Greetings, and welcome to Marcus & Millichap's First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the former presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna with ICR. Thank you. You may begin.

Thank you. Good afternoon, and welcome to Marcus & Millichap's First Quarter 2020 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 the 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 the COVID-19 pandemic, general and 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 statements 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 reconciliations to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. Finally, this conference 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 call. We would like to extend our well wishes for health and safety to everyone. We, of course, find ourselves in a dramatically different landscape from the promising start to 2020 we had shared with you in February. Critical aspects of executing real estate transactions, such as property showings, inspections, appraisals and even arranging for a notary became disrupted by mid-March as a result of the shelter-in-place mandate. Even with the onset of these impediments to our business late in the quarter, MMI achieved 19% revenue growth in the first quarter, including a 12% increase in financing fees, on top of 42% increase in the first quarter of 2019. These results reflect last year's expanded client outreach and marketing initiatives, coupled with ongoing hiring and acquisitions. Our transaction velocity in all segments proceeded at a healthy pace through mid-March when the effects of the pandemic and shelter-in-place began to constrain credit markets and real estate sales. At the onset of the health crisis, we executed a business disruption action plan comprised of five key components, including keeping our teams safe and ensuring business continuity; intensify internal education and deal troubleshooting sessions; comprehensive special report and research content production and large-scale client outreach; decisive expense reductions to preserve the company's strong financial position; and last but certainly not least, a strategic plan to maximize growth in the recovery and beyond. I will highlight specific actions in a moment, but let me start by sharing that by March 15, the entire organization has shifted to fully remote operations. This was achieved with extreme adaptability collaboration and through state-of-the-art technology and infrastructure investments completed over the past three years. We quickly adopted…

Thanks, Hessam. Total revenues in the first quarter increased 18.7% year-over-year to $191 million due to strength across all business lines. Revenue from real estate brokerage commissions rose an impressive 18.6% to $172 million, which accounted for 90% of our revenues, while financing fees increased nearly 12% to $15.4 million. Our private client market which accounted for 67% of real estate brokerage revenue increased 19% to $114 million due to a 17% increase in transactions, while revenue from our larger transaction business increased nearly 46% year-over-year to $29 million. Financing fees grew 12% to $15 million for the quarter, driven primarily by increases in both purchase and refinance transactions. Other revenue comprised primarily of consulting and advisory fees along with referral fees from other real estate brokers grew 74% to $3.5 million. During the first quarter, we executed 2,250 transactions for an increase of 15% from the prior year, while total sales volume for the quarter increased 19% year-over-year to $12 billion. We finished the quarter with 1904 sales professionals and 89 financing professionals for a total headcount of 1,993 for a year-over-year increase of 4%. As part of our continued efforts to shift our financing unit towards more experienced and productive professionals we continue to evaluate our team to ensure we have the best players on the field. As Hessam mentioned earlier, despite the first quarter's decline in headcount, we were able to increase the number of transactions and volume for MMCC, demonstrating progress in our continued efforts to increase the overall quality of our sales force. Total operating expenses for the first quarter were $171 million, up 20% year-over-year as compared to $142 million during the year ago period. The increase in total operating expenses in the first quarter was primarily the result of higher cost of services.…

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from the line of Blaine Heck. Please proceed with your question.

I think that was me. Thanks. Good afternoon guys. Just -- I guess more of a big picture question Hessam. Like, you said your transaction volume held up very well in the first quarter. But as you guys point out, this is a whole new world here in the second quarter. So, given that we're over a month into the second quarter can you just talk about what you've seen thus far in April on the transaction side? And maybe what's a reasonable assumption for us to make for the decrease in second quarter deal activity, if we assume that things stay pretty consistent with where they are today as we look out through June?

Let me give as much of my thoughts on the question as I possibly can. You're absolutely right. And then the first quarter had the benefit of a couple of very strong months in January and February and March started out very strong as well. And as we went through the month, of course, the effects of the shelter-in-place and the capital markets basically starting to freeze up began to affect transaction velocity. Probably a good benchmark to look at is, if you look at RCA's published transaction numbers for the first quarter they reported, a 7% decline in total. But if you look at their April numbers, it was about a 45% -- 44% decline for the month of -- I'm sorry for the month of March. And so, as you carry that forward the assumption is that, more and more of the effects and the constraints in the marketplace took shape and transaction velocity drops even further than that March number. That would be the same case for us as a reflection of what's happening in the broader market. The other thing that I can say is that, this is a highly unusual window of time and that we've been through downturns before. We went through the '08, '09 downturn before of course. But that market impact played out over approximately eight quarters in terms of the peak sales activity in the marketplace and for us to the bottom. This has happened over one quarter. So, it's going to be a very dramatic and steep disruption but a temporary one because of the fact that you're compounding a market disruption from a standpoint of financing availability, pricing uncertainty, the economic uncertainty with the physical impediments doing business due to the shelter-in-place. So when you combine those two effects together, you do get this extreme disruption that we expect to be temporary here in the second quarter.

All right. That makes a lot of sense. It's very helpful color. And then my second question, just on the recruiting and retention side of things. I think there seems to be kind of two competing forces there in my estimation. And correct me if I'm wrong, but it seems like retention could get a little bit tougher the longer the crisis persists just given that your brokers are paid on commission alone and some might not be able to bridge that gap between earlier this year when the investment sales market was wide open and whenever it recovers. But then, you've also got the opportunity to maybe go out and use these recruiting fairs you mentioned in your prepared remarks or even acquire some of these smaller firms like you have been doing and hopefully the pricing on those deals has been improving for you guys. But with those acquisitions obviously come additional professionals. So, I guess, is that the right way for us to be thinking about it? And how do you think those competing forces kind of net out this year? Does your workforce increase or does it decrease?

Sure. Well, if you look at history, your comment has confirmed that in a tougher market environment, newer professionals that just don't have experience yet or their client relationships yet, find it harder to basically survive in a lower velocity environment. We've seen that happen many times. And -- our normal fallout rate of newer professionals increases during market disruptions. I don't think this will be any different. So, there will be a higher degree of natural loss of newer and less experienced brokers because of that. At the same time, to your point we are shifting more of our hiring towards experienced professionals. That's going very well. If anything that might pick up. In fact, we are working very hard to make sure it picks up. And on the front of the -- sort of the offensive front of hiring new talent, we're not stopping the interviewing the selection, the evaluation of new and experienced professionals. If anything through these virtual fairs and virtual interviews, we've kept that and focused very much a part of what our managers do and plan to continue to do so because, there is still talent out there. There are a lot of people who like this business. And whether there's a downturn or not, they're going to want to join our company. But at a time of disruption, there are usually fewer people that are looking for a commission-only type of a structure. Now, we have grown our teams in the past and we are able to add a lot of newer folks as mentees or as interns within some of our existing teams. That's another strategy that's been working very well for us. Net-net this year is going to be a very challenging time for us in terms of increases to the sales force. It's very hard for me to forecast where we'll end up for the year. Part of that has to do with whether this is a one-quarter disruption or a two-quarter disruption and the time frames being very uncertain at this point. But we're not slowing down any of our traditional efforts both new agent recruiting and training and experienced agent recruiting and acquisitions, because of the disruption.

Great. Thanks a lot for the color.

Thanks for questions.

There are no further questions. I'd like to hand it back to management for closing remarks.

Thank you, operator, and thank you to everybody for joining this call. We look forward to getting back on the road and seeing a lot of you in person in time. We wish everyone health and safety as the economy reopens being very careful, related to health and this virus stays a very, very high priority, hopefully not just for our company but for everybody, so that we don't have the risk of another wave of this disruption. Thank you very much and the call is adjourned.

This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.