Marcus & Millichap, Inc.

Greetings and welcome to Marcus and Millichap's first quarter 2024 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, Operator. Good morning and welcome to Marcus and Millichap's first quarter 2024 earnings conference call. With us today are President and Chief Executive Officer, Issam Nachi, 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, 2024. 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, includes a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the investor relations section of the company's 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, Faisal Najee.

Thank you, Jacques. On behalf of the entire Marcus Millichap team, good morning and welcome to our first quarter earnings call. The highly anticipated start to the interest rate easing cycle by the Federal Reserve, messaged in early 2024, reversed course during the first quarter. The shift toward higher for longer has prolonged interest rate volatility, which remains disruptive to real estate valuations, marketing of listings, and transaction closings. After dropping 51% in the first quarter of 2023 from the previous year, overall market sales volume dropped another 19% in the first quarter of 2024 based on preliminary estimates by RCA. Given this difficult backdrop, revenue for the quarter was $129 million, with adjusted EBITDA loss of $10 million. These results reflect the productivity drag on our sales force as listings take longer to market and many deals continue to fall out of contract due to financing issues or repricing. This is time consuming for our sales force, as you can imagine, and limits their bandwidth to engage in new business development in the current environment. Our financial results were also impacted by expenses related to investments made over the past several years in talent retention and acquisition, technology development and implementation, and expanded brokerage support. The expected revenue levels, which would typically follow these investments in a stable market, remain hampered temporarily. as we work through this market disruption. We remain steadfast in our strategy to stay on offense and position the company to lead in the eventual recovery. This includes ongoing investments in business development efforts, client outreach, branding, and ensuring that MMI remains prominently in the center stage at key industry events. As an example, client demands for market analysis, updated valuations, and general advisory services remain at an all-time high as investors navigate uncertainty. To remain fully capable of providing this level of granular client support, we have proactively maintained our service level and resources. As we know from past cycles, staying close to investors and developing new advisory-based relationships during tough times leads to future revenue growth. Our strategy is also unwavering when it comes to pursuing strategic acquisitions, attracting additional experienced individuals and teams, and returning capital to shareholders. During the quarter, we added several brokerage and financing professionals in key segments where we lacked coverage and began dialogue with a number of new targets and investment opportunities. Our underwriting is highly sensitive to balancing near-term downside with future upside and strategic enterprise value when it comes to valuations and deal structure. Looking back at M&A opportunities we decided to pass on over the past 18 months, there's no doubt that results would have been below expectations had we accepted terms required by the seller. Having said that, the bid-ask spread in the market is not keeping us from pursuing targets given the importance of external growth. Internally, we continue to focus on providing our team with the best in class tools, training, communication, and support. The company's expanded research content is instrumental in keeping investors informed and connecting our Salesforce to clients and prospects. Additional resources have been added to our recruiting team to help our managers increase outreach to high quality sales professionals to regain momentum in our traditional organic growth. While these efforts are making a difference, The turnover rates for newer individuals remain elevated due to the challenging market environment. We continue to proactively transition lower probability individuals out of the firm if they're not able to meet key development and production metrics. In time, we believe our organic growth will fuel net contributions to headcount as we build on our recent success in attracting experienced professionals. Notwithstanding the current challenges, MMI closed over 1,300 transactions in the quarter, including 234 financings, with 121 separate lenders in this tough environment. These numbers reflect our ability to solve problems for clients, facilitate opportunities for investors, and get deals done. MMI remains the top investment brokerage firm by number of transactions, which in turn enables us to execute on behalf of our clients due to our market reach and unique investor access. From a market perspective, we continue to see hampered transaction activity across all business segments and price points, given the macro nature of the interest rate shock still working its way through the industry. However, a number of very important positive signs are emerging that I'd like to point out. First, even without the shift in Fed policy toward lowering interest rates, the passage of time is driving price adjustments. Positive momentum on buyer tours and offers is building on realistically priced assets across all property types and markets. This is indicative of the record capital on the sideline awaiting more clarity on interest rates and well-priced acquisition opportunities. As prices reset, we are seeing an uptick in our inventory with assets coming to market at more realistic values, which should have a higher conversion rate in the quarters ahead. Many sellers who were hoping for a Fed miracle are coming to terms with having to sell due to maturing loans that cannot be extended or refinanced without fresh equity or personal circumstances, which we typically rely on as a driver of transactions. Situational distress is also increasing for assets that were underwritten too aggressively with short-term financing that is terming out and those with operational issues. We're also seeing growing demand for our auction services, which is a complementary offering we added ahead of the market downturn. While these positive factors will take time to manifest in better financial results, we believe they're the building blocks to an eventual recovery. Most importantly, when the market becomes more favorable, we believe the production capacity of the talent that has been added and retained for the firm, coupled with numerous technological advances we've made over the past few years, will play a major part in accelerating our growth into the next cycle. In the meantime, we continue to guard our strong balance sheet with diligence while pursuing internal and external growth opportunities. and keeping the Marcus & Millichap brand as strong as ever. With that, I will turn the call over to Steve for additional insights into our financial results. Steve?