Greetings, and welcome to the Marcus & Millichap Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Evelyn Infurna, Investor Relations.

Thank you. Good afternoon, and welcome to Marcus & Millichap's Third Quarter 2017 Earnings Conference Call. With us today are President and 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 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; 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 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 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 measures and explanations of why the company believes such GAAP – 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, www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that it is now my pleasure to turn the call over to Hessam.

Thank you, Evelyn. On behalf of the entire Marcus & Millichap team, good afternoon, everyone, and thank you for joining our third quarter 2017 earnings call. The Company's third quarter performance began to show key improvements resulting from our four-pronged strategy going into 2017. Those strategies include rebuilding our inventory and new business pipeline as a productivity disruption we experienced in the fourth quarter of 2016. As you may recall, this was the result of the postelection interest rate spike and ensuing latency market sentiment. Expanding our investor outreach and business development campaigns was the second strategy, which help to counter a slowing sales market. The third strategy was continuing to hire and develop but brokers particularly increasing the experience sales and financing professionals that we're recruiting. And leveraging the recent enhancements through our financing platform, unlimited relationships to grow our financing business with the fourth strategy. Throughout the year, we've also been steadfast on long-term growth initiatives including expanding our footprint and strategically importing metros as well as investing in new technology, proprietary tools and brokerage support. In the third quarter, we achieved modest year-over-year topline growth of 1.5% for the first time since the onset of a more challenging market environment in the fourth quarter of last year. This improvement also comes against a top comparison to last year's third quarter revenue growth of 8.7% and was the result of the specific strategies I summarized above as market headwinds persisted during the quarter. Let me take a moment to recognize the exceptional efforts and inclined results of our sales and financing professionals, which led to this improvement. Our efforts over the last year to manage cost in certain areas while investing and strategic initiatives help to produce modest net income improvements of 2.2% during the quarter. While these…

Thanks Hessam. I’ll be discussing our third quarter 2017 result in greater detail. Total revenues in the third quarter increased 1.5% on a year-over-year basis to $183 million, primarily driven by real estate brokerage commissions which saw a revenue growth of 2.2% to $169 million. This increases partially offset by a decrease in other revenues, which includes consulting and advisory services, while our financing revenue was relatively flat. As Hessam discussed, despite our improved performance in the third quarter, the sales transaction market continues to be challenging. And based on our results, we believe we continue to increase market share. Taking a closer look at the quarter, we were able to grow real estate brokerage commissions and transactions by 2.2% and 4% respectively. This is the first time each of these metrics rose on a year-over-year basis since the third of 2016. We believe this is a direct result of our brokers’ efforts over the past three quarters to navigate our clients through a challenging environment of market uncertainty. As in the second quarter the distribution of transactions over our four key market segments in real estate brokerage varied widely. Most notably, we saw in 19% increase in larger transactions, a marked improvement over the first half of 2017, of top of last year's strong transaction growth of nearly 27%. This strong performance helped to raise average transaction by 1.1% and reduced the average commission rate by 60 basis points as larger transactions carry lower commission rate. Revenue from our real estate brokerage Private Client business for the third quarter grew 2.2% on a year-over-year basis. As a result of a 7% increase in the number of transactions. This market segment makes up approximately 70% of our total brokerage revenue. Revenue in our middle market were $10 million to $20…

At this time will be conducting a question-and-answer session. [Operator Instructions] One moment please while we pole for questions. Our first question from Brandon Dobell, William Blair. Please proceed with your question.

Thanks, afternoon guys. Maybe for Hessam a little more color on your thoughts around the various tax proposals that are floating out there, both from a perspective of are you seeing what you thought you would see, but also your discussions with clients both from the listening side as well as the buy side. How do they view the current proposals relative to what they think about in terms of transacting business what kind of properties to own, et cetera.

HI Brandon. In addressing the question I can tell you that the general reaction from our clients has been positive, given current proposal in its form, obviously the 1031 exchange question was an important one, there was a lot of noise in back and forth. Again right this minute we really don't know what the final resolution will be, but the proposal was perceived well as it relates to 1031 exchanges, the interest deductibility, depreciation, carried interest and the 25% tax rate for passthrough business. Question [indiscernible] is how much change will go through before it’s spun. Obviously California residents and New York residents are concerned about the elimination of the state income tax. From an economic perspective what is that to the economy of those very important states, not just for us, but for the entire country. And the housing market obviously if the mortgage deduction is reduced significantly. So it’s still very speculative, but the general reaction from our client base over the past several days has been very positive regarding the specific areas that affect commercial real-estate.

Got it, okay thanks that’s helpful. And then as you looked I mean if it’s on a year-to-date basis but even more so this past quarter at, where the other transactions per producer or dollar volume producer trends were going kind of by cohort? Right. So they're more tenured, to the ground a handful of years, they’ve also been around for a couple of years. I’m looking for some color I guess on if you see that top end of the tenure group still doing all the business, or if there's been some sort of reversion back to the mean where you see the agents that have been around for three or four years started to get a bigger chunk of the transaction volume?

Sure so generally speaking in a more challenging market environment, you can always expect the more experienced brokers will perform better. We have so many people who’ve been with us for 10, 15, 20 plus years and there have been through cycles. So they have the experience and the skill set. But the general statement that still hopes and we we've seen it in play. In the more recent quarters the more important trend has been a change in mix of transactions for our larger transactions that are even more predominately done by our more senior agents last year were up quite a bit and then this year in the first two quarters there were down as there was a little bit of a recovery in that in the third quarter. But as a portion of our overall business larger deals are down, therefore you see the effect of that on the average commission rate and the commission payout. So statistically speaking it doesn't show in the numbers in terms of the strength of the more experienced people because of the skewed [ph] mix in proportion of larger deals. But generally speaking Brandon that experience we've always seen in market shifts and changes, I still hope that the more experienced people’s skill set really comes to play.

Okay. And then final one for me Marty, just to sure I'm on the same page so as guys are thinking about SG&A expense trends, the seasonality between Q3 and Q4 in the SG&A line has reversed a couple times over the past three years. So as you think about fourth quarter versus third quarter or fourth quarter versus last year's fourth quarter, anything that we should really focus on or you want to point out that would change how perhaps last year’s seasonality looked? May be some catch up on spending or something else that just flows through that SG&A line that may look a little strange, thanks.

Hi Brandon. Yes in terms of SG&A during the third – I mean excuse me, the second quarter earnings call I mentioned to everyone that the fourth quarter looked to be anywhere between $2 million to $3 million greater than the run rate. And as of today that really still holds as we speak.

Got it. Okay, thanks guys.

Thank you.

[Operator Instructions] Our next question is from Mitch Germain, JMP Securities. Please proceed with your question.

Good evening.

Hi Mitch.

I'm curious, Hessam I know that you've talked about some of the private clients, volatility clearly causes some slowdown in caution in their ability to – in their willingness to transact, I should say. How much is the pricing environment and reinvestment risk creating a slowdown and their willingness to trade here?

That’s a pretty big factor for sure. As you would expect we've seen this before in other market cycles as the market comes very, very strong as the market is today with occupancies at very high levels, rent growth very healthy, prices having appreciated a lot it becomes more challenging especially in a market that has left the stress or actually next to no distress at all. To think about treating out of a particular property type into another property type or trading out of a particular geography into another, and that becomes a very natural cyclical hurdle. Again our more experienced agents are masters at this because what we do is provide education to that particular investor that is very married to their existing cash flows but they're not really paying attention to the yield arbitrage or the return on equity that they could really enhance by trading into another property type or market area. And that is really the art of brokerage. We are facing that as a market-wide hurdle as we’re interacting with our clients.

Got you. I know one of the core principles of the strategy when you guys first went public was looking at some of the alternative asset classes. I think you mentioned a couple like lodging and self-storage on the call, one positive one negatively. But I’m curious as to how that process has played out and kind of what level are you sitting with some of those property sectors? Is there still a significant amount of investment or now is it really just an education of existing brokers to try to build their greater penetration into those alternative assets?

Sure. It’s really a local strategy when it comes to the diversification by property type where our managers are not supported by executives that have backgrounds in everyone of the diversified products sets that we want to expand into. So we have a head of office, we have ahead of market the retail market, we have a head of our institutional practices, and so on. That support level to the local, regional manager and their ability to recruit experienced people in those specialties and then build around them in some cases actually redeploy some of our existing people with better training and better specialized, underwriting specialized packaging, happens at the local level with corporate support from our specialty division, with these various skilled executives in charge of each property type. On top of that all the different events that occur within the industry for each property type like self-storage, like hospitality, like office, industrial too, let say NAV and all the other organizations that cater to each property type, ICSC for retail, National Multihousing Council for apartments are very important outlets for our branding, for our content, four us to a major presence in. And we’ve made significant investments in making sure that the company is very well represented through these partners throughout the industry. So these are some of the examples of the ways we've enhanced our ability to develop office specialty agents, multi tenant retial, and as our single tenant retail has been dominant specialty for us, but even within retial we have a lot of room for growth, on the multitenant side. So a lot of our training and focus, including the recruiting part of it is geared towards that within the retail segment. And this carries out for each major property type. So I am very happy to tell you that that diversification at the local level supported by our national infrastructure is a very important part of our strategy and it’s happening as we speak.

Great. That's very helpful. I want to just to touch on the MMCC in terms of obviously we've seen some of the number of dedicated professionals trying trend a little lower. I'm just curious I know it's been a real big area of focus for you in terms of hiring professionals and the new relationships with prudential and trying to get lenders on Board. Is it just really more of a timing perspective I know last quarter benefited from the – financing activity. Is there anything that we should think about going on here which is just maybe more or less just a function of timing and deals are flowing into maybe the fourth quarter?

Well from the standpoint of the refinance activity, as you know it’s been very strong throughout the year especially in Q1 and Q2 of this year when the transaction market had flowed severely. I think we are in the first quarter. And then we’ve seen a little bit of an easing on the degree of decline on the transaction side there was a little bit more tendency to actually transact then to refi in the third quarter that we've seen so far in 2017. Nothing dramatic in terms of what we're doing or how we’re interacting with clients. The quarter just happened to be more driven by actual sales than refis. But our effort to provide both transaction financing, refi debt or just advisory service on how to navigate this market is still very much intact, I mean those options are always on the table when we are interacting with our clients. Regarding the headcount, it is a matter of timing in the way that the numbers are working right now, because the timeframe it takes to hire more experienced individuals obviously has a longer lead time and a longer process. But we feel its important to make sure that we only have qualified people on our team now and where we don't we're making the change, even if it takes time to replace people that we may made terminate with the right replacement. It is better to make sure that we're recruiting for the right people in the right market. And so that it is just a matter of time as you said.

Got you. Last one from me. Marty is there a way to quantify kind of, I guess you're suggesting that you should get a little more leverage on the slowdown and tech spending next year and then beyond? I guess I'm just trying to understand maybe if you can quantify kind of what that means for the number, please?

Yes sure, Mitch. I mean we've always that we're always trying to grow expenses at a lesser rate than revenues. So I've also mentioned that in terms of trying to pin that down to a percentage we typically look at anywhere between say 65% to 75% of revenue growth.

Got you. That's helpful. Thank you.

Thanks Mitch.

Ladies and gentlemen we have reached the end of the question-and-answer session. And I would like to turn the call back to Hessam Nadji for closing remarks.

Thank you operator. And thank you everyone for joining our call. We look forward to having you on our fourth quarter 2017 earnings call. Thanks a lot.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.