Greetings, and welcome to the Marcus & Millichap Second Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin.

Thank you, operator. Good morning, and welcome to Marcus & Millichap's Second Quarter 2025 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including, but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transactional professionals; company's ability to retain its business philosophy and partnership culture amid competitive pressures, company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public filings, including its annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2025. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it is my pleasure to turn the call over to CEO, Hessam Nadji.

Thank you, Jacques. Good morning, and welcome to our second quarter 2025 earnings call. Our business continued to show improvement during the quarter despite ongoing headwinds from the prolonged market disruption and a degree of added volatility from the initial tariff announcements. At the same time, we're encouraged by the upward trajectory of internal metrics and several positive market factors, which I will highlight shortly. Total revenue for the second quarter was $172 million, representing approximately 9% growth year-over-year with some notable shifts in revenue mix. Brokerage revenue grew 4%, while our financing revenue posted an impressive 44% gain over the second quarter of 2024. Growth in our financing revenue was driven by three key factors, including contributions from recent additions to our IPA Capital Markets team and their ability to execute larger transactions, healthy gains among the majority of our originators, thanks to a gradually improving lending environment and progress toward integrating financing and investment sales. The integration of services has particularly been strong among our IPA multifamily sales and capital markets teams, resulting in sizable gains in our agency debt origination over the last two years. The company's private client brokerage business reflected revenue and transaction growth of 10.3% and 12%, respectively, after lagging larger transactions for the past several quarters. The increased momentum in the second quarter is attributed in part to our expanded client outreach and price discovery as more sellers align with more realistic asset values. We're seeing improvement in loan terms and more lenders quoting on our private client financing assignments as well. Private client apartments showed solid gains, while net lease retail showed the largest year-over-year increase as prices and cap rates are finally resetting at a faster pace. By contrast, our revenue from larger transactions valued at $20 million and above declined by nearly 12% for the quarter. This was driven by some clients temporarily going pencils down in the aftermath of the initial tariff announcements in April, resulting in fewer sales as well as a tough comparison given MMI's outsized growth in this segment over the past year. The company's $20 million-plus brokerage revenue grew an average of 38% year-over-year over the past four quarters as our team capitalized on institutional capital returning to the market. As a proxy, this compares to a 27.5% average growth rate for the same period or $20 million-plus sales volume in the overall market as reported by RCA. We continue to pursue long-term growth in our private client business as well as larger transactions predominantly executed through our IPA division, which has a healthy pipeline and listing inventory moving forward. MMI has a unique position of leading the private client market, which remains highly fragmented while making progress on leveraging significant runway for future expansion of our IPA division at the same time. Adjusted EBITDA for the quarter was $1.5 million as we continue to balance cost controls with strategic investments critical to long-term growth. Expenses were impacted by one-time factors and the timing of certain items in the second quarter, which will level off in future quarters, as Steve will cover in his presentation. Notwithstanding the near-term pressure on profitability, we believe investments in talent, technology, key industry and client events, client outreach programs, research and market intelligence are essential to our competitiveness. We're also modernizing production support through the adoption of AI and centralized resources to lower costs over time while improving speed and output. It's important to note that our current cost structure includes the expensing of investments made over the past several years, particularly in the retention and acquisition of experienced producers. Revenue production for many of these professionals remains below potential due to market conditions. Given the caliber of the professionals we have retained and acquired, we expect the return to production capacity and historical track record to be positive forces in the recovery with expense leveraging. Looking forward, we're encouraged by improvements in our marketing timelines and record volume of exclusive inventory accumulated through internal and client-facing marketing campaigns. These indicators are especially constructive as our main obstacle to faster recovery over the past 18 months has been the drag on our sales force's productivity. Pricing uncertainty, extended closing timelines and an elevated ratio of transaction delays and cancellations have limited new business development bandwidth. Other positive indicators include traction in our auction business, which is creating a new revenue stream and also showing success as an alternative marketing channel for our sales force. Marcus & Millichap's auction division sold 273 transactions over the past 12 months, which accounts for 27% of all commercially auctioned assets in the U.S. We're aggressively growing this complementary business by adding experienced auction specialists in key regions and further educating our sales force on leveraging this platform for their clients. Although the market is still characterized by a wide bid-ask spread and frequent sentiment swings, the passage of time and realism are fostering incremental improvement in the transaction market. We believe the worst of the tariff-driven volatility is behind us as investor sentiment and capital markets have stabilized and the broader economy continues to show resilience. The recently passed tax package is expected to be a tailwind for commercial real estate given its favorable provisions for our sector. The preservation of the 1031 tax deferred exchange, reinstatement of 100% bonus depreciation and expanded support for opportunity zone investments are viewed as key advantages by investors. The recent slowdown in the labor market and retail sales has increased the odds of rate cuts this year. Uncertainty regarding the impact of higher tariffs on consumers and corporate profits has increased in recent weeks and could lead to a more significant slowdown in the coming months. However, demand for commercial real estate appears to be solid for most property types, given the overall strength of the economy, while the recent pullback in construction bodes well for generally healthy property fundamentals. The rising tide of return to office is another catalyst for improvement in the hardest hit asset class, while record low home affordability fostered record apartment absorption in the second quarter. Demand for industrial and retail is somewhat impacted by the tariff factor, and hotels are seeing some weakness from the falloff in tourism. Retail is benefiting from very little new supply over the past decade, which is helping to shore up occupancies to the best levels in at least 15 years. Industrial construction starts are rapidly falling, which should bring relief to a number of overbuilt metros. Looking ahead, we believe these dynamics will be favorable across all our business segments. Our strategy is unwavering, driven by investment in talent, technology, further expansion of capital markets capabilities, growing the MMI brand and positioning the company to outperform throughout the recovery. As I reported last quarter, we initiated a broad-based management reorganization on May 1 to streamline decision-making and execute strategies more consistently across the firm. Some positions were consolidated and others reassigned, while our most effective brokerage executives were promoted with expanded responsibilities. Importantly, our team is energized with heightened accountability and focus on the most critical initiatives for the company. These priorities include raising agent production, growing the sales force with experienced and new professionals and improving the adoption of tools and technology we've rolled out in recent years. One of the key areas with additional resource allocation is our recruiting team and tools. As we have discussed on previous calls, the elevated dropout rate of trainees as a result of the pandemic, unusually competitive labor market conditions and the market dislocation of the past three years resulted in declines in our sales force. In recent quarters, we've also proactively terminated individuals unlikely to succeed in a tougher market environment, which we believe is critical in fostering a high standard of performance. At the same time, several initiatives are working that are designed to generate higher quality, albeit fewer new agent candidates, which we believe will result in productivity gains in the years ahead. In the meantime, our success in attracting market leaders to join the MMI platform has been a bright spot and is being leveraged to gain additional traction in recruiting the next wave of experienced talent with little overlap to our existing producers. We remain confident in the long-term potential for MMI's unique platform and the opportunities that lie ahead, including scaling our core business and expanding into adjacent businesses that add value to our clients and sales force. We continue to evaluate a number of acquisition opportunities in both areas, undeterred by the bid-ask spread we have experienced on the M&A front over the past two years. Our capital position and strategy, which balances returning capital to shareholders while maintaining significant buying power, remain key advantages that we're committed to building on for our shareholders, clients and the MMI team. With that, I will turn the call over to Steve for more details on our results.

Thank you, Hessam. As mentioned, total revenue for the second quarter was $172 million, an increase of 8.8% compared to $158 million for the same period last year. Year-to-date, total revenue was $317 million, up 10.4% compared to $287 million last year. Breaking down revenue by segment, real estate brokerage commission for the second quarter accounted for 82% of total revenue or an increase of 4.4% to $141 million year-over-year. The increase included 12% growth in transaction volume to $8 billion across 1,375 transactions, partially offset by a 7% reduction in the average commission rate. Average transaction size increased to $5.8 million, up from $5.6 million a year ago. This was driven by an increase of 3% in the Private Client segment and a notable 26% increase for larger transactions. The increase in larger transaction volume drove an overall 3% lower average fee per transaction and a 12 basis point decrease in overall average commission rate. Year-to-date, real estate brokerage commission accounted for 84% of total revenue or $265 million, an increase of 8% year-over-year. The year-to-date improvement included 14% growth in transaction volume to $14.7 billion across 2,550 transactions, partially offset by a 5% reduction in the average commission rate. Average transaction size year-to-date was $5.8 million, up from $5.4 million a year ago, reflecting a higher proportion of revenue from middle market and larger transactions for the six-month period. Within brokerage, for the quarter, our core private client business accounted for 66% of brokerage revenue or $94 million, up from 63% and $85 million in the same period last year. Private Client transactions grew 15% in volume and 12% in transaction count. For the quarter, our middle market and larger transaction segments together contributed 30% of brokerage revenue or $42 million compared to 33% and $45 million last year. While combined dollar volume in these segments rose 10% due to larger average deal size, as noted earlier, the number of transactions decreased by 8% as a number of institutional clients temporarily paused activity to reassess market conditions following the introduction of tariffs in early April. To reiterate Hessam's earlier point, larger transactions have been a significant driver of year-over-year revenue growth in the preceding four quarters, outpacing the market but also creating a tough comparable. In contrast, private client investors became more active as restrictive lending at local banks and credit unions began to ease. Revenue from our financing business, which includes MMCC, grew 44% year-over-year to $26 million in the second quarter, up from $18 million last year. Strong growth was driven primarily by an 86% increase in transaction volume totaling $3.4 billion across 409 financing transactions, an increase of 50% year-over-year. The average commission rate was down 12 basis points as expected due to an increase in larger, more complex deals closed in the quarter. The overall performance reflects the continued momentum and scaling of our financing platform. Fees from refinancing accounted for 39% of loan originations in the quarter compared to 32% last year. For the six-month period, financing revenue was $44 million, a 36% increase compared to last year. This growth was driven by a 47% rise in transaction count totaling $5.3 billion in volume, up 53% year-over-year. Other revenue, primarily from leasing, consulting and advisory fees was $5 million in the second quarter, consistent with the same period last year. For the six-month period, other revenue totaled $8 million compared to $10 million in the prior year. Now looking at expenses. Total operating expense for the quarter was $181 million compared to $166 million a year ago. For the six-month period, total operating expenses were $344 million compared to $316 million last year. Year-over-year increases in absolute dollars for both the quarter and six-month period are largely attributable to the increase in cost of services resulting from higher revenue. Cost of services for the quarter was $107 million or 61.9% of revenue, the same as last year. For the six-month period, cost of services totaled $195 million or 61.4% of revenue, up 60 basis points year-over-year. The increase was primarily driven by revenue growth and more senior producers who closed deals. SG&A expenses for the quarter were flat sequentially with Q1 at $72 million or 41.5% of revenue compared to $65 million or 41% of revenue in the same period last year. The year-over-year increase reflects one-time expenses related to the reorganization and contingent consideration due to the outperformance of an acquisition as well as the timing of when certain expenses were incurred this year versus last year. Other factors included an incremental increase in marketing allowance tied to higher revenue and investments to expand central production support as well as talent acquisition and retention. For the six-month period, SG&A totaled $143 million or 45.1% of revenue, down from 46.6% in the prior year. Our ongoing expense discipline is aimed at improving operating leverage and delivering long-term value. For the second quarter, we reported a pretax loss of $3.7 million compared to a pretax loss of $3.4 million in the prior year. As we've discussed on many prior calls, income taxes are highly variable and can fluctuate greatly from period to period due to the relationship between expenses that are nondeductible for tax purposes to projected pretax income for the full year. During the quarter, we changed our tax methodology to the actual year-to-date method because it was determined to be more appropriate than the annual effective tax rate method. This is due to the fact that nominal changes in projected annual earnings can result in significant variability in the annual effective tax rate. The result was an outsized tax expense of $7.3 million, which led to a net loss of $11 million for the quarter or $0.28 per share compared to a net loss of $5.5 million or $0.14 per share for the prior year. The newly adopted methodology brings the effective income tax rate for the six-month period ending June 30 to 12.5% compared to 14.6% for the same period last year under the old methodology. Year-to-date, we reported a net loss of $15.5 million or $0.40 per share in the current year as well as the prior year. Adjusted EBITDA for the second quarter was $1.5 million compared to $1.4 million in the same period last year. For the six-month period, adjusted EBITDA was a loss of $7.3 million compared to a loss of $8.6 million in the prior year. Moving to the balance sheet. We are well capitalized with no debt and $333 million in cash, cash equivalents and marketable securities, a modest increase from $330 million last quarter after paying a $10 million dividend and repurchasing shares for $7 million in the quarter. The $7 million repurchase was for 230,000 shares of common stock at an average cost of $30.28 per share. Since the program's launch in August of 2022, we've repurchased more than 2.3 million shares, returning $76.4 million to shareholders. Altogether, over the past three years, we have returned a total of $190 million of capital to shareholders through a combination of dividends and share repurchases. Last week, our Board declared the next semiannual dividend of $0.25 per share payable on October 6 to shareholders of record as of September 15. We remain committed to a balanced long-term capital allocation strategy, which includes investing in technology, recruiting and retaining the best-in-class producers, strategic acquisitions and returning capital to shareholders. Notwithstanding macro uncertainties that remain, we are encouraged to see signs of market stabilization, supported by improved listing activity, a stronger pipeline, a better lending environment and renewed investor engagement. As further clarity emerges, we expect transactional activity to improve. Looking ahead, for the third quarter, cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the second quarter. SG&A on a dollar basis is expected to be relatively flat in the third quarter compared to the second quarter. With the change in tax methodology discussed earlier, tax expense is expected to be in the range of $500,000 to $1 million for the third quarter.

Our first question comes from Blaine Heck with Wells Fargo.

Hessam, can you talk a little bit more about the shifting trends in transaction volume in the different size segments, especially in the private market segment, which saw transaction revenue increase year-over-year, while the middle and large market revenue came up on a little tougher comps. First, I guess, do you expect that relative trend to continue in the near term? And then second, I think you mentioned a few factors for this, including improved client outreach. Can you expand on what you're doing differently with respect to outreach? And maybe how much of the uplift do you think is attributable to that versus price discovery and better financing availability?

Blaine, let me address the last part of your question first because for the last 18 months, we have consistently executed marketing campaigns, elevated client outreach only to have a lot of our sales force's time go to doing opinions of value and really holding our clients' hands through an extreme level of market uncertainty and limited debt options and so on that didn't consummate in transactions. So what we're seeing is that as the market starts to find more alignment on adjusted pricing and the bank and credit union component of the finance market has begun to show improvement. Those factors combined together with the persistent push to be in front of clients in active dialogue with them, even when they didn't pull the trigger to bring a listing to market or maybe bring back a listing that was not sellable in the last 12 or 18 months, but today is sellable because of the realistic price expectations and price adjustments are altogether leading to a more successful conversion rate of all the client dialogue we've had in the last 18 months to actual transactions. So that's the inner workings of the combination of our internal efforts to be in front of as many clients as possible and be in touch with past clients, understand their challenges and issues and now being able to convert those to more transactions. Which as I mentioned multiple times, has been a point of frustration because that extra time in really being the adviser to the client, even when they don't pull the trigger on a transaction, combined with the added time it's taken to market listings and then to really nurture transactions through the closing process where often they're falling out or there's a hiccup in financing and so on has dragged our productivity down significantly. We're starting to see that improvement take shape, and it showed up in the private client business in Q2 more so than any other quarter since really our recovery began in 2024. Related to the first part of your question on the mix, there is really no change in our strategy at all, as I mentioned in my formal remarks, on pursuing share gains and expansion in the private client business, our core focus, of course, and continuing to build out our larger and more institutional segment of the business through IPA and through runaround M&M agents that do private client transactions that tend to be larger. Both strategies are intact. Both market opportunities are intact. It was an aberration in the second quarter after multiple quarters of breakneck increases in both revenue and transaction count in the $20 million-plus segment. We have experienced a little bit of a market volatility post the tariff announcements and a temporary pause by a number of our clients that are back in the market and the pipeline is moving forward. So I don't anticipate any ongoing issues or pullbacks in the expansion of our $20 million-plus larger account business and continued progress on our private client side.

That's great color. Somewhat related to that, the press release and some of your comments noted that while sales volume was up around 12% year-over-year, the commission rates decreased, which I found a little surprising given the year-over-year increase in private market revenue, which I would think would come with higher commissions. I guess, can you talk about any dynamics that might be changing with respect to those commission rates and what caused that decline relative to last year?

Sure. The answer is found in the mix of our larger transactions actually in the quarter, the decline in the number of $20 million transactions was more pronounced in the $20 million to $30 million range, where obviously more of our transactions tend to fall and a significant increase in the company's $100 million-plus transactions, where we closed 10 of those in the quarter at a much lower average fee. Obviously, as the price goes up, the percentage commission applied to that value is lower. And therefore, really, a lot of it came from that more so than any other factors. So that is what pressured the average fee.

Okay. That makes sense. Steve, just with respect to the tax accounting change, is this more of a one-time hit in the second quarter relative to the prior methodology? Or is this change likely to continue to weigh on results relative to kind of ours and maybe your internal prior expectations under the previous method?

Yes, Blaine, let me walk you through the entire tax discussion and I'll address your question. We have talked about the potential volatility in our tax rate from period to period, especially as we operate near the breakeven point. During the quarter, as we noted in the call and the release, we changed our tax methodology to the year-to-date method, which we find more suitable than the prior annual effective tax rate method. The annual method is required under accounting rules, except in certain situations. Those situations became relevant to us this quarter, prompting the change. Generally, they're when small changes in our forecasted profitability can lead to significant fluctuations in the tax rate. Moving forward, as mentioned in our prepared comments, it's more appropriate for us to express the tax obligation in dollar terms, particularly for Q3. In Q4, there will be no difference between the two methodologies, and everything will normalize. To illustrate the normalcy that this change in methodology brings, our year-to-date tax rate this year is 12.5%, compared to 14.6% last year. So despite the fluctuations in recent quarters, things have balanced out on a year-to-date basis. Again, for Q3, we've expressed the tax obligation in dollar terms, and in Q4, the two methods will align.

Okay. Great. That's helpful. Just shifting gears, could you give us a little commentary on any additional external growth opportunities you guys might be exploring? How far any of those discussions might be? And how you feel about pricing for opportunities that you're pursuing these days?

Sure. We are currently engaged in discussions regarding our core business, focusing on boutiques and potential acquisitions that align well with certain teams and product types in our markets. We are optimistic about most of these conversations. Recently, some new opportunities have emerged in the advisory and appraisal valuation sector, which we see as appealing additions to our finance business. These models serve numerous lenders, creating significant synergies. They also offer synergistic potential for our larger deals through IPA. This illustrates the new avenues we are exploring, which are fresh opportunities rather than revisiting past failed negotiations, though there are still some cases on the brokerage side. The sentiment toward valuations has improved, suggesting we've moved beyond the peak of uncertainty faced in 2023 and 2024. There is a general optimism for returning to a more stable operating environment. Many parties we are engaging with are focused on securing guaranteed near-term value and cash upfront rather than stock or earn-outs, which haven’t been favorable for us. I'm pleased to note that confidence in the market outlook has increased, leading to eased conditions.

Very helpful. And that leads to my last question, which is how do you feel about share repurchases here? You have about $64 million of authorization left. You repurchased $7.5 million during the quarter. Just taking into account the opportunities that you just mentioned for external growth that you have in front of you, along with the recent stock performance today included, I guess, how do you think of prioritizing your options for capital deployment? And where do the repurchases fit in?

Yes, Blaine, I'll take that. This is Steve. We were active with share repurchases in the quarter, and I believe we will likely continue to engage in repurchasing, while also balancing other opportunities. The Board has just declared the continuation of the $0.25 per share semiannual dividend, which is an important aspect of returning capital to shareholders and something we highly value. We have sufficient resources to explore some of the M&A opportunities that Hessam has mentioned. Therefore, I don't anticipate a significant shift in our strategy moving forward. I expect we'll keep engaging in share repurchases, the dividend will continue, and M&A remains a priority.

Blaine, the only thing I'll add to Steve's comments is that we really worked hard for many years to position ourselves to be here where the balance sheet is strong enough to have a very diverse capital deployment strategy that includes very strong buying power, where any strategic opportunity or opportunistic opportunity for external growth is not going to be compromised because of our dividend policy or our share buyback policy. The firm is strong enough and the balance sheet is strong enough to truly be able to do both in a very balanced fashion and keep us aggressive on the acquisition front and be very mindful of creating shareholder value through capital return.

There are no further questions at this time. I'd like to turn the conference back over to Mr. Nadji for any closing remarks.

Thank you, operator, and thanks to all of you for joining our second quarter call. We look forward to seeing many of you on the field and as we travel across the country and look forward to having you on our next earnings call. Thanks, and the call is adjourned.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.