Marcus & Millichap, Inc.

Greetings and welcome to Marcus and Millichap's second quarter 2024 earnings conference call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jack Corneille. Thank you. You may begin.

Thank you, Operator. Good morning. Welcome to Marcus and Millichap's second quarter 2024 earnings conference call. With us today are President and Chief Executive Officer, Assam Nagy, and Chief Financial Officer, Steve DiGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal, and variations of these words and similar expressions are intended to identify 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, the company's ability to retain its business philosophy and partnership culture amid competitive pressures, the company's ability to integrate new agents and sustain its growth, and other factors discussed in the company's public filings, including its annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2024. 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 is my pleasure to turn the call over to CEO, Hassam Najee.

Thank you, Jacques. On behalf of the entire Marcus Millichap team, good morning and welcome to our second quarter earnings call. As anticipated, the company faced a challenging quarter due to the lingering impact of the higher-for-longer stance on interest rates by the Federal Reserve. Revenue for the second quarter came in at $158 million, with adjusted EBITDA of $1.4 million and net loss of $5.5 million. This primarily reflects the ongoing headwinds of bid-ask spreads and constrained financing. Marketing and closing timelines continued to be longer than usual, while an elevated portion of our deals had to be recalibrated multiple times before closing. Notwithstanding the impact of these macro conditions on our team's productivity, a number of positive indicators emerged in the quarter. Internally, these include measurable growth in our new inventory and price adjustments that are more reflective of the current market. We also saw a 23% sequential revenue gain over the first quarter compared to just 5% sequential growth achieved in Q2 2023. Year-over-year revenue decline of less than 3% was also our lowest such comparison since the start of the market downturn in the third quarter of 2022. Externally, the passage of time has finally brought more realistic pricing and a growing sentiment that valuations are at or near bottom for most property types. We saw capital reentering the market gain momentum throughout the quarter, driven by price adjustments from peak and in comparison to replacement costs. Many investors are recognizing attractive entry points for assets, given the incredible difficulty many markets are showing and the higher cost of buildings. In many cases, investors are paying all cash or relying on short-term financing to secure well-priced opportunities with the goal of adding long-term financing when rates come in. Situational distress, particularly driven by aggressively underwritten deals in the last five years with short-term debt that is now maturing, is also creating more motivation to transact. This is not to say that the math for all real estate deals is once again broadly working In fact, our team continues to dedicate considerable time working through bid-ask spreads and securing financing, but much progress has been made toward equilibrium. Let me take a moment to recognize the perseverance of our sales force and support personnel during this elongated market disruption and their laser focus on helping our clients get through it. In this challenging environment, we closed over 1,200 brokerage transactions and $7.2 billion in volume. An uptick in middle market and larger sales spurred by major private and institutional investors gradually coming back into the market was a positive trend. This is relative to the severe drop-off in these transactions since 2022. Our private client business remains hampered by the limited ability or desire of local and regional banks to provide financing. The slow pace of price discovery and low motivation to sell, especially in the single-tenant net lease segment, remains a challenge. Bright spots include multi-tenant retail, which continues to be a clear recovering segment, manufactured housing, and self-storage. Financing transactions were down 4% as lenders remained selective and refinancings fell sharply. However, our financing volume increased by 11%, due to a rise in large transactions and loan sales. Our financing division achieved a 25% jump in larger financings valued at $20 million or more, led by our multifamily agency lending practice. The integration of our IPA institutional sales and IPA capital markets is also contributing directly to these results and provides a foundation for us to build on. In this environment, our financing team closed with 146 different lenders in the quarter and 340 over the past 12 months. This is a direct result of proprietary technology investments that enable real-time deal and active lender information sharing among our network of originators. It is also indicative of the growing degree of collaboration between our sales and financing teams. At the macro level, decelerating inflation readings and much slower job growth during the quarter finally shifted the Fed back toward plans to start the interest rate easing cycle. Even before the Fed moves, the 10-year Treasury yield has dropped nearly a full percentage point since the start of the quarter and sits at the lowest level since about May of 2023. Mixed corporate earnings and softer-than-expected July employment data could raise fresh concerns over hard landing for the economy and a corresponding flight to safety. Ironically, the latest employment and inflation data is exactly what the Fed has been waiting for, and strong economic underpinnings still point to a modest growth cycle ahead as opposed to major layoffs or a significant consumer retreat. If anything, there is now even a case for a 50 basis point interest rate reduction by the Fed in September, which would further boost the soft landing scenario and help bolster real estate transactions. While we expect the positive momentum in transactions to continue during the second half, economic concerns and a new round of geopolitical tensions point to a measured market recovery in the near term. However, we believe the cycle heading into 2025 will be more favorable as the market gets a lift from lower interest rates, recalibrated real estate values, a slower yet still healthy economy, and the conclusion of the election cycle. Our strategy to increase inventory, maintain elevated client outreach programs, and continue to incorporate best-in-class brokerage technology remains on track. During the quarter, we saw further traction in our auction business, loan sales, and synergies with strategic investment partners. Equity Multiple, who's actively helping our clients access debt and equity capital, and efficiencies from our investment in data analytics firm, Archer, are helping us enhance internal and external services. We're excited to consider additional partnership investments on a parallel path of further developing and implementing the next round of proprietary technology that help facilitate transactions. As an example, MyMMI, our client application that provides custom searches for our inventory, now boasts 116,000 users and enables real-time connectivity between buyers and sellers. Expenses related to investments made in our Salesforce, both in retention and acquisition, were once again dragged on earnings in the near term, as revenue production is below historical trends and below potential. However, we remain confident that the seniority and market leadership of our talent pool will be a key advantage in the market recovery, as we've seen in past cycles. We continue to successfully add experienced professionals and teams, which is offsetting the ongoing challenges our newer cadre of agents and originators face. The market volatility of the past several years and current headwinds are keeping our net hiring of new agents well below a normal market. The company's expanded channels for attracting and training new talent include a much larger internship program and deployment of regional recruiters. These steps will help replenish the company's organic growth engine, especially as the employment market cools. From a capital allocation perspective, we made favorable investments in experienced individuals and teams during the quarter, and we continued discussions with selective acquisition and investment targets. While the bid-ask spread on valuation and terms has improved to some degree, The near-term performance risk of target groups relative to valuations and guaranteed proceeds remain challenges. Our ongoing investments in business development, client engagement, branding, and industry events underscore our commitment to stay on offense during this prolonged downturn. We're highly disciplined in how we invest in our business and our talented team while creating shareholder value. We're proud to have returned a significant amount of capital in the last two years since expanding our capital strategy to include dividends and share repurchases. Our investments and platform enhancements give us confidence that we will emerge from this cycle well-positioned and stronger than ever. With that, I will turn the call over to Steve for additional insights into the quarter.