Marcus & Millichap, Inc.

Greetings and welcome to Marcus and 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. Welcome to Marcus and Millichap's fourth quarter and year-end 2025 earnings conference call. With us today are President and Chief Executive Officer Issam 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, 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 is represents a reconciliation to the appropriate gap measures, and explains why the company believes such non-gap 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, Assam Nagy.

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 the 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 appreciation 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 seven years with nearly 100 net additions of brokerage and financing professionals. Various initiatives to combat the unusual pandemic and post-pandemic forces that had 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 to the next level. We are very encouraged by last year's hiring results and a strong candidate pipeline going into 2026. Throughout 2025, we maintained our market leadership position by transaction count, completing nearly 9,000 transactions totaling over $50 billion in volume. This translates to more than 35 transactions per business day, reinforcing a consistent expansion of client relationships and enabling our team to move capital across markets and property types. Looking back, three key factors impacted our performance in 2025, all of which also bode well for the outlook in 2026. First, capital markets and investor sentiment improved, particularly in the second half of the year after recovering from the initial shock of Liberation Day. Despite a cautious Federal Reserve that lowered rates at a much slower pace than anticipated, lender spreads compressed by 75 to 100 basis points, and loan-to-value ratios expanded. Many lenders have repaired balance sheets, restructured and or resolved a large portion of maturities and have more capacity as transaction volume has picked up. Second, momentum in our private client and middle market segments picked up last year as prices finally began to adjust and regional banks and credit unions became more active. MMI's $1 to $20 million transaction count and revenue each grew 12% as we started to reestablish our traditional advantage in these segments. This part of the market not only comprises the vast majority of commercial property stock and transactions, but it is also poised for more activity as a narrowing bid-ask spread releases pent-up supply from sellers who previously were hanging on to assets. Third, our financing business continues a strong trajectory, with revenue up 23% in 2025 after growing 26% in 2024. This solid pace is the result of our expanded cadre of experienced financing professionals and the team's ability to access over 420 separate lenders last year. our team of nearly 100 finance professionals, is interconnected through our proprietary technology, which is integrated with our expansive lender relationships. This tech-enabled combination secures the most optimal financing options available in the marketplace. NMCC and IPA Capital Markets closed over 1,600 transactions for a volume of nearly $12 billion, which includes a $2.3 billion portion placed with Fannie Mae and Freddie Mac, primarily through our strategic alliance with M&T Bank. Agency financing has been one of the fastest growing segments of our business, thanks to the talent acquisition and rapidly growing collaboration we have managed to pull off between our finance professionals and our sales teams. The only segment that was off last year was our larger transactions valued at $20 million or more, which declined by 13%. This is primarily driven by a tough comparison to 2024 when our institutional segment led the recovery with a 28% revenue increase, including an 88% surge in the fourth quarter of 2024. Institutional apartment sales, which showed exceptional strength in 2024, eased as the acute flight to safety limited the buyer pool for lower-tier assets and secondary markets. While our IPA division is well positioned to continue expanding in the institutional arena, some volatility is to be expected as a number of metros grapple with oversupply. The ripple effect of high vacancies, particularly for multifamily in these metros, is leading to a rise in underperforming assets that are not yet priced to clear the market. In summary, we're pleased with the significant improvement in the company's key metrics, however, We're laser-focused on driving further momentum in the pace of recovery and capturing the substantial growth runway ahead of us. We enter 2026 with greater clarity on the path to achieving this, thanks to a largely recalibrated marketplace and our unwavering conviction in our client value proposition. Building on that strengthening position, we remain disciplined in our approach to strategic investments while maintaining prudent cost controls. The investments we've made over the past several years in talent retention and acquisition, technology, infrastructure, and branding are beginning to show leverage as the revenue tide turns. As I've mentioned on previous calls, the expensing of capital investments has been an outsized drag on earnings since the start of the market disruption in 2023, given the hampered revenue production of the past few years. As market conditions and broker productivity improve, so will the production level of the talent pool we have retained and added to over the past several years. As a critical part of our technology strategy to leverage AI and drive efficiency, the company's centralized back office and marketing center, called Brokerage Transaction Services, or BTS, is intensifying its reliance on third-party services at a lower cost, while we also begin to leverage various AI applications to our benefit. These efforts are concentrated in financial analysis, document generation, underwriting, and lead scoring. All of these efforts are showing promising results but need significant advancement in the AI capacity and the use of historical data mining for accuracy and scalability. We expect and fully embrace the opportunity that AI has opened for massive efficiency in virtually all aspects of property analysis, underwriting, client targeting, and outreach. An era of higher throughput at a much lower cost is emerging, and our goal is to lead this tremendous productivity gain over time. However, we do not expect AI to disintermediate the function of a value-added broker. given the expertise, building by building nuances, and buyer-seller relationships that ultimately drive the commercial real estate industry. In our view, the broker of the future will be armed with an array of additional analytics with more efficiency in a way that will help clients create value. At the same time, value-added offerings, such as our auction services and loan sales division, continue to gain traction, generating direct incremental revenue and increasing sales and financing opportunities through collaboration with our sales force. Looking ahead, we enter 2026 with greater optimism driven by several positive market fundamentals. Interest rates, while still elevated, have stabilized, which provides a more predictable valuation benchmark. Simply stated, values have to adjust to the new normal in the cost of debt, and they're doing so. The price corrections over the past three years, combined with a major pullback in new construction, are creating compelling investment opportunities, especially on a replacement cost basis. Cap rates are up 85 to 110 basis points on average since 2022, and prices are down roughly 20% on average. This, combined with lower all-in interest rates driven largely by lower lender spreads, should further bolster investor demand and capital flows in 2026. Despite expectations of a more accommodative Federal Reserve, inflation pressures and trade-related variables would likely limit the Fed's ability to significantly lower rates. While the labor market is slowing faster than expected, the incoming Fed chair will most likely face the same obstacles to lowering rates. Nevertheless, we expect last year's transaction market improvements to continue as time narrows the bid-ask spread and facilitates the sale of many delayed trades. 2026 is a milestone year for all of us at MMI as we celebrate the company's 55-year anniversary. Many aspects of the company's culture that retain and attract the best of the best in brokerage, financing, management, and support functions find their cornerstones in the company's founding principles that still drive us today. These include bringing efficiency and value, liquidity, and certainty to an otherwise fragmented market, measuring our success by our clients' results, and creating long-term and rewarding careers for all team members at Marcus & Milchap. As we mark this important milestone, all eyes are on the future and our quest to lead in an ever-changing industry. Our multi-pronged growth strategy includes expanding our leadership in the private client market, further penetrating the institutional segment through IPA, and accelerating the scaling of our financing, auction, loan sales, and client advisory services. Given our disciplined approach to acquisitions, recent attempts to acquire additional financing boutiques, appraisal and valuation firms, and complementary adjunct businesses such as investment management and cost aggregation have not yet come to fruition. However, they will in time as the company is committed to providing an array of additional services that align with our dominance in investment brokerage and financing. Our ultimate goal is to enhance our offerings to a client base we have come to know extremely well throughout the years. Powering this vision is MMI's Stellar Balance Sheet, with nearly $400 million in cash, reinforcing our ample purchasing power for strategic acquisitions, which we continue to pursue. Most recently, we have engaged in multiple large-scale explorations that would enable us to expand our financing business more rapidly. We're proud to have balanced strong liquidity and purchasing power with a consistent return of capital to shareholders with $47 million provided in dividends and share repurchases executed in 2025. As we look to the future, we are excited about a new real estate cycle and the vast opportunities ahead for expanding our market presence and revenue diversification to enhance long-term value. And with that, I will turn the call over to Steve for more details on our results. Steve?