Marcus & Millichap, Inc. (MMI) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Marcus & Millichap Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Evelyn Infurna of ICR. Thank you, you may begin.

Thank you. Good afternoon and welcome to Marcus & Millichap's Fourth Quarter and Full Year 2015 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, think, could, estimate, judgment, targeting, should, anticipate, goal, and variations on 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, the U.S. debt market, 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 sustains 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 which is expected to be filed with the SEC on or about March 15, 2016. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The company undertakes no obligations 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 on this call represents non-GAAP financial measures. The Company's earnings release, which was issued this afternoon and is available on the Company's Web site 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 on 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.

Thank you, Evelyn, and thanks everyone for joining us today. As many of you know I announced my retirement already this month. This will be my last earnings call as CEO of the company. I would like to take a moment to reflect on my years' at Marcus & Millichap. Of my 35 years with the company I've seen the company grow from 11 offices in Western United States to a national firm with 79 offices in United States and Canada that now sells more investment real estate transactions than any other company. I've had the privilege of having multiple roles at the company which has prepared me to lead the company for the last six years. It's been a wonderful experience, I've lots of fond memories and made numerous friendships along the way. I'm very proud of our agents, our management team and grateful to our clients who repeatedly trusted us in their real estate transactions. Hessam and I have had the pleasure of working together for the past several years. We partnered very closely when I became CEO. He brings an excellent perspective of the industry and the real estate market. He's has worked closely with our agents since he joined the firm in 1996 and has therefore agent respect as he becomes the fifth president of the company. I want to thank George Marcus and William Millichap who founded the company in 1971 and created the culture of collaboration and specialization to benefit our clients in the investment real estate sector. I want to thank them for believing in me and thank them for the honor for leading Marcus & Millichap for the past six years. I want to thank out investors and out analysts for your support during my tenure and I hope that you’ll show the same support and enthusiasm to my partner Hessam Nadji. Hessam I’ll turn it over to you.

Good afternoon everyone. Thank you very much for those comments John and let me extend our appreciation on behalf of the entire team for your leadership. Personally I would like to thank you for all your support in helping me expand my skills and responsibilities over the years, we’re delighted that you’ll be working with us as an advisor, it’s been a true please and honor John. 2015 was a great year for our company and we’re pleased with our fourth quarter and full year financial results. Marcus & Millichap delivered record revenue in earnings and completed its second year as a public company. Total revenue reached 689 million for a growth rate of 20.4% and earnings came in at 66.4 million, up by 34% over 2014 with adjusted EBITDA margin of 18%. Revenue from the firm’s core $1 million to $10 million private client brokerage business grew over 25% for the year and we continued to gain share in this vital part of the market as a result of our growth initiatives. In 2015 we closed 8,715 transactions up 13.7% over the prior year with a total dollar volume of 37.8 million, a new company record. This represents sales volume growth of 14.2% over 2014 with had some large transactions. Adjusting for those large transactions in the second and third quarters of 2014 which totaled 2.1 billion, adjusted sales volume growth for 2015 was 21.8%. The strength of our sales span across all of our practices including our especially property types such as hospitality, self-storage, seniors housing, our instructional brokerage division, IPA and a number of other specialties. In 2015 we grew overall transactions in sales volume in these areas by 26% and 36% respectively. From a market perspective while fundamentals remained healthy and generally improved throughout 2015 we definitely saw more volatility and noise in the data. The first half of the year was marked by acceleration of many transactions in anticipation of interest rate increases as evidenced by our own first half results where we delivered 29% year-over-year growth in revenues and 58% growth in adjusted EBITDA. The second half of the year was marked by global economic concerns, equity market sell-off and capital markets volatility. These factors brought about more caution among investors and lenders who sharpened their pencils and tightened their underwriting leading to expanded marketing and closing time lines, discussed on our last earnings call. As we've seen through multiple cycles in our 45 year history our value at the clients is illustrated even more during market shifts as we help them formulate and execute them with appropriate strategy through our brokerage and financing expertise and market research. Apart from the sales velocity in the market we can ensure that we add value for our clients and continue to grow as a result. In the fourth quarter we achieved revenue growth of 17.8% to 203.2 million and earnings growth of 21.4% over the same period in 2014. Also in the fourth quarter our private client brokerage business revenue registered year-over-year growth of 29.3% and our average transaction size returned to its Q2 2015 level. Our ratio of ditransactions remain consistent with the last three year average and has been stable so far this year. Transactions are taking longer to market and close but are ultimately getting done. In line with the maturing of the cycle we also saw a slowdown in overall market transactions particularly in the second half of 2015. For the year transactions growth in the marketplace was an estimated 12.5% higher than 2014 and volume grew 15%. This compares to annual average growth rate of 22% in sales and 23% in volume between 2012 and 2014. If you go back to 2010 the volume growth average goes to 36% a year which shows the shift from a rapidly recovering market over the past several years to a still active market with a slower rate of sales growth. Again having been through the multiple cycles that we've experienced our strategy continues to be focused on growing our sales force and continually gaining market share. We ended the year with a total of 1,607 investment sales and financing professional, compared to 1,494 in 2014 as we added a 113 net professionals for the year. This excludes analysts, interns and support staff. 45% of these new hires have previous experience which we believe is a key success factor in becoming a productive Marcus & Millichap agent. Our financing business MMCC closed 1,601 financing transactions on 4.1 billion in volume last year which reflects year-over-year growth of 20.2% and 29.4% respectively. MMCC offers one of the most significant opportunities for the firm and we continue to make strategic investment in personnel to support the anticipated growth. We added 16 financing professionals during 2015 and ended the year with just under a 100 total loan originators, many of whom have joined us with prior experience. Not only is MMCC a direct source of revenue growth, it also plays a pivotal role in expanding our client services and long term relationships. Lenders have tightened their underwriting and deal tuning [ph] which is one of the factors leading to longer transaction time. Over the past two quarters loan standards have tightened with the most pushback in lower quality or high risk assets. However within the $1 million to $10 million private client segment we're still seeing ample financing sources particularly through commercial banks. Now let me shift and share some market commentary in our view regarding conditions expected in 2016. We received the contract of our investment brokerage and financing business through the lens of four primary pillars. These are the macroeconomic environment, real estate fundamentals, capital markets and of course investment sales activity. From a macroeconomic standpoint we saw the addition of 2.7 million jobs, unemployment at a six year low, 4% rise in core retail sales, 7% rise in home sales with inflation remaining in check. U.S. recession speculation in the first couple of months of 2016 spurred by global economic concerns and an equity market fill up have started to ease, thanks to continuation of job growth and other positive domestic economic reading. More of these positive readings are needed to improve investor sentiment more convincingly. Secondly, real estate fundamentals ended 2015 in the best shape since the recoveries began with occupancies and rents showing improvement across the Board. Despite rising construction levels especially in the apartment sector demand continues to exceed new supply providing a positive outlook. On the capital market side recent global economic concerns in capital market volatility have lowered long term price and most likely postponed tariff [ph] rate increase. While the real estate market was reacting to the anticipation of higher interest rates going into 2015 there's less urgency on the Fed now to raise rate until more positive economic data comes in. Regardless of the timing of the next Fed move, let's keep in mind that interest rates remain so close [ph] and favorable for real estate investment. On the investment front we believe capital flows into commercial real estate will continue thanks to commercial real estate yields spread, overall return on investments and prospects for ramp growth for the foreseeable future. We're still seeing buyer interest and multiple offers, but price and expectations have widened to some degree and as I mentioned earlier marketing and closing timelines have expanded. So, what do these trends and conditions mean for MMI? As the cycles matured and deals are compressed more capital is flowing into secondary and tertiary markets which offer higher yield, value added investments and a greater focus towards repositioning existing assets in primary metro. Plenty of investors are still asking for a lower yield, lower risk real estate investment which are still attractive relative to alternative investment. Virtually all of these trends are supported by our national platform, cross-product expertise and I believe the bulk [ph] of investor shift with the market. By way of example, 46% of our 2015 transaction involved a buyer from out of state, reflecting the strength of our platform. At MMI the alignment with the $1 million to $10 million private client segment remains a bedrock of strength. In 2015 with the four major property types which include apartment, retail, office and industrial, priced at 1 million and above 84% of sale and 61% of the commissioning pool are estimated to have been in this segment. For MMI the segment accounted for 90% of transaction and 78% of revenue. I'd like to emphasize that MMI has a $1 million to $10 million transaction count and revenue increased 29.2% and 20.5% respectively in 2015. Looking forward we expect the four pillars of real estate to remain supportive of MMI's business growth with some added volatility given the fluctuations in capital market. We're confident that we can continue to build on our success but expect two factors to present challenges. First the foreign transaction environment relative to 2015 given these variation in the volume dollar value transaction during the year, and second a tough year-over-year comparison given the strength of our results in 2015. That said we've demonstrated over our history that we will continue grow our company over the long term. With that I'll turn the call over to our CFO, Marty Louie for an in-depth look at our financial results. Marty?

Thanks, Hessam. Now I'd like to discuss our fourth quarter 2015 and year end results in greater detail. But before I begin, I'd like to point out some incremental disclosures on Pages 6 and 7 of our earnings release which now presents our real estate brokerage revenue segment by transaction size and on Page 9 which reflects certain key metrics as reported and adjusted for certain large transactions. We believe this additional information will provide better contact and understanding of the drivers of our business and the reliability of our core private client franchise. For example our private client market segment properties priced from $1 million to $10 million was responsible for approximately 69% of our real estate brokerage commissions for both the quarter and full year. Total revenue in the fourth quarter of 2015 rose by 17.8% to $203.2 million while our annual revenues posted a 20.4% increase to $689.1 million. Growth in total revenues was primarily driven by increases in our real estate brokerage commissions which grew to $186.2 million for the quarter and $632.6 million for the year reflecting 18.8% and 20.5% gain for the quarter and year respectively. Driving this growth was an increase in the number of investment sales transactions as well as larger average commission rates. Revenue from financing fees generated principally by NFCC grew by 8.5% to $12.5 million for the quarter which is against a challenging comparable to the 2014 growth rate of 59%. During Q4 of 2014, we have one large financing fee which when excluded our adjusted financing fees grew 14.5%. We believe evaluating our revenues on an annual basis is more representative of our business due to the potential for variability quarter-to-quarter. On this basis, revenues from financing transactions increased by nearly 26% compared to 2014’s 31% growth rate. Adjusting for the large transaction fee I mentioned earlier, financing fees grew approximately 28% for the year. Other revenues which are comprised primarily of consulting and advisory fees and referral fees from other real estate brokers grew by 5.2% to $4.4 million in the quarter and by 4.2% during the year to $13.9 million. Total operating expenses were $169 million for the quarter and $574 million for the year increasing by 16.4% and 17.8% respectively. The increases in operating expenses for the year end quarter were driven by significant rise in cost of services which are comprised of variable commissions paid to the Company’s investment sales professional in compensation related costs in connection with our financing activity. Selling, general and administrative expense and to a lesser extent depreciation and amortization contributed the remainder of the increase in operating expenses for the quarter and year. Net income for the Company grew to $19.9 million during the quarter representing an increase of approximately 21.4% from 2014 and increased by approximately 34% for the year to $66.4 million. Adjusted EBITDA grew to $35.3 million during the quarter representing an increase of approximately 19% from 2014, and increased by 34% for the year to $124.1 million. More importantly, our adjusted EBITDA margin expended by 180 basis points in the year demonstrating the positive operating leverage in our business. Our record results are due to strong sales volumes experienced both in the quarter and throughout the year. In the fourth quarter we executed 2,460 transactions, which represents an increase of 14.7%. For the full year, executed transactions totaled 8,715 or 30.7% growth over 2014. From a balance sheet perspective Marcus & Millichap is very well positioned to continue to grow our business organically and to pursue selective acquisitions. Our liquidity levels are very healthy ending the year with cash on hand and core cash investments of approximately $196 million. Given our cash levels and strong free cash flow generation, we continue to explore strategic alternatives for use of this liquidity. In the meantime our liquidity maximizes our options and flexibility under all market conditions. Before closing, it is important to point out a number of key items which will have an impact on our results in 2016. As a reminder, the first quarter 2015 was an exceptional quarter which reflect a year-over-year revenue growth of 28% due to acceleration of many transactions caused by investors’ anticipation of interest rate increases. Given the current market environment combined with the lengthening of marketing and closing time lines for transactions, 2016’s first quarter will have a very difficult comp. Also given our record performance in 2015 incentive compensations for our sales professionals, which is paid in the first quarter related to the prior year, will be higher in Q1 of 2016. In addition, as Hessam will discuss in a moment we made a number of key hires. We continue to optimize our organization to better support our sales force and we are currently undertaking new IT initiatives which we believe will provide added efficiencies to our sales professionals and management team. All of these initiatives which will prepare us for future growth will cause increases in our SG&A. We know that these are the right long-term decisions to support sustaining growth. But because of these platform investments we do not expect to increase our margins as we have in the past. As such we believe our margins will be comparable to 2015. We expect to resume improvement in our operating leverage beyond 2016 once the benefits of these key investments begin to contribute to efficiency. Now I’d like to turn it back to Hessam for some additional comments. Hessam?

Thank you Marty. I'm very excited for the opportunity to lead our team in serving our clients, growing our business and creating value for our shareholders. Our company was founded on delivering a high level of service and creating value for our clients first and foremost and secondly providing the most efficient and supportive operating platform to our brokers. These principles are ingrained in all aspects of our culture and continue to drive all of our strategy. My goal is to build on a strong foundation and unique business model and carry our growth plan to a higher level. The key focuses are to better leverage our really talented management team since managements translate directly to better broker retention, productivity, development and recruiting. Secondly investment in new technologies and tools that create efficiency and competitive advantages as Marty mentioned and last but not least replicate the success of our most effective offices, particularly those with a highest local market share in the private client segment across the company. To help achieve these goals we recently created the position of Chief Administrative Officer as a senior executive in charge of integrating our technology, brokerage support, research and communication. We also named a new CIO to lead our technology development efforts with a number of new tools and major upgrades underway, all of which are geared toward broker productivity and more efficient property marketing. And last but not least we just announced the addition of Mitch LeBar as our newly appointed Chief Operating Officer who will be officially onboard March 31st. Mitch has over 25 years’ experience with our company including office openings in the West and the Northeast as well as hiring and training many of our top agents and managers. Over the past year he's worked closely with our team implementing a leadership development program as consultant and we're looking forward to his ongoing contribution. Thank you for joining our call today, with that I'll turn it back over to the operator for the Q&A session. Operator?

Thank you, [Operator Instructions] our first question comes from Brandon Dobell from William Blair, please go ahead.

John, congratulations on the retirement that's great and well deserved and Hessam looking forward to your new role even though you've probably been working here for a while, good to have some continuity there. So congratulations guys. A couple of quick sort of housekeeping things first, I'm assuming you guys are going to keep giving us these new metrics, smart revenue disclosures laid out by property size going forward?

Absolutely.

Okay. Perfect. And I guess as you think about the headcount and where it finished for 2016, any color around I guess a couple of things. First would be a sense of what the average tenure or maybe number of guys and women that have been there more than five years, just trying to get a sense of where we are in this progression of increasing average tenure and then following those a headcount, what would your expectations be for 2016 headcount additions and if you can break those between the core business and financing that'd be helpful too.

Brandon, it's Hessam here, regarding the composition of the new people that we're hiring I think that's where your question was at. Roughly 45% of the individuals that we hired had some previous experience on average that tends to be around two to four years which is really the ideal amount of experience for us in terms of these, let's call them mid-level experienced agents, we have recorded some outliers with 10 plus year experience among the recruiting numbers that we shared with you earlier, and as far as the overall composition of our sales force goes, roughly 37% of the sales force now has a tenure of five years and above. So hopefully those answered your profile questions, as far as plans go we shared with you before our goal is to hire a net 100 additional agents a year as we grow the company and roughly 80% of that would be in brokerage operations and 20% in our mortgage operations.

Okay, that's helpful, thanks. As you guys think about the office footprint and the people within those offices of the 79 or so and I know Canada is not going to fit this profile but of the 79 offices you have how many do you think you kind of got where we want them, meaning you've got the right people, the mix of people you think market share, or maybe as good as you can possibly get, has captured the low hanging fruit. Just trying to get a sense of where we are and the opportunity to keep adding people in these offices that still have room to hit those market share targets you guys have talked about.

Yes, we've discussed in the past, our growth strategy is really driven not so much office openings as we have presence in pretty much every major metro there is out there. But expanding our footprint within the greater metros and PMSAs. So in the vast majority of the market something around 20 plus metros out there, there is plenty of room for additional growth and in fact if you take a look at our last series of lease renewals, they reflect the kind of expansion that's necessary to keep our growth going. That's part of the -- actually major part of some of the expense items that Marty was talking about earlier, it's just there to support the growth. And so there are hardly any market were we can say we have no room for growth, obviously some of them are condensed markets like Sothern California -- become harder and harder to kind of penetrate in terms of plants opening and that goes back to the expansion of the existing footprints every time we get a chance.

And then final one from me, that so we're on the same page, doesn't sound like you guys expect first quarter transaction volume or revenue to be down year-on-year given your comments about availability of financing and the headcount trends and things like that, but I want to make sure that we're all -- that I'm on the same page as you guys are with how we should think about year-on-year revenues and then the second quarter is also decently challenging comparisons, so how do we think about the first part of the year revenue relative to first part of 2015?

I think the important indicator, the bigger picture indicator is that our business is growing, a very healthy pipeline, the variable that's really come into the equation is the quarter-to-quarter noise in the data and the timing of the transaction marketing, timing of transaction closing and put that on top of the fact that Q1 and Q2 of last were extraordinary. That’s what giving us a challenging environment going into the first quarter of 2016.

Our next question is from Mitch Germain from JMP Securities. Please go ahead.

When I -- you've been mentioning this extended marketing in closing, so is there a way to maybe quantify what you're seeing out there?

It really began in the third quarter of last year is when the real measurable difference happened and I would say that on year-over-year basis the timelines are extended somewhere between 10% to 15% depending on the product type, and again it's one thing to really focus on the quarter-to-quarter and we really think of our business in terms of the year and a little bit longer horizon. And so when data gets noisy and there's lot of news and sort of items that affect sentiment, accurate quarter-over-quarter data can get very-very noisy as you know. So, that's kind of how we look at it in terms of the quantification that how much these timelines have expanded.

Hey Mitch it’s Marty, [technical difficulty] I think it's also important to note that our level of deals are still at what they've been over the last couple of years, so deals are not dying, they’re just taking longer to market and close.

And Hessam, Marty this is consistent in 3Q, 4Q and now same thing back into 1Q '16 as it been pretty consistent, what you're seeing?

Yes, it has been. And we haven't seen any further extension of the timelines, its stabilized, but it really does date back to Q3 of 2015.

If I look at MMCC and compare the number of individuals to the number of offices, obviously it seems like there's an under-penetration. So if I think about the way you're looking at growing that business, should we expect there to be an overabundance amount of attention in growth towards personnel for that segment going forward?

It's absolutely one of the most critical parts of our growth plan and as we've shared before the focus has really shifted over the past 18 months, 24 months toward really getting a truly seasoned tenured finance professionals on board and we've had some great successes with that. And so we look at it in terms of account and penetration, you're right, we have so much room to grow just in terms of presence and boots on the ground. But it also especially in this part of the business we have credibility is key for our investment sales agents to integrate and bring in the finance experts really is driven by the years of experience. So, we're not just going for quantity, we really are going for quality. There are number of metros that don't have MMCC representation today, those are really high priority metros and a number of metros that where we can add two or three more people because the market is so significant. But a long answer to your question is it is absolutely one of our three highest priority growth component.

And then how much cross-sell is there with MMCC and your core sales purpose platform?

Quite a bit, roughly 50% of MMCC's business is done in partnership with an investment sales broker. From, looking at it from the other side, obviously we're financing just a fraction of the total volume of brokerage business that we conduct, so that's where the opportunity really is and that's where the credibility and the seasoned professionals play a key part.

Last one from me, you mentioned some IT initiative that you will be investing in. Is there a way to just provide perspective on what you’re dealing and what you’re looking to accomplish with that?

We have a long standing tradition of pioneering in a lot of real estate technology. I mean our entire business model from the culture of information sharing to the policies that we have, to uphold the information sharing that really runs our business model has been technology driven from the start. And periodically we do a very comprehensive sweep of our proprietary applications. We have two significant applications, one being the product that basically automate a broker’s experience from A to Z of preparing for a client presentation and evaluation of a building and then take that to the next stage of once that listening -- exclusive listening is obtained, taking that listing to market. We have a full automation that basically take the broker from A to Z in that entire continue and that whole system is basically being replaced with a new generation version of what we’ve had in place for a while. That’s just one initiative and I can tell you that the priority in just about everything that we’re working on has to do with broker productivity, broker efficiency and a variety of different client services that we’ve gotten feedback on from our client related to features on our Web site to some very interesting push technology that we’re working on, that are client oriented.

And our next question comes from Brad Burke from Goldman Sachs. Please go ahead.

I’d like to echo everyone’s congratulations. Wanted to follow up on statement that you have in the release, you say should continue to resolve in transactional activity albeit at lower levels of growth and not too obsesses over the language in that statement too much. But should we read it as don’t expect much or any growth, or is that more, there is likely to be some growth in 2016 but less than what you saw in 2015?

Hi Brad, its Hessam here, thanks for coming. You’re referring to the comment regarding the market, correct?

It would be transactional activity comment that you had made in your press release, in your earnings release.

Our expectation really is somewhat driven by what’s going on in the environment. We’ve always said and the evidence continues to prove that fundamentals are very strong. All the reasons for capital to continue to flow into real estate are all there. The question is really the reaction to all the concerns that have been heightened over the past few months. So it becomes -- it’s a little bit more difficult to actually forecast where sales are going because if we get a little bit more evidence of the past few weeks positive economic news that can actually turn sentiment more convincingly as I mentioned in my prepared remarks. So we do expect some growth in the marketplace, but we certainly have seen a slowdown in 2015 and we believe that that level of the degree of slowdown and that patterns of slowdown will persist into 2016. But we -- as you look at the marketplace, take in a bigger picture of it all, there is 53,000 transactions that occurred in 2015. So for us the focus is whether that grows a little or it stays flat or contracts a little our focus is to gain market share within a huge marketplace with over 50,000 trades that have been going on. And I think that’s the bigger picture that we’re focused on for sure.

And then Marty you touched no strategic alternatives for your cash. I was just hoping that you could give us an update if there is one on the kinds of strategic alternatives you’re considering? And then just also your thoughts, updated thoughts if there are any on the appropriate amount of cash that you think that you would want to hold on the balance sheet at this point in the cycle?

We’re constantly looking our cash levels, our liquidity and constantly we’re looking at different alternatives for its use. We’re always looking at potential strategic acquisitions, but they all have to be the right acquisitions, they have to be accretive to our margins we’re looking at things for companies that are going to be synergistic to our business. And so we’re not going to just making the acquisition just for the sake of making an acquisition. So we’re going to continue to look and find ways to strategically use our cash.

But M&A is the principle focus?

We continue to look at various opportunities.

And then on emerging guidance it looks like you’re expecting margins to be relatively flat in 2016. So, one, just thinking about the magnitude of any potential margin improvement post 2016 and then, B, the margin guidance being somewhat flat is that more function of difficult revenue comps or is it a function of some increased expenses layering in?

That’s both. So we do have difficult revenue comps as with the 20% increase in our revenues last year and then in terms of expenses we continue to make investments into our business. As Hessam mentioned we continue to focus in on growing our market share in existing metros we means including investing in and expanding our offices. And also continuing to help support our agents in terms of co-investing in their business development. So all of those we continue to do during this year but going into 2017 and '18 as I said before we continue to have a goal of growing our margins by anywhere between 20 bips to 30 bips a year after that.

Okay, that's helpful and then last one from me. I'm interested in your view on how you might expect the private client business to perform in the current market environment relative to the IPA group. How those two might react differently if they would.

Thanks for bringing that up because that's obviously the strength of our model and the exposure we have to the private client segment as we've seen since the economic noise and the capital market noise really got louder and louder in the third quarter of last year, our private client business continued to grow every quarter at very healthy rates. And so, and we saw a lot more volatility in the larger transactions as we’ve discussed before, so that remains a very important part of the strength of our platform the advantage of our model and the fact that the smaller transactions are still easier to finance. We have multiple sources whether it's local banks, regional, national banks, credit unions that we're actively working with and so it will definitely remain a major advantage.

All right, thank you very much.

Thank you, I'll just turn the call back over to management for any closing remarks.

Thank you everybody for joining our call, we look forward to having you attend our next call, thank you very much. Call is adjourned.