Q4 2023 Marcus & Millichap Inc Earnings Call

Operator: Greetings and welcome to Marcus & Millichap's fourth quarter and year-end 2023 Earnings Conference call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Josh Cornett. Thank you. You may begin.

Greetings and welcome to Marcus and Millichap sport quarter and year end 2023 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.

Josh Lamers: Thank you, operator. Good morning. Welcome to Marcus & Millichap's fourth quarter and year-end 2023 earnings conference. With us today is the President and Chief Executive Officer, Somnagi. 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 such forward-looking statements.

Thank you operator, good morning, and welcome to Marcus and Millichap fourth quarter, and yearend 2023 earnings conference call.

With us today.

Is it in and Chief Executive Officer, some dodgy, but chief Financial Officer, Steve did you narrow.

Before I turn the call over to management. Please remember that our prepared remarks and 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.

Josh Lamers: 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, as well as the Company's ability to retain and attract transaction professionals. The company's ability to retain its business philosophy and partnership culture amid competitive pressure; 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 Exchange on February 28, 2000. 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.

Actual results can differ materially from those implied by such forward looking statements due to a variety of factors.

Crude in 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 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 Rob.

Josh Lamers: The company undertakes no obligation to update any forward-looking statement, whether as a result of new information... 2013 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Communications. In addition, certain financial information presented on this call represents non-GAAP financial... Companies aren't interlinked, was issued this morning and is available on the company's website, represents a reconciliation, Rude, gab, and measurable. Please see the complete disclaimer at https://sites.google.com or at www.thevenusproject.com Share this video with friends like all you do from work to a job interview. Share this video with friends like all you do from work to a job interview. Our website is www. Marxist.com. The podcast link is available in the investor relations section of the website, www.

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 reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures.

Useful to investors.

This conference call is being webcast webcast link is available on the Investor Relations section of the company's website at Www Dot Marcus Millichap Dot com along with the slide presentation, you may reference during their remarks.

Josh Lamers: MarcusMillichap.com, along with the slide presentation, you may reference. With that, it's my pleasure. CEO, The Zom. Thank you, Jacques.

It's my pleasure to turn the call over to CEO Assam Bacci.

Thank you Jack on behalf of the Marcus Millichap team good morning, and welcome to our fourth quarter and year end earnings call.

Somnagi: On behalf of the Marcus & Millichap team, good morning and welcome to our fourth quarter and year-end earnings. 2023 ended up being one of the most challenging periods for the commercial real estate industry. The residual effect of soaring interest rates and volatility caused a breakdown in valuations and pushed buyers and sellers alike to the sidelines. The impact of widened bid-ask spreads and severely restricted financing was illustrated by the lack of the usual fourth-quarter investor urgency to close deals before year-end. For the year, transaction and financing volumes declined by an estimated 55% market-wide, based on third-party sources.

223 ended up as one of the most challenging periods for the commercial real estate industry.

The residual effect of soaring interest rates and volatility cockpit breakdown evaluation and pushed buyers and sellers alike to the sidelines.

The impact of widening bid ask spreads and severely restricted financing was illustrated by the lack of the usual fourth quarter investor urgency to close deals.

For year end.

For the year transaction and financing volumes declined by an estimated 55% market wide based on third party sources.

Somnagi: Analyzed revenue for the 4th quarter was $166 million, up modestly from the 3rd quarter, and adjusted EDITA loss came in at $4.5 million. For the year, revenue was just short of $650 million, a decrease of 50% from the prior year, with an adjusted interval loss of $20 million. While these results are extremely frustrating for our team, it is important to note that despite this challenging environment, MMI still closed roughly 7,500 transactions last year. Once again, more than any other... Our unique marketing system and culture of collaboration resulted in 44% of our closings going to out-of-state buyers, which highlights our ability to generate buyer interest locally and nationally, even in a disrupted market. Our ability to solve problems and uncover opportunities for our clients resulted in a movement of $12.6 billion across markets and products. The company's financing experts at MMCC and IPA Capital Markets closed nearly 1,100 financing transactions with 350 separate lenders.

And a nice revenue for the fourth quarter was $166 million up modestly from the third quarter and adjusted EBITDA loss came in at $4 $5 million.

For the year revenue was just short of $650 million, a decrease of 50% for the prior year with an adjusted EBITDA loss of $20 million.

While these results are extremely frustrating for our team. It is important to note that despite this challenging environment and then I still closed roughly 7500 transactions last year once again more than any other firm.

Our unique marketing system and culture of collaboration resulted in 44% of our clothing going to out of state buyers, which highlight their ability to generate buyer interest locally and nationally even in a disrupted market.

Our ability to solve problems and uncover opportunities for our clients resulted in the movement of $12 $6 billion across markets and product types.

The company's been asking experts at M. D C and I forget capital markets closed nearly 1100 financing transaction with 350 separate lenders.

Somnagi: Leveraging this vast network of lender relationships and real-time information exchange among our originators are major advantages for our clients in this market. These numbers and the company's financial results would be significantly stronger if not for three key challenges that we believe are temporary. The first is the market's impact on our productivity. Listings have been difficult to price appropriately and are taking longer to market and put under contract. An elevated portion of our deals have fallen out of contract, with many going in and out of contract more than once. This is due to lender and or buyer issues and essentially having to remarket the same deal multiple times to reach an actual closing.

Leveraging this vast network of lender relationships and real time information exchange among our originators are major advantages for our clients in this market.

These numbers in the company's financial results could be significantly stronger if not for three key challenges that we believe are temporary.

The first is the market impact on our productivity lift.

Let things have been difficult to price appropriately and are taking longer to market and put under contract.

And elevated portion of our deals have fallen out of contract with many going in and out of contract more than once.

This is due to a lender in or buyer issue and essentially having to re market. The same deal multiple times to reach an actual closing.

Somnagi: The net impact of getting the job done for our clients in a difficult environment is reduced time for new business development. The second challenge is higher expenses related to investments made over the past few years for top-tier talent at a time when their revenue production is well below long-term averages entirely due to market headwinds. We're confident that the strategy behind acquiring and retaining top-level producers, all of which were made with sound underwriting, will drive long-term growth as the market recovers. Lastly, the broad nature of the market disruption has not only impacted larger institutional transactions, but it's also impeded private client transactions more than past cycles. Although the percentage decline in private client deals is still far less than larger transactions, pricing uncertainty and widened bid-ask spreads across all property types have lowered private client trading. The pullback by banks and credit unions that usually provide the majority of financing for our private client deals is a contributing factor to this particular challenge.

The net impact of getting the job done for our clients in a difficult environment is reduced time for new business development.

The second challenge is higher expenses related to investments made over the past few years for top tier talent at a time when their revenue production is well below long term averages entirely due to market headwinds.

We're confident that the strategy behind acquiring and retaining top level producers.

All of which were made with sound underwriting will drive long term growth as the market recovers.

Lastly, the broad nature of the market disruption has not only impacted larger institutional transactions, but it's also impeded private client transactions more than past cycles.

The percentage decline in private client deals, it's still far less than larger transaction pricing uncertainty and widen bid ask spreads across all property types have lowered private client trading.

The pull back by banks and credit unions that usually provide the majority of financing for our private client deals is a contributing factor to this particular challenge.

Somnagi: The good news is that the passage of time and the market's realization that interest rates are unlikely to return to record lows are starting to spur the valuation reset necessary to bring buyers and sellers back into alignment. We anticipate that assets previously withheld from the market in the hopes of better pricing will be brought to market at more realistic prices in the quarter to half. This shift is being prompted by maturing debt, as well as operational issues, particularly in deals that were underwritten aggressively over the past few years. Our IPA division is seeing an uptick in inventory coming to market by institutional owners as well as cautious interest on the buy side. In the meantime, our strategy will remain on offense, while being diligent on investment underwriting and cost management into 2021.

The good news is that the passage of time and the market's realization that interest rates are unlikely to return to record lows is starting to spur the valuation reset necessary to bring buyers and sellers back into alignment.

We anticipate that assets previously withheld from the market in the hopes of better pricing will be brought to market at more realistic prices in the quarters ahead.

The ship is being prompted by maturing debt as well as operational issues, particularly in deals that were underwritten aggressively over the past few years.

Our IPA division is seeing an uptick in inventory coming to market by institutional owners as well as cautious interest on the buy side.

In the meantime, our strategy remain on offense.

While being diligent on investment underwriting and cost management continues into 2024.

Somnagi: Some examples include our leading presence at key industry events and conferences such as the National Remote Housing Council, NMHC, ICSE, NAOP, and other organizations covering every major property. Our client webcasts, which drew over 40,000 investors last year, expanded research content through 3,300 publications, and various client outreach programs help our salesforce stay connected and enhance their client relationships. Service expansions, including auction and loan sales, continue to provide alternative ways to add value to our clients. We continue to have success in attracting top local teams and groups and remain highly focused on sourcing acquisitions.

Some examples include our leading presence at key industry events and conferences, such as National multi housing Council and then they see ICSC Knapp and other organizations covering every major property type.

Our client webcast, we should do over 40000 investors last year expanded research content through 3300 publication and various client outreach programs helped ourselves for stay connected and enhance their client relationships.

Various expenses, including auction and loan sales continue to provide alternative ways to add value to our clients.

Continue to have success in attracting topical teams and groups and remain highly focused on sourcing acquisition opportunities.

Somnagi: Recent negotiations with firms within our core business, as well as complementary service lines, reinforce the external growth opportunity and Interest in MMA. However, they've been hampered by ongoing gaps between pricing and terms expectations given the degree of short- to mid-term markets on certain, The Bulletproof Executive 2013, Notwithstanding our cost containment measures, we're investing more in M&A-related resources as this area remains a high price. Another key priority is expanding recruiting resources and programs.

Recent negotiations with firms within our core business as well as complementary service line reinforced the external growth opportunity and interest in M&A.

However, they've been hampered by ongoing gaps between pricing and terms expectation given the degree of short to near term market uncertainty.

We're confident that in time there'll be more realism by sellers as we pursue additional opportunities to accelerate growth.

Notwithstanding our cost containment measures, we're investing more in M&A related resources as this area remains a high priority.

Another key priority is expanding recruiting resources and programs are experienced professional targeting an acquisition continued to show success.

Somnagi: Our experienced professional targeting and acquisitions continue to show success. In the last year, we've brought on board numerous experienced individuals and teams across the country and product. Recent examples include a major institutional department team that joined IPA in our Washington, D.C. office, a major capital markets team that joined in New York, as well as highly experienced market leaders added in Dallas, Nashville, Los Angeles, and Toronto, just to name a few. However, our net hiring of newer professionals continues to be a challenge as the market disruption is keeping the fallout ratio of newer agents elevated. In the fourth quarter, we initiated a proactive push to terminate those who were unlikely to become productive.

And the last year, we brought on board numerous experienced individuals and teams across the country and product types.

Recent examples include a major institutional apartment team that joined IPA in our Washington D. C office and major capital markets team that joined in New York as well as highly experienced market leaders added in Dallas, Nashville, Los Angeles, and Toronto just to name a few.

Our net hiring of newer professionals continues to be a challenge as the market disruption is keeping the fallout ratio of newer agents elevated.

In the fourth quarter, we initiated a proactive push to terminate those who are unlikely to become productive.

Somnagi: The flow of new candidates is actually increasing, which is very encouraging, and we're expanding our internship, mentorship, and training programs as part of our commitment to return to positive NIC hiring of new associates. Looking forward, we believe that the Fed's eventual lowering of interest rates and investors' growing confidence in the economic soft landing will be the key catalyst for rising trading activity. For more information, visit www.

The flow of new candidates is actually increasing.

Which is very encouraging and we're expanding our internship mentorship and training programs as part of our commitment to return to positive net hiring of new associates.

Looking forward, we believe that the feds eventual lowering of interest rates and investors growing competent can be economic soft 90 will be the key catalysts and rising trading activity.

Persistently strong job numbers in January was higher than expected inflation that has taken the pressure off of that to start easing further fueling the higher for longer trend, we pointed out on our last call.

Somnagi: FEMA.gov, However, with the real estate pricing reset underway and some degree of interest rate easing by the Fed expected by mid-year, we're cautiously optimistic about an improving market environment in the second half of the year. In the meantime, our theme of Control the Controllable drives management's focus as applied to internal tools, education, and best practices sharing, as well as providing best-in-class brokerage services to our customers. At the same time, we continue to pursue external growth opportunities through our acquisition strategy. Our playbook from past down cycles in 52 years of being in business continues to improve each time, with the benefit of technology, a strong and growing brand, and laser focus on revenue. Throughout the recent market and economic shifts, we have effectively balanced strategic investment with returning capital to shareholders.

However, with the real estate pricing reset underway and some degree of interest rate easing by the fed expected by mid year, we're cautiously optimistic for an improving market environment in the second half of this year.

In the meantime, our theme of control the controllable drive management focus as applied to internal tools education, and best practices sharing as well as providing best in class brokerage services to our team.

At the same time, we continued to pursue external growth opportunities through our acquisition strategy, our playbook from past down cycle in 52 years of being in business continues to improve each time with the benefit of technology is strong and growing brand and laser focus on revenue growth.

Throughout the recent market and economic shifts, we've effectively balanced strategic investment with returning capital to shareholders.

Somnagi: MMI has a long history of producing high-quality earnings that have generated strong cash flow through multiple economic cycles... The combination of share repurchases and dividends reflect our commitment to maximizing shareholder value. The strength of our balance sheet, combined with our leading market position and brand form an exceptionally strong foundation for our long-term... Steve? Thank you, Assam.

And then my has a long history of producing high quality earnings that are generated strong cash flow through multiple economic cycles.

The combination of share repurchases and dividend reflect our commitment to maximizing shareholder value.

The strength of our balance sheet combined with our leading market position and brand form an exceptionally strong foundation for our long term success.

And with that I will turn the call over to Steve for additional insight on our financial results Steve.

Thank you Hassan.

Steve DiGennaro: As previously mentioned, revenue for the fourth quarter was $166 million, compared to last year's $262 million. For the full year, total revenue was $646 million, compared to last year's record high of $1.3 billion. Revenue from real estate brokerage commissions for the fourth quarter was $145 million, or 87% of total revenue, compared to $236 million last year.

Previously mentioned revenue for the fourth quarter was $166 million compared to last year's $262 million for the full year total revenue was $646 million compared to last year's record high of $1 $3 billion.

Revenue from real estate brokerage commissions for the fourth quarter was $145 million or 87% of total revenue compared to $236 million last year, a decrease of 39% year over year.

Steve DiGennaro: Decrease of 39% year-over-year. For the quarter, total sales volume was $8.7 billion across 1,413 transactions, down 33% and 31%, respectively, for the full year 2020. Revenue from real estate brokerage commissions was $560 million and accounted for nearly 87% of total revenue, compared to $1.2 billion last year, a decrease of 52% year-over-year.

For the quarter total sales volume was $8 $7 billion across 1413 transactions down, 33% and 31% respectively for.

For the full year 2023 revenue from real estate brokerage commissions was $560 million and accounted for nearly 87% of total revenue compared to $1 $2 billion last year, a decrease of 52% year over year.

Steve DiGennaro: Full-year sales volume was $30.8 billion across 5,475 transactions, down 55% and 40%, respectively. Average transaction size during the fourth quarter was approximately $6.2 million compared to $6.4 million a year ago. For the full year, average transaction size was $5.6 million compared to $7.5 million in the prior year.

Full year sales volume was $38 billion across 5475 transactions down, 55% and 40% respectively.

Average transaction size during the fourth quarter was approximately $6 $2 million compared to $6 $4 million a year ago.

For the full year average transaction size was $5 $6 million compared to seven $5 million in the prior year.

Steve DiGennaro: The year-over-year decrease in average transaction size reflects a decline in property values as well as a lower mix of revenue coming from middle market and larger transactions due to the disproportionate impact of the market disruption. The Bulletproof Executive 2013, Within brokerage, for the quarter, our core private client business contributed 66% of brokerage revenue, or $95 million, versus 62% last year. For the full year, the private client business contributed 67% of brokerage revenue, or $373 million, versus 58% last year, and $44 million during the fourth quarter, compared to 36% last year. For the full year, middle market and larger transactions represented 30% of brokerage revenue, or $166 million, compared to 40% last year. For the quarter, private client business declined 35%, while middle market and larger transactions declined 49% and 47%.

The year over year decrease in average transaction size reflects a decline in property values as well as a lower mix of revenue coming from middle market and larger transactions due to the disproportionate impact of the market disruption on institutional business.

Within brokerage for the quarter, our core private client business contributed 66% of brokerage revenue or $95 million versus 62% last year.

For the full year, the private client business contributed 67% of brokerage revenue of $373 million versus 58% last year.

Middle market and larger transactions, which experienced strong growth over the past couple of years together accounted for 31% of brokerage revenue of $44 million during the fourth quarter compared to 36% last year.

For the full year middle market and larger transactions represented 30% of brokerage revenue or $166 million compared to 40% last year.

For the quarter private client business declined, 35%, while middle market and larger transactions declined 49% and 47% respectively.

Steve DiGennaro: For the full year, the trend away from larger deals was more pronounced, with private client declining 45% and middle market and large transactions declining 61% and 6% respectively.

The full year.

<unk> away from larger deals with more pronounced.

With private clients declining, 45% and middle market and large transactions declining, 61% and 66% respectively.

Steve DiGennaro: Revenue in our financing business, including MNC, was $16 million in the fourth quarter compared to $22 million last year. During the quarter, we closed 237 financing transactions, totaling $1.5 billion in volume, compared to 408 transactions, or $2.4 billion in volume, in the prior year. Financing revenue for the full year was $67 million compared to $113 million last year. This was achieved across 1,076 transactions totaling $6.7 billion in volume, prepared by 2,143 transactions.

Revenue in our financing business, including M. C. C was $16 million in the fourth quarter compared to $22 million last year.

During the quarter, we closed 237 financing transactions totaling $1 $5 billion in volume compared to 408 transactions or $2 $4 billion in volume in the prior year.

Financing revenue for the full year was $67 million compared to $113 million last year.

This was achieved across 1076 transactions totaling $6 $7 billion in volume compared to 2143 transactions and $12 $8 billion in volume last year.

Steve DiGennaro: $12.8 billion in volume last year. Other revenues, www.youtube.com or the link in the video description. $6 million in the fourth quarter compared to $5 million last year. Full year, other revenue was $19 million this year compared to $18 million last year. Turning to expenses, total operating expense for the fourth quarter was $183 million, 29% lower than last year. Full year, total operating expense was $705 million.

Other revenue.

Comprised primarily of consulting and advisory fees, along with referral fees was $6 million in the fourth quarter compared to $5 million last year.

For the full year other revenue was $19 million this year compared to $18 million last year.

Turning to expenses.

Total operating expense for the fourth quarter was $183 million, 29% lower than last year for.

For the full year total operating expense was $705 million, 39% lower compared to the prior year.

Steve DiGennaro: 39% lower compared to the prior year. Lower expenses were primarily due to a reduction in variable expenses related to lower revenue. Cost of services was $105 million, or 63.4% of total revenue for the court.

Lower expenses were primarily due to a reduction in variable expenses related to lower revenue.

Cost of services was $105 million or 63, 4% of total revenue for the quarter.

Steve DiGennaro: A decrease of 550 basis points compared to the prior year. For the full year, the cost of services was $407 million, or 63% of total revenue. The Bulletproof Executive 2013, https://www.youtube.com; The lower cost of services as a percentage of revenue reflects lower commission rates as fewer agents... SG&A in the fourth quarter was $75 million, an increase of 2.9% over the prior year, primarily due to increased stock compensation. The Bulletproof Executive 2013, For the full year, SG&A was $285 million, a decrease of 5% compared to last year.

A decrease of 550 basis points compared to prior year.

For the full year cost of services was $407 million or 63% of total revenue a.

A reduction of 240 basis points compared to last year.

The lower cost of services as a percentage of revenue reflects lower commission rates as fewer agents surpassed revenue thresholds.

SG&A in the fourth quarter was $75 million, an increase of two 9% over the prior year, primarily due to increased stock compensation and consolidation of office space in certain markets.

For the full year SG&A was $285 million, a decrease of 5% compared to last year.

The full year decrease was attributable to lower variable compensation tied to business performance impacted by market conditions, along with ongoing cost reductions.

The decreases were partially offset by expenses related to talent acquisition and retention as well as new business development and marketing support.

Steve DiGennaro: Full Year Decrease was attributable to lower variable compensation tied to business performance impacted by market conditions, along with ongoing cost... Decreases were partially offset by expenses related to talent acquisition and retention, as well as new business development and marketing. Despite the market disruption and its near-term impact on our earnings, we remain committed to investing in our operating platform. SalesForce Grows. The Bulletproof Executive 2013, Based on our experience through multiple cycles, these enhancements during a downturn have proven to drive long-term benefits. We are working diligently to balance near-term profitability with these strategic investments. During the fourth quarter, we reported a net loss of $10.2 million, or $0.27 per share, compared with net income of $7.9 million, or $0.20 per share in the prior year.

Despite the market disruption and its near term impact on our earnings we remain committed to investing in our operating platform.

Those forests growth.

Technology and infrastructure.

Based on our experience through multiple cycles. These enhancements during a downturn have proven to drive long term value.

We are working diligently to balance near term profitability with these strategic investments.

During the fourth quarter, we reported a net loss of $10 $2 million or 27 cents loss per share compared with net income of $7 $9 million or <unk> 20 per share in the prior year for.

For the full year net loss totaled $34 million or 88 loss per share compared to net income of $104 $2 million or $2 59 per share last year.

For the quarter, adjusted EBITDA was negative $4 $5 million compared to positive $14 $1 million in the prior year.

Steve DiGennaro: For the full year, the net loss totaled $34 million, or $0.88 loss per share, compared to net income of $104.2 million, or $2.59 per share. For the quarter, adjusted EBITDA was negative $4.5 million compared to positive $14.1 million in the prior year. For the full year, adjusted EBITDA was negative $19.6 million compared to positive $165.5 million in the prior year. The effective tax rate for the quarter was 12%, and for the full year, it was $6,000.

For the full year, adjusted EBITDA was negative $19 $6 million compared to positive $165 $5 million in the prior year.

The effective tax rate for the quarter was 12% and for the full year was 16%.

Moving onto the balance sheet.

We remain well capitalized with no debt and $407 million in cash cash equivalents and marketable securities.

Down only modestly from the prior quarter's $411 million.

During the quarter, we returned a total of $14 $6 million of capital to shareholders through dividends and share repurchases at an average price of $27 92 per share.

Steve DiGennaro: Moving on to the balance sheet, we remain well capitalized with no debt and $407 million in cash, cash equivalents, and marketable security, down only modestly from the prior quarter's $411 million. During the quarter, we returned a total of $14.6 million of capital to shareholders through dividends.

For the full year, we returned $59 million of capital to shareholders, including $39 million in share repurchases and $20 million in dividends, despite the challenging market environment.

This is a testament to the strength of our balance sheet and our conviction in the long term outlook for the business.

Since inception of our capital return programs roughly two years ago, we have returned more than $150 million to shareholders and still have nearly $72 million remaining under our current share repurchase authorization.

Steve DiGennaro: Share repurchases at an average price of $27.92 per share. For the full year, we returned $59 million of capital to shareholders, including $39 million in share repurchases. $20,000,000 in dividends. Despite the challenging market. This is a testament to the strength of our balance sheet and the conviction in the long-term outlook. Since the inception of our capital return programs roughly two years ago, we have returned more than $150 million to shareholders and still have nearly $72 million remaining on their current share repurchase authorization. Finally, last week we announced that our board declared a semi-annual dividend of $0.25 per share for approximately $10 million, payable on April 5th, 2024 to shareholders of record on March 12th, 2024.

Finally last week, we announced that our board declared a semiannual dividend of <unk> 25 per share or approximately $10 million payable on April 5th 2024 to shareholders of record on March 12 2024.

Looking ahead to 2024.

The headwinds facing the market are likely to remain a challenge through the first half of the year.

In addition, our deal pipeline coming into the year did not have the same momentum it did going into 2023.

However, we are cautiously optimistic at the end of the fed's aggressive rate hikes will lead to improving conditions in the latter half of the year.

We expect first quarter revenue to follow the usual seasonal pattern and be down sequentially from Q4.

Steve DiGennaro: Looking ahead to 2024, headwinds facing the market are likely to remain a challenge through the first half. In addition, our deal pipeline coming into the year did not have the same momentum it did going into 2021. However, cautiously optimistic at the end of the Fed's aggressive rate hike, leading to improving conditions in the latter half. We expect first quarter revenue to follow the usual seasonal pattern and be down sequentially from Q4. Cost of services for the first quarter should follow the seasonal reset and be in the range of 59% to 61% of revenue.

Cost of services for the first quarter should follow the seasonal reset and be in the range of 59% to 61% of revenue.

This is slightly lower than the first quarter of last year, given current market dynamics.

SG&A for the first quarter should decrease year over year in absolute dollars consistent with lower revenue and lower agent support costs tied to 2023 revenue.

We remain committed to helping clients navigate external market conditions, while internally, we continue to drive operational efficiency through best practices across the organization.

Steve DiGennaro: This is slightly lower than the first quarter of last year, given the current market... SG&A for the first quarter should decrease year-over-year in absolute dollars, consistent with lower revenue and lower agent support costs tied to 2023 revenue. We remain committed to helping clients navigate the external market, while internally, we continue to drive operational efficiency through best practices across the organization. We know that the investments we continue to make in the platform today position us to capture growth when market conditions normalize. Transactional Activity: With that, Operator, we can now open up the call for... Thank you.

We know that the investments we continue to make in the platform today position us to capture growth when market conditions normalize and transactional activity resumes.

With that operator, we can now open up the call for Q&A.

Thank you well now be conducting a question and answer session.

If you'd 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'd 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 star keys.

One moment, please while we poll for questions.

Our first question is from Jason Belcher with Wells Fargo. Please proceed with your question.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question.

Thanks, and good morning out there.

I was just wondering if you can talk a little more about the different transaction size buckets for commission revenue, particularly as it relates to any potential recovery.

Are you <unk>.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we call for questions. Our first question is from Jason Belcher with Wells Fargo. Please proceed with your questions. Thanks, and good morning out there.

<unk> any particular deal size bucket to lead that recovery.

Just comment on that.

Good morning, Jason Good to have you on the call.

Most recoveries.

I'm a client is the first to recover because of the entrepreneurial nature because they can.

Jason Belcher: Hassan, I'm just wondering if you can talk a little more about the different transaction size buckets for commission revenue, particularly as it relates to any potential recovery. Are you expecting any particular deal size bucket to lead that recovery? Can you just comment on that? Good morning, Jason.

Forward to acquire smaller assets with all cash and then put financing on it at that time is when financing is constrained.

And do.

Do creative things on the sell side like a seller Kerry.

And.

Basically worked through a lot of market headwinds that are we.

Somnagi: Good to have you on the call. You know, in most recoveries, the private client is the first to recover because of their entrepreneurial nature because they can afford to acquire smaller assets with all cash and then put financing on them at times when financing is constrained and do creative things on the sell side, like seller carry, and basically work through a lot of market headwinds that we've seen in past cycles. In this cycle, because of the broad nature of the dislocation and because of the credit constraints that we're seeing among banks and credit unions, as I mentioned in my formal remarks, which are the primary source of smaller transactions, mid-cap, and small-cap transactions are really hindering that private client recovery. Now, having said that, of course, the magnitude of the transaction decline in the smaller price points is far less than the institutional segment or the 20 million plus segment.

We've seen in past cycles in this cycle because of the broad nature of the dislocation.

And because the credit constraints that we're seeing among banks and credit unions as I mentioned in my formal remarks, and which are the primary source of our smaller transactions mid cap small cap.

Transactions.

Our really hindering that private client recover having said that of course, the the magnitude of the transaction decline in the smaller price points.

It is far less than the institutional segment or the $20 million plus segment.

As far as predicting where it's going to come in first I would still expect the private client segment to start showing an uptick because of the fact that the prices are readjusting expectations are readjusting more inventories come into market.

And those factors.

Usually feed the entrepreneurial nature of the sub $10 million to $50 million.

Somnagi: As far as predicting where it's going to come in first, I would still expect the private client segment to start showing an uptick because of the fact that prices are readjusting, expectations are readjusting, more inventory is coming to market, and those factors usually feed the entrepreneurial nature of the sub-10, $50 million marketplace. What's interesting is that just in the last 30 days, really since the beginning of the year, we're seeing a lot more institutional interest, especially in markets that have been impacted by some pockets of overbuilding or a big reversal from rent spikes in the last three years to rent declines in the last six months or so. And it's encouraging to see the pencil-down attitude of institutions start to shift away from showing an interest in getting back into the market. So I don't think the institutional market is going to be far behind, but I would still expect the private client to lead the recovery. Thanks, that's very helpful.

The marketplace, what's interesting is that in the last just in the last 30 days really since the beginning of the year, we're seeing a lot more institutional interest.

Actually in markets that have been impacted by some pockets of overbuilding.

A big reversal.

From rent spikes in the last three years to rent declines.

In the last six months or so and.

It's encouraging to see the pencils down attitude of institutions start to shift away to showing interest in getting back into the market. So I don't mean institutional market its going to be far behind them, but I would still expect the private client to lead the recovery.

Okay.

Thanks.

Helpful and just to follow up there you referenced.

An uptick in certain markets that had been depressed can you just share a few of those markets, where you're seeing some encouraging green shoots there.

Absolutely.

Give you two examples one is a supply constrained market that for many years.

Somnagi: And just to follow up on that, you referenced an uptick in certain markets that had been depressed. Can you just share a few of those markets where you're seeing some encouraging green shoots there? Absolutely. I'll give you two examples.

Has been.

The preferred market with a lot of buyer demand and the other is more of a high beta market. The first one that's interesting to point out is the San Francisco Bay area, and because it lagged into job recovery.

Somnagi: One is a supply-constrained market that has been a preferred market with a lot of buyer demand, and the other is more of a high beta market. The first one that's interesting to point out is the San Francisco Bay Area, and because it lagged in the job recovery, it lagged in the rent recovery, despite being a very supply-constrained region, you didn't see the kind of benefit from investor demand that we saw in other markets in 21, 22, and yet, on an apples-to-apples basis, a market like that is now a diamond in the rough in many ways, and we The other example is Phoenix, of course, or even markets like Atlanta, where you see a lot of construction, and the absorption of those units has been strong when the employment market was on fire. With the pullback of some of the momentum on jobs and some overbuilding, we've seen a reversal there, and therefore, the price correction has been more pronounced, and the kind of volatility from peak to trough has been more dramatic.

<unk> and their rent recovery, despite being a very supply constrained.

The region.

You didn't see the kind of.

Benefits from Investor demand that we saw in other markets in 'twenty, one 'twenty two.

And yet.

On an apples to apples basis market like that is now a diamond in the rough in many ways and we're seeing a lot more investor interest in that market than many others. The other example is Phoenix of course.

Or even in a market like Atlanta, where you see a lot of construction.

And the absorption of those units have been strong with them and the employment market was on fire with the pullback of.

Some of the some of the momentum on jobs and some overbuilding, we've seen a reversal there and therefore the price correction has been more pronounced and the kind of volatility from peak.

Peak.

To trough has been more dramatic Nonetheless, again interest is picking up.

Somnagi: Nonetheless, again, interest is picking up, even in a market like Phoenix that's been through a lot of ups and downs. Because over the long term, if you're looking at replacement cost and really look at the price-per-unit trend that we're seeing, this is a great window of acquisitions, and for long-term investors that believe in growth markets like Phoenix, they're seeing that benefit now. Conversely, in a market like the Bay Area or even Southern California, because they're so supply-constrained, they're seeing that benefit again with price adjustments that make it very competitive now on a replacement cost basis to be a buyer in this market. Again, really helpful.

Even in a market like Phoenix, that's been through a lot of ups and downs because over the long term if youre looking at a replacement cost and.

<unk>.

Really look at the price per unit trend that we're seeing.

This is a great window of acquisitions.

And.

For long term investors that believe in growth markets like Phoenix, they're seeing that benefit now.

Conversely in a market like the bay area, or even southern California, because theres. So supply constrained there are seeing that benefit and again with price adjustments that makes it very competitive now on a replacement cost basis to be a buyer in this market.

Again really helpful. Thank you and just one more follow up there.

Somnagi: Thank you. And just to one more follow-up on that, but if I may, on these markets where you're starting to see increased interest, could you just comment on any particular property sectors that might be leading the way there? We continue to see retail as a comeback asset and, in some ways, a preferred asset. The consumer remains very strong.

Hey on on these markets, where youre starting to see increased interest could you just comment on any particular property sectors that might be leading the way there.

We continue to see retail at a come.

Comeback asset and in some ways at preferred asset.

<unk> remains very strong retail is way ahead of the curve and having.

Somnagi: Retail is way ahead of the curve and has reinvented itself because of e-commerce over the last 10 or 15 years. There has been a major pullback in new construction for well over 10 years now in retail, and the power of destination retail, entertainment, and experiential retail is out in the marketplace in full force. We're seeing more retailers expand than perhaps in the last 15 to 20 years, and there is a pricing power on behalf of the owners. I'm very involved with ICSE as a trustee, and it's fascinating to see the confidence level of major retailers looking to expand into bricks-and-mortar. Bricks-and-mortar has been rediscovered as an essential part of retail, and so it's really interesting to see that evolution go full circle with bricks-and-mortar retail.

Reinvented itself because of e-commerce over the last 10 or 15 years.

There has been a major pullback in new construction for well over 10 years, now and retail and the power of destination retail entertainment and experiential retail are out in the marketplace in full force, we're seeing more retailers expand.

But perhaps in the last 15 to 20 years.

And there is a pricing power on behalf of the owners.

Very involved with ICSC as a trustee and it's fascinating to see the confidence level of major retailers looking to expand into brick and mortar and brick and mortar has been rediscovered as an essential part of retail.

And so it's really interesting to see that evolution go full circle with brick and mortar retail so lots of interest there prices have adjusted in a way that.

Somnagi: So lots of interest there. Prices have adjusted in a way that you're starting to see the kind of alignment between buyers and sellers because again, they're further ahead of the curve, and the cap rate spread to interest rates wasn't as dramatic as for apartments and industrial. So in the multi-family marketplace, which is usually the most stable, we're seeing more of a dislocation and a drop in trading activity because of that tight cap rate band to interest rates before the tightening cycles began. That delivered a very significant valuation disruption for multi-family, and the market is sifting through it. At the same time, you have a lot of maturing loans from debt funds and short-term financing options that are terming out, and so that's creating some pressure, and, of course, you have pockets of overbuilding, but I really think all of this is temporary, and multi-family would be a phenomenal investment on a long-term basis.

Youre starting to see the kind of alignment between buyers and sellers because again there are further ahead of the curve and the cap rate spread to interest rates wasn't as dramatic as apartments.

And industrial.

So in the multifamily marketplace, which is usually the most stable we're seeing more of a dislocation and a drop in trading activity because of that type cap rate.

Two interest rate before the tightening cycle began that delivered a very significant valuation disruption for multifamily and the market is sifting through it at the same time, you have a lot of maturing loans from debt funds and short term financing options.

At our terming out and so that's creating some pressure and of course, you have pockets of overbuilding.

But I really think all of this is temporary and multifamily would be a phenomenal investment on a long term basis.

Somnagi: And then lastly, of course, industrials continue to be very much favored, but there's definitely pockets of overbilling on the industrial warehouse side of the equation where we're becoming more and more active. The product type that is still very much distressed is office in general, but specific office investments are really getting judged incorrectly in that if you look at urban office, those vacancies are well north of 22-23%. If you look at a newer suburban product that's been built in the last 10 to 15 years, those vacancies are around 11%.

And then lastly of course industrial continues to be very much favored but there's definitely pockets of overbuilding on the industrial warehouse side of the question, where we're becoming more and more active.

Product product types of I'd say its still very much.

Distressed is office in general, but specific office investments are really getting judged in correctly and that if you look at urban office. Those vacancies are well north of about 20% to 23% you look at our newer suburban product that's been built in the.

The last 10 to 15 years those vacancies are around 11%. So there is really a tale of two markets within office, but the sector is just being judged with too much generalization I would say, that's probably the product type where we have the most difficult bid asset spread situation other product types.

Somnagi: So there's really a tale of two markets within office, but the sector is just being judged with too much generalization. I would say that's probably the product type where we have the most difficult bid-ask spread situation. Other product types, hospitality is doing well, self-storage is doing well, velocity is way down, but from a fundamental perspective and investor demand, those products are doing well. There is some overbuilding happening with storage as well on a local market basis, but as a whole, it is still garnering a lot of attention. So I hope that gives you a little idea of different product types. Great color, thank you so much for that.

Hospitality is doing well in self storage is doing well velocities way down but from a fundamental perspective in investor demand.

Those products are doing well there is some overbuilding happening with storage as well.

On a local market basis, but as a whole is still is garnering a lot of attention. So hope that gives you a little idea of different product types.

Great color. Thank you. Thank you so much for that.

Switching gears a little bit.

Somnagi: Switching gears a little bit, I think you mentioned investment in technology initiatives in the quarter. Can you talk a little bit more about what that was related to and what kind of benefit you hope to get from that? I'd be happy to, Jason.

You mentioned.

The investment in technology initiatives in the quarter.

Can you talk a little bit more about what that was related to and what kind of benefit you hope to get from that.

Happy to Jason There is an initiative for internal proprietary system development, we've done a great deal of it over the past three years and all of that effort is around the productivity level of.

Somnagi: There is an initiative for internal proprietary system development. We've done a great deal of it over the past three years, and all of that effort is around the productivity level of the back office that basically supports our sales force, whether it's the underwriting process, the proposal preparation process before an agent goes out to meet with a prospect, and then shifting from that back office internal productivity to then the marketing of our listings. We have done quite a bit of work on our website that's geared toward the ease of finding our inventory. We introduced an application not too long ago called MyMMI that enables investors to register with us, tell us what they're looking for, and save their searches by property type, price range, and geography.

The back office that basically supports our salesforce, whether its the underwriting process. The proposal preparation process before an agent goes out to meet with us.

Our prospect.

And.

Shifting from that back office internal productivity to then the marketing of our listings.

<unk> done quite a bit of work on our web site, that's geared towards the ease of finding our inventory we introduced an application not too long ago called my MMR that enables investors to register with US tell us what they're looking for save their searches by property type price range.

Somnagi: As our system basically does a real-time search to match that criteria, the buyer is alerted, and the listing agent is alerted, and we make the linkage between potential investors and our listing brokers much, much more efficient. That application now has well over 100,000 investors registered in it. They also get notifications of our research content and upcoming industry and Marcus and Miljeap events. And so that's an example of an application we introduced and we continue to refine. And then our marketing center within our internal proprietary inventory system called MNET is a fantastic automation example of making it really simple for our brokers to launch email campaigns of new listings and to be able to monitor the level of interest that is coming in from our website from various screened out potential investors and potential buyers and being able to get in touch with them very easily.

A geography and as our system.

Basically does real time search to match that criteria the buyers alerted and the listing agent is alerted and we make that kind of a linkage between potential investors and our listing brokers much much more efficient that application now has well over 100000 investors.

Stirred in it they also get notifications about research content and upcoming industry and Marcus <unk> Millichap events and so that's an example of an application we introduced and we continue to refine and then our marketing center.

Within our internal proprietary inventory system called Avnet is at a fantastic automation example of making it really simple for our brokers to launch E mail campaigns of new listings and to be able to monitor the interest level that is coming in from our website from various.

Screened out potential investors potential buyers and being able to get in touch with them very easily knowing who is looking at what product type what interest level. They have also makes the targeting of our new listings to the right audience a lot more efficient.

Somnagi: Knowing who's looking at what product type, and what interest level they have, also makes the targeting of our new listings to the right audience a lot more efficient because our system is constantly tracking all of this movement and activity and harnessing it by creating smart, basically, distributions of new listings to the right target audience. These are just a couple of examples.

Because our system is constantly tracking all of this movement and activity and harnessing it by creating smart basically distributions of new listings to the to the right target audience.

These are just a couple of examples we invested in equity multiple as we announced.

Steve DiGennaro: We invested in Equity Multiple, as we announced last quarter, which is really a phenomenal platform for a lot of our clients that need to raise capital as sponsors and their ability to very quickly reach out to a huge audience of crowdfunding-type investors to raise equity or equity shortfalls that our sponsor clients may have as a great value add. And we're just in the early stages of rolling that out and introducing it to our key brokers. And also, we made an investment in Archer, which is a really interesting startup around the whole notion of streamlining multiple data sources into a modeled synthetic NOI estimate, right now predominantly for multifamily, where it's a very accurate, highly accurate synthetic NOI that makes the initial stages of doing a BOV, broker printed value, or preparing to sit down with a client much more efficient in that our brokers know what's happening in every sub So those are just a few internal and external examples of how we're leveraging technologies to make the business more efficient and more powerful. And Jason, just to elaborate on the last two, those PropTech investments; those started out as commercial relationships. We liked what we saw as we evaluated the technology for the internal and synergistic reasons that Hassam elaborated on.

Last quarter, which is really.

A phenomenal.

Platform for a lot of our clients that need to raise capital as sponsors and their ability to very quickly reach out to a huge audience of Cree.

Crowd funding type of investors to raise equity or equity shortfall that our sponsor clients may have is a great value add.

And we're just in the early stages of rolling that out and introducing it to our key brokers.

And also we made an investment in Archer, which is a really interesting startup.

Round, the whole notion of streamlining multiple data sources into a modeled synthetic NOI estimate right now predominantly for multifamily where.

It's a very accurate highly accurate.

The synthetic NOI that makes the initial stages of doing a Boe.

Broker opinion of value.

Or.

Pairing to sit down with the client and much more efficient and that our brokers know what's happening in every sub market what's happening in every metro they know what's on the market what the price per units are what the rent per units are but to have this automated tool as a kind of a validation of their market assessment is very helpful.

And we're looking to bolt that process onto our analytics on the back office. So that our analysis of analysts can become a lot more efficient. So those are just a few internal and external examples of how we're leveraging technology used to make the business more efficient and more powerful.

Jason just to elaborate on the last two those.

Prop tech.

Investments those started out as commercial relationships.

We liked what we saw as we evaluated.

The technology for the internal and synergistic reasons that.

Elaborated on we like that we like the opportunity and at that point decided to make those investments in each of those firms.

Steve DiGennaro: We liked the opportunity and at that point decided to make those investments in each of those firms. Thank you both. I really, really appreciate all that detail. And then lastly, maybe one more for you, Steve, just switching gears to the income statement. I noticed your interest income and another line. Jumped a little higher this quarter. Just curious if that was mainly driven by higher interest rates on your short-term investments or if there was something else behind it. Yeah, that's exactly what it is.

Thank you both really really appreciate all that detail and.

And then lastly, maybe one more for you Steve.

Just switching gears to the income statement.

I noticed your interest income and other line.

Jumped a little higher this quarter just curious if that was mainly driven by higher interest rates on your short term investments or if there was something else behind that.

Yes, that's exactly it higher.

Steve DiGennaro: Higher rates. Obviously, we've got $400 million plus on the balance sheet between cash and our various investment vehicles. We did, during the quarter, elect to swap out some shorter-term, lower-rate investments for some longer-term vehicles. Still well within our investment policy, but swapping out cash that was earning 1-2% for a little bit longer time horizon earning above 5%. So we're active in that regard. Obviously, with the strength of our balance sheet, we're never pressured to sell anything, even if it happens to be below market.

Higher rates.

Obviously, we've got $400 million.

Plus on the balance sheet between cash and our various investment vehicles.

We did during the quarter.

I'll, let to swap out some shorter term.

Lower.

Right investments for some longer term vehicles.

Still well within our investment.

Investment policy, but swapping out.

The cash that was earning.

1% to 2% for a little bit longer time horizon.

Earnings above 5% so.

We're active in that regard, obviously with the strength of our balance sheet.

We're never pressured to to sell anything even if it happens to be a below market.

Steve DiGennaro: And it gives us the opportunity to swap lower performing vehicles for higher performing ones. That's helpful, thank you. And just on that, the longer time-horizon vehicles, what kind of duration are we looking for there? One year, two years? Yeah, in that range, I think the max we go out is something like 30 months.

And it gives us the opportunity to.

Swap.

Lower performing.

Vehicles for for higher performing.

That's helpful. Thank you and.

Just on that the longer time horizon vehicles, what kind of duration that we're looking at their one year two years.

Yeah in that in that range.

Think the Max we go out is something like 30 months.

Steve DiGennaro: All very helpful. Thanks for taking my questions, guys. Thank you, Jason. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Hesham Nobji for any closing comments.

Okay.

All very helpful. Thanks, Thanks for taking my questions guys.

Thank you Jason.

Thank you Laura.

Further questions at this time I would like to hand, the floor back over to Tom <unk> for any closing comments.

Operator: Thank you, operator. And thank you to everyone who joined the call. We look forward to seeing you on the road and having you back on our next earnings call. Thank you very much. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you operator, and thank you to everyone who joined the call. We look forward to seeing you on the road.

And having you back on our next earnings call. Thank you very much.

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