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.