Greetings, and welcome to Marcus & Millichap's Fourth Quarter and Year-End 2025 Earnings Conference Call. As a reminder, this call is being recorded. I will now 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 Fourth Quarter and Year-End 2025 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steven 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, the company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public filings, including its annual report on Form 10-K filed with the Securities and Exchange Commission on February 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 non-GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji.

Thank you, Jacques. Good morning, and welcome to our Fourth Quarter and Year-End 2025 Earnings Call. I'm pleased to report MMI's continued recovery from one of the most complex and prolonged market disruptions on record with 2025 revenue growth of 8.5% and adjusted EBITDA improving to $25 million compared to $9 million in 2024. The fourth quarter particularly showed the strength of our resolve and execution as we set out to beat the exceptional 2024 fourth quarter, which had been propelled by a significant drop in interest rates. Despite entering the fourth quarter of 2025, without the benefit of lower interest rates, I'm proud to report that we beat a tough comp by 2% on the top line and significantly improved profitability. We drove these results through elevated client outreach, tapping our extended lender network, and taking advantage of key market improvements despite the absence of lower interest rates. A larger-than-expected resurrection and closing of deals that had been delayed or canceled early in the quarter, and a lift in urgency among our private clients deciding to take advantage of bonus depreciation by year-end were key factors in the late-stage rally. Although the bonus depreciation provision of the new tax law does not phase out, its advantage became a stronger motivating factor in getting deals closed in the final period of the year. I'm also pleased to report that 2025 marked the strongest growth in our sales force in 7 years with nearly 100 net additions of brokerage and financing professionals. Various initiatives to combat the unusual pandemic and post-pandemic forces that have elevated our new agent dropout rate culminated in this critical return to growth. The additions include a steady cadre of experienced individuals and teams that continue to choose MMI as the ideal platform for taking their career…

Thank you, Hessam. Total revenue for the fourth quarter was $244 million, an increase of 2% compared to $240 million for the same period in the prior year. As Hessam mentioned, year-over-year comparisons in Q4 are against an exceptionally strong fourth quarter last year. For the full year, total revenue was $755 million, up 8.5% compared to $696 million last year. Breaking down revenue by segment, real estate brokerage commissions for the fourth quarter were $205 million, moderately exceeding last year's tough comp and accounting for 84% of quarterly revenue. We completed 1,902 brokerage transactions with a total volume of $11.8 billion for the quarter. While transaction dollar volume was lower by 4%, transaction deal count was up by more than 9% over last year, and the average commission rate was 1.7%. The relative increase in private client transactions contributed to a 7% decrease in the average fee per transaction given the higher mix of smaller deals. For the full year 2025, revenue from real estate brokerage commissions was $633 million compared to $590 million last year, an increase of 7%. We completed a total of 6,038 brokerage transactions, up 11%, with total volume of $35 billion, up 3.5% compared to prior year. For the year, average transaction size was $5.8 million compared to $6.2 million in the prior year, reflecting the pickup in private client activity. Within brokerage for the quarter, our core private client business accounted for 65% of brokerage revenue or $133 million up from 59% and $120 million in the same period last year. Private client transactions grew 13% in volume and 10% in transaction count. For the full year, Private Client contributed 64% of brokerage revenue or $406 million versus 62% and $366 million, an 11% increase in revenue year-over-year. For the fourth quarter, middle…

[Operator Instructions] Our first question comes from the line of Blaine Heck with Wells Fargo.

Hessam, as you alluded to, the broker group has been under a lot of pressure this week, driven by concerns about AI displacement within the business and impacting the CRE sector more broadly. You talked about some of the changes that you guys have already made. But looking forward, I guess, which segments of your business could be impacted, whether that's certain deal sizes or business units? And do you think your focus on the Private Client Group gives you guys more or less protection from AI disruption?

Blaine, good to have you on the call. I was happen to be just on CNBC a few hours ago on this very topic because it's getting a lot of media attention, especially as it has impacted the Commercial Real Estate Services segment in the last 48 hours or so. And my view and I think that of many in the industry is that AI is here to stay. And there's almost countless ways that AI is going to improve the manual processes that are so labor intensive in our business, whether it's underwriting, data gathering, data parsing, document generation and really all the production-related components of our business, which is significant. If you think about the number of times a broker needs an asset analysis, a submarket analysis, a metro analysis even before a first meeting with a client, even before they've really gotten to know the client. The need to be educated in that first interaction itself creates a tremendous amount of labor. And we're excited about finding scalable ways for AI to make that process a lot more efficient and a lot less costly, frankly, so that we can reallocate capital to other ways that the company can advance forward and more R&D as well as improving our margins. That's a given. The big question mark is what happens in the second wave of AI? I believe right now, we're in the first wave of really this initial level of replacing a lot of manual tasks and labor-intensive tasks. The second wave is more interpretive in my view. And that's where the intelligence that would be expected from AI would start to have a gray area with the expertise and the personal experience and interpretation skill set of a good broker. In commercial real estate, trying to…

No, that's very helpful perspective and well said. Shifting gears, you guys had very strong growth in broker count this quarter. I guess a few questions around that. First, was this something that you had visibility into given your recruitment efforts? Were you expecting that level of growth this quarter? Or was there something that drove kind of a surprise to the upside? Second, are there any specific specialties you targeted in that growth? You've been kind of hiring more experienced brokers that can handle larger transactions, but I kind of would have expected a larger average deal size this quarter if that was the case. And then just third, how should we think about your plans to grow headcount as we look forward into 2026?

Very important topic. As you know, and we have messaged multiple times, we've been under so much pressure because of the disruption created by the pandemic into our multi-decade tested system and really almost a unique feature of the company in the way that we have been successful in attracting new talent with no experience, training them, supporting them into becoming market leaders. That has driven the company for so long up until 2020. And that whole component of our system was badly disrupted because of the pandemic and then the market volatility that ensued just elevating the dropout rate of the individuals that we hired really from 2020 on. First on -- because the market was shut down and in-person training was not possible. And then because the market had such a huge run and then a big crash. So that volatility makes it very hard to train new people into the business. And we made a concerted effort over the last 3 years to increase the channels of bringing in talent, qualifying the talent. Not only have we increased the inflow of candidates. We've really upgraded the filtering of those candidates, whether it's campus recruiting, whether it's our internship program that we have more than doubled in size and organized with a very specific curriculum across the country. The expansion of the William A. Millichap Fellowship program, all of which have been very successful. We started those 3 years ago. So it takes time for all these kinds of initiatives to produce tangible results. Everything in the business has a bit of a lag time which is frustrating, but a reality. And we did have visibility to it going into 2025, senior management felt very strongly that the underpinnings had time to get laid and work, and it…

Okay, great. Very comprehensive. Last question, you also mentioned continuing to explore strategic transactions. I wanted to see whether you think this latest market disruption and fear over AI displacement might bring about some opportunities for kind of lower cost acquisitions and how you're thinking about the risk reward of external growth given the current kind of concerns over disintermediation from AI. I guess, has anything changed with respect to your appetite for add-ons or maybe the profile of those potential expansion opportunities?

Nothing has deterred our strategy for attracting new talent, attracting boutiques and regional firms that I believe would thrive within the MMI platform. The introduction of AI as more of a business factor enhances that. It doesn't, in my mind, or as part of our strategy, diminish it at all. And I did want to really summarize for all of our shareholders and our analysts the attempts that we've made to diversify the platform going into 2022, 2023. And those include companies that we looked at in the appraisal valuation business, the cost aggregation business, even investment management was explored with a couple of opportunities that had come up. And the common theme that I've shared before was that going into '23, '24, there was so much near-term uncertainty. And there was some -- on our part in being able to forecast the first 2, 3 years of performance of an acquired target. And there was so much reliance in both the valuation and the terms of the target companies on guaranteed value upfront, that became the biggest obstacle that we felt very uncomfortable with and some of the deals that we looked at, given the near-term market uncertainty. As that fades and we really believe it has faded. And as I mentioned and Steve mentioned in his commentary, we're more optimistic about 2026 as the market gets closer and closer to an operating environment that we would consider fairly normal. Our confidence would be higher in that the first few years of an acquisition become somewhat more predictable than '23, '24 and '25 certainly were. And in retrospect, Blaine, I'll have to say that the decision to pass on the vast majority of those deals was the right thing to do. Knowing what has transpired and frankly tracking them and still being in touch and knowing how they fared. So I think we did our job in terms of being diligent with our shareholders' capital. But the desire to diversify this platform in a way that's value add to our existing sales force and the core customer base we've already gotten so close to is very much there, if anything, is even more energized as the market certainty and clarity returns.

Our next question comes from the line of Mitch Germain with Citizens.

Just following up on the M&A question. Is it just market uncertainty? Or has it also been a function of either price or a cultural fit that has prevented some of these transactions from getting over the finish line?

Mitch, I'll take that one, and Steve could add some comments as well. Really, all 3. Culture has been the least problematic because we already do a lot of due diligence upfront as to who we want to approach that we feel is like-minded and would have compatible cultures. We really haven't gotten too far down the road with a lot of targets that didn't have a good culture. There is only one I can think of meaningful size where we had to get to know them and get to know their culture, and that became in and of itself as well as a major gap in valuation expectations and in then terms, a big hurdle, we just couldn't get our heads around, even if you can get the numbers resolved. But the bid-ask spread has been wide from our standpoint. There are others who are more aggressive and maybe more willing to take risk back in '23, '24 and we weren't on a case-by-case basis. And then as I mentioned, the gap in terms of guaranteed value versus earn-out. We are very focused on bringing on talent that wants to be a part of MMI for at least 7 to 10 years or longer. And we're not really looking to become somebody's retirement plan. And what we face is a big challenge, Mitch. I think you're very familiar with this based on our previous conversations is that the vast majority of our targets are boutiques and regional firms that have 1 or 2 founders, that started a brokerage group or a team that became somewhat of a company. And those founders just having had some decades behind them are not really the revenue producers in most of the cases and their current revenue producers would not participate in an acquisition from a capital event perspective. So it's like, what are you really paying for? And in our fragmented core business, the pool of targets of any size that have a diverse revenue kind of stream sources of revenue stream are fairly rare to find. That's why our experienced producer recruiting has been much more successful. And -- but again, we have organized ourselves in a way where we're targeting specific spaces, specific companies and specific groups, whether it falls under experienced professional recruiting or a quasi-acquisition. Steve, anything to add?

Yes. Mitch, that's exactly where I was going to go. The guarantee and not wanting to be founder's retirement plan, that is certainly a very real factor in the brokerage business, perhaps a little bit less so in some of these adjacent spaces, but still, it's a strong, strong consideration that has kept us from consuming a handful of these deals.

Are you able to -- have you been able to increase your cross-sell from your financing division to your brokerage? Where does that stand today?

Yes. That's a definite, yes. The best example, is in our IPA Capital Markets segment where we brought in a very experienced finance professional, teamed them up with some of our most experienced sales teams. The one case that I can think of right away is our IPA Capital Markets for Multifamily where we brought in the Eisendrath Financial (sic) [ Finance ] Group in 2022 and paired them up with our top 5 or 7 IPA sales teams across the country and their collaboration and joint efforts in winning business and serving the clients for both the investment sales component and financing and then in some cases, refinancing of other properties has been very successful in a short amount of time. Other examples include another IPA Capital Markets team that we brought on board in New York that has collaborated with a number of our investment sales teams. Our loan sales division, Mission Capital is actively either responding to leads that our sales force uncovers by talking to lenders or the other way around. And I'm also happy to say that within our auction business, the channel that auction has opened, both for aging inventory that is not effectively selling through conventional marketing and now can be put on an auction platform. And frankly, our Head of Auction would say that's too limiting of how the auction channel can be helpful to a seller even in the front end of deciding to market an asset, the right asset that is. So both of those types of scenarios are now creating cross-selling between auction, loan sales and our conventional finance division and our sales force.

Got you. How do you envision 2026 performance with regards to, obviously, the market has been fairly unstable. And it appears that outside of this whole AI noise that's been impacting the share price, the market itself, going into 2026, it things like it appears as if allocations are increasing, people have accepted the new pricing paradigm. Definitely things like -- it seems like there's a little bit less volatility. So do you think that, that will begin to resonate in the financial performance of MMI, particularly in the early part of the year. It's been a little bit of a kind of unstable start where you're kind of starting at a deficit in earnings and then kind of in the fourth quarter, working your way back up. Do you think that some of those losses are going to begin to narrow now that the environment stabilized a bit?

Here's how I'll respond to the question, Mitch. I'll say that going into the early stages of 2026 is the best start of a calendar year since 2022. I will definitely say that because the factors that you mentioned have all occurred in the resetting of the prices, the acceptance that a Fed miracle is not around the corner, to bring interest rates way back down and basically be the Hail Mary for the pressure on values, reversing after the Fed to increase rates by 500 basis points. All those kind of processes that take the market a couple of years to process and recalibrate are, for the most part, behind us. That is not to say that 2026 or the current environment is a normal operating environment. We still have a bid-ask spread. We still have very fickle investor sentiment where the cautiousness because of the unexpected events of 2025, i.e., Liberation Day and the tariff effect, the 6-week shock to the capital markets that we absorbed last week, has a lot of our clients asking ourselves, what's around the corner? What else could happen? And the fact that the interest rates have been sticky around the 4% yield on the 10-year treasury hasn't been all that constructive. We really don't see a surge in activity and a big boost in investor sentiment unless the 10-year gets closer to 3.5. And so expecting it to be range bound around that 4% and expecting this sort of measured incremental improvement in market sentiment and therefore, activity is, I think, is reasonable for 2026. Certainly, not a hockey stick where we can declare the end of uncertainty and announce the beginning of certainty because they're still just these lingering tentacles of what's happened because of the Fed action, because of the…

Yes. And I'll just add, Mitch, that as we've talked about, there's a certain amount of fixed costs that are sort of embedded into our business model, loan amortization on capital to attract and retain producers. But as the revenue -- it only really takes even modest revenue growth before you start seeing operating leverage in the -- flow down through our financials. That's not a forecast of any sort, but just a reminder that as revenue starts to recover as the market starts to recover, revenue follows the impact on our operating income has a pretty solid flow-through.

We have no further questions at this time. Mr. Nadji, I'd like to turn the floor back over to you for closing comments.

Thank you, operator, and thank you, everybody, for participating on our call. Thank you for the questions, Blaine and Mitch. We look forward to seeing a lot of you on the road. This concludes our fourth quarter call, and we look forward to having you on the next earnings call. The call is adjourned.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.