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. 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 3 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 2 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…

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 6-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…

[Operator Instructions] Our first question comes from the line of 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…

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 onetime 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 sort of walk through the entirety of the tax discussion and in the process, I'll get to your answer. We've regularly in this forum talked over the last couple of years about the potential volatility in our tax rate from period to period, particularly as we're operating on a relative basis around the breakeven point. During the quarter, as we mentioned on the call and in the release, we did change our tax methodology to what's referred to as the year-to-date method. We deem that more appropriate than the prior method, the annual effective tax rate method. That annual method is what's required under the accounting rules, except in certain circumstances. And those circumstances became relevant to us in the quarter and thus the change. Those circumstances generally are when small changes to our forecasted profitability for the year can result in large swings in the tax rate. So on a go-forward basis, as we said in the prepared comments, it's more appropriate for us to express the tax obligation in terms of dollars certainly for Q3. In Q4, there is no difference between the 2 methodologies. So things normalize there. And I guess in terms of expressing the normalcy that changing to this methodology creates the -- on a year-to-date basis, our tax rate this year was 12.5% and last year was 14.6%. So with the swings that we've experienced over the last several quarters, including this quarter, things have evened out on a year-to-date basis. So again, Q3, we've expressed on a dollar -- from a dollar standpoint, the tax obligation. Q4, things normalize between the 2 methods.

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. I'll take that one. We have some active dialogue going on in our core business with some boutiques and tuck-in potential acquisitions, both on the company front and on large teams that would be a nice fit to some of our metros and some of our product types. Those are ongoing, and we're encouraged by pretty much the majority of those discussions, I will say. We have a couple of new opportunities that have opened up during the quarter, and those are more in the advisory and appraisal valuation space, which we find very attractive as a bolt-on to both our finance business. A lot of those models have many, many lenders as their clients, and there's a lot of synergies there. And also as a synergistic opportunity for our larger deals through IPA. So that really kind of gives you an idea of some new things we're looking at that are not reenergized discussions from previous negotiations that did not consummate, although on the brokerage side, there are some of those examples. I will say, Blaine, that the attitude toward valuations has improved in that -- I think we're past the worst of the uncertainty in the marketplace that everybody was experiencing in 2023 and 2024 and optimism for a return to, let's call it, a more normal operating environment is pretty broad-based. And so many of the entities that we're talking to, we're really trying to shore up their near-term guaranteed value and near-term cash versus stock upfront versus earn-out, which didn't work for us. And I'll say that some of that has eased as more confidence has returned to the market for the outlook.

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, as you point out, active with respect to repurchases in the quarter at give or take these prices, I think we will likely continue to be in the market there, obviously, balancing against other opportunities. The dividend, our Board just declared a continuation of that, the $0.25 per share semiannual dividend. So that's an important part of returning capital to shareholders and something that we value. We've got enough -- plenty of dry powder to entertain some of the M&A opportunities that Hessam has described. So I don't see a significant change in our strategy going forward. I think we'll be in the market in terms of repurchases. The dividend, again, continues and M&A is very much still on the table.

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.