Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-Q
 
FORM
10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
                    
Commission File Number:
001-36155
 
MARCUS & MILLICHAP, INC.
(Exact name of registrant as specified in its Charter)
 
Delaware
 
35-2478370
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
23975 Park Sorrento, Suite 400
Calabasas, California
 
91302
(Address of Principal Executive Offices)
 
(Zip Code)
(818)
212-2250
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.0001
per share
 
MMI
 
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter time period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated
filer
 ☐  Smaller reporting company ☐
Emerging growth company ☐   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
Number of shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding as of AugustMay 4, 20202021 was 39,328,01739,530,910 shares.
 
 
 
Table of Contents
MARCUS & MILLICHAP, INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
  
  Page
Item 1. Financial Statements
  Page
Condensed Consolidated Balance Sheets at June 30, 2020March 31, 2021 (Unaudited) and December 31, 20192020
   3 
Condensed Consolidated Statements of Net and Comprehensive Income for the Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019 (Unaudited)
   4 
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019 (Unaudited)
   5 
Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2021 and 2020 and 2019 (Unaudited)
   76 
Notes to Condensed Consolidated Financial Statements (Unaudited)
   87 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
   2924 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
   4335 
Item 4. Controls and Procedures
   4436 
PART II. OTHER INFORMATION
  
Item 1. Legal Proceedings
   4537 
Item 1A. Risk Factors
   4537 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   4637 
Item 3. Defaults Upon Senior Securities
   4637 
Item 4. Mine Safety Disclosures
   4637 
Item 5. Other Information
   4637 
Item 6. Exhibits
   4637 
SIGNATURES
  
 
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for shares and par value)
 
   June 30, 2020
(Unaudited)		   December 31,
2019		 
Assets
    
Current assets:
    
Cash and cash equivalents
  $154,880   $232,670 
Commissions receivable, net
   4,956    5,003 
Prepaid expenses
   8,391    10,676 
Income tax receivable
   4,224    4,999 
Marketable debt securities,
available-for-sale
(includes amortized cost of $169,195 and $150,517
 
at June 30, 2020 and December 31, 2019, respectively, and $0
 
allowance for credit losses)
   169,768    150,752 
Advances and loans, net
   1,830    2,882 
Other assets
   3,619    3,185 
  
 
 
   
 
 
 
Total current assets
   347,668    410,167 
Property and equipment, net
   23,429    22,643 
Operating lease
right-of-use
assets, net
   86,035    90,535 
Marketable debt securities,
available-for-sale
(includes amortized cost of $40,808 and $59,468
 
at June 30, 2020 and December 31, 2019, respectively, and $0
 
allowance for credit losses)
   42,781    60,809 
Assets held in rabbi trust
   9,081    9,452 
Deferred tax assets, net
   17,710    22,122 
Goodwill and other intangible assets, net
   37,829    22,312 
Advances and loans, net
   101,781    66,647 
Other assets
   4,501    4,347 
  
 
 
   
 
 
 
Total assets
  $670,815   $709,034 
  
 
 
   
 
 
 
Liabilities and stockholders’ equity
    
Current liabilities:
    
Accounts payable and other liabilities
  $10,914   $10,790 
Notes payable to former stockholders
   —      6,564 
Deferred compensation and commissions
   25,549    44,301 
Operating lease liabilities
   17,880    17,762 
Accrued bonuses and other employee related expenses
   4,211    22,388 
  
 
 
   
 
 
 
Total current liabilities
   58,554    101,805 
Deferred compensation and commissions
   31,388    45,628 
Operating lease liabilities
   60,262    63,155 
Other liabilities
   7,698    3,539 
  
 
 
   
 
 
 
Total liabilities
   157,902    214,127 
  
 
 
   
 
 
 
Commitments and contingencies
   —      —   
Stockholders’ equity:
    
Preferred stock, $0.0001 par value:
    
Authorized shares – 25,000,000; issued and outstanding shares – 0ne at June 30, 2020
 
and December 31, 2019, respectively
   —      —   
Common stock, $0.0001 par value:
    
Authorized shares – 150,000,000; issued and outstanding shares – 39,328,017 and 39,153,195 at June 30, 2020 and December 31, 2019, respectively
   4    4 
Additional
paid-in
capital
   108,308    104,658 
Stock notes receivable from employees
   —      (4) 
Retained earnings
   401,414    388,271 
Accumulated other comprehensive income
   3,187    1,978 
  
 
 
   
 
 
 
Total stockholders’ equity
   512,913    494,907 
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
  $670,815   $709,034 
  
 
 
   
 
 
 
   March 31, 2021
(Unaudited)		   December 31,
 
2020		 
Assets
          
Current assets:
          
Cash and cash equivalents
  $ 221,708   $ 243,152 
Commissions receivable, net
   8,205    10,391 
Prepaid expenses
   10,084    10,153 
Marketable debt securities,
available-for-sale
(includes amortized cost of $134,460 and $158,148 at March 31, 2021 and December 31, 2020, respectively, and $0
 
allowance for credit losses)
   134,494    158,258 
Advances and loans, net
   2,106    2,413 
Other assets
   5,642    4,711 
           
Total current assets
   382,239    429,078 
Property and equipment, net
   22,931    23,436 
Operating lease
right-of-use
assets, net
   81,105    84,024 
Marketable debt securities,
available-for-sale
(includes amortized cost of $65,114 and $45,181 at March 31, 2021 and December 31, 2020, respectively, and $0
 
allowance for credit losses)
   66,931    47,773 
Assets held in rabbi trust
   10,574    10,295 
Deferred tax assets, net
   20,629    21,374 
Goodwill and other intangible assets, net
   50,817    52,053 
Advances and loans, net
   111,781    106,913 
Other assets
   4,075    4,176 
           
Total assets
  $751,082   $779,122 
           
Liabilities and stockholders’ equity
          
Current liabilities:
          
Accounts payable and other liabilities
  $18,919   $18,288 
Deferred compensation and commissions
   33,199    58,106 
Income tax payable
   8,512    3,726 
Operating lease liabilities
   19,209    19,190 
Accrued bonuses and other employee related expenses
   11,478    21,007 
           
Total current liabilities
   91,317    120,317 
Deferred compensation and commissions
   28,745    38,745 
Operating lease liabilities
   57,134    59,408 
Other liabilities
   12,217    13,816 
           
Total liabilities
   189,413    232,286 
           
Commitments and contingencies
   0      0   
Stockholders’ equity:
          
Preferred stock, $0.0001 par value:
          
Authorized shares – 25,000,000; issued and outstanding shares – NaN
 
at March 31, 2021 and December 31, 2020, respectively
   0      0   
Common stock, $0.0001 par value:
          
Authorized shares – 150,000,000; issued and outstanding shares – 39,500,966 and 39,401,976 at March 31, 2021 and December 31, 2020, respectively
   4    4 
Additional
paid-in
capital
   113,737    113,182 
Retained earnings
   446,088    431,076 
Accumulated other comprehensive income
   1,840    2,574 
           
Total stockholders’ equity
   561,669    546,836 
           
Total liabilities and stockholders’ equity
  $751,082   $779,122 
           
See accompanying notes to condensed consolidated financial statements.
 
3
Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)
 
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
   2020  2019  2020  2019 
Revenues:
     
Real estate brokerage commissions
  $
 
103,371  $
 
188,680  $
 
275,200  $
 
333,617 
Financing fees
   12,703   17,742   28,054   31,474 
Other revenues
   1,326   3,171   4,863   5,209 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenues
   117,400   209,593   308,117   370,300 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating expenses:
     
Cost of services
   73,743   127,847   187,500   219,535 
Selling, general and administrative
   43,519   52,836   98,379   101,754 
Depreciation and amortization
   2,752   1,932   5,216   3,764 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   120,014   182,615   291,095   325,053 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating (loss) income
   (2,614)   26,978   17,022   45,247 
Other income (expense), net
   2,975   3,119   2,609   6,494 
Interest expense
   (213)   (340)   (496)   (689) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income before provision for income taxes
   148   29,757   19,135   51,052 
Provision for income taxes
   42   8,478   5,959   14,135 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income
   106   21,279   13,176   36,917 
  
 
 
  
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss):
     
Marketable debt securities,
available-for-sale:
     
Change in unrealized gains
   1,214   856   717   1,714 
Less: reclassification adjustment for net losses (gains) included in other income
(expense), net
   13   (9)   24   (18) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net change, net of tax of $421, $283, $253 and $571 for the three and six months ended June 30, 2020 and 2019, respectively
   1,227   847   741   1,696 
Foreign currency translation (loss) gain, net of tax of $0 for each of the three and six months ended June 30, 2020 and 2019
   (423)   (216)   468   (314) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total other comprehensive income
   804   631   1,209   1,382 
  
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive income
  $910  $21,910  $14,385  $38,299 
  
 
 
  
 
 
  
 
 
  
 
 
 
Earnings per share:
     
Basic
  $—    $0.54  $0.33  $0.94 
Diluted
  $—    $0.54  $0.33  $0.93 
Weighted average common shares outstanding:
     
Basic
   39,629   39,395   39,585   39,353 
Diluted
   39,673   39,527   39,662   39,524 
   Three Months Ended
March 31,		 
   2021  2020 
Revenues:
         
Real estate brokerage commissions
  $
 
 162,796  $
 
 171,829 
Financing fees
   17,843   15,351 
Other revenues
   3,338   3,537 
          
Total revenues
   183,977   190,717 
          
Operating expenses:
         
Cost of services
   109,103   113,757 
Selling, general and administrative
   51,677   54,860 
Depreciation and amortization
   2,997   2,464 
          
Total operating expenses
   163,777   171,081 
          
Operating income
   20,200   19,636 
Other income (expense), net
   1,044   (366) 
Interest expense
   (146)   (283) 
          
Income before provision for income taxes
   21,098   18,987 
Provision for income taxes
   6,086   5,917 
          
Net income
   15,012   13,070 
          
Other comprehensive (loss) income:
         
Marketable debt securities,
available-for-sale:
         
Change in net unrealized – (losses) gains   (621)   (497) 
Less: reclassification adjustment for net losses included in other income (expense), net
   0     11 
          
Net change, net of tax of $(215) and $(168) for the three months ended March 31, 2021 and 2020, respectively
   (621)   (486) 
Foreign currency translation (loss) gain, net of tax of $0 for each of the three months ended March 31, 2021 and 2020
   (113)   891 
          
Total other comprehensive (loss) income
   (734)   405 
          
Comprehensive income
  $14,278  $13,475 
          
Earnings per share:
         
Basic
  $0.38  $0.33 
Diluted
  $0.37  $0.33 
Weighted average common shares outstanding:
         
Basic
   39,757   39,541 
Diluted
   40,124   39,646 
See accompanying notes to condensed consolidated financial statements.
 
4
Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for shares)
(Unaudited)
 
  Three Months Ended June 30, 2020 
  Preferred Stock  Common Stock  Additional
Paid-In

Capital		  Stock Notes
Receivable
From
Employees		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income		  Total 
  Shares  Amount  Shares  Amount 
Balance at March 31, 2020
  —    $—     39,272,429  $4  $105,601  $(4)  $
 
401,308  $2,383  $
 
509,292 
Net and comprehensive income
  —     —     —     —     —     —     106   804   910 
Stock-based award activity
         
Stock-based compensation
  —     —     —     —     2,536   —     —     —     2,536 
Shares issued pursuant to employee stock purchase plan
  —     —     15,923   —     371   —     —     —     371 
Issuance of common stock for vesting of restricted stock units
  —     —     27,373   —     —     —     —     —     —   
Issuance of common stock for unvested restricted stock awards
  —     —     19,516   —     —     —     —     —     —   
Shares withheld related to net share settlement of stock-based awards
  —     —     (7,224)   —     (200)   —     —     —     (200) 
Reduction of stock notes receivable from employees
  —     —     —     —     —     4   —     —     4 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2020
  —  $—   39,328,017  $4  $
 
108,308  $—  $401,414  $3,187  $512,913 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   Three Months Ended March 31, 2021 
  
Preferred Stock
  
Common Stock
  
Additional
  
Stock Notes
Receivable
     
Accumulated
Other
    
   Shares   Amount   Shares  Amount   Paid-In
Capital		  From
Employees		   Retained
Earnings		   Comprehensive
Income (Loss)		  Total 
Balance at December 31, 2020
   0     $0      39,401,976  $4   $113,182  $0     $431,076   $ 2,574  $546,836 
Net and comprehensive income (loss)
   —      0      —     0      0     0      15,012    (734)   14,278 
Stock-based award activity
                                          
Stock-based compensation
   0      0      0     0      2,288   0      0      0     2,288 
Issuance of common stock for vesting of restricted stock units
   0      0      149,117   0      0     0      0      0     0   
Shares withheld related to net share settlement of stock-based awards
   0      0      (50,127)   0      (1,733)   0      0      0     (1,733) 
                                           
Balance as of March 31, 2021
   
0
  
   $0
  
   39,500,966  $4   $113,737  $0   $446,088   $1,840  $561,669 
                                           
 
  Three Months Ended June 30, 2019 
  Preferred Stock  Common Stock  Additional
Paid-In

Capital		  Stock Notes
Receivable
From
Employees		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income		  Total 
  Shares  Amount  Shares  Amount 
Balance at March 31, 2019
  —    $—     39,042,434  $4  $97,587  $(4)  $
 
326,979  $1,526  $
 
426,092 
Net and comprehensive income
  —     —     —     —     —     —     21,279   631   21,910 
Stock-based award activity
         
Stock-based compensation
  —     —     —     —     2,585   —     —     —     2,585 
Shares issued pursuant to employee stock purchase plan
  —     —     11,022   —     338   —     —     —     338 
Issuance of common stock for vesting of restricted stock units
  —     —     40,823   —     —     —     —     —     —   
Issuance of common stock for unvested restricted stock awards
  —     —     10,542   —     —     —     —     —     —   
Shares withheld related to net share settlement of stock-based awards
  —     —     (13,960)   —     (412)   —     —     —     (412) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2019
  —    $—     39,090,861  $4  $
 
100,098  $(4)  $348,258  $2,157  $450,513 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Three Months Ended March 31, 2020 
  Preferred Stock   Common Stock   Additional  Stock Notes
Receivable		    Accumulated
Other		     
  
Shares
  
Amount
  
Shares
  
Amount
  Paid-In
Capital		  From
Employees		  Retained
Earnings		  Comprehensive
Income		  
Total
 
                                     
Balance at December 31, 2019
  0     $0      39,153,195  $4   $104,658  $(4) $388,271  $1,978   $494,907 
Cumulative effect of a change in accounting principle, net of tax
  0      0      0     0      0     0     (33)   0      (33) 
                                         
Balance at January 1, 2020, as adjusted
  0      0      39,153,195   4    104,658   (4)   388,238   1,978    494,874 
Net and comprehensive income
  —      0      —     0      0     0     13,070   405    13,475 
Stock-based award activity
                                        
Stock-based compensation
  0      0      0     0      2,632   0     0     0      2,632 
Issuance of common stock for vesting of restricted stock units
  0      0      170,106   0      0     0     0     0      0   
Shares withheld related to net share settlement of stock-based awards
  0      0      (50,872)   0      (1,689)   0     0     0      (1,689) 
                                         
Balance as of March 31, 2020
  0     $0      39,272,429  $4   $105,601  $(4)  $401,308  $2,383   $509,292 
                                         
See accompanying notes to condensed consolidated financial statements.
 
5
Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
CASH FLOWS
(in thousands, except for shares)thousands)
(Unaudited)
 
  Six Months Ended June 30, 2020 
  Preferred Stock  Common Stock  Additional
Paid-In

Capital		  Stock Notes
Receivable
From
Employees		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income		  Total 
  Shares  Amount  Shares  Amount 
Balance at December 31, 2019
  —    $—     39,153,195  $4  $104,658  $(4)  $
 
388,271  $1,978  $
 
494,907 
Cumulative effect of a change in accounting principle, net of tax
  —     —     —     —     —     —     (33)   —     (33) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at January 1, 2020, as adjusted
  —     —     39,153,195   4   104,658   (4)   388,238   1,978   494,874 
Net and comprehensive income
  —     —     —     —     —     —     13,176   1,209   14,385 
Stock-based award activity
         
Stock-based compensation
  —     —     —     —     5,168   —     —     —     5,168 
Shares issued pursuant to employee stock purchase plan
  —     —     15,923   —     371   —     —     —     371 
Issuance of common stock for vesting of restricted stock units
  —     —     197,479   —     —     —     —     —     —   
Issuance of common stock for unvested restricted stock awards
  —     —     19,516   —     —     —     —     —     —   
Shares withheld related to net share settlement of stock-based awards
  —     —     (58,096)   —     (1,889)   —     —     —     (1,889) 
Reduction of stock notes receivable from employees
  —     —     —     —     —     4   —     —     4 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2020
  —    $—     39,328,017  $4  $108,308  $—    $401,414  $3,187  $512,913 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  Six Months Ended June 30, 2019 
  Preferred Stock  Common Stock  Additional
Paid-In

Capital		  Stock Notes
Receivable
From
Employees		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income		  Total 
  Shares  Amount  Shares  Amount 
Balance at December 31, 2018
  —    $—     38,814,464  $4  $97,458  $(4
)
 
 $
 
311,341  $775  $
 
409,574 
Net and comprehensive income
  —     —     —     —     —     —     36,917   1,382   38,299 
Stock-based award activity
         
Stock-based compensation
  —     —     —     —     4,926   —     —     —     4,926 
Shares issued pursuant to employee stock purchase plan
  —     —     11,022   —     338   —     —     —     338 
Issuance of common stock for vesting of restricted stock units
  —     —     325,219   —     —     —     —     —     —   
Issuance of common stock for unvested restricted stock awards
  —     —     10,542   —     —     —     —     —     —   
Shares withheld related to net share settlement of stock-based awards
  —     —     (70,386)   —     (2,624)   —     —     —     (2,624) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2019
  —    $—     39,090,861  $4  $100,098  $(4) $348,258  $2,157  $450,513 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   Three Months Ended
March 31,		 
   2021  2020 
Cash flows from operating activities
         
Net income
  $15,012  $13,070 
Adjustments to reconcile net income to net cash used in operating activities:
         
Depreciation and amortization
   2,997   2,464 
Amortization of
right-of-use
assets
   6,009   5,500 
Credit loss recovery
   (146)   (120) 
Stock-based compensation
   2,288   2,632 
Deferred taxes, net
   909   1,345 
Unrealized foreign exchange (gains) losses
   (157)   1,024 
Net realized gains on marketable debt securities,
available-for-sale
   (1)   (53) 
Other
non-cash
items
   (49)   485 
Changes in operating assets and liabilities:
         
Commissions receivable
   1,776   1,350 
Prepaid expenses
   74   1,576 
Advances and loans
   (4,440)   (29,441) 
Other assets
   (1,187)   (100) 
Accounts payable and other liabilities
   2,071   (923) 
Income tax payable
   4,786   4,070 
Accrued bonuses and other employee related expenses
   (9,362)   (17,035) 
Deferred compensation and commissions
   (33,781)   (33,898) 
Operating lease liabilities
   (5,275)   (4,477) 
Other liabilities
   (1,626)   (262) 
          
Net cash used in operating activities
   (20,102)   (52,793) 
          
Cash flows from investing activities
         
Acquisition of businesses, net of cash received
   229   (6,000) 
Purchases of marketable debt securities,
available-for-sale
   (81,264)   (28,919) 
Proceeds from sales and maturities of marketable debt securities,
available-for-sale
   85,065   50,623 
Issuances of employee notes receivable
   (40)   (211) 
Payments received on employee notes receivable
   250   1 
Purchase of property and equipment
   (1,099)   (2,397) 
          
Net cash provided by investing activities
   3,141   13,097 
          
Cash flows from financing activities
         
Taxes paid related to net share settlement of stock-based awards
   (1,733)   (1,689) 
Principal payments on stock appreciation rights liability
   (1,481)   (1,251) 
Principal payments on deferred consideration
   (1,302)   0   
          
Net cash used in financing activities
   (4,516)   (2,940) 
          
Effect of currency exchange rate changes on cash and cash equivalents
   33   (274) 
          
Net decrease in cash and cash equivalents
   (21,444)   (42,910) 
Cash and cash equivalents at beginning of period
   243,152   232,670 
          
Cash and cash equivalents at end of period
  $221,708  $189,760 
          
Supplemental disclosures of cash flow information
         
Interest paid during the period
  $697  $845 
          
Income taxes paid, net
  $339  $503 
          
See accompanying notes to condensed consolidated financial statements.
 
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MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
   Six Months Ended
June 30,		 
   2020  2019 
Cash flows from operating activities
   
Net income
  $13,176  $36,917 
Adjustments to reconcile net income to net cash used in operating activities:
   
Depreciation and amortization
   5,216   3,764 
Amortization of
right-of-use
assets
   11,151   10,242 
Credit loss recovery
   (78)   (13) 
Stock-based compensation
   5,168   4,926 
Deferred taxes, net
   4,172   3,863 
Unrealized foreign exchange loss
   557   —   
Net realized (gains) losses on marketable debt securities,
available-for-sale
   (117)   (12) 
Other
non-cash
items
   567   (228) 
Changes in operating assets and liabilities:
   
Commissions receivable
   (5)   (820) 
Prepaid expenses
   2,259   (1,689) 
Advances and loans
   (34,149)   (17,614) 
Other assets
   (1,059)   (3,753) 
Accounts payable and other liabilities
   (1,204)   14 
Income tax receivable/payable
   775   (9,248) 
Accrued bonuses and other employee related expenses
   (18,168)   (14,228) 
Deferred compensation and commissions
   (31,425)   (28,291) 
Operating lease liabilities
   (9,016)   (8,169) 
Other liabilities
   331   (24) 
  
 
 
  
 
 
 
Net cash used in operating activities
   (51,849)   (24,363) 
  
 
 
  
 
 
 
Cash flows from investing activities
   
Acquisition of businesses, net of cash received
   (11,821)   —   
Purchases of marketable debt securities,
available-for-sale
   (95,266)   (79,357) 
Proceeds from sales and maturities of marketable debt securities,
available-for-sale
   95,028   103,108 
Issuances of employee notes receivable
   (211)   —   
Payments received on employee notes receivable
   1   1 
Purchase of property and equipment
   (4,190)   (4,126) 
  
 
 
  
 
 
 
Net cash (used in) provided by investing activities
   (16,459)   19,626 
  
 
 
  
 
 
 
Cash flows from financing activities
   
Taxes paid related to net share settlement of stock-based awards
   (1,889)   (2,624) 
Proceeds from issuance of shares pursuant to employee stock purchase plan
   371   338 
Principal payments on notes payable to former stockholders
   (6,563)   (1,087) 
Principal payments on stock appreciation rights liability
   (1,251)   185 
  
 
 
  
 
 
 
Net cash used in financing activities
   (9,332)   (3,188) 
  
 
 
  
 
 
 
Effect of currency exchange rate changes on cash and cash equivalents
   (150)   —   
  
 
 
  
 
 
 
Net decrease in cash and cash equivalents
   (77,790)   (7,925) 
Cash and cash equivalents at beginning of period
   232,670   214,683 
  
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $
 
154,880  $
 
206,758 
  
 
 
  
 
 
 
Supplemental disclosures of cash flow information
   
Interest paid during the period
  $1,193  $1,967 
  
 
 
  
 
 
 
Income taxes paid, net
  $1,013  $19,520 
  
 
 
  
 
 
 
See accompanying notes to condensed consolidated financial statements.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Description of Business, and Basis of Presentation and Recent Accounting Pronouncements
Description of Business
Marcus & Millichap, Inc., (the “Company”, “Marcus & Millichap”, or “MMI”), a Delaware corporation, is a brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of June 30, 2020,March 31, 2021, MMI operates 8284 offices in the United States and Canada through its wholly-owned subsidiaries, including the operations of Marcus & Millichap Capital Corporation.
Reorganization and Initial Public Offering
MMI was formed in June 2013
in preparation for Marcus & Millichap Company (“MMC”) to
spin-off
its majority ownedmajority-owned subsidiary, Marcus & Millichap Real Estate Investment Services, Inc. (“MMREIS”). Prior to the initial public offering (“IPO”) of MMI, all of the preferred and common stockholders of MMREIS (including MMC and employees of MMREIS) contributed all of their outstanding shares to MMI, in exchange for new MMI common stock. As a result, MMREIS became a wholly-owned subsidiary of MMI. Thereafter, MMC distributed 
80.0% of the shares of MMI common stock to MMC’s shareholders and exchanged the remaining portion of its shares of MMI common stock for cancellation of indebtedness of MMC. MMI completed its IPO in November 2013.
Basis of Presentation
The financial information presented in theth
e
 accompanying unaudited condensed consolidated financial statements, has been prepared in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form
10-Q
and
Article 10-01
of
Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements and notes include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto, including the Company’s accounting policies for the year ended December 31, 20192020 included in the Company’s Annual Report on Form
10-K
filed on March 2, 20201, 2021 with the SEC. The results of the sixthree months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2020,2021, for other interim periods or
for
future years.
Considerations Related to the
COVID-19
Pandemic
The Company could continue to experience operational and financial impacts due to the
TheCOVID-19
pandemic. Actual results may differ from the Company’s current estimates as there is some uncertainty around the scope and duration of the
COVID-19
pandemic, and, resultant shutdown of economic activity across muchas a result, the extent of the world has led to sharp increases in unemployment, dislocations in debtimpact of
COVID-19
on the Company’s operational and equity marketsfinancial performance is uncertain and businesses instituting cost-cutting and capital-preservation measures. There has been a significant impact on commercial real estate markets in the United States and Canada that started at the end of first quarter 2020 and continued through the end of the second quarter of 2020, as many property owners and occupiers have put transactions on hold, driving significantly lower sales volumes.cannot be predicted. The Company expects the effects of the
COVID-19
pandemic to continue to adversely impact its financial position, results of operations, and cash flows for at least the remainderfirst half of 2020.2021.
See Note 32 – “Property and Equipment, Net”, Note 6N
o
te 5 – “Acquisitions, Goodwill and Other Intangible Assets”, and Note 108 – “Fair Value Measurements” and Note 15 – “Commitments and Contingencies”
for further discussiondiscussions on the potential impacts of
COVID-19.
Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, including the impact
COVID-19
may have on our business.period. Actual results could differ from those estimates.
 
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment Reporting
The Company follows U.S. GAAP for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of the Company’s operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing (including mortgage servicing) and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute the Company’s only operating segment for financial reporting purposes.
Reclassifications
Certain prior-period amounts in the condensed consolidated balance sheet and statement of cash flows, Note 7 – “Selected Balance Sheet Data” and Note 10 – “Fair Value Measurements” have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported condensed consolidated results of operations.
2.
Accounting Policies and Recent Accounting Pronouncements
Accounting Policies
The complete list of the Company’s accounting policies is included in the Company’s Annual Report on Form
10-K
filed on March 2, 2020 with the SEC. The following are updated, or new accounting policies related to the adoption of the credit losses standard.
Cash and Cash Equivalents
The Company considers cash equivalents to include short-term, highly liquid investments with maturities of three months or less when purchased. Portions of the balance of cash and cash equivalents were held in financial institutions, various money market funds with fixed and floating net asset values and short-term commercial paper. Money market funds have floating net asset values and may be subject to gating or liquidity fees. The Company assesses short-term commercial paper for impairment in connection with investments in marketable debt securities,
available-for-sale.
The likelihood of realizing material losses from cash and cash equivalents, including the excess of cash balances over federally insured limits, is remote.
Commissions Receivable, Net
Commissions receivable, net consists of commissions earned on brokerage and financing transactions for which payment has not yet been received. The Company evaluates the need for an allowance for credit losses based on consideration of historical experience, current conditions and forecasts of future economic conditions. The majority of commissions receivable are settled within 10 days after the close of escrow.
Advances and Loans, Net
Advances and loans, net includes amounts advanced and loans due from the Company’s investment sales and financing professionals.
In order to attract and retain highly skilled professionals, from time to time, the Company advances funds to its investment sales and financing professionals. The advances are typically in the form of forgivable loans that have terms that are generally between 5 and 10 years. The principal amount of a forgivable loan and accrued interest are forgiven over the term of the loan, so long as the investment sales and financing professionals continue to be a service provider with the Company, or upon achieving contractual performance criteria. Amounts forgiven are charged to selling, general and administrative expense at the time the amounts are forgiven. If the investment sales and financing professional’s relationship with the Company is terminated before the amount advanced is forgiven, the unforgiven amount becomes due and payable. The Company evaluates the need for an allowance for credit losses based on amounts advanced and expected forgiveness, in consideration of historical experience, current conditions and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable. Accrued interest, when applicable, has historically been immaterial.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The Company, from time to time, enters into various agreements with certain of its investment sales and financing professionals whereby these individuals receive loans. The notes receivable along with stated interest, are typically collected from future commissions or repaid based on the terms stipulated in the respective agreements that are generally between 1 and 7 years. The Company evaluates the need for an allowance for credit losses for the loans based on historical experience, current conditions
and
reasonable forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable.
Investments in Marketable Debt Securities,
Available-for-Sale
The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities (“ABS”) and other. The Company considers its investments in marketable debt securities to be
available-for-sale,
and accordingly are recorded at their fair values. The Company determines the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expense), net in the condensed consolidated statements of net and comprehensive income. The Company typically invests in highly-rated debt securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
The Company reviews quarterly its investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. The Company excludes accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income/loss, net of applicable taxes. The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. The Company evaluates
write-off
of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.
Determining whether a credit loss exists requires a high degree of judgment and the Company considers both qualitative and quantitative factors in making its determination. The Company evaluates its intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, the Company evaluates, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations and changes in base and market interest rates. If qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, the Company typically does not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are the Company’s best estimate based on past events, current conditions and reasonable and supportable economic forecasts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, investments in marketable debt securities,
available-for-sale,
security deposits (included under other assets,
non-current)
and commissions receivable, net. Cash and cash equivalents are placed with high-credit quality financial institutions and invested in high-credit quality money market funds and commercial paper. Concentrations of marketable debt securities,
available-for-sale
are limited by the approved investment policy.
To reduce its credit risk, the Company monitors the credit standing of the financial institutions money market funds that represent amounts recorded as cash and cash equivalents. The Company historically has not experienced any significant losses related to cash and cash equivalents.
The Company derives its revenues from a broad range of real estate investors, owners, and users in the
United
States
and
Canada, none of which individually represents a significant concentration of credit risk. The Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the likelihood of collection. For the three and six months ended June 30,March 31, 2021 and 2020, and 2019, 0 transaction represented 10% or more of total revenues. Further, while one or more transactions may represent 10% or more of commissions receivable at any reporting date, amounts due are typically collected within 10 days of settlement and, therefore, do not expose the Company to significant credit risk.
10
Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the three and six months ended June 30,March 31, 2021, the Company’s Canadian operations represented less than 2% of total revenues. During the three months ended March 31, 2020, the Company’s Canadian operations represented approximately 2% of total revenues. During the three and six months ended June 30, 2019, the Company’s Canadian operations represented less than 1% of total revenues.
During the three and six months ended June 30,March 31, 2021, 0 office represented 10% or more of total revenues. During the three months ended March 31, 2020, and 2019, 01 office represented 10% or more of total revenues.
Recent Accounting Pronouncements
Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-13,
Financial
Instruments
-
Credit
Losses
(“ASU
2016-13”).
The new standard requires the use of an expected-loss model for financial assets measured at amortized cost and marketable debt securities,
available-for
sale, which requires that identified credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) is permitted in the reporting period that the change occurs. Previously, U.S. GAAP prohibited reflecting any reversals of impairment charges. The Company adopted the new standard on January 1, 2020 using the modified-retrospective transition method for assets measured at amortized cost other than marketable debt securities,
available-for-sale,
which was adopted using a prospective transition approach as required by the new standard. On the adoption date, the Company recorded a cumulative-effect adjustment related to an allowance for credit losses
associated with
commissions receivable and advances and loans, net of tax in the amount of $33,000 with the offset to retained earnings as of the beginning of the period presented after adoption. The adoption of ASU
2016-13
did not have a material impact on the Company’s investment policy and impairment model for marketable debt securities,
available-for-sale.
The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment.
In August 2018, the FASB issued ASU
No. 2018-15,
Internal-Use
Software
(Subtopic 350-40
) -
Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
(“ASU
2018-15”).
ASU
2018-15
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an internal use software license), by permitting a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an
internal-use
software project. The Company adopted the new standard effective January 1, 2020
,
using the prospective method. The adoption of ASU
2018-15
did not have a material effect on the Company’s condensed consolidated financial statements.
Pending Adoption
In December 2019, the FASB issued ASU
No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”).
ASU
2019-12
is effective for reporting periods beginning after December 15, 2020 with early adoption permitted. For the Company, the new standard will be effective on January 1, 2021. ASU
2019-12
simplifies the accounting for income taxes by eliminating certain exceptions including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes such as
step-up
in tax basis for goodwill and interim recognition of enactment of tax laws or rate changes. The Company is currently evaluating the impact of this new standard and does not expect ASU
2019-12
to have a material effect on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU
No. 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(“ASU
2020-04”).
ASU
2020-04
provides temporary optional exceptions to the guidance in U.S. GAAP on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR)(“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate.Rate (“SOFR”). ASU
2020-04
is effective for all entities upon issuance and may be applied prospectively to contract modifications through December 31, 2022. The guidance applies to the Company’s Credit Agreement (see Note 1513 – “Commitments and Contingencies”), which references LIBOR, and will generally allow it to account for and present a modification as an event that does not0t require contract remeasurement at the modification date or reassessment of a previous accounting determination. As of June 30, 2020,March 31, 2021, the Company has not drawn funds from the credit facility. The Company continues to evaluate the impact of this new standard and
but
does not expect ASU
2020-04
to have a material effect on its condensed consolidated financial statements.
 
11
Table of Contents
MARCUS &
MILLICHAP
, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3.2.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
   June 30,
2020		   December 31,
2019		 
Computer software and hardware equipment
  $28,445   $25,252 
Furniture, fixtures, and equipment
   23,114    23,468 
Less: accumulated depreciation and amortization
   (28,130)    (26,077) 
  
 
 
   
 
 
 
  $23,429   $22,643 
  
 
 
   
 
 
 
   March 31,
2021		   December 31,
2020		 
Computer software and hardware equipment
  $32,049   $30,955 
Furniture, fixtures and equipment
   23,504    23,418 
Less: accumulated depreciation and amortization
   (32,622)    (30,937) 
           
   $22,931   $23,436 
           
During the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, the Company
wrote-off
approximately $966,000$41,000 and $3.1 million,$191,000, respectively, of fully depreciated computer software and hardware equipment and furniture, fixtures and equipment.
As of June 30,March 31, 2021 and 2020, and 2019, property and equipment additions incurred but not yet paid included in accounts payable and other liabilities were $197,000$275,000 and $466,000,$259,000, respectively.
The Company evaluates its fixed assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of June 30, 2020,March 31, 2021, the Company considered the
impact oof
f
the
COVID-19
pandemic and evaluated its property and equipment for potential indicators of impairment. The Company concluded that as of June 30, 2020,March 31, 2021, there waswere 0 indicators of impairment of its property and equipment.
 
8
Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.3.
Operating Leases
The Company has operating leases for all of its facilities and autos. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, operating lease
right-of-use
(“ROU”) assets were $117.7$127.7 million and $111.1$126.9 million, respectively, and the related accumulated amortization was $31.7$46.6 million and $20.6$42.9 million, respectively.
The operating lease cost, included in selling, general and administrative expense in the condensed consolidated statement of net and comprehensive income, consisted of the following (in thousands):
 
   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2020   2019   2020   2019 
Operating lease cost:
        
Lease cost
(1)
  $6,341   $6,106   $12,604   $12,015 
Variable lease cost
(2)
   1,215    1,284    2,611    2,490 
Sublease income
   (89)    (43)    (166)    (131) 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $
 
7,467   $
 
7,347   $15,049   $14,374 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Operating lease cost:
          
Lease cost
(1)
  $6,589   $6,263 
Variable lease cost
(2)
   1,400    1,396 
Sublease income
   (33)    (77) 
           
   $7,956   $7,582 
           
(1)
Includes short-term lease cost and ROU asset amortization.
(2)
Primarily relates to common area maintenance, property taxes, insurance, utilities and parking.
Maturities of lease liabilities by year consisted of the following (in thousands):
 
   June 30, 2020 
Remainder of 2020
  $10,505 
2021
   20,891 
2022
   15,681 
2023
   12,286 
2024
   10,081 
Thereafter
   15,368 
  
 
 
 
Total future minimum lease payments
   84,812 
Less imputed interest
   (6,670) 
  
 
 
 
Present value of operating lease liabilities
  $78,142 
  
 
 
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   March 31, 2021 
Remainder of 2021
  $17,205 
2022
   17,722 
2023
   14,331 
2024
   12,089 
2025
   9,877 
Thereafter
   10,835 
      
Total future minimum lease payments
   82,059 
Less imputed interest
   (5,716) 
      
Present value of operating lease liabilities
  $76,343 
      
Supplemental cash flow information and noncash activity related to the operating leases consisted of the following (in thousands):
 
   Six Months Ended
June 30,		 
   2020   2019 
Operating cash flow information:
    
Cash paid for amounts included in the measurement of operating lease liabilities
  $
 
10,456   $9,973 
Noncash activity:
    
ROU assets obtained in exchange for operating lease liabilities
  $6,334   $16,264 
Tenant improvements owned by lessor related to ROU assets
(1)
  $317   $2,532 
   Three Months Ended
March 31,		 
   2021   2020 
Operating cash flow information:
          
Cash paid for amounts included in the measurement of operating lease liabilities
  $5,862   $5,223 
Noncash activity:
          
ROU assets obtained in exchange for operating lease liabilities
  $3,004   $3,109 
Tenant improvements owned by lessor related to ROU assets (1)
  $55   $317 
 
(1)
Reclassification from other assets current.
Other information related to the operating leases consisted of the following:
 
   June 30, 2020  December 31, 2019
Weighted average remaining operating lease term
  4.87 years  5.04 years
Weighted average discount rate
  3.3%  3.8%
   March 31, 2021  December 31, 2020 
Weighted average remaining operating lease term
   4.71 years   4.70 years 
Weighted average discount rate
   3.0%   3.1% 
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

5.4.
Investments in Marketable Debt Securities
Amortized cost, allowance for credit losses, gross unrealized gains/losses in accumulated other comprehensive income/loss and fair value of marketable debt securities,
available-for-sale,
by type of security consisted of the following (in thousands):
 
   June 30, 2020 
   Amortized
Cost		   Allowance
for Credit
Losses		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair
Value		 
Short-term investments:
         
U.S. treasuries
  $
 
108,982   $—     $498   $(1)  $109,479 
U.S. government sponsored entities
   37,699    —      14    —     37,713 
Corporate debt
   22,514    —      62    —     22,576 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  $169,195   $—     $574   $(1)  $169,768 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Long-term investments:
         
U.S. treasuries
  $3,892   $—     $319   $—    $4,211 
U.S. government sponsored entities
   1,218    —      36    —     1,254 
Corporate debt
   28,139    —      1,758    (181)   29,716 
ABS and other
   7,559    —      128    (87)   7,600 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
  $40,808   $—     $2,241   $(268)  $42,781 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
   December 31, 2019 
   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair
Value		 
Short-term investments:
        
U.S. treasuries
  $
 
 
124,389   $196   $(5)   $
 
124,580 
U.S. government sponsored entities
   —      —      —      —   
Corporate debt
   26,128    44    —      26,172 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $150,517   $240   $(5)   $150,752 
  
 
 
   
 
 
   
 
 
   
 
 
 
Long-term investments:
        
U.S. treasuries
  $24,188   $235   $—     $24,423 
U.S. government sponsored entities
   1,353    3    (1)    1,355 
Corporate debt
   25,447    1,027    (3)    26,471 
ABS and other
   8,480    93    (13)    8,560 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $59,468   $1,358   $(17)   $60,809 
  
 
 
   
 
 
   
 
 
   
 
 
 
   March 31, 2021 
   Amortized
Cost		   Allowance
for Credit
Losses		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair
Value		 
Short-term investments:
                        
U.S. treasuries
  $69,217   $0     $23   $0    $69,240 
U.S. government sponsored entities
   11,450    0      4    0     11,454 
Corporate debt
   53,793    0      7    0     53,800 
                         
   $134,460   $0     $34   $0    $134,494 
                         
Long-term investments:
                        
U.S. treasuries
  $22,342   $0     $179   $0    $22,521 
U.S. government sponsored entities
   1,012    0      36    (3)   1,045 
Corporate debt
   35,424    0      1,505    (60)   36,869 
Asset-backed securities (“ABS”) and other
   6,336    0      166    (6)   6,496 
                         
   $65,114   $0     $1,886   $(69)  $66,931 
                         
  
   December 31, 2020 
   Amortized
Cost		   Allowance
for Credit
Losses		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair
Value		 
Short-term investments:
                        
U.S. treasuries
  $75,887   $0     $88   $(5)  $75,970 
U.S. government sponsored entities
   32,439    0      8    0     32,447 
Corporate debt
   49,822    0      20    (1)   49,841 
                         
   $158,148   $0     $116   $(6)  $158,258 
                         
Long-term investments:
                        
U.S. treasuries
  $3,375   $0     $266   $0    $3,641 
U.S. government sponsored entities
   1,114    0      38    0     1,152 
Corporate debt
   34,183    0      2,137    (33)   36,287 
ABS and other
   6,509    0      195    (11)   6,693 
                         
   $45,181   $0     $2,636   $(44)  $47,773 
                         
The Company’s investments in marketable debt securities,
available-for-sale,
debt securities that have been in a continuous unrealized loss position, for which an allowance for credit losses has not been recorded, by type of security consisted of the following (in thousands):
 
  June 30, 2020   March 31, 2021 
  Less than 12 months 12 months or greater   Total   Less than 12 months 12 months or
 
greater		 Total 
  Fair
Value		   Gross
Unrealized
Losses		 Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		 Fair
Value		   Gross
Unrealized
Losses		 Fair
Value		   Gross
Unrealized
Losses		 
U.S. treasuries
  $16,889   $(1)  $—     $—     $16,889   $(1) 
U.S. government sponsored entities
  $139   $(3)  $0     $0    $139   $(3) 
Corporate debt
   2,073    (181)   —      —      2,073    (181)    20,447    (52)   139    (8)   20,586    (60) 
ABS and other
   2,256    (87)   —      —      2,256    (87)    363    0     345    (6)   708    (6) 
  
 
   
 
  
 
   
 
   
 
   
 
                       
  $21,218   $(269)  $—     $—     $21,218   $(269)   $20,949   $(55)  $484   $(14)  $21,433   $(69) 
  
 
   
 
  
 
   
 
   
 
   
 
                       

10
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
   December 31, 2019 
   Less than 12 months  12 months or greater  Total 
   Fair
Value		   Gross
Unrealized
Losses		  Fair
Value		   Gross
Unrealized
Losses		  Fair
Value		   Gross
Unrealized
Losses		 
U.S. treasuries
  $39,823   $(5)  $—     $—    $39,823   $(5) 
U.S. government sponsored entities
   —      —     566    (1)   566    (1) 
Corporate debt
   6,029    (3)   —      —     6,029    (3) 
ABS and other
   1,971    (13)   —      —     1,971    (13) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
  $47,823   $(21)  $566   $(1)  $48,389   $(22) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
   December 31, 2020 
   Less than 12 months  12 months or greater  Total 
   Fair
Value		   Gross
Unrealized
Losses		  Fair
Value		   Gross
Unrealized
Losses		  Fair
Value		   Gross
Unrealized
Losses		 
U.S. treasuries
  $41,702   $(5)  $0     $0    $41,702   $(5) 
Corporate debt
   29,810    (34)   0      0     29,810    (34) 
ABS and other
   546    (6)   157    (5)   703    (11) 
                             
   $72,058   $(45)  $157   $(5)  $72,215   $(50) 
                             
Gross realized gains and losses from the sales of the Company’s marketable debt securities,
available-for-sale,
debt securities consisted of the following (in thousands):
 
   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2020   2019   2020   2019 
Gross realized gains
(1)
  $79   $24   $132   $59 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross realized losses
(1)
  $(15)   $—     $(15)   $(47) 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Gross realized gains
(1)
  $1   $53 
           
Gross realized losses
(1)
  $0     $0   
           
 
(1)
Recorded in other income (expense), net in the condensed consolidated statements of net and comprehensive income. The cost basis of securities sold were determined based on the specific identification method.
The Company invests its excess cash in a diversified portfolio of fixed and variable rate debt securities to meet current and future cash flow needs. All investments are made in accordance with the Company’s approved investment policy. As of June 30, 2020,March 31, 2021, the portfolio had an average credit rating of AA+AA and weighted
term to finalcontractual maturity 
of 1.7 years, with 2127 securities in the portfolio with an unrealized loss aggregating $269,000,$69,000, or 0.1%0.3% of amortized cost, and a weighted average credit rating of AA+A+.
As of June 30, 2020,March 31, 2021, the Company performed an impairment analysis and determined an allowance for credit losses was 0t required. The Company determined that it did not have an intent to sell and it was not more likely than not that the Company would be required to sell any security based on its current liquidity position, or to maintain compliance with its investment policy, specifically as it relates to minimum credit ratings. The Company evaluated the securities with an unrealized loss considering severity of loss, credit ratings, specific credit events during the period since acquisition, overall likelihood of default, market sector, potential impact from the current economic situation and a review of an issuer’s and securitiessecurities’ liquidity and financial strength, as needed. The Company concluded that it would receive all scheduled interest and principle payments. The Company, therefore, determined qualitatively that the unrealized loss was related to changes in interest rates and other market factors and therefore no allowance for credit losses was required.
Amortized cost and fair value of marketable debt securities,
available-for-sale,
by contractual maturity consisted of the following (in thousands, except weighted average data):
 
   June 30, 2020   December 31, 2019 
   Amortized
Cost		   Fair Value   Amortized
Cost		   Fair Value 
Due in one year or less
  $169,195   $169,768   $150,517   $150,752 
Due after one year through five years
   25,166    26,426    41,123    41,794 
Due after five years through ten years
   10,709    11,395    12,813    13,467 
Due after ten years
   4,933    4,960    5,532    5,548 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $210,003   $212,549   $209,985   $211,561 
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average contractual maturity
     1.7
 
years		      1.7 years 
   March 31, 2021   December 31, 2020 
   Amortized
Cost		   Fair Value   Amortized
Cost		   Fair Value 
Due in one year or less
  $134,460   $134,494   $158,148   $158,258 
Due after one year through five years
   50,401    51,534    30,604    32,041 
Due after five years through ten years
   10,323    10,891    10,022    11,044 
Due after ten years
   4,390    4,506    4,555    4,688 
                     
   $199,574   $201,425   $203,329   $206,031 
                     
Weighted average contractual maturity
        1.7 years         1.6
 
years		 
Actual maturities may differ from contractual maturities because certain issuers have the right to prepay certain obligations with or without prepayment penalties.
 
6.
Acquisitions, Goodwill and Other Intangible Assets
During the six months ended June 30, 2020, the Company expanded its network of its real estate sales and financing professionals and provided further diversification to its real estate brokerage and financing services.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
5.
Acquisitions, Goodwill and Other Intangible Assets
The Company completed an acquisition of 2 businesses that were accounted for as business combination
s
and the results have been included in the condensed consolidated financial statements beginning on the acquisition date
s
. Aggregate terms of these acquisitions included: (i) cash paid at closing of approximately $11.8 million, net of cash received, (ii) the fair value of contingent consideration of $1.8 million using a probability-weighted, discounted cash flow estimate on achieving certain financial metrics
,
and (iii) the fair value of deferred consideration of $3.9 million using a discounted cash flow estimate with
the
only remaining condition on such payments
being
the passage of time. Contingent consideration and deferred consideration are included in accounts payable and other liabilities and other liabilities captions in the condensed consolidated balance sheets. See Note 10 – “Fair Value Measurements” for additional information on contingent and deferred consideration.
Based on preliminary purchase price allocations, $8.3 million was allocated to the fair values of intangible assets with the remainder of $9.2 million allocated to goodwill. The Company recorded acquisition related costs of $446,000 and $94,000 for
During the three months ended June 30,March 31, 2021, the Company recognized measurement period adjustments, including additional cash acquired to the provisional amounts that were recognized at the acquisition date for businesses acquired during 2020 to reflect new information obtained about facts and 2019, respectively, and $1.1 million and $140,000 forcircumstances that existed as of the six months ended June 30, 2020 and 2019, respectively.acquisition dates that, if known, would have affected the measurement of the amounts recognized as of
These amounts are included in selling, general and administrativethe acquisition date. The impact to amortization expense in the accompanying condensed consolidated statements of net and comprehensive income.
not previously recognized related to these adjustments was not material.
The goodwill recorded as part of the acquisitions primarily arisesarose from the acquired assembled workforce and
brokerage
and financing sales platforms. The Company expects all of the goodwill to be tax deductible, with the
tax-deductible
amount of goodwill related to the contingent and deferred consideration to be determined once the cash payments are made to settle any contingent and deferred consideration. The goodwill resulting from acquisitions is allocated to the Company’s 1 reporting unit.
Goodwill and intangible assets, net consisted of the following (in thousands):
 
  June 30, 2020   December 31, 2019   March 31, 2021   December 31, 2020 
  Gross
Carrying
Amount		   Accumulated
Amortization		 Net Book
Value		   Gross
Carrying
Amount		   Accumulated
Amortization		 Net Book
Value		   Gross
Carrying
Amount		   Accumulated
Amortization		 Net Book
Value		   Gross
Carrying
Amount		   Accumulated
Amortization		 Net Book
Value		 
Goodwill and intangible assets:
                          
Goodwill
  $24,319   $—    $24,319   $15,072   $—    $15,072   $34,046   $—    $34,046   $33,375   $—    $33,375 
Intangible assets
(1)
   17,291    (3,781)   13,510    9,050    (1,810)   7,240    23,975    (7,204)   16,771    24,745    (6,067)   18,678 
  
 
   
 
  
 
   
 
   
 
  
 
                       
  $41,610   $(3,781)  $37,829   $24,122   $(1,810)  $22,312   $58,021   $(7,204)  $50,817   $58,120   $(6,067)  $52,053 
  
 
   
 
  
 
   
 
   
 
  
 
                       
(1)
Total weighted average amortization period was 5.08
5.53 years and 4.375.57 years as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
The changes in the carrying amount of goodwill consisted of the following (in thousands):
 
  Six Months Ended
June 30,		   Three Months Ended
March 31,		 
  2020   2019   2021   2020 
Beginning balance
  $
 
15,072   $
 
11,459   $33,375   $15,072 
Additions from acquisitions(1)
   9,247    —      671    3,990 
Impairment losses
   —      —      0      0   
  
 
   
 
         
Ending balance
  $24,319   $11,459   $34,046   $19,062 
  
 
   
 
         
(1) The 2021 addition represents a measurement period adjustment.
Estimated amortization expense for intangible assets by year for the next five years and thereafter consisted of the following (in thousands):
 
   June 30, 2020 
Remainder of 2020
  $1,924 
2021
   2,972 
2022
   2,585 
2023
   2,582 
2024
   2,013 
Thereafter
   1,434 
  
 
 
 
  $13,510 
  
 
 
 
   
March 31, 
2021
 
Remainder of 2021
  $2,737 
2022
   3,474 
2023
   3,419 
2024
   2,891 
2025
   2,659 
Thereafter
   1,591 
      
   $16,771 
      
The Company evaluates goodwill and intangible assets for impairment annually in the fourth quarter. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing, which indicate that it is more likely than not an impairment loss has occurred. The Company evaluates its intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. 
 
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
loss has occurred. As of June 30, 2020,March 31, 2021, the Company considered the impact of
COVID-19
pandemic and evaluated its goodwill and intangible assets for impairment testing. The Company considered qualitative and quantitative factors, including the impact from the
COVID-19
induced economic slowdown and current projected recovery timeframes and their impact on goodwill andtimeframes. The Company estimated the recoverability of the intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows that the Company expects the asset to generate. The sum of the undiscounted expected future cash flows was greater than the carrying amount of the intangible assets. The Company concluded that as of June 30, 2020,March 31, 2021, there was 0 impairment of its goodwill and intangible assets.
 
7.6.
Selected Balance Sheet Data
Advances and Loans, Net and Commissions Receivable, Net
Allowance for credit losses for advances and loans and commissions receivable consisted of the following (in thousands):
 
   Advances and
Loans		   Commissions
Receivable		   Total 
Beginning balance as of January 1, 2020
  $512   $32   $544 
Credit loss (recovery) expense
   (79)    1    (78) 
Write-offs
   (32)    —      (32) 
  
 
 
   
 
 
   
 
 
 
Ending balance as of June 30, 2020
  $401   $33   $434 
  
 
 
   
 
 
   
 
 
 
   
Advances
 and
Loans
   Commissions
Receivable		   Total 
Beginning balance as of January 1, 2021
  $563   $94   $657 
Credit loss recovery
   (67)    (79)    (146) 
Write-offs
   (2)    0      (2) 
                
Ending balance as of March 31, 2021
  $494   $15   $509 
                
 
  Advances and
Loans		   Commissions
Receivable		   Total   
Advances
 and
Loans
   Commissions
Receivable		 Total 
Beginning balance as of January 1, 2019
  $514   $—     $514 
Beginning balance as of January 1, 2020
  $512   $32 (1)  $544 
Credit loss recovery
   (13)    —      (13)    (120)    0     (120) 
Write-offs
   (103)    —      (103)    (2)    0     (2) 
  
 
   
 
   
 
            
Ending balance as of June 30, 2019
  $398   $—     $398 
Ending balance as of March 31, 2020
  $390   $32  $422 
  
 
   
 
   
 
            
(1) 
Includes cumulative-effect adjustment related to the adoption of ASU No. 2016-13,
Financial Instruments – Credit Losses.
Other Assets
Other assets consisted of the following (in thousands):
 
   Current   Non-Current 
   June 30,
2020		   December 31,
2019		   June 30,
2020		   December 31,
2019		 
Mortgage servicing rights (“MSRs”), net of amortization
  $—     $—     $
 
2,133   $2,002 
Security deposits
   —      —      1,388    1,345 
Employee notes receivable
(1)
   170    65    406    323 
Customer trust accounts and other
   3,449    3,120    574    677 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $3,619   $3,185   $4,501   $4,347 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Current   Non-Current 
   March 31,
2021		   December 31,
2020		   March 31,
2021		   December 31,
2020		 
Mortgage servicing rights (“MSRs”), net of amortization
  $0     $0     $2,062   $1,897 
Security deposits
   0      0      1,463    1,461 
Employee notes receivable
(1)
   165    185    13    246 
Customer trust accounts and other
   5,477    4,526    537    572 
                     
   $5,642   $4,711   $4,075   $4,176 
                     
 
(1)
Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $0$10 and $60 $0
for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. See Note 97 – “Related-Party Transactions” for additional information.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MSRs
The net change in the carrying value of MSRs consisted of the following (in thousands):
 
   Six Months Ended
June 30,		 
   2020   2019 
Beginning balance
  $2,002   $2,209 
Additions
   384    165 
Amortization
   (253)    (275) 
  
 
 
   
 
 
 
Ending balance
  $2,133   $2,099 
  
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Beginning balance
  $1,897   $
 
2,002 
Additions
   303    77 
Amortization
   (138)    (129) 
           
Ending balance
  $2,062   $1,950 
           
The portfolio of loans serviced by the Company aggregated $1.7 billion and $1.6 billion asfor each of June 30, 2020the periods ended March 31, 2021 and December 31, 2019,2020, respectively. See Note 108 – “Fair Value Measurements” for additional information on MSRs.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In connection with MSR activities, the Company holds funds in escrow for the benefit of the lenders. These funds, which totaled $2.7$2.0 million and $2.6$3.2 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, and the offsetting obligations are not presented in the Company’s condensed consolidated financial statements as they do not represent assets and liabilities of the Company.
Deferred Compensation and Commissions
Deferred compensation and commissions consisted of the following (in thousands):
 
  Current   Non-Current   Current   Non-Current 
  June 30,
2020		   December 31,
2019		   June 30,
2020		   December 31,
2019		   March 31,
2021		   December 31,
2020		   March 31,
2021		   December 31,
2020		 
Stock appreciation rights (“SARs”) liability
(1)
  $2,162   $2,080   $16,316   $18,122   $2,225   $
 
2,162   $
 
14,568   $16,671 
Commissions payable to investment sales and financing professionals
   21,693    40,235    8,641    20,818    29,054    54,082    7,389    15,306 
Deferred compensation liability
(1)
   1,433    1,553    6,431    6,688    1,485    1,519    6,788    6,768 
Other
   261    433    —      —      435    343    0      0   
  
 
   
 
   
 
   
 
                     
  $25,549   $44,301   $31,388   $45,628   $33,199   $58,106   $28,745   $38,745 
  
 
   
 
   
 
   
 
                     
 
(1)
The SARs and deferred compensation liability become subject to payout as a result of a participant no longer being considered as a service provider. As a result of the retirement of certain participants, estimated amounts to be paid to the participants within the next twelve months have been classified as current.
SARs
Liability
Prior to the IPO, certain employees of the Company were granted SARs under a stock-based compensation program assumed by MMC. In connection with the IPO, the SARs agreements were revised, the MMC liability of $20.0 million for the SARs was frozen as of March 31, 2013 and was transferred to MMI through a capital distribution. The SARs liability will be settled with each participant in ten annual installments in January of each year upon retirement or termination from service, or in full upon consummation of a change in control of the Company.
Under the revised agreements, MMI is required to accrue interest on the outstanding balance beginning on
January 1, 2014 at a rate based on the
10-year
treasury note, plus 2%. The rate resets annually. The rates at January 1, 2021 and 2020 were 2.930% and 2019 were 3.920% and 4.684%, respectively. MMI recorded interest expense related to this liability of $177,000$122,000 and $226,000$178,000 for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $355,000 and $452,000 for the six months ended June 30, 2020 and 2019, respectively.
Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, the Company made total payments of $2.1$2.2 million and $1.7$2.1 million, consisting of principal and accumulated interest, respectively.
Commissions Payable
Certain investment sales professionals have the ability to earn additional commissions after meeting certain annual revenue thresholds. These commissions are recognized as cost of services in the period in which they are earned as they relate to specific transactions closed. The Company has the ability to defer payment of certain commissions, at its election, for up to three years. Commissions payable that are not expected to be paid within twelve months are classified as long-term.
18
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
 
Deferred Compensation Liability
A select group of management is eligible to participate in the Marcus & Millichap Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a
non-qualified
deferred compensation plan that is intended to comply with Section 409A of the Internal Revenue Code and permits participants to defer compensation up to the limits set forth in the Deferred Compensation Plan. Amounts are paid out generally when the participant is no longer a service provider; however, an
in-service
payout election is available to participants. Participants may elect to receive payouts as a lump sum or quarterly over a two to fifteen-year period. The Company elected to fund the Deferred Compensation Plan through company owned variable life insurance policies. The Deferred Compensation Plan is managed by a third-party institutional fund manager, and the deferred compensation and investment earnings are held as a Company asset in a rabbi trust, which is recorded in assets held in rabbi trust in the accompanying condensed consolidated balance sheets. The assets in the trust are restricted unless the Company becomes insolvent, in which case the trust assets are subject to the claims of the Company’s creditors. The Company may also, in its sole and absolute discretion, elect to withdraw at any time a portion of the trust assets by an amount by which the fair market value of the trust assets exceeds 110% of the aggregate deferred compensation liability represented by the participants’ accounts. Estimated payouts within the next twelve months for participants that have separated from service or elected in service payout have been classified as current. During the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, the Company made total payments to participants of $821,000$371,000 and $786,000,$358,000, respectively.
The assets held in the rabbi trust are carried at the cash surrender value of the variable life insurance policies, which represents its fair value. The net change in the carrying value of the assets held in the rabbi trust and the net change in the carrying value of the deferred compensation liability, each exclusive of additional contributions, distributions and trust expenses consisted of the following (in thousands):
 
   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2020   2019   2020   2019 
Increase (decrease) in the carrying value of the assets held in the rabbi trust
(1)
  $1,124   $225   $(264)   $928 
  
 
 
   
 
 
   
 
 
   
 
 
 
Increase (decrease) in the net carrying value of the deferred compensation obligation 
(2)
  $973   $227   $(300)   $912 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Increase (decrease) in the carrying value of the assets held in the rabbi trust
(1)
  $333   $(1,388) 
           
Increase (decrease) in the net carrying value of the deferred compensation obligation
(2)
  $260   $(1,273) 
           
 
(1)
Recorded in other income (expense), net in the condensed consolidated statements of net and comprehensive income.
(2)
Recorded in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income.
Other Liabilities
Other liabilities consisted of the following (in thousands):
 
   Non-Current 
   June 30,
2020		   December 31,
2019		 
Deferred consideration
(1) (2)
  $3,372   $830 
Contingent consideration
(1) (2)
   3,805    2,709 
Other
   521    —   
  
 
 
   
 
 
 
  $7,698   $3,539 
  
 
 
   
 
 
 
   Non-Current 
   March 31,
2021		   December 31,
2020		 
Deferred consideration
(1) (2)
  $7,171   $8,582 
Contingent consideration
(1)
   4,033    4,219 
Other
   1,013    1,015 
           
   $12,217   $13,816 
           
 
(1)
The current portions of deferred consideration in the amounts of $1,845$6,571 and $560$6,666 as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets. The current portions of contingent consideration in the amounts of $1,403$1,268 and $678$1,353 as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets.
(2)
Deferred consideration in the aggregate amount of $1,401 as of December 31, 2019 was reclassified from contingent consideration
Includes a measurement period adjustment made during the sixthree months ended June 30, 2020March 31, 2021, which represents a noncash investing activity. See Note 5 – “Acquisitions, Goodwill and of this amount, $560 and $841 pertained to the current and
non-currentOther Intangible Assets” for additional information.
portions, respectively.
 
7
8.
Notes Payable to Former Stockholders
In conjunction with the
spin-off
and IPO, notes payable to certain former stockholders of MMREIS were issued in settlement of restricted stock and SARs awards that were redeemed by MMREIS upon the termination of employment by the former stockholders (“the Notes”). Such Notes had been previously assumed by MMC and were transferred to the Company. The Notes were fully paid in April 2020 in the amount of $6.9 million ($6.6 million principal and $333,000 interest).
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.
Related-Party Transactions
Shared and Transition Services
Certain services are provided to the Company under a Transition Services Agreement (“TSA”) between MMC and the Company. The TSA is intended to provide certain services until the Company acquires thethese services separately. Under the TSA, the Company incurred net costs during the three months ended June 30,March 31, 2021 and 2020 of 
$19,000 and 2019 of $16,000 and $32,000, respectively, and during the six months ended June 30, 2020 and 2019 of $42,000 and $75,000,$26,000, respectively. These amounts are included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Brokerage and Financing Services with the Subsidiaries of MMC
MMC has wholly or majority owned subsidiaries that buy and sell commercial real estate properties. The Company performs certain brokerage and financing services related to transactions of the subsidiaries of MMC. For the three months ended June 30,March 31, 2021 and 2020, and 2019, the Company earned real estate brokerage commissions and financing fees of $880,000$457,000 and $1.9 million,$766,000, respectively, from transactions with subsidiaries of MMC related to these services. The Company incurred cost of services of $536,000$274,000 and $1.1 million, respectively, related to these revenues. For the six months ended June 30, 2020 and 2019, the Company earned real estate brokerage commissions and financing fees of $1.6 million and $2.8 million, respectively, from transactions with subsidiaries of MMC related to these services. The Company incurred cost of services of $988,000 and $1.6 million,$453,000, respectively, related to these revenues.
Operating Lease with MMC
The Company has an operating lease with MMC for a single-story office building located in Palo Alto, California, which expires on May 31, 2022. The related operating lease cost was $332,000 and $333,000 for each of the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $665,000 and $666,000 for the six months ended June 30, 2020 and 2019, respectively. Operating lease cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income. See Note 43 – “Operating Leases” for additional information.
Accounts Payable and Other Liabilities with MMC
As of June 30, 2020,March 31, 2021 and December 31, 2019,2020, accounts payable and other liabilities with MMC totaling $94,000$93,000 and $88,000,$89,000, respectively, remain unpaid and are included in accounts payable and other liabilities in the accompanying condensed consolidated balance sheets.
Other
The Company makes advances to
non-executive
employees from
time-to-time.
At June 30, 2020March 31, 2021 and December 31, 2019,2020, the aggregate principal amount for employee notes receivable was $576,000$178,000 and $388,000,$431,000, respectively, which is included in other assets (current and
non-current)
in the accompanying condensed consolidated balance sheets. See Note 76 – “Selected Balance Sheet Data” for additional information.
As of June 30, 2020,March 31, 2021, George M. Marcus, the Company’s founder and
Co-Chairman,
Chairman, beneficially owned approximately 40%39% of the Company’s issued and outstanding common stock, including shares owned by Phoenix Investments Holdings, LLC and the Marcus Family Foundation II.
 
10.8.
Fair Value Measurements
U.S. GAAP defines the fair value of a financial instrument as the amount that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company is responsible for the determination of fair value and the supporting methodologies and assumptions. The Company uses various pricing sources and third parties to provide and validate the values utilized.
The degree of judgment used in measuring the fair value of financial instruments is generally inversely correlated with the level of observable valuation inputs. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
Assets recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of the three “levels” based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:
Level
 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
•
Level
 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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MARCUS &
MILLICHAP
,
INC
.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Level
 2:
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
 
Level
 3:
Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Recurring Fair Value Measurements
The Company values its investments
,
including commercial paper and floating net asset valueNAV money market funds recorded in cash and cash equivalents, investments in marketable debt securities,
available-for-sale,
assets held in the rabbi trust, deferred compensation liability and contingent and deferred consideration at fair value on a recurring basis.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair values for investments included in cash and cash equivalents and marketable debt securities,
available-for-sale
were determined for each individual security in the investment portfolio and all these securities are Level 1 or 2 measurements as appropriate.
Fair values for assets held in the rabbi trust and related deferred compensation liability were determined based on the cash surrender value of the company owned variable life insurance policies and underlying investments in the trust, and are Level 2 and Level 1 measurements, respectively.
Contingent consideration in connection with acquisitions, is carried at fair value and determined on a
contract-by-contract
basis, calculated using a probability weighted discounted cash flow modelunobservable inputs based on thea probability of achieving EBITDA and other performance and service requirements, and is a Level 3 measurement. During the six months ended June 30, 2020, the Company considered the economic impact of
COVID-19
on the probability of achieving EBITDA and other performance targets
,
and current and future interest rates in its determination of fair value for the contingent consideration. The Company is uncertain to the extent of the volatility in the unobservable inputs in the foreseeable future.
Deferred consideration in connection with acquisitions is carried at fair value and calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time, and is a Level 2 measurement.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities carried at fair value on a recurring basis consisted of the following (in thousands):
 
   June 30, 2020   December 31, 2019 
   Fair Value   Level 1   Level 2   Level 3   Fair Value   Level 1   Level 2   Level 3 
Assets:
                
Assets held in rabbi trust
  $9,081   $—     $9,081   $—     $9,452   $—     $9,452   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Cash equivalents
(1)
:
                
Commercial paper and other
  $5,751   $—     $5,751   $—     $5,087   $—     $5,087   $—   
Money market funds
   114,909    114,909    —      —      185,513    185,513    —      —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  $120,660   $114,909   $5,751   $—     $190,600   $185,513   $5,087   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Marketable debt securities,
available-for-sale:
                
Short-term investments:
                
U.S. treasuries
  $109,479   $109,479   $—     $—     $124,580   $124,580   $—     $—   
U.S. government sponsored entities
   37,713    —      37,713    —      —      —      —      —   
Corporate debt
   22,576    —      22,576    —      26,172    —      26,172    —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  $169,768   $109,479   $60,289   $—     $150,752   $124,580   $26,172   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Long-term investments:
                
U.S. treasuries
  $4,211   $4,211   $—     $—     $24,423   $24,423   $—     $—   
U.S. government sponsored entities
   1,254    —      1,254    —      1,355    —      1,355    —   
Corporate debt
   29,716    —      29,716    —      26,471    —      26,471    —   
ABS and other
   7,600    —      7,600    —      8,560    —      8,560    —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  $42,781   $4,211   $38,570   $—     $60,809   $24,423   $36,386   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  ��
 
 
   
 
 
   
 
 
 
Liabilities:
                
Contingent consideration
  $5,208   $—     $—     $5,208   $3,387   $—     $—     $3,387 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Deferred consideration
  $5,217   $—     $5,217   $—     $1,390   $—     $1,390   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Deferred compensation liability
  $7,864   $7,864   $—     $—     $8,241   $8,241   $—     $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   March 31, 2021   December 31, 2020 
   Fair Value   Level 1   Level 2   Level 3   Fair Value   Level 1   Level 2   Level 3 
Assets:
                                        
Assets held in rabbi trust
  $10,574   $0     $10,574   $0     $10,295   $0     $10,295   $0   
                                         
Cash equivalents
(1)
:
                                        
Commercial paper and other
  $3,899   $0     $3,899   $0     $9,399   $0     $9,399   $0   
Money market funds
   168,010    168,010    0      0      158,271    158,271    0      0   
                                         
   $171,909   $168,010   $3,899   $0     $167,670   $158,271   $9,399   $0   
                                         
Marketable debt securities,
available-for-sale:
                                        
Short-term investments:
                                        
U.S. treasuries
  $69,240   $69,240   $0     $0     $75,970   $75,970   $0     $0   
U.S. government sponsored entities
   11,454    0      11,454    0      32,447    0      32,447    0   
Corporate debt
   53,800    0      53,800    0      49,841    0      49,841    0   
                                         
   $134,494   $69,240   $65,254   $0     $158,258   $75,970   $82,288   $0   
                                         
Long-term investments:
                                        
U.S. treasuries
  $22,521   $22,521   $0     $0     $3,641   $3,641   $0     $0   
U.S. government sponsored entities
   1,045    0      1,045    0      1,152    0      1,152    0   
Corporate debt
   36,869    0      36,869    0      36,287    0      36,287    0   
ABS and other
   6,496    0      6,496    0      6,693    0      6,693    0   
                                         
   $66,931   $22,521   $44,410   $0     $47,773   $3,641   $44,132   $0   
                                         
Liabilities:
                                        
Contingent consideration
  $5,301   $0     $0     $5,301   $5,572   $0     $0     $5,572 
                                         
Deferred consideration
  $13,742   $0     $13,742   $0     $15,248   $0     $15,248   $0   
                                         
Deferred compensation liability
  $8,273   $8,273   $0     $0     $8,287   $8,287   $0     $0   
                                         
 
(1) 
Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.
There were 0
transfers in or out of Level 3 during the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020.
During the three months ended March 31, 2021, the Company considered the economic impact of the
COVID-19
pandemic on the probability of achieving EBITDA and other performance targets, and current and future interest rates in its determination of fair value for the contingent consideration. The Company is uncertain as to the extent of the volatility in the unobservable inputs in the foreseeable future. Deferred consideration in connection with acquisitions is carried at fair value and calcula
t
ed using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, contingent
and deferred
consideration has a maximum undiscounted payment to be settled in cash or stock of $17.3$32.0 million and $7.3$33.2 million, respectively. Assuming the achievement of the applicable performance criteria and/or service and time requirements, the Company anticipates these
earn-out
and deferred
payments will be made over the next one to seven-year period. Changes in fair value are included in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income.
A reconciliation of contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands):
 
   Six Months Ended
June 30,		 
   2020   2019 
Beginning balance
(1)
  $3,387   $2,875 
Contingent consideration in connection with acquisitions
(2)
   1,800    —   
Change in fair value of contingent consideration
   21    (16) 
Payments of contingent consideration
   —      —   
  
 
 
   
 
 
 
Ending balance
  $
 
5,208   $
 
2,859 
  
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Beginning balance
  $5,572   $3,387 
Contingent consideration in connection with acquisitions
(1)
   (100)    0   
Change in fair value of contingent consideration
   (171)    (225) 
Payments of contingent consideration
   0      0   
           
Ending balance
  $5,301   $3,162 
           
(1)
Beginning balance for 2020 reflects the reclassification of $1,401 from contingentContingent consideration relatedin connection with acquisitions represents a
no
ncash investing activity. Relates to deferred consideration.a measurement period adjustment. See Note 75 – “Selected Balance Sheet Data –“Acquisitions, Goodwill and Other Liabilities”Intangible Assets” for additional information.
(2)
Contingent consideration in connections with acquisitions represents a noncash investing activity.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis consisted of the following (dollars in thousands):
 
   Fair Value at
June 30, 2020		   Valuation Technique   
Unobservable inputs
  
Range (Weighted Average)
 (1)
Contingent consideration
  $5,208    Discounted cash flow   Expected life of cash flows  0.3-5.3 years  (2.1 years)
      Discount rate  
4.8%-5.0%
  (4.9%)
      Probability of achievement  
0%-100.0%
  (86.7%)
   Fair Value at
December 31, 2019		   Valuation Technique   
Unobservable inputs
  
Range (Weighted Average)
(1)
Contingent consideration
  $3,387    Discounted cash flow   Expected life of cash flows  0.4-5.8 years  (2.4 years)
      Discount rate  
3.6%-4.9%
  (4.1%)
      Probability of achievement  
33.0%-100.0%
  (74.3%)
   Fair Value at
  March 31, 2021  		    Valuation Technique   Unobservable inputs  
Range
        (Weighted Average)
 (1)
        
 
Contingent consideration
  $5,301    Discounted cash flow   Expected life of cash flows   2.2-6.6 years (4.0 years) 
             Discount rate   2.3%-4.3%       (3.2%) 
             Probability of achievement   35.3%-100.0%     (82.3%) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Fair Value at
December 31, 2020		    Valuation Technique   Unobservable inputs   
Range
(Weighted Average)
(1)
 
Contingent consideration
  $5,572    Discounted cash flow   Expected life of cash flows   2.4-6.8 years (4.4 years) 
             Discount rate   2.6%-4.3%       (3.4%) 
             Probability of achievement   50.0%-100.0%     (86.1%) 
 
(1)
Unobservable inputs were weighted by the relative fair value of the instruments.
Nonrecurring Fair Value Measurements
In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of MSRs, intangibles, goodwill and other assets for indications of impairment at least annually. When indications of potential impairment are identified, the Company may be required to determine the fair value of those assets and record an adjustment for the carrying amount in excess of the fair value determined. Any fair value determination would be based on valuation approaches, which are appropriate under the circumstances and utilize Level 2 and Level 3 measurements as required.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MSRs are recorded at fair value upon acquisition of a servicing contract. The Company has elected the amortization method for the subsequent measurement of MSRs. MSRs are carried at the lower of amortized cost or fair value. MSRs are a Level 3 measurement. The Company’s MSRs do not trade in an active, open market with readily observable prices. The estimated fair value of the Company’s MSRs were developed using a discounted cash flow model that calculates the present value of estimated future net servicing income. The model considers contractual provisions and assumptions of market participants including specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. The Company periodically reassesses and adjusts, when necessary, the underlying inputs and assumptions used to reflect observable market conditions and assumptions that a market participant would consider in valuing an MSR asset. Management made revisions to the assumptions used in the determination of fair value for MSRs after considering the economic impact of the
COVID-19
pandemic on default, severity, prepayment and discount rates related to the specific types and underlying collateral of the various serviced loans, interest rates, refinance rates, and current government and private sector responses to the pandemic. MSRs are carried at the lower of amortized cost or fair value. The fair value of the MSRs approximated the carrying value at June 30, 2020March 31, 2021 and December 31, 20192020 after consideration of the revisions to the various assumptions. See Note 76 – “Selected Balance Sheet Data – Other Assets – MSRs” for additional information.
As market conditions change, the Company will
re-evaluate
assumptions used in the determination of fair value for MSRs and is uncertain to the extent of the volatility in the unobservable inputs in the foreseeable future.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial assets measured at fair value on a nonrecurring basis consisted of the following (dollars in thousands):
 
   Fair Value at
March 31, 2021		    
Valuation Technique
   
Unobservable inputs
  Range
(Weighted Average)
(1)
 
MSRs
  $2,415    Discounted cash flow   Constant prepayment rates   0.0%-20.0% (10.0%) 
             Constant default rate   
0.3%-4.3%  
(1.2%)		 
             Loss severity   26.2%-31.4% (28.0%) 
             Discount rate   
10.0%-10.0%
(10.0%)		 
      
   Fair Value at
December 31, 2020		    
Valuation Technique
   
Unobservable inputs
  Range
(Weighted Average)
(1)
 
MSRs
  $2,135    Discounted cash flow   Constant prepayment rates   
0.0%-20.0%
(10.0%)		 
             Constant default rate   
0.3%-4.1%  
(1.1%)		 
             Loss severity   
26.2%-31.4%
(28.0%)		 
             Discount rate   
10.0%-10.0%
(10.0%)		 
 
   Fair Value at
June 30, 2020		   Valuation Technique   Unobservable inputs  Range (Weighted
 
Average)
 
(1)
MSRs
  $2,316    Discounted cash flow   Constant prepayment rates  0.0%-20.0% (10.0%)
      Constant default rate  
0.4%-5.0%
(1.5%)
      Loss severity  24.2%-50.0% (30.1%)
      Discount rate  
10.0%-10.0%
(10.0%)
   Fair Value at
December 31, 2019		   Valuation Technique   Unobservable inputs  Range (Weighted
 
Average)
 
(1)
MSRs
  $2,204    Discounted cash flow   Constant prepayment rates  0.0%-20.0% (10.0%)
      Constant default rate  
2.0%-2.0%
(2.0%)
      Loss severity  40.0%-40.0% (40.0%)
      Discount rate  
9.5%-9.7%
(9.7%)
 
(1)
Weighted average is based on the 10
% constant prepayment rate scenario which the Company uses as the reported fair value.
 
11.9.
Stockholders’ Equity
Common Stock
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, there were 39,328,01739,500,966 and 39,153,19539,401,976 shares of common stock, $0.0001 par value, issued and outstanding, which include unvested restricted stock awards (“RSAs”) issued to
non-employee
directors, respectively. See Note 1412 – “Earnings per Share” for additional information.
Preferred Stock
The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At June 30, 2020March 31, 2021 and December 31, 2019,2020, there were 0 preferred shares issued or outstanding.
Accumulated Other Comprehensive Income/Loss
Amounts reclassified from accumulated other comprehensive income/loss include marketable debt securities, available for sale are included as a component of other income (expense), net or selling, general and administrative expense, as applicable, in the condensed consolidated statements of net and comprehensive income. The reclassifications were determined on a specific identification basis.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is operating at a loss and has 0 earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative foreign currency translation adjustments.
 
12.10.
Stock-Based Compensation Plans
2013 Omnibus Equity Incentive Plan
The Company’s board of directors adopted the 2013 Omnibus Equity Incentive Plan (the “2013 Plan”), which became effective upon the Company’s IPO. In February 2017, the board of directors amended and restated the 2013 Plan, which was approved by the Company’s stockholders in May 2017. Grants are made from time to time by the compensation committee of the Company’s board of directors at its discretion,
,
subject to certain restrictions as to the number and value of shares that may be granted to any individual. In addition,
non-employee
directors receive annual grants under a director compensation policy. As of June 30, 2020,March 31, 2021, there were 4,994,1984,757,955 shares available for future grants under the 2013 Plan.
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MARCUS &
MILLICHAP
, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Awards Granted and Settled
Under the 2013 Plan, the Company has issued RSAs to
non-employee
directors and restricted stock units (“RSUs”) to employees and independent contractors. RSAs vest in equal annual installments over a
one-yearone-year
period from the date of grant.grant
,
subject to service requirements. RSUs generally vest in equal annual installments over a five-yearfive-year period from the date of grant or earlier as approved by the compensation committee of the Company’s board of directors. Any unvested awards are canceled upon termination as a service provider. As of June 30, 2020,March 31, 2021, there were 0 issued or outstanding options, SARs, performance units or performance share awards under the 2013 Plan.
During the sixthree months ended June 30, 2020, 197,479March 31, 2021, 149,117 shares of RSUs vested and 58,09650,127 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date. The shares withheld for taxes were returned to the share reserve and are available for future issuance in accordance with provisions of the 2013 Plan. During the sixthree months ended June 30, 2020,March 31, 2021, there were 0 deferred stock units (“DSUs”) that settled.
Outstanding Awards
Activity under the 2013 Plan consisted of the following (dollars in thousands, except weighted average per share data):
 
  RSA Grants to
Non-employee

Directors		 
RSU Grants 
to
Employees
 RSU Grants to
Independent
Contractors		 Total Weighted-
Average Grant
Date Fair Value
Per Share		   RSA Grants to
Non-employee

Directors		   
RSU Grants
 to
Employees
 
RSU Grants 
to
Independent
Contractors
 Total Weighted-
Average Grant
Date Fair Value
Per Share		 
Nonvested shares at December 31, 2019
   17,480   525,115   257,480   800,075  $33.91 
Nonvested shares at December 31, 2020
(1)
   16,728    637,650   264,001   918,379   33.73 
Granted
   19,516   282,104   32,462   334,082   34.25    0      217,893   9,834   227,727   39.10 
Vested
   (18,004)   (158,007)   (39,472)   (215,483)   32.48    0      (132,176)   (16,941)   (149,117)   33.01 
Transferred
   —   (19,059)   19,059   —   33.37    0      (3,220)   3,220   0     31.05 
Forfeited/canceled
   —   (12,874)   (1,575)   (14,449)   36.16    0      (16,476)   (3,585)   (20,061)   33.05 
  
 
  
 
  
 
  
 
  
 
                  
Nonvested shares at June 30, 2020
   18,992   617,279   267,954   904,225  $34.35 
Nonvested shares at March 31, 2021
(1)
   16,728    703,671   256,529   976,928   34.56 
  
 
  
 
  
 
  
 
  
 
                  
Unrecognized stock-based compensation expense as of June 30, 2020
(1)
  $386  $19,687  $7,778  $27,851  
Unrecognized stock-based compensation expense as of March 31, 2021
(2)
  $42   $24,124  $7,212  $31,378   
  
 
  
 
  
 
  
 
                  
Weighted average remaining vesting period (years) as of June 30, 2020
   0.84   3.92   3.20   3.68  
Weighted average remaining vesting period (years) as of March 31, 2021
   0.10    3.91   3.09   3.72   
  
 
  
 
  
 
  
 
                  
(1)
Nonvested RSUs will be settled through the issuance of new shares of common stock.
(1)(2)
The total unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.683.72 years.
Employee Stock Purchase Plan
In 2013, the Company adopted the 2013 Employee Stock Purchase Plan (“ESPP”). The ESPP is intended to qualify under Section 423 of the Internal Revenue Code and provides for consecutive,
non-overlapping
6-month
offering periods. The offering periods generally start on the first trading day on or after May 15 and November 15 of each year. Qualifying employees may purchase shares of the Company stock at a 10% discount based on the lower of the market price at the beginning or end of the offering period, subject to IRS limitations. The Company determined that the ESPP was a compensatory plan and is required to expense the fair value of the awards over each
6-month
offering period.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The ESPP initially had 366,667 shares of common stock reserved, and 188,550176,877 shares of common stock remain available for issuance as of June 30, 2020.March 31, 2021. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP, equal to the least of (i) 366,667 shares, (ii) 1% of the outstanding shares on such date, or (iii) an amount determined by the compensation committee of the board of directors. Pursuant to the provisions of the ESPP, the board of directors has determined to not provide for any annual increases to date. At June 30, 2020,March 31, 2021, total unrecognized compensation cost related to the ESPP was $92,000$24,000 and is expected to be recognized over a weighted average period of
0.38
0.12 years.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SARs and DSUs
Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were frozen at the liability amount, and will be paid out to each participant in installments upon retirement or departure under the terms of the revised SARs agreements. To replace beneficial ownership in the SARs, the difference between the book value liability and the fair value of the awards was granted to plan participants in the form of DSUs, which were fully vested upon receipt and will be settled in actual stock at a rate of 20% per year if the participant remains employed by the Company during that period (otherwise all unsettled shares of stock upon termination from service will be settled five years from the termination date, unless otherwise agreed to by the Company). In the event of death or termination of service after reaching the age of 67, 100% of the DSUs will be settled. As of June 30, 2020,March 31, 2021, the remaining future share settlements of fully vested DSUs by year consisted of the following:
 
   June 30, 2020 
2021
   60,373 
2022
   281,193 
  
 
 
 
   341,566 
  
 
 
 
   
March 31,
 202
1
 
2021
   60,373 
2022
   281,193 
      
    341,566 
      
Summary of Stock-Based Compensation
Components of stock-based compensation are included in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income and consisted of the following (in thousands):
 
   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2020   2019   2020   2019 
ESPP
  $36   $38   $83   $68 
RSAs –
non-employee
directors
   213    154    373    324 
RSUs – employees
   1,514    1,622    3,170    2,967 
RSUs – independent contractors
   773    771    1,542    1,567 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $2,536   $2,585   $5,168   $4,926 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
ESPP
  $
 
50   $
 
47 
RSAs –
non-employee
directors
   111    160 
RSUs – employees
   1,454    1,656 
RSUs – independent contractors
   673    769 
           
   $2,288   $2,632 
           
 
13.
11.
Income Taxes
The Company’s effective tax rate for the three and six months ended June 30,March 31, 2021 and 2020 was 28.4%28.8% and 31.1%31.2%, respectively, compared to 28.5% and 27.7% for the three and six months ended June 30, 2019, respectively. The Company provides for the effects of income taxes in interim financial statements based on the Company’s estimate of its annual effective tax rate for the full year, which is based on forecasted income by jurisdiction where the Company operates, adjusted for theany tax effects of items that relate discretely to the period, if any.
The provision for income taxes differs from the amount computed by applying the U.S. federal statutory rate to income before provision for income taxes and consisted of the following (dollars in thousands):
 
  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
  Three Months Ended March 31, 
  
2020
 
2019
 
2020
 
2019
 
  2021 2020 
  
Amount
 
Rate
 
Amount
 
  
Rate
 
Amount
 
  
Rate
 
Amount
 
Rate
 
  Amount   Rate Amount   Rate 
Income tax expense at the federal statutory rate
  
$
31
 
 
21.0
% 
 
$
 6,249
 
  
 
21.0
% 
 
$
 4,018
 
  
 
21.0
% 
 
$
 10,721
 
 
21.0
% 
  $4,431    21.0%  $
 
3,987    21.0% 
State income tax expense, net of federal benefit
  
 
(69
) 
 
(46.8
)% 
 
1,346
 
  
 
4.5
% 
 
950
 
  
 
5.0
% 
 
2,240
 
 
4.4
% 
   1,048    5.0%   1,018    5.4% 
Shortfall (windfall) tax benefits, net related to stock-based compensation
  
 
90
 
 
61.2
% 
 
11
 
  
 
—  
 
 
73
 
  
 
0.4
% 
 
(254
) 
 
(0.5
)% 
Windfall tax benefits, net related to stock-based compensation
   (27)    (0.1)%   (17)    (0.1)% 
Change in valuation allowance
  
 
96
 
 
65.4
% 
 
200
 
  
 
0.7
% 
 
460
 
  
 
2.4
% 
 
466
 
 
0.9
% 
   180    0.9%   367    1.9% 
Permanent and other items
(1)
  
 
(106
) 
 
(72.4
)% 
 
672
 
  
 
2.3
% 
 
458
 
  
 
2.3
% 
 
962
 
 
1.9
% 
   454    2.0%   562    3.0% 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
               
  
$
42
 
 
28.4
% 
 
$
 8,478
 
  
 
28.5
% 
 
$
 5,959
 
  
 
31.1
% 
 
$
 14,135
 
 
27.7
% 
  $6,086    28.8%  $5,917    31.2% 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
               
 
(1)
Permanent items relate principally to compensation charges, qualified transportation fringe benefits and meals and entertainment and our
tax-exempt
deferred compensation plan assets.
entertainment. 

26
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
14.
12.
Earnings per Share
Basic and diluted earnings per share for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, respectively consisted of the following (in thousands, except per share data):
 
   Three Months Ended
June 30,		   Six Months Ended
June 30,		 
   2020   2019   2020   2019 
Numerator (Basic and Diluted):
        
Net income
  $106   $21,279   $13,176   $36,917 
  
 
 
   
 
 
   
 
 
   
 
 
 
Denominator:
        
Basic
        
Weighted average common shares issued and outstanding
   39,306    39,073    39,261    39,035 
Deduct: Unvested RSAs
(1)
   (19)    (20)    (18)    (24) 
Add: Fully vested DSUs
(2)
   342    342    342    342 
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted Average Common Shares Outstanding
   39,629    39,395    39,585    39,353 
  
 
 
   
 
 
   
 
 
   
 
 
 
Basic earnings per common share
  $—     $0.54   $0.33   $0.94 
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
        
Weighted Average Common Shares Outstanding from above
   39,629    39,395    39,585    39,353 
Add: Dilutive effect of RSUs, RSAs & ESPP
   44    132    77    171 
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted Average Common Shares Outstanding
   39,673    39,527    39,662    39,524 
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted earnings per common share
  $—     $0.54   $0.33   $0.93 
  
 
 
   
 
 
   
 
 
   
 
 
 
Antidilutive shares excluded from diluted earnings per common share
(3)
   738    272    636    260 
  
 
 
   
 
 
   
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021   2020 
Numerator (Basic and Diluted):
          
Net income
  $15,012   $13,070 
Decrease in value for stock settled consideration
   12    0   
           
Adjusted net income
  $15,024   $13,070 
           
Denominator:
          
Basic
          
Weighted average common shares issued and outstanding
   39,432    39,217 
Deduct: Unvested RSAs
(1)
   (17)    (18) 
Add: Fully vested DSUs
(2)
   342    342 
           
Weighted average common shares outstanding
   39,757    39,541 
           
Basic earnings per common share
  $0.38   $0.33 
           
Diluted
          
Weighted average common shares outstanding from above
   39,757    39,541 
Add: Dilutive effect of RSUs, RSAs & ESPP
   208    105 
Add: Contingently issuable shares
(3)
   159    0   
           
Weighted average common shares outstanding
   40,124    39,646 
           
Diluted earnings per common share
  $0.37   $0.33 
           
Antidilutive shares excluded from diluted earnings per common share
(4)
   230    521 
           
 
(1)
RSAs were issued and outstanding to the
non-employeenon-employ
e
e
directors and have aone-year
one-year
vesting term subject to service requirements. See Note 1210 – “Stock-Based Compensation Plans” for additional information.
(2)
Shares are included in weighted average common shares outstanding as the shares are fully vested but have not yet been delivered. See Note 1210 – “Stock-Based Compensation Plans” for additional information.
(3)
Relates to contingently issuable stock settled consideration.
(3)
(4)
Primarily pertaining to RSU grants to the Company’s employees and independent contractors.
 
15.
13.
Commitments and Contingencies
Credit Agreement
On June 18, 2014, the Company entered into a Credit Agreement with Wells Fargo Bank, National Association (the “Bank”), as amended and restated on May 28, 2019,
and further,
, amended on November 27, 2019 and on February 9, 2021 (the “Credit Agreement”). The Credit Agreement provides for a $60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of the Company’s domestic subsidiaries (the “Credit Facility”) and matures on June 1, 2022. The Company may borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full. Upon the expiration of the use of the LIBOR as a benchmark, the benchmark will be replaced with the SOFR plus a spread adjustment.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Borrowings under the Credit Agreement are available for general corporate purposes and working capital. The Credit Facility includes a $10.0 million sublimit for the issuance of standby letters of credit of which $533,000 was utilized at June 30, 2020.March 31, 2021. Borrowings under the Credit Facility will bear interest, at the Company’s option, at either (i) a fluctuating rate per annum 2.00% below the Base Rate (defined as the highest of (a) the Bank’s prime rate,
(b) one-monthone-month
LIBOR plus 1.50%, and (c) the federal funds rate plus 1.50%), or (ii) at a fixed rate per annum determined by Bank to be between 0.875% to 1.125% above LIBOR. In connection with the amendmentamendments of the Credit Agreement, the Company paid bank fees and other expenses, which are being amortized over the remaining term of the Credit Agreement. The Company pays a commitment fee of up to 0.1% per annum, payable quarterly, based on the amount of unutilized commitments under the Credit Facility. The amortization and commitment fee is included in interest expense in the accompanying condensed consolidated statements of net and comprehensive income and was $21,000$24,000 and $26,000$22,000 during the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $43,000 and $52,000 during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020,March 31, 2021, there were 0 amounts outstanding under the Credit Agreement.
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Credit Facility contains customary covenants, including financial and other covenant reporting requirements and events of default. Financial covenants require the Company, on a combined basis with its guarantors, to maintain (i) an EBITDAR Coverage Ratio (as defined in the Credit Agreement) of not less than 1.25:1.0 as of each quarter end, determined on a rolling four-quarter basis, and (ii) total funded debt to EBITDA not greater than 2.0:1.5:1.0 as of each quarter end, determined on a rolling four-quarter basis, and also limits investments in foreign entities and certain other loans. The Credit Facility is secured by substantially all assets of the Company, including pledges of 100% of the stock or other equity interest of each subsidiary except for the capital stock of a controlled foreign corporation (as defined in the Internal Revenue Code), in which case no such pledge is required. As of June 30, 2020,March 31, 2021, the Company was in compliance with all financial and
non-financial
covenants and has not experienced any limitation in its operations as a result of the covenants.
Other
In connection with certain agreements with investment sales and financing professionals, the Company may agree to advance amounts to certain investment sales and financing professionals upon reaching certain time and performance goals. Such commitments as of June 30, 2020March 31, 2021 aggregated $15.6$22.3 million.
COVID-19
The Company could experience other potential impacts as a result of the
COVID-19
pandemic. Actual results may differ from the Company’s current estimates as there is considerable uncertainty around the scope and duration of the
COVID-19
pandemic, and, as a result, the extent of the impact of
COVID-19
on our operational and financial performance is uncertain and cannot be predicted.
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, the words “Marcus & Millichap,” “MMI,” “we,” the “Company,” “us” and “our” refer to Marcus & Millichap, Inc., Marcus & Millichap Real Estate Investment Services, Inc. and its other consolidated subsidiaries.
Forward-Looking Statements
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to the continuing impact of the
COVID-19
pandemic. The results of operations for the three and six months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020,2021, 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 Form
10-Q
and in conjunction with our Annual Report on Form
10-K
for the year ended December 31, 20192020 filed with the SEC on March 2, 2020,1, 2021, including the “Risk Factors” section and the consolidated financial statements and notes included therein.
Overview
We are a leading national brokerage firm specializing in commercial real estate investment sales, financing, 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 over the last 10for more than 15 years. As of June 30, 2020,March 31, 2021, we had 2,0482,038 investment sales and financing professionals that are primarily exclusive independent contractors operating in 8284 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate.estate assets. We also offer market research, consulting and advisory services to our clients. During the three and six months ended June 30, 2020,March 31, 2021, we closed 1,587 and 3,8372,332 investment sales, financing and other transactions with total sales volume of approximately $6.9 billion and $18.7 billion, respectively.$12.0 billion. During the year ended December 31, 2019,2020, we closed 9,7268,954 investment sales, financing and other transactions with total sales volume of approximately $49.7$43.4 billion.
We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing, of commercial properties, and by providing equity advisory services, loan sales and consulting advisory and other real estateadvisory 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 each of the three months ended June 30,March 31, 2021 and the year ended December 31, 2020, approximately 88% of our revenues were generated from real estate brokerage commissions, 11% from financing fees and 1% from other real estate related services. During the six months ended June 30, 2020, approximately 89% of our revenues were generated from real estate brokerage commissions, 9%10% from financing fees and 2% from other real estate related services. During the year ended December 31, 2019, approximately 91% of our revenues were generated from real estate brokerage commissions, 8% from financing fees and 1% from other real estate related services.
We divide commercial real estate into four major market segments, characterized by price:
 
•
Properties priced less than $1 million;
 
•
Private client market:
properties priced from $1 million to up to but less than $10 million;
 
•
Middle market:
properties priced from $10 million to up to but less than $20 million; and
 
•
Larger transaction market:
properties priced from $20 million and above.
Our strength is in serving private clients in the
$1-$10 million
private client market segment, which contributed approximately 69%65% and 68%67% of our real estate brokerage commissions during the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and approximately 67% of our real estate brokerage commissions during each of the six months ended June 30, 2020 and 2019, respectively. The following table sets forth the number of transactions, sales volume and revenues by commercial real estate market segment for real estate brokerage:
 
 Three Months Ended March 31,   
  
Three Months Ended June 30,
 
  
 
 
 2021 2020 Change 
  
2020
 
  
2019
 
  
Change
 
 Number Volume Revenues Number Volume Revenues Number Volume Revenues 
Real Estate Brokerage
  
Number
 
  
Volume
 
  
Revenues
 
  
Number
 
  
Volume
 
  
Revenues
 
  
Number
 
Volume
 
Revenues
 
   (in millions) (in thousands)   (in millions) (in thousands)   (in millions) (in thousands) 
  
 
 
  
(in millions)
 
  
(in thousands)
 
  
 
 
  
(in millions)
 
  
(in thousands)
 
  
 
 
(in millions)
 
(in thousands)
 
<$1 million
  
 
192
 
  
$
118
 
  
$
4,518
 
  
 
258
 
  
$
170
 
  
$
7,137
 
  
 
(66
) 
 
$
(52
) 
 
$
(2,619
) 
 227  $149  $6,138  216  $136  $5,742  11  $13  $396 
Private client market ($1—$10 million)
  
 
793
 
  
 
2,614
 
  
 
70,817
 
  
 
1,392
 
  
 
4,582
 
  
 
128,526
 
  
 
(599
) 
 
(1,968
) 
 
(57,709
) 
Middle market (
³
$10—$20 million)
  
 
43
 
  
 
618
 
  
 
11,591
 
  
 
111
 
  
 
1,523
 
  
 
26,944
 
  
 
(68
) 
 
(905
) 
 
(15,353
) 
Private client market ($1 - <$10 million)
 1,200  3,668  105,423  1,242  4,001  114,264  (42)  (333)  (8,841) 
Middle market ($10 - <$20 million)
 78  1,067  20,601  91  1,222  22,668  (13)  (155)  (2,067) 
Larger transaction market (
³
$20 million)
  
 
47
 
  
 
2,074
 
  
 
16,445
 
  
 
73
 
  
 
2,958
 
  
 
26,073
 
  
 
(26
) 
 
(884
) 
 
(9,628
) 
 83  3,980  30,634  66  3,083  29,155  17  897  1,479 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
                           
  
 
1,075
 
  
$
 5,424
 
  
$
 103,371
 
  
 
1,834
 
  
$
 9,233
 
  
$
 188,680
 
  
 
(759
) 
 
$
(3,809
) 
 
$
(85,309
) 
 1,588  $ 8,864  $ 162,796  1,615  $ 8,442  $ 171,829  (27)  $422  $ (9,033) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
                           
 
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Six Months Ended June 30,
 
 
 
 
 
 
2020
 
 
2019
 
 
Change
 
Real Estate Brokerage
 
Number
 
 
Volume
 
 
Revenues
 
 
Number
 
 
Volume
 
 
Revenues
 
 
Number
 
 
Volume
 
 
Revenues
 
 
 
 
 
 
(in millions)
 
 
(in thousands)
 
 
 
 
 
(in millions)
 
 
(in thousands)
 
 
 
 
 
(in millions)
 
 
(in thousands)
 
<$1 million
 
 
408
 
 
$
254
 
 
$
10,260
 
 
 
459
 
 
$
301
 
 
$
12,425
 
 
 
(51
) 
 
$
(47
) 
 
$
(2,165
) 
Private client market ($1—$10 million)
 
 
2,035
 
 
 
6,615
 
 
 
185,081
 
 
 
2,452
 
 
 
7,902
 
 
 
224,584
 
 
 
(417
) 
 
 
(1,287
) 
 
 
(39,503
) 
Middle market (
³
$10—$20 million)
 
 
134
 
 
 
1,840
 
 
 
34,259
 
 
 
203
 
 
 
2,768
 
 
 
50,524
 
 
 
(69
) 
 
 
(928
) 
 
 
(16,265
) 
Larger transaction market (
³
$20 million)
 
 
113
 
 
 
5,157
 
 
 
45,600
 
 
 
125
 
 
 
5,365
 
 
 
46,084
 
 
 
(12
) 
 
 
(208
) 
 
 
(484
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,690
 
 
$
13,866
 
 
$
275,200
 
 
 
3,239
 
 
$
16,336
 
 
$
333,617
 
 
 
(549
) 
 
$
(2,470
) 
 
$
(58,417
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
We continue to increase our market presence through execution of our growth strategies by targeting markets based on population, employment, level of commercial real estate sales, inventory and competitive opportunities where we believe the markets will benefit from our business model. During the six months ended June 30, 2020, we completed two acquisitions that expanded our market presence in financing services in the Southwest and in real estate brokerage services in the Southeast.
COVID-19
In March 2020,We are closely monitoring the World Health Organization characterizedimpact of the
COVID-19
as a pandemic. Many states and cities, including where we conductpandemic on all aspects of our business activities, have reacted by instituting quarantines, restrictions on travel, “shelterand in place” rules, and restrictions on types of business that may continue to operate, which may limit the activity of our sales and financing professionals in engaging with our clients. We have implemented measures such as increased sanitizing, physical distancing and remote work arrangements, with the goal of protecting our employees, sales and financing professionals and clients.regions we operate. We continue to follow the local guidelines in cities where our offices are located, and manyall of our offices have
re-opened,
and those that have not been able to
re-open
due to state and local restrictions are available to our employees and sales and financing professionals on an as needed
as-needed
basis.
We are closely monitoringOur business was impacted by the impact of
COVID-19
pandemic on all aspects of our business and in the regions we operate. Since the start of the pandemic, we have seen significant slowing of our real estate brokerage and financing transaction activity, difficulty in pricing assets and, in certain cases, restrictions on the ability of borrowers to access the capital markets and other sources of financing. Overall, the economic shut-down and “shelter in place” mandates during most of the second quarter of 2020, adversely impacted our business, with the total number of transactions and total revenues declining 37.4%7.9% and 44.0%11.1% in the three monthsyear ended June 30,December 31, 2020, respectively, compared to the same period in 2019. Further, we believe thatDuring the effectthree months ended March 31, 2021, total revenues declined 3.5% compared to the same period in 2020. While our total revenues were below prior years’ levels, returning to prior years’ levels remains a major priority for us. We are extending the uses of the
COVID-19
restrictions, includingtechnology and resource sharing measures adopted over the effects of preventative and precautionary health measures mandatedpast year as ways to us by federal, state and local governments will likely continue to affect our ability to identify and close commercial real estate transactions, which could significantly impact our revenue during the second half of 2020.
achieve more efficiency on a long-term basis.
The long-term impact of the disruption in financial markets, consumer spending, unemployment as well as other unanticipated consequences remain unknown. Additionally, we are unable to predict the extent ofAlthough the negative impact that
the COVID-19 pandemic
will have onto our financial condition, results of operations and cash flows due to numerous uncertainties and the fluidity of this situation, butbusiness has moderated, we anticipate that total revenues willmay be negatively impacted for at least the third and fourth quarterfirst half of 20202021 and until normalmore stable business conditions begin to resume. These uncertainties include the scope, severity and duration of the pandemic, the actions taken by state and local governments to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures and actions taken, and the impact of these and other factors on our employees, independent contractors and clients and potential clients.
resume in 2021. We continue to monitor the expected trends and related demand for our services and will continue to adjust our operations accordingly. In response to this period of business disruption, we have assessed our cost structure and instituted various expense reduction initiatives, including but not limited to, total compensation reductions for senior executives, management and key personnel, reductions in events and travel, suspension of company matching contributions in our 401(k) plan and furloughs and layoffs to preserve our balance sheet and financial position. These reductions were strategically decided upon to ensure proper allocation of capital and human resources to support our sales force’s ability to conduct business as well as develop strategic investments in tools, technology and infrastructure vital to our long-term competitiveness. We expect real estate sales and financing volumes to improve and eventually post solid growth after the market is able to assess the impact of the economic shut down on property occupancies, rent collections and values and when financing flows improve. Due to a high degree of uncertainty, the timing of this recovery in real estate transactions and therefore, our revenues are difficult to forecast. Our priority is to support our team’s efforts to increase client contact, provide expanded content and advisory services to investors and clients, and preserve our financial position through expense reductions. Given our significant liquidity, we expect our company to be well positioned to benefit from and contribute to the real estate transaction recovery when it emerges.
emerges, including making accretive and synergistic acquisitions, which will help expand service offerings and market coverage.
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TableDue to a high degree of Contentsuncertainty and fluidity of this situation, we are unable to predict the full extent of the continuing impact of the
COVID-19
pandemic on our financial condition, results of operations and cash flows. These uncertainties include the scope, severity and duration of the pandemic; variants in the virus and the effects thereof; expectation gaps among buyers and sellers on pricing and property operation, vulnerability to further economic weakness and/or slow recovery; a more difficult market environment for new investment sales and financing professionals who are experiencing extended
ramp-up
time to reach production goals; the actions taken by state and local governments to contain the pandemic or mitigate its impact, including vaccination programs; the direct and indirect economic effects of the pandemic and containment measures and actions taken; and the impact of these and other factors on our employees, independent contractors, clients and potential clients.
Factors Affecting Our Business
Our business and our operating results, financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period. The number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals, identify and contract properties for sale and identify those that need financing and refinancing. We principally monitor the commercial real estate market through four factors, which generally drive our business. The factors are the economy, commercial real estate supply and demand, capital markets and investor sentiment and investment activity.
The Economy
Our business is dependent on economic conditions within the markets in which we operate. Changes in the economy on a global, national, regional or local basis can have a positive or a negative impact on our business. Economic indicators and projections related to job growth, unemployment, interest rates, retail spending and confidence trends can have a positive or a negative impact on our business. Overall market conditions, including global trade, interest rate changes and job creation, can affect investor sentiment and, ultimately, the demand for our services from investors in real estate.
The 2021 economic outlook was bolstered in the first quarter by the release of a third major stimulus package, the rapid deployment of
COVID-19
has dramatically impactedvaccines and a reduction of safety restrictions by many states. In the global, U.S.first quarter, core retail sales climbed 14%, signaling a robust consumption recovery. Barring a major setback such as significant problems with the vaccines or a wave of new vaccine-resistant
COVID-19
variants, many economists are predicting 2021 should deliver the strongest economic growth in a generation. We believe the prospect of a strong recovery could continue to help restrain the distressed asset market because many investors believe their asset performance could quickly recover, enabling them to cover missed payments. There are, however, still many hurdles to overcome. Total employment remains well-below
pre-pandemic
levels, numerous service-sector businesses have shuttered and key local economiesthere is considerable uncertainty regarding a return to working in which we operate. The movement of most of the U.S. population to
“sheltering-in-place”
office for many companies. We believe that while the broader recovery gains traction, these headwinds may weigh on select commercial real estate sectors and the associated shutdownurban core of numerous businessesmajor cities in particular. Investors appear to have begun to respond favorably to the anticipated economic revival. Although activity remains well below
pre-pandemic
levels of a year ago, transaction momentum has taken a heavy toll on employment, consumption and many other segmentsincreased dramatically from the trough in the second quarter of the economy in 2020. The significant economic tollmultifamily, industrial, self-storage and
net-leased
retail sectors have sustained the most positive momentum, while hospitality, senior housing, office and some types of the pandemic-driven shutdown was most acute in March and April, forcing the lossretail remain clouded by uncertainty.
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Table of more than 22 million jobs. Though the early reopening of several states in May brought a third of those jobs back, the resurgence of theContents
COVID-19
spread has forced most states to walk back their reopening plans. The retail sales sector remains fragile and at risk given the rise in
COVID-19
cases. Numerous retail
sub-sectors
such as gyms, entertainment venues and restaurants are still largely shut down, and we believe that any recovery will likely be health dependent. Earlier actions by both the Federal Reserve and Congress have temporarily sustained financial market liquidity by delivering resources to support local governments, the healthcare sector, businesses of all sizes and the general public, but we believe that the Federal Government’s ability to sustain the economy is limited and economic growth will likely continue to be at risk until a medical solution emerges. With the magnitude and duration of the pandemic still in question, the severity and length of the economic impact remains unclear. The broad range of unknowns, including health, economic and public policy have increased investor uncertainty. We believe these and other factors that raise uncertainty caused many investors to step to the sidelines until additional clarity emerges.
Commercial Real Estate Supply and Demand
Our business is dependent on the willingness of investors to invest in or sell commercial real estate, which is affected by many factors beyond our control. These factors include the supply of commercial real estate coupled with user demand for these properties and the performance of real estate assets when compared with other investment alternatives, such as stocks and bonds.
The impactpandemic has affected the space supply and demand balance of each commercial real estate
COVID-19sub-sector
on both the hotel and retail sectors has been significant with many retailers withholding rental payments in locations with
shelter-in-place
orders. Office and apartment properties have experienced a more limited impact thus far, and industrial property performance has generally remained stable. To date, occupancy has remained elevated for mostvery different ways. A handful of property types on a technical level, but rent collections remain an issue for operators. While retail properties have highly variable collections depending on their tenant mix, officeincluding self-storage, industrial and industrial property collections have largely been in the
mid-90 percent
range since the onset ofbiotech garnered increased demand through the pandemic. Apartment collections vary significantly by state, butand manufactured housing demand have been in the
low-90 percent
rangelargely remained stable on average since the onseta macro level as have most types of
net-leased
assets. There is a broad-based perception that properties like hotels, student housing, senior housing and some types of multitenant retail could mount a relatively quick recovery once the pandemic supportedpasses, and there is still substantial uncertainty surrounding the office space demand outlook. In addition, space demand has varied dramatically between urban and suburban locations, as well as by metro with each state and city enforcing very different health and safety protocols over the last year. In terms of new supply, apartment and industrial development has continued virtually unchecked while space additions of most other property types declined. This reflects the challenges the construction industry has faced during the pandemic as well as the 13.5% rise in part byconstruction costs over the expanded Federal unemployment benefits. Health issueslast year through March 2021. Barring an unanticipated setback, we believe that as greater clarity surrounding the health, economic and public policy, including any forthcoming stimulus, eviction moratorium rules and momentum toward reopening the economy may all impact property performance andcommercial real estate fundamentals outlook emerges, investor sentiment. This could result in very fragmented market results as different states follow different protocols and trajectories.activity should recover over time.
Capital Markets
Credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market. Real estate purchases are often financed with debt and, as a result, credit and liquidity impact transaction activity and prices. Changes in interest rates, as well as steady and protracted movements of interest rates in one direction, whether increases or decreases, could adversely or positively affect the operations and income potential of commercial real estate properties, as well as lender and equity underwriting for real estate investments. These changes generally influence the demand of investors for commercial real estate investments.
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Financial markets, particularly commercial real estate lending, went through a period of turbulenceCapital liquidity remains strong with debt financing available for most property types in the second quarter as lenders grappled with uncertainty. Although the
10-year
treasury remained stable at very low levels through the second quarter of 2020, a number of real estate lenders increased their spreads, tightened underwritingmost markets. Hotels and some withdrew funding offersretail properties still face difficulty in obtaining financing through traditional channels, but some private lenders have stepped into that space to provide liquidity. In such cases, the midst investor’s qualifications may be even more important than the asset they are financing. Although banks and government agencies continue to be the most active lenders, each providing more than
one-third
of transactions. This contributed to a particularly challenging transactional climate, but in June, lenders began to tighten their spreads while making capital more readily available. Distress levels, as measured bythe total lending, other sources including commercial mortgage-backed securities (“CMBS”), increased substantively withhave reentered the volume of loans making payments 30+ days late rising from 2 percent in Marchmarket to 10 percent in June. The majorityoffer additional financing options. In general, both lending and interest rates appear to be moving back toward a
pre-pandemic
balance. Investors have been keenly aware of the late payments weresharp rise in interest rates during the first quarter, largely driven by speculation of a strong economic recovery and a flow of capital out of the safety of the bond market, but treasury rates appear to have stabilized and they remain below
pre-pandemic
levels. Federal Reserve statements have remained accommodative and although inflation risk has emerged as a leading investor concern, inflation remains in the hospitality and retail sectors. The Federal Reserve and Congress are workingFed’s target range. Based on adjustments that could give CMBS lenders more latitude in granting forbearance. Government agency multifamily lenders have been active but cautious. They increased their reserve requirements in the second quarter, but they continue to actively recalibrate their underwriting based on market performance. Local community banks and credit unions have been the most active capital source, and they have also tended to give borrowers more latitude on repayment schedules. Although lending processes have been impeded by the
COVID-19
pandemic,foregoing, we believe that capital flow may be improving and sufficient capital could be available to meet market needs for most property types.liquidity should remain strong, barring a significant pandemic-related or financial market setback.
Investor Sentiment and Investment Activity
We rely on investors to buy and sell properties in order to generate commissions. Investors’ desires to engage in real estate transactions are dependent on many factors that are beyond our control. The economy, supply and demand for properly positioned properties, available credit and market events impact investor sentiment and, therefore, transaction velocity. In addition, our private clients are often motivated to buy, sell and/or refinance properties due to personal circumstances such as death, divorce, partnership breakups and estate planning.
The
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Investor activity remains well-below year ago levels, but recovery momentum is mounting as uncertainty surrounding the array of health, economic policy and operational variables has adversely impacted investor activity. Questions about all facetscommercial real estate outlook begins to abate. Much of the real estate sector outlook,hesitancy has been on the sellers’ side as wellthey wait for the strengthening economy to bolster occupancy levels and boost property values. This is leading to a widening of the pricing expectation gap as continued logistics hurdles impacting appraisals, site visitsbuyers attempt to acquire properties with a “COVID discount” and sellers eye the closing process have adversely impacted transaction activity. Investorsparticularly strong growth projections. The most stable assets in stronger markets are achieving pricing above
pre-pandemic
levels, while assets with considerable uncertainty such as office properties that lack long-term, high-credit tenants continue to seeknavigate the price discovery process. However, we believe low interest rates and are trying to adapt togenerally broad capital availability have been positive forces supporting activity. We believe the new climate. It appears that many investors remainstill on the sidelines have ample capital
on-hand
to spur transaction activity once uncertainties abate, particularly after vaccinations reach a critical mass. Looking forward, tax policy is beginning to emerge as a primary concern for investors. Prospective increases in personal, corporate, capital gains and estate taxes have the potential to dampen consumption and business investment while simultaneously rendering existing investment and estate plans obsolete. Tax policy changes could spark a wide rangeshort-term wave of well-funded investors seem to be awaiting opportunistic acquisitions. However, substantive distressed salestransactions or they could slow transaction activity may not emerge for a prolonged period. Despitedepending on exactly how the significant tollchanges are framed and the
COVID-19
pandemic has had on the U.S. economy, strong underwriting practices and sturdy investor balance sheets appear to be helping mitigate some of the pressure felt by property owners. time frame in which they are enacted. In addition, a numberquestions remain about the future of impacted1031 tax deferred exchanges, but this tax code section has survived many attempts at elimination largely because studies have demonstrated that cancelling this tax code section would likely cause considerable economic and tax revenue losses. Nonetheless, we believe the emerging medical solutions to the health crisis and the eventual release of
pent-up
demand among consumers and real estate investors including many hotel owners, appear to have been able to achieve various levels of lender forbearance to bridgeshould ultimately outweigh tax policy and the impact of the imposed economic downturn.remaining headwinds impairing investor decisions.
Seasonality
Our real estate brokerage commissions and financing fees have tended to be seasonal and, combined with other factors, can affect an investor’s ability to compare our financial condition and results of operations on a
quarter-by-quarter
basis. Historically, this seasonality has generally caused our revenue, operating income, net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year, particularly in the fourth quarter. The concentration of earnings and cash flows in the last six months of the year, particularly in the fourth quarter, is generally due to an industry-wide focus of clients to complete transactions towards the end of the calendar year. This historical trend can be disrupted eitherboth positively orand negatively by major economic events, political events, natural disasters or pandemics such as the
COVID-19
pandemic, which may impact, among other things, investor sentiment for a particular property type or location, volatility in financial markets, current and future projections of interest rates, attractiveness of other asset classes, market liquidity and the extent of limitations or availability of capital allocations for larger property buyers.buyers, among others. Private client investors may also accelerate or delay transactions due to personal or business-related reasons unrelated to economic or political events. In addition, our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals. These senior investment sales and financing professionals are on a graduated commission schedule that resets annually, pursuant to which higher commissions are paid for higher sales volumes. Our historical pattern of seasonality may be significantly disrupted by the
COVID-19
pandemic due to uncertainties around all aspects of the economy andor may not continue to the same degree experienced in prior years.
Operating Segments
We follow the guidance for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing and consulting advisory and other real estate relatedadvisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute only one operating segment for financial reporting purposes.
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Key Financial Measures and Indicators
Revenues
Our revenues are primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenues from financing fees and from other real estate related revenues, which are primarily comprised of consulting and advisory fees.
Because our business is transaction oriented, we rely on investment sales and financing professionals to continually develop leads, identify properties to sell and finance, market those properties and close the sale timely to generate a consistent flow of revenue. While our sales volume is impacted by seasonality factors, the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction, particularly clients transacting in the
$1-$10 million
private client market segment. These factors can cause transactions to be accelerated or delayed beyond our control. Further, commission rates earned are generally inversely related to the value of the property sold. As a result of our expansion into the middle and larger transaction market segments, we have seen our overall commission rates fluctuate from
period-to-period
as a result of changes in the relative mix of the number and volume of investment sales transactions closed in the middle and larger transaction market segments as compared to the
$1-$10 million
private client market segment. These factors may result in
period-to-period
variations in our revenues that differ from historical patterns.
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A small percentage of our transactions include retainer fees and/or breakage fees. Retainer fees are credited against a success-based fee paid upon the closing of a transaction or a breakage fee. Transactions that are terminated before completion will sometimes generate breakage fees, which are usually calculated as a set amount or a percentage of the fee we would have received had the transaction closed.
Real Estate Brokerage Commissions
We earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties. Revenues from real estate brokerage commissions are typically recognized at the close of escrow.
Financing Fees
We earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients’ existing mortgage debt. We recognize financing fee revenues at the time the loan closes, and we have no remaining significant obligations for performance in connection with the transaction.
To a lesser extent, we also earn mortgage servicing revenue, mortgage servicing fees, equity advisory services, loan sales and ancillary fees associated with financing activities. We recognize mortgage servicing revenues upon the acquisition of a servicing obligation. We generate mortgage servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related mortgage servicing functions, activities and services.
Other Revenues
Other revenues include fees generated from consulting, advisory and other real estate services performed by our investment sales professionals, as well as referral fees from other real estate brokers. Revenues from these services are recognized as they are performed and completed.
Operating Expenses
Our operating expenses consist of cost of services, selling, general and administrative expenses and depreciation and amortization. The significant components of our expenses are further described below.
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Cost of Services
The majority of our cost of services expense is variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities. Commission expenses are directly attributable to providing services to our clients for investment sales and financing services. Most of our investment sales and financing professionals are independent contractors and are paid commissions; however, because there are some who are initially paid a salary and certain of our financing professionals are employees, costs of services also include employee-related compensation, employer taxes and benefits for those employees. The commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals. Some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenuefinancial thresholds. These additional commissions are recognized as cost of services in the period in which they are earned. Payment of a portion of these additional commissions are generally deferred for a period of one or three years, at our election, and paid at the beginning of the second and fourth calendar year. Cost of services also includes referral fees paid to other real estate brokers where we are the principal service provider. Cost of services, therefore, can vary based on the commission structure of the independent contractors that closed transactions in any particular period.
Selling, General and Administrative Expenses
The largest expense component within selling, general and administrative expenses is personnel expenses for our management team and sales and support staff. 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 (“2013 Plan”) and the 2013 Employee Stock Purchase Plan (“ESPP”).
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Depreciation and Amortization Expense
Depreciation expense consists of depreciation recorded on our computer software and hardware and furniture, fixture and equipment. Depreciation is provided over estimated useful lives ranging from three to seven years for assets. Amortization expense consists of (i) amortization recorded on our mortgage servicing rights (“MSRs”) using the interest method over the period that servicing income is expected to be received and (ii) amortization recorded on intangible assets amortized on a straight-line basis using a useful life between one and sixseven years.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income, net gains or losses on our deferred compensation plan assets, realized gains and losses on our marketable debt securities,
available-for-sale,
foreign currency gains and losses and other
non-operating
gainsincome and losses.expenses.
Interest Expense
Interest expense primarily consists of interest expense associated with the stock appreciation rights (“SARs”) liability, notes payable to former stockholders (through the second quarter of 2020 when fully repaid) and our credit agreement.
Provision for Income Taxes
We are subject to U.S. and Canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate. Our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions and the impact of permanent items, including principally compensation charges, qualified transportation fringe benefits, reversal of uncertain tax positions, meals and entertainment and
tax-exempt
deferred compensation plan assets. Our provision for income taxes includes the windfall tax benefits and shortfall expenses, net, from shares issued in connection with our 2013 Plan and ESPP.
We record deferred taxes, net based on the tax rate expected to be in effect at the time those items are expected to be recognized for tax purposes.
 
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Results of Operations
Following is a discussion of our results of operations for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. 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.
Key Operating Metrics
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,March 31, 2021 and 2020, and 2019, we closed more than 1,5002,300 and 2,5002,200 investment sales, financing and other transactions, respectively, with total sales volume of approximately $6.9$12.0 billion and $13.0 billion, respectively. During the six months ended June 30, 2020 and 2019, we closed more than 3,800 and 4,400 investment sales, financing and other transactions, respectively, with total sales volume of approximately $18.7 billion and $22.8$11.8 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:
 
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
Real Estate Brokerage
  2020  2019  2020  2019 
Average Number of Investment Sales Professionals
   1,926   1,834   1,908   1,826 
Average Number of Transactions per Investment Sales Professional
   0.56   1.00   1.41   1.77 
Average Commission per Transaction
  $96,159  $102,879  $102,305  $103,000 
Average Commission Rate
   1.91%   2.04%   1.98%   2.04% 
Average Transaction Size (in thousands)
  $5,045  $5,034  $5,155  $5,044 
Total Number of Transactions
   1,075   1,834   2,690   3,239 
Total Sales Volume (in millions)
  $5,423  $9,233  $13,866  $16,336 
        
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
Financing
(1)
  2020  2019  2020  2019 
Average Number of Financing Professionals
   87   104   88   106 
Average Number of Transactions per Financing Professional
   4.38   4.65   9.76   8.23 
Average Fee per Transaction
  $30,260  $35,406  $30,616  $34,576 
Average Fee Rate
   1.00%   0.92%   0.91%   0.91% 
Average Transaction Size (in thousands)
  $3,021  $3,851  $3,382  $3,812 
Total Number of Transactions
   381   484   859   872 
Total Financing Volume (in millions)
  $1,151  $1,864  $2,905  $3,324 
   Three Months Ended
March 31,		 
Real Estate Brokerage
  2021  2020 
Average Number of Investment Sales Professionals
   1,959   1,889 
Average Number of Transactions per Investment Sales Professional
   0.81   0.85 
Average Commission per Transaction
  $102,517  $106,396 
Average Commission Rate
   1.84%   2.04% 
Average Transaction Size (in thousands)
  $5,582  $5,227 
Total Number of Transactions
   1,588   1,615 
Total Sales Volume (in millions)
  $8,864  $8,442 
   Three Months Ended
March 31,		 
Financing
(1)
  2021  2020 
Average Number of Financing Professionals
   86   89 
Average Number of Transactions per Financing Professional
   5.74   5.37 
Average Fee per Transaction
  $30,464  $30,900 
Average Fee Rate
   0.93%   0.84% 
Average Transaction Size (in thousands)
  $3,263  $3,670 
Total Number of Transactions
   494   478 
Total Financing Volume (in millions)
  $1,612  $1,754 
 
(1) 
Operating metrics calculated excludingexclude certain financing fees not directly associated withto transactions.
 
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Comparison of Three Months Ended June 30,months ended March 31, 2021 and 2020 and 2019
Below are key operating results for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 (dollars in thousands):
 
   Three Months
Ended
June 30, 2020		  Percentage
of
Revenue		  Three Months
Ended
June 30, 2019		  Percentage
of
Revenue		  Change 
 Dollar  Percentage 
Revenues:
       
Real estate brokerage commissions
  $103,371   88.1%  $188,680   90.0%  $(85,309)   (45.2)% 
Financing fees
   12,703   10.8   17,742   8.5   (5,039)   (28.4)% 
Other revenues
   1,326   1.1   3,171   1.5   (1,845)   (58.2)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Total revenues
   117,400   100.0   209,593   100.0   (92,193)   (44.0)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Operating expenses:
       
Cost of services
   73,743   62.8   127,847   61.0   (54,104)   (42.3)% 
Selling, general and administrative
   43,519   37.1   52,836   25.2   (9,317)   (17.6)% 
Depreciation and amortization
   2,752   2.3   1,932   0.9   820   42.4% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Total operating expenses
   120,014   102.2   182,615   87.1   (62,601)   (34.3)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Operating (loss) income
   (2,614)   (2.2)   26,978   12.9   (29,592)   (109.7)% 
Other income (expense), net
   2,975   2.5   3,119   1.5   (144)   (4.6)% 
Interest expense
   (213)   (0.2)   (340)   (0.2)   127   (37.4)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Income before provision for income taxes
   148   0.1   29,757   14.2   (29,609)   (99.5)% 
Provision for income taxes
   42   0.0   8,478   4.0   (8,436)   (99.5)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Net income
  $106   0.1%  $21,279   10.2%  $(21,173)   (99.5)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Adjusted EBITDA
(1)
  $4,150   3.5%  $32,016   15.3%  $(27,866)   (87.0)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
   
Three Months
Ended
March 31,
  
Percentage
of
  
Three Months
Ended
March 31,
  
Percentage
of
  Change 
   2021  Revenue  2020  Revenue  Dollar  Percentage 
Revenues:
       
Real estate brokerage commissions
  $ 162,796   88.5%  $ 171,829   90.1%  $(9,033)   (5.3)% 
Financing fees
   17,843   9.7   15,351   8.0   2,492   16.2% 
Other revenues
   3,338   1.8   3,537   1.9   (199)   (5.6)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenues
   183,977   100.0   190,717   100.0   (6,740)   (3.5)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating expenses:
       
Cost of services
   109,103   59.3   113,757   59.6   (4,654)   (4.1)% 
Selling, general and administrative
   51,677   28.1   54,860   28.8   (3,183)   (5.8)% 
Depreciation and amortization
   2,997   1.6   2,464   1.3   533   21.6% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   163,777   89.0   171,081   89.7   (7,304)   (4.3)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating income
   20,200   11.0   19,636   10.3   564   2.9% 
Other income (expense), net
   1,044   0.6   (366)   (0.2)   1,410   (385.2)% 
Interest expense
   (146)   (0.1)   (283)   (0.1)   137   (48.4)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income before provision for income taxes
   21,098   11.5   18,987   10.0   2,111   11.1% 
Provision for income taxes
   6,086   3.3   5,917   3.1   169   2.9% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income
  $15,012   8.2%  $13,070   6.9%  $1,942   14.9% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Adjusted EBITDA
(1)
  $25,695   14.0%  $22,378   11.7%  $3,317   14.8% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(1) 
Adjusted EBITDA is not a measurement of our financial performance under U.S. generally accepted accounting principles (“U.S. GAAP”) and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see
“Non-GAAP
Financial Measure.”
Revenues
Our total revenues were $117.4$184.0 million for the three months ended June 30, 2020March 31, 2021 compared to $209.6$190.7 million for the same period in 2019,2020, a decrease of $92.2$6.7 million, or 44.0%3.5%. Total revenues decreased primarily as a result of decreasesa decrease in real estate brokerage commissions, partially offset by an increase in financing fees, and other revenues, as described below. Other revenues remained relatively comparable.
Real estate brokerage commissions.
Revenues from real estate brokerage commissions decreased to $103.4$162.8 million for the three months ended June 30, 2020March 31, 2021 from $188.7$171.8 million for the same period in 2019,2020, a decrease of $85.3$9.0 million, or 45.2%5.3%. The decrease was primarily driven by a 41.3% reduction in sales volume and 1320 basis points reductiondecrease in average commission rates, primarily aspartially offset by a result of the
shelter-in-place
orders, economic uncertainty and other transactional impediments surrounding the
COVID-19
pandemic.5.0% increase in sales volume. Sales volume was primarily impacted by a 41.4%6.8% increase in the average transaction size due to a larger proportion of transactions closed by our larger transaction market segment, partially offset by a 1.7% decrease in the number of transactions. The average transaction size remained comparable.
Financing fees.
Revenues from financing fees decreasedincreased to $12.7$17.8 million for the three months ended June 30, 2020March 31, 2021 from $17.7$15.4 million for the same period in 2019, a decrease2020, an increase of $5.0$2.5 million, or 28.4%16.2%. The decreaseincrease was primarily driven by a 38.3% reduction in financing volume, partially offset by an 8 basis points increase in average fee rates. Financing volume was primarily impacted by a 21.3% decrease in the number of financing transactions and a 21.6% decrease in average transaction size as a result of the
shelter-in-place
orders, economic uncertaintyour recent acquisitions and other transactional impediments surrounding theancillary financing fees.
COVID-19
pandemic.
Other revenues.
Other revenues decreased to $1.3of $3.3 million for the three months ended June 30, 2020 from $3.2March 31, 2021 were relatively comparable to the $3.5 million for the same period in 2019, a decrease of $1.8 million, or 58.2%. The decrease was primarily driven by decreases in consulting and advisory services during the three months ended June 30, 2020 compared to the same period in 2019.2020.
Total operating expensesOperating Expenses
Our total operating expenses were $120.0$163.8 million for the three months ended June 30, 2020March 31, 2021 compared to $182.6$171.1 million for the same period in 2019,2020, a decrease of $62.6$7.3 million, or 34.3%4.3%. The decrease was primarily due to a decreasedecreases in cost of services, which are variable commissions paid to our investment sales professionals and compensation relatedcompensation-related costs in connection with our financing activities, and a decrease in selling, general and administrative costs, partially offset by an increase in and depreciation and amortization expense, as described below.
 
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Cost of services.
Cost of services decreased to $73.7$109.1 million for the three months ended June 30, 2020March 31, 2021 from $127.8$113.8 million for the same period in 2019,2020, a decrease of $54.1$4.7 million, or 42.3%4.1%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenues noted above. Cost of services as a percent of total revenues increaseddecreased to 62.8%59.3% compared to 61.0%59.6% for the same period in 20192020 primarily due to a higher proportion of transactions that were closed by our more senior investment sales and financing professionals. Due toprofessionals at the uncertainty surrounding
COVID-19,
we expectstart of the pandemic during the three months ended March 31, 2020. Traditionally, cost of services as a percent of total revenues to remain elevatedis lower during the three-month periods ended March 31 as certain investment professionals may earn a higher commission rate later in the coming quarters as we expect the majority of the deals closed to be weighted towards senior investment sales and financing professionals.year after meeting annual revenue thresholds.
Selling, general and administrative expense.
Selling, general and administrative expense for the three months ended June 30, 2020March 31, 2021 decreased $9.3$3.2 million, or 17.6%5.8%, to $43.5$51.7 million from $52.8$54.9 million for the same period in 2019. Decreases in our selling, general and administrative expense have been driven by our various expense reduction initiatives.2020. The decrease was primarily due to (i) a $7.5 million decreasedecreases in compensation related costs, primarily driven by management performance compensation and salaries and related benefits, partially offset by an increase in deferred compensation obligation; (ii) a $1.0 million decrease in(i) sales operations support events and promotional marketing expenses;expenses primarily due to the Company’s annual sales recognition event being cancelled due to ongoing concerns about the pandemic; (ii) legal costs; and (iii) a $0.6 million decrease in net other expense categories, including increases in acquisition related costs, offset by decreases in travel and other related expenses and (iv) a $0.4 million decrease in legal costs.stock-based compensation expense. These decreases were partially offset by increases in (i) operating costs related to acquired businesses in the last 12 months; (ii) compensation related costs, including variable employee incentive compensation as a $0.2 million increase inresult of our performance and deferred compensation obligations; and (iii) facilities expenses.expenses due to the expansion of existing offices and our acquisition activities.
Depreciation and amortization expense.
Depreciation and amortization expense increased to $2.8$3.0 million for the three months ended June 30, 2020March 31, 2021 from $1.9$2.5 million for the same period in 2019,2020, an increase of $0.8$0.5 million, or 42.4%21.6%. The increase was primarily driven by the increase in amortization of intangible assets resulting from the increase in intangible assetsour expansion and growth due to our acquisition activities.acquisitions.
Other Income (Expense), Net
Other income (expense), net decreasedincreased to $3.0$1.0 million for the three months ended June 30, 2020March 31, 2021 from $3.1$(0.4) million for the same period in 2019.2020. The decreaseincrease was primarily driven by a $1.3 million reduction in interest income on our investments in marketable debt securities,
available-for-sale.
The decrease was partially offset by (i) a $0.9$1.7 million favorable change in the value of our deferred compensation plan assets that are held in a rabbi trust; and (ii) a $0.3$1.2 million increase in net other categories, including foreign currency gain related to our Canadian operations. These increases were partially offset by (i) a $1.4 million reduction in interest income on our investments in marketable debt securities,
available-for-sale
due to an overall decrease in interest rates; and (ii) a net $0.1 million reduction in other categories.
Interest Expense
There were no significant changes in interestInterest expense decreased to $0.1 million for the three months ended June 30, 2020 compared toMarch 31, 2021 from $0.3 million for the same period in 2019.2020. The decrease for the three months ended March 31, 2021 was primarily due to a decrease in interest expense on SARs liability and no interest expense related to notes payable to former stockholders, which were fully repaid during the second quarter of 2020.
Provision for Income Taxes
The provision for income taxes was $42,000$6.1 million for the three months ended June 30, 2020March 31, 2021 compared to $8.5$5.9 million in the same period in 2019, a decrease2020, an increase of $8.4$0.2 million, due to the significant decline in income before provision for income taxes.or 2.9%. The effective income tax rate for the three months ended June 30, 2020March 31, 2021 was 28.4%28.8% compared to 28.5%31.2% for the same period in 2019.
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Comparison of Six Months Ended June 30, 2020 and 2019
Below are key operating results for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 (dollars in thousands):
   Six Months
Ended
June 30, 2020		  Percentage
of
Revenue		  Six Months
Ended
June 30, 2019		  Percentage
of
Revenue		  Change 
 Dollar  Percentage 
Revenues:
       
Real estate brokerage commissions
  $275,200   89.3%  $333,617   90.1%  $(58,417)   (17.5)% 
Financing fees
   28,054   9.1   31,474   8.5   (3,420)   (10.9)% 
Other revenues
   4,863   1.6   5,209   1.4   (346)   (6.6)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Total revenues
   308,117   100.0   370,300   100.0   (62,183)   (16.8)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Operating expenses:
       
Cost of services
   187,500   60.9   219,535   59.3   (32,035)   (14.6)% 
Selling, general and administrative
   98,379   31.9   101,754   27.5   (3,375)   (3.3)% 
Depreciation and amortization
   5,216   1.7   3,764   1.0   1,452   38.6% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Total operating expenses
   291,095   94.5   325,053   87.8   (33,958)   (10.4)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Operating income
   17,022   5.5   45,247   12.2   (28,225)   (62.4)% 
Other income (expense), net
   2,609   0.8   6,494   1.8   (3,885)   (59.8)% 
Interest expense
   (496)   (0.1)   (689)   (0.2)   193   (28.0)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Income before provision for income taxes
   19,135   6.2   51,052   13.8   (31,917)   (62.5)% 
Provision for income taxes
   5,959   1.9   14,135   3.8   (8,176)   (57.8)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Net income
  $13,176   4.3%   36,917   10.0%  $(23,741)   (64.3)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
Adjusted EBITDA
(1)
  $26,528   8.6%  $55,175   14.9%  $(28,647)   (51.9)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
(1) 
Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see
“Non-GAAP
Financial Measure.”
Revenues
Our total revenues were $308.1 million for the six months ended June 30, 2020 compared to $370.3 million for the same period in 2019, a decrease of $62.2 million, or 16.8%. Total revenues decreased as a result of decreases in real estate brokerage commissions, financing fees and to a lesser extent, other revenues, as described below.
Real estate brokerage commissions.
Revenues from real estate brokerage commissions decreased to $275.2 million for the six months ended June 30, 2020 from $333.6 million for the same period in 2019, a decrease of $58.4 million, or 17.5%. The decrease was driven by a 15.1% reduction in sales volume and 6 basis points reduction in average commission rates. Sales volume was impacted by a 16.9% decrease in the number of transactions, partially offset by a 2.2% increase in the average transaction size.
Financing fees.
Revenues from financing fees decreased to $28.1 million for the six months ended June 30, 2020 from $31.5 million for the same period in 2019, a decrease of $3.4 million, or 10.9%. The decrease was driven by a 12.6% reduction in financing volume as the average commission rates remained comparable. Financing volume was impacted by a 11.3% decrease in average transaction size and a 1.5% decrease in the number of financing transactions.
Other revenues.
Other revenues decreased to $4.9 million for the six months ended June 30, 2020 from $5.2 million for the same period in 2019, a decrease of $0.3 million, or 6.6%. The decrease was primarily driven by a decrease in consulting and advisory services during the six months ended June 30, 2020 compared to the same period in 2019.
Total operating expenses
Our total operating expenses were $291.1 million for the six months ended June 30, 2020 compared to $325.1 million for the same period in 2019, a decrease of $34.0 million, or 10.4%. The decrease was primarily due to a decrease in cost of services, which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities, and a decrease in selling, general and administrative costs, partially offset by an increase in depreciation and amortization expense, as described below.
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Table of Contents
Cost of services.
Cost of services decreased to $187.5 million for the six months ended June 30, 2020 from $219.5 million for the same period in 2019, a decrease of $32.0 million, or 14.6%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenues noted above. Cost of services as a percent of total revenues increased to 60.9% compared to 59.3% for the same period in 2019 primarily due to a higher proportion of transactions closed by our more senior investment sales and financing professionals.
Selling, general and administrative expense.
Selling, general and administrative expense for the six months ended June 30, 2020 decreased $3.4 million, or 3.3%, to $98.4 million from $101.8 million for the same period in 2019. Decreases in our selling, general and administrative expense have been driven by our various expense reduction initiatives. The decrease was primarily due to a $8.5 million decrease in compensation related costs, primarily driven by decreases in management performance compensation and deferred compensation obligation. This decrease was partially offset by (i) a $3.1 million increase in sales operations support, events and promotional marketing expenses; (ii) a $1.1 million increase in facilities expenses; (iii) a $0.7 million increase in legal costs; and (iv) a $0.2 million increase in net other expense categories, including increases in acquisition related costs, certain licensing fees and stock-based compensation expense, offset by decreases in travel and other related expenses.
Depreciation and amortization expense.
Depreciation and amortization expense increased to $5.2 million for the six months ended June 30, 2020 from $3.8 million for the same period in 2019, an increase of $1.5 million, or 38.6%. The increase was primarily driven by the increase in amortization of intangible assets resulting from the increase in intangible assets due to our acquisition activities.
Other Income (Expense), Net
Other income (expense), net decreased to $2.6 million for the six months ended June 30, 2020 from $6.5 million for the same period in 2019. The decrease was primarily driven by (i) a $1.8 million reduction in interest income on our investments in marketable debt securities,
available-for-sale
(ii) a $1.2 million unfavorable change in the value of our deferred compensation plan assets that are held in a rabbi trust; (iii) a $0.8 million foreign currency loss related to our Canadian operations; and (iv) a $0.1 million reduction in net other categories.
Interest expense
There were no significant changes in interest expense for the six months ended June 30, 2020 compared to the same period in 2019.
Provision for income taxes
The provision for income taxes was $6.0 million for the six months ended June 30, 2020 compared to $14.1 million in the same period in 2019, a decrease of $8.2 million, or 57.8%.2020. The effective income tax rate for the six months ended June 30, 2020 was 31.1% compared to 27.7% for the same period in 2019. The effective income tax rate increaseddecreased primarily due to the effect of permanent items driven by the decreaseincrease in income before provisionvalue of our deferred compensation plan assets, a lower valuation allowance required for income taxes.the deferred tax assets of the Company’s Canadian operations and a shift in the blended state tax rate to lower taxing jurisdictions, partially offset by an increase in amounts that were not deductible under Internal Revenue Code Section 162(m) limitations.
 
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Non-GAAP
Financial Measure
In this quarterly report on Form
10-Q,
we include a
non-GAAP
financial measure, adjusted earnings before interest income/expense, taxes, depreciation and amortization, stock-based compensation and other
non-cash
items, or Adjusted EBITDA. We define Adjusted EBITDA as net income before (i) interest income and other, including net realized gains (losses) on marketable debt securities,
available-for-sale
and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation, and
(vi) non-cash
MSR activity. 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 an analytical tool 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 tool 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 income, 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 income, to Adjusted EBITDA is as follows (in thousands):
 
   Three Months Ended
June 30,		  Six Months Ended
June 30,		 
   2020  2019  2020  2019 
Net income
  $106  $21,279  $13,176  $36,917 
Adjustments:
     
Interest income and other
(1)
   (1,198)   (2,562)   (3,201)   (5,103) 
Interest expense
   213   340   496   689 
Provision for income taxes
   42   8,478   5,959   14,135 
Depreciation and amortization
   2,752   1,932   5,216   3,764 
Stock-based compensation
   2,536   2,585   5,168   4,926 
Non-cash
MSR activity
(2)
   (301)   (36)   (286)   (153) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Adjusted EBITDA
(3)
  $4,150  $32,016  $26,528  $55,175 
  
 
 
  
 
 
  
 
 
  
 
 
 
   Three Months Ended
March 31,		 
   2021  2020 
Net income
  $ 15,012  $ 13,070 
Adjustments:
   
Interest income and other
(1)
   (531)   (2,003) 
Interest expense
   146   283 
Provision for income taxes
   6,086   5,917 
Depreciation and amortization
   2,997   2,464 
Stock-based compensation
   2,288   2,632 
Non-cash
MSR activity
(2)
   (303)   15 
  
 
 
  
 
 
 
Adjusted EBITDA
(3)
  $25,695  $22,378 
  
 
 
  
 
 
 
 
(1)
Other includes net realized gains (losses) on marketable debt securities,
available-for-sale.
(2)
Non-cash
MSR activity includes the assumption of servicing obligations.
(3)
The decreaseincrease in Adjusted EBITDA for the three and six months ended June 30, 2020March 31, 2021 compared to the same periodsperiod in 20192020 is primarily due to a decrease in total revenues and a higherlower proportion of operating expenses compared to total revenues.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, marketable debt securities,
available-for-sale
and, if necessary, borrowings under our credit agreement. 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 fees on redemptions and/or gating fees. 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 and cash equivalents, proceeds from the sale of marketable debt securities,
available-for-sale
or availability under our credit agreement.
 
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Cash Flows
Our total cash and cash equivalents balance decreased by $77.8$21.4 million to $154.9$221.7 million at June 30, 2020,March 31, 2021, compared to $232.7$243.2 million at December 31, 2019.2020. The following table sets forth our summary cash flows for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 (in thousands):
 
   Six Months Ended
June 30,		 
   2020   2019 
Net cash used in operating activities
  $(51,849)   $(24,363) 
Net cash (used in) provided by investing activities
   (16,459)    19,626 
Net cash used in financing activities
   (9,332)    (3,188) 
Effect of currency exchange rate changes on cash and cash equivalents
   (150)    —   
  
 
 
   
 
 
 
Net decrease in cash and cash equivalents
   (77,790)    (7,925) 
Cash and cash equivalents at beginning of period
   232,670    214,683 
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
  $154,880   $206,758 
  
 
 
   
 
 
 
   Three Months Ended
March 31,		 
   2021  2020 
Net cash used in operating activities
  $(20,102) $(52,793)
Net cash provided by investing activities
   3,141   13,097 
Net cash used in financing activities
   (4,516)   (2,940) 
  
 
 
  
 
 
 
Effect of currency exchange rate changes on cash and cash equivalents
   33   (274) 
  
 
 
  
 
 
 
Net decrease in cash and cash equivalents
   (21,444)   (42,910) 
Cash and cash equivalents at beginning of period
   243,152   232,670 
  
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $ 221,708  $ 189,760 
  
 
 
  
 
 
 
Operating Activities
Cash flows used in operating activities were $51.8$20.1 million for the sixthree months ended June 30, 2020March 31, 2021 compared to $24.4$52.8 million for the same period in 2019.2020. Net cash used in operating activities is driven by our net income adjusted for
non-cash
items and changes in operating assets and liabilities. The $27.5$32.7 million increaseddecreased usage in operating cash flows for the sixthree months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 was primarily due to lower total revenues and a higherlower proportion of operating expenses compared to total revenues, differences in timing of certain payments and receipts, an increasea decrease in advances related to the acquisitions of teams and long-term retention of our investment sales and financing professionals and a reduction in bonus accruals. We traditionally experience net cash used in operating activities during the deferralthree-month periods ended March 31, since bonuses and certain deferred commissions related to the prior year(s) are typically paid during the first quarter of certain discretionary commissions.the new year.
Investing Activities
Cash flows used inprovided by investing activities were $16.5$3.1 million for the sixthree months ended June 30, 2020March 31, 2021 compared to cash flows provided by investing activities of $19.6$13.1 million for the same period in 2019.2020. The $36.1$10.0 million increasedecrease in cash flows used inprovided by investing activities for the sixthree months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 was primarily due to a $24.0$17.9 million reduction in net proceeds from sales and maturities of marketable debt securities, andpartially offset by a $6.2 million reduction in cash used in acquisitions of businesses, net $11.8 million outflow for acquisitionsof cash received during the sixthree months ended June 30, 2020 with no such comparable outflow forMarch 31, 2021 compared to the same period in 2019.2020.
Financing Activities
Cash flows used in financing activities were $9.3$4.5 million for the sixthree months ended June 30, 2020March 31, 2021 compared to $3.2$2.9 million for the same period in 2019.2020. The change in cash flows used in financing activities for the sixthree months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 was primarily impacted by principal payments on notes payable to former stockholders and payments related to stock appreciation rights liability, partially offset by lower taxes paid related to net share settlement of stock-based awards. See Note 12 – “Stock-Based Compensation Plans” of our Notes to Condensed Consolidated Financial Statementsdeferred consideration for additional information.acquisitions with no such comparable outflow for the same period in 2020.
Liquidity
We believe that our existing balances of cash and cash equivalents, cash flows expected to be generated from our operations, proceeds from the sale of marketable debt securities,
available-for-sale
and borrowings available under the Credit Agreement (defined below) will be sufficient to satisfy our operating requirements for at least the next 12 months. If we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could prevent us from funding acquisitions or otherwise financing our growth or operations. In addition, our SARs agreements have provisions, which could accelerate repayment of outstanding principal and accrued interest and impact our liquidity. As of June 30, 2020,March 31, 2021, cash on hand and core-cash investments cash equivalents and marketable debt securities,
available-for-sale,
aggregated $322.1$423.1 million, and we had $60.0$59.5 million of borrowing capacity under our credit agreement. In response to this period
34
Table of business disruption, we have assessed our cost structure and instituted various expense reduction initiatives as discussed in “Overview –Contents
COVID-19”
section above.
Credit Agreement
We have a Credit Agreement with Wells Fargo Bank, National Association for a $60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on June 1, 2022 (the “Credit Agreement”). See Note 1513 – “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements for additional information on the Credit Agreement.
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Table of Contents
Contractual Obligations and Commitments
There have been no material changes in our commitments under contractual obligations, as disclosed in our Annual Report on Form
10-K
for the year ended December 31, 20192020 through the date the condensed consolidated financial statements were issued other than (i) increases in contingent and deferred consideration in connection with acquisitions of $5.6 million; (ii) increases in amounts that may be advanced to certain investment sales and financing professionals upon reaching time requirements of $14.3 million and (iii) commitment to invest up to $5.0 million in a limited liability company that invests in highly rated asset-based securities in accordance with our investment policy.issued.
Off Balance Sheet Arrangements
We do not have any
off-balance
sheet arrangements.
Inflation
Our commissionsrevenues and other variable costs related to revenue are primarily affected by real estate market supply and demand, which may be affected by uncertain or changing economic and market conditions, including inflation/deflation arising in connection with and in response to the
COVID-19
pandemic. The actual economic impactsimpact from inflation/deflation to our business remainremains unknown at this time.
Critical Accounting Policies; Use of Estimates
We prepare our financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. There were no significant changes in our critical accounting policies, as disclosed in our Annual Report on Form
10-K
for the year ended December 31, 2019 except for the following:
Investments in Marketable Debt Securities,
Available-for-Sale
We maintain a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities and other. We consider our investments in marketable debt securities to be
available-for-sale,
and accordingly are recorded at their fair values. We determine the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with accretion and amortization of purchase premiums and discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expense), net in the condensed consolidated statements of net and comprehensive income. We typically invest in highly-rated debt securities, and our investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
We review quarterly our investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. We exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income/loss, net of applicable taxes. We made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. We evaluate
write-off
of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.
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Table of Contents
Determining whether a credit loss exists requires a high degree of judgment and we consider both qualitative and quantitative factors in making our determination. We evaluate our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, we evaluate, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations and changes in base and market interest rates. If qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, we typically do not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are our best estimate based on past events, current conditions and reasonable and supportable economic forecasts.
2020.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 21 – “Accounting Policies“Description of Business, Basis of Presentation and Recent Accounting Pronouncements” of our Notes to Condensed Consolidated Financial Statements. Other than changing certain accounting processes and disclosures, the accounting pronouncement related to Accounting Standards Update
No. 2016-13,
Financial Instruments—Credit Losses
did not have a material impact on our condensed consolidated financial statements. Although we do not believe any of the other accounting pronouncements listed in that note will have a significant impact on our business, we are still in the process of determining the impact of the new pronouncements may have on our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain a portfolio of investments in a variety of fixed and variable debt rate securities, including U.S. Treasuries, U.S. government and federal agency,sponsored entities, corporate debt, asset-backed securities and other. As of June 30, 2020,March 31, 2021, the fair value of investments in marketable debt securities,
available-for-sale
was $212.5$201.4 million. The primary objective of our investment activity is to maintain the safety of principal, and to provide for future liquidity requirements while maximizing yields without significantly increasing risk. While some investments may be securities of companies in foreign countries, all investments are denominated and payable in U.S. Dollars. We do not enter into investments for trading or speculative purposes. While our intent is not to sell these investment securities prior to their stated maturities, we may choose to sell any of the securities for strategic reasons including, but not limited to, anticipated capital requirements, anticipation of credit deterioration, duration management and because a security no longer meets the criteria of our investment policy. We do not use derivatives or similar instruments to manage our interest rate risk. We seek to invest in high quality investments. The weighted average rating (exclusive of cash and cash equivalents) was AA+AA as of June 30, 2020.March 31, 2021. Maturities are maintained consistent with our short-, medium- and long-term liquidity objectives.
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Table of Contents
Currently, our portfolio of investments predominantly consists of fixed interest rate debt securities; however, a portion of our investment portfolio may consist of variable interest rate debt securities. Our investments in fixed interest rate debt securities are subject to various market risks. Changes in prevailing interest rates may adversely or positively impact their fair market value should interest rates generally rise or fall. Accordingly, we also may have interest rate risk with variable interest rate debt securities as the income produced may decrease if interest rates fall. Contraction in market liquidity may adversely affect the value of portions of our portfolio and affect our ability to sell securities in the time frames required and at acceptable prices. Uncertainty in future market conditions may raise market participant’s expectations of returns, thus impacting the value of securities in our portfolio as well. During the six months ended June 30, 2020, increased demand for treasury securities caused a significant decrease in the yields on treasury securities and unbalanced demand and supply factors created significant liquidity shortfalls until the Federal Reserve initiated market intervention programs to stabilize the market. The following table sets forth the impact on the fair value of our investments as of June 30, 2020March 31, 2021 from changes in interest rates based on the weighted average duration of the debt securities in our portfolio (in thousands):
 
Change in Interest Rates  Approximate Change in Fair
Value of Investments
Increase (Decrease)		   Approximate Change in
Fair Value of Investments
Increase (Decrease)		 
2% Decrease
  $2,502   $ 2,318 
1% Decrease
  $1,626   $1,495 
1% Increase
  $(2,330)   $ (2,197) 
2% Increase
  $(4,658)   $ (4,394) 
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Table of Contents
Due to the nature of our business and the manner in which we conduct our operations, we believe we do not face any material interest rate risk with respect to other assets and liabilities, equity price risk or other market risks. The functional currency of our Canadian operations is the Canadian dollar. We are exposed to foreign currency exchange rate risk for the settlement of transactions of the Canadian operations as well as unrealized translation adjustments. To date, realized foreign currency exchange rate gains and losses have not been material.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f),
including maintenance of (i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts and expenditures are being made only in accordance with authorizations of management and our board of directors and (c) we will prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Our management, with the supervision and participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-
15(e) and
15d-
15(e) under the Exchange Act, as of the end of the period covered by this Form
10-Q,
based on the criteria established under the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). Based on such evaluation, our management has concluded that as of June 30, 2020,March 31, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees and independent contractors are working remotely due to
the COVID-19 pandemic.
The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing
the COVID-19 situation
to minimize the impact, if any, on the design and operating effectiveness on our internal controls.
 
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Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in claims and legal actions arising in the ordinary course of our business, some of which involve claims for damages that are substantial in amount. Most of these litigation matters are covered by our insurance policies, which contain deductibles, exclusions, claim limits and aggregate policy limits. Such litigation and other proceedings may include, but are not limited to, actions relating to commercial relationships, standard brokerage disputes like the alleged failure to disclose physical or environmental defects or property expenses or contracts, the alleged inadequate disclosure of matters relating to the transaction like the relationships among the parties to the transaction, potential claims or losses pertaining to the asset, vicarious liability based upon conduct of individuals or entities outside of our control, general fraud claims, conflicts of interest claims, employment law claims, including claims challenging the classification of our sales professionals as independent contractors, claims alleging violations of state consumer fraud statutes and intellectual property. While the ultimate liability for these legal proceedings cannot be determined, we review the need for an accrual for loss contingencies quarterly and record an accrual for litigation related losses where the likelihood of loss is both probable and estimable. We do not believe, based on information currently available to us, that the final outcome of these proceedings will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes from the risk factors described in our Annual Report on
Form 10-K for
the year ended December 31, 2019, other than the new risk factor below relating to the
COVID-19
pandemic.2020.
The
COVID-19
pandemic has adversely affected and could continue to adversely affect how we operate our business, and the duration and extent to which it will impact our future results of operations and overall financial performance is unknown.
The
COVID-19
pandemic is a prolonged widespread global health crisis that has adversely affected and could continue to adversely affect the broader economies, capital markets and overall demand for our services.
Government imposed restrictions intended to slow the community spread of
COVID-19
have, and the possible resumption of any state or local
shelter-in-place
orders may, affect our clients or potential clients’ ability or willingness to purchase properties with limited or no ability to view properties; delay the closing of real estate sales and financing transactions; increase the borrowing cost and reduce the availability of debt financing; impact our ability to provide or deliver services to our clients or potential clients; and/or temporarily delay our expansion efforts. In addition, the current
COVID-19
pandemic, the reoccurrence of the
COVID-19
pandemic or a future pandemic, could materially affect our future sales, operating results, liquidity and overall financial performance due to, among other factors:
Any impairment in value of our investments in marketable debt securities,
available-for-sale,
tangible or intangible assets, which could be recorded as a result of weaker economic conditions.
A potential negative impact on the health of our employees and investment sales and financing professionals, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during a disruption.
If significant portions of our workforce are unable to work effectively, including because of quarantines, facility closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.
If we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all due to various risks and uncertainties. Our failure to raise sufficient capital when needed could prevent us from, among other factors, to fund acquisitions or to otherwise finance our growth or operations. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.
The long-term potential economic impact of a pandemic may be difficult to assess or predict. The
COVID-19
pandemic has resulted in significant disruption of global financial markets, and on June 8, 2020, the National Bureau of Economic Research announced that the United States was in a recession. A long-term recession or long-term market correction could have a long-term impact on the flow of capital to the commercial real estate market and/or the willingness of investors to invest in or sell commercial real estate. This may adversely impact the demand for our services as well as the value of our common stock and our access to capital.
While we did not incur significant disruptions during the three months ended March 31, 2020 from
the COVID-19 pandemic,
our business was materially adversely impacted during the three months ended June 30, 2020. To date, we have seen a significant increase in closing timelines, a dramatic slowing of our real estate brokerage and financing transaction activity, difficulty in pricing assets and, in certain cases, restricted ability of borrowers to access the capital markets and other sources of financing. Further, the effect of the
COVID-19
restrictions on our operations, including preventative and precautionary health measures mandated to us by federal, state and local governments will likely continue to affect our ability to identify and close commercial real estate transactions.
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Table of Contents
Please see “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the potential impact of the
COVID-19
pandemic and associated economic disruptions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
 
Exhibit
No.
  
Description
31.1*  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**  Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101  101*  The following financial statements from the Company’s Quarterly Report on Form
10-Q
for the quarter ended June 30, 2020,March 31, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Net and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104  104*  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
*
Filed herewith.
**
Furnished, not filed.
+
Indicates management contract or compensatory plan.
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Marcus
 & Millichap, Inc
.
 
Marcus
 & Millichap, Inc
.
Date: May 7, 2021
 
August 10, 2020
 By: 
/s/Hessam Nadji
   
Hessam Nadji
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 2021
 
August 10, 2020
 By: 
/s/Martin E. Louie Steven F. DeGennaro
   
Martin E. LouieSteven F. DeGennaro
Chief Financial Officer
(Principal Financial Officer)