Greetings and welcome to the Marcus & Millichap First Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Evelyn Infurna. Ms. Irfurna, thank you. You may begin.

Thank you, operator. Good afternoon and welcome to Marcus & Millichap’s first quarter 2017 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji and Chief Financial Officer, Martin 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 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 global real estate market conditions, including the recent conditions in global markets, the company’s ability to retain and attract transactional professionals, the company’s ability to retain its business philosophy and partnership culture amid 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 was filed with the Securities and Exchange Commission on March 16, 2017. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that these expectations will be obtained. 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 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, represents reconciliation to the appropriate GAAP measure and explanations of why the company believes such non-GAAP 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 the slide presentation you may referenced during the prepared remarks. With that, it is now my pleasure to turn the call over to Mr. Hessam. Hessam?

Thank you, Evelyn. On behalf of the entire Marcus & Millichap team, good afternoon, everyone and thank you for joining our first quarter 2017 earnings call. As we had anticipated a message during our last earnings call, the first quarter of 2017 was challenging for financial results in comparison to last year. Our revenue declined 6.7% on a year-over-year basis, while net income declined to $12 million from $14.8 million. These readings are certainly not indicative of our growth potential and truly highlight the importance of evaluating our business on a long-term basis. As importantly, there are also a number of underlying strength and positive factors both internally and externally that should not be overshadowed by the pure statistical results of the past 90 days. Before I talk about these and additional details for the quarter, I would like to first summarized the key drivers of past two quarters for a clear understanding of where we are and where we believe we are headed. Three major developments occurred that impacted our business. First, the interest rate spike of 75 basis points within a matter of weeks, after the Presidential election through many penny transactions into renegotiation and re-qualification for financing during the fourth quarter of 2016. For private client deals, which have lower price points typically and higher loan-to-value ratios, the impact of the interest rate jump was more acute than on larger deals and widened the asset spreads further. As the ideal ratio spiked in the fourth quarter for the first time in several years and our team has spent a tremendous amount of time keeping or putting deals back together for our clients. This significantly reduced new business pipelines going into the new year as we indicated on our last call. Secondly, the uncertainty regarding pending tax reform…

Thanks Hessam. I will be discussing our first quarter 2017 results in greater detail. Total revenue in the first quarter was $153 million compared to $164 million in the prior year, reflecting a decline of 6.7%. A decrease in revenue this quarter was primarily due to lower brokerage commissions, primarily in the larger transaction market segment, partially offset by an improvement in financing fees and other revenue. Looking at the quarter more closely, we closed nearly the same number of transactions that we did in the first quarter of 2016, while the investment sales market declined an estimated 10% to 15% including the private client market segment. However, the distribution of transactions over our core market segments very widely for brokerage and the average transactions side declined by 13%. For the longer term perspective, despite the year-over-year revenue decline, total transactions for the first quarter was the highest when compared to historical first quarter periods, while revenue for the quarter was the second highest. Revenue from our private client business for the first quarter declined by 4.5% due to a 5% reduction in sales volume, partially offset by a slight increase in transaction. As we have said in the past, our larger transaction business tends to be more volatile and is more affected by closing date variability. With that said, first quarter revenues from transaction is greater than $20 million made up only 11% of our brokerage revenue declined by 40% when compared to the outsize growth experienced during the first quarter of last year. By comparison, during the first quarters of 2016 and 2015, this market segment improved 75% and 118% respectively on a year-over-year basis. In fact since our IPO, revenue from our larger transaction business grew 32% on a compounded annual basis as a result of our…

Thank you. [Operator Instructions] Our first question is from Peter Christiansen with Citigroup. Please go ahead.

Good afternoon. Thanks for taking my call – sorry question. Hessam, thanks for the commentary on the bid/ask, but I was just wondering if you could dig in a little bit on the relative volatility you are seeing in the private client market versus the other segment. I know you don’t disclose time on the market, but I was wondering if you can provide us with at least general commentary on how the private client market is doing relative to some of the segments in terms of how inventory is staying on the market?

Hi, Peter. Absolutely happy to address it. It’s a little bit of an unusual window of time in that the interest rate increase in the fourth quarter and then the uncertainty that we have mentioned a few times related to tax policy and so on happens to be on the higher end of the impact for the smaller transactions in the private client. Just because of the fact that the effect of the interest rate is bigger on a lower price point and then the psychology in terms of the effect of tax law changes and so on is weighing pretty heavily on them as well. So, it’s actually been a larger slowdown in the last few months in the sub $10 million transaction than the $20 million and larger transactions.

Have you seen any reversals, I guess in the latest a couple of weeks compared to what you were seeing in Q4 and most of Q1, has there any signs of improvement?

Yes. As I mentioned on my comments, just in the last few weeks, there seems to be a little bit more of a movement in terms of some more inventory, possibly coming to the market. But I have to say when you have a market event as we did in Q4, both externally in terms of everything that happened in the world and particularly interest rates and then internally for us in terms of time that it took to make sure that we service our clients in the fourth quarter versus spending time on business development. Those things don’t really reverse overnight. It takes time to smooth out. And there has been improvement but it’s going to take time for both to basically work their way through.

So I guess in the context of looking out for the next quarter and assuming the pipeline is somewhat as it was in Q1. Should we assume roughly a similar decline in activity in Q2 absent any large deals?

No, we don’t really give guidance as you well know. But I can tell you that the headwinds that we experienced in Q1 are endured.

That’s helpful. And my last question I guess is constantly in the news we are hearing more about brick-and-mortar being displaced in a number of store closings. Just wondering if you are seeing any of those knock-on impacts from some stores closing and have any of your volumes been related to this theme?

We are definitely seeing the effect of the negative headlines related to retail a lot of which is overblown versus the fundamental data that we are tracking and others are tracking. So, there is concern about retail both in the multi-tenant shopping center world as well as the single tenant world that is more affected by interest rates, of course. So, we have seen more of a bid/ask gap there and we have seen more of a slowdown in the sales velocity because of that. But fundamentally, if you look at the drivers of the single tenant properties, which are basically the aging baby boomers looking for low management and sense of investments the fact that this sector has not been overbuilt. Yes, there is clearly an adjustment going on related to interest rates and interest rate expectations. But the big picture macro drivers of the business are still very much intact beyond this current, if you will sluggish market environment. On the multi-tenant side, there are number of retailers that are still under pressure. You are hearing about them everyday in the news. But there is also retailers that are expanding and we are also looking at a lot of technology companies like Apple and Microsoft opening stores as well as Amazon looking to get into the grocery business. So, there is just a lot going on and retail is constantly reinventing itself. So I would not throw the baby out with the bathwater.

That’s helpful. Thank you.

My pleasure.

The next question is from Brandon Dobell with William Blair. Please go ahead.

Thanks. Good afternoon, guys. Maybe, first for your, Marty, just so I understand how you are positioning them your margin commentary for 2017. It sounds like we should still expect year-on-year margin declines in the first half, but then maybe year-on-year either flat to up margins in the back half. If I am correct with that, I understand how that was driving that operating leverage or is it just some of the spending you have been pushing it through on technology and process stuff starts to slow down? Thanks.

Yes. Sure, Brandon. Yes, in terms of expenses, obviously, we have done quite a bit to manage our expenses as we made in our commentary. The fact of matter is that the SG&A for the first quarter is a good run-rate for the second quarter. But overall, for the year, SG&A is probably looking anywhere between $175 million to $180 million, which is a little bit lower than our last earnings call. And a lot has to do with some of the work we have been doing on our side in terms of containing cost. In terms of margin, margins just went down alone and how we see revenues throughout the year and seasonality. You will see margins continue to grow for each quarter.

Okay. And then it sounds like some decent early attraction with some of the partnerships in MMCC, I want to make sure I got the numbers correct that you threw out there and how we should think about the balance of the year expectations for MMCC at similar kind of revenue growth rate. I guess if I get a sense of how it’s going to impact the balance of the year relative to the last year for that part of the revenue stream?

Brandon, its Hessam. I will comment on that. We have put things into places as both related to these corresponding relationships the mix of hiring that we have modified in MMCC and some of the other internal things we are doing to increase internal capture share. So, we are very pleased with the early progress on all that, but again just to make sure we are being realistic. Leasings don’t pay off within a quarter or two. They take time especially with introduction of new people into the company. You have to get incarcerated and trained and so on. So really, I have a lot of confidence that we are on the right growth track, but it’s not overnight or quarterly jump. So I wouldn’t raise expectations there too much.

Okay. So maybe to that point Hessam, as you – I think you mentioned talking about the further rollout of some of these partnerships, some of these structures, etcetera, maybe where are we right now relative to added the property types for the offices that you would expect to have these ideas or these processes rolled out to by year end are we targeting first inning, are we halfway through, just trying to get a sense of how much work you have done so far relative to how much the opportunity looks like in front of you?

Sure, absolutely. Both are very, very early stage programs. They have been in pilot testing through a number of offices for the past few months. And they are just now starting to get rolled out company wide. They are both designed to enhance our multifamily business, because of the targeted loan size, ReadyCap on the small balance program and Prudential on the middle market and upper end apartment programs. So the answer to your question is both are in very early stage rollout. We have just begun the company wide rollout in the last couple of weeks in fact. So there is more room to go there.

Okay. And then final one for me, as you look at the make-up of the producers now outside of MMCC to suggest a core business, make-up of those producers in terms of average 10-year attrition or churn within the past quarter, just maybe some of the headcount or more HR focused metrics that we might think about that gives us a sense for the direction of the headcount and the average maturity of that headcount looking at the rest of the year would be helpful? Thanks.

Sure, Brandon. The mix has been very simple [ph], 35% of our sales force has been with the company for 5 years or more, it’s been very stable and obviously there is a most productive [indiscernible] of our team. And our hiring continues to focus on both new agents, brand new professionals being trained from a ground up as well as experienced agent hiring, which we have had is pretty good success with including a very experienced level office and industrial team that we just hired in Chicago, which we believe is a huge market opportunity for us both throughout the Midwest and nationally as we have stated before office and industrial both are growth areas for the company. So we are beginning to make some headway in terms of experienced agent hiring.

Okay. Thanks.

Thanks Brandon.

[Operator Instructions] The next question is from Mitch Germain with JMP Group. Please go ahead.

Good afternoon guys.

Hi Mitch.

I wanted to continue with that question in terms of hiring, obviously you are about 1 year into your tenure as CEO and you have made a number of changes, particularly on the senior management side, I know you just hired a national director for multifamily IPA, so I am curious kind of where the process of building that senior group of managers stands right now?

Thanks Mitch. It’s we made collective measurements with number of key changes we have a leadership team that is very focused and has proven to be very effective already in terms of increasing our experienced agents, hiring making sure that our current team that’s onboard is properly supported and properly guided. We have had some great successes in terms of improving agent productivity with some of our teams that were already onboard. And so the effect of that management team is really important on the existing sales force and the improvement of things like our training programs and the improvement of the utilization of our technology and support systems. And because of the new leadership team, came from leading managers that ran major offices [indiscernible] very successfully. They are very much up-to-date and very current on what it takes to make sure that our agents are being as productive as possible. So that had a very positive impact on both experienced agent hiring. This is why we are seeing some of the improved numbers there as well as the continuation of our new agent hiring, I mean the millennials obviously has a whole different mindset and different support systems needs and the new team is very much tuned to that. And I think that’s part of the reason they are being very effective.

Great. And I know there was a question about retail some of the headwinds that you are seeing in that phase, I am just really curious if you look at the different asset classes that you guys represent maybe the core three or four and then some of the other bucket, where are you seeing the most growth and where are you seeing the most year-over-year decline?

Sure. I will talk about in terms of where we saw the most deceleration if you will, all within the context of a very difficult comp, because Q1 of 2016 had some pretty amazing numbers when it came to our senior housing, for example, which included almost $0.5 billion portfolio sale as well as our self storage, which had a record quarter of larger $20 million plus transaction a year ago. So it’s a very difficult comparison, but having said that, we already talked about the retail slowdown a little bit. We have seen a slowdown in retail as well as hospitality and self storage as those three in the core business have shown the biggest slowdown again from our record levels both from the market about a year ago as well as our internal numbers. And we have seen some improvement just in the last like I said 30 days or so few weeks and more inventory coming to the market. So it seems like no longer deteriorating, but the comparison is what’s challenging for us.

Great and that’s very helpful. And last question for me, it seems like – if I look at your private customers, it seems like you probably have some guys that own asset or two or three versus ones that are really heavily invested in real estate, so I am curious one versus the other, are you seeing a general slowdown amongst both or the ones that are really invested in real estate are still transacting and the more passive investors are the ones that are taking bit of pause from the market?

It’s really both Mitch. It’s hard to generalize I know and there are so many case by case situations and nuances going to somebody decision making as to whether it’s the right time to bring inventory to market of if they just want to wait and see what happens. We are seeing this wait and see pretty much across the board as a factor. Let’s not forget that we did close 1,489 transactions in the first quarter. So clearly the market is moving. And as I mentioned in my formal comments, there is plenty of buyers in the marketplace. And we just have to keep perspective on where we have come from. These record levels that we saw in 2015 and the kind of easing of the sales trend in 2016 prior to the events of fourth quarter. We are all pretty much what I will consider a natural space of this great cycle that we are in. But the psychological component that we are talking about here is pretty broad based, it’s not exclusive to one group or the other.

Great. Thank you.

Thank you, Mitch.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call back to Mr. Nadji, the CEO for closing comments.

Let me thank everyone for joining the call on behalf of our team again. And we look forward to having you on our next earnings call. Thank you, very much.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.