Marcus & Millichap, Inc. Q3 FY2025 earnings call

• Total revenue increased 15% over Q3 2024, with adjusted EBITDA at $7 million compared to approximately breakeven in the prior year period, excluding a $4 million legal reserve.
• Private client brokerage business was up 17% in revenue and 22% in transaction count. Private client apartments and single-tenant retail posted strong revenue gains of 35% and 16% respectively. Mid-market segment had a 35% revenue increase from deals in the $10 million to $20 million price range.
• Larger deals valued at $20 million or more declined 12% in revenue and 13% in transaction count. IPA division added 2 new executives, Andrew Laehy and Dags Chen.
• Financing revenue grew 28%, reflecting improved lending conditions. Net addition of 29 investment brokers in the quarter. Progress in integrating sales and financing teams. Auction division closed 191 sales through its platform, accounting for an estimated 25% share of total commercial property auctions in the U.S.

Total revenue for the third quarter was $194 million, an increase of 15% compared to $169 million in the prior year. Real estate brokerage commissions accounted for 84% of total revenue or $162 million in the third quarter, an increase of 14% year-over-year. Transaction volume declined 2% to $8.4 billion, but the average commission rate was nearly 30 bps higher than last year. The core private client business accounted for 63% of brokerage revenue or $102 million in the quarter, with private client transactions growing 24% in volume and 22% in transaction count. Middle market and larger transaction segments together accounted for 32% of brokerage revenue, generating $52 million in revenue. Revenue from the financing business grew 28% year-over-year to $26 million in the third quarter, driven by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions. Other revenue was $5 million in the third quarter compared with $6 million in the same period last year.

• Anticipate quarter-over-quarter sequential revenue growth in the fourth quarter consistent with normal year-end seasonality.
• Cost of services as a percentage of revenue should be sequentially higher than the third quarter as revenue builds through the year.
• SG&A for the fourth quarter should increase modestly on a dollar basis after normalizing for the legal reserve in the third quarter.
• Tax expense for the fourth quarter is expected to be in the range of $4 million to $6 million.

• Ongoing uncertainty around global macro conditions, inflation, tariff policy and the labor market.
• Litigation risk: A disputed disclosure-related claim went to trial, although it is an outlier and the company intends to appeal the verdict.

Q: Mitch Germain asked about the dynamic of larger deal activity accelerating again and customers returning to the market and profitability improvement.

A: Hessam Nadji said the larger deal segment had an outsized growth last year creating tough comps, but the strategy for larger deals is unwavering. Customers are returning due to motivation from no Fed miracle, loan maturities, etc., and price discovery is aligning. Steve Degennaro added about the inflection point where leverage is starting to happen at current revenue levels.

Q: Blaine Heck inquired about banks and credit unions' lending expansion, market activity comparison to pre-pandemic, auction business growth and fees, and litigation.

A: Hessam Nadji said there's a marked improvement in banks and credit unions lending with more lenders back and better quotes. The market is still 15%-20% below normal overall but varies by property type and market. The auction business is successful with dedicated specialists and generates multiple fees. The litigation is an outlier and the company intends to appeal the verdict.