Q2 2024 Marcus & Millichap Inc Earnings Call
Speaker Change: Greetings and welcome to Marcus & Millichap's 2nd Quarter 2024 Earnings Conference Call.
Operator: for Owning's conference call. As a reminder, this call is being recorded.
Operator: I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin.
Speaker Change: As a reminder, this call is being recorded.
Speaker Change: I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin.
Jacques Cornet: Thank you, operator. Good morning.
Operator: Thank you, operator. Good morning.
Jacques Cornet: Welcome to Marcus & Millichap's second quarter 2024 earnings conference. 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. In addition, certain financial information presented on this call represents non-GAAP financial measures. This conference call is being webcast. The webcast link is available in 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. Thank you, Jacques.
Jacques Cornet: Welcome to Marcus & Millichap's second quarter 2024 earnings conference call. With us today, a President and Chief Executive Officer, Assam Nadji, a 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, made competitive pressures, and the company's ability to integrate new agents and sustain its growth.
Speaker Change: Thank you, operator. Good morning. Welcome to Marcus & Millichap's second quarter 2024 earnings conference call.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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,
Speaker Change: The company's ability to retain its business philosophy and partnership culture amid competitive pressures.
Jacques Cornet: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
Jacques Cornet: 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's being webcast.
Speaker Change: In addition, certain financial information presented on this call represents non-GAAP financial measures.
Speaker Change: 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.
Jacques Cornet: 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.
Hessam Nadji: With that, it is my pleasure to turn the call over to CEO Hassan 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 $150 million, with adjusted EBITDA of $1.4 million, and a net loss of $5.5 million. This primarily reflects the ongoing headwinds of bid-aft 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.
Hessam Nadji: 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 a 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 a net loss of $5.5 million.
Jacques Cornet: Thank you, Jacques. On behalf of the entire Marcus & Millichap team, good morning and welcome to our second quarter earnings call.
Speaker Change: As anticipated, the company faced a challenging quarter due to the lingering impact of a higher-for-longer stance on interest rates by the Federal Reserve.
Hessam Nadji: This primarily reflects the ongoing headwinds of bid-ask spreads and constrained finances. 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. We saw capital reentering the market, and momentum gained throughout the quarter, driven by price adjustments from peak and in comparison to replacement costs.
Hessam Nadji: 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 sell a 23% sequential revenue gain over the first quarter, conferred to just 5% sequential growth achieved in Q2 2023. Your 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.
Speaker Change: Internally, these include measurable growth in our new inventory and price adjustments that are more reflective of the current market.
Speaker Change: We also saw a 23% sequential revenue gain over the first quarter, compared to just 5% sequential growth achieved in Q2 2023.
Speaker Change: 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.
Speaker Change: 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.
Hessam Nadji: We saw capital re-entering 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 building. In many cases, investors are paying all cash for relying on short-term financing to secure well-priced opportunities with a 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.
Speaker Change: We saw capital re-entering the market gain momentum throughout the quarter, driven by price adjustments from peak and in comparison to replacement costs.
Hessam Nadji: Many investors are recognizing attractive entry points for assets given the incredible difficulty many markets are showing and the higher cost of building. 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.
Speaker Change: Many investors are recognizing attractive entry points for assets given the incredible difficulty many markets are showing and the higher cost of building.
Speaker Change: 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.
Hessam Nadji: 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 bit-asked spreads and securing financing, but much progress has been made toward equilibrium.
Speaker Change: This is not to say that the map 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.
Hessam Nadji: 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 broker 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.
Hessam Nadji: 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.
Speaker Change: 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.
Speaker Change: In this challenging environment, we closed over 1,200 brokerage transactions and $7.2 billion in volume.
Speaker Change: 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.
Hessam Nadji: 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, but this is relative to the severe drop off in these transactions since 2022. This low pace of price discovery and low motivation to sell, especially in the single tenant net lease segment, remains a challenge. However, our financing volume increased by 11% due to a rise in large transactions and loan sales.
Speaker Change: This is relative to the severe drop-off in these transactions since 2022.
Speaker Change: Our private client business remains hampered by the limited ability or desire of local and regional banks to provide financing.
Hessam Nadji: The slow pace of price discovery and low motivation to sell, especially in the single-tenant, at least segment, remains a challenge. Bright spots include multi-tenor retail, which continues to be a clear recovering segment, manufactured housing, and self-storage. Financing transactions were down 4% as lenders remained selective, and refinancing 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 financing's value that $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.
Speaker Change: This low pace of price discovery and low motivation to sell, especially in the single tenant net lease segment, remains a challenge.
Speaker Change: Bright spots include multi-tenant retail, which continues to be a clear recovering segment, manufactured housing, and self-storage.
Speaker Change: Financing transactions were down 4% as lenders remained selective and refinancing fell sharply. However, our financing volume increased by 11% due to a rise in large transactions and loan sales.
Hessam Nadji: Our financing division achieved a 25% jump in larger financings valued at $20 million or more, led by our multi-family agency lending practice. At the macro level, decelerating inflation ratings 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 2020.
Speaker Change: Our financing division achieved a 25% jump in larger financings valued at 20 million dollars or more, led by our multifamily agency lending practice.
Hessam Nadji: 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.
Speaker Change: In this environment, our financing team closed with 146 different lenders in the quarter and 340 over the past 12 months.
Speaker Change: This is a direct result of proprietary technology investments that enable real-time deal and active lender information sharing among our network of originators.
Speaker Change: At the macro level, decelerating inflation ratings and much slower job growth during the quarter finally shifted the Fed back toward plans to start the interest rate easing cycle.
Speaker Change: 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.
Hessam Nadji: Mixed corporate earnings and software-than-expected July employment data could raise fresh concerns of our 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 head as opposed to a major layoffs for 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 a 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.
Hessam Nadji: Mixed corporate earnings and softer than expected July employment data could raise fresh concerns over a hard landing for the economy and a corresponding flight to safety. However, 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: While we expect the positive momentum and 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.
Hessam Nadji: 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.
Hessam Nadji: 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 fisting 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.
Speaker Change: 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.
Speaker Change: Our strategy to increase inventory, maintain elevated client outreach programs, and continue to incorporate best-in-class brokerage technology remains on track.
Speaker Change: During the quarter, we saw further traction in our auction business, loan sales, and synergies with strategic investment partners.
Hessam Nadji: 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 helps 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.
Speaker Change: 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.
Hessam Nadji: 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, my MMI, our client application that provides custom searches for our inventory, now both 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 a drag 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 the past.
Speaker Change: We're excited to consider additional partnership investments on a parallel path of further developing and implementing the next round of proprietary technology that helps facilitate transactions.
Speaker Change: 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.
Hessam Nadji: Expenses related to investments made in our sales force, both in retention and acquisition, were once again a drag 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 the past, 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.
Speaker Change: Expenses related to investments made in our sales force, both in retention and acquisition, were once again a drag on earnings in the near term, as revenue production is below historical trends and below potential.
Speaker Change: 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.
Hessam Nadji: We continue to successfully add experienced professionals and teams, which is offsetting the ongoing challenges our new recovery of agents in an originators' space. 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.
Speaker Change: We continue to successfully add experienced professionals and teams, which is offsetting the ongoing challenges our newer cadre of agents and originators face.
Speaker Change: The market volatility of the past several years and current headwinds are keeping our net hiring of new agents well below a normal market.
Speaker Change: The company's expanded channels for attracting and training new talent include a much larger internship program and deployment of regional recruiters.
Hessam Nadji: 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 remains significant. Our ongoing investments in business development, client engagement, branding, and industry events underscore our commitment to stay on offense during this prolonged downturn.
Speaker Change: These steps will help replenish the company's organic growth engine, especially as the employment market cools.
Speaker Change: 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.
Hessam Nadji: While the bid-ask spread on valuation in terms has improved to some degree, the near-term performance risk of target groups relative to valuations and guaranteed proceeds remains 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.
Speaker Change: 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.
Speaker Change: Our ongoing investments in business development, client engagement, branding, and industry events underscore our commitment to stay on offense during this prolonged downturn.
Hessam Nadji: 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 repurchase.
Speaker Change: 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.
Speaker Change: Our investments and platform enhancements give us confidence that we will emerge from this cycle well-positioned and stronger than ever.
Steven DeGennaro: With that, I will turn the call over to Steve for additional insights into the quarter. Steve. Thank you, Asam. As mentioned, total revenue for the quarter was $158 million compared to $163 million in the prior year quarter. For the six-month period, revenue was $287 million compared with $318 million last year. Revenue from real estate brokerage commission for the second quarter was $135 million and accounted for 86% of total revenue compared to $140 million last year, a decline of 3% year over year. Brokeridge revenue was generated on total sales volume of $7.2 billion across 1,272 transactions, down 5% and 11% respectively compared to last year.
Speaker Change: With that, I will turn the call over to Steve for additional insights into the quarter. Steve?
Hessam Nadji: As mentioned, total revenue for the quarter was $158 million, compared to $163 million in the prior year quarter. For the six-month period, revenue was $287 million, compared with $318 million last year. Revenue from the Real Estate Brokerage Commission for the second quarter was $135 million and accounted for 86% of total revenue, a decline of 3% year over year, down 5% and 11%, respectively, compared to last year.
Steve: Thank you, Hessam. As mentioned, total revenue for the quarter was $158 million, compared to $163 million in the prior year quarter. For the six-month period, revenue was $287 million, compared with $318 million last year.
Speaker Change: Revenue from Real Estate Brokerage Commission for the second quarter was $135 million and accounted for 86% of total revenue, compared to $140 million last year, a decline of 3% year-over-year.
Speaker Change: Brokerage revenue was generated on total sales volume of 7.2 billion dollars across 1,272 transactions, down 5% and 11% respectively compared to last year.
Steven DeGennaro: Year-to-date revenue from Real Estate Brokerage Commission was $245 million and accounted for 85% of total revenue compared to $275 million last year, a decline of 11% year over year. Total sales volume year-to-date was $12.8 billion across 2,347 transactions, down 13% and 12% respectively, and mostly reflecting a more challenging first quarter this year. Average transaction size during the second quarter was approximately $5.6 million, up 6% from $5.3 million a year ago, reflective of an increase in our revenue mix from middle market and larger transactions. Within Brokeridge for the quarter, a private client contributed 63% of brokerage revenue or $85 million.
Hessam Nadji: Year-to-date, revenue from the Real Estate Brokerage Commission was $245 million and accounted for 85% of total revenue, compared to $275 million last year, a decline of 11% year-over-year. Total sales volume year-to-date was $12.8 billion across 2,347 transactions, down 13% and 12%, respectively, and mostly reflecting a more challenging first quarter this year. Average transaction size during the second quarter was approximately $5.6 million, up 6% from $5.3 million a year ago, reflective of an increase in our revenue mix from middle market and larger transactions within brokerage for the quarter.
Speaker Change: Year-to-date, revenue from Real Estate Brokerage Commission was $245 million and accounted for 85% of total revenue, compared to $275 million last year, a decline of 11% year-over-year.
Speaker Change: Total sales volume year-to-date was $12.8 billion across 2,347 transactions, down 13% and 12% respectively, and mostly reflecting a more challenging first quarter this year.
Speaker Change: Average transaction size during the second quarter was approximately $5.6 million, up 6% from $5.3 million a year ago, reflective of an increase in our revenue mix from middle market and larger transactions.
Hessam Nadji: Private client contributed 63% of brokerage revenue, or $85 million. This compares to 69% and $96 million last year. Transactions in this segment were down 19% in dollar volume and 14% in transaction count compared to last year.
Speaker Change: Within brokerage for the quarter, private client contributed 63% of brokerage revenue, or $85 million. This compares to 69% and $96 million last year.
Steven DeGennaro: This compares the 69% and $96 million last year. Transactions in this segment were down 19% in dollar volume and 14% in transaction count compared to last year. Year-to-date, private client contributed 65% of brokerage revenue or $158 million versus $68 million and $187 million last year. Our middle market and larger transaction segments together accounted for 33% of brokerage revenue or $45 million during the second quarter, compared to 28% and $39 million last year. These segments combined were up 8% in dollar volume and flat in number of transactions. Year-to-date, the middle market and larger transaction segments represented 31% of brokerage revenue, or $77 million, compared to 29% and $79 million last year.
Speaker Change: Transactions in this segment were down 19% in dollar volume and 14% in transaction count compared to last year.
Hessam Nadji: Year-to-date, private client contributed 65% of brokerage revenue, or $158 million, versus 68% and $187 million last year. Our middle market and larger transaction segments together accounted for 33% of brokerage revenue, or $45 million during the second quarter, compared to 28% and $39 million last year. These segments combined were up 8% in dollar volume and flat in number of transactions.
Speaker Change: Year-to-date, private client contributed 65% of brokerage revenue, or $158 million, versus 68% and $187 million last year.
Speaker Change: Our middle market and larger transaction segments together accounted for 33% of brokerage revenue, or $45 million during the second quarter, compared to 28% and $39 million last year.
Speaker Change: These segments combined were up 8% in dollar volume and flat in number of transactions.
Speaker Change: Year-to-date, the middle market and larger transaction segments represented 31% of brokerage revenue, or $77 million, compared to 29% and $79 million last year.
Steven DeGennaro: Revenue in our financing segment, including MMCC, was $18 million during the second quarter, similar to last year. We closed 272 financing transactions totaling $1.8 billion in volume compared to 284 transactions for $1.6 billion in volume in the prior year. Financing revenue for the six months was $33 million compared to $34 million last year. We closed 506 financing transactions year-to-date totaling $3.5 billion in volume compared to 563 transactions for $3.4 billion in volume last year. Fees from refinancing accounted for 32% of loan originations in the quarter compared to 61% last year. Year-to-date, refinancing fees were 40% of loan originations compared to 54% last year.
Hessam Nadji: Revenue in our financing segment, including MMCC, was $18 million during the second quarter, similar to last year. We closed 272 financing transactions totaling $1.8 billion in volume compared to 284 transactions for $1.6 billion in volume in the prior year. Financing revenue for the six months was $33 million, compared to $34 million last year. We closed 506 financing transactions year-to-date, totaling $3.5 billion in volume, compared to 563 transactions for $3.4 billion in volume last year.
Speaker Change: Revenue in our financing segment, including MMCC, was $18 million during the second quarter, similar to last year.
Speaker Change: We closed 272 financing transactions totaling $1.8 billion in volume compared to 284 transactions for $1.6 billion in volume in the prior year.
Speaker Change: Financing revenue for the six months was $33 million compared to $34 million last year.
Speaker Change: We closed 506 financing transactions year-to-date, totaling $3.5 billion in volume, compared to 563 transactions for $3.4 billion in volume last year.
Speaker Change: Fees from refinancing accounted for 32% of loan originations in the quarter compared to 61% last year.
Speaker Change: Year-to-date, refinancing fees were 40% of loan originations compared to 54% last year.
Steven DeGennaro: The first half of the year showed lower than average refinancing activity, given the difficulty investors are facing upon loan maturity. Loan extensions and workouts by lenders are other factors lowering refinancings in the near term. Other revenue comprised primarily of leasing, consulting, and advisory fees was $4.6 million during the second quarter. Flat compared to last year. Year-to-date, other revenue was $9.9 million this year compared to $8.5 million last year. Shifting to expenses, total operating expenses for the second quarter were $166 million, 4% lower than last year. While on a year-to-date basis, total operating expenses of $316 million were 8% lower compared to the same period a year ago.
Speaker Change: The first half of the year showed lower-than-average refinancing activity given the difficulty investors are facing upon loan maturity. Loan extensions and workouts by lenders are other factors lowering refinancings in the near term.
Speaker Change: Other revenue, comprised primarily of leasing, consulting, and advisory fees, was $4.6 million during the second quarter, flat compared to last year.
Speaker Change: Year-to-date, other revenue was $9.9 million this year compared to $8.5 million last year.
Speaker Change: Shifting to expenses, total operating expenses for the second quarter were $166 million, 4% lower than last year, while on a year-to-date basis, total operating expenses of $316 million were 8% lower compared to the same period a year ago.
Steven DeGennaro: The improvement in expenses is principally the result of lower variable expenses directly attributable to revenue and cost containment efforts. Breaking down the expense components further, cost of services was $98 million or 61.9% of total revenue compared to 62.1% in the second quarter last year. Year-to-date, cost of services was $175 million or 60.9% of total revenue and an improvement of 100 basis points over the same period last year. last year. SG&A during the quarter was $65 million, lower by 6% year over year. On a year-to-date basis, SG&A was $134 million, 5% lower compared to last year.
Hessam Nadji: The improvement in expenses is principally the result of lower variable expenses directly attributable to revenue and cost containment efforts. Breaking down the expense components further, the cost of services was $98 million, or 61.9% of total revenue, compared to 62.1% in the second quarter last year. SG&A during the quarter was $65 million, lower by 6% year over year. On a year-to-date basis, SG&A was $134 million, 5% lower compared to last year. The effective tax rate for the quarter reflects the change necessary to bring the year-to-date rate into alignment with the rate we expect for the full year.
Speaker Change: The improvement in expenses is principally the result of lower variable expenses directly attributable to revenue and cost containment efforts.
Speaker Change: Breaking down the expense components further, cost of services was $98 million, or 61.9% of total revenue, compared to 62.1% in the second quarter last year.
Speaker Change: Year-to-date cost of services was $175 million, or 60.9% of total revenue, an improvement of 100 basis points over the same period last year.
Speaker Change: On a year-to-date basis, SG&A was $134 million, 5% lower compared to last year.
Steven DeGennaro: The changes are primarily due to a reduction in marketing support tied to prior year revenue and continued balancing of key investments with prudent expense reductions. For the second quarter, we reported a net loss of $5.5 million, or $0.14 cents per share, compared to a net loss of $8.7 million, or $0.23 cents per share last year. For the six-month period, the net loss was $15.5 million or $0.40 cents per share compared to a net loss of $14.6 million or $0.37 cents per share in the same period last year. For the quarter, adjusted EBITDA increased to a positive $1.4 million compared to a loss of $1.1 million in the prior year.
Speaker Change: The changes are primarily due to a reduction in marketing support tied to prior year revenue and continued balancing of key investments with prudent expense reductions.
Speaker Change: For the second quarter, we reported a net loss of $5.5 million, or $0.14 per share, compared to a net loss of $8.7 million, or $0.23 per share, last year.
Speaker Change: For the six-month period, the net loss was $15.5 million, or $0.40 per share, compared to a net loss of $14.6 million, or $0.37 per share, in the same period last year.
Speaker Change: For the quarter, adjusted EBITDA increased to a positive $1.4 million compared to a loss of $1.1 million in the prior year.
Steven DeGennaro: For the six-month period, adjusted EBITDA was negative $8.6 million, essentially flat compared to the prior year. The effective tax rate for the quarter reflects the change necessary to bring the year-to-date rate into alignment with the rate we expect for the full year. As we've discussed on prior calls, the tax rate can fluctuate quarter to quarter depending on the relationship between expenses that are non-deductible for tax purposes to projected pre-tax income for the full year. Our expected tax rate should settle into a range of 15 to 17% for the remainder of the year.
Speaker Change: For the six-month period, adjusted EBITDA was negative $8.6 million, essentially flat compared to the prior year.
Speaker Change: The effective tax rate for the quarter reflects the change necessary to bring the year-to-date rate into alignment with the rate we expect for the full year.
Hessam Nadji: As we've discussed on prior calls, the tax rate can fluctuate quarter to quarter depending on the relationship between expenses that are non-deductible for tax purposes to projected pre-tax income for the full year. Our expected tax rate should settle into a range of 15-17% for the remainder of the year.
Speaker Change: As we've discussed on prior calls, the tax rate can fluctuate quarter to quarter depending on the relationship between expenses that are non-deductible for tax purposes to projected pre-tax income for the full year.
Speaker Change: Our expected tax rate should settle into a range of 15-17% for the remainder of the year.
Steven DeGennaro: Moving over to the balance sheet, we continue to be well-capitalized with no debt and $336 million in cash equivalents and marketable securities. That's a modest change from the prior quarter's balance of $346 million and includes returning $10 million in capital to shareholders through a dividend we paid in April. Continuing on that theme, last week, our board declared the next semiannual dividend of $0.25 per share, payable on October 4th to shareholders of record as of September 16th. In total, we have returned more than $160 million in capital to shareholders since initiating our dividend and share repurchase programs a little more than two years ago.
Hessam Nadji: Moving over to the balance sheet, we continue to be well capitalized with no debt and $336 million in cash, cash equivalents, and marketable security. We remain committed to a balanced, long-term capital allocation strategy. This includes a combination of investing in technology, recruiting and retaining top producers, strategic acquisitions, and returning capital to shareholders. Looking forward, as Hessam touched on, an expected rate cut from the Fed may serve as a near-term catalyst to reinvigorate real estate dealmaking and provide much-needed clarity for price discovery and stabilization.
Speaker Change: Moving over to the balance sheet, we continue to be well capitalized with no debt and $336 million in cash, cash equivalents, and marketable securities.
Speaker Change: That's a modest change from the prior quarter's balance of $346 million and includes returning $10 million in capital to shareholders through a dividend we paid in April .
Speaker Change: Continuing on that theme, last week our board declared the next semi-annual dividend of 25 cents per share payable on October 4th to shareholders of record as of September 16th.
Speaker Change: In total, we have returned more than $160 million in capital to shareholders since initiating our dividend and share repurchase programs a little more than two years ago.
Steven DeGennaro: We remain committed to a balanced long-term capital allocation strategy. This includes a combination of investing in technology, recruiting and retaining top producers, strategic acquisitions, and returning capital to shareholders. Looking forward, as Asam touched on, an expected rate cut from the Fed may serve as a near-term catalyst to reinvigorate real estate deal-making and provide much-needed clarity for price discovery and stabilization. That said, the recovery of transactional activity will take time to positively benefit our results. Given these dynamics, our near-term outlook is cautiously optimistic as we anticipate a shift in Fed policy. As the remainder of the year unfolds, we remain disciplined in our investments and expense management.
Speaker Change: We remain committed to a balanced, long-term capital allocation strategy.
Speaker Change: This includes a combination of investing in technology, recruiting and retaining top producers, strategic acquisitions, and returning capital to shareholders.
Speaker Change: Looking forward, as Hesam touched on, an expected rate cut from the Fed may serve as a near-term catalyst to reinvigorate real estate dealmaking and provide much needed clarity for price discovery and stabilization.
Hessam Nadji: That said, the recovery of transactional activity will take time to positively benefit our results. Cost of services as a percentage of revenue for the third quarter should follow the usual pattern as revenue builds through the year and moves sequentially higher than the second quarter. We remain committed to client engagement, industry leadership, technological advances, and investments in talent, systems, and market coverage. These investments over the past two years will benefit our ability to drive results as the market recovers. With that, operator, we can now open up the call for Q&A.
Hessam: That said, the recovery of transactional activity will take time to positively benefit our results.
Hessam: Given these dynamics, our near-term outlook is cautiously optimistic as we anticipate a shift in Fed policy.
Speaker Change: As the remainder of the year unfolds, we remain disciplined in our investments and expense management.
Steven DeGennaro: Cost of services as a percentage of revenue for the third quarter should follow the usual pattern as revenue builds through the year and moves sequentially higher than the second quarter. S.GNA is expected to increase in Q3 over Q2 due to seasonal, internal, and client-related events. As I touched on earlier, our tax rate is expected to be in the range of 15-17% for the remainder of the year. While there is no doubt that the Fed's higher-for-longer interest rate policy has extended this market disruption, our focus on clients and improving our platform has been unwavering. We remain committed to client engagement, industry leadership, technological advances in investments in talent, systems, and market coverage.
Speaker Change: Cost of services as a percentage of revenue for the third quarter should follow the usual pattern as revenue builds through the year and moves sequentially higher than the second quarter.
Speaker Change: SG&A is expected to increase in Q3 over Q2 due to seasonal, internal, and client-related events.
Speaker Change: As I touched on earlier, our tax rate is expected to be in the range of 15-17% for the remainder of the year.
Speaker Change: While there is no doubt that the Fed's Higher for Longer interest rate policy has extended this market disruption, our focus on clients and improving our platform has been unwavering.
Speaker Change: We remain committed to client engagement, industry leadership, technological advances and investments in talent, systems, and market coverage.
Steven DeGennaro: These investments over the past two years will benefit our ability to drive results as the market recovers.
Speaker Change: These investments over the past two years will benefit our ability to drive results as the market recovers.
Operator: With that, operator, we can now open up the call for Q&A. Thank you.
Speaker Change: With that, Operator, we can now open up the call for Q&A.
Operator: Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we pull for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.
Operator: If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star and 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Blaine Heck: Our first question is from the line of Blaine Heck with Wells Fargo. Please go ahead. Great. Thanks. Good morning.
Speaker Change: Our first question is from the line of Blaine Heck with Wells Fargo. Please go ahead.
Blaine Heck: Great, thanks. Good morning. Hessam, could you talk a little bit more about the relative kind of resiliency and transaction volume in the different size segments, especially in the private market segment, which saw transaction revenue down 12% year over year, while the middle and larger market revenues grew pretty significantly. I think, you know, I think you mentioned difficulty in obtaining financing, but that seems to be affecting all of the size groups. So just a little bit more on how that's playing out and also how you think the trajectory of the recovery could differ there from the larger segments, if at all. Good morning, Blaine.
Hessam Nadji: Have some. Can you talk a little bit more about the relative kind of resiliency and transaction volume in the different five segments, especially in the private market segment, which saw a transaction revenue down 12% year by year, while the middle and larger market revenues grew pretty significantly. I think you mentioned difficulty in obtaining financing, but that seems to be affecting all the science groups.
Blaine Heck: Great, thanks. Good morning. Hessam, can you talk a little bit more about the relative kind of resiliency and transaction volume in the different size segments?
Speaker Change: Especially in the private market segment, which saw transaction revenue down 12% year-over-year.
Speaker Change: while the middle and larger market revenues...
Hessam Nadji: Just a little bit more on how that's playing out and also how you think the trajectory of the recovery could differ there from the larger segments, if at all. Good morning, Blaine. Happy to address that. As I've shared in the past, this particular market disruption, testament, especially difficult for the smaller transactions and the private client segment for two reasons. One, it has to do with the fact that we did have a banking crisis in spring of 2023 and that further pressure banks and credit unions to pull out of the market or price themselves out of the market, which is really the bread and butter of financing sources for micro-cap transactions.
Hessam Nadji: Happy to address that. As I've shared in the past, this particular market disruption has been especially difficult for smaller transactions and the private client segment for two reasons. One, it has to do with the fact that we did have a banking crisis in the spring of 2023, and that further pressured banks and credit unions to pull out of the market or price themselves out of the market, which is really the bread and butter of financing sources for micro-capital transactions.
Hessam: Good morning, Blaine. Happy to address that.
Hessam: As I've shared in the past, this...
Speaker Change: This particular market disruption has been especially difficult for the smaller transactions and the private client segment for two reasons. One, it has to do with the fact that we did have a banking crisis.
Hessam Nadji: That affected both the market and our business more than usual. And the second is price discovery, in that the degree of uncertainty that the market has been facing since the beginning of this disruption. Smaller apartments have become more stable in valuations after this painful period of price adjustment, and we're starting to see that segment move a little quicker.
Speaker Change: in spring of 2023, and that further pressured banks.
Speaker Change: and Credit Unions to pull out of the market or price themselves out of the market.
Hessam Nadji: That effect is both the market and our business more than usual. And the second is price discovery in that the degree of uncertainty that the market has been facing since the beginning of this disruption has been so severe, and the underwriting and the moving target of valuation has been such a hurdle for viewmaking that we saw a much larger portion of our typical private client trading clients go on the sideline and wait for more clarity. That continues to play out, and there has been a resistance to selling at a discount, certainly for the first 12 months of this disruption, and even in the last six months or so, and at slowly starting to change as the values reset.
Speaker Change: which is really the bread and butter of financing sources for micro-cap transactions.
Speaker Change: That affected both the market and our business more than usual. And the second is price discovery, in that the degree of uncertainty that the market has been facing since the beginning of this disruption.
Speaker Change: has been so severe.
Speaker Change: And the underwriting and the moving target of valuation has been such a hurdle for deal-making that we saw a much larger portion of our typical private client trading clients go on the sideline.
Speaker Change: and wait for more clarity. That continues to play out.
Speaker Change: and there has been a resistance to selling at a discount.
Speaker Change: certainly for the first 12 months of this disruption and even even in the last you know six months or so
Speaker Change: And that's slowly starting to change as the values reset.
Hessam Nadji: And usually we see a little bit more rapid response to realism in most downturns. This one has been particularly slow. Those are the reasons the private client segment has been more challenged than what we've seen in previous cycles. On the middle market and the larger transactions. Of course, there were impacted severity as well. What we are seeing is more assets come to market that are larger, at more reasonable price prices, and therefore a bigger discount from where we have been. And because of some of the catalysts that I talked about in my formal remarks, bringing more product to market, bringing more of those sellers to market, we saw an uptake in those segments for the quarter.
Speaker Change: And usually we see a little bit more rapid response to realism.
Speaker Change: In most downturns, this one has been particularly slow. Those are the reasons the private client segment has been more challenged than what we've seen in previous cycles. On the middle market and the larger transactions...
Speaker Change: Of course, they were impacted severely as well. What we're seeing is more assets come to market that are larger.
Speaker Change: at more reasonable prices, and therefore a bigger discount from where we've been. And because of some of the catalysts that I talked about on my formal remarks,
Speaker Change: Bringing more product to market, bringing more of those sellers to market, we saw an uptick in those segments for the quarter. I anticipate that to continue.
Hessam Nadji: I anticipate that to continue, and for the private client portion of the business to have to catch up as all the effects of lower interest rates, the price resetting worked their way through the market. One last commentary, Blaine, in analyzing all this all the time within the company's information and for the market, this single tenant and net lease segment in particular has been hit hard with the price dislocation, and of course, financing, as I mentioned, through banks and credit unions. And that, as a large component of our business, smaller apartments have become more stable in valuations after this painful period of the price adjustment, and we're starting to see that segment move a little quicker.
Speaker Change: And for the private client portion of the business, they have to catch up as all the effects of lower interest rates, the price resetting, work their way through the market.
Speaker Change: One last commentary, Blaine, in analyzing all this, all the time, within the company's information and for the market. The single tenant in that lease...
Blaine Heck: segment in particular has been hit hard with the price dislocation and of course financing as I mentioned through banks and credit unions and that as a large component of our business
Blaine Heck: Smaller apartments have become more stable in valuations after this painful period of the price adjustment, and we're starting to see that segment move a little quicker.
Steve: Blaine, this is Steve. One additional point there: in addition to those larger assets coming to market at more reasonable prices, institutional buyers have got stockpiles of cash and don't necessarily need financing, or if they do, they've got cash to put down in the near term and potentially refinancing in the future.
Hessam Nadji: Blaine, this is the one additional point there. In addition to those larger assets coming to market at more reasonable prices, institutional buyers have got stockpiles of cash and don't necessarily need financing, or if they do, they've got cash to put down in the near term and potentially refinancing in the future.
Blaine Heck: Blaine, this is Steve. One additional point there, in addition to those larger assets coming to market at more reasonable prices,
Blaine Heck: the institutional buyers.
Blaine Heck: have got stockpiles of cash and don't necessarily need financing, or if they do, they've got cash to put down in the near term and potentially refinancing in the future.
Blaine Heck: Great, very helpful color. And it seems as though you have more optimism that the transaction market is on the road to improving in the near future than you have in past calls.
Blaine Heck: Great, very helpful color. And it seems as though you have more optimism that the transaction market is on the road to improving in the near future than you have in past calls. Can you talk about maybe whether distressed transactions are part of that potential surge, or are we kind of past the breaking point for some of those potentially distressed sellers, and maybe less distressed than, you know, was expected is actually going to occur? Sure, happy to discuss, Blaine.
Blaine Heck: Great. Very helpful, Keller. And it seems as though you have more optimism that the transaction market is on the road to improving in the near future than you have in past calls. Can you talk about that? Sure.
Hessam Nadji: Can you talk about maybe whether distress transactions are part of that potential surge or we kind of pass the breaking point for some of those potentially distress sellers and maybe less distress than was expected is actually going to occur? Sure, happy to address, Blaine. We definitely see more distress situations come to market. We expect more of that will occur looking forward. But the real needle mover is not going to be distress in large volume. What we're seeing is more client-driven, asset-driven distress that is becoming more and more common across the country and across different property types, particularly office, of course, multi-family, because the large portion of the market had been very aggressively underwritten with short-term debt.
Speaker Change: Maybe whether distress transactions are part of that potential surge or are we kind of past the breaking point for some of those potentially distress sellers and maybe less distress than You know was expected is actually going to to occur
Hessam Nadji: We definitely see more distress situations come to the market, and we expect more of that will occur in the future. But the real needle mover is not going to be distress in large volume, that is becoming more and more common across the country and across different property types, particularly office, of course, and multifamily, because a large portion of the market had been very aggressively underwritten with short-term debt. And to some extent, older shopping centers are still having some issues, even though the multi-tenant retail segment is clearly in recovery, as I mentioned in my formal remarks.
Blayne: Sure, happy to address, Blaine. We definitely see more distress situations come to market. We expect more of that will occur looking forward. But the real needle mover is not going to be distress in large volume.
Blayne: What we're seeing is more...
Blayne: client-driven, asset-driven distress.
Blayne: that is becoming more and more common across the country and across different property types, particularly office, of course, multifamily, because a large portion of the market had been very aggressively underwritten with short-term debt.
Hessam Nadji: To some extent, older shopping centers are still having some issues, even though the multi-tenant retail segment is clearly on recovery, as I mentioned in my formal remarks. Therefore, the real needle mover going forward on transaction activity is going to be lower interest rates and the resetting of values, which, on a more broad scale, we believe will bring more product to market and more realistic pricing along with that product coming to market. What's really important to keep in mind, though, is that the domino effect of lower interest rates, the price reset, and more realistic timelines by a lot of our clients bring in product to market, take time to ribble through the process for our business.
Blayne: And to some extent, older shopping centers are still having some issues, even though the multi-tenant retail segment is clearly on recovery, as I mentioned in my formal remarks.
Hessam Nadji: Therefore, the real needle mover going forward on transaction activity is going to be lower interest rates and the resetting of values, which, on a more broad scale, we believe will bring more product to market and more realistic pricing along with that product coming to market. What's really important to keep in mind, though, is that the domino effect of lower interest rates, the price reset, and more realistic kinds of timelines by a lot of our clients bringing products to market takes time to ripple through the process for our business.
Blayne: Therefore, the real needle mover going forward on transaction activity is going to be lower interest rates and the resetting of values.
Blayne: which, on a more broad scale, we believe will bring more product to market and more realistic pricing, along with that product, coming to market.
Speaker Change: What's a
Speaker Change: And what's really important to keep in mind though is that the domino effect
Speaker Change: of
Speaker Change: Lower interest rates, the price reset.
Speaker Change: And more realistic, you know, kind of timelines by a lot of our clients bringing product to market. Take time to ripple through the process for our business. We do have a multi-month process for marketing.
Hessam Nadji: We do have a multi-month process for marketing assets, selecting the right buyer, securing the financing, and closing. So, it's not an immediate effect; there's a ripple effect, and the domino process that we had hoped would start by April, May, June of this year, with the Fed starting to ease, clearly got delayed. Therefore, the second half of the year, projections that the industry had, and we certainly shared with a lot of optimism that the Fed would act much sooner, just simply got delayed.
Hessam Nadji: We do have a multi-month process for marketing assets, selecting the right buyer, securing the financing, and closing. So it's not an immediate effect; there's a ripple effect. And the domino effect that we had hoped would start by April, May, June of this year with the Fed starting to ease has clearly been delayed, and therefore the second half of the year. Okay, great. That's helpful.
Speaker Change: assets, selecting the right buyer, securing the financing, and closing.
Speaker Change: So, it's not an immediate effect, there's a ripple effect. And the domino process that we had hoped would start by April , May, June of this year, with the Fed starting to ease, clearly got delayed. And therefore, the second half of the year...
Speaker Change: projections that the industry had and we certainly shared it with a lot of optimism that the Fed would act much sooner. It just simply got delayed.
Blaine Heck: Okay, great. That's helpful.
Blaine Heck: Just shifting gears, can you give us a little bit more color on any additional external growth opportunities you guys might be exploring, how far along any of those discussions might be, and really how you think about that recent performance that you mentioned, which may be the threat versus, you know, the optimism it seems you have for increased transactions going forward. I guess, you know, is the issue just that they are asking for a valuation based on normalized operations, even though there's kind of a risk to that forecast?
Blaine Heck: Just shifting gear, you know, give us a little bit more color on any additional external growth opportunities. You guys might be exploring how far along any of those discussions might be. And really how you think about that recent performance that you mentioned, you know, these groups are having, which may be depressed versus, you know, the optimism it seems you have for increased transactions going forward. I guess, you know, it's the issue just that they are asking for evaluation based on normalized operations, even though there's, there's kind of a risk to that forecast. Maybe just explain that a little bit more.
Speaker Change: Okay, great. That's helpful. Just shifting gears, you know, can you give us a little bit more color on any additional external growth opportunities you guys might be exploring, how far along any of those discussions might be, and really how you think about that recent performance that you mentioned?
Speaker Change: you know, these groups are having, which may be depressed versus...
Blaine Heck: Maybe just explain that a little bit more. It turned out to be the right decision for the firm in that we had bought into some of their optimism and some of their forecasting based on pipelines, by the way, verified pipelines. And a lot of relationships have been developed through these multiple dialogues over the past 12 to 18 months that we're still very much keeping alive. There will come a time when these expectations on our side and their side should come into alignment. Unfortunately, we just haven't gotten to the point yet where we can announce some deals. But the effort is clearly there, I can tell you that.
Speaker Change: You know, the optimism it seems you have for increased transactions going forward, I guess, you know, it's the issue just that they are asking for valuation based on normalized operations, even though there's kind of a risk to that forecast. Maybe just explain that a little bit more.
Hessam Nadji: Sure, happy to. We have seen more reasonable evaluation expectations. There has definitely been movement on that, where we have been very challenged in several conversations. Is the mix between the guaranteed portion evaluation and uncertainty related to near-term forecast looking back at some of these conversations a year ago. And the fact that we were uncomfortable moving forward with what appeared to be a best final with some of the groups who were talking to turn out to be the right decision for the firm in that had we bought into some of their optimism and some of their forecasting based on pipelines.
Speaker Change: Sure, happy to. We have seen more reasonable valuation expectations. There has definitely been movement on that where we have been very challenged in several conversations.
Speaker Change: is the mix between the guaranteed portion of valuation and the uncertainty related to near-term forecast. Looking back at some of these conversations a year ago.
Speaker Change: and the fact that we were uncomfortable moving forward with what appeared to be a best and final with some of the groups who we're talking to.
Speaker Change: Turned out to be the right decision for the firm in that had we bought into some of their optimism and some of their forecasting based on pipelines, by the way, verified pipelines.
Hessam Nadji: By the way, verified pipeline. The near term impact on the company would have been negative. Of course, we're thinking long term; we're thinking about, you know, one plus one equals three and how cultures fit and what the synergies are, and so on and so forth, but nonetheless, in this highly uncertain environment. We've really been the guardians of the company's capital on our shareholders' capital in a way that just didn't get to a point of comfort with the near-term risk and the guaranteed portion of those valuation. And that's where we're still to some extent stuck, but what's encouraging is the interest some of these targets continue to have in being a part of our organization, and a lot of relationships have been developed through these multiple dialogues over the past 12 to 18 months.
Speaker Change: The near-term impact on the company would have been negative. Of course, we're thinking long-term, we're thinking about, you know, 1 plus 1 equals 3, and how cultures fit, and what the synergies are, and so on and so forth. But nonetheless, in this highly uncertain environment,
Speaker Change: We've really been the guardians of the company's capital and our shareholders' capital in a way that just didn't get to a point of comfort with the near-term risk and the guarantee portion of those valuations.
Speaker Change: And that's where we're still, to some extent, stuck.
Speaker Change: But what's encouraging is the interest some of these targets continue to have in being a part of our organization.
Speaker Change: And a lot of relationships have been developed through these multiple dialogues over the past
Hessam Nadji: That we're still very much keeping alive. There will come a time where these expectations on our side and their side should come into alignment. Unfortunately, we just haven't gotten to that point yet to where we can announce the deals, but the effort is clearly there. I can tell you that.
Speaker Change: You know, 12 to 18 months that we're still very much keeping alive. There will come a time where these expectations on our side and their side should come into alignment. Unfortunately, we just haven't gotten to that point yet to where we can announce some deals. But the effort is clearly there, I can tell you that.
Blaine Heck: Great.
Blaine Heck: Great. So I guess lastly, that begs the question, you know, how do you feel about share repurchases? You didn't do any during the quarter. Was that more a function of just trying to keep liquidity for other potential transactions or more of a pricing issue? I guess any color there would be helpful.
Steven DeGennaro: So I guess lastly, that begs the question: you know, how do you feel about share repurchases? Did you do any during the quarter? Was that more a function of just trying to keep with liquidity for other potential transactions, or more of a pricing issue? I guess any color there would be helpful. Yeah, Blaine. This is Steve. Of course, share repurchases, along with dividends, are a significant part of our capital allocation strategy, along with technology investments and other investments in the platform. And I guess I would say that the how we allocate the capital is constantly evolving in times like this when we're not generating as much cash as we would in normal times.
Speaker Change: Great. So I guess lastly, that begs the question, you know, how do you feel about share repurchases? You didn't do any during the quarter.
Speaker Change: Was that more a function of just trying to keep liquidity for other potential transactions or more of a pricing issue? I guess any color there would be helpful.
Steve: Yeah, Blaine. This is Steve. Of course, share repurchases, along with dividends, are a significant part of our capital allocation strategy, along with technology investments and other investments in the platform. And I guess I would say that how we allocate capital is constantly evolving. In times like this, when we're not generating as much cash as we would in normal times, we dial those elements up and down. Share repurchases, a perfect example. We're a little bit more opportunistic there, and we've just chosen to be out of the market at the moment as we direct our investments to our dollars to other investments internally.
Steve: Yeah, Blaine, this is Steve. Of course, share repurchases, along with dividends, are a significant part of our capital allocation strategy, along with technology investments and other investments in the platform.
Speaker Change: And I guess I would say that...
Speaker Change: How we allocate the capital is constantly evolving. In times like this, when we're not generating as much cash as we would in normal times,
Steven DeGennaro: You know, we dial those elements up and down, share repurchases. Perfect example. We're a little bit more opportunistic there, and we've just chosen to be out of the market at the moment as we direct our investments to our dollars to other investments internally. Of course, we did just we continue to pay dividend. We paid a dividend in in in April. The board just declared another dividend payable in October. So it's really moving the levers and the dials, and as it specifically relates to repurchases being offered. Thank you, Mr. President. Great. Very helpful. Thanks, guys. Thank you.
Speaker Change: We dial those elements up and down. Share repurchases, perfect example.
Speaker Change: We're a little bit more opportunistic there, and we've just chosen to be...
Speaker Change: out of the market at the moment as we direct our investments, our dollars, to other investments internally.
Steve: Of course, we continue to pay dividends. We paid a dividend in April, and the board just declared another dividend payable in October. So it's really moving the levers and the dials, and as it specifically relates to repurchases, being opportunistic.
Speaker Change: Of course, we continued to pay a dividend. We paid a dividend in April . The board just declared another dividend.
Speaker Change: payable in in October . So it's really moving the levers and the and the dials and as it specifically relates to repurchases being opportunistic.
Blaine Heck: All right, great. Very helpful. Thanks, guys.
Operator: Thank you. Thank you, Blaine. As there are no further questions, I will now hand the conference over to Hessam Nadji, President and Chief Executive Officer, for closing comments.
Blaine Heck: Thank you, Blaine.
Speaker Change: All right, great. Very helpful. Thanks, guys.
Hessam Nadji: As there are no further questions, I would now hand the conference over to Hessam Nadji, President and Chief Executive Officer, for closing comments. Thank you, operator. And thank you, everybody, for joining our call.
Speaker Change: Thank you, Blaine.
Speaker Change: As there are no further questions, I would now hand the conference over to Hessam Nadji, President and Chief Executive Officer, for closing comments.
Hessam Nadji: Thank you, operator, and thank you, everybody, for joining our call. We look forward to seeing many of you on the road and to have you back on our next earnings call. This session is adjourned.
Hessam Nadji: We look forward to seeing many of you on the road and to have you back on our next earnings call. This session is adjourned. Thank you.
Hessam Nadji: Thank you operator and thank you everybody for joining our call. We look forward to seeing many of you on the road and to have you back on our next hearings call. This session is adjourned.
Operator: The conference of Marcus & Millichap has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Music Thank you for watching!