Prepared remarks
Greetings, and welcome to Marcus & Millichap's Second Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to 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 Second Quarter 2026 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve 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, 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 26, 2026. 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, includes 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. On behalf of the entire Marcus & Millichap team, good morning, and welcome to our second quarter 2026 earnings call. I'm pleased to report that MMI had a strong second quarter, continuing the momentum from the first quarter and delivering the company's best first half since 2022. Total revenue increased 18% in the second quarter with all business segments registering growth. Brokerage revenue for the quarter grew 18% year-over-year, and our financing business was up 15% as the company's recovery broadened. Private client and middle market brokerage segments posted more than 13% revenue growth, while larger transaction revenue jumped 43%. Over the last two years, private client and larger transactions moved at different trajectories due to a variety of factors. In the first half of 2026, however, the company achieved solid growth across the board for the first time since the market disruption began. This is driven by our team's persistent client outreach finally resulting in more transactions as values adjust and healthier lender balance sheets foster more financing options across the full price spectrum. I'm also pleased to report significant progress in MMI's profitability in the quarter. During the market disruption, we remained committed to strengthening the company's leading brand, attracting and retaining top talent and enhancing the infrastructure that supports growth. This strategy pressured our near-term earnings largely due to the expensing of these investments, but it allowed us to keep strategic initiatives on track and maintain a high level of producer support when it matters the most. Maximizing revenue growth per producer, positioning the company for market share gains and gaining operating leverage in the recovery continue to guide our strategy. With this backdrop, net income for the quarter came in at $4 million, while adjusted EBITDA improved to $12 million. Steve will elaborate on more details. We view this as a critical stepping stone toward more ambitious margin improvements as a better functioning market environment enables revenue growth. Looking at various revenue drivers, the largest contribution to the top line results came from our private client brokerage business. Microcap multifamily and single-tenant retail deals continue to show improvement in trading volumes as significant price adjustments recalibrate to higher interest rates and as more banks and credit unions reengage in the marketplace. In the last 12 months, revenue from private client multifamily and single-tenant retail grew 19% and 16%, respectively. On the larger deal segment, major investors and institutions became highly selective last year after the initial wave of institutional capital returned to the market in 2024. Institutional investors are opting to pay a premium for top-tier assets in top-tier markets, widening the gap with older and lower quality assets. Further price adjustments and the rising tide of loan maturities have driven increased activity in larger asset sales this year. Operating challenges in many markets and among many property types have also been the catalyst for inventory coming to market at more realistic prices. Our financing business delivered another strong quarter with revenue up 15% on top of the 43.5% growth registered in the second quarter of 2025. Our expansion strategy into IPA Capital Markets, progress on expanding agency financing, investments in technology and lender relationships continue to drive growth. MMI has become Freddie Mac and Fannie Mae's largest nondirect multifamily debt originator through our partnership with M&T Bank. We expect further expansion in our financing business as we emphasize collaboration between our sales and financing teams, evaluate strategic acquisitions and add to the roster of experienced originators. IPA Capital Markets, in particular, continues its expansion with highly experienced originators added this year. Refinancings picked up meaningfully during the quarter, accounting for 47% of revenue compared to 39% a year ago as more owners were able to secure new loans in an improving environment. Lastly, on our financing, the team closed with 207 separate lenders during the quarter and 304 lenders for the first half of the year, illustrating our market-leading reach into a vast network of capital sources for MMI's clients as a key strategic advantage. Turning to our sales force. We ended the quarter with 1,575 investment sales professionals, up modestly on a year-over-year basis. As we've discussed previously, the first quarter is typically our highest attrition period. In addition, quarter-to-quarter variability is primarily due to our tightened performance standards, leading to faster separation from underperforming agents and trainees. Our head count composition and quarterly numbers also reflect an intentional shift toward heavier reliance on our expanded internship and fellowship programs as primary sources of the company's organic growth strategy. These channels are a slower path to nominal head count growth. However, recent enhancements are starting to show higher productivity and higher retention rates among this cadre. At the same time, our focus on recruiting experienced professionals and teams remains on track with meaningful gains so far this year. Looking ahead at the broader market, we continue to see a balancing act between lingering uncertainty and higher interest rates on one hand and more motivation among sellers to move forward with transactions on the other. We entered 2026 expecting rate reductions by the Fed, but the debate has since shifted to the degree and timing of potential rate hikes due to the Middle East war, its impact on energy prices and resurging inflation. The 10-year treasury yield is 50 basis points higher than the start of the year and 70 basis points higher than the low point prior to the start of the military conflict in February. As I've shared on previous calls, interest rate volatility challenges deal underwriting and marketing, making it more difficult to keep buyers, sellers and lenders aligned and getting deals across the finish line. As a result, we continue to experience extended transaction timelines. Our team is leveraging ample liquidity in the market with investors eager to act on realistically priced assets, particularly when there is a discount to replacement cost for buyers. Many transactions that could not be brought together previously are now starting to work as bid-ask spreads narrow and net proceeds for borrowers improve, thanks to more accommodating lenders. We believe this dynamic, combined with improving property fundamentals across most property types, supports the market's positive long-term trajectory even as the recovery in the transaction cycle remains somewhat choppy. We're encouraged by early-stage dialogue with some acquisition targets, particularly on the financing side, which have emerged as the market improves. MMI is ideally positioned to sustain our strong balance sheet as well as our strategy to return capital to shareholders while maintaining a high level of liquidity for strategic acquisitions. With that, I will turn the call over to Steve for more details on our financial results. Steve?
Thank you, Hessam. Total revenue for the second quarter was $203 million, an increase of 18% compared to $172 million in the second quarter of last year. For the six-month period, total revenue was $374 million, also an increase of 18% compared to $317 million a year ago. Breaking down revenue by segment, real estate brokerage commissions were $167 million for the quarter, an increase of 18% year-over-year and accounted for 82% of total revenue. We completed 1,530 brokerage transactions for total volume of $10 billion, representing increases of 11% and 18%, respectively, compared to the second quarter of 2025. For the six-month period, brokerage commissions were $305 million, an increase of 15% compared to the prior year. Within brokerage, our core private client market business grew 14% year-over-year to $106 million. Our middle market business grew 13% to $22 million and our larger transaction segment covering deals above $20 million grew 43% to $33 million. This is the strongest growth we've seen in this segment since the fourth quarter of 2024 following an extended period of institutional softness. Revenue from our financing business was $30 million in the second quarter, an increase of 15% compared to $26 million in the prior year quarter, driven by a 17% increase in transaction count to 480 loans and a 5% increase in dollar volume to $4 billion. For the six-month period, financing revenue was $57 million, an increase of 29% compared to the prior year. Other revenue was $6 million in the quarter compared to $5 million in the second quarter of last year. For the six-month period, other revenue totaled $12 million compared to $8 million a year ago. Turning to expenses. Total operating expense for the quarter was $201 million compared to $181 million a year ago. Cost of services was $127 million or 62.4% of revenue, an increase of 50 basis points compared to the same period last year, primarily reflecting higher commissions earned by our more senior investment sales and financing professionals. For the six-month period, cost of services was 61.5% of revenue, up 10 basis points year-over-year. Selling, general and administrative expense was $72 million for the quarter, virtually flat on a dollar basis with the second quarter of 2025. As a percentage of revenue, SG&A for the quarter was 35% compared to 42% in the prior year, reflecting positive operating leverage. For the six-month period, SG&A totaled $143 million, slightly below the prior year. Net income for the quarter was $4 million or $0.10 per share compared to a net loss of $11 million or $0.28 per share in the prior year. Adjusted EBITDA was $12 million compared to $1.5 million a year ago. For the six-month period, earnings were $0.02 per share compared to a net loss of $0.40 per share in the prior year, and adjusted EBITDA was $15 million year-to-date compared to a loss of $7 million in the same period last year. Together, these results reflect a notable improvement in the business year-over-year. Our effective tax rate for the quarter was approximately 38% compared to negative 195% in the second quarter of last year. As a reminder, our tax rate may fluctuate from quarter-to-quarter as we continue our recovery towards higher profitability. Moving to the balance sheet. We ended the quarter with $345 million in cash, cash equivalents and marketable securities, up from $335 million at the end of Q1 and up from $333 million at the end of Q2 last year. The increase reflects continued operating cash generation and is inclusive of the semiannual dividend paid in April as well as share repurchases. As part of our ongoing efforts to create value and return capital to shareholders, in the quarter, we repurchased approximately 913,000 shares of common stock for a total of $24 million at an average price of $26.22 per share. Since the program's inception in 2022, we have repurchased approximately 4 million shares for a total of $120 million. During the quarter, our Board of Directors approved an additional share repurchase authorization, bringing our remaining program authorization to approximately $90 million. Last week, the Board also declared a semiannual dividend of $0.25 per share payable on October 6, 2026, to shareholders of record as of September 15, 2026. Between dividends and share repurchases over the last four years, we have returned more than $251 million of capital to shareholders. Looking ahead, we entered the third quarter with modest year-over-year growth in our pipeline due to the latest period of interest rate volatility. That said, we are encouraged by increased motivation to sell, improved liquidity in the market and more realistic price expectations. Cost of services as a percentage of revenue in the third quarter is expected to follow the usual pattern as revenue builds through the year and be sequentially higher than the second quarter. On a dollar basis, SG&A is expected to increase modestly over the second quarter. Income tax expense should be in the range of $1.5 million to $2 million. In summary, the second quarter reflected broad-based improvement across our platform, balanced growth between brokerage and financing, a return to growth in our larger transaction business and continued discipline on cost. We remain confident in the long-term recovery of the commercial real estate transaction market and our ability to capture a growing share of that opportunity. With that, operator, we can now open the call for Q&A.
Questions and answers
Operator Instructions. Our first question is from Mitch Germain with Citizens Bank.
Hessam, your secret sauce has been the ability to tap into that private client network, sourcing deals out of state and using your best platform to be able to connect your clients to deals. Are you seeing any competition or competitive pressures when it comes to your ability to tap into those customers?
Mitch, great to connect with you. Nothing unusual. We have the usual competitive forces, predominantly local small firms and maybe some regional boutiques. Some of our larger competitors do a modest amount of private client transactions, predominantly in the industrial sector. And we're not seeing anything unusual. The retention and recruiting competitiveness has always been there and it remains. What's interesting is that we are able to attract more semi-experienced professionals from a lot of the boutiques and regional firms in the past several quarters because they're starting to see the benefits of being with a larger platform as the market improves. And we've had some successes there. Therefore, there's a little bit more focus on that between our recruiting department and our local market leaders. One of the interesting trends that I can share is that even semi-experienced brokers that come into the Marcus & Millichap network really give us the feedback that going through our training program and being put through what our inexperienced hires go through really makes a visible difference in their performance and the way that they go about the business. So the training systems and support systems that we've had for years, and we continue to refine every single day, seem to be getting recognized as one of the key advantages even from semi-experienced brokers from these local firms and boutiques.
That's super helpful. It seems like number of professionals, I think it's about a 50-person increase year-over-year, I'm curious, Hessam, what is the breakdown? You talked about the semi-professionals that have some kind of seasoning already. But if I think about that increase in the number of professionals from kind of year-over-year, how much of that is new and how much of that are individuals coming in with some knowledge and capabilities?
Generally, Mitch, somewhere around 25% of our hires are coming in with some experience. That number is increasing because of the fact that we're actually slowing down our top-of-the-funnel traditional and experienced individual recruiting. As I mentioned in my comments, we're shifting a lot more aggressively toward our internship program, which we've expanded over the last couple of years and have also added some new-generation candidate testing and screening systems that are slowing down the nominal number of people coming in through the top of the funnel, but improving the quality. We're also relying more heavily on our fellowship program. Both the fellowship program and the internship program that have been enhanced over the last three years are starting to show meaningful advantages as they graduate individuals and those individuals come back and join us as it is reflected in their productivity and their speed to becoming productive agents. So we're really encouraged by all that. And the ability to attract semi-experienced brokers is also gaining traction. I wouldn't put too much emphasis on the percent of the net increase being experienced or not only because there's going to be some noise in our net hiring reported data because of all these changes that we're implementing to improve our organic growth part of the strategy. Let me also reiterate, Mitch, that the efforts to bring in very experienced individuals and teams has not slowed down at all. That's a third parallel track of our recruiting strategy, which has worked incredibly well over the last five years, especially when it comes to our finance division. We started IPA Capital Markets pretty much from scratch about five years ago. And that has become one of the largest contributors to our financing business growth, and highly successful. In that arena, those experienced loan originators that are coming into the system, whether they have their own boutique firms, in a couple of instances that we acquired, or were at other brands or independent originators are really finding the ability to collaborate with our sales force and be a member of the broader Marcus & Millichap network and the benefits of getting referrals and leads and being able to do joint pitches has also been identified as a major advantage.
Mitch, to add to that, directionally, you'll start seeing the benefits of these various programs in our number of transactions per agent, which year-to-date we're up 9% to 10% on that metric. So we'll start slowly seeing an increase as a result of these three tracks.
Great. Last one, Steve, while I have you, just a clarification. It's 913,000 shares acquired or bought back year-to-date, not in the quarter, correct?
That is correct. That is correct.
Our next question is from Blaine Heck with Wells Fargo.
Can you guys talk a little bit about any other potential business lines that you might be interested in exploring at this point, whether that be maybe on the leasing side or property management or anything else that might have given some of your peers a bit more diversification or stabilization of revenue during times of volatility in the transaction market? Is that something you guys are looking into at all?
The answer is yes. Diversification and having more stable revenue streams, of course, is very important, but we view the synergies of various other businesses with our core business as equally important. For example, the expansion of our current leasing capabilities and footprint can be one of the most effective and largest needle-moving ways that the company can leverage its existing brand infrastructure and boots on the ground to ramp up additional revenue from a new business line in markets where we don't have leasing. More importantly, additional leasing professionals would collaborate with our investment sales brokers and deliver a more well-rounded overall service to the same client. We've identified that as one of the most exciting expansion opportunities, particularly for multi-tenant retail and industrial, where we have great market share, especially on the retail side. We're a leading brokerage firm by a number of deals and by volume, but there is much more potential growth within multi-tenant retail and within industrial, where we have a much smaller presence currently. These initiatives have been a priority to enhance the current value proposition, build up market share gains in our private client business and core investment brokerage, and at the same time add a logical additional revenue contributor while leveraging expenses of having the existing footprint, management capacity and offices. The other important arena for us is to keep expanding our finance division. If you look at our success with M&T Bank and the way we've been able to achieve more stable financing in the institutional arena, especially in our IPA multifamily division, building up the finance and debt placement capacity in that niche has served the company well, particularly in our ability to finance brokerage transactions. That's a key bright spot. We now have more confidence and conviction that scaling that capability can be a significant contributor to revenue and profits, and a source of diversification. Other business lines we've been interested in for quite a while are appraisal and consultation. That industry is changing with AI and technology. Nonetheless, the core need for an AI-enhanced appraisal, both for internal purposes and transaction-related appraisals, is here to stay. The process of producing those appraisals is changing dramatically. So we have an eye out for tech-enabled appraisal and consultation groups that we might acquire and scale. We've had a few M&A conversations in that space. Investment management is another arena where we believe there are significant synergies with our existing brokerage and financing business. All of this is especially relevant to the private client market and the middle quasi-institutional market, which is greatly underserved and fragmented. That comment relates to leasing, appraisals and investment management. We believe there's a lot of runway for creating external growth revenue and profit contribution channels across these areas.
Great. That's really great to hear, and I look forward to updates on those initiatives. I guess just a follow-up, what percentage of NOI or revenue do you think those business lines, leasing and financing in particular, but appraisal, investment management as well, could potentially end up contributing to overall operations?
I'm not trying to back into a predetermined percent of revenue for these explorations. However, over the next five to seven years, a significant amount of our nominal growth and diversification is likely to come from these channels. That said, Marcus & Millichap remains committed to being the premier brokerage and finance intermediary for the commercial real estate industry. Many competitors are focusing on other activities due to transaction market volatility. We are not abandoning the core reason the company exists, which is to create value for buyers and sellers and to build long-term relationships with owners of commercial assets. We see opportunities to improve our core business, gain market share and add these synergistic services. It's an integrated approach that reinforces who we are, and we want to be even bigger at it.
Great. Maybe switching over to the cost side. You guys have talked about a focus on increasing profitability through cost controls, and you've discussed the investments that you made in technology and recruiting over the past few years. Is that the main area of savings you see as you look forward? When should we expect to see that incremental margin improvement fully online? Any guidelines for trends in margins you can provide, especially related to the cost side, would be helpful.
All themes getting to increased profitability come from two aspects. One is the level of investment we're making in infrastructure and the cost of running the business. As we look at last year's revenue, $755 million got us to essentially breakeven, so revenue growth above that level creates operating leverage. We're seeing that here in Q2. So you have top-line growth creating efficiency and leverage. On the cost side, investments in infrastructure that improve workflows and processes create efficiency, whether that's with AI or additional applications and tools. We're doing a lot more in the area of data capture to improve productivity, whether in underwriting, in how proposals get done, or in how we close the books. So there's cost containment and smart investment, and then leverage generated by improved revenue at these levels and above.
One of our focuses is to redeploy current costs to new areas. We evaluate the firm formally twice a year at midpoint and year-end and use a zero-base budgeting approach to reexamine everything. We're looking to take the current cost structure and focus more capital on client-facing, lead-generating and marketing innovations that enable individual producers to operate more efficiently and effectively. That is another important aspect of our cost strategy. We continually look for ways to tighten and remove waste or duplication of effort. We have been disciplined to prevent costs from becoming runaway year-over-year. It's easy to react to a recovering market by adding staff, but it's important to use this period of recovery to rethink how we provide support at lower cost while still enabling growth.
Okay. Maybe putting it all together, you guys have shown solid improvement in revenue, NOI and EBITDA this year, but EBITDA levels are still materially off the peak levels of $150 million to $200 million we saw in 2021 and 2022. Understanding those were uniquely positive environments, do you feel like those levels are even achievable or repeatable? Do you have any sense of how long it might take to get back to whatever stabilized level is, excluding any major one-off transactions?
We have conviction that we will return to stronger profitability levels and better operating margins. The composition of how we get there is changing. A large portion of our expenses are noncash costs related to the expensing of investments we've made, predominantly on talent acquisition and retention. That's the largest cost increase when comparing 2025 to pre-pandemic periods. The timing of that investment coincided with high market volatility, so the talent we've retained and acquired hasn't operated in a normal environment. As the market improves and becomes more functional, the leveraging of expenses on revenue growth will make a material difference, as Steve mentioned. It's important to analyze where expense increases occur and whether there's an ROI for each line item. The composition of our P&L has changed over the last five to seven years, so focus on revenue per agent and ROI per expense category becomes essential to determine how fast we can reach the pretax levels you referenced. We may also achieve profitability by adding other revenue streams since it costs more to be competitive in investment brokerage now than it did previously.
There are no further questions at this time. I would like to hand the floor back over to Hessam Nadji for any closing remarks.
Thank you, operator, and thank you for joining our second quarter earnings call. We look forward to seeing a lot of you on the road and to have you back on our next call. The session is adjourned.
This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.