Greeting. Welcome to the Marcus & Millichap's Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now turn the conference over to your host, Tom Shearer. You may begin.

Thank you. Good morning and welcome to Marcus & Millichap's fourth quarter 2021 earnings conference call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. 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 can 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 and the 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 March 1, 2021. 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 morning and is available on the company's website, represents reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful for investors. This conference is being webcast, and the webcast link is available on the Investor Relations section of our website at 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 CEO, Hessam Nadji.

Thank you, Tom. On behalf of the entire Marcus & Millichap team, good morning and welcome to our fourth quarter 2021 earnings call. I am proud to report an exceptional fourth quarter and calendar year, marking Marcus & Millichap’s best revenue and earnings performance in our 50 year history. Our team delivered fourth quarter revenue of $495 million, adjusted EBITDA of $88 million and net income of $62 million. For the year, we achieved $1.3 billion of total revenue, $213 million of adjusted EBITDA and $142 million of net income compared to the fourth quarter of 2020, which was also a record at the time, revenue nearly double and adjusted EBITDA more than doubled. For the full year, revenue was up 81% compared to 2020 and 61% compared to 2019, which is an important pre-pandemic benchmark for us. To put these milestones in perspective, in the fourth quarter alone, we closed 4,300 transactions, and over $34 billion in sales and financing volume bring in the year’s total to more than 13,200 closings, and over $84 billion in volume. This translates to 53 closings per business day for the year and 70 for the fourth quarter. Our outstanding Salesforce, Support Personnel and Management team worked tirelessly within a hampered working environment to achieve these record results, which were months in the making. There's no doubt that 2021 especially the fourth quarter was defined by record trading volumes in the market with low interest rates, ample liquidity and an improving economy, heightened motivation to sell ahead of anticipated tax law changes and the consummation of previously delayed or cancelled transactions added further market momentum. Most importantly for us, compared to 2019, again, going back to pre-pandemic levels, MMI’s transactions were up by 40% last year versus an estimated market improvement of 25%.…

Thank you, Hessam. For both the fourth quarter and full year 2021, we delivered all time record revenue, adjusted EBITDA, net income and earnings per share. Although we'll discuss our favorable comparable to 2020, we'll also reference annual results to the pre-pandemic 2019 timeframe. Total revenues in the fourth quarter were $495 million, which exceeded our previous record of $332 million in the third quarter of 2021 by 49% and were up 98% year-over-year. For the full year, total revenues were $1.3 billion, up 81% year-over-year, and up 61% compared to 2019. Real estate brokerage commissions for the fourth quarter accounted for approximately 92% of our total revenues, or $456 million, an increase of 110% year-over-year. For the full year, brokerage commissions increased 85% compared to 2020 and 61% compared to 2019. Our core private client business remains a strength accounting for 54% of brokerage revenue for the quarter, or $247 million, which is a 78% increase compared to the fourth quarter of 2020. The revenue from the private client segment for the full year was $694 million, an increase of 65% year-over-year. We feel strongly that there's still plenty of room to grow market share in this segment, given its fragmented nature and the sheer size of the addressable market. For the quarter, our middle market and larger transaction segments together accounted for 44% of total brokerage revenue at $199 million, up nearly threefold compared to 2020. For the full year, brokerage revenue from these combined market segments accounted for 38% of total brokerage revenue, or $446 million and more than doubled year-over-year. Of note is the recent growth in our larger transactions, which represented 28% of total brokerage revenue for the fourth quarter, growing from $41 million to $126 million year-over-year. For the year, our larger transactions represented…

[Operator Instructions] Our first question comes from the line of Blaine Heck with Wells Fargo.

Grea, good morning. Hessam, can we just start on the dividend announcements? I have a few questions there. Just starting with maybe a little bit more color on how you weight this dividend payment versus alternative capital allocation decisions like M&A and smaller acquisitions, maybe even reinvestment in the company, either through technology or process enhancements, which I know you've done in the past or even share repurchases. And then maybe more for Steve. But how did you determine that that $1a share was the appropriate amount to pay out at this point.

Blain, good to have you on the call. We, as we shared in our formal comments, we feel that we're in a great position of continuing the priority of investing in growth strategies through acquisitions, scaling our positions doing more now that we have, had a fair amount of success, bringing on outside firms and groups and integrating them very well. And wanting to do a lot more of that and scaling that up. As well as continuing to invest internally in the infrastructure and the technology and other capabilities of the firm. Those remain our priorities. And we're in a very positive position of being able to continue to do that and do more of it. And at the same time, initiate the broadening of the capital deployment strategy with a dividend policy. So it's not one versus the other. We are now in a position to be able to do both and maximize shareholder return through multiple parts of the capital allocation strategy. Buybacks have been considered, they are continually being revisited. And we view this as our initial expansion of the capital deployment strategy, and one that will evolve over time.

Yes, Blain as it relates to the special dividend. As we outlined in our comments, we went through a process to one first and foremost, make sure that we've got -- we were protecting the balance sheet. And our thought process was to look at the capital needs of the business over the next 12 to 18 months, make sure that we also had enough capital set aside for our strategic plans, inclusive of the items that Hessam referred to investment internally, potential M&A and then also make sure that we defensively had sufficient capital set aside for any prolonged market downturn. And we went through that assessment and made a determination along with the Board that the $1 per share was appropriate. So overall, the capital allocation strategy is really something that's where we evaluated based on an offensive strategy as well as a defensive strategy, M&A and investment on the offensive side, and protect the firm and the balance sheet on the defensive side.

Great, that's all very helpful color. But I guess at the risk of being redundant, I just want to dig into the timing a little bit here. You guys are making the decision to pay this dividend now after quarters and even years of holding significant cash on the balance sheet and no debt. I guess is there any anything we can read into this as far as indicative of kind of a lack of suitable investment opportunities? Is that indicative of maybe a higher cost for opportunities that are out there? Or even just you looked at the market and saw that maybe there's a smaller total dollar amount of potential investments that you might have anticipated in the past? Or is it just your growing balance sheet kind of allows you to do this?

Blain, thanks for asking the question. So we have an opportunity to clarify this. It's to the contrary, we see more acquisition opportunities, we've had more expansion of our dialogue with various target firms, and recognizing the fact that obviously valuations move up and down with the market and so on. We balanced that with the fact that we're building for the long term. We are pursuing synergistic groups and companies that are like minded and would be a good cultural fit and a good complement to our current coverage. And we will continue to pursue that, regardless of the moment in time in the market cycle, because we're really looking to build a platform, we always look to be accretive in our acquisitions. Of course, all of our acquisitions have a significant part of the valuation tied to future performance and growth. And they always will. And so none of that has changed, there is absolutely no reason to expect that we would not do more and larger acquisitions. But at the same time, given the history of the firm, and given the fact that we are in a transactional market, we are in a cyclical market, we've always wanted to make sure that the firm is 100% fortified in a transactional and cyclical market, we believe we've done that very well, especially having been tested in 2020. And really feel confident that we're in this position to have expanded capital deployment strategy that includes the dividend and at the same time pursue these growth opportunities, even more aggressively than ever before.

Great, that's very helpful color. Maybe going back to Steve here for with respect to the ongoing dividend payment, a couple of the same questions there. How did you determine the size of that? And how should we think about your thoughts around a payout ratio or plans for future dividend growth going forward?

Yes, as we indicated, this of course, is our initiation of our dividend strategy, dividend policy. This is expected to be a recurring dividend. We looked at a number of factors as we initiated this, including the yields, across S&P, yields across our peers, and so on. And determined that the $0.25 semi-annually, $0.50 on an annualized basis was appropriate, we will obviously, continue to evaluate that, but certainly no commitment on that front.

Okay, that's helpful. And then switching gears to headcount. Hessam, you talked a little bit in your prepared remarks about it. But it looked like the number of real estate brokerage professionals was down a little this quarter, I guess, how should we be thinking about your recruiting plans for 2022 and any shift in maybe the level of experience of the professionals you're targeting, which obviously could have an impact on productivity quarter-to-quarter and the average transaction size that they're executing on?

Sure, we have proven to offset the loss of newer agents, with the productivity that comes with experience professionals who bring your book of business, who bring years of experience and expertise and are additive to our platform, that has been a very positive development during a period of this unexpected pandemic phenomenon that has affected the work environment and people not being able to participate in physical activities, which has always been a bedrock of the way that we train, the way that we role play, the way we do group exercises in our traditional training programs. All of those, by the way, went virtual almost overnight, as the pandemic forced economic shutdown, and the curriculum has continued without any interruption. But as you can imagine, a video version of those kinds of traditional in-person training exercises, is not quite the same. So we're pursuing a variety of different strategies, knowing that in 2023, 2024, 2025, we don't want to have a gap in the development of the future generation. We introduced the William A Millichap Fellowship, which is an expanded version of our internship program. We have expanded the traditional sales internship program that has been very successful for the company, and really being selective and the folks that are chosen to participate in these programs because they do come with base salaries and they do come with compensation, which opens the door for a lot more people that in this employment environment, need a base salary want a base salary, in order to start, their career is off. So it's a pivot to become more competitive, and more selective at the same time in bringing new talent in to develop that next generation of Marcus & Millichap producers. But at the same time, let me emphasize, our pipeline of discussions with experienced brokers, financing professionals, teams, and groups is as strong as ever. And so we will continue to rely on that both for diversification, the maturation of the Salesforce and of course revenue contribution, because they do bring your book of business right away.

Okay, great. That's helpful. One more for me just on kind of the market conditions out there. And I'm sorry if I missed any of this in your prepared remarks, but do you think any of the fourth quarter strength and transaction activity is attributable to investors’ kind of getting out in front of potential interest rate increases or inflation concerns? And given that we're now almost three months into the year, can you talk about whether Omicron disrupted any of the momentum you saw in the fourth quarter? And just any general thoughts on the start you guys are having to this year would be helpful?

Sure. We definitely have seen urgency in the market throughout 2021. We saw it escalate later in the year. First, it was the concerns regarding potential adverse tax law changes, then it was the concerns about rising interest rates. And we've seen this before have been through it in multiple cycles. The good news is that the urgency to both sell and buy has continued on into 2022, because of the fact that the fundamentals are have improved and continuing to improve, interest rates are still historically low. I mean, let's not forget that a 2% yield on the 10 year treasury is still a very attractive interest rate level. And the fact that inflation is a concern. And real estate has always been perceived and viewed as a strong inflation hedge. All of that is keeping the buyer demand very strong. And as I mentioned in my comments, also the lack of alternative investments, when you have an asset class that has not been overbuilt, is in full recovery, pretty much across the board with a couple of exceptions, I mentioned office and seniors housing are still lagging. And we are also very encouraged by the fact that our pipeline coming into 2022 showed healthy growth over a year ago, despite the fact that we had a very strong fourth quarter obviously. A lot of that is also attributable to the fact that the platform has expanded. So not only are we benefiting from a positive market environment, which we expect to be sustainable in the foreseeable future, but also the fact that the platform has improved both in terms of its execution, and just sheer size through the acquisitions and the bringing on a lot of experienced professionals.

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

Thank you very much. Thanks to all of you for joining our earnings call. We look forward to interacting with you on the road or virtually between now and our next quarterly update. Thanks a lot. The call is adjourned.

And this concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.