Greetings, and welcome to the Marcus & Millichap Fourth Quarter and Year-End 2022 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you, you may begin.

Thank you. Good morning, and welcome to Marcus & Millichap’s fourth quarter and year-end 2022 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 transaction professionals; the company’s ability to retain its business philosophy and partnership culture amid competitive pressures, 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, 2022. 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 morning and is available on the company’s website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference is being webcast. 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’s my pleasure to turn the call over to CEO, Hessam Nadji.

Thank you, Jacque. On behalf of the entire Marcus & Millichap team, good morning everyone and welcome to our fourth quarter and year-end 2022 earnings call. The industry in our business experienced a dramatic shift in market conditions between the first half of 2022 and the latter part of the year. The Feds missed opportunity in 2021, to begin normalizing financial conditions became the most aggressive financial tightening in 2022, to fight runaway inflation in 40 years. The resulting 450 basis point interest rate increase and $500 billion of bond sales in a matter of months, shifted the market tailwind in the first half of the year to a market disruption at September. With that backdrop, MMI still delivered record revenue of $1.3 billion, adjusted EBITDA of $166 million and earnings per share of $2.59, both of which were the second best in our history. We closed over 12,000 total transactions with volume of $86 billion and outperformed the market. Total U.S. commercial property sales, as reported by RCA declined 25% last year, while our brokerage transactions were off by 6%. I'm also proud to reflect on the many advancements to the Marcus & Millichap platform in this past year. This range from new technology such as our client application called My MMI, to the successful launch of our auction division, and ongoing expansion of financing capabilities, especially in the agency lending arena. We saw many of our tenured sales and financing professionals reach new milestones and acquired numerous top level groups, teams and experienced individual producers last year. The ongoing elevation of the Marcus & Millichap brand was on pace once again with Marquee Client webcast, industry leading research content and commanding presence in the media as well as at industry conferences. These achievements were reached despite a very…

Thank you. As Hessam stated, revenue for the fourth quarter was $262 million, compared to last year's record quarter of $495 million. For the full year, total revenue set a new record high of $1.3 billion, up slightly over the prior year record. Moving to segment details. Real estate brokerage revenue for the fourth quarter was $236 million, or 90% of total revenue, a similar percentage to historical levels. This represents transaction volume of $13 billion across more than 2000 deals a year-over-year decrease of 54% in volume, driven by 38% fewer transactions. Our average deal size was $6.4 million, compared to $8.7 million a year ago. For the full year real estate brokerage revenue was $1.2 billion, or roughly 90% of total revenue, again, a similar percentage to historical levels. Full year results included transaction volume of $68 billion across more than 9000 deals, essentially flat with last year and a 6% decrease in transaction count. Our average deal size for the year increased to $7.5 million compared to $7 million in 2021. The contrast between fourth quarter and full year revenue and transaction metrics reflects the strong first half of the year, and investors heightened motivation to transact before the Feds aggressive interest rate actions, which then created a market disruption and weak second half of the year. Within brokerage, our core private client market segment in the fourth quarter accounted for 61.7% of brokerage revenue, or $146 million. This compares to $247 million in the prior year, reflecting the dramatic and broad slowdown in market activity. Our middle market and larger transaction segments together contributed revenue of $85 million or 36.1% of total brokerage revenue for the quarter compared to $199 million last year, as many institutional buyers remained on the sidelines in Q4, waiting for more…

[Operator Instructions] And our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Great, thanks. Good morning out there. Hessam, it seems to me that this type of environment with significant declines in transactional activity would be very stressing on small brokerages. I'm sure you all have ongoing conversations with potential targets. Are you seeing any of them open up more to the idea of a sale? And are you seeing pricing expectations on potential M&A activity moderate? Or do you think the low end transactions would have to be maybe a little bit more extended to shake out better opportunities?

Sure. Hi, Blaine, hope you're doing well. Great question. We are living with those dynamics every day as we have engaged in a number of conversations. As I mentioned in my remarks, there few more conversations in the last 90 days than there have been exactly because of the market shock and the notion that Marcus and Millichap is a very stable and tool rich and support rich platform, we are seeing a lot more interest in those aspects of the company. And we are starting to see some adjustment in price expectations in term expectation. I would say that the market needs to have a little bit more time to see that this isn't a quick fix, if you will. And in time, we believe there'll be even more opportunities. But so we're seeing opportunities in that boutique, local regional brokerage environment as well as some boutique financing in entities as well as some more I would say specialized and larger providers that could be a very nice fit for MMI.

Great, that's helpful. Switching gears to the share repurchase front. Looks like he took down a little under half the $70 million authorization since announcing the buyback program in August last year. Can you just tell us how you're thinking about share repurchases relative to other opportunities for capital allocation and whether you plan to kind of revisit that share buyback authorization levels or amount in the event that you do complete that 70 million that's in place?

Yes, Blaine. This is Steve. You're correct, we've taken down about $30 million of the $70 million that was authorized back in the August timeframe. As we said, then we'll reiterate we'll be opportunistic and take down shares as we deem appropriate. We want to reiterate that our capital allocation strategy starts first and foremost with investments internally. Infrastructure investments, platform investments, extends to M&A and then to returning capital to shareholders both in the form of dividends as well as a share repurchase program. Pointing to the balance sheet where we've got over $550 million $560 million of funds available. There are plenty we have opportunities to do all of those, implement all aspects of that strategy. As we get closer to taking down the fullness of that authorization, we certainly will be revisiting that with our board. And, again, I think we will continue to be active in the market with our repurchase program.

Okay, thanks. That's helpful, Steve. It sounds like the changes in hiring processes, remote working trends and low unemployment are still kind of headwinds with respect to adding professionals. So with that backdrop, along with these comments on some headcount reduction and expense reductions in December, I guess, how should we think about the headcount levels at MMI as we move throughout 2023?

Well, one thing to point out is that in the fourth quarter, we actually added net headcount in that many initiatives have been ongoing, to address all the factors that have led to the reduction of headcount. We don't see those market forces changing anytime soon. Therefore, it's a matter of our actions that are going to overcome this part of the challenges that we face. The headcount reduction on the support side, and expense reductions should not affect our ability to recruit, hire, train, and support new candidates coming into the company. Because those efforts are executed locally by our regional managers, our recruiting department and our division managers, who've always been very focused on it. We did not reduce expenses in that area, really strategically, because it's such an important element for the company's long term future. I want to highlight again, that the success we've had in the last three years in attracting experienced professionals, teams, and groups, had more than made up for the revenue production gap that we've experienced since the pandemic, from new entrants coming into the business, that's not to say that our plan has changed. We really believe that we need both. And we're going to have both. But the success on the experienced hiring front has been a tailwind for us, and we continue to see success there. In fact, to your point, Blaine, about the market disruption. A lot more individuals and teams in other firms are curious about what we're doing. And basically seeing the brand out there, especially with some of the new things we've done, like the auction platform, My MMI, those got a lot of attention in the industry. So we are leveraging and had to continue to hire experienced professionals.

Okay, that's good to hear. Thanks, Hessam. Lastly, I wanted to make -- ask a more specific kind of modeling type question. And sorry, if I missed anything in your prepared remarks, but other revenue came in ahead of expectations, especially given the decline in deal activity this quarter. Can you talk about what drove that $2 million increase relative to the third quarter and how we should think about other revenue in 2023?

Yes, Blaine, again Steve. Other revenue primarily relates to interest income. There are a number of other factors that go into that other income/expense line item, but the primary contributor is interest income on our investments. And certainly as interest rates have ticked up and impacted our businesses, we've talked many times, we're also generating more income from our investments. Again, there are other line items that that flows through there, but that's the primary factor.

Okay, that makes a lot of sense. Thanks, guys. That's it for me in this quarter.

Thanks, Blaine.

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

Thank you, operator. And thank you everyone for joining our call. We look forward to seeing some of you on the road and getting prepared for our next earnings call. Thank you very much.

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