Ladies and gentlemen, greetings and welcome to the Marcus & Millichap’s First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna. Thank you. You may begin.

Thank you. Good afternoon, and welcome to Marcus & Millichap’s first quarter 2018 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 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, 2018. 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 and earnings conference call presentation, 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 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 a slide presentation you may reference during the prepared remarks. With that, it is 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 first quarter 2018 earnings call. We began the year on a positive note. Our expanded client outreach and marketing initiatives over the past year along with investments in brokerage tools and infrastructure generated steady improvement in our results. These countermeasures to heighten market uncertainty and interest rate volatility culminated in total revenue growth of nearly 14% for the first quarter and 16% in brokerage revenue, with improvements across all market segment. These efforts reflect the agility and expertise of our team and helping clients exceptionally navigate through changing market condition and a hallmark of our value-added brokerage model throughout our 47-year history. Investor sentiment was much improved during the first quarter due to solid economic performance and the passage of the new tax law in December of 2017. Commercial real estate investors continue to perceive the new law as favorable. At the same time, the 50 basis point rise in interest rate and persistent bid/ask spread kept sales transactions in the market flat to modestly higher during the quarter, as reported by RCA. We believe this also points to additional share gains for MMI, as our total transactions grew 6% and private client transactions grew 4.2% in the first quarter. In our view, the market does not yet fully reflect the benefits of improved investor psychology and positive aspects of the new tax law for commercial real estate. Answers to tax treatment question in specific areas are slowly emerging, which we expect will gradually lead to more capital formation and buyer demand throughout the year. This, coupled with steady economic growth and still-healthy profit fundamentals, should counter rising interest rates to a high degree. Taking a closer look at…

Thanks, Hessam. Total revenues in the first quarter increased 13.9% year-over-year to $175 million, primarily due to revenue growth from our real estate brokerage solutions, which grow 16% to $163 million, driven by strong performance in all market segments. Our real estate brokerage business accounted for 93% of our total revenues during the quarter. Revenues from our larger transaction market segment grew 47%, as compared to the 40% decline during the same period last year. The mid-market business had a strong quarter as well, growing 42% on top of the 12% increase in the prior year. Lastly, our Private Client Market segment grew 6% on a year-over-year basis. Overall, performance was encouraging when compared to a market that was flat to modestly higher in previous year. Total sales volume for the quarter increased 15% on a year-over-year basis to $9.8 billion, supported by strong sales in multifamily, hospitality, industrial, as well as storage. The market was particularly challenging for these property types during the first quarter 2017, and this year’s volume increase was also elevated by gains in our mid-market and larger business segment. Revenue from financing fees generated by MMCC fell roughly 3.3% to $9.7 million for the quarter, reflecting an 18% decline in refinancing fees, partially offset by purchase-related financing fees increasing 7%. As Hessam discussed, our mix of purchase and refinancing fees mirrors the current market dynamics of an active sales environment. Now the revenue comprised primarily of consulting and advisory fees along with referral fees from other real estate brokers down 24% to $2.3 million in the first quarter. Total operating expenses for the first quarter were $151 million, that’s nearly 13% year-over-year. The increase was due to higher cost of services, SG&A and depreciation and amortization. Cost of services increased 13.4% year-over-year and as a…

Thanks. Ladies and gentlemen, we’ll now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Pete Christiansen from Citibank. Please go ahead.

Good evening, guys. Nice trends and congrats on a deal.

Hi, Pete, thank you.

Thank you.

Hessam, I was wondering if you can just give us a sense of some of the terms of the deal and maybe potential contribution, I guess, or at least on an annual basis what kind of revenue or even profitability would be helpful as well that that Pinnacle has been doing?

Pete, we’re not in position to disclose those kinds of details. But what I can tell you is that, the addition of Pinnacle is a very important addition to our services in an area, particularly our Cleveland office and number of other Midwest offices, where we don’t currently have MMCC representatives. So we’re bringing in very, very seasoned senior level partners of Pinnacle as a part of our team and their support staff and so on. We immediately add a very important service component for our clients and our investment sales teams. And so it is just almost immediately value-add, because currently we have no MMCC representation.

So this feels you had buoyed [ph] in the Midwest, does this – do they have added capabilities that you currently don’t have it, you’re able to expand to other areas, other regions?

Well, the advantage of Pinnacle was that they also have a servicing portfolio that’s been part of their business for a very long time. And they have longstanding relationships with life insurance companies and CMBS lenders, which MMCC typically has not done a lot of business with. So both of those advantages are definitely transferable to other opportunities across the company through our more senior existing loan originators. But I really want to emphasize that we run our businesses at a very local level and the driver of this transaction was primarily making sure that the team we have on the ground now has a world class financing origination capability. The ancillary benefits of been able to open up or the other advantages through servicing and other types of lenders to our other team is really secondary.

Thanks and one more before I go back into the queue. I hate to put it on the spot, but we’ve been talking about capital return to shareholders for awhile here and I know that M&A is certainly your priority and that makes a ton of sense. What are the next pieces of a puzzle you think there are for MMI to come up with a decision or some type of framework as it relates to returning capital back to shareholders? Thank you.

Sure Pete, see it’s really a process and that the variable since the last call that we held is that, we are seeing a transitioning M&A market environment. We’re seeing valuations become more reasonable and having been patient over the past several years, at the same time I’ve really expanded the company’s visibility and platform as a public company. There are lot of people out there that are more intrigued and more familiar with MMI than ever before. So there’s more interest and there’s, in our opinion, an evolving kind of an environment for M&A and the hoots is to really participate in that, and look at that window of opportunity first and foremost that’s why it’s our priority right now.

Thanks guys, nice share gain.

Thanks.

Thank you. Our next question comes from the line of Mitch Germain from JMP Securities. Please go ahead.

Thank you, and nice quarter.

Hi, Mitch.

Hessam, just to that point, have you shelved or just postponed thoughts around a dividend or call it specialty advance?

No, we’re evaluating it, it’s definitely an important topic of discussion. But from a priority perspective given the changes in the market environment that we’re seeing in last 60 days our focus really has been to look at the many opportunities and remains right now.

Great, that’s helpful. And I know that you’ve talked about total producers and changing your hiring methodologies and might have some fluctuations around the total number of producers maybe trimming some of the bottom 5% or so. Surprised to see as large a decline in the MMCC division, was there anything behind that? And is it really waiting for new leadership to grow or are you actively pursuing new producers there as well?

Sure, Mitch. First of all, we’re waiting for nothing, the transition in terms of leadership and Bill Hughes is going into retirement, he is not slowing down any of our initiatives or focus on services at all, so I want to make that very, very clear. And it’s really nothing different than what would be messaging and the reconfiguration of our sales force. It takes longer to recruit experienced folks as I mentioned in my formal remarks. And so there’s been no change of direction or any surprise factor to that, only more of a focus on it. And we do expect that to start to stabilize in the coming quarters. But there’s going to be some noise in the numbers as we move forward.

Got you. Two more from me. Number one, are you seeing a narrowing based on the discussions you’re having a narrowing or a widening of the bid-ask spread?

It’s pretty stable overall, obviously there’s a lot of variation by property type and by locations. It seems that there’s a kind of a dichotomy between a lot of positive forces, including the tax reform which is very positive for commercial real-estate, great fundamentals, ongoing rent growth and of course we now have the higher interest rates on the other side of the ledger. And those dynamics are just kind of working their way through, ending up with a pretty stable bid-ask spread, we haven’t really seen it coming or widen in the last quarter.

Got you. And last one from me. Just curious about some of the dialogue you’re having. I know that you guys – you’ve mentioned there’s a number of marketing events that you’ve been hosting, I’m curious about the dialogue and the sentiment across the private segment of your business or your core customer, as well as maybe just directionally how pipelines sit today? Thank you.

Sure Mitch, the market sentiment, particularly in our private client core business has definitely improved in the last few months. There is hesitation in the marketplace because of this bid-ask spread. We have no distress in the marketplace, so our sellers don’t see a reason for unjustified price adjustments and buyers that are waiting for distressed pricing are very frustrated and going to remain very frustrated. But at the same time, realistic pricing there has been some movement in interest rates. There are reasons that pricing of the 2015, 2016 peaks are not justified in a number of situations. And when they’re adjusted, the product moves very quickly and we have multiple offers on those reasonably priced asset. The sentiment has improved. We haven’t really seen it translate into more transactions yet, but we anticipate that over the unfolding quarters it will.

Thank you.

[Operator Instructions] Our next question comes from the line of Stephen Sheldon from William Blair. Please go ahead.

Yes, hi, and I appreciate taking my questions. I guess first, just really strong production volume growth, particularly in mid and large markets. I know you had a new comp for larger transactions, but anything else to point through to grow the strong volume growth in those markets? And did you see that strength continue into April and early May?

Hi Stephen, well, as we mentioned the improvement in the mid-market and larger transactions were large contributors of the first quarter results, but also let’s not forget that our core product line which makes up by far the largest portion of our revenues had a very healthy gain on a year-over-year basis. So that is a function of a lot of our activities, frankly mostly because of the added initiatives that we have taken over the past 12 to 18 months to increase our market share, increase our market coverage. On the larger and mid-market transactions, as a remainder, those are much more variable. We could have some large quarters and we could have some – no so large quarters or even declines from time to time. And a lot of those – I also want to be clear that the larger transactions aren’t necessarily just institutional transactions. A lot of our private clients are now in the $10 million to $20 million price range and $20 million and above price range. So it’s not limited to just institutions coming back to the marketplace more than they did a year ago. So it’s a combination of all those different factors. And as a reminder going forward, it’s a kind of growth that we’ve experienced in the first quarter will be a much more difficult comp because of our sequential improvement each quarter of last year.

Hey, Stephen, this is Marty. Just to add on to that, just want to remind everyone that, if you look at the growth or the decline in the large transaction business in Q1 2017, it actually declined 40% year-over-year. So that kind of accounts for the large group this quarter.

Okay, I understood. And then on Pinnacle, it sounds like a net compliment to your financing business. And I know you’re not giving financial details on Pinnacle. But I believe you said, the company has type of like 17 employees. Any detail on how many kind of front-line financing professionals the acquisition [indiscernible] business?

Sure. Sure, happy to share some of that with you. Pinnacle has a five mortgage originators and a very professional levels of work staff and great infrastructure and systems that Rich set out for their mortgage brokerage business, as well as their serviing business over the years.

Okay, that’s very helpful. And then I guess, in your view, do commercial real restate participants have the clarity basically on tax changes, to become more comfortable taking advantages of those changes during the near-term or do you still perceive a lot of uncertainty regarding interpretation?

Well, there is a big contrast in the market environment right now versus throughout most of 2017 when the market place was waiting for tax reform. What it was going to look like? Echo [ph] was going to be favorable for real-estate or not and the broader economy. And the answers to those questions have been answered, it is very favorable for commercial real-estate. There is evidence that it’s starting to spur corporate investment, which is very good for commercial real-estate demand of all sorts and so from that perspective at the macro level has already been a positive, a sentiment mover. However, there are mechanical questions that a lot of our clients are still trying to get answers to, they want to transact, they want to set up partnerships, they want to set up different strategies to take advantage of the environment. But there is questions that the definition of pass-through entities or details of mortgage stability or exhorted depreciation. So there’s all mechanics that are still being worked through with answers coming, they are beginning to come is gradual and that’s they we believe it’s kind of a process before the real effect of this favorable tax package should it trickles through the market place.

Got it, thank you. I appreciate the color.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time, I’d like to turn the floor back over to management for closing comments.

Thank you operator, and thank you everyone for joining our first quarter call and we look forward to having you join us on our second quarter call in few months. Thanks a lot.

Thank you ladies and gentlemen, this does conclude our teleconference for today, you may now disconnect your lines at that time, thank you for your participation and have a wonderful day.