/30 mark. But I think it's getting closer and closer to the 50/50 mark right now.

Okay, Okay. Marty, a quick numbers question. Stock-based compensation, I would say a pretty decent tick up; not surprising, given the stock price. I believe that's all in the SG&A line, but I want to make sure that that's the case.

So as we think about forward SG&A modeling, this quarter was probably an okay proxy for the back half of the year. But given the amount of stock comp, does that skew things a little bit for SG&A?

No, not really. The way I would look at SG&A is it being anywhere between 21% to 22% of revenues.

21%, 22%? Okay, okay. You guys talked about the different geographies in terms of transaction velocities or success. Any issue you guys are seeing in Texas, Louisiana, Oklahoma? Just given the weakness in the energy markets, how have those states acted? Are you seeing any noticeable change in trajectory for your business there?

Hey, Brandon; it's Hessam. I'll take that one.

Good.

First of all, if you look at the states, really the impact has been in Houston. You look at job numbers, for example, Houston was really the only one showing any significant problems. In fact Dallas is the number-one job creating metro over the past 12 months nationwide.

Houston has had a marked slowdown. We've gone from adding 120,000 jobs a year there to basically flat job growth, or no job growth this year. So there's been a big effect in Houston.

Our office there went through an adjustment period of about three or four months. They recalibrated, and we are down on revenue on a year-over-year basis in single digits, so very insignificant. The rest of the state is doing just fine, and all of our indicators look pretty good.

So there doesn't seem to be any kind of a major effect or any kind of a lasting effect. Either it's on valuations or the number of transactions. We've come out of it by recalibrating pretty well and pretty much limited to Houston.

Okay, and the final one for me. As you guys think about the office count through to the end of this year, any plans for new offices in existing markets or perhaps even a new market? Or should we think the office count stays flat?

By the end of the year we'll probably be very close to where we are today. We might open one or two smaller offices, maybe in Baltimore. We're looking at one in the Richmond, Virginia, area, which we're investigating at this point in time. But I would say we're pretty flat till the end of the year.

Okay, perfect. Thanks, guys.

Phil Stiller, Citi.

Hi, guys. I guess I wanted to ask about the average commission you guys earned on transactions this quarter. It was up 18% -- or the average transaction size I should say was up 18%; it was up 19% in the first quarter. Is there a way to characterize how much of that is driven by the mix that you guys are driving versus what the market is doing?

I'll jump in here, Phil. It's really a combination; it's hard to say exactly how much weight you give to one versus another because there is clearly appreciation in the marketplace. But both our strategy and the natural maturing of the salesforce have clearly taken us toward doing some larger transactions.

But again it's really not a change of strategy. That's the most important thing that I want to communicate here, in that our institutional property advisors division is doing great; big growth numbers there. That's very much of a division of the Company that concentrates on the larger major private investors and institutional investors.

But the vast majority of the business is still the private client business and the hybrid, larger investors doing the $10 million to $15 million transactions. We're doing great penetrating that $5 million to $10 million price range and the $10 million to $15 million price range.

It's still very much private investor driven, very much our core traditional customers that are just doing larger transactions. And our agent's there to take advantage of that.

So it's obviously influenced somewhat by the marketplace, but also with the maturing of the salesforce and the strategy to penetrate larger transactions.

Okay. That makes sense. I wanted to ask a question on gross margins. The commissions paid was up quite a bit year-over-year on a percentage basis. It was the reverse of that in the first quarter.

I know it can bounce around depending on mix of transactions. But Marty, I'm just trying to understand how we should think about it for the rest of the year.

Yes, well, I think for the rest of the year I think it'll be like all other years, where Q3 and Q4 you'll see a gradual increase in the commission rate paid out to the agent. It's only because that's our basic program for many of them, where the commissions basically graduate throughout the year.

Should we expect it to be higher compared with 2014?

No, no, no, no, no. Slightly higher than 2014, but quarter-over-quarter for the next two quarters you'll see a continual slight increase.

Okay. I guess one last question on the seasonality of the business. I guess revenues in the first half of the year have averaged either high 30%s or low 40% of total annual revenue.

You guys have had a strong first half. Just trying to get some updated comments in terms of if you think the seasonality will be markedly different this year.

Yes, I think over the last six months or so I've mentioned that our feeling was that the seasonality curve was starting to flatten out. So I think that in terms of ranges, I mentioned that the first quarter was on the high side, if not 1 or 2 points higher than our historical averages. I think that's the same for the second quarter as well.

Okay, great. Appreciate it.

Thank you. Ladies and gentlemen, at this time there are no further questions. I would like to turn the floor back to management for closing comments.

Thank you. That concludes today's conference call. I want to thank everyone for their participation. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.