Greetings. Welcome to the Marcus & Millichap Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Evelyn Infurna, Investor Relations. Ms. Infurna, you may begin.

Thank you. Good afternoon and welcome to Marcus & Millichap’s second quarter 2019 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 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 filed with the Securities and Exchange Commission on March 1, 2019. 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 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 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 the slide presentation you may reference during the prepared remarks. With that, it is my pleasure to turn the call over to Hessam Nadji.

Thank you, Evelyn. On behalf of the entire Marcus & Millichap team, good afternoon, everyone and thank you for joining our second quarter 2019 earnings call. I am happy to report that our intensified client outreach and marketing campaign in the past several months, combined with steady hiring and acquisitions, resulted in revenue growth of 5.1% or a second quarter record of nearly $210 million. This reflects sequential progress in replenishing our transaction pipeline and listing inventory, which has been depleted in the fourth quarter of 2018 due to our record closings. Renewed momentum in our brokerage revenue growth after a record-breaking 2018 has been gradual and more challenging this year due to a shift in investor sentiment. As we noted on our last earnings call, heightened economic concerns and the Fed interest rate course reversal have pushed many investors back into a wait-and-see mode, particularly in anticipation of falling interest rates. As a reflection of this shift, overall market sales declined by an estimated 7% in the second quarter and 13% for the first half according to RCA. One of the hallmarks for the Marcus & Millichap platform is our ability to mobilize our sales force and fine-tune the educational and advisory service value our team brings to investors at times of market change. This remains our core strategy, combined with a steadfast focus on broker hiring and development while supplementing organic growth with acquisitions. For the quarter, revenue growth of nearly 9% in private client brokerage and 14% in our financing business were points of strength. We also closed some delayed transactions from the first quarter and resurrected some transactions that had fallen out of contract. Also on a positive note, our died transaction ratio has eased back to its 3-year average, and our sales force grew by…

Thanks, Hessam. I will be discussing our second quarter 2019 results in greater detail. Total revenues in the second quarter increased 5.1% year-over-year to $210 million driven by a 3.9% increase in real estate brokerage commissions to $189 million and a 14% rise in financing fees, which increased to $18 million. Real estate brokerage commissions, which account for 90% of our revenue, reflected the strength of our private client market segment, which is up nearly 9% in the second quarter to $129 million. This segment contributed approximately 68% of real estate brokerage commission revenue. Our middle-market revenue decreased 2.2% to $27 million, in part due to transaction count decreasing approximately 5.9% during the quarter as well as a difficult year-over-year comparison. In the prior year, this segment’s revenue increased over 35%. In addition, revenue from our larger transaction business decreased 11% year-over-year to $26 million compared to a 29% increase during the second quarter last year. Other than tough year-over-year comparison and the variability of larger deals discussed on past calls, we don’t see any fundamental change or issue in our long-term ability to penetrate larger transactions as a supplement to our private client business. During the quarter, total transactions increased 7.6% to 2,535 and total volume increased 14.1% year-over-year to $13 billion, with strength particularly in financing. Revenue from financing fees generated by MMCC grew a healthy 14% to $17.7 million for the quarter as a result of a 12% increase in financing transactions and a 2% increase in transaction size. For the period, we saw financing activities spread equally between purchase and refinance transactions. Other revenue, which is comprised primarily of consulting and advisory fees, along with referral fees from other real estate brokers, rose 44% to $3.2 million. The outsized increase was primarily driven by 2 large…

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

Thank you. So the decline that you referenced in the multifamily sector, do you view that as temporary on the heels of some of the rent reform and other legislation that’s out there or do you think that – is it based on inventory? Is it pricing? What do you think is causing that decline?

Hi, Mitch. This is Hessam. First of all, I want to apologize to everybody for some technical difficulties that may have affected some of our attendees. I believe that has been resolved, and hopefully everyone was able to get back on. Mitch thanks for the question. The trend that we’re seeing right now we believe is temporary and that multifamily fundamentals are extremely strong. Yes, there’s been a lot of discussion and concerns about rent control in various metros. But if you look at the totality of the marketplace, there is so much inventory and so much investment opportunity for our clients everywhere. We did have an exceptionally strong year last year. And the market was also up last year versus a market decline in terms of sales so far this year. It is, for sure, an internal challenge for us after an exceptionally strong and record year last year but, also, we’ve seen a slowdown in market transactions as well that we believe will work its way through the market in the next couple of quarters.

Great. How do you quantify the return on the marketing and investor education events? I mean, it sounds like that activity is up. Assuming that it’s a bit of an initial drag, how is that – how do you kind of view the progress and return on those different events?

Every one of these events that we host and every one of the campaigns that we run has benchmark goals that we compare to previous campaigns and previous events. We look at the investor attendees. We look at the number of listings that are committed prior to the events. We look at the listing to eventual sales ratios and also track the clients that attend, whether it’s webcast or physical event. So there’s a pretty wide array of metrics that we measure on all of our events and activities because we want to know if they’re working and what else we need to do to enhance them. The incremental cost of these, you’re right, can be a drag in a given quarter or two when we accelerate these activities and different things that we do to promote listings or increase our client outreach. But over the long term, there are not significant incremental increases from quarter-to-quarter. We are very mindful of the fact that it all has to result in additional listings and closings eventually.

Got it. I think last one from me, hiring is obviously up and kind of in line or even ahead of kind of what you typically guide for a year. Just curious if – the composition of hiring, are you back to looking toward more entry-level or is still there a significant focus on experience?

Sure, Mitch. About 3 years ago, as you recall, we launched the initiative to increase our focus on experienced broker and loan originator hiring, and that has resulted in some very good additions to our company. That has not changed at all. We continue to emphasize that. If anything, we’re getting a little bit more traction. At the same time, we have not slowed down our entry-level, organic growth-based hiring and development either. But we’re going down both paths, and both are very important to the future growth of the company.

[Operator Instructions] Our next question is from Stephen Sheldon of William Blair. Please proceed with your question.

Good afternoon, and congrats on the results. You sounded pretty cautious last quarter with the need to rebuild the pipeline and seems like you’re able to do that pretty quickly. So a couple of things there. One, can you talk about how trends this quarter kind of played out relative to your own expectations? And then two, any detail you can provide on maybe what allowed you to return to growth so quickly? Was that more of the impact of what you did on your side with the outreach and the marketing efforts or did investor urgency maybe pick up, at least a little, throughout the quarter two?

Hi, Stephen. Yes, I’ve mentioned on our formal remarks, actually replenishing the pipeline and increasing our listing inventory has been gradual, and what we feel to be below normal in a situation where we had a record fourth quarter in 2018, actually really a record year in all of 2018. So we are making incremental progress. There is definitely visible improvement, and there was for the second quarter as well which contributed to our results. But the degree of it is below normal in our estimation. And that’s because of the wait-and-see attitude that has reemerged in the market. Primarily as a lot of private investors have noticed interest rates coming down starting in February, March, and in anticipation of further interest rate reductions, have become slower to act, both in terms of acquisitions that were underway and new acquisitions. So that’s the primary headwind that we faced in gaining the kind of momentum we’d like to see in our pipeline and our inventory. So I wanted to clarify that commentary from our formal remarks. And the pace continues at about the same rate in the current period. We’re not really seeing much change. Obviously, there’s a lot of market uncertainty. I mean, just in the last couple of days, there’s been a lot of negative headlines and concerns about global economic issues, trade wars escalating and so on. Those do affect investor sentiment. And our segment is not immune to it. But it comes down – for us, it comes down to contacting more clients, getting closer to more investors, assessing their situation, bringing in our platform’s variety of investment choices and being able to really connect with more people on what their options are, which includes refinancing and transactions. In the first quarter, as the news was really emerging with a shift from the Fed raising interest rates and signaling toward more increases to the opposite, refis really became a more popular option. We saw an evening out of that in the second quarter as the market absorbed the Fed reversal, if you will. So it’s really a combination of all those dynamics that are driving us. We’d like to see our pipeline and inventory grow at a faster rate, and we’re working through the headwinds and the current that’s been caused by these market factors.

Got it. Helpful. I guess, on the timing issue, I think you’ve mentioned some delayed closings in the first quarter that subsequently closed in the second quarter. Is there no way to quantify that impact? And then just with all the puts and takes, can you provide any commentary on where the pipeline currently or, I guess, at the end of the quarter kind of sat, year-over-year – on a year-over-year basis?

Let me address your first question regarding delayed transactions. Yes, we did see a portion of our business that was scheduled to close in the first quarter get delayed, and that did contribute to the second quarter. It was one of many contributors to the results in the second quarter. It was not a defining contributor, but it was one of several. And in terms of the pipeline, all I can say is that we’re seeing gradual increases in our pipeline. And the fact that there’s an internal complement to rebuilding the pipeline and inventory when you have a record, exceptionally high level of activity in the fourth quarter of 2018, that has 2 layers to it. One is the fact that you still more of your inventory than projected. And two, is that our sales force is so busy closing transactions and taking out our clients, they’re spending less time developing new business. So it takes us a couple of quarters usually to begin to recover from that. And then compounding it is the headwind that we discussed, that’s why it’s more gradual than we’d like.

Okay. Then last one from me courtesy of the Form Acquisition. Just as we think about layering that into our model, any detail you can provide on number of producers that acquisition would include?

Form has a great team of 4 senior partners and an overall team of 11 professionals, which includes support staff and additional producers. They’re top-notch. We’re very excited about having them on board. And their business philosophy is so well aligned with ours, we really think this is going to be a case of one plus one equals four or more as some of our other investments have begun to illustrate. Remember that it takes time for a new group coming in to a large organization to enculturate. There’s system integration steps, and for any brokerage group, remember the continuum includes contacting clients, getting new listings, marketing those listings and closings. So it’s typically about a 6 months or so transition process before there is a momentum of transaction closings and revenue production. All the companies that we bought are in various stages of this integration. Remember that our prior acquisitions were mostly done in the third and fourth quarter of 2018 and the first quarter of 2019. So we’re just in that ramp-up process, and with Form, we hope to accelerate that as much as possible. But there is that natural integration and enculturation process.

Great, thank you.

Thank you.

We have reached the end of the question-and-answer session, and I will now turn the call back over to Hessam Nadji for closing remarks.

Thank you, operator, and thank you, everyone, for joining our second quarter 2019 call again our apologies for any technical issues that you may have experienced. And we look forward to seeing you on the road and having you on our next quarterly call. Thank you very much.

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