Greetings and welcome to Marcus & Millichap's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference being recorded. I would now like to turn the conference over to your host, Tom Shearer. Thank you. You may begin.

Good morning and welcome to Marcus & Millichap's second quarter 2021 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 those words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking 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 and the competitive pressures, the company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public financial filings, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance these 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 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 is being webcast. The webcast link is available on the Investor Relations section of our 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, Tom. On behalf of the entire Marcus & Millichap team, good morning and welcome to our second quarter 2021 earnings call. We're very pleased to report the highest revenue and earnings quarter in the 50-year history of Marcus & Millichap. The key milestones for the second quarter include revenue of $285 million, over $32 million of net income, adjusted EBITDA margin of 17% as well as year-over-year revenue growth of 143%. More importantly, our revenue and earnings outpaced the second quarter of 2019 by 36% and 48% respectively. We take great pride in these results, especially relative to the pre-pandemic market environment, but I'd like to point out the importance of the foundation that has been built to make these numbers possible. In the second quarter, MMI closed nearly 3,300 total transactions, which is more than double the second quarter of 2020 and nearly 30% higher than the second quarter of 2019. For perspective, this is the result of exponentially more client interactions, financial analysis runs, buyer evaluations and lenders selections that our team delivered to maximize client value. For the first half of 2021, MMI closed over 5,600 transactions or approximately 45 transactions per business day. This includes just short of 4,000 brokerage transactions, which is by far more than any other firm according to third-party sources and reflects the expansive network of investor relationships, the expertise and commitment of our sales force, management and support personnel. These numbers also reflect best-of-class infrastructure and technology that helps us bring together the volume that I just discussed, of buyers and sellers, lenders and borrowers, and consumers of our research together, through one consistent client-driven platform. In light of a record-setting quarter, I'd like to express our thanks to our clients for trusting us with your real estate investment…

Thanks, Hessam. In the second quarter, we delivered all-time record revenue, adjusted EBITDA and earnings per share. While year-over-year comparables are extremely favorable, due to the impact of COVID on results in the second quarter of last year, we are most pleased with the significant growth in all areas of the business compared to the pre-pandemic second quarter of 2019. I will provide both year-over-year and 2019 comparisons, given the market disruption and to provide better perspective on our performance. Total revenue in the second quarter was $285 million, which exceeded our previous record quarter of $250 million in the fourth quarter of 2020 by 14% and also marks the first time a record quarter is falling outside the fourth quarter. For the first half of 2021, total revenues were $469 million, up 52% year-over-year and up 27% compared to the same period in 2019. Brokerage commissions for the second quarter accounted for 89% of total revenues or $253 million and grew 145% over the second quarter of 2020 and 34% compared to the second quarter of 2019. Brokerage commissions for the first half of 2021 increased 51% year-over-year and 25% over the same period in 2019. Our Private Client business remained strong and a competitive advantage, accounting for 63% of brokerage revenue for the quarter or $158 million. This is more than double the second quarter of 2020 and up 23% compared to the second quarter of 2019. Despite our leading position in the Private Client segment, we believe the fragmentation and size of this dynamic business provides further growth opportunity. Our Middle Market business accounted for 17% of brokerage revenue or $42 million and was up more than threefold year-over-year and up 55% compared to the same period in 2019. Our larger transactions business represented 18% of brokerage…

Thank you. [Operator Instructions] Our first question comes from Blaine Heck with Wells Fargo. Please proceed.

Thanks. Good morning. On previous calls, you guys have discussed some challenges in hiring due to having to conduct the - recruiting virtually and we noticed that the number of professionals decreased from the first quarter. Have you guys found that, as cities opened during the quarter, hiring has become easier or are there still some hurdles to overcome there?

Hi, Blaine. Good to have you on the call. It is easing and we're seeing some improvement in the whole continuum of both recruiting and interviewing and selecting individuals and in some states, actually, making sure that the real estate departments are operating again and issuing real estate licenses, which is another hurdle we've had to overcome because of the pandemic. So it's easing. We're definitely seeing an improvement and most of the challenges that we face with the numbers, as we had set the expectation last year, has to do with the fallout rate of the newer professionals that just can't really break through the market interruptions. That, of course, is easing very rapidly, because the market is improving and we do have extensive training and different support mechanisms in place to help folks, but it's inevitable for the fallout rate to go up in a market environment that we faced over the last 12 months.

Okay. That's very helpful. And then I'm interested in the pretty significant increase you saw in the average size of deals, both on the brokerage and financing sides of the business. Is that just reflective of maybe some segments of the market being more active than others at this point? You're seeing more volume in the mid and large-sized deals than in the Private Client segment or is it maybe even more indicative of a shift toward those larger deals for MMI in the future?

Well, it's a combination of both, Blaine, and that we did see the institutional marketplace pretty much shut down in the second quarter of last year and part of the third quarter of last year and there has been a significant release of those activities that were delayed or actually canceled. A lot of transactions were actually canceled that have come back to the marketplace. And institutions are fleshed with a lot of capital that their clients want to put to work. So there is definitely a market factor. But as I have shared with you before, a lot of our targeting of established teams and senior level experienced brokers in various segments where we don't have coverage, inherently, bring to the experts who do larger transactions. So the combination of those two factors and the same-store improvement of our IPA division, more senior Marcus & Millichap brokers that are doing larger deals, all added to the results.

Clear. Okay. That makes sense. Last one for me. Can you just talk a little bit more about the opportunities that you guys see in front of you with respect to acquisitions? I think you guys have made some solid purchases in the past few years and have grown the business thoughtfully. But it seems like large needle-moving acquisitions have been a little elusive for you guys. So can you just talk about what you see out there now and whether the timing might be right for a larger acquisition?

Sure, Blaine. One of the things I want to clarify is that there has been no resistance or concern about acquiring a larger entity that fits all the different criteria that we have for ourselves, which is mainly driven by cultural fit and making sure that the specialty or market area that the target covers is not in conflict with our existing coverage, so that we don't disrupt or cannibalize existing success, and, of course, making sure that the synergies are there and the accretion is there. If those criteria are basically met, we would acquire any sized firm. We don't really have a limitation. The nature of our business is such that the fragmentation, especially in the Private Client business, has driven a kind of a little bit of a limit as to how many firms have organized to become a scaled platforms that we can go acquire. Obviously, that's one of our competitive advantages. There are no other Marcus & Millichap's out there or even close. So by the inherent nature of the fragmented marketplace, the deals tend to be small to mid-size transactions, both on the financing side and on the brokerage side. Now having said that, we are in conversation with a number of different entities that have gone very well and we continue to pursue those. And some of them are on the larger end of the scale compared to the kinds of transactions that we've already done in the last three years.

Great. Thanks for that. That's helpful.

Thanks for being on the call, Blaine.

[Operator Instructions] There are no further questions in queue, at this time. I would like to turn the call back over to management for closing comments.

Thank you very much, operator, and thank you to everyone for joining our call. We look forward to interacting with you between now and next quarter and having you back for our third quarter earnings call. The call is adjourned.

Thank you. This does conclude today's teleconference call. You may disconnect your lines at this time and have a great day.