Marcus & Millichap Inc (MMI) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Marcus & Millichap 2015 earnings conference call.

(Operator Instructions)

I would like to turn the conference over to your host, Ms. Evelyn Infurna of ICR. Thank you. You may begin.

Thank you, good afternoon and welcome to Marcus & Millichap's fourth quarter and full-year 2015 earnings conference call. With us today are Marcus & Millichap's President and Chief Executive Officer, John Kerin; Senior Executive Vice President, Hessam Nadji; and Chief Financial Officer, Marty Louie. 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, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal and variations on these words and similar expressions are intended to identify forward-looking statements.

Actual results could differ materially from those implied by such forward-looking statements due to the variety of factors including but not limited to general economic conditions, and commercial real estate market conditions, including the recent conditions in the global markets and in particular the US debt markets. The Company's ability to retain and attract transactional professionals. The Company's ability to retain its business philosophy and partnership culture, 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 the risk factors included in the Company's annual report on Form 10-K, which is expected to be filed with the SEC on or about March 15, 2016.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions we can give 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 of the financial information presented on this call represents non-GAAP financial measures. The Company's earnings release which was issued this afternoon and is available on the Company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

Finally, this conference call is being webcast. The webcast link is available on the Investor Relations section of our website at www.marcusmillichap.com along with a slide presentation you may reference during the prepared remarks. With that, it is now my pleasure to turn the call over to Marcus & Millichap's President and Chief Executive Officer, John Kerin.

Thank you, Evelyn, and thanks everyone for joining us today. As many of you know, I announced my retirement earlier this month. This will be my last earnings call as CEO of the Company. I would like to take a moment to reflect on my years at Marcus & Millichap.

On my 35 years with the Company, I've seen the Company grow from 11 offices in the Western United States to a national firm with 79 offices in the United States and Canada that now sells more investment real estate transactions than any other company. I've had the privilege of having multiple roles with the Company which prepared me to lead the Company for the last six years. It has been a wonderful experience. I have lots of fond memories and made numerous friendships along the way.

I'm very proud of our agents, our management team and grateful to our clients who repeatedly trusted us in their real estate transactions. Hessam and I have had the pleasure of working together for the past several years. We partnered very closely when I became CEO. He brings an excellent perspective to the industry and real estate market. He has worked closely with our agents since he joined the firm in 1996 and has their praise and respect as he becomes the fifth president of the Company.

I want to thank George Marcus and Bill Millichap, who founded the Company in 1971 and created the culture of collaboration and specialization to benefit our clients in the investment real estate sector. I want to thank them for believing in me and thank them for the honor of leading Marcus & Millichap for the past six years. I want to thank our investors and our analysts for your support during my tenure, and I hope that you will show the same support and enthusiasm for my partner, Hessam Nadji. Hessam, I'll turn it over to you.

Good afternoon, everyone. Thank you very much for those comments, John, and let me extend our appreciation on behalf of the entire team for your leadership. Personally I would like to thank you for all your support in helping me expand my skills and responsibilities over the years. We're delighted that you will be working with us as an advisor. It has been a true pleasure and honor, John.

2015 was a great year for our Company and we're pleased with our fourth quarter and full year financial results. Marcus & Millichap delivered record revenue and earnings and completed its second year as a public Company. Total revenue reached $689 million for a growth rate of 20.4% and earnings came in at $66.4 million, up by 34% over 2014, with adjusted EBITDA margin of 18%.

Revenue from the firm's core $1 million to $10 million private client brokerage business grew over 25% for the year, and we continue to gain share in this vital part of the market as a result of our growth initiatives. In 2015 we closed 8,715 transactions, up 13.7% over the prior year, with a total dollar volume of $37.8 million, a new Company record. This represents sales volume growth of 14.2% over 2014 which had some large transactions. Adjusting for those large transactions in the second and third quarters of 2014 which totaled $2.1 billion of sales, adjusted sales volume growth for 2015 was 21.8%.

The strength of our sales span across all of our practices including our specialty property types, such as hospitality, self-storage, seniors housing, our institutional brokerage division, IPA, and a number of other specialties. In 2015 we grew overall transactions and sales volume in these areas by 26% and 36%, respectively.

From a market perspective while fundamentals remained healthy and generally improved through 2015 we definitely saw more volatility and noise in the data. The first half of the year was marked by exhilaration of many transactions in anticipation of interest rate increases as evidenced by our own first half results where we delivered 29% year-over-year growth in revenues and 58% growth in adjusted EBITDA. The second half of the year was marked by global economic concerns, equity market sell-off and capital markets volatility. These factors brought about more caution among investors and lenders who sharpened their pencil and tightened their underwriting, leading to expanded marketing and closing time lines discussed on our last earnings call.

As we've seen through multiple cycles in our 45-year history, our value-add to clients is illustrated even more during market shifts as we help them formulate and execute the most appropriate strategy to our brokerage and financing expertise and market research. Apart from the sales velocity in the market we can assure that we add value for our clients and continue to grow as a result.

In the fourth quarter we achieved revenue growth of 17.8% to $203.2 million, and earnings growth of 21.4% over the same period in 2014. Also in the fourth quarter our product client brokerage business revenue registered year-over-year growth of 29.3% and our average transaction size returned to its Q2 2015 level. Our ratio of died transactions remain consistent with the last three year average and has been stable so far this year. Transactions are taking longer to market and close, but are ultimately getting done.

In line with the maturing of the cycle, we also saw a slowdown in overall market transactions particularly in the second half of 2015. For the year, transaction growth in the marketplace was an estimated 12.5% higher than 2014 and volume grew 15%. This compares to annual average growth rate of 22% in sales and 23% in volume between 2012 and 2014. If you go back to 2010, the volume growth average goes to 36% a year which shows a shift from a rapidly recovering market over the past several years to a still active market with a slower rate of sales growth.

Again, having been through the multiple cycles that we've experienced our strategy continues to be focussed on growing our sales force and continually gaining market share. We ended the year with total of 1,607 investment sales and financing professionals compared to 1,494 in 2014 as we added 113 net professionals for the year. This excludes analysts, interns and support staff. 45% of these new hires had previous experience which we believe is a key success factor in becoming a productive Marcus & Millichap agent.

Our financing business, MMCC, closed 1,601 financing transactions on $4.9 billion in volume last year, which reflects year-over-year growth of 20.2% and 29.4%, respectively. MMCC offers one of the most significant growth opportunities for the firm and we continue to make strategic investments in personnel to support the anticipated growth.

We added 16 financing professionals during 2015 and ended the year with just under 100 total loan originators, many of whom have joined us with prior experience. Not only is MMCC a direct source of revenue growth, it also plays a pivotal role in expanding our client services and long term relationships. Lenders have tightened their underwriting and deal scrutiny, which is one of the factors leading to longer transaction times. Over the past two quarters loan standards have tightened with the most push-back in lower quality or higher risk assets. However, within the $1 million to $10 million private client segment we're still seeing ample financing sources particularly through commercial banks.

Now let me shift and share some market commentary and our views regarding conditions expected in 2016. We see the construct of our investment brokerage and financing business through the lens of four primary pillars. These are the macroeconomic environment, real estate fundamentals, capital markets and of course investment sales activity.

From a macroeconomic standpoint we saw the addition of 2.7 million jobs, unemployment at a six-year low, 4% rise in core retail sales, 7% rise in home sales, with inflation remaining in check. US recession speculation in the first couple of months of 2016 spurred by global economic concerns and an equity market sell-off, have started to ease thanks to continuation of job growth and other positive domestic, economic readings. More of these positive readings are needed to improve investors' sentiment more convincingly. Secondly, real estate fundamentals ended 2015 in the best shape since the recovery began, with occupancies and rents showing improvement across the board. Despite rising construction levels, especially in the apartment sector, demand continues to exceed new supply providing a positive outlook.

On the capital market side, recent global economic concerns and capital market volatility have lowered long term rates and most likely postponed the next rate increase. While the real estate market was reacting to the anticipation of higher interest rates going into 2015 there is less urgency on the Fed now to raise rates until more positive economic data comes in. Regardless of the timing of the next Fed move, let's keep in mind that interest rates remain near historic lows and favorable for real estate investments.

On the investment front we believe capital flows into commercial real estate will continue thanks to commercial real estate yield spread, overall term investments and prospects for rent growth for the foreseeable future. We're still seeing buyer interest and multiple offers, but pricing expectations have lightened to some degree, and as I mentioned earlier, marketing and closing timelines have expanded.

So what do these trends and conditions mean for MMI? As the cycle's matured and yields have compressed, more capital is flowing into secondary and tertiary markets which offer higher yields, value added investments and a greater focus towards repositioning existing assets in primary metros. Plenty of investors are still opting for a lower yield, lower risk real estate investment which are still attractive relative to alternative investments.

Virtually all of these trends are supported by our national platform, cross-product expertise and ability to help investors shift with the market. By way of example, 46% of our 2015 transactions involved a buyer from out of state reflecting the strength of our platform. At MMI the alignment with the $1 million to $10 million private client segment remains a bed rock of strength. In 2015, for the four major property types, which include apartments, retail, office and industrial, priced at $1 million and above, 84% of sales and 61% of the commission pool are estimated to have been in this segment. For MMI this segment accounted for 90% of transactions and 78% of revenue. I'd like to emphasize that MMI's $1 million to $10 million transaction count and revenue increased 29.2% and 20.5%, respectively, in 2015.

Looking forward we expect the four pillars of real estate to remain supportive of MMI's business growth with some added volatility given the fluctuations in capital markets. We're confident that we can continue to build on our success but expect two factors to present challenges. First, the slowing transaction environment relative to 2015, given the exhilaration in the volume and dollar value of transactions during the year. And second, a tough year-over-year comparison given the strength of our results in 2015. That said we have demonstrated over our history that we will continue to grow our Company over the long term.

With that, I will turn the call over to our CFO, Marty Louie, for an in-depth look at our financial results. Marty?

Thanks, Hessam. Now I would like to discuss our fourth quarter 2015 and year-end results in greater detail, but before I begin, I'd like to point out some incremental disclosures on pages 6 and 7 of our earnings release which now presents our real estate brokerage revenue segment by transaction size, and on page 9 which reflects certain key metrics as reported and adjusted for certain large transactions. We believe this additional information will provide better context and understanding of the drivers of our business and the reliability of our core private client franchise.

For example, our private client market segment, properties priced from $1 million to $10 million was responsible for approximately 69% of our real state brokerage commissions for both the quarter and full-year. Total revenues in the fourth quarter 2015 rose by 17.8% to $203.2 million while our annual revenues posted a 20.4% increase to $689.1 million. Growth in total revenues was primarily driven by increases in our real estate brokerage commissions which grew to $186.2 million for the quarter and $632.6 million for the year, reflecting an 18.8% and 20.5% gain for the quarter and year, respectively. Driving this growth with an increase in the number of investment sales transactions as well as larger average commission rates.

Revenue from financing fees generated principally by MMCC grew by 8.5% to $12.5 million for the quarter, which is against a challenging comparable to the 2014 growth rate of 59%. During Q4 of 2014 we had one large financing fee which when excluded, our adjusted financing fees grew 14.5%. We believe evaluating our revenues on an annual basis is more representative of our business due to the potential for variability quarter to quarter. On this basis revenues from financing transactions increased by nearly 26% compared to 2014's 31% growth rate. Adjusting for the large transaction fee I've mentioned earlier, financing fees grew approximately 28% for the year. Other revenues which are comprised primarily of consulting and advisory fees and referral fees from other real estate brokers grew by 5.2% to $4.4 million in the quarter and by 4.2% during the year to $13.9 million.

Total operating expenses were $169 million for the quarter and $574 million for the year increasing by 16.4% and 17.8%, respectively. The increases in operating expenses for the year and quarter were driven by significant rise in cost of services which are comprised of variable commissions paid to the Company's investment sales professionals and compensation-related costs in connection with our financing activities. Selling, general and administrative expense and to a lesser extent, depreciation and amortization, contributed the remainder of increase in operating expenses for the quarter and year.

Net income for the Company grew to $19.9 million during the quarter representing an increase of approximately 21.4% from 2014, an increase by approximately 34% for the year to $66.4 million. Adjusted EBITDA grew to $35.3 million during the quarter representing an increase of approximately 19% from 2014 and increased by 34% for the year to $124.1 million. More importantly our adjusted EBITDA margin expanded by 180 basis points in the year demonstrating the positive operating leverage in our business.

Our record results are due to strong sales volumes experienced both in the quarter and throughout the year. In the fourth quarter we executed 2,460 transactions which represents an increase of 14.7%. For the full year executed transactions totalled 8,715 or 13.7% growth over 2014.

From a balance sheet perspective Marcus & Millichap is very well positioned to continue to grow our business organically and to pursue selected acquisitions. Our liquidity levels are very healthy, ending the year with cash on hand and core cash investments of approximately $196 million. Given our cash levels and strong free cash flow generation we continue to explore strategic alternatives for use of this liquidity. In the meantime, our liquidity maximizes our options and flexibility under all market conditions.

Before closing, it is important to point out the number of key items which will have an impact on our results in 2016. As a reminder the first quarter of 2015 was an exceptional quarter which reflected a year-over-year revenue growth of 28% due to the acceleration of many transactions caused by investors' anticipation of interest rate increases. Given the current market environment, combined with lengthening of marketing and closing time lines for transactions, 2016's first quarter will have a very difficult comp.

Also, given our record performance in 2015 incentive compensation for our sales professionals, which is paid in the first quarter related to the prior year, will be higher in Q1 2016. In addition, as Hessam will discuss in a moment, we made a number of key hires. We continue to optimize our organization to better support our sales force and we are continually undertaking new IT initiatives which we believe will provide added efficiencies to our sales professionals and management team.

All of these initiatives, which will prepare us for future growth, will cause increases in our SG&A. We know that these are the right long-term decisions to support sustained growth, but because of these platform investments, we do not expect to increase our margins as we have in the past. As such, we believe our margins will be comparable to 2015. We expect to resume improvement in our operating leverage beyond 2016, once the benefits of these key investments begin to contribute to our efficiency. Now I'd like to send it back to Hessam for some additional comments. Hessam?

Thank you, Marty. I'm very excited for the opportunity to lead our team in serving our clients, growing our business, and creating value for our shareholders. Our Company was founded on delivering a higher level of service and creating value for our clients first and foremost. And secondly, providing the most efficient and supportive operating platform to our brokers.

These principles are ingrained in all aspects of our culture and continue to drive all of our strategies. My goal is to build on our strong foundation and unique business model and carry our growth plan to a higher level. The key focuses are to better leverage our very talented management team since management skills translate directly to better broker retention, productivity, development and recruiting.

Secondly, invest in new technologies and tools that create efficiency and competitve advantages, as Marty mentioned, and last but not least, replicate the success of our most effective offices, particularly those with the highest local market share in the product client segment across the Company. To help achieve these goals we recently created the position of Chief Administrative Officer as a senior executive in charge of integrated our technology, brokerage support, research and communications.

We also named a CIO to lead our technology development efforts with a number of new tools and major upgrades underway, all of which are geared toward broker productivity and more efficient property marketing. And last but not least, we just announced the addition of Mitch LaBar as our newly appointed Chief Operating Officer, who will be officially onboard March 31. Mitch has over 25 years experience with our Company including office openings in the West and the Northeast, as well as hiring and training many of our top agents and managers. Over the past year he's worked closely with our team implementing a leadership development program as a consultant, and we're looking forward to his ongoing contributions.

Thank you for joining our call today. With that I'll turn it back over to the operator for the Q&A session. Operator?

(Operator instructions)

Brandon Dobell, William Blair. Please go ahead.

Thanks, good afternoon, guys.

Hello, Brandon.

Hello, Brandon.

John, congratulations on the retirement, that is great and well deserved. And Hessam, looking forward to your now role, even though we've already been working here for a while. Good to have some continuity there. So congratulations, guys.

Thanks a lot.

My pleasure.

Couple quick, let's call it housekeeping things first. I'm assuming you guys are going to keep giving us these new metrics, Marty, in the disclosures, you laid out kind of by property size going forward?

Absolutely.

Okay. Perfect.

I guess as you think about the head count when work finished for 2016, any color around I guess a couple of things, first would be a sense of what the average tenure or maybe number of guys and women that have been there more than five years. I'm trying to get a sense of where we are in this progression of increasing average tenure.

And then finally go to the head count. What should our expectations be for 2016 head count additions? If you break those between the core business and financing, that would be helpful, too.

Brennan, it is Hessam, here.

Regarding the composition of new people that we're hiring, I think that is where your question was at, roughly 45% of the individuals that we've hired had some previous experience on average that tends to be about two to four years, which is really the ideal amount of experience for us in terms of these, let's call them mid-level experienced agents. We have of course some outliers with 10-plus years of experience among the recruiting numbers that we shared with you earlier.

And as far as the overall composition of our sales force goes, roughly 37% of the sales force now has a tenure of five years and above. So hopefully those answered your profile questions.

As far as plans go, we shared with you before our goal is to hire net 100 additional agents a year as we grow the Company and roughly 80% of that would be in brokerage operations and 20% in our mortgage operations.

Okay. That is helpful. Thanks.

As you guys think about the office footprint and the people within those offices, of the 79 or so, and I know Canada is not going to fit this profile, but of the 79 offices you have, how many do you think you kind of got where you want them, meaning you got the right people, the mix of people? You think market share, while now maybe as good as you possibly get, has captured the low hanging fruit?

I'm just trying to get a sense of where we are in the opportunity to keep adding people in these offices that still have room to hit those market share targets that you guys have talked about.

Yes, as we've discussed in the past, our growth strategy is really driven by not so much office openings, as we have presence in pretty much every major metro there is out there, but expanding our footprint within the greater metros and TMSAs. So in the vast majority of the markets something around 20-plus metros out there, there is plenty of room for additional growth.

And in fact, if you take a look at our last series of lease renewals, they reflect the kind of expansion that's necessary to keep our growth going. That's part of the -- actually a major part of some of the expense items that Marty was talking about earlier, it's just there to support the growth. And so there are hardly any markets where we can say we have no room for growth.

Obviously some of the more condensed markets, like Southern California, you know, become harder and harder to kind of penetrate in terms of plant opening and that goes back to the expansion of the existing footprints every time we get a chance.

Okay. And then final one for me just so we're on the same page.

Doesn't sound like you guys expect first quarter, you know, transaction volume or revenue to be down year-on-year given your comments about availability of financing and the head count trends and things like that. But I want to make sure that we're all on the same page as you guys are with how we should think about year-on-year revenues.

And I know second quarter is also decently challenging comparisons, how do we think about the first part of the year revenue relative to first part of 2015? Thanks.

Well, I think the important indicator, bigger picture indicator is that our business is growing, very healthy pipelines. The variable that has really come into the equation is the quarter-to-quarter noise in the data and the timing of transaction marketing, timing of transaction closings, and put that on top of the fact that Q1 and Q2 of last year were extraordinary.

That's what's giving us a challenging environment going into the first quarter of 2016.

All right. Thanks, I'll turn it over.

Thanks.

Mitch Germain, JMP Securities.

Great. John, best wishes, and Hessam, good luck.

Thank you, Mitch.

When -- you have been mentioning this extended, you know, marketing in closing. So is there a way to maybe quantify what you're seeing out there?

It really -- it really began in the third quarter of last year is when the real measurable difference happened, and I would say that on a year-over-year basis the time lines have extended somewhere between 10% to 15% depending upon the product type. And, again, it's one thing to really focus on the quarter to quarter and we really think of our business in terms of the year, and a little bit longer horizon.

And so when data gets noisy and there is a lot of news and sort of items that affect sentiment, the Q to quarter-over-quarter data can get very, very noisy, as you know. So that is kind of how we look at it in terms of the quantification of how much these time lines have expanded.

Mitch, this is Marty.

I think it is also important to note that our level of died deals are still at what they have been over the last couple of years. So deals are not dying, they're just taking longer to market and close.

And Hessam, Marty, this was consistent in 3Q, 4Q and now same thing back into Q1 2016? Has it been pretty consistent with what you're seeing?

Yes, it has been. And we haven't seen any further extension of the time lines. It has stabilized. But, yes, it really does date back to Q3 of 2015.

Great.

If I look at MMCC and compare the number of individuals to the number of offices, obviously it seems like there's an underpenetration. So, you know, if I think about the way you're looking at growing that business, you know, should we expect there to be an overabundance amount of attention and growth toward personnel for that segment going forward?

It is absolutely one of the most critical parts of our growth plan and as we have shared before, the focus has really shifted over the past 18 months, 24 months, toward really getting the truly seasoned tenured finance professionals on board and we have had some great successes with that. And so we look at it in terms of head count and penetration, you're right, we have so much room to grow just in terms of presence and boots on the ground.

But it also especially in this part of the business where credibility is key for our investment sales agents to integrate and bring in the finance experts, really is driven by the years of experience. So we're not just going for quantity. We really are going for quality.

There are a number of metros that don't have an MMCC representation today. Those are very high priority metros and a number of metros that -- where we can add two or three more people because the market is so significant.

But the long answer to your question it is absolutely one of our three highest priority growth components.

And how much cross-sell is there with MMCC in your core sales brokerage platform?

Quite a bit. Roughly 50% of MMCC's business is done in partnership with an investment sales broker.

From looking at it from the other side, obviously we're financing just a fraction of the total volume of brokerage business that we conduct. So that's where the opportunity really is. And that is where the credibility is, and the seasoned type of professionals play a key part.

Great, last one for me.

You mentioned some IT initiatives that you will be investing in. Is there a way to just provide some perspective on, you know, what you're doing and what you're looking to accomplish with that?

Well, we have -- longstanding tradition of pioneering a lot of real estate technology. I mean our entire business model from the culture of information-sharing, to the policies that we have, to uphold the information sharing that really kind of runs our business model has been technology-driven from the start. And periodically, you know, we do a very comprehensive sweep of our proprietary applications.

We have two significant applications, one being the product that basically automates a broker's experience from A to Z of preparing for a client presentation and valuation of a building. And then take that to the next stage of once that listing, exclusive listing is obtained, taking that listing to market. We have a full automation that basically takes the broker from A to Z and that entire continuum. And that whole system is basically being replaced with a new generation version of what we've had in place for a while.

That's just one initiative, and I can tell you that the priority in just about everything that we're working on, has to do with broker productivity, broker efficiency, and a variety of different client services, that we've gotten feedback on from our clients related to features on our website, to some very interesting push technology that we're working on, that are client-oriented.

Excellent. Thanks, guys.

Thanks.

(Operator Instructions).

And our next question is from Brad Burke from Goldman-Sachs. Please go ahead.

Good afternoon, guys. First, John, just on I'd like to echo everyone's congratulations.

I wanted to follow up on a statement that you have in the release that you say should continue to resolve in transactional activity albeit at lower levels of growth. And not to obsess over the language in that statement too much, but should we read it as don't expect much or any growth, or does that more, there is likely to be some growth in 2016 but less than what you saw in 2015?

Hi, Brad, it is Hessam here, thanks for your comment.

You're referring to the comment regarding the market, correct?

It was the transactional activity comment that you had made in your press release, in your earnings release.

Right. Our expectation really is somewhat driven by what's going on in the environment.

We've always said and the evidence continues to prove, that fundamentals are very strong. All the reasons for capital to continue to flow into real estate are all there. The question is, really, the reaction to all of the concerns that have been heightened over the past few months.

So it becomes, you know, it's a little bit more typical to actually forecast where sales are going, because if we get a little bit more evidence of the past few weeks and get the positive economic views, that can actually turn sentiment, you know, more convincingly as I mentioned in my prepared remarks. So we do expect some growth in the marketplace, but we certainly have seen a slowdown in 2015, and we believe that that level of degree of slowdown and the pattern of slowdown will persist into 2016.

But if you look at the marketplace, take it a bigger picture of it all, there's 53,000 transactions that occurred in 2015. So for us the focus is, whether that grows a little or stays flat or retracts a little, our focus is to gain market share within a huge marketplace with over 50,000 trades that have been going on. And I think that's the bigger picture that we're focussed on, for sure.

Okay. And then Marty, you touched on strategic alternatives for your cash. I was just hoping that you could give us an update if there is one on the kind of strategic alternatives you're considering and then just also your updated thoughts, if there are any, on the appropriate amount of cash you think that you would want to hold on the balance sheet at this point in the cycle.

Yes, thanks, Brad.

We're constantly looking at our cash levels, our liquidity, and constantly we're looking at different alternatives for its use. We're always looking at potential strategic acquisitions, but they all have to be the right acquisitions. They have to be accretive to our margins, we're looking things for companies that are going to be synergistic to our business.

And so we're not just going to make an acquisition just for the sake of making an acquisition. So we're going to continue to look and to find ways to strategically use our cash.

But M&A is the principle focus?

We are continuing to look at various opportunities.

Okay.

And then on the margin guidance, it looks like you're expecting margins to be relatively flat in 2016. So one, just thinking about the magnitude of any potential margin improvement post 2016? And the margin guidance being somewhat flat, is that more a function of difficult revenue comps, or is it a function of some increased expenses layering in?

It is both. So we do have difficult revenue comps as, you know, with the 20% increase in our revenues last year. And then in terms of expenses, yes, we continue to make investments into our business. As Hessam mentioned, we continue to focus in on growing our market share in existing metros which means including investing in expanding our offices, and also -- and also continuing to help support our agents in terms of co-investing in their business development.

So all of those, you know, we continue to do during this year, but going into 2017 and 2018, as I said before, we continue to have a goal of growing our margins by anywhere between 20 to 30 bips a year after that.

Okay. That's helpful.

And then the last one for me. I'm interested in your view on how you might expect the private client business to perform in the current market environment relative to the IPA group? How those two might react differently, if they would?

Well, thanks for bringing that up because that is obviously the strength of our model and the exposure we have to the private client segment. As we've seen since the economic noise and the capital market noise really got louder and louder in the third quarter of last year, our product client business continued to grow every quarter at very healthy rates, and we saw a lot more volatility in the larger transactions as we've discussed before.

So that remains a very important part of the strength of our platform, the advantage of our model and the fact that the smaller transactions are still easier to finance. You have multiple sources, whether it is local banks, regional/national banks, credit unions, that we're actively working with, and so it will definitely remain a major advantage.

All right. Thank you very much.

Thanks, Brad.

Thanks, Brad.

Thank you. I'd like to turn the floor back to management for any closing remarks.

Thank you, everybody, for joining our call. We look forward to having you attend our next call. Thank you very much. The call is adjourned.

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