Marcus & Millichap, Inc. Q1 FY2025 earnings call

• The first quarter revenue was $145 million, 12% higher than the first quarter of 2024. Brokerage revenue grew nearly 13% year-over-year, and financing revenue increased by 26%. The adjusted EBITDA was negative $8.7 million, an improvement of 13% compared to the previous year. - Market disruption continued in the first quarter, with higher and volatile interest rates dragging on Salesforce productivity, and tightened underwriting hampering private client transactions. - Private client brokerage revenue grew 6% during the quarter, while middle market and larger transactions increased by 30%. Deals valued above $10 million saw increased activity due to price corrections and the return of major private and institutional capital. - The company made strategic investments in talent, proprietary technology, and brand during the market disruption, and is also investing in next-generation analytics, back-office production, and AI in the client targeting system. - A management reorganization was announced, including the appointment of an enterprise-wide Chief Operating Officer, Chief Growth Officer, and Chief Client Officer, and senior executives were promoted to oversee more offices. - The company is exploring potential strategic acquisitions in its core business and adjacent business lines, and consistently recruiting experienced professionals to mitigate turnover of trainees and newer agents.

Total revenue for the first quarter was $145 million, which was 12% higher than the first quarter of 2024. Real estate brokerage commission accounted for 85% of total revenue, amounting to $124 million, a year-over-year increase of nearly 13%. The transaction volume across 1,175 transactions was $6.7 billion, up 18%, but the average commission rate decreased by 4%. The private client segment of brokerage accounted for 63% of revenue, which was $78 million, with a 4% growth in dollar volume and a 3% increase in the number of transactions. The middle market and larger transaction segments together accounted for 33% of brokerage revenue, totaling $41 million, with a 30% increase in dollar volume and a 33% increase in the number of transactions. Financing revenue grew 26% to $18 million, driven by a 16% increase in volume and a 12% increase in the average commission rate. Other revenue, mainly consisting of leasing, consulting, and advisory fees, was $3.3 million in the first quarter, down from $5 million in the prior year.

• Anticipate a continued recovery in transactional activity for the year, but at a moderated pace in the near term until there is greater clarity on trade and tax policies. - Cost of services as a percentage of revenue is expected to be sequentially higher in the second quarter than in the first quarter. - SG&A is expected to be largely in line with the first quarter, reflecting the benefit of ongoing cost actions.

• 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.

Q: Please provide additional color on what clients are talking about or thinking about by different product types?

A: Hessam Nadji stated that there hasn't been much shift in sentiment toward different property types in the first quarter. Retail has made a significant comeback, multifamily is bifurcated with smaller private client multifamily hampered by bid-ask spread and tight underwriting while larger multifamily is garnering more institutional capital. The office market is showing recovery, industrial remains flat, self-storage is popular but has some bid-ask spread issues.

Q: Any distinction based on geographical locations due to recently announced tariff announcements?

A: Hessam Nadji said trends around the country were fairly consistent. Growth markets like Georgia, Florida, and Texas are catching investors' appetite, and metros like Denver and Seattle are showing improvement.

Q: How to rate Southern California?

A: Hessam Nadji mentioned that California lagged in the recovery but has seen capital wanting to come back due to price adjustments and a healthier economic outlook.

Q: Thoughts on foreign investors?

A: Hessam Nadji said foreign investments are a very small portion of the company's business and haven't seen any change in sentiment. The private client business is mainly driven by private investors in the US.

Q: Appetite for stock repurchases?

A: Steve DeGennaro said return of capital to shareholders is part of the company's capital allocation strategy. The company was active in stock repurchases during the quarter and remains committed to the strategy while also making investments in technology and teams.