Marcus & Millichap, Inc.

Greetings, and welcome to the Marcus and Millichap Third 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. Please note this conference is being recorded. I'll now turn the conference over to your host, Jacques Cornet. You may begin.

Thank you. Good morning and welcome to Marcus & Millichap's Third Quarter 2022 Earnings Conference Call. With us today are President and Chief Executive Officer, Issam 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 included 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, 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 on 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 is my pleasure to turn the call over to CEO, Asam Najee.

Thank you, Jacques. On behalf of the entire Marcus Millichap team, good morning and welcome to our third quarter 2022 earnings call. As everybody knows, the rapid pace of interest rate increases between March and September has led to a broad-based disruption in capital markets. This has become evident in the deceleration of transaction velocity due to the repricing of deals, widening of bid-ask spreads, and significantly tighter underwriting by lenders. Our third quarter financial performance reflects the impact of these fast-changing market dynamics, while still pointing to the resilience and strong positioning that Marcus and Millichap has established over time. we generated third quarter revenue of $324 million compared to the prior year's record of $328 million. Adjusted EBITDA came in at nearly $37 million, while net income, which was down 37% year-over-year, totaled $21.4 million. The anticipated return of our baseline expenses that were still reduced in 2021, as well as long-term investments in talent acquisition, technology, marketing, and business development led to the operating deleveraging we had messaged previously. Our EPS this quarter also includes a $0.03 per share adverse impact from currency translation related to our Canadian business, which Steve will elaborate on. The strength of the Marcus & Millichap platform, particularly at times of market dislocation, is illustrated by the closing of over 3,000 transactions and $22.6 billion in volume in the quarter while outperforming the overall marketplace. Based on data from Real Capital Analytics, we estimate that total commercial real estate transactions in the U.S. declined by 24% year-over-year and dollar volume declined by an estimated 15% in the quarter. By contrast, our brokerage transactions were off by just 8.6%, a company by 9% increase in dollar volume. Our challenge is impeded revenue production due to macro factors. The rise in our dive deals and inventory repricing and remarketing during the quarter were directly driven by the shift in monetary policy. While rising interest rates were anticipated, the intensity by which the Federal Reserve has acted to fight elevated inflationary pressures has caused a shock to the system. In our view, this is essentially a delayed reaction by the Fed caused by missing the window last year to start normalizing financial conditions far more gradually. This, coupled with the Fed's hawkish messaging during the quarter regarding the economic outlook, has exacerbated the slowdown in transactions. During the quarter, we saw a softening in multifamily, single-tenant net lease, and industrial transactions. These segments have been favored over the past several years and are particularly challenged by higher interest rates given their lower cap rates. Hospitality, self-storage, and shopping centers registered revenue increases over the last year as more investors moved capital to these recovery segments. Office sales were hurt during the quarter as recession concerns and slow return to office patterns weighed on investor sentiment and lender underwriting. Our private client revenue declined by 9.6%. Although this segment is not immune to the spike in the cost of debt and recession risk, transactions in the $1 to $10 million price range accounted for 83% of total market sales and 74% of MMI's brokerage transactions during the quarter. our leadership in the private client category should be an advantage given the personal drivers that often lead to transactions, creative solutions such as seller financing to get deals done, and the frequent use of 1031 tax deferred exchanges for which Marcus Milichap is also the market leader. Revenue from larger transactions valued at $10 million plus showed resilience for MMI with an increase of 10%, particularly in the middle market range, led by self-storage, hospitality, and retail. Although larger transactions valued at $20 million plus tend to be more variable amid market shifts, they were essentially flat with last year's third quarter results for us. Institutional apartments saw a significant decrease in trading given their outside sales volume and price appreciation since the pandemic. This was offset by larger sales in other property types, particularly self-storage and affordable housing portfolios. Our financing division, MMCC, saw a revenue decline of 4% as debt placement became more difficult during the quarter. Nonetheless, MMCC closed 518 transactions and closed with more than 400 lenders in the past year, making us a leading source of capital and lender relationships. This is a major advantage for our sales force and clients as they face more restrictive debt capital in the near term. For multifamily loans, where debt funds and some banks have exited the market, the agencies are capturing more business, highlighting the benefits of our strategic partnership with M&T Bank announced last year. In addition, we remain aggressive in recruiting experienced originators, supporting our existing tenured originators, strategic acquisitions to grow MMCC. On the Salesforce headcount front, the market for talent remains competitive. Our average Salesforce count for the quarter was down 6% year over year, primarily driven by attrition in the newer ranks. The pandemic, then recovery in 2021 and first half of 2022, followed by the return of market headwinds, has created a volatile environment. This is making the development of new professionals more difficult. As I mentioned last quarter, the competitive labor market has also been an unusual barrier to hiring new talent compared to past cycles. We're confident that various initiatives to offset these trends, including our expanded sales internship program and the partnerships we have to attract more diversity, will return us to net increases once the market stabilizes. In the meantime, we are further building on our recent success in attracting experienced professionals and teams whose production has offset the headcount growth gap. Looking forward, we view this phase of the market cycle as another opportunity to help investors solve problems, secure financing in a difficult lending environment, and leverage buying opportunities. The experience, knowledge, and access of our sales and financing team, backed by industry-leading research and a consistent flow of technology advances, give us a compelling arsenal of value creation, for real estate investors. Our strategy is to stay on offense and build on platform enhancements implemented over the past several years. These initiatives include the addition of numerous experienced professionals and teams, the expansion of our institutional property advisors and MMCC divisions, the introduction of an auction platform earlier this year, the addition of our loan sales division, and technology rollouts that directly facilitate transactions. These capabilities will bring several advantages during the current market dislocation. As an example, during the quarter, we introduced a key technology upgrade called MyMMI, which allows investors to save multiple searches for our exclusive inventory, personalize the research content, and sign up for various events. This broadens our ability to match investors with our inventory and connect them with our sales professionals in an efficient, and customized manner. Within just the first two weeks of the MMI launch, more than 12,000 investors had registered for access. Defensively, we will continue to scrutinize every expense, focus on productivity, and prioritize costs and investments. MMI has the benefit and power of a strong balance sheet to maximize growth opportunity through the market disruption. we added $30 million to our cash reserves just in the third quarter. Over the past 12 months, we grew our total cash by $44 million after returning $55 million to shareholders. This also accounts for capital invested in talent acquisition, investments in our sales force, and marketing support. This positions MMI to remain offensive during the market transition as we continue to focus on the long-term competitiveness of our platform, opportunity for share gains, and strategic acquisitions. With that, I will turn the call over to Steve for more details on the quarter. Steve? Thank you, Hassam.

As noted, revenue for the third quarter was $324 million, a decrease of 2.6% as compared to last year's record third quarter. Net income was $21 million, with earnings per share of 53 cents. which included a $0.03 per share loss on unrealized currency exchange due to the stronger U.S. dollar against the Canadian dollar during the quarter. For the nine months ended 2022, total revenue was $1 billion, up 29.7% year over year. Net income was $96 million, up 19.7% year over year. and earnings per share was $2.39, up 19.5% year-over-year. Moving to segment details, real estate brokerage revenue for the third quarter accounted for 90% of our total revenue, or $293 million, a similar percentage to historical levels. This represents transaction volume of $18 billion across 2,246 deals. a year over year increase of 8.6% in volume and a decrease of 8.6% in transaction count. Our average deal size increased to $8 million, up from $6.7 million a year ago. On a year-to-date basis, brokerage revenue was up 30.6%. Within brokerage, Our core private client business accounted for 56.5% of revenue for the quarter, or $166 million, which was a 9.6% decrease compared to the third quarter of 2021 due to the slowdown in transaction activity. Our middle market and larger transaction segments together accounted for 41% of total brokerage revenue, or $120 million, an increase of approximately 10% over prior year. Year-to-date, revenue from our private client business was up 20.1% on a 21% increase in volume. For the same year-to-date period, revenue from middle market and larger transactions combined was up 52.7% on an increase of 56.5% in volume. Shifting to our financing division, MMCC, revenue came in at $28 million in the third quarter, a decrease of 4.4% year-over-year. Fees from refinancing, which accounted for 49% of loan originations, decreased 16.5% over the prior year. MMCC closed 518 total transactions compared to 600 in the third quarter of last year. ranking us among the leading financing intermediaries nationally. Volume was flat with prior year at $3.3 billion for the quarter. Financing revenue for the first nine months of 2022 was $91 million, up 21.1% year over year. Other revenues, comprised primarily of consulting and advisory fees, along with referral fees, was $3 million for the quarter. modestly lower compared to the third quarter last year. Other revenues for the first nine months of 2022 increased 29% year over year. Total operating expense for the third quarter was $293 million, an increase of 2.3% year over year. Cost of services for the quarter was $217 million, or 67.1% of total revenue. an increase of 117 basis points year-over-year. This was primarily due to our producers qualifying for higher commission thresholds earlier in the year, driven by the outperformance in the first half. Cost of services year-to-date was 64.5% of total revenue, 123 basis points higher than the same period last year. SG&A during the third quarter was up 12.9% year over year to $73 million, primarily due to increased sales support costs, the return of in-person events, and normalization of staffing levels. As a percentage of revenue, SG&A was 22.5% for the quarter compared to 19.5% last year. For the nine months year to date, SG&A was up 27.6% to $227 million and decreased 35 basis points as a percentage of revenue. As a reminder, the significant SG&A leverage we realized last year was due to exceptional revenue growth post-pandemic at a time when the baseline expenses had not yet normalized. For the quarter, we generated 53 cents of earnings per diluted share compared to 84 cents in the third quarter of 2021. Adjusted EBITDA was $37 million or 11.3% of total revenue compared to $51 million or 15.3% in the prior year. The effective tax rate for the quarter was 31.7% compared to 26% last year. The increase in tax rate for the quarter was primarily due to changes in valuation allowance and permanent items that are not tax deductible. On a year-to-date basis, the effective tax rate was 27%. Moving to the balance sheet, we remain in an excellent position with no debt and $572 million in cash, cash equivalents, and marketable securities, which is an increase of $30 million for the third quarter. Since the beginning of the year, we have expanded our capital allocation strategy to include returning capital to shareholders. In the first quarter, we initiated a regular dividend. In the third quarter, our board authorized a $70 million share repurchase program. During the quarter, we repurchased nearly 227,000 common shares for $7.6 million. Through the end of October, we purchased an additional $15 million in stock, putting the total purchases to date at approximately 650,000 shares for a total of $22.5 million. Subsequent to quarter end, we paid an additional dividend of 25 cents per share, and now collectively have distributed more than $60 million in dividends for the year. Let me emphasize that our exceptionally strong balance sheet, consistent operating performance over the long run, and cash flow generation provide the foundation for continued investment in the platform, accretive M&A opportunities, and returning capital to shareholders. These actions are not mutually exclusive and reflect our confidence in the long-term operating outlook and the durability of our platform through any business cycle. Turning now to the near-term outlook. Given the steep rise in interest rates and expectations of additional increases, real estate valuations and trading volumes will be challenged as the market recalibrates. That said, we are well positioned to capitalize on this market disruption and remain committed to growing our market share. In this environment, the normal pattern of sequential revenue growth in Q4 is unlikely. From an expense standpoint, we are focused on managing controllable costs to minimize the impact of the near-term market disruption without compromising our long-term growth priorities. Cost of services for the fourth quarter as a percentage of revenue will likely follow the historical trend and increase sequentially from the third quarter. SG&A for the fourth quarter is expected to increase slightly in absolute dollars on a sequential basis, but increase more significantly as a percentage of revenue due to slowing transactional velocity. We expect our full-year tax rate to be in the 26.5% to 27.5% range. In closing, we believe healthy real estate fundamentals and drivers of capital flows into commercial real estate will result in sales and financing recovery as we progress through the rising interest rate cycle and Fed-imposed economic slowdown. We are highly focused on shoring up our short-term results while positioning the company to lead in the recovery. That concludes our prepared remarks. Operator, we can now open the call for Q&A.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment,

it may be necessary to pick up your handset before pressing the start keys. And our first question comes from the line of Blaine Heck with Wells Fargo.

Please proceed with your question. Great. Thank you. Good morning. Hassam, you touched on a lot of the questions I had, but maybe we can dig deeper in some of them. First off, can you talk more about any particular segments of the transaction market that you think could be more resilient than others in this type of market, whether that be by property type, deal size, or even any markets that you think may be more active than others?

Sure. Good morning, Blaine. Let me address the market question first. We are seeing continued strength in the Sun Belt, Florida, Texas, in particular, come to mind where they're still in migration and a pro-growth business-friendly environment attracting companies. And that really does show up in the numbers. Atlanta is another market that comes to mind. Carolinas in migration has helped there as well. And conversely, some of the urban markets that had been hit hard during the pandemic are also showing some impressive recovery. If you look at some of the job growth numbers over the past 12 months, New York, Los Angeles, Chicago, as examples, are putting up some pretty impressive job recovery numbers. But fundamentally, the Sunbelt is benefiting from the demographic wave and the in-migration. From a product type perspective, Once the market settles and there's price discovery, we still have a lot of confidence that multifamily will continue to attract a lot of capital, as will single tenant net lease. Those are perfectly aligned with aging baby boomers. They have proven to be great cash flow investments over time. And there is a lot of demand for both of those from a fundamental perspective. Right now, we're going through a period of price discovery and reacting to the shock of the rapid move in interest rates. Fundamentally, there's nothing broken in the capital demand for those assets. Self-storage is another one. We continue to see strength there. And ironically, as the market has left retail for dead, and we took the position that retail is anything but dead and it's just reinventing itself, now you see that come to fruition with shopping centers trading at a higher velocity than a year ago. And our revenues were up in shopping center sales, as were hotel sales, because those are recovery plays. They have higher cap rates. And there is a reimagination of real estate, in particular for retail, that's occurring. So we expect all of that to continue. From a deal size perspective, of course, the private client business, as I mentioned in my comments, does have the personal drivers that we're very familiar with after 51 years of specializing in value creation for them, and that always comes to play. Again, right now the market is going through this period of grounding valuations, coming to terms with not just the higher interest rates, but the uncertainty related to future job growth and therefore future occupancy and rent growth impacts. Once there's clarity on that and we get through the worst of the Fed hikes, which we appear to have done, given their commentary earlier this week that future rate hikes could be at a lower level, I think that kind of removing of the cloud that the market's looking for will begin to emerge.

Great. Really appreciate all that color. And it sounded like you were seeing more 1031 exchange deals in this market. I guess, can you put any numbers around kind of the percentage of deals that you're doing now that involve a 1031 versus the longer term average? And then can you remind us that those 1031 deals tend to be, you know, more prominent in the private client or middle market versus larger deals? Or are they pretty well distributed across all deal sizes?

Sure. The 1031 exchanges are more prominent among private clients and the middle market. And they have accounted for anywhere from 20 to 30 plus percent of our business over time. The percentage isn't necessarily changing that much. But what is interesting is that when the market has a disruption like we're experiencing right now, all of a sudden, the access to that 1031 exchange buyer becomes a lot more important. and a lot more valuable. So we're not doing anything different. We've always been out there facilitating 1031 exchanges as the market leader in that, and we continue to do so. But when the market shifts from a tailwind to a headwind and the investment community faces a disruption, all of a sudden that motivated buyer coming out of an exchange has a premium value to it. And therefore, it allows us to be more effective at getting deals done in a disruptive market.

Okay, that makes sense. Switching gears, can you talk about what you're seeing in the lending and financing market? How has availability of capital changed? How have lending standards specifically around loan to value or debt yield changes, you know, how's that changed? And what's the kind of ultimate effect on the transaction market in your view?

There's been a direct impact by lower loan proceeds in the last four to six months, but particularly in the third quarter. It felt like a lot of the interest rate increases and the Fed messaging came to fruition more so in the third quarter than the previous month, even though the market had been well aware of the tightening cycle coming. And we've seen many lenders actually price themselves out of the market. The beauty of how we position ourselves with having closed with over 400 lenders in the last 12 months is the ability to find a lender if one exits the market or prices themselves out that will do a particular deal. And one of the most important things about that is the creativity that it takes on the and therefore the lender side being able to actually execute and fund transactions. So the mechanics of that troubleshooting is a very important part of what our financing team and our sales team are jointly doing every single day right now. There is liquidity. We are not in a credit crunch, if you will, like we were in 2008, 2009, but the reluctance of lenders to lend versus six months ago is clearly a factor in the marketplace. Deals are being scrutinized a lot more closely. The sponsors are being scrutinized a lot more closely. And there just has to be more equity to make financing work.

How much of that do you think has to do with, you know, just a lot of lenders have hit their quotas for the year and, you know, does that, you know, would it make sense that maybe the lending frees up a little bit in the new year as quotas are kind of reset?

That'll be somewhat of a factor, but I don't believe it'll move the needle because if you think about the, on the bank side of the equation, We have the good position of great liquidity among our major banks and even regional banks. But the restrictions from a regulatory perspective on exposure to commercial real estate is now a factor that hinders some of their activity. And as some concerns about minor blip maybe related to loan performance in that over the past three years or so, there have been a lot of short-term loans through debt funds and other sources pumped into the marketplace that are going to be maturing in the next six to 18 months. And as those loans roll over, refinancing them in a way that would have been without is no longer an option. And there has to be more capital, more equity, and in many cases, I believe, a recapitalization. So there is that element in the marketplace also coming. But for us, that's another opportunity to be ahead of that, to be working with those lenders, and to be working with those current owners that are facing those maturing loans.

Great. Very helpful. We touch on this pretty much every quarter, and you mentioned it in your prepared remarks, but it looks like broker count continues to slide. It's now 9% below your highest level seen in early 2021. Can you just give us an update on those, you know, different initiatives you guys are pursuing to turn that trend around, any traction you're getting with those, and really whether we should even expect a continued push to increase headcount even in a declining transaction environment?

Sure, Blaine. Our commitment to swim against the tide is unwavering in that we believe passionately that the importance of hiring and training and enculturating new talent should be as much of a priority as it's ever been for us in our entire history. That is such an important part of how we became who we became over the last 51 years, we're not going to give up on that. We really do believe that these unusual conditions of record low unemployment, very competitive base salaries, especially for recent college graduates, which has always been a major feeder of talent for various Marcus Millichap offices, will normalize at some point. We don't know exactly when. We didn't know exactly when the phenomenon really showed up after the pandemic. But it will not deter our strategy and commitment to organic growth. That's a huge part of our success and our future. So the initiatives that I mentioned, whether they're career fairs, college fairs, just the usual traditional one-on-one activities, resume flow generation and putting Marcus Milchap in front of talented people that are looking for a career shift, including, by the way, sales experience professionals in other industries. That's been another very effective source for us to bring a little bit more mature candidates to real estate sales for the first time. We're continuing to pursue all of those strategies, improving it through technology, and digital marketing and more targeted advertising, none of that is unwavering. The results aren't showing up just because the conditions around the market haven't changed yet. Just this morning, we saw a little bit of a relief on the unemployment rate from 3.5% to 3.7%. The Fed's stated desire is to see unemployment move up to 4.5% or so, and if That happens, which I believe it eventually will given the degree of interest rate increases and economic slowdown that the Fed is engineering. That's the kind of easing of the labor market pressure that'll, I believe, bring the environment back to a normal competitive environment instead of an extremely competitive environment. On the other hand, we continue to build on our success of attracting very experienced professionals, both on the brokerage side and on the financing side. Traditionally, Marcus Millichap had not focused on that as a stated strategy until about three years ago when we made it a formal part of our long-term growth strategy, along with our acquisition strategy. And it's worked very well. And the folks that we've brought on board are, if you look at their reaction, they are very pleased to be with the company. We have exceeded their expectations in the majority of the cases, and they've exceeded ours because of the fact that we're selecting people that are complementary with our existing capabilities and not overlapping. That's why it's targeted as a strategy for us to bring in the right people in the right product types and markets. So it's not a wholesale, just trying to buy market share, it's a very hand-selected, strategic way of going about it. Frankly, a little slower and maybe at times frustrating, but the right way to do it.

Very helpful. Appreciate all that commentary. Next, can you talk about your acquisition plans for 2023? What can you tell us about the current pipeline or potential investment opportunities on the horizon and whether you think Better price, maybe larger opportunities could come about as a result of the transaction market headwinds and, you know, increased macro uncertainty.

Sure, Glenn. The market disruption is creating more motivation for very high quality people to rethink their own strategy, whether it's boutique firms, some individuals and teams. And we're only really a couple of months into a visible disruption in the transaction market because of the tightening cycle. And I can tell you the pipeline of discussions has already increased. On the M&A front, we're always actively pursuing key targets. I can tell you that a couple of our discussions did not come to fruition, partly because we felt that the risk factor in those particular acquisitions had elevated too much. And we weren't prepared to take too much of a chance on valuation and the disconnect between our expectations. You know, the bid-ask spread is just as much a factor on the M&A front as it is in the real estate trading front. But for any of those discussions that came to a stop, new ones have begun. And we're really encouraged by that. And now that we have a track record of success in bringing on boutique firms, individuals and teams, that also speaks for itself and has become part of the reason that more people are interested in learning more about the MMI platform. But we absolutely see the market disruption as an opportunity to do more of that and are out there aggressively pursuing this discussion.

Great. So I guess with that context, how do you think about the priority of potential capital allocation avenues you know, between dividend payments or growth in dividend payments versus share repurchases, which you did a little bit of this quarter, versus, you know, saving up your dry powder for these acquisitions or M&A activities?

Sure. I'll make a comment, and I'll defer to Steve on that as well. For me, I've always wanted to see the company in a position to have a really well-rounded capital position and capital allocation strategy. It took some years, given our conservative approach to make sure that in a cyclical industry, we're always very well capitalized. to get to the point where our capital position is such that we can do both. We can be very offense-oriented on the acquisition front, invest in the platform. Those two are the highest and best use of capital on behalf of not just our shareholders, but also our team and our clients. But at the same time, have the privilege of being able to return cash to investors when it's appropriate, and really pursue a multi-pronged strategy of deploying capital without one coming at the expense of the other. And I'm very pleased that we're in that position. Steve, anything to elaborate?

Yeah, I would say, as Assam did, that we have the, quote, luxury of such a strong balance sheet, no debt, and almost $600 million in in cash that allows us the flexibility to, one, make those all-important investments internally in growth initiatives, whether it's tech, Assam referred to the rollout of the MyMMI platform, M&A. I mean, when the market is disrupted, those are opportune times to make M&A investments. Price has to be right. We'll continue to be disciplined in our underwriting criteria. The bid-ask spread is a factor right now. Everybody's coming off of perhaps the best two years of their career. So there's perhaps a difference in expectation there. But because of the level of liquidity that we have, we've got the ability to make investments both internally, there's plenty of capital for M&A, and we don't anticipate any changes to the return of capital to shareholder initiatives that we've implemented this year, whether it's dividend or repurchase. We said at the time that the repurchase was approved last quarter, that we would be active participants in the market when the price was appropriate. And I think we've shown that both during the quarter and subsequent to. So, as the punchline is, there's plenty of liquidity for us to pursue all these initiatives.

Okay, very helpful. Last one for me, I promise. Steve, I'll stick with you. Can you just give us any kind of guidelines or color around how we should think about the sensitivity of your income to the changes in Canadian to U.S. exchange rate?

Yeah, we've always been subject to fluctuations in the USD versus Canadian dollar situation. that fluctuation was more pronounced in Q3 than it has ever been. The dollar strengthened considerably. And in fact, if I look at the exchange rate today, it's come back a little bit in the opposite direction. So we've got a number of initiatives internally that are underway to help minimize those fluctuations. We'd like to see We'd like to not have it be so pronounced, but the strength of the dollar this quarter really highlighted that. So there are, as I said, there are internal efforts to help mitigate that going forward because the Canadian operations aren't, they're, you know, sub 10% of our revenue. I would hope to not be subject to as much currency fluctuation going forward.

Okay, great. Thanks for all the time, guys. Very helpful answers.

Great to have you on, Blaine. Thank you.

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

Thank you, Operator, and thank you for joining our third quarter call. We look forward to seeing you on the road. And on our next earnings call, the call is adjourned.

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