Marcus Millichap Inc

Previous wording

This Quarterly Report on Form 10-Q includes forward-looking statements, including our expectations regarding the long-term outlook of the commercial real estate transaction market and our positioning within it, our belief relating to the Company’s long-term growth, our assessment of the key factors influencing the Company’s business outlook for 2024 and the execution of our capital return program, including a semi-annual dividend and stock repurchase program. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

Current wording

This Quarterly Report on Form 10-Q includes forward-looking statements, including our expectations regarding the long-term outlook of the commercial real estate transaction market and our positioning within it, our belief relating to the Company’s long-term growth, our assessment of the key factors influencing the Company’s business outlook, including the expectation for future interest rate cuts and likely impact of such cuts on commercial real estate demand, and the execution of our capital return program, including a semi-annual dividend and stock repurchase program. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

Previous wording

•market trends in the commercial real estate market or the general economy, including the impact of inflation and increased interest rates;

Current wording

•market trends in the commercial real estate market or the general economy, including the impact of inflation and changes to interest rates;

Previous wording

•changes in interest rates, availability of capital, tax laws, employment laws, or other government regulation affecting our business, in each case as may be impacted by the 2024 presidential election;

Current wording

•changes in interest rates, availability of capital, tax laws, employment laws, or other government regulation affecting our business, in each case as may be impacted by the 2024 U.S. presidential election;

Previous wording

The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024, including the “Risk Factors” section and the consolidated financial statements and notes included therein.

Current wording

The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024, including the “Risk Factors” section and the consolidated financial statements and notes included therein.

Previous wording

We are a leading national real estate services firm specializing in commercial real estate investment sales, financing services, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of June 30, 2024, we had 1,726 investment sales and financing professionals that are primarily exclusive independent contractors operating in more than 80 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and six months ended June 30, 2024, we closed 1,800 and 3,364 investment sales, financing and other transactions with total sales volume of approximately $9.5 billion and $19.2 billion, respectively. During the year ended December 31, 2023, we closed 7,546 investment sales, financing and other transactions with total sales volume of approximately $43.6 billion.

Current wording

We are a leading national real estate services firm specializing in commercial real estate investment sales, financing services, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of September 30, 2024, we had 1,678 investment sales and financing professionals that are primarily exclusive independent contractors operating in more than 80 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and nine months ended September 30, 2024, we closed 1,987 and 5,351 investment sales, financing and other transactions with total sales volume of approximately $12.0 billion and $31.2 billion, respectively. During the year ended December 31, 2023, we closed 7,546 investment sales, financing and other transactions with total sales volume of approximately $43.6 billion.

Previous wording

We generate revenue by collecting real estate brokerage commissions upon the sale, and financing fees upon the financing of commercial properties, by providing equity advisory services and loan sales, loan guarantees and by providing consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended June 30, 2024, approximately 86% of our revenue was generated from real estate brokerage commissions, 11% from financing fees and 3% from other real estate related services.

Current wording

We generate revenue by collecting real estate brokerage commissions upon the sale, and financing fees upon the financing of commercial properties, by providing equity advisory services and loan sales, loan guarantees and by providing leasing, consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended September 30, 2024, approximately 84% of our revenue was generated from real estate brokerage commissions, 12% from financing fees and 4% from other real estate related services.

Previous wording

We are the industry leader in serving private clients in the $1-$10 million private client market, which contributed approximately 63% and 69% of our real estate brokerage commissions during the three months ended June 30, 2024 and 2023, respectively, and approximately 65% and 68% of our real estate brokerage commissions during the six months ended June 30, 2024 and 2023, respectively. The following tables set forth the number of transactions, sales volume and revenue by each commercial real estate market for real estate brokerage:

Current wording

We are the industry leader in serving private clients in the $1 million - $10 million private client market, which contributed approximately 62% and 65% of our real estate brokerage commissions during the three months ended September 30, 2024 and 2023, respectively, and approximately 63% and 67% of our real estate brokerage commissions during the nine months ended September 30, 2024 and 2023, respectively. The following tables set forth the number of transactions, sales volume and revenue by each commercial real estate market for real estate brokerage:

Previous wording

While a short-term inflation increase in the first quarter of 2024 spurred the Federal Reserve to hold back on rate cuts, both the Consumer Price Index (“CPI”) and the core Personal Consumption Expenditure (“PCE”) inflation metrics reverted to trend in the second quarter of 2024, suggesting sustained disinflation. As of June, the primary inflation measurement monitored by the Federal Reserve, core PCE, reached 2.6%, down 170 basis points from the same period last year. Though they did not cut rates at their July meeting, Wall Street metrics suggest the Federal Reserve will make their first rate cut in September. We believe that such a move could positively impact investor sentiment and bolster the flow of capital into commercial real estate.

Current wording

Both the headline Consumer Price Index (“CPI”) inflation metric and the Personal Consumption Expenditure (“PCE”) index have sustained downward momentum, with CPI registering 2.4% and PCE reading 2.1% in September. While these trends have been positive, the Federal Reserve's preferred inflation metric, the core Personal Consumption Expenditure, has proven more sticky, hovering in the 2.6% to 2.7% range for five consecutive months. Following the 50 basis point rate cut in September and 25 basis point rate cut in November by the Federal Reserve, Wall Street metrics suggest the Federal Reserve will further reduce rates by 25 basis points at their next meeting. We believe that such a move could positively impact investor sentiment and bolster the flow of capital into commercial real estate.

Previous wording

All four major property types demonstrated positive space demand in the second quarter of 2024, though each demonstrated unique nuances. Nearly 164,000 net apartment units were filled in the quarter, the strongest quarterly results since 2021. The demand modestly outpaced apartment completions of 157,000 to reduce vacancy by 10 basis points to 5.8%. The completion of an additional 200,000 or more units is anticipated in the second half of the year, which will set a new multifamily construction high-tide mark with approximately 480,000 total new units coming to market this year. Apartment demand in the second half of 2024 could taper if consumer sentiment continues to decline and new household formation slows, but positive job creation and the prospect of an economic “soft landing” could revive consumer expectations.

Current wording

All four major property types demonstrated positive space demand in the third quarter of 2024, although each demonstrated unique nuances. Over 191,000 net apartment units were filled in the quarter, the strongest quarterly results since 2021. The demand modestly outpaced the record-level 163,000 apartment completions delivered in the quarter to reduce vacancy by 20 basis points to 5.6%. Robust apartment demand outpaced expectations and bolstered multifamily investor confidence.

Previous wording

The industrial vacancy rate increased in the second quarter of 2024 as elevated construction exceeded space demand. Industrial completions have been highly concentrated, with half of the second quarter additions being delivered in just seven metros. At the same time, many retailers have begun to shrink their warehouse industrial space needs in the post-pandemic era as supply chains have become increasingly reliable. Retail vacancy rates held firm near a record-low, with space absorption being restricted by limited space availability and nominal construction levels. Office vacancy rates also remained stable as the sector achieved minimal positive absorption.

Current wording

The industrial vacancy rate increased in the third quarter of 2024 as elevated construction exceeded space demand of 22 million square feet. Industrial completions have been highly concentrated, with about half of the additions being delivered in seven metros areas. Although many retailers increased their inventories in anticipation of the east coast dockworker strike, warehouse industrial space needs have tapered significantly over the last two years. Retail vacancy rates remain near a record-low, with space absorption being restricted by limited space availability and nominal construction levels. Office vacancy rates decreased by 20 basis points to 17.0% on positive absorption of 26 million square feet, the strongest quarterly office space demand since 2021. Nonetheless, the office performance outlook remains in question as it is unclear when or if a sizable portion of workers will return permanently to the office.

Previous wording

Although the fundamentals of most property types remain sound, with the notable exception of urban office, both lending and investor activity remain below the pre-pandemic historical norm and the expectation gap between buyers and sellers remains challenging. The demand for space will continue to be influenced by consumer and business sentiment as well as the broader economic outlook. That said, should the Federal Reserve cut rates in the third quarter as expected, sentiment could shift and space demand could be lifted.

Current wording

Although the fundamentals of most property types remain sound, with the notable exception of urban office properties, both lending and investor activity remain below the pre-pandemic historical norm. The expectation gap between buyers and sellers has narrowed slightly, particularly after the Federal Reserve reduced rates in September, but the gap remains challenging. The demand for space will continue to be influenced by consumer and business sentiment as well as the broader economic outlook. However, should the Federal Reserve reduce rates in the fourth quarter, as expected, sentiment could continue to strengthen and space demand could increase.

Previous wording

The capital markets remain at the heart of the commercial real estate transaction slowdown. The combination of sustained higher interest rates with tighter lender underwriting, reduced loan-to-value standards and a broad-based reduction in the volume of available debt capital have restrained market liquidity. This has forced investors to recalibrate their underwriting. This widened the buyer/seller expectation gap and reduced trading throughout 2023 and into the second quarter of 2024.

Current wording

The capital markets remain at the heart of the commercial real estate transaction slowdown over the last two years. The combination of sustained higher interest rates with tighter lender underwriting, reduced loan-to-value standards and a broad-based reduction in the volume of available debt capital have restrained market liquidity. This has forced investors to recalibrate their underwriting. This widened the buyer/seller expectation gap and reduced trading throughout 2023 and thus far in 2024.

Previous wording

The commercial real estate sector once again saw below average sales activity as investors contended with persistent headwinds including still-elevated interest rates, tightened lender underwriting and the buyer/seller expectation gap. Although some signs of recovery have begun to emerge, including more exclusive inventory being brought to market, a sustainable recovery in trading volumes has yet to clearly take hold. We believe a significant volume of investment capital remains undeployed waiting for economic, interest rate, financial market, geopolitical and commercial real estate pricing clarity. Should the Federal Reserve reduce rates in September, it will likely take time to navigate the price discovery process and for sales activity to revive.

Current wording

The commercial real estate sector once again saw below average sales activity in the third quarter as investors contended with persistent headwinds including still-elevated interest rates, tightened lender underwriting and the buyer/seller expectation gap. Although some signs of recovery have emerged, including more exclusive inventory being brought to market, a sustainable recovery in trading volumes has yet to occur. We believe a significant volume of investment capital remains un-deployed waiting for economic, interest rate, financial market, geopolitical and commercial real estate pricing clarity. Should the Federal Reserve continue to reduce rates, it would support positive momentum, but finalizing the transaction process will take additional time.

Previous wording

Office properties, particularly those in the urban core, continue to face the greatest uncertainty and the greatest challenges in acquiring debt financing. In addition, signs of distress and the potential for additional foreclosures in this commercial real estate segment continue to rise. Apartment financing, underpinned by Fannie Mae and Freddie Mac, has generally been the most attainable, with typically lower interest rates than other property types. However, the rapid interest rate spike relative to the sector's very low cap rates and the large apartment development pipeline together with slackening rent growth has impacted apartment sales. Defensive assets — such as single-tenant net lease properties backed by high-credit tenants — and medical office assets continue to receive buyer interest, but sales of these types of properties have also fallen as the flow of 1031 exchange capital coming from other property types has diminished. Ultimately, the market velocity will be dictated by a combination of the economic outlook, geopolitical forces, Federal Reserve action, interest rates and the narrowing of the buyer/seller expectation gap. If, and when, the Federal Reserve reduces rates, we believe commercial real estate investment activity could gain momentum.

Current wording

Office properties, particularly those in the urban core, continue to face the greatest uncertainty and the greatest challenges in acquiring debt financing. In addition, signs of distress and the potential for additional foreclosures in this commercial real estate segment continue to rise. Apartment financing, underpinned by Fannie Mae and Freddie Mac, has generally been the most attainable, with typically lower interest rates than other property types. However, the rapid interest rate spike relative to the sector's very low cap rates and the large apartment development pipeline together with still-modest rent growth has impacted apartment sales. Defensive assets, such as single-tenant net lease properties backed by high-credit tenants, and medical office assets continue to receive buyer interest, but sales of these types of properties have also fallen as the flow of 1031 exchange capital coming from other property types has diminished. Ultimately, the market velocity will be dictated by a combination of the economic outlook, geopolitical forces, Federal Reserve action, interest rates and the narrowing of the buyer/seller expectation gap. As downward pressure on interest rates is applied, we believe commercial real estate investment activity could gain momentum.

Previous wording

Our revenue is primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenue from financing fees and from other revenue, which are primarily comprised of consulting and advisory fees.

Current wording

Our revenue is primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenue from financing fees and from other revenue, which are primarily comprised of leasing, consulting and advisory fees.

Previous wording

The largest expense component within selling, general and administrative expenses is personnel expenses for our management team and sales and support staff, as well as business development, marketing, and expensing of forgivable loans over the retention period of our sales and financing professionals. In addition, these costs include facilities costs (excluding depreciation and amortization), staff related expenses, sales, marketing, legal, telecommunication, network, data sources, transaction costs related to acquisitions, changes in fair value for contingent and deferred consideration and other administrative expenses. Also included in selling, general and administrative are expenses for stock-based compensation to non-employee directors, employees and independent contractors (i.e. investment sales and financing professionals) under the Amended and Restated 2013 Omnibus Equity Incentive Plan (the “Amended Plan”) and the Amended and Restated 2013 Employee Stock Purchase Plan (the “Amended ESPP”).

Current wording

The largest expense component within selling, general and administrative expenses is personnel expenses for our management team and sales and support staff, as well as business development, marketing, and expensing of forgivable loans over the retention period of our sales and financing professionals. In addition, these costs include facilities costs (excluding depreciation and amortization), staff related expenses, sales, marketing, legal, telecommunication, network, data sources, changes in fair value for contingent and deferred consideration and other administrative expenses. Also included in selling, general and administrative are expenses for stock-based compensation to non-employee directors, employees and independent contractors (i.e. investment sales and financing professionals) under the Amended and Restated 2013 Omnibus Equity Incentive Plan (the “Amended Plan”) and the Amended and Restated 2013 Employee Stock Purchase Plan (the “Amended ESPP”).

Previous wording

The following is a discussion of our results of operations for the three and six months ended June 30, 2024 and 2023. The tables included in the period comparisons below provide summaries of our results of operations. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Current wording

The following is a discussion of our results of operations for the three and nine months ended September 30, 2024 and 2023. The tables included in the period comparisons below provide summaries of our results of operations. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Previous wording

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We also believe these metrics are relevant to investors’ and others’ assessment of our financial condition and results of operations. During the three months ended June 30, 2024 and 2023, we closed more than 1,800 and 1,900 investment sales, financing and other transactions, respectively, with total sales volume of approximately $9.5 billion and $9.7 billion, respectively. During the six months ended June 30, 2024 and 2023, we closed more than 3,300 and 3,700 investment sales, financing and other transactions, respectively, with total sales volume of approximately $19.2 billion and $20.2 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

Current wording

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We also believe these metrics are relevant to investors’ and others’ assessment of our financial condition and results of operations. During the three months ended September 30, 2024 and 2023, we closed 1,987 and 1,846 investment sales, financing and other transactions, respectively, with total sales volume of approximately $12.0 billion and $11.4 billion, respectively. During the nine months ended September 30, 2024 and 2023, we closed 5,351 and 5,599 investment sales, financing and other transactions, respectively, with total sales volume of approximately $31.2 billion and $31.7 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

Previous wording

Total revenue was $158.4 million for the three months ended June 30, 2024 compared to $162.9 million for the same period in 2023, a decrease of $4.5 million, or 2.8%. Total revenue decreased as a result of decreases in real estate brokerage commissions, as described below. See “Factors Affecting Our Business” for additional market information.

Current wording

Total revenue was $168.5 million for the three months ended September 30, 2024 compared to $162.0 million for the same period in 2023, an increase of $6.5 million, or 4.0%. Total revenue increased as a result of increases in real estate brokerage commissions, financing fees and other revenue, as described below. See “Factors Affecting Our Business” for additional market information.

Previous wording

Real estate brokerage commissions. Revenue from real estate brokerage commissions decreased to $135.4 million for the three months ended June 30, 2024 from $140.3 million for the same period in 2023, a decrease of $4.9 million, or 3.5%. The decrease was the result of total sales volume decreasing by 4.9%, partially offset by the impact of a three basis point increase in the average commission rate earned during the three months ended June 30, 2024 compared to the same period in 2023. Private Client Market revenue decreased by 11.9%, while the combined Middle Market and Larger Transaction Market revenue increased by 14.8%.

Current wording

Real estate brokerage commissions. Revenue from real estate brokerage commissions increased to $142.0 million for the three months ended September 30, 2024 from $139.8 million for the same period in 2023, an increase of $2.2 million, or 1.5%. The increase was the result of total sales volume increasing by 14.7%, partially offset by a reduction of 22 basis points in the average commission rate earned during the three months ended September 30, 2024 compared to the same period in 2023. Private Client Market revenue decreased by 4.3%, while the combined Middle Market and Larger Transaction Market revenue increased by 15.1%.

Previous wording

Financing fees. Revenue from financing fees increased to $18.3 million for the three months ended June 30, 2024 from $17.9 million for the same period in 2023, an increase of $0.4 million, or 2.2%, resulting primarily from an 11.0% increase in total financing volume, partially offset by a 14 basis point decrease in the average fee rate during the three months ended June 30, 2024 compared to the same period in 2023.

Current wording

Financing fees. Revenue from financing fees increased to $20.6 million for the three months ended September 30, 2024 from $17.3 million for the same period in 2023, an increase of $3.3 million, or 19.3%, resulting primarily from a 12.0% increase in total financing volume and a two basis point increase in the average fee rate during the three months ended September 30, 2024 compared to the same period in 2023.

Previous wording

Other revenue. Other revenue increased by an immaterial amount for the three months ended June 30, 2024 compared to the same period in 2023.

Current wording

Other revenue. Other revenue increased to $6.0 million for the three months ended September 30, 2024 from $5.0 million for the same period in 2023, an increase of $1.0 million, or 20.3%, resulting primarily from an increase in consulting fees.

Previous wording

Cost of services. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities. Cost of services decreased to $174.9 million for the six months ended June 30, 2024 from $196.6 million for the same period in 2023, a decrease of $21.6 million, or 11.0%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenue noted above. Cost of services as a percentage of total revenue decreased by 100 basis points to 60.9% compared to the same period in 2023 primarily due to our senior investment sales and financing professionals earning a lower amount of additional commissions due to lower revenue.

Current wording

Cost of services. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities. Cost of services slightly increased to $104.7 million for the three months ended September 30, 2024 from $104.6 million for the same period in 2023. Cost of services as a percentage of total revenue decreased by 240 basis points to 62.2% compared to the same period in 2023 primarily due to our senior investment sales and financing professionals earning a lower amount of additional commissions.

Previous wording

Selling, general, and administrative expense. Selling, general and administrative expense for the three months ended June 30, 2024 decreased to $65.0 million, from $68.9 million compared to the same period in 2023, a decrease of $3.9 million or 5.7%. The decrease was primarily due to a reduction in marketing support and corporate bonus attributable to the lower revenue level.

Current wording

Selling, general, and administrative expense. Selling, general and administrative expense for the three months ended September 30, 2024 increased to $70.7 million, from $69.2 million compared to the same period in 2023, an increase of $1.5 million or 2.1%. The increase was primarily due to an increase in personnel costs, partially offset by a reduction in marketing support costs provided to our investment sales and financing professionals.

Previous wording

Depreciation and amortization expense. Depreciation and amortization expense decreased by an immaterial amount for the three months ended June 30, 2024 compared to the same period in 2023.

Current wording

Depreciation and amortization expense. Depreciation and amortization expense increased to $4.5 million for the three months ended September 30, 2024 from $3.6 million compared to the same period in 2023, an increase of $0.9 million, or 25.1%. The increase primarily relates to accelerated amortization of certain intangible assets resulting from changes in estimates.

Previous wording

The provision for income taxes was $2.1 million for the three months ended June 30, 2024, compared to $2.7 million for the same period in 2023. The effective income tax rate for the three months ended June 30, 2024, was (61.1)% compared to (45.5)% for the same period in 2023. The change in the effective tax rate is primarily due to the relationship of permanent and other items and the change in the valuation allowance to pre-tax loss as presented in Note 10 - “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in Item 1, Part I of this Quarterly Report on Form 10-Q.

Current wording

The benefit for income taxes was $1.0 million for the three months ended September 30, 2024, compared to $2.0 million for the same period in 2023. The effective income tax rate for the three months ended September 30, 2024, was 15.2% compared to 17.8% for the same period in 2023. The net decrease in the effective tax rate is primarily due to the relationship of permanent and other items, the change in the valuation allowance and the change in the state income tax benefit to pre-tax loss as presented in Note 10 – “Income Taxes” in the Notes to the Condensed Consolidated Financial Statements in Item 1, Part I of this Quarterly Report on Form 10-Q.

Previous wording

Below are key operating results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 (dollars in thousands):

Current wording

Below are key operating results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 (dollars in thousands):

Previous wording

Total revenue was $287.5 million for the six months ended June 30, 2024 compared to $317.7 million for the same period in 2023, a decrease of $30.2 million, or 9.5%. Total revenue decreased as a result of decreases in real estate brokerage commissions and financing fees, partially offset by an increase in other revenue, as described below. See “Factors Affecting Our Business” for additional market information.

Current wording

Total revenue was $456.0 million for the nine months ended September 30, 2024 compared to $479.7 million for the same period in 2023, a decrease of $23.7 million, or 4.9%. Total revenue decreased as a result of a decrease in real estate brokerage commissions, partially offset by increases in financing fees and other revenue, as described below. See “Factors Affecting Our Business” for additional market information.

Previous wording

Real estate brokerage commissions. Revenue from real estate brokerage commissions decreased to $244.9 million for the six months ended June 30, 2024 from $275.4 million for the same period in 2023, a decrease of $30.5 million, or 11.1%. The decrease was the result of total sales volume decreasing by 12.6%, partially offset by the impact of a three basis point increase in the average commission rate earned for the six months ended June 30, 2024 compared to the same period in 2023. Private Client Market revenue decreased by 15.4% and the combined Middle Market and Larger Transaction Market decreased by 2.7%.

Current wording

Real estate brokerage commissions. Revenue from real estate brokerage commissions decreased to $386.9 million for the nine months ended September 30, 2024 from $415.2 million for the same period in 2023, a decrease of $28.3 million, or 6.8%. The decrease was the result of total sales volume decreasing by 3.4% and a reduction of seven basis points in the average commission rate earned for the nine months ended September 30, 2024 compared to the same period in 2023. Private Client Market revenue decreased by 11.8%, while the combined Middle Market and Larger Transaction Market increased by 3.6%.

Previous wording

Financing fees. Revenue from financing fees decreased to $32.7 million for the six months ended June 30, 2024 from $33.8 million for the same period in 2023, a decrease of $1.0 million, or 3.1%, resulting primarily from a decrease of 10 basis points in the average fee rate, partially offset by a 3.4% increase in total financing volume.

Current wording

Financing fees. Revenue from financing fees increased to $53.3 million for the nine months ended September 30, 2024 from $51.0 million for the same period in 2023, an increase of $2.3 million, or 4.5%, resulting primarily from a 6.5% increase in total financing volume, partially offset by a decrease of six basis points in the average fee rate.

Previous wording

Other revenue. Other revenue increased to $9.9 million for the six months ended June 30, 2024 from $8.5 million for the same period in 2023, an increase of $1.3 million, or 15.7%. The increase was primarily driven by increases in leasing fees partially offset by decreases in consulting and advisory services during the six months ended June 30, 2024, compared to the same period in 2023.

Current wording

Other revenue. Other revenue increased to $15.8 million for the nine months ended September 30, 2024 from $13.5 million for the same period in 2023, an increase of $2.3 million, or 17.4%. The increase was primarily driven by increases in leasing fees during the nine months ended September 30, 2024, compared to the same period in 2023.

Previous wording

Our total operating expenses were $315.6 million for the six months ended June 30, 2024 compared to $344.4 million for the same period in 2023, a decrease of $28.8 million, or 8.4%. Cost of services decreased by $21.6 million and selling, general, and administrative expenses decreased by $7.2 million, as described below.

Current wording

Our total operating expenses were $495.6 million for the nine months ended September 30, 2024 compared to $521.9 million for the same period in 2023, a decrease of $26.3 million, or 5.0%. Cost of services decreased by $21.5 million and selling, general, and administrative expenses decreased by $5.7 million, as described below.

Previous wording

Cost of services. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities. Cost of services decreased to $98.1 million for the three months ended June 30, 2024 from $101.2 million for the same period in 2023, a decrease of $3.1 million, or 3.0%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenue noted above. Cost of services as a percentage of total revenue decreased by 20 basis points to 61.9% compared to the same period in 2023 primarily due to our senior investment sales and financing professionals earning a lower amount of additional commissions due to lower revenue.

Current wording

Cost of services. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities. Cost of services decreased to $279.7 million for the nine months ended September 30, 2024 from $301.2 million for the same period in 2023, a decrease of $21.5 million, or 7.1%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenue noted above. Cost of services as a percentage of total revenue decreased by 150 basis points to 61.3% compared to the same period in 2023 primarily due to our senior investment sales and financing professionals earning a lower amount of additional commissions due to lower revenue.

Previous wording

Selling, general, and administrative expense. Selling, general and administrative expense for the six months ended June 30, 2024 decreased to $133.9 million, from $141.1 million compared to the same period in the prior year, a decrease of $7.2 million or 5.1%. The change was primarily due to a reduction in marketing support and corporate bonuses attributable to the lower revenue level for the first half of 2024, partially offset by an increase in compensation-related costs.

Current wording

Selling, general, and administrative expense. Selling, general and administrative expense for the nine months ended September 30, 2024 decreased to $204.6 million, from $210.3 million compared to the same period in the prior year, a decrease of $5.7 million or 2.7%. The decrease was primarily due to a reduction in marketing support costs provided to our investment sales and financing professionals, partially offset by an increase in compensation-related costs.

Previous wording

Other income, net increased to $10.4 million for the six months ended June 30, 2024 from $9.7 million for the same period in 2023. The increase of $0.7 million was primarily driven by an increase in interest income as a result of rebalancing the Company's investments.

Current wording

Other income, net increased to $15.7 million for the nine months ended September 30, 2024 from $14.1 million for the same period in 2023. The increase of $1.6 million was primarily driven by increase in interest income as a result of rebalancing the Company's investments to take advantage of higher yields and an increase in the carrying value of the assets held in the rabbi trust.

Previous wording

Interest expense increased by an immaterial amount for the three months ended June 30, 2024 compared to the same period in 2023, and primarily relates to interest expense on the Company’s SARs liability.

Current wording

Interest expense decreased by an immaterial amount for the nine months ended September 30, 2024 compared to the same period in 2023, and primarily relates to interest expense on the Company’s SARs liability.

Previous wording

The benefit for income taxes was $2.6 million for the six months ended June 30, 2024, compared to $2.9 million for the same period in 2023. The effective income tax rate for the six months ended June 30, 2024 was 14.6% compared to 16.6% for the same period in 2023. The effective income tax rate decreased primarily due to relationship of permanent nondeductible items to projected pre-tax loss for the full year.

Current wording

The benefit for income taxes was $3.6 million for the nine months ended September 30, 2024, compared to $4.9 million for the same period in 2023. The effective income tax rate for the nine months ended September 30, 2024 was 14.7% compared to 17.1% for the same period in 2023. The effective income tax rate decreased primarily due to the relationship of permanent nondeductible items to projected pre-tax loss for the full year as the impact to the effective tax rate that were caused by other items were largely offsetting.

Previous wording

In this Quarterly Report on Form 10-Q, we include a non-GAAP financial measure, Adjusted EBITDA. We define Adjusted EBITDA as net loss before (i) interest income and other, including net realized gains (losses) on marketable debt securities, available-for-sale and cash, cash equivalents, and restricted cash, (ii) interest expense, (iii) provision (benefit) for income taxes, (iv) depreciation and amortization, and (v) stock-based compensation. We use Adjusted EBITDA in our business operations to evaluate the performance of our business, develop budgets and measure our performance against those budgets, among other things. We also believe that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance. However, Adjusted EBITDA has material limitations as a supplemental metric and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a useful management metric to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and non-cash items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net loss, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. A reconciliation of the most directly comparable U.S. GAAP financial measure, net loss, to Adjusted EBITDA is as follows (in thousands):

Current wording

In this Quarterly Report on Form 10-Q, we include a non-GAAP financial measure, Adjusted EBITDA. We define Adjusted EBITDA as net loss before (i) interest income and other, including net realized gains (losses) on marketable debt securities, available-for-sale and cash, cash equivalents, and restricted cash, (ii) interest expense, (iii) benefit for income taxes, (iv) depreciation and amortization, and (v) stock-based compensation. We use Adjusted EBITDA in our business operations to evaluate the performance of our business, develop budgets and measure our performance against those budgets, among other things. We also believe that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance. However, Adjusted EBITDA has material limitations as a supplemental metric and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a useful management metric to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and non-cash items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net loss, operating income or any other measures calculated in accordance with U.S. GAAP. Because

Previous wording

Our primary sources of liquidity are cash, cash equivalents, and restricted cash, cash flows from operations, marketable debt securities, available-for-sale and, if necessary, borrowings under our Credit Agreement (as defined herein). In order to enhance yield to us, we have invested a portion of our cash in money market funds and fixed and variable income debt securities, in accordance with our investment policy approved by the Board of Directors. Certain of our investments in money market funds may not maintain a stable net asset value and may impose a discretionary liquidity fee. To date, the Company has not experienced any restrictions or gating fees on its ability to redeem funds from money market funds. Although we have historically funded our operations through operating cash flows, there can be no assurance that we can continue to meet our cash requirements entirely through our operations, cash, net of restricted cash, cash equivalents, and proceeds from the sale of marketable debt securities, available-for-sale or availability under our Credit Agreement.

Current wording

Our primary sources of liquidity are cash, cash equivalents, and restricted cash, cash flows from operations, marketable debt securities, available-for-sale and, if necessary, borrowings under our Credit Agreement (as defined herein). In order to enhance yield to us, we have invested a portion of our cash in money market funds and fixed and variable income debt securities, in accordance with our investment policy approved by the Board of Directors. Certain of our investments in money market funds may not maintain a stable net asset value and may impose a discretionary liquidity fee. To date, the Company has not experienced any restrictions on its ability to redeem funds from money market funds. Although we have historically funded our operations through operating cash flows, there can be no assurance that we can continue to meet our cash requirements entirely through our operations, cash, net of restricted cash, cash equivalents, and proceeds from the sale of marketable debt securities, available-for-sale or availability under our Credit Agreement.

Previous wording

Our total cash, cash equivalents, and restricted cash balance decreased by $8.8 million to $162.0 million at June 30, 2024, compared to $170.8 million at December 31, 2023. The following table sets forth our summary cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

Our total cash, cash equivalents, and restricted cash balance increased by $1.9 million to $172.7 million at September 30, 2024, compared to $170.8 million at December 31, 2023. The following table sets forth our summary cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):