Marcus & Millichap, Inc.

Greetings and welcome to the Marcus and Millichap second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Brad Cohen of ICR. Thank you. You may begin.

Thank you. Good morning and welcome to Marcus and Melchep's second quarter 2022 earnings conference call. With us today are President and Chief Executive Officer, Hossam Nagy, and Chief Financial Officer, Steve DiGennaro. 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 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, 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 statements whether it's 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 the website at www.marcusmillichap.com, along with a slide presentation that may be referenced during the prepared remarks. With that, it is my pleasure to turn the call over to our CEO, Hassam Najee. Hassam?

Thank you, Brad. On behalf of the entire Marcus Millichap team, good morning, everyone, and welcome to our second quarter 2022 earnings call. I'm pleased to report that our second quarter and first half results set new records. The second quarter was also the second best overall period for us with nearly $400 million of revenue and net income of $42 million. Revenue was up 39% while net income grew 34% over the second quarter of 2021. Our private client business increased 33%, middle market and larger transactions were up a combined 59%, and our financing business, MMCC, delivered growth of 31% year-over-year. This is a testament to the dedication, creativity, and energy of our Salesforce management team and support personnel, and we thank them for their unwavering commitment to our clients and the firm. We believe strategic growth initiatives implemented over the past few years have directly contributed to productivity gains, the retention of key producers, and the addition of many experienced professionals to the MMI platform. These include a steady flow of technology upgrades and new tools, numerous marketing campaigns and increased client outreach, as well as the constant elevation of our research content. Growth in our institutional division, IPA, and MMCC's financing business also reflect the success of our diversification strategy and targeted acquisitions. Investor motivation to close transactions ahead of further interest rate increases continued to support positive momentum in the second quarter. For MMI, this heightened motivation also bolstered activity and resulted in some pull forward of closings into the quarter. Once again, we saw significant movement of capital across property types and geographic markets. This is another factor behind MMI's strong second quarter results as we are extremely well positioned to facilitate portfolio strategy shifts and changes for both private and institutional clients. Our access to the largest pool of buyers, custom match to every listing we represent, and leading volume of 1031 exchange transactions resulted in 50% of the best and final buyers of our listings coming from out of state. This clearly illustrates the company's tremendous market reach. For the first half, the company achieved year-over-year revenue growth of 53% and net income growth of 61%, while maintaining its fortress balance sheet, leading brand, and strong market position. The rapid rise in interest rates since March, expectations for an aggressive stance by the Fed, and a widening bid-ask spread began to impact trading volume in the second quarter. Based on data provided by RCA, total U.S. market sales by transaction count were down an estimated 15% over the second quarter of 2021. Despite the drop in transactions in the overall market, I'm pleased to report that MMI's brokerage transactions increased 15% in the second quarter. Our key metrics remained healthy throughout the quarter including a steady rise in inventory levels and year-over-year pipeline growth, although at a lower degree than the last few quarters. This is a function of transaction closing and marketing timelines starting to extend due to the market shift. As expected and messaged on previous calls, we continue to experience a reduction in Salesforce headcount, primarily due to the elevated fallout of newer professionals hired over the past three years. This cadre of trainees did not fully benefit from our traditional in-person training and development programs because of the pandemic. Similar to other industries, hiring new and experienced individuals has become far more challenging than previous cycles as a result of an extremely tight and competitive labor market. Our success in retaining productive professionals, the steady addition of experienced individuals and teams, and positive results from our acquisitions have more than offset the gap in growing headcount in the entry-level segment. The management team is highly focused on increasing our headcount through new hiring initiatives and expanded development programs. Our traditional organic growth channel remains critical to the future expansion and diversification of the sales force. Looking forward, expectations of additional rate hikes and tightening financial conditions necessary to fight inflation are likely to result in further deceleration of trading volumes in the near term. This is a function of a buyer and seller recalibration on pricing by property type and market, adjusting loan-to-value ratios, and a more cautious outlook due to recession fears. To offset these market challenges, our team is focused on reinforcing our ability to help investors formulate and execute the right strategy based on their specific needs and timing. A multitude of marketing channels are actively promoting our deep market expertise, property type specialization, real-time marketing system, and access to a wide network of lenders. As a case in point, MMCC closed nearly 700 transactions in the second quarter with 216 separate lenders. Our recent acquisitions are making significant progress and we remain actively engaged with a number of additional targets that should result in incremental market coverage and other benefits to MMI. On the expense side, the return of in-person events as well as support staff additions in line with higher business volumes are essential to keeping the company competitive. However, we remain committed to tight cost management and investing in the right people and projects. We're encouraged by three major factors that, in our opinion, support a favorable long-term outlook. First, real estate fundamentals are generally healthy thanks to the lack of overbuilding. Secondly, in an inflationary environment, real estate should continue to attract capital as an effective hedge. And if job losses occur due to a recession, they should be moderate since we're experiencing an engineered slowdown by the Fed to bring inflation in check as opposed to systemic issues. Despite the tightening cycle and excess liquidity sweep underway, the financial system is quite strong. The cycle is not marked by mortgage overspeculation, banking and corporate illiquidity, and high levels of consumer debt, which caused the great financial crisis in 2008. To the contrary, consumers are flush with cash, there are more job openings than available workers, lenders have ample capital and remain active, albeit a lot more cautiously. In closing, our balance sheet continues to be a point of strength. Earlier this week, we announced board authorization for our first stock repurchase plan, coupled with our second semiannual regular dividend declaration. The addition of a stock repurchase program reflects our commitment to continuously optimize our capital allocation strategy. Let me reiterate that accretive acquisitions and investments in the MMI platform remain our top capital allocation priorities. The company is in the enviable position of having an extremely strong balance sheet to pursue growth first and foremost while increasing shareholder returns at the same time. And with that, I will turn the call over to Steve for more details on the quarter. Steve? Thank you, Hassam.