Marcus & Millichap, Inc.

Greetings and welcome to the Marcus and Milla Chaps first quarter 2023 earnings conference call. As a reminder, this call is being recorded. It is now my pleasure to turn the conference over to your host, Jacques Cornet. Thank you, sir. You may begin. Thank you.

Good morning and welcome to Marcus and Milla Chaps first quarter 2023 earnings conference call. With us today are President and Chief Executive Officer, Hossam Najee, 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 February 28, 2023. 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 of 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, Assam Najee.

Thank you, Jacques. On behalf of the entire Marcus Millichap team, good morning, everyone, and welcome to our first quarter 2023 earnings call. As anticipated, MMI faced a challenging first quarter due to the market disruption caused by the Fed's interest rate shock. The repricing of real estate and ensuing bid-ask spread was exacerbated by bank failures, which elevated lender caution and further reduced liquidity during the quarter. Revenue came in at $155 million, resulting in adjusted EBITDA loss of $7.4 million and net loss of $5.8 million. Expensing of capital invested in various growth initiatives over the past several years, particularly talent acquisition and business development, pressured earnings significantly. Revenue production was hampered by a general lack of investor motivation to sell, had reduced prices and elevated uncertainty Reduced loan values and frequent repricing of debt by many lenders challenged our key metrics, including an increase in our died deal ratio and extended marketing and closing timelines. These forces impacted all business segments and price points, but were pronounced in larger transactions as many institutions remained on the sideline and many private investor deals priced above $10 million simply did not pencil out. First quarter sales transactions in the broader market fell by an estimated 46%, with a volume decline of 55% to 60% based on preliminary data from Real Capital Analytics and CoStar. This marks the second consecutive quarter of severe decline in trading activity, which reflects the broad nature of the current market dislocation. Marcus Millichap's brokerage transactions declined 40% for the quarter, and reflect execution of nearly 1,300 brokerage transactions, which is a testament to our team's creativity and commitment to help clients execute even in a tough market. Our results was particularly impacted by larger sales, which had posted outsized growth over the past few years and therefore had a very tough comparison. Private client revenue fell 44%, while revenue from middle market and larger sales declined 63% and 70%, respectively. For perspective, revenue from these two segments priced at $10 million and above combined had grown by 134% in the first quarter of 2022. The firm's IPA division, which primarily serves institutional investors, is fully engaged in providing opinions of value and advisory work to help these clients navigate challenging market dynamics. We believe the integration of IPA with our core private client business to be a major differentiator and a clear advantage when capital flows resume. Our team will be well positioned to gain new relationships and market share in their recovery. On the private client side, our brokers are highly focused on creative solutions to get deals done for sellers with motivation and realistic price expectations. These include seller financing, equity expansion, and executing 1031 exchanges. The company's financing revenue declined 40% as sources of financing became more restricted due to contagion fears. Decisive actions and messaging by the Fed and Treasury alleviated these fears to some degree. However, virtually all lenders have taken a more cautious stance. Our financing team still closed 279 transactions with 142 separate lenders in the quarter, reflecting the skill, tenacity, and access our team brings to investors even amid the Fed-induced liquidity titan. We believe that the eventual passing of the perfect storm currently impeding sales and financing will lead to higher volumes as the market works through repricing and normalization of credit conditions. We are positioning MMI to reach new milestones in that recovery through the actions and strategies we're currently implementing. These include a continued focus on training, internal communication and best practices sharing, all of which is there to support our sales force while leveraging our real-time research to help investors with strategy and execution. Our commitment to being a trusted advisor may not lead to transactions in the near term, as many of our clients elect to postpone trades. However, partnering with them during these times will lead to a stronger bond and more business as the market recovers. This is not a new approach for MMI. Rather, it is a page out of our own playbook from every significant market downturn, which resulted in above-average growth and new milestones in recovery cycles. To this end, we're tightly balancing cost controls with critical investments that keep MMI on offense. The reduction of force executed in December lowered our expenses going into this year, and we continue to strategically prioritize costs. These include investments in proprietary technology enhancements that directly drive leads and revenue, expanding our auction platform, which has been off to a great start, heavily promoting our loan sales division to lenders and potential investors in loan pools, and sustaining the company's presence at key industry conferences and signature client events. We believe all of these are very critical. Additional expense cuts in select areas are being executed. However, we believe sustaining current support levels is critical to helping our sales force remain in front of clients and respond to their elevated information needs. Taking a long-term view, we'll weigh on our financial performance in the near term, but again, we'll pay great dividends in the recovery. To accelerate external growth, management is aggressively pursuing talent acquisition to build on some key hires made in the first quarter. Our ongoing success in attracting experienced individuals and teams in both financing and brokerage continues to offset the elevated dropout of newer professionals due to market conditions. The first quarter's more challenging environment added to the difficulty new brokers and originators are experiencing in generating revenue. The inflow of new candidates, particularly from other sales professions, also faces the market headwind. None of these obstacles are deterring our commitment and actions to reach a wider candidate pool and grow the sales force. Our multi-pronged strategy of traditional organic growth, experienced professionals and team additions, and strategic acquisitions remains intact. In fact, the pipeline of experienced prospects continues to grow, and we're encouraged by active discussions with some quality M&A targets. Now, looking forward, the timeline for the market recovery has pushed out, largely due to the bank failures and further tightening of capital availability. We remain cautiously optimistic that continued moderation of inflation rates and the likely end of the Fed tightening cycle as messaged this week, will bring clarity to the market. As we shared on our last call, we believe investors will also regain confidence with visibility on the depth of the labor market slowdown. As the effects of higher interest rates work through the economy, we should continue to see a deceleration of job growth as opposed to severe net job losses. This is critical for real estate demand. It may take a few more months for this to emerge, which should coincide with more price adjustments setting the stage for improving trading activity. The volume of maturing real estate loans and pressure on the banking system are understandably concerning many investors. Maturing loans face a major price correction in some categories, but it is critical to remember that most property types, with the exception of office, have experienced robust rent growth and strong fundamentals over the past five to seven years. When this year's maturing loans come to market, many properties will undoubtedly require fresh equity and restructuring to varying degrees. Lenders and the Fed appear to be focused on working with borrowers as opposed to offloading these loans at a discount. Let me also point out that the banking system as a whole has substantially more liquidity going into the pandemic. This liquidity level has further increased in the last two years. This is a stark difference to the 2008-2009 period when bank liquidity prior to the Great Recession was at a fraction of current levels. We have the balance sheet to be prudently offensive as a company during this market dislocation, while at the same time continuing our strategy to return capital to shareholders. This is being executed through our semi-annual dividend and extended stock repurchase program announced yesterday. The entire Marcus Millichap team is committed to leveraging this difficult time to build client relationships and harvest the pent-up demand that will undoubtedly fuel growth in the recovery. With that, I will turn the call over to Steve for more details on the quarter. Steve?