Thank you for standing by. This is the conference operator. Welcome to the Marcus & Millichap First Quarter Earnings Conference Call. As a remainder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Brad Cohen. Please go ahead.

Thank you. Good afternoon and welcome to Marcus & Millichap’s First Quarter 2016 Earnings Conference Call. With us today are Marcus & Millichap’s President and new Chief Executive Officer 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, believe, estimate, 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 the 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, 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 sustain its growth; and other factors discussed in the company’s public filings, including its annual report on Form 10-K, which is filed with the Securities and Exchange Commission on 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 website, presents reconciliations to the appropriate GAAP measure and 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 referenced during the prepared remarks. With that, it’s now my pleasure to turn the call over to Mr. Hessam Nadji. Hessam?

Thank you, Brad, and afternoon everyone and welcome to our first quarter 2016 earnings call. On behalf of our team, I’m very pleased to announce another quarter of growth for MMI as we celebrate our 45th year at the business. The first quarter of 2016 was marked by quite a bit of shift and changes in the sentiment at the macro level and the impact of the maturing rules in sales market and the aftermath of six years of impressive expansion. We’re seeing a dichotomy in the market with improved sentiment from the beginning of 2016 coupled with healthy real estate and economic fundamentals on one hand and increased investor and lender caution and a maturing real estate cycle on the other. In this environment was to achieve strong growth strengthened the fundamental drivers of the company and grew market share based on preliminary estimates. The company also set new first quarter records for revenue, number of closings and the size of our sales force. Our first quarter results were also helped by additional factors that I’ll expand on here in a moment. As expected, real estate fundamentals remain healthy and the overall market backdrop remains favorable to our business. However, we continue to face the slower pace of market sales growth, extended transaction time lines and challenging comps versus the first half of 2015. Looking at the first quarter results, we achieved revenue growth of just 12%, and grew earnings by 8.4% compared to the first quarter of 2015. Brokerage revenue in the firms core $1 million to $10 million private client business grew at a healthy rate of 9.8% year-over-year and accounted for 68% of total revenue. Private client transactions grew 10.8%, compared to the first quarter of 2015, which we believe points to additional share gains in…

Thanks, Hessam. I would like to discuss our first quarter 2016 results in greater detail. Total revenues in the first quarter of 2016 rose 12.1% to $164 million, compared to the first quarter of 2015. Growth in total revenues was primarily driven by increases in our real estate brokerage commissions which rose 14.5% to $154 million for the quarter from $134 million in the comparable quarter a year ago. This growth was driven by a combination of the increased number in investment sales transactions and average transaction side. It was partially offset by a decrease of approximately 15 basis points in the average commission rate due to a larger proportion of transactions in the $20 million and above market segment, which generate lower commission rate. Revenue from financing fees grew 8.7% to $8.7 million for the quarter, we experienced a decline in the average financing speed in commission rate which is a function of transaction compositions, the types of roles played and the lenders involved this year versus last year. Other revenues which are comprised primarily of consulting anniversary fees and referral fees from other real estate brokers were $1.9 million for the quarters compared to 4.3 million in the first quarters of 2015. As mentioned before we believe evaluating a revenue growth on an annual basis is much more represented in business, this is due to the variability of transaction dates at times additional volatility prior to larger risk factors, such as changes in investor sentiment and interest rate movement. Total operating expenses were $139 million for the quarter, increasing by 13.6%. the increase was primarily driven by cost of services which are variable commissions paid to the company’s investments sales professional and the compensation related cost in connection with our financing activity. Selling, general, and administrative expense and…

Thank you, Marty. Before closing the call, I wanted to provide with you a brief update on our focuses related to my transition into the CEO position, on March 31. As we shared in our last call, Mitch LaBar has joined our leadership team as Chief Operating Officer of the company. And together, we spent much of our time visiting offices and conducting strategy sessions, with many of our managers and key sales and financing professional. Our focus is on extracting a [ph] fresh and detailed understanding of what’s working, what we can do better as a company, and making sure that our strategies are aligned with the needs of our team and our client. In April, we met with the company’s entire management team to further highlight best practices and then reduce additional initiatives around the company’s most important areas of focus, which include a retention and productivity of our sales and financing professional, hiring and development of the best talent, and a variety of initiatives relative to technology, branding and improving client services. I’m personally more excited than ever, about MMI’s potential and can proudly [indiscernible] through the same level of energy and commitment to our clients and shareholders on behalf of our entire team. With that, I would like to turn the call over to the operator for the Q&A session. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Brandon Dobell of William Blair. Please go ahead.

Guys.

Hi, Brandon.

Just wanted to focus on, I guess, the cadence of deals for a second. Hessam, you mentioned that there is still elongated closing times and things like that. But maybe you could compare how this quarter felt versus the previous quarter just in terms of how our deal is taking I guess appreciably longer, not quite as long, but I guess that kind of color would be helpful. But also maybe comment on what the pipeline looks like in terms of other deals being cancelled, deferred. Just want to get a sense of your comp that is in the pipeline converting into transactions at some kind of regular or normal pace.

Happy to address both sides of that. In terms of the transaction timelines extending, we really saw that come into the marketplace around midyear 2015 and early begin to accelerate in the third quarter. The good news is that, we’ve not seen it continue to extend. It’s been flat for the last really three quarters if you include the third quarter of 2015, which was the first time we noticed a notable extension of marketing timelines in particular. So, those have been stable and remain stable in the first quarter versus the last couple of quarters before that. And as far as the pipeline goes, we were showing a very healthy growth in our pipeline on a year-over-year basis and the ratio of our died deals has been very consistent throughout the same three quarter period that I am talking about, and they did not look any weaker or stronger in the first quarter, it’s been very stable. And so the bottom-line is that, the pipeline is growing, the transactions are getting done, but because of the both cyclical shifts in the marketplace and some of the capital markets volatility we’ve seen over the past early six to nine months, transaction timelines have gotten extended.

Okay. Thanks, that’s helpful. In terms of our head count, it seem like you guys are still comfortable with the 100 net additions in 2016, but a little color around the cadence of how that might work, and then the MMCC head count came in a little better than we had thought, so maybe some color on how sustainable the momentum is there in adding people?

The momentum feels very sustainable. We are very comfortable with the 100 net as a goal for the company and the mix, somewhere between 15 to 20 coming on the finance side and 75 to 80 coming on the investment sales side with the focus as we’ve shared with you many times in the last year, year and half really being on more experienced and more qualified brokers, and we’re having very good success being able recruit experienced professionals.

Okay. And then just on a big picture point of view, what does it feel like you guys maybe have the most momentum in terms of property type or perhaps in terms of geographic region? Also we can some of the stats in the first quarter, but it’s a little, I guess, I guess I am looking for a more of a qualitative answer than a quantitative answer than a quantitative one given the focus the company has been for a couple of years on driving market share and other property types or building out geographies where you didn’t have a whole lot of market share. How does it feel that you guys are doing relative to some of the internal metrics that you track or some of the goals you played out?

The good news Brandon is that we’re really measuring and feeling the progress throughout the company. There isn’t any one product that is really outpacing any other product types. We’re seeing steady growth in our private client business that’s where the market share increase is the primary part of our growth plan and we have a number of different projects and initiatives in place to basically support that and then really appearing to be very effective. The expansion in the specialty divisions especially now with the additional responsibilities of a very tenured company veteran out launches taken over that and back-filling his responsibilities on the office industrial side, we still really see office industrial as a significant growth opportunity. We still we’re registering very good growth in specialties like housing, senior housing and in particular hospitality. Those niches are showing very good growth as a result of very deliberate programs we put in the place over the past few years. And then in markets where we already have extensive leadership whether it’s core $1 to $10 million apartments, whether it’s sustaining on tenant net lease marketplace which we dominate are all showing very solid growth. From a percentage perspective, obviously the smaller basis of revenue are growing faster because being the specialty segment, but the good news about our model is that it’s really not dependent on one or two engines we are able to grow the business throughout our entire platform. Geographically speaking it’s really almost the same thing and we’re seeing tremendous growth in our Northeast division which we have stated as one of the growth opportunities but are more legacy Western offices are also showing growth. We’ve had some very good success in recruiting agents in both coasts and in the middle of the country. And we’ve also done well in Texas, despite some of the economic [indiscernible] really limited to Houston, our Texas operations are doing well.

Okay. Great. Thanks for the color. I’ll turn it over.

And next question is from Brad Burke of Goldman Sachs. Please go ahead.

Hi, Brad.

Good evenings guys. Congratulations on the quarter.

Thanks very much.

You commented that the quarter benefited from some closing date variability, jump in larger sales, a big portfolio transaction. Are you able to give us a sense that magnitude of some of those chunkier items on the year-over-year growth?

Sure. Happy to do that. On the larger transactions that was significant in that the first quarter of 2016 was a largest first quarter, actually largest quarter we’ve had in quite some time in those transactions. And as you well know, those are the more volatile, harder to predict transactions in terms of the marketplace and our business. In terms of the date variability unlike last year where there was a clear trend and a force driving acceleration of deals, which was the anticipation of higher interest rates in the back end of 2015, for the first quarter, was really more the natural course of our business where closing dates may vary by few days and could make a difference in the results from one quarter to the next. And that’s why we continually really shared with everyone that our business really ought to be viewed on a more annual basis. So, there was no particular trend or anything unusual from a market perspective that drove that unlike last year. It was more than natural course of business.

Okay. And the outlook comments about difficult comps and marketing periods and caution from buyers and maturing cycle. It’s a pretty cautious commentary against a pretty strong quarter for growth and realizing that there are some choppier items, but should we interpret that as you telling us not to get too carried away with expectations for growth going forward and exercising some conservatism or are you seeing things that would imply that you would expect some sort of near term declaration?

Well, there is definitely factors in the marketplace today that that weren’t as pronounced a year ago. When you talk about the marketing timelines, the closing timelines, when you talk about a little bit of the higher spread in the price expectation gap between buyers and sellers, as you think about little bit more conservatism on the lender side, it’s not any one or two things that are making a significant change, it is the combination of four or five key metrics like that that are basically together becoming a factor in the marketplace, things are just taking longer, longer to close. But there is no doubt that some of the transactions that would have closed in the second quarter ended up closing in the first quarter for us because it had date variability. So there is that additional factor to keep in mind. And it’s always a combination of both that we are being very transparent about and sharing with everybody.

Okay. I appreciate it. And Marty thanks for the color on the drivers of the SG&A increases. As we try to think about the run rate, how much of the increase would you say is recurring in nature versus being just more one time in nature?

Well, hey Brad, how you’re doing?

Good.

I think what you have to do is, is look at the increases in SG&A, although, some may have to do with some incentive compensation that we paid out to some part of agents related to performance in 2015. We have, towards the last half of 2015, had invested quite a bit in our infrastructure, also and increasing the amount of marketing and business development support to our agents and into technology. So, I think the way to look at the 2016 G&A is taking Q1, Q2 maybe a little bit lower than Q1, but it’ll start ramping up again. I think that’s the way to look at it.

Okay. So, it is $42 million in the first quarter below that, but that’s against a $37 million to $38 million comp in 2015, so presumably higher?

Right. So, as a percentage of revenue, Q2 – you’re going to – probably see a – savings about 200 bps in Q2 and Q3 and then probably another $200 on top of that for Q4.

Okay. And then last one – a recurring question for me is – just if you look at the amount of cash we have in the balance sheet in marketable securities and presumably you’re going to continue to generate quite a bit of free cash flow over the course of the year or how are you thinking about deploying that?

Our strategy, Brad, really hasn’t changed in that. We are very much interested in M&A opportunities that make sense at an enterprise level and give us some scale as we’ve talked to everyone within the past in the core private client investment brokerage business, there are a very few sizeable or scalable entities that you can do a traditional M&A with, that’s why our strategy for growth there has been – more towards individuals, professionals and teams, which is working pretty well. And when it comes to the financing side of the marketplace, we do believe there is some M&A opportunities there in ways that we can enhance our platform on the finance side and we’re actively looking at some of those opportunities. The best of both worlds for us is that we’re very well-positioned to look at these opportunities and we’ve a very strong balance sheet. But we’re not – obviously, we’re not going to put the cart before the horse or engage in any transactions that don’t make accretive sense and good strategic sense. So, we have a lot of options and we are looking at all the different strategies, related to our balance sheet.

Okay. I appreciate the update, guys. Thanks for taking my question.

Nice talking to you, Brad.

Thanks, Brad.

[Operator Instructions] Our next question is from Mitch Germain of JMP Securities. Go ahead.

Hi, good afternoon.

Hi, Mitch.

Hessam, you mentioned traveling around to the various offices, meeting with the personnel. What was the big takeaway that you got from those discussions?

Most important takeaway is the excitement there is out there for our platform, our brand. The fact that the market offers a lot of opportunity for continued growth. We are seeing that same enthusiasm towards the overall opportunity, not just among ourselves and management, we’re seeing it among our sales force. Our sales force really believes that the company can continue to grow and there are opportunities to keep the growth, you’re going to be on track. The best part of spending time in the field is when you get a real sense of what’s working and what’s not working. And so, we walk away with very specific ideas of, how we can improve some of our initiatives, whether it would be support initiatives, whether it would be ideas of client services, whether it would be ideas for best practices or getting the sales force to network more. Relatively simple things and some really great strategic ideas that come out of these kinds of conversations, for the most part, we walked away, really going to believe in that the strategy is on the right track, and that if anything we can just kind of fine tune it a little bit and add some more to the existing plans focusing on productivity, and focusing on the quality of talent that’s staying with the company and then coming into the company.

And I know, you’ve announced a bunch of senior leadership changes last couple of months. Where do we stand there – you have the team in place, is it complete or is there still a little more to come there?

Well, we’re looking at a couple of different things. First – the first phase of really executed on growth plan required as to bring in some very specialized experts with tenure in the different parts of the industry, whether it’s office industrial, whether it’s capital market, whether it’s retail, to enhance our basic support training development, our brokerage in each of these specialties. And the second wave – way was to make sure that the, infrastructure part of the company, technology, market research, marketing and administrative support were basically being integrated and under the supervision of a senior executive and a form of our CIO, which we created. And then of course, Mitch LaBar just joined us as the COO of the company, and the fact that the – the refreshing thing about working with Mitch is that he brings the 25 years of experience he had with the firm, and having open the line offices, having a hired a lot of the top brokers that are still here. And then – and is more fresh perspective in coming back to the firm, the combination of those things are really helping us coming up with ideas. So, the third part, really is looking at our existing management talent, we have a number of people throughout the organization that has really shown great leadership, phenomenal results, and so we are really looking at ways that we can better leverage that knowhow and success in the form of best practices and expanded responsibilities for a lot of them.

And when you look at your hiring plan, I know, you still mentioned about a 100 net new, how does that breakout between experience and entry level personnel at this point?

We’re running at around somewhere between 20% to 30% of the net hires being experienced agents and finance professionals, and that ratio seems to be working very well for us because we – we’ve really proven our abilities to bring brand new people without experience into the business, training them, developing them and retaining them to become very productive to be – be a significant growth driver for the company. We don’t want to get away from that by any stretch of the imagination. So as an ad-on, the focus on more qualified people with some experience has been a – has been a good compliment.

Thank you. Congrats in the quarter.

Great talking to you. Thanks.

At this point, I’d like to thank you everyone for joining our call, and we look forward to talking to you again next quarter. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.