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 September 30, ~~2021~~2022

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ~~from~~

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 ~~November 2, 2021~~October 31, 2022 was ~~39,667,728~~39,365,723 shares.

Table of Contents

MARCUS & MILLICHAP, INC.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements				3
Condensed Consolidated Balance Sheets at as of September 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021			3
Condensed Consolidated Statements of Net Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)	4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)			4	5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 ~~and 2020~~ (Unaudited)			5	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)			7	8
Notes to Condensed Consolidated Financial Statements (Unaudited)			8	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39	41
Item 4. Controls and Procedures			40	42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			41	43
Item 1A. Risk Factors			41	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42	43
Item 3. Defaults Upon Senior Securities			42	43
Item 4. Mine Safety Disclosures			42	43
Item 5. Other Information			42	44
Item 6. Exhibits			43	45

SIGNATURES			44

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)


	September 30, 2022 (unaudited)		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	270,864	$	382,140
Commissions receivable	11,768		17,230
Prepaid expenses	8,665		13,220
Income tax receivable	3,253		—
Marketable debt securities, available-for-sale (includes amortized cost of $213,042 and $183,915 at September 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)	211,759		183,868
Advances and loans, net	3,484		6,403
Other assets, current	5,964		5,270
Total current assets	515,757		608,131
Property and equipment, net	26,823		23,192
Operating lease right-of-use assets, net	83,972		81,528
Marketable debt securities, available-for-sale (includes amortized cost of $94,727 and $111,858 at September 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)	89,329		112,610
Assets held in rabbi trust	9,222		11,508
Deferred tax assets, net	37,883		33,736
Goodwill and other intangible assets, net	57,092		48,105
Advances and loans, net	164,640		113,242
Other assets, non-current	15,170		13,146
Total assets	$	999,888	$	1,045,198
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	10,237	$	15,487
Deferred compensation and commissions	62,547		114,685
Income tax payable	—		17,853
Operating lease liabilities	18,683		18,973
Accrued bonuses and other employee related expenses	34,572		49,848
Other liabilities, current	20,603		8,784
Total current liabilities	146,642		225,630
Deferred compensation and commissions	55,825		53,536
Operating lease liabilities	62,837		58,334
Other liabilities, non-current	10,623		11,394
Total liabilities	275,927		348,894
Commitments and contingencies	—		—
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and outstanding shares – none at September 30, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued and outstanding shares – 39,797,423 and 39,692,373 at September 30, 2022 and December 31, 2021, respectively	4		4
Additional paid-in capital	128,174		121,844
Retained earnings	599,710		573,546
Accumulated other comprehensive (loss) income	(3,927)		910
Total stockholders’ equity	723,961		696,304
Total liabilities and stockholders’ equity	$	999,888	$	1,045,198

   September 30, 2021
(Unaudited)    December 31,
2020
Assets

Current assets:

Cash and cash equivalents
   $ 281,007    $ 243,152
Commissions receivable, net
   15,377    10,391
Prepaid expenses
   9,232    10,153
Marketable debt securities,
available-for-sale
(includes amortized cost of $116,852 and $158,148 at September 30, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)
   116,902    158,258
Advances and loans, net
   3,017    2,413
Other assets
   4,436    4,711




Total current assets
   429,971    429,078
Property and equipment, net
   22,890    23,436
Operating lease
right-of-use
assets, net
   85,250    84,024
Marketable debt securities,
available-for-sale
(includes amortized cost of $128,788 and $45,181 at September 30, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)
   130,502    47,773
Assets held in rabbi trust
   11,056    10,295
Deferred tax assets, net
   24,410    21,374
Goodwill and other intangible assets, net
   48,974    52,053
Advances and loans, net
   108,709    106,913
Other assets
   13,318    4,176




Total assets
   $ 875,080    $ 779,122




Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and other liabilities
   $ 20,025    $ 18,288
Deferred compensation and commissions
   53,068    58,106
Income tax payable
   5,658    3,726
Operating lease liabilities
   19,745    19,190
Accrued bonuses and other employee related expenses
   32,066    21,007




Total current liabilities
   130,562    120,317
Deferred compensation and commissions
   38,638    38,745
Operating lease liabilities
   60,970    59,408
Other liabilities
   12,641    13,816




Total liabilities
   242,811    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 September 30, 2021 and December 31, 2020, respectively
   0      0
Common stock, $0.0001 par value:

Authorized shares – 150,000,000; issued and outstanding shares – 39,666,785 and 39,401,976 at September 30, 2021 and December 31, 2020, respectively
   4    4
Additional
paid-in
capital
   118,974    113,182
Retained earnings
   511,544    431,076
Accumulated other comprehensive income
   1,747    2,574




Total stockholders’ equity
   632,269    546,836




Total liabilities and stockholders’ equity
   $ 875,080    $ 779,122

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET ~~AND COMPREHENSIVE~~ INCOME

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Real estate brokerage commissions	$	292,889	$	299,759	$	934,483	$	715,458
Financing fees	28,099		29,391		91,363		75,448
Other revenues	2,852		3,233		13,415		10,400
Total revenues	323,840		332,383		1,039,261		801,306
Operating expenses:
Cost of services	217,360		219,194		670,170		506,882
Selling, general and administrative	73,004		64,673		227,380		178,147
Depreciation and amortization	2,924		2,850		10,167		8,806
Total operating expenses	293,288		286,717		907,717		693,835
Operating income	30,552		45,666		131,544		107,471
Other income, net	978		323		967		2,737
Interest expense	(229)		(144)		(547)		(436)
Income before provision for income taxes	31,301		45,845		131,964		109,772
Provision for income taxes	9,939		11,921		35,651		29,304
Net income	$	21,362	$	33,924	$	96,313	$	80,468

Earnings per share:
Basic	$	0.53	$	0.85	$	2.40	$	2.02
Diluted	$	0.53	$	0.84	$	2.39	$	2.00
Weighted average common shares outstanding:
Basic	40,086		39,940		40,038		39,859
Diluted	40,302		40,241		40,358		40,148

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2021 2020 2021 2020
Revenues:

Real estate brokerage commissions
   $ 299,759 $ 140,844 $

715,458 $

416,044
Financing fees
   29,391 15,620 75,448 43,674
Other revenues
   3,233 2,111 10,400 6,974


Total revenues
   332,383 158,575 801,306 466,692


Operating expenses:

Cost of services
   219,194 99,707 506,882 287,207
Selling, general and administrative
   64,673 49,722 178,147 148,101
Depreciation and amortization
   2,850 2,606 8,806 7,822


Total operating expenses
   286,717 152,035 693,835 443,130


Operating income
   45,666 6,540 107,471 23,562
Other income (expense), net
   323 1,615 2,737 4,224
Interest expense
   (144 ) (199 ) (436 ) (695 )


Income before provision for income taxes
   45,845 7,956 109,772 27,091
Provision for income taxes
   11,921 1,916 29,304 7,875


Net income
   33,924 6,040 80,468 19,216


Other comprehensive (loss) income:

Marketable debt securities,
available-for-sale:

Change in net unrealized gains
   (240 ) (30 ) (715 ) 687
Less: reclassification adjustment for net losses included in other income (expense), net
   23 8 26 32


Net change, net of tax of $(75), $(7), $(239) and $246 for the three and nine months ended September 30, 2021 and 2020, respectively
   (217 ) (22 ) (689 ) 719
Foreign currency translation gain (loss), net of tax of $0 for each of the three and nine months ended September 30, 2021
and 2020, respectively

   192 (214 ) (138 ) 254


Total other comprehensive (loss) income
   (25 ) (236 ) (827 ) 973


Comprehensive income
   $ 33,899 $ 5,804 $ 79,641 $ 20,189


Earnings per share:

Basic
   $ 0.85 $ 0.15 $ 2.02 $ 0.49
Diluted
   $ 0.84 $ 0.15 $ 2.00 $ 0.48
Weighted average common shares outstanding:

Basic
   39,940 39,681 39,859 39,617
Diluted
   40,241 39,727 40,148 39,676

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~COMPREHENSIVE INCOME

(in ~~thousands, except for shares)~~thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Net income	$	21,362	$	33,924	$	96,313	$	80,468
Other comprehensive loss:
Marketable debt securities, available-for-sale:
Change in net unrealized (losses) gains	(1,541)		(240)		(5,456)		(715)
Less: reclassification adjustment for net losses (gains) included in other income, net	7		23		(70)		26
Net change, net of tax of $(522) and $(1,888) for the three and nine months ended September 30, 2022, and $(75) and $(239) for the three and nine months ended September 30, 2021, respectively	(1,534)		(217)		(5,526)		(689)
Foreign currency translation gain (loss), net of tax of $0 for each of the three and nine months ended September 30, 2022 and 2021, respectively	569		192		689		(138)
Total other comprehensive loss	(965)		(25)		(4,837)		(827)
Comprehensive income	$	20,397	$	33,899	$	91,476	$	79,641

   Three Months Ended September 30, 2021
   Preferred Stock    Common Stock
Additional
Paid-In

Capital
Stock Notes
Receivable
From
Employees    Retained
Earnings    Accumulated
Other
Comprehensive
Income (Loss) Total
   Shares    Amount    Shares Amount
Balance at June 30, 2021
   0      $ 0      39,578,360 $ 4    $

117,457 $ 0      $ 477,620    $ 1,772 $ 596,853
Net and comprehensive income
(loss)
   —      0      —   0      0   0      33,924    (25 ) 33,899
Stock-based award activity

Stock-based compensation
   0      0      0   0      2,703 0      0      0   2,703
Issuance of common stock for settlement of deferred stock units
   0      0      60,373 0      0   0      0      0   0
Issuance of common stock for vesting of restricted stock units
   0      0      58,411 0      0   0      0      0   0
Shares withheld related to net share settlement of stock-based awards
   0      0      (30,359 ) 0      (1,186 ) 0      0      0   (1,186 )












Balance as of September 30, 2021
   0      $ 0      39,666,785 $ 4    $ 118,974 $ 0      $ 511,544    $ 1,747 $ 632,269

   Three Months Ended September 30, 2020
   Preferred Stock    Common Stock
Additional
Paid-In

Capital
Stock Notes
Receivable
From
Employees    Retained
Earnings    Accumulated
Other
Comprehensive
Income (Loss) Total
   Shares    Amount    Shares Amount
Balance at June 30, 2020
   0      $ 0      39,328,017 $ 4    $

108,308 $ 0      $ 401,414    $ 3,187 $ 512,913
Net and comprehensive income

(loss)
   —      0      —   0      0   0      6,040    (236 ) 5,804
Stock-based award activity

Stock-based compensation
   0      0      0   0      2,383 0      0      0   2,383
Issuance of common stock for vesting of restricted stock units
   0      0      50,912 0      0   0      0      0   0
Shares withheld related to net share settlement of stock-based awards
   0      0      (2,452 ) 0      (66 ) 0      0      0   (66 )












Balance as of September 30, 2020
   0      $ 0      39,376,477 $ 4    $ 110,625 $ 0      $ 407,454    $ 2,951 $ 521,034

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for shares)

(Unaudited)


	Three Months Ended September 30, 2022
	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
Balance at June 30, 2022	—	$	—	39,964,292	$	4	$	123,767	$	596,361	$	(2,962)	$	717,170
Net and comprehensive income (loss)	—	—		—	—		—		21,362		(965)		20,397
Dividend	—	—		—	—		—		(10,436)		—		(10,436)
Stock-based award activity
Stock-based compensation	—	—		—	—		4,544		—		—		4,544


Issuance of common stock for vesting of restricted stock units	—	—		63,397	—		—		—		—		—


Shares withheld related to net share settlement of stock-based awards	—	—		(3,471)	—		(137)		—		—		(137)
Repurchases of common stock	—	—		(226,795)	—		—		(7,577)		—		(7,577)
Balance as of September 30, 2022	—	$	—	39,797,423	$	4	$	128,174	$	599,710	$	(3,927)	$	723,961


	Three Months Ended September 30, 2021
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount		Shares	Amount
Balance at June 30, 2021	—	$	—	39,578,360	$	4	$	117,457	$	477,620	$	1,772	$	596,853
Net and comprehensive income (loss)	—	—		—	—		—		33,924		(25)		33,899
Stock-based award activity
Stock-based compensation	—	—		—	—		2,703		—		—		2,703

Issuance of common stock for settlement of deferred stock units	—	—		60,373	—		—		—		—		—
Issuance of common stock for vesting of restricted stock units	—	—		58,411	—		—		—		—		—


Shares withheld related to net share settlement of stock-based awards	—	—		(30,359)	—		(1,186)		—		—		(1,186)
Balance as of September 30, 2021	—	$	—	39,666,785	$	4	$	118,974	$	511,544	$	1,747	$	632,269

   Nine Months Ended September 30, 2021
   Preferred Stock    Common Stock
Additional
Paid-In

Capital
Stock Notes
Receivable
From
Employees    Retained
Earnings    Accumulated
Other
Comprehensive
Income (Loss) Total
   Shares    Amount    Shares Amount
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      80,468    (827 ) 79,641
Stock-based award activity

Stock-based compensation
   0      0      0   0      7,653 0      0      0   7,653
Shares issued pursuant to employee stock purchase
plan
   0      0      11,635 0      369 0      0      0   369
Issuance of common stock for settlement of deferred stock units
   0      0      60,373 0      0   0      0      0   0
Issuance of common stock for vesting of restricted stock units
   0      0      241,726 0      0   0      0      0   0
Issuance of common stock for unvested restricted stock awards
   0      0      12,492 0      0   0      0      0   0
Issuance of common stock for stock settled deferred consideration
   0      0      27,481 0      1,000 0      0      0   1,000
Shares withheld related to net share settlement of stock-based awards
   0      0      (88,898 ) 0      (3,230 ) 0      0      0   (3,230 )












Balance as of September 30, 2021
   0      $ 0      39,666,785 $ 4    $ 118,974 $ 0      $ 511,544    $ 1,747 $ 632,269

   Nine Months Ended September 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
   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   19,216 973    20,189
Stock-based award activity

Stock-based compensation
   0      0      0   0      7,551 0   0   0      7,551
Shares issued pursuant to employee stock purchase plan
   0      0      15,923 0      371 0   0   0      371
Issuance of common stock for vesting of restricted stock units
   0      0      248,391 0      0   0   0   0      0
Issuance of common stock for unvested restricted stock awards
   0      0      19,516 0      0   0   0   0      0
Shares withheld related to net share settlement of stock-based awards
   0      0      (60,548 ) 0      (1,955 ) 0   0   0      (1,955 )
Reduction of stock notes receivable from employees
   —      0      —   0      0   4 0   0      4










Balance as of September 30, 2020
   0      $ 0      39,376,477 $ 4    $ 110,625 $ 0   $ 407,454 $ 2,951    $ 521,034

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(in ~~thousands)~~thousands, except for shares)

(Unaudited)


	Nine Months Ended September 30, 2022
	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	—	$	—	39,692,373	$	4	$	121,844	$	573,546	$	910	$	696,304
Net and comprehensive income (loss)	—	—		—	—		—		96,313		(4,837)		91,476
Dividends	—	—		—			—		(62,572)		—		(62,572)
Stock-based award activity
Stock-based compensation	—	—		—	—		12,675		—		—		12,675
Shares issued pursuant to employee stock purchase plan	—	—		11,089	—		414		—		—		414
Issuance of common stock for settlement of deferred stock units	—	—		166,449	—		—		—		—		—
Issuance of common stock for vesting of restricted stock units	—	—		275,631	—		—		—		—		—
Issuance of common stock for unvested restricted stock awards	—	—		11,494	—		—		—		—		—
Shares withheld related to net share settlement of stock-based awards	—	—		(161,491)	—		(8,176)		—		—		(8,176)
Issuance of common stock for stock settled deferred consideration	—	—		28,673	—		1,417		—		—		1,417
Repurchases of common stock	—	—		(226,795)	—		—		(7,577)		—		(7,577)
Balance as of September 30, 2022	—	$	—	39,797,423	$	4	$	128,174	$	599,710	$	(3,927)	$	723,961

   Nine Months Ended
September 30,
   2021 2020
Cash flows from operating activities

Net income
   $ 80,468 $ 19,216
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization
   8,806 7,822
Amortization of
right-of-use
assets
   17,773 16,883
Credit loss recovery
   25 55
Stock-based compensation
   7,653 7,551
Deferred taxes, net
   (2,847 ) 6,050
Unrealized foreign exchange (gains) losses
   (298 ) 276
Net realized gains on marketable debt securities,
available-for-sale
   (78 ) (180 )
Other
non-cash
items
   361 930
Changes in operating assets and liabilities:

Commissions receivable
   (5,297 ) (1,928 )
Prepaid expenses
   925 1,988
Advances and loans
   (2,434 ) (36,905 )
Other assets
   (1,076 ) (1,087 )
Accounts payable and other liabilities
   4,020 (1,373 )
Income tax receivable/payable
   1,932 (5,024 )
Accrued bonuses and other employee related expenses
   11,223 (12,145 )
Deferred compensation and commissions
   (4,499 ) (17,593 )
Operating lease liabilities
   (15,889 ) (13,504 )
Other liabilities
   (1,175 ) 702


Net cash provided by (used in) operating activities
   99,593 (28,266 )


Cash flows from investing activities

Acquisition of businesses, net of cash received
   229 (11,821 )
Purchases of marketable debt securities,
available-for-sale
   (291,063 ) (179,221 )
Proceeds from sales and maturities of marketable debt securities,
available-for-sale
   248,540 175,226
Purchases of securities,
held-to-maturity
   (9,500 ) 0
Issuances of employee notes receivable
   (40 ) (243 )
Payments received on employee notes receivable
   290 90
Purchase of property and equipment
   (4,238 ) (5,412 )


Net cash used in investing activities
   (55,782 ) (21,381 )


Cash flows from financing activities

Taxes paid related to net share settlement of stock-based awards
   (3,230 ) (1,955 )
Proceeds from issuance of shares pursuant to employee stock purchase plan
   369 371
Principal payments on notes payable to former stockholders
   0   (6,564 )
Principal payments on stock appreciation rights liability
   (1,481 ) (1,251 )
Principal payments on contingent and deferred consideration
   (1,739 ) (420 )


Net cash used in financing activities
   (6,081 ) (9,819 )


Effect of currency exchange rate changes on cash and cash equivalents
   125 (92 )


Net increase (decrease) in cash and cash equivalents
   37,855 (59,558 )
Cash and cash equivalents at beginning of period
   243,152 232,670


Cash and cash equivalents at end of period
   $ 281,007 $ 173,112


Supplemental disclosures of cash flow information

Interest paid during the period
   $ 734 $ 1,208


Income taxes paid, net
   $ 30,168 $ 6,849


	Nine Months Ended September 30, 2021
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	—	$	—	39,401,976	$	4	$	113,182	$	431,076	$	2,574	$	546,836
Net and comprehensive income (loss)	—	—		—	—		—		80,468		(827)		79,641
Stock-based award activity
Stock-based compensation	—	—		—	—		7,653		—		—		7,653
Shares issued pursuant to employee stock purchase plan	—	—		11,635	—		369		—		—		369
Issuance of common stock for settlement of deferred stock units	—	—		60,373	—		—		—		—		—
Issuance of common stock for vesting of restricted stock units	—	—		241,726	—		—		—		—		—
Issuance of common stock for unvested restricted stock awards	—	—		12,492	—		—		—		—		—
Shares withheld related to net share settlement of stock-based awards	—	—		(88,898)	—		(3,230)		—		—		(3,230)
Issuance of common stock for stock settled deferred consideration	—	—		27,481	—		1,000		—		—		1,000
Balance as of September 30, 2021	—	$	—	39,666,785	$	4	$	118,974	$	511,544	$	1,747	$	632,269

See accompanying notes to condensed consolidated financial statements.

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	96,313	$	80,468
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	10,167		8,806
Noncash lease expense	17,840		17,773
Credit loss recovery	—		25
Stock-based compensation	12,675		7,653
Deferred taxes, net	(2,256)		(2,847)
Unrealized foreign exchange losses (gains)	1,600		(298)
Net realized gains on marketable debt securities, available-for-sale	(87)		(78)
Other non-cash items	(1,459)		361
Changes in operating assets and liabilities:
Commissions receivable	4,891		(5,297)
Prepaid expenses	4,544		925
Advances and loans	(49,171)		(2,434)
Other assets	(4,472)		(1,076)
Accounts payable and accrued expenses	(4,942)		4,020
Income tax receivable/payable	(21,106)		1,932
Accrued bonuses and other employee related expenses	(15,239)		11,223
Deferred compensation and commissions	(45,481)		(4,499)
Operating lease liabilities	(14,598)		(15,889)
Other liabilities	(994)		(1,175)
Net cash (used in) provided by operating activities	(11,775)		99,593
Cash flows from investing activities
Acquisition of businesses, net of cash received	(12,500)		229
Purchases of marketable debt securities, available-for-sale	(276,708)		(291,063)
Proceeds from sales and maturities of marketable debt securities, available-for-sale	266,481		248,540
Purchases of securities, held-to-maturity	—		(9,500)
Issuances of employee notes receivable	(71)		(40)
Payments received on employee notes receivable	71		290
Purchase of property and equipment	(8,564)		(4,238)
Net cash used in investing activities	(31,291)		(55,782)
Cash flows from financing activities
Taxes paid related to net share settlement of stock-based awards	(8,176)		(3,230)
Proceeds from issuance of shares pursuant to employee stock purchase plan	414		369
Dividends paid	(50,161)		—
Principal payments on stock appreciation rights liability	(1,761)		(1,481)
Principal payments on deferred and contingent consideration	(2,431)		(1,739)
Cash paid for stock repurchases	(5,659)		—
Net cash used in financing activities	(67,774)		(6,081)
Effect of currency exchange rate changes on cash and cash equivalents	(436)		125
Net (decrease) increase in cash and cash equivalents	(111,276)		37,855
Cash and cash equivalents at beginning of period	382,140		243,152
Cash and cash equivalents at end of period	$	270,864	$	281,007
Supplemental cash flow disclosures:
Interest paid during the period	$	599	$	734
Income taxes paid, net	$	58,572	$	30,168
Supplemental disclosures of noncash investing and financing activities:
Unpaid purchases of property and equipment	$	892	$	786
Right-of-use assets obtained in exchange for operating lease liabilities	$	20,799	$	19,008
Issuance of stock for the settlement of deferred consideration	$	1,417	$	1,000
Measurement period adjustment of acquisition related contingent consideration	$	—	$	(100)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	1. Description of Business, Basis of Presentation and Recent Accounting Pronouncements

Description of Business

Marcus & Millichap, Inc. (the ~~“Company”,~~“Company,” “Marcus & ~~Millichap”,~~Millichap,” or “MMI”), a Delaware corporation, is a brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of September 30, ~~2021,~~2022, MMI operates 82 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-owned subsidiary, Marcus & Millichap Real Estate Investment Services, Inc. (“MMREIS”). Prior to the initial public ~~off~~

~~ring~~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~~.2013.

Basis of Presentation

The financial information presented in the 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

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, ~~2020~~2021 included in the Company’s Annual Report on Form

10-K

filed on March 1, ~~2021~~2022 with the SEC. The results of the three months and nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021,~~2022, for other interim periods or for future years.

~~Considerations Related~~The Company reclassified certain items previously included within accounts payable and other liabilities to other liabilities, current in the

~~COVID-19~~

~~Pandemic~~

~~he Company may continue~~ December 31, 2021 condensed consolidated balance sheet to ~~experience operational and financial impacts due to the ongoing~~

~~COVID-19~~

~~pandemic. Actual results may differ from the Company’s~~conform with current ~~estimates and historical trends due to the uncertainty around the economic impact and spread of~~

~~COVID-19,~~period presentation.

~~as well as the impact of vaccine mandates on our workforce.~~

~~See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” and Note 8 – “Fair Value Measurements” for further discussions 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. Actual results could differ from those estimates.

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~~high-

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

credit quality money market funds and commercial paper. Concentrations and ratings of marketable debt securities,

available-for-sale

are limited by the approved investment policy.

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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.

In September 2021, the Company entered into a Strategic Alliance (“Strategic Alliance”) with M&T Realty Capital Corporation (“MTRCC”) pursuant to which the Company has agreed to provide loan opportunities that may be funded through MTRCC’s Delegated Underwriting and Servicing Agreement (“DUS Agreement”) with the Federal National Mortgage Association (“Fannie Mae”) and which requires MTRCC to guarantee a portion of each loan funded. On a loan-by-loan basis, the Company, at its option, can indemnify a portion of MTRCC’s guarantee obligation of loan opportunities presented to and closed by MTRCC though the DUS Agreement. The Company manages and limits the concentration of risk related to the guarantees assumed by monitoring the underlying property type, geographic location, credit of the borrowers, underlying debt service coverage, and loan to value ratios.

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 nine months ended September 30, 2022 and 2021, ~~and 2020, 0~~no 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.

During ~~each~~the three and nine months ended September 30, 2022, the Company’s Canadian operations represented 1.5% and 2.0% of total revenues. During both the three and nine months ended September 30, 2021, the Company’s Canadian operations represented approximately 2.2% of total ~~revenues, respectively. During the three and nine months ended September 30, 2020, the Company’s Canadian operations represented 1.50% and 1.9% of total revenues, respectively.~~revenues.

During each of the three and nine months ended September 30, 2022 and 2021, ~~and 2020, 0~~no office represented 10% or more of total revenues.

Revenue Recognition

The Company generates real estate brokerage commissions by acting as a broker for real estate owners or investors seeking to buy or sell interests in commercial properties and generates financing fees from securing financing on purchase transactions, from refinancing its clients’ existing mortgage debt and other ancillary fees associated with financing activities, including, but not limited to, mortgage servicing, debt and equity advisory services, loan sales, due diligence services, guarantee fees, loan performance fees and other consulting. The Company’s contracts, except as noted below, do not contain multiple-element arrangements, variable consideration, financing components, significant noncash consideration, licenses, long-term contracts with customers or other items affecting the transaction price.

Real Estate Brokerage Commissions

Contracts for representing buyers and sellers of real estate are usually negotiated on a transaction-by-transaction basis. The consideration associated with the successful outcome remains constrained until the completion of a transaction which, in almost all cases, is at the close of escrow. At that time, the Company recognizes revenue related to the transaction. The Company’s fee agreements do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the transaction closes.

Financing Fees

Contracts for representing potential borrowers are usually negotiated on a transaction-by-transaction basis. The consideration associated with the successful outcome remains constrained until the completion of a transaction which, in almost all cases, is at the time the loan closes. At that time, the Company recognizes revenue related to the transaction. The Company’s fee arrangements, with certain exceptions, do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the loan closes.

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loan Performance Fees - For loans originated through the Strategic Alliance with MTRCC, the Company receives variable consideration in the form of loan performance fees based on a portion of the servicing fees expected to be received under the servicing contract for servicing the loan. As the Company is not obligated to perform any servicing functions and has no further obligations related to the transaction giving rise to the loan performance fees, the estimated value of the loan performance fees to be received is recorded at the time the loan closes and are collected over the estimated term of the related loan. Any changes in the estimate of loan performance fees to be received are recorded in revenue in the period the estimate changes.

Guarantee Obligations - For certain loans originated through the Strategic Alliance with MTRCC, the Company may agree, at its option, to indemnify MTRCC for a portion of MTRCC’s obligations for loans sold to Fannie Mae. For these loans, the Company allocates a portion of the transaction price and records a loan guarantee obligation based on its fair value. Revenue for this stand ready obligation is recorded on a straight-line basis over the term of the estimated guarantee period and is recorded in financing fees in the condensed consolidated statements of net income. The guarantee obligation is capped at 16.7% of the unpaid principal balance in excess of the collateral securing such loan. For these loans, the Company also records an allowance for loss-sharing obligations based on the unpaid balance of the loan for its portion of the obligation guaranteed to MTRCC.

Mortgage Servicing - The Company recognizes mortgage servicing revenues upon the acquisition of a servicing contract. The Company records servicing fees when earned provided the loans are current and the debt service payments are made by the borrowers.

Other Revenues

Other revenues include fees generated from consulting and advisory services, as well as referral fees from other real estate brokers, and are recognized when services are provided, or upon closing of the transaction.

Recent Accounting Pronouncements

Pending Adoption

In March 2020, the FASB issued Accounting Standards Update (“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”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing 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~~Company's Amended and Restated Credit Agreement (see Note 1312 – “Commitments and Contingencies”)~~, which~~ no longer references LIBOR, and will generally allow it to account for and present a modification as an event that does 0t require contract remeasurement at the modification date or reassessment of a previous accounting determination.LIBOR. As ~~of September 30, 2021,~~ the Company ~~has~~had not drawn ~~funds from~~on its Credit Agreement, we determined that the ~~credit facility. The Company continues to evaluate~~adoption of ASU 2020-04 did not have an impact on the ~~impact of this new standard but does not expect ASU~~

~~2020-04~~

~~to have a material effect on its~~ condensed consolidated financial ~~statements.~~statements.

2.	2. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	September 30, 2022		December 31, 2021
Computer software and hardware equipment	$	40,725	$	33,819
Furniture, fixtures and equipment	26,130		24,511
Less: accumulated depreciation and amortization	(40,032)		(35,138)
	$	26,823	$	23,192

   September 30,
2021    December 31,
2020
Computer software and hardware equipment
   $ 32,766    $ 30,955
Furniture, fixtures and equipment
   23,946    23,418
Less: accumulated depreciation and amortization
   (33,822 )    (30,937 )




   $ 22,890    $ 23,436

~~During~~Depreciation expense for property and equipment was $1.7 million and $1.8 million for the three months ended September 30, 2022 and 2021, respectively, and $5.4 million for each of the nine months ended September 30, ~~2021~~2022 and ~~2020, the Company~~

~~wrote-off~~

~~approximately $2.5 million and $968,000, respectively, of fully depreciated computer software and hardware equipment and furniture, fixtures and equipment.~~

~~As of September 30, 2021 and 2020, property and equipment additions incurred but not yet paid included in accounts payable and other liabilities were $786,000 and $430,000, respectively.~~

3.	~~Operating Leases~~

2021.

~~The Company has operating leases for all of its facilities and autos. As of September 30, 2021 and December 31, 2020, operating lease~~

~~right-of-use~~

~~(“ROU”) assets were $143.3~~

~~million and $126.9~~

~~million, respectively, and the related accumulated amortization was $58.0~~

~~million and $42.9~~

~~million,~~

~~respectively.~~

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~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
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
Operating lease cost:

Lease cost
(1)
   $

6,549    $

6,355    $

19,650    $

18,959
Variable lease cost
(2)
   1,355    1,485    3,996    4,096
Sublease income
   (206 )    (50 )    (258 )    (216 )








   $ 7,698    $ 7,790    $ 23,388    $ 22,839

~~(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):~~

   September 30,
2021
Remainder of 2021
   $ 5,958
2022
   20,560
2023
   17,256
2024
   14,769
2025
   12,462
Thereafter
   15,603


Total future minimum lease payments
   86,608
Less imputed interest
   (5,893 )


Present value of operating lease liabilities
   $ 80,715

~~Supplemental cash flow information and noncash activity related to the operating leases consisted of the following (in thousands):~~

   Nine Months Ended
September 30,
   2021    2020
Operating cash flow information:

Cash paid for amounts included in the measurement of operating lease liabilities
   $

17,697    $

15,566
Noncash activity:

ROU assets obtained in exchange for operating lease liabilities
   $ 18,003    $ 7,771
Tenant improvements owned by lessor related to ROU assets
(1)
   $ 1,005    $ 949

~~(1)~~

~~Reclassification from other assets current.~~

~~Other information related to the operating leases consisted of the following:~~

   September 30, 2021 December 31, 2020
Weighted average remaining operating lease term
   4.71 years 4.70 years
Weighted average discount rate
   2.9 % 3.1 %

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

4.	3. Investments in Marketable Debt Securities, Available for Sale

Amortized cost, allowance for credit losses, gross unrealized ~~gains/losses~~gains (losses) in accumulated other comprehensive ~~income/loss~~(loss) income and fair value of marketable debt securities,

available-for-sale,

by type of security consisted of the following (in thousands):


	September 30, 2022
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments:
U.S. treasuries	$	122,550	$	—	$	—	$	(1,140)	$	121,410
Corporate debt	89,638		—		1		(132)		89,507
Asset-backed securities (“ABS”) and other	854		—		—		(12)		842
	$	213,042	$	—	$	1	$	(1,284)	$	211,759
Long-term investments:
U.S. treasuries	$	44,315	$	—	$	—	$	(1,434)	$	42,881
U.S. government sponsored entities	619		—		—		(76)		543
Corporate debt	42,885		—		3		(3,326)		39,562
ABS and other	6,908		—		—		(565)		6,343
	$	94,727	$	—	$	3	$	(5,401)	$	89,329


	December 31, 2021
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments:
U.S. treasuries	$	35,767	$	—	$	—	$	(34)	$	35,733
Corporate debt	148,148		—		22		(35)		148,135
	$	183,915	$	—	$	22	$	(69)	$	183,868
Long-term investments:
U.S. treasuries	$	70,902	$	—	$	128	$	(263)	$	70,767
U.S. government sponsored entities	726		—		22		(3)		745
Corporate debt	33,197		—		962		(146)		34,013
ABS and other	7,033		—		82		(30)		7,085
	$	111,858	$	—	$	1,194	$	(442)	$	112,610

   September 30, 2021
   Amortized
Cost    Allowance
for Credit
Losses    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair
Value
Short-term investments:

U.S. treasuries
   $ 19,984    $ 0      $ 7    $ 0   $ 19,991
Corporate debt
   96,868    0      43    0   96,911








   $ 116,852    $ 0      $ 50    $ 0   $ 116,902








Long-term investments:

U.S. treasuries
   $ 86,893    $ 0      $ 190    $ (26 ) $ 87,057
U.S. government sponsored entities
   797    0      27    (2 ) 822
Corporate debt
   33,845    0      1,422    (33 ) 35,234
Asset-backed securities (“ABS”) and other
   7,253    0      141    (5 ) 7,389








   $

128,788    $ 0      $ 1,780    $ (66 ) $ 130,502

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   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 s

~~curities,~~

securities, available-for-sale,

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):

   September 30, 2021
   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
   $

44,428    $ (26 ) $ 0      $ 0   $ 44,428    $ (26 )
U.S. government sponsored entities
   123    (2 ) 0      0   123    (2 )
Corporate debt
   12,501    (33 ) 0      0   12,501    (33 )
ABS and other
   1,129    (4 ) 221    (1 ) 1,350    (5 )








   $ 58,181    $ (65 ) $ 221    $ (1 ) $ 58,402    $ (66 )


	September 30, 2022
	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	$	143,148	$	(2,042)	$	20,766	$	(532)	$	163,914	$	(2,574)
U.S. government sponsored entities	453		(55)		88		(21)		541		(76)
Corporate debt	110,806		(2,793)		4,454		(665)		115,260		(3,458)
ABS and other	6,950		(534)		212		(43)		7,162		(577)
	$	261,357	$	(5,424)	$	25,520	$	(1,261)	$	286,877	$	(6,685)


	December 31, 2021
	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	$	103,019	$	(297)	$	—	$	—	$	103,019	$	(297)
U.S. government sponsored entities	115		(3)		—		—		115		(3)
Corporate debt	115,908		(173)		146		(8)		116,054		(181)
ABS and other	2,915		(30)		—		—		2,915		(30)
	$	221,957	$	(503)	$	146	$	(8)	$	222,103	$	(511)

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

   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,

consisted of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Gross realized gains (1)	$	—	$	68	$	114	$	78
Gross realized losses (1)	$	(10)	$	—	$	(27)	$	—

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
Gross realized gains
(1)
   $ 68    $ 97    $ 78    $ 229








Gross realized losses
(1)
   $ 0      $ (34 )    $ 0      $ (49 )

~~(1)~~
(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 September 30, ~~2021,~~2022, the portfolio had an average credit rating of AA and a weighted term to contractual maturity of ~~1.9~~1.3 years, with 37223 securities in the portfolio ~~with~~representing an unrealized aggregate loss ~~aggregating $66,000,~~of $6.7 million or ~~0.1%~~2% of amortized cost, and a weighted average credit rating of AA+.

As of September 30, ~~2021,~~2022, the Company performed an impairment analysis and determined an allowance for credit losses was not 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 ma

~~ntain~~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 environment, including interest rates, geopolitical unrest and a review of an issuer’s and securities’ liquidity and financial strength, as needed. The Company concluded that it would receive all scheduled interest and principal payments. The Company, therefore,

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

determined qualitatively that the unrealized loss was related to changes in interest rates and other market factors and therefore 0no 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):


	September 30, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	213,042	$	211,759	$	183,915	$	183,868
Due after one year through five years	78,268		74,918		96,035		96,257
Due after five years through ten years	13,554		11,808		11,129		11,601
Due after ten years	2,905		2,603		4,694		4,752
	$	307,769	$	301,088	$	295,773	$	296,478
Weighted average contractual maturity			1.3 years				1.5 years

   September 30, 2021    December 31, 2020
   Amortized
Cost    Fair Value    Amortized
Cost    Fair Value
Due in one year or less
   $ 116,852    $ 116,902    $ 158,148    $ 158,258
Due after one year through five years
   112,288    113,167    30,604    32,041
Due after five years through ten years
   11,618    12,334    10,022    11,044
Due after ten years
   4,882    5,001    4,555    4,688








   $ 245,640    $ 247,404    $ 203,329    $ 206,031








Weighted average contractual maturity
      1.9 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.

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~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

5.	4. Acquisitions, Goodwill and Other Intangible Assets

During the nine months ended September 30, ~~2021,~~2022, the Company ~~recognized measurement period adjustments, including additional cash expected~~expanded its network of financing professionals and provided further diversification to ~~be received~~its financing services.

The Company completed an acquisition of a business that was accounted for as a business combination, and the results have been included in ~~excess of~~ the ~~provisional amounts that were recognized at~~condensed consolidated financial statements beginning on the acquisition ~~date for businesses acquired during 2020. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as~~date. Terms of the acquisition dates that, if known, would have affected the measurement of the amounts recognized as of the acquisition date. The impact to amortization expense not previously recognized related to these changes in estimates was not material.

principally included cash paid at closing.

The goodwill recorded as part of the Company’s acquisitions primarily arose 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 1one reporting unit.

Goodwill and intangible assets, net consisted of the following (in thousands):


	September 30, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Goodwill and intangible assets:
Goodwill	$	38,101	$	—	$	38,101	$	34,071	$	—	$	34,071
Intangible assets (1)	32,444		(13,453)		18,991		23,974		(9,940)		14,034
	$	70,545	$	(13,453)	$	57,092	$	58,045	$	(9,940)	$	48,105

   September 30, 2021    December 31, 2020
   Gross
Carrying
Amount    Accumulated
Amortization Net Book
Value    Gross
Carrying
Amount    Accumulated
Amortization Net Book
Value
Goodwill and intangible assets:

Goodwill
   $ 34,071    $ —   $ 34,071    $ 33,375    $ —   $ 33,375
Intangible assets
(1)
   23,974    (9,071 ) 14,903    24,745    (6,067 ) 18,678








   $ 58,045    $ (9,071 ) $ 48,974    $ 58,120    $ (6,067 ) $ 52,053

~~(1)~~
(1)			Total weighted average amortization period was ~~5.53~~4.7 years and ~~5.57~~4.4 years as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The Company recorded amortization expense for intangible assets of $1.2 million and $0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $3.5 million and $3.0 million for the nine months ended September 30, 2022 and 2021, respectively.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The changes in the carrying amount of goodwill consisted of the following (in thousands):


	Nine Months Ended September 30,
	2022		2021
Beginning balance	$	34,071	$	33,375
Additions from acquisitions (1)	4,030		696
Impairment losses	—		—
Ending balance	$	38,101	$	34,071

   Nine Months Ended
September 30,
   2021    2020
Beginning balance
   $ 33,375    $ 15,072
Additions from acquisitions
(1)
   696    9,247
Impairment losses
   0      0




Ending balance
   $ 34,071    $ 24,319

~~(1)~~
(1)			The 2021 addition represents a measurement period ~~adjustment.~~adjustment for an acquisition made in 2020.

Estimated amortization expense for intangible assets by year for the next five years and thereafter consisted of the following (in thousands):


	September 30, 2022
Remainder of 2022	$	1,171
2023	4,617
2024	4,101
2025	3,881
2026	2,156
Thereafter	3,065
	$	18,991

   September 30, 2021
Remainder of 2021
   $ 869
2022
   3,474
2023
   3,407
2024
   2,891
2025
   2,671
Thereafter
   1,591


   $ 14,903

The Company evaluates goodwill 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.

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As of September 30, ~~2021,~~2022, the Company considered the impact of

~~COVID-19~~

~~pandemic~~ economic conditions and evaluated its goodwill and intangible assets for impairment testing. 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 ~~conclud~~

dconcluded that as of September 30, ~~2021,~~2022, there was 0no impairment of its ~~goodwill and~~ intangible ~~assets.~~assets or goodwill.

6.	~~Selected Balance Sheet Data~~

5. Selected Balance Sheet Data

Allowances on Advances and Loans ~~Net and Commissions Receivable, Net~~

Allowance for credit losses for advances and loans as of September 30, 2022 and ~~commissions receivable consisted of the following (in thousands):~~

December 31, 2021 was $836,000 and $789,000, respectively.

   Advances and
Loans    Commissions
Receivable Total
Beginning balance as of January 1, 2021
   $ 563    $ 94 $

657
Credit loss (recovery)
   116    (91 ) 25
Write-offs
   (60 )    0   (60 )




Ending balance as of September 30, 2021
   $ 619    $ 3 $ 622




   Advances and
Loans    Commissions
Receivable Total
Beginning balance as of January 1, 2020
   $ 512    $ 32 (1) $ 544
Credit loss expense
   13    42 55
Write-offs
   (50 )    0   (50 )




Ending balance as of September 30, 2020
   $ 475    $ 74 $ 549

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MARCUS & MILLICHAP, INC.

~~(1)~~

~~Includes cumulative-effect adjustment related to the adoption of ASU~~

~~No. 2016-13,~~

~~Financial Instruments - Credit Losses~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Assets

Other assets consisted of the following (in thousands):


	Current				Non-Current
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Mortgage servicing rights (“MSRs”), net of amortization	$	—	$	—	$	—	$	1,855
Security deposits	—		—		1,680		1,395
Employee notes receivable	1		40		—		—
Securities, held-to-maturity(1)	—		—		9,500		9,500
Loan performance fee receivable	564		—		3,990		—
Prepaid lease costs and other	5,399		5,230		—		396
	$	5,964	$	5,270	$	15,170	$	13,146

(1)Securities, held-to-maturity, are expected to mature on September 1, 2024 and accrue interest based on the 1-year treasury rate.

   Current
Non-Current

   September 30,
2021    December 31,
2020    September 30,
2021    December 31,
2020
Mortgage servicing rights (“MSRs”), net of amortization
   $ 0      $ 0      $ 1,919    $ 1,897
Security deposits
   0      0      1,445    1,461
Employee notes receivable
(1)
   66    185    0      246
Securities,
held-to-maturity
   0      0      9,500    0
Customer trust accounts and other
   4,370    4,526    454    572








   $ 4,436    $ 4,711    $ 13,318    $ 4,176

~~(1)~~

Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $10 and $0 for the nine months ended September 30, 2021 and 2020, respectively. See Note 7 – “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):


	Nine Months Ended September 30,
	2022		2021

Beginning balance	$	1,855	$	1,897
Additions	—		421
Amortization	(1,275)		(399)
Reclassification to assets held for sale	(280)		—
Loss on sale	(300)		—
Ending balance	$	—	$	1,919

In the six months ended June 30, 2022, the Company received cancellation notices on certain servicing contracts. Amortization of those contracts was adjusted to reflect the cancellations. In June 2022, the Company determined to discontinue its servicing activities and signed an agreement to sell the remaining servicing rights. The Company recorded a loss on the sale of the remaining rights in the second quarter of 2022 and had reclassified the remaining carrying value of the MSRs to assets held for sale. The loss on sale was recorded within selling, general and administrative expenses within the condensed consolidated statements of net income. The sale closed in the third quarter of 2022.

   Nine Months Ended
September 30,
   2021    2020
Beginning balance
   $ 1,897    $ 2,002
Additions
   421    425
Amortization
   (399 )    (404 )




Ending balance
   $ 1,919    $ 2,023

The portfolio of loans serviced by the Company aggregated $1.7 billion ~~and $1.6 billion~~ for the ~~periods~~period ended ~~September 30, 2021 and~~ December 31, ~~2020, respectively. See Note 8 – “Fair Value Measurements” for additional information on MSRs.~~2021.

~~In connection with MSR activities, the Company holds funds in escrow for the benefit~~

Table of the lenders. These funds, which totaled $3.1 million and $3.2 million as of September 30, 2021 and December 31, 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.Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation and Commissions

Deferred compensation and commissions consisted of the following (in thousands):


	Current				Non-Current
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Stock appreciation rights (“SARs”) liability (1)	$	2,323	$	2,241	$	13,002	$	14,918
Commissions payable to investment sales and financing professionals	59,507		110,769		36,789		31,697
Deferred compensation liability (1)	524		1,080		6,034		6,921
Other	193		595		—		—
	$	62,547	$	114,685	$	55,825	$	53,536

   Current    Non-Current
   September 30,
2021    December 31,
2020    September 30,
2021    December 31,
2020
Stock appreciation rights (“SARs”) liability
(1)
   $ 2,241    $ 2,162    $ 14,796    $ 16,671
Commissions payable to investment sales and financing professionals
   49,175    54,082    17,012    15,306
Deferred compensation liability
(1)
   1,132    1,519    6,830    6,768
Other
   520    343    0      0








   $ 53,068    $ 58,106    $ 38,638    $ 38,745

~~(1)~~
(1)			The SARs and deferred compensation ~~liability~~liabilities become subject to payout ~~as a result of a~~at the time the participant is no longer ~~being~~ considered 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, 2022 and 2021 were 3.63% and ~~2020 were 2.930% and 3.920%~~2.93%, respectively. MMI recorded interest expense related to this liability of ~~$122,000~~$135,000 and ~~$178,000~~$122,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$366,000~~$406,000 and ~~$533,000~~$366,000 for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During each of the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company made total payments of $2.2 million, ~~and $2.1 million,~~ consisting of principal and accumulated ~~interest, respectively.~~interest.

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Commissions Payable

Certain investment sales and financing professionals ~~have the ability to~~can 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~~may 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.

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 r

~~bbi~~rabbi trust, which is recorded in assets held in rabbi trust in the accompanying condensed consolidated balance

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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~~an in-service payout have been classified as current. During ~~each of~~ the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company made total payments to participants of ~~$1.2 million,~~$807,000 and $1,200,000 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~~ (in thousands):

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
(Decrease) increase in the carrying value of the assets held in the rabbi trust
(1)
   $ (59 )    $ 434    $ 932    $ 170








(Decrease) increase in the net carrying value of the deferred compensation obligation
(2)
   $ (43 )    $ 388    $ 720    $ 88


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
(Decrease) increase in the carrying value of the assets held in the rabbi trust (1)	$	(347)	$	(59)	$	(2,131)	$	932
Decrease (increase) in the net carrying value of the deferred compensation obligation (2)	$	317	$	43	$	2,108	$	(720)

(1)Recorded in other income, net in the condensed consolidated statements of net income.

(2)Recorded in selling, general and administrative expense in the condensed consolidated statements of net income.

~~(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

   September 30,
2021    December 31,
2020
Deferred consideration
(1) (2)
   $ 5,809    $ 8,582
Contingent consideration
(1) (2)
   5,812    4,219
Other
   1,020    1,015




   $ 12,641    $ 13,816


	Current				Non-Current
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Deferred consideration	$	4,692	$	5,112	$	1,467	$	4,689
Contingent consideration	2,414		2,681		5,610		6,631
Dividends payable	10,784		—		1,627		—
Stock repurchase payable	1,918		—		—		—
Other	795		991		1,919		74
	$	20,603	$	8,784	$	10,623	$	11,394

~~(1)~~

The current portions of deferred consideration in the amounts of $5,418 and $6,666 as of September 30, 2021 and December 31, 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 $2,286 and $1,353 as of September 30, 2021 and December 31, 2020, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets.

~~(2)~~

Includes a measurement period adjustment and a reduction in deferred consideration settled in stock made during the nine months ended September 30, 2021, which represents a noncash investing activity. See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” for additional information.

~~Table of Contents~~

~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

7.	6. 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 these services separately. Under the TSA, the Company incurred net costs (charge-back) during the three months ended September 30, 2022 and 2021 of $(17,000) and ~~2020 of~~ $(11,000) ~~and $10,000,~~, respectively, and during the nine months ended September 30, 2022 and 2021 of $(35,000) and ~~2020 of~~ $4,000, ~~and $52,000,~~ respectively. These amounts are included in selling, general and administrative expense in the accompanying condensed consolidated statements of net ~~and comprehensive~~ income.

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 September 30, ~~2021~~2022 and ~~2020,~~2021, the Company earned real estate brokerage commissions and financing fees of

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$650,000 and $603,000, ~~and $225,000,~~ respectively, from transactions with subsidiaries of MMC related to these services. The Company incurred cost of services of ~~$363,000~~$388,000 and ~~$130,000,~~$363,000, respectively, related to these revenues. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company earned real estate brokerage commissions and financing fees of ~~$1.4~~$3.2 million and ~~$1.9~~$1.4 million, respectively, from transactions with subsidiaries of MMC related to these services. The Company incurred cost of services of ~~$840,000~~$1.9 million and ~~$1.1 million,~~$840,000, respectively, related to these revenues.

Operating Lease with MMC

The Company ~~has an~~extended its operating lease with MMC for a single-story office building located in Palo Alto, California, which now expires onin May ~~31, 2022.~~2032. The related operating lease cost was $296,000 and $333,000 for ~~each of~~ the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $967,000 and $998,000 for ~~each of~~ the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 3 – “Operating Leases” for additional information.~~

Accounts Payable and ~~Other Liabilities~~Accrued Expenses with MMC

As of September 30, ~~2021~~2022 and December 31, ~~2020, accounts payable~~2021, the Company owed MMC $90,000 and ~~other liabilities with MMC totaling $86,000 and $89,000, respectively, remain unpaid and~~$93,000, respectively. These amounts are included in accounts payable and ~~other liabilities~~accrued expenses in the accompanying condensed

consolidated balance sheets.

Other

~~ther~~

heThe Company makes advances to

non-executive

employees from

time-to-time.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the aggregate principal amount for employee notes receivable was

~~$66,000~~

$1,000 and ~~$431,000,~~$40,000, respectively, which is included in other assets, ~~(current and~~

~~non-current)~~

current in the accompanying condensed consolidated balance sheets. See Note 6

5 – “Selected Balance Sheet Data” for additional information.

As of September 30, ~~2021,~~2022, George M. Marcus, the Company’s founder and Chairman, beneficially owned approximately 38% of the Company’s issued and outstanding common stock, including shares owned by Phoenix Investments Holdings, LLC and the Marcus Family Foundation II.

8.	7. 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:

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~~MARCUS & MILLICHAP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

•Level

1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•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

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 ~~NAV~~net asset value 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.

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 L

~~vel~~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 unobservable inputs based on a probability of achieving EBITDA and other performance requirements, and is a Level 3 measurement. 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.

1820

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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):


	September 30, 2022								December 31, 2021
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets:
Assets held in rabbi trust	$	9,222	$	—	$	9,222	$	—	$	11,508	$	—	$	11,508	$	—
Cash equivalents (1):
Commercial paper	$	80,095	$	—	$	80,095	$	—	$	8,948	$	—	$	8,948	$	—
Money market funds	120,011		120,011		—		—		210,985		210,985		—		—
	$	200,106	$	120,011	$	80,095	$	—	$	219,933	$	210,985	$	8,948	$	—

Marketable debt securities, available-for-sale:
Short-term investments:
U.S. treasuries	$	121,410	$	121,410	$	—	$	—	$	35,733	$	35,733	$	—	$	—
Corporate debt	89,507		—		89,507		—		—		—		—		—
ABS and other	842		—		842		—		148,135		—		148,135		—
	$	211,759	$	121,410	$	90,349	$	—	$	183,868	$	35,733	$	148,135	$	—

Long-term investments:
U.S. treasuries	$	42,881	$	42,881	$	—	$	—	$	70,767	$	70,767	$	—	$	—
U.S. government sponsored entities	543		—		543		—		745		—		745		—
Corporate debt	39,562		—		39,562		—		34,013		—		34,013		—
ABS and other	6,343		—		6,343		—		7,085		—		7,085		—
	$	89,329	$	42,881	$	46,448	$	—	$	112,610	$	70,767	$	41,843	$	—

Liabilities:
Contingent consideration	$	8,024	$	—	$	—	$	8,024	$	9,312	$	—	$	—	$	9,312
Deferred consideration	$	6,159	$	—	$	6,159	$	—	$	9,801	$	—	$	9,801	$	—
Deferred compensation liability	$	6,558	$	6,558	$	—	$	—	$	8,001	$	8,001	$	—	$	—

   September 30, 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
   $ 11,056    $ 0      $ 11,056    $ 0      $ 10,295    $ 0      $ 10,295    $ 0
















Cash equivalents
(1)
:

Commercial paper
   $ 0      $ 0      $ 0      $ 0      $ 9,399    $ 0      $ 9,399    $ 0
Money market funds
   223,678    223,678    0      0      158,271    158,271    0      0
















   $ 223,678    $ 223,678    $ 0      $ 0      $ 167,670    $ 158,271    $ 9,399    $ 0
















Marketable debt securities,
available-for-sale:

Short-term investments:

U.S. treasuries
   $ 19,991    $ 19,991    $ 0      $ 0      $ 75,970    $ 75,970    $ 0      $ 0
U.S. government sponsored entities
   0      0      0      0      32,447    0      32,447    0
Corporate debt
   96,911    0      96,911    0      49,841    0      49,841    0
















   $ 116,902    $ 19,991    $ 96,911    $ 0      $ 158,258    $ 75,970    $ 82,288    $ 0
















Long-term investments:

U.S. treasuries
   $ 87,057    $ 87,057    $ 0      $ 0      $ 3,641    $ 3,641    $ 0      $ 0
U.S. government sponsored entities
   822    0      822    0      1,152    0      1,152    0
Corporate debt
   35,234    0      35,234    0      36,287    0      36,287    0
ABS and other
   7,389    0      7,389    0      6,693    0      6,693    0
















   $ 130,502    $ 87,057    $ 43,445    $ 0      $ 47,773    $ 3,641    $ 44,132    $ 0
















Liabilities:

Contingent consideration
   $ 8,098    $ 0      $ 0      $ 8,098    $ 5,572    $ 0      $ 0      $ 5,572
















Deferred consideration
   $ 11,227    $ 0      $ 11,227    $ 0      $ 15,248    $ 0      $ 15,248    $ 0
















Deferred compensation liability
   $ 7,962    $ 7,962    $ 0      $ 0      $ 8,287    $ 8,287    $ 0      $ 0


(1)			Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

There were 0no transfers in or out of Level 3 during the nine months ended September 30, ~~2021~~2022 and ~~2020.~~

2021.

~~uring~~During the nine months ended September 30, ~~2021,~~2022, the Company considered current and future interest rates onand the probability of achieving EBITDA and other performance targets 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 calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, contingent and deferred consideration had a maximum undiscounted payment to be settled in cash or stock of ~~$30.3~~$23.8 million and ~~$33.2~~$28.6 million, respectively. Assuming the achievement of the applicable performance criteria and/or service and time requirements, the Company anticipates these payments will be made over the next one to

~~six-year~~

five-year period. Changes in fair value are included in selling, general and administrative expense in the condensed consolidated statements of net ~~and comprehensive~~ income.

1921

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands):


	Nine Months Ended September 30,
	2022		2021
Beginning balance	$	9,312	$	5,572
Contingent consideration in connection with acquisitions	—		(100)
Change in fair value of contingent consideration	(248)		3,246
Payments of contingent consideration	(1,040)		(620)
Ending balance	$	8,024	$	8,098

   Nine Months Ended
September 30,
   2021    2020
Beginning balance
   $

5,572    $

3,387
Contingent consideration in connection with acquisitions
(1)
   (100 )    1,800
Change in fair value of contingent consideration
   3,246    134
Payments of contingent consideration
   (620 )    (638 )




Ending balance
   $ 8,098    $ 4,683

~~(1)~~

Contingent consideration in connection with acquisitions represents a noncash investing activity. Nine months ended September 30, 2021 relates to a measurement period adjustment. See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” for additional information.

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
September 30, 2022

Valuation Technique

Unobservable inputs

Range (Weighted Average)(1)

Contingent consideration

8,024

Discounted cash flow

Expected life of cash flows

0.7-5.1 years (2.8 years)

Discount rate

6.3%-6.9% (6.7%)

Probability of achievement

0.0%-100.0% (96.3%)

Fair Value at
December 31, 2021

Valuation Technique

Unobservable inputs

Range (Weighted Average)(1)

Contingent consideration

9,312

Discounted cash flow

Expected life of cash flows

1.4-5.8 years (3.4 years)

Discount rate

2.2%-3.5% (2.9%)

Probability of achievement

29.0%-100.0% (95.2%)

   Fair Value at
September 30, 2021    Valuation Technique    Unobservable inputs    Range
(Weighted Average)
(1)

Contingent consideration
   $ 8,098    Discounted cash flow    Expected life of cash flows    1.7-6.1 years (3.7 years)
         Discount rate    1.8%-3.6%       (2.8%)
         Probability of achievement    26.9%-100.0%     (94.9%)

   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.

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 uses assumptions in the determination of fair value for MSRs after considering 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 on the economic impact of the

COVID-19

pandemic. ~~MSRs are carried at~~In June 2022, the ~~lower of amortized cost or fair value. The fair value of the MSRs approximated the carrying value at September 30, 2021 and December 31, 2020 after consideration of the revisions~~Company determined to ~~the various assumptions. See Note 6 – “Selected Balance Sheet Data – Other Assets – MSRs” for additional information.~~discontinue its

2022

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Quantitative information about~~servicing activities and signed an agreement to sell the ~~valuation technique and significant unobservable inputs used~~remaining servicing rights. The sale closed in the ~~valuation~~third quarter 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
September 30, 2021    Valuation Technique    Unobservable inputs
Range
(Weighted Average)
(1)

MSRs
   $ 2,351    Discounted cash flow    Constant prepayment rates    0.0%-20.0% (10.0%)
         Constant default rate
0.3%-4.7
% (
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%)

2022. See Note 5 – “Selected Balance Sheet Data” for additional information.

~~(1)~~

~~Weighted average is based on the 10% constant prepayment rate scenario which the Company uses as the reported fair value.~~

9.	8. Stockholders’ Equity

Common Stock

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were ~~39,666,785~~39,797,423 and ~~39,401,976~~39,692,373 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 1211 – “Earnings per Share” for additional information.

On February 16, 2022, the Board of Directors declared a semi-annual regular dividend of $0.25 per share and a special dividend of $1.00 per share, payable on April 4, 2022, to stockholders of record at the close of business on March 8, 2022.

On August 2, 2022, the Board of Directors declared a semi-annual regular dividend of $0.25 per share, payable on October 6, 2022, to stockholders of record at the close of business on September 15, 2022.

As a result, the Company paid $50.2 million in dividends to outstanding shareholders during the nine months ended September 30, 2022.

As of September 30, 2022, the dividend payable was $12.4 million, of which $10.0 million was paid on October 6, 2022, and $2.4 million remains to be paid upon vesting of stock awards. This payable of $12.4 million is recorded in other liabilities, current and other liabilities, non-current in the condensed consolidated balance sheets. See Note 5 – “Selected Balance Sheet Data.”

Preferred Stock

The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no preferred shares issued or outstanding.

Accumulated Other Comprehensive ~~Income/Loss~~(Loss) Income

Amounts reclassified from accumulated other comprehensive ~~income/loss include marketable debt securities, available for sale~~(loss) income 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.

The Company has not p

~~ovided~~provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is operating at a loss and has 0no earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative foreign currency translation adjustments.

Repurchases of Common Stock

On August 2, 2022, the Company's Board of Directors authorized a common stock repurchase program of up to $70 million. During the nine months ended September 30, 2022, the Company repurchased and retired 226,795 shares of common stock for $7.6 million, at an average cost of $33.41 per share, of which $1.9 million was for shares repurchased but not settled. As of September 30, 2022, $62.4 million remained available under the stock repurchase program.

~~10.~~

~~Stock-Based Compensation Plans~~

2Table of Contents

~~013~~

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. 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~~Board of ~~directors~~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. The compensation committee of the Company’s board of directors has the option to grant dividend equivalents to unvested grants. Any dividend equivalents granted to unvested awards are paid to the participant at the time the related grants vest. As of September 30, ~~2021,~~2022, there were ~~4,672,675~~3,801,591 shares available for future grants under the 2013 Plan.

~~Table~~On August 2, 2022, the Board of ~~Contents~~Directors declared a semi-annual regular dividend of $0.25 per share payable on October 6, 2022, to stockholders of record at the close of business on September 15, 2022. The Compensation Committee granted dividend equivalents to all unvested grants as of the record date. As of September 30, 2022, $2.4 million remains to be paid upon vesting of stock awards, including $0.5 million related to the semi-annual regular dividend declared on August 2, 2022.

~~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 over a

one-year

period from the date of grant, subject to service requirements. RSUs generally vest in equal annual installments over a five-year period from the date of grant or earlier as approved by the compensation committee of the Company’s board of directors. Dividend equivalents granted for unvested stock awards are paid at the time the stock awards vest. Any unvested awards and dividend equivalents are canceled upon termination as a service provider. As of September 30, ~~2021,~~2022, there ~~were0issued~~were no issued or outstanding options, SARs, performance units or performance share awards under the 2013 Plan.

During the nine months ended September 30, ~~2021, 241,726 shares of~~2022, 288,954 RSUs vested and ~~60,373 shar~~

~~s of deferred stock units (“DSUs”) were settled and 88,898~~82,876 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. Unvested RSUs will be settled through the issuance of new shares of common stock.

Outstanding Awards

Activity under the 2013 Plan consisted of the following (dollars in thousands, except weighted average per share data):


	Shares		Weighted- Average Grant Date Fair Value Per Share
Nonvested shares at December 31, 2021⁽¹⁾	980,936		$	36.58
Granted	1,051,178		45.75
Vested	(288,954)		36.24
Forfeited/canceled	(24,137)		39.00
Nonvested shares at September 30, 2022⁽¹⁾	1,719,023		$	42.21
Unrecognized stock-based compensation expense as of September 30, 2022	$	63,294
Unrecognized compensation expense is expected to be recognized over a weighted-average period (years) of approximately	3.95
Weighted average remaining vesting period (years) as of September 30, 2022	3.95

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, 2020
(1)
   16,728 637,650 264,001 918,379 $ 33.73
Granted
   12,492 269,474 81,566 363,532 $ 38.74
Vested
   (16,728 ) (163,758 ) (77,968 ) (258,454 ) $ 31.93
Transferred
   0   (9,057 ) 9,057 0   $ 34.49
Forfeited/canceled
   0   (25,470 ) (6,345 ) (31,815 ) $ 33.06


Nonvested shares at September 30, 2021
(1)
   12,492 708,839 270,311 991,642 $ 35.52


Unrecognized stock-based compensation expense as of September 30, 2021
(2)
   $ 265 $ 22,090 $ 8,499 $ 30,854


Weighted average remaining vesting period (years) as of September 30, 2021
   0.59 3.60 3.44 3.53

~~(1)~~
(1)			Nonvested RSUs will be settled through the issuance of new shares of common stock.

~~(2)~~

~~The total unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.53 years.~~

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

The ESPP initially had 366,667 shares of common stock reserved, and ~~165,242~~145,636 shares of common stock remain available for issuance as of September 30, ~~2021.~~2022. 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~~Board of ~~directors.~~Directors. Pursuant to the provisions of the ESPP, the ~~board~~Board of ~~directors~~Directors has determined to not provide for any annual increases to date. At September 30, ~~2021,~~2022, total unrecognized compensation cost related to the ESPP was ~~$16,000~~$32,000 and is expected to be recognized over a weighted average period of 0.13 years.

~~Table of Contents~~

~~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,~~deferred stock units (“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. During the nine months ended September 30, 2022, 166,449 DSUs were settled, and 78,615 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the DSUs on the settlement date. As of September 30, ~~2021, 281,193~~2022, 114,744 shares of fully vested DSUs remained to be settled in 2022.

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
ESPP	$	66	$	33	$	151	$	107
RSUs and RSAs	4,478		2,670		12,524		7,546
	$	4,544	$	2,703	$	12,675	$	7,653

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
ESPP
   $ 33    $ 62    $ 107    $ 145
RSAs –
non-employee
directors
   114    120    338    493
RSUs – employees
   1,731    1,413    4,932    4,583
RSUs – independent contractors
   825    788    2,276    2,330








   $

2,703    $

2,383    $

7,653    $

7,551

Table of Contents

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~11.~~

10. Income Taxes

The Company’s effective tax rate for the three and nine months ended September 30, ~~2021~~2022 was ~~26.0%~~31.7% and ~~26.7%~~27.0%, respectively, compared to ~~24.1%~~26.0% and ~~29.1%,~~26.7% respectively, for the three and nine months ended September 30, ~~2020.~~2021. 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 any 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 September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
Income tax expense at the federal statutory rate	$	6,573	21.0	%	$	9,627	21.0	%	$	27,712	21.0	%	$	23,052	21.0	%
State income tax expense, net of federal benefit	1,707		5.5	%	2,111		4.6	%	6,129		4.6	%	5,157		4.7	%
(Windfall) shortfall tax benefits, net related to stock-based compensation	(54)		(0.2)	%	(443)		(1.0)	%	(2,118)		(1.6)	%	(522)		(0.5)	%
Change in valuation allowance	1,073		3.4	%	55		0.1	%	992		0.8	%	243		0.2	%
Permanent and other items (1)	640		2.0	%	571		1.3	%	2,936		2.2	%	1,374		1.3	%
	$	9,939	31.7	%	$	11,921	26.0	%	$	35,651	27.0	%	$	29,304	26.7	%

   Three Months Ended September 30, Nine Months Ended September 30,
   2021 2020 2021 2020
   Amount Rate Amount Rate Amount Rate Amount Rate
Income tax expense at the federal statutory rate
   $ 9,627    21.0 % $ 1,671    21.0 % $ 23,052 21.0 % $ 5,689    21.0 %
State income tax expense, net of federal benefit
   2,111 4.6 % 453 5.7 % 5,157 4.7 % 1,403 5.2 %
(Windfall) shortfall tax benefits, net related to stock-based compensation
   (443 ) (1.0 )% 130 1.6 % (522 ) (0.5 )% 203 0.7 %
Change in valuation allowance
   55 0.1 % 134 1.7 % 243 0.2 % 594 2.2 %
Permanent and other items
(1)
   571 1.3 % (472 ) (5.9 )% 1,374 1.3 % (14 ) 0


   $

11,921 26.0 % $

1,916 24.1 % $

29,304 26.7 % $

7,875 29.1 %

~~(1)~~
(1)			Permanent items relate principally to compensation charges, qualified transportation fringe benefits and meals and entertainment.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Earnings per Share

~~12.~~

~~Earnings per Share~~

Basic and diluted

earnings per share for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively consisted of the following (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator (Basic and Diluted):
Net income	$	21,362	$	33,924	$	96,313	$	80,468
Change in value for stock settled consideration	(12)		(2)		(50)		8
Adjusted net income	$	21,350	$	33,922	$	96,263	$	80,476

Denominator:
Basic
Weighted average common shares issued and outstanding	39,983		39,634		39,881		39,539
Deduct: Unvested RSAs (1)	(12)		(13)		(12)		(14)
Add: Fully vested DSUs (2)	115		319		169		334
Weighted average common shares outstanding	40,086		39,940		40,038		39,859

Basic earnings per common share	$	0.53	$	0.85	$	2.40	$	2.02
Diluted
Weighted average common shares outstanding from above	40,086		39,940		40,038		39,859
Add: Dilutive effect of RSUs, RSAs & ESPP	131		188		235		176
Add: Contingently issuable shares(3)	85		113		85		113
Weighted average common shares outstanding	40,302		40,241		40,358		40,148
Diluted earnings per common share	$	0.53	$	0.84	$	2.39	$	2.00
Antidilutive shares excluded from diluted earnings per common share(4)	1,046		112		1,041		363

(1)RSAs were issued and outstanding to the non-employee directors and have a one-year vesting term subject to service requirements. See Note 9 – “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 9 – “Stock-Based Compensation Plans” for additional information.

(3)Relates to contingently issuable stock settled consideration.

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
Numerator (Basic and Diluted):

Net income
   $ 33,924    $ 6,040    $ 80,468    $ 19,216
Change in value for stock settled consideration
   (2 )    0      8    0








Adjusted net income
   $ 33,922    $ 6,040    $ 80,476    $ 19,216








Denominator:

Basic

Weighted average common shares issued and outstanding
   39,634    39,357    39,539    39,293
Deduct: Unvested RSAs
(1)
   (13 )    (18 )    (14 )    (18 )
Add: Fully vested DSUs
(2)
   319    342    334    342








Weighted average common shares outstanding
   39,940    39,681    39,859    39,617








Basic earnings per common share
   $ 0.85    $ 0.15    $ 2.02    $ 0.49








Diluted

Weighted average common shares outstanding from above
   39,940    39,681    39,859    39,617
Add: Dilutive effect of RSUs, RSAs & ESPP
   188    46    176    59
Add: Contingently issuable shares
(3)
   113    0      113    0








Weighted average common shares outstanding
   40,241    39,727    40,148    39,676








Diluted earnings per common share
   $ 0.84    $ 0.15    $ 2.00    $ 0.48








Antidilutive shares excluded from diluted earnings per common share
(4)
   112    696    363    719

(4)Primarily pertaining to RSU grants to the Company’s employees and independent contractors.

~~(1)~~

~~RSAs were issued and outstanding to the~~

~~non-employee~~

~~directors and have a~~

~~one-year~~

~~vesting term subject to service requirements. See Note 10 – “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 10 – “Stock-Based Compensation Plans” for additional information.

~~(3)~~

~~Relates to contingently issuable stock settled consideration.~~

~~(4)~~

~~Primarily pertaining to RSU grants to the Company’s employees and independent contractors.~~

~~13.~~

12. Commitments and Contingencies

Credit Agreement

On June 18, 2014, the Company entered into a ~~Credit Agreement~~credit agreement with Wells Fargo Bank, National Association (the ~~“Bank”~~“Credit Agreement”)~~, as~~. On May 31, 2022, the Company executed an 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~~(the “First Amended and Restated Credit Agreement”) to extend the maturity date of the Credit Agreement on substantially the same terms and conditions as the original credit facility. The First Amended and Restated Credit Agreement provided for a $60.0 million principal amount senior secured revolving credit facility that iswas guaranteed by all of the Company’s domestic subsidiaries (the “Credit Facility”), which was scheduled to mature on August 1, 2022. On July 28, 2022, the Company entered into the Second Amended and Restated Credit Agreement, which provides for a three-year extension of its Credit Facility with Wells Fargo Bank, National Association on principally the same terms and conditions as the extension signed in May 2022. The new agreement matures on

June 1, ~~2022~~2025.

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.~~

~~Table of Contents~~

~~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

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

issuance of standby letters of credit of which $533,000 was utilized at September 30, ~~2021.~~2022. 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-month~~

~~LIBOR plus 1.50%, and (c) the federal funds~~Daily Simple SOFR rate plus ~~1.50%), or (ii) at~~ a ~~fixed rate per annum determined by Bank~~spread of between 1.00% to ~~be between 0.875%~~1.25% depending on the Company’s total funded debt to ~~1.125% above LIBOR.~~EBITDA as defined in the Credit Agreement. In connection with the amendments 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 ~~cons~~

~~lidated~~consolidated statements of net ~~and comprehensive~~ income and was ~~$21,000~~$94,000 and ~~$22,000~~$21,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively and $141,000 and $65,000, ~~for each of~~respectively, during the nine months ended September 30, ~~2021~~2022 and ~~2020, respectively.~~2021. As of September 30, ~~2021,~~2022, there were 0no amounts outstanding under the Credit Agreement.

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 ~~1.5:~~2.0:1.0 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 September 30, ~~2021,~~2022, 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.

Strategic Alliance

The Company, in connection with the Strategic Alliance with MTRCC, has agreed to provide loan opportunities that may be funded through MTRCC’s agreement with Fannie Mae and which requires MTRCC to guarantee a portion of each funded loan. On a loan-by-loan basis, the Company, at its option, can indemnify a portion of MTRCC’s guarantee obligation of loan opportunities presented to and closed by MTRCC. As of September 30, 2022, the Company has agreed to a maximum aggregate guarantee obligation of $54.1 million relating to loans with an unpaid balance of $324.9 million. The maximum guarantee obligation is not representative of the actual loss the Company would incur. The Company would be liable for this amount only if all of the loans for which it is providing a guarantee to MTRCC were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.

Other

In connection with certain agreements with investment sales and financing professionals, the Company may agree to advance amounts to ~~certain~~ such professionals upon reaching certain time and performance goals. Such commitments as of September 30, ~~2021~~2022 aggregated ~~$15.9~~ $19.3 million.

~~million.~~13. Subsequent Events

On August 2, 2022, the Board of Directors declared a semi-annual regular dividend of $0.25 per share, or $10.5 million, payable on October 6, 2022 to stockholders of record at the close of business on September 15, 2022, of which $10.0 million was paid on October 6, 2022.

Between September 30, 2022 and October 31, 2022, the Company repurchased an additional 431,700 shares of common stock for $14.9 million under the stock repurchase program.

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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., and its 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 ~~any continuing impact of the~~

~~COVID-19~~

~~pandemic.~~further interest rate changes, rising inflation, and geopolitical unrest. The results of operations for the ~~three and~~ nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2021,~~2022, 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, ~~2020~~2021 filed with the SEC on March 1, ~~2021,~~2022, 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 for more than 15 years. As of September 30, ~~2021,~~2022, we had ~~1,982~~1,880 investment sales and financing professionals that are primarily exclusive independent contractors operating in 82 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and nine months ended September 30, ~~2021,~~2022, we closed ~~3,325~~3,034 and ~~8,942~~9,574 investment sales, financing and other transactions with total sales volume of approximately ~~$20.8~~$22.6 billion and ~~$50.2~~$69.9 billion, respectively. During the year ended December 31, ~~2020,~~2021, we closed ~~8,954~~13,255 investment sales, financing and other transactions with total sales volume of approximately ~~$43.4~~$84.4 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, loan guarantees and consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended September 30, 2022, and the year ended December 31, 2021, approximately 90% of our revenues were generated from real estate brokerage commissions, 9% from financing fees and 1% from other real estate related services. During the nine months ended September 30, 2021, approximately 89% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 1% from other real estate related services. During the year ended December 31, 2020, approximately 88% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 2% 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~~We are the industry leader in serving private clients in the

~~$1-~~ $1-$10 million

private client market segment, which contributed approximately ~~61%~~57% and ~~69%~~61% of our real estate brokerage commissions during the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and approximately ~~62%~~57% and ~~68%~~62% of our real estate brokerage commissions during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 September 30,
   2021    2020    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
   267    $ 183    $ 7,419    241    $ 156    $ 6,290    26    $ 27    $ 1,129
Private client market ($1 - <$10 million)
   1,894    6,296    183,033    1,168    3,592    97,856    726    2,704    85,177
Middle market ($10 - <$20 million)
   136    1,940    35,353    70    945    17,643    66    995    17,710
Larger transaction market (
³
$20 million)
   159    8,088    73,954    48    2,302    19,055    111    5,786    54,899


















   2,456    $ 16,507    $ 299,759    1,527    $ 6,995    $ 140,844    929    $ 9,512    $ 158,915

2629

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Nine Months Ended September 30,
2021 2020 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
791 $ 532 $ 21,175 649 $ 410 $ 16,550 142 $ 122 $ 4,625
Private client market ($1 - <$10 million)
4,861 15,639 446,592 3,203 10,207 282,937 1,658 5,432 163,655
Middle market ($10 - <$20 million)
370 5,141 97,699 204 2,785 51,902 166 2,356 45,797
Larger transaction market (
³
$20 million)
352 17,619 149,992 161 7,459 64,655 191 10,160 85,337

6,374 $ 38,931 $ 715,458 4,217 $ 20,861 $ 416,044 2,157 $ 18,070 $ 299,414

~~COVID-19~~

~~We are closely monitoring the continuing impact of the~~

~~COVID-19~~

~~pandemic on all aspects of our business and in the regions we operate. We continue to follow the local guidelines in cities where our offices are located, and all of our offices have~~

~~re-opened.~~


	Three Months Ended September 30,
	2022					2021					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	243	$	154	$	7,252	267	$	183	$	7,419	(24)	$	(29)	$	(167)
Private Client Market ($1 – <$10 million)	1,658	5,885		165,534		1,894	6,296		183,033		(236)	(411)		(17,499)
Middle Market ($10 – <$20 million)	188	2,527		46,901		136	1,940		35,353		52	587		11,548
Larger Transaction Market (≥$20 million)	157	9,360		73,202		159	8,088		73,954		(2)	1,272		(752)
	2,246	$	17,926	$	292,889	2,456	$	16,507	$	299,759	(210)	$	1,419	$	(6,870)

~~Our business was impacted by the~~

~~COVID-19~~

pandemic during most of 2020, with the total number of transactions and total revenues declining 7.9% and 11.1%, respectively, in the year ended December 31, 2020 compared to the same period in 2019. During the nine months ended September 30, 2021, total revenues and total number of transactions increased 71.7% and 49.6%, respectively, compared to the same period in 2020 and 40.9% and 29.2%, respectively, compared to the same period in 2019. While our total revenues were significantly above prior years’ levels, some uncertainty exists in our ability to sustain the growth rates experienced during the three and nine months ended September 30, 2021.

~~Due to the continuing uncertainty around the~~

~~COVID-19~~

pandemic, we are unable to predict its potential impact 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, vaccination rates and the effects thereof; expectation gaps among buyers and sellers on pricing and property operation, vulnerability to economic weakness and/or slow recovery; the direct and indirect economic effects of the actions taken by state and local governments to continue to contain the pandemic or mitigate its impact; and the impact of these and other factors on our employees, independent contractors, clients and potential clients.


	Nine Months Ended September 30,
	2022					2021					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	728	$	450	$	19,711	791	$	532	$	21,175	(63)	$	(82)	$	(1,464)
Private Client Market ($1 – <$10 million)	5,285	18,929		536,433		4,861	15,639		446,592		424	3,290		89,841
Middle Market ($10 – <$20 million)	581	7,849		150,117		370	5,141		97,699		211	2,708		52,418
Larger Transaction Market (≥$20 million)	474	27,771		228,222		352	17,619		149,992		122	10,152		78,230
	7,068	$	54,999	$	934,483	6,374	$	38,931	$	715,458	694	$	16,068	$	219,025

~~Cybersecurity~~

In August 2021, we were subject to a cybersecurity attack on our information technology systems. We immediately engaged cybersecurity experts to secure and restore all essential systems and were able to do so with no material disruption to our business. At this time, there is no evidence of any material risk or misuse relating to personal information.

We continue to work with our external cybersecurity experts to assess and enhance the security of our systems and personal information. We maintained cyber insurance, which has covered the majority of costs related to this incident.

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 consumer confidence trends can have a positive or a negative impact on our business. Overall market conditions, including global trade, interest rate changes, inflation, and job creation, can affect investor sentiment and, ultimately, the demand for our services from investors in real estate.

~~Table of Contents~~

The U.S. economy maintained strong growth through the third quarter as consumer spending and corporate investment fueled gains. Job creation has been robust, with the economy adding 5.1 million jobs through the first three quarterscontinued to deliver a variety of 2021. However, only 78% of the 22.4 million jobs lost during the pandemic have been recovered thus far, and the economy faces a labor shortage that has begun to restrain job additions. As of August 2021, according to the Bureau of Labor Statistics, there were 10.4 million job openings in the U.S., but just 8.4 million people were looking for work. The labor shortage has generated increased wage pressure across all industries, fueling increased inflation. Increased pricing pressure has been further aggravated by supply chain bottlenecks that have resulted in manufacturing component and consumer product shortages. Combined, these and other inflationary pressures could spur a response from the Federal Reserve that places upward pressure on interest rates. Although heightened inflation risk exists, we believe that commercial real estate tends to be a comparatively strong inflation hedge relative to many other investment classes. This combination, along with elevated liquidity, supported strong investor activitymixed signals in the third quarter of ~~2021. Additional headwinds could still emerge, however, as~~2022. Job creation accelerated to a monthly average of 371,667 in the ~~U.S. Congress negotiates tax policy revisions~~third quarter, outpacing the second quarter and pushing the unemployment rate back down to 3.5%, in alignment with the 50+ year record low. Inflation adjusted retail sales also gained ground while the preliminary third quarter GDP reading indicated the economy grew by 2.6%, more than erasing the contraction of the first half of the year. However, inflation remained elevated, with headline figures at 8.2% and core inflation ending the quarter at 6.7%, both well above the Federal Reserve target. In response to elevated inflation, following its September 21, 2022 meeting, the Federal Reserve issued a 75 basis points increase of the Federal Reserve Rate, its fifth increase of 2022. This was followed by an additional 75 basis point increase on November 2, 2022 and guidance suggesting another rate increase in December.. Chairman Powell also indicated that ~~could affect commercial~~unemployment would likely need to rise significantly in 2023 to rein in inflation. The September 21st forward guidance weighed heavily on the stock market

Table of Contents

contributing to a 5% decrease in the S&P 500 during September. While many economic drivers remain sound, the Federal Reserve’s rate hikes and increasingly aggressive positioning has weighed on investor sentiment, real estate ~~investments.~~ valuations, and tighter underwriting among lenders. These dynamics adversely impact the short-to-mid-term business and investment outlook.

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.

~~Space~~While underlying economic growth metrics suggest demand for virtually all commercial property types accelerated in the third quarter. Apartment demand reached a record level, while self-storage and industrial properties delivered strong gains. Office, retail, hotel and seniors housing properties delivered more modest gains, but we believe the momentum is pointing toward broad-based commercial real estate demand growth. By the same token, materials shortages and elevated construction costs have restrained construction levels for all property types except apartments and industrial space, the two property types that could see record space deliveries in 2021. The mitigated supply risk for most property types is a positive factor supporting the commercial real estate outlook. Demand drivers continue to favor suburban areas and metros across the southeast and southwest that are benefiting from elevated

~~in-migration.~~

~~Although major urban gateway markets like New York and San Francisco were disproportionately impacted by the health crisis, they generated positive~~ commercial real estate space ~~demand in the~~should still be comparatively strong, third quarter ~~supporting~~national average occupancy levels decreased slightly in apartment, office and industrial properties. Retail space demand, however, remained positive, pushing the occupancy rate back into alignment with pre-pandemic levels. Elevated apartment and industrial construction levels have been a ~~potential future recovery~~significant factor weighing on overall occupancy, but concerns about an impending Federal Reserve induced recession has restrained both household formation and space leasing commitments. The cooling economic outlook and reduced competition for available space has tempered rent growth momentum, in ~~these areas as well. The positive momentum~~turn moderating the aggressiveness of investment buyer underwriting. As a result, the bid-ask spread between buyers and sellers has widened, which in turn has begun to slow commercial real estate ~~fundamentals has attracted increased capital~~transactions and weigh on investment activity. Financial market turbulence, economic crosscurrents and rising interest rates have the potential to create additional hurdles for investors in the sector, creating an active bid climate for many marketed assets, especially those in markets demonstrating particularly favorable growth metrics. The rising demand for assets has supported increased transaction flowfinal quarter of 2022 and ~~has placed upward pressure on prices at a macro level.~~into 2023.

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~~Movements of interest rates in one direction, whether ~~increases~~increasing or ~~decreases,~~decreasing, 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~~directly influence ~~the~~investor demand ~~of investors~~ for commercial real estate investments.

~~Both equity~~In their effort to battle inflation, the Federal Reserve initiated its most aggressive interest rate increase cycle since 1980. Chairman Powell intensified the pressure in August, declaring “There will be pain.” He delivered on that declaration following the Federal Reserve’s September meeting with a third 75 basis points rate increase and ~~debt capital remains very liquid, with financing broadly available for most property types in most markets. Banks continue to~~forward-looking guidance suggesting there could be ~~the leading source~~125 basis points of ~~financing, but commercial mortgage-backed security (CMBS) financing has become increasingly available. CMBS financing was virtually~~

~~non-existent~~

at the outset of the pandemic, but by the second quarter of 2021 CMBS comprised 18% of the lender composition pool, exceeding traditional levels. The broad array of financing sources and the competition to place capital, together with low underlying treasury rates, has helped keep lending rates lowadditional increases through the ~~first three quarters~~end of the year. ~~However,~~Such increases could take the Federal Reserve ~~has begun~~Rate to ~~signal~~the mid-4% range. Chairman Powell further stated that ~~they~~to bring inflation fully under control, unemployment will ~~taper their quantitative easing programs very soon. As~~need to rise to 4.4% by year-end 2023 and the substantial stockpile of capital in the market would need to be reduced. This messaging by the Federal Reserve ~~reduces~~weighed on financial markets, pushed short-term interest rates higher and caused lenders to increase their ~~$120 billion monthly investments into treasuries~~spreads, tighten their underwriting standards, increase their debt-service coverage requirements and ~~mortgage-backed securities, we believe risk-free interests rates such as~~reduce their loan-to-value thresholds. Together, this sequence of events has raised the

~~10-year~~

~~treasury may experience upward pressure. This~~ cost of capital and reduced lending liquidity, in turn ~~could cause~~hampering investors’ ability to purchase and sell commercial real estate ~~lending rates~~assets. While well-financed buyers, particularly private investors, continue to ~~rise. Nonetheless, interest rates remain well-below~~close transactions, the ~~historical norm, keeping~~rapid financial market changes are expected to weigh on activity as the ~~cost of debt capital below~~investor community recalibrates to the ~~first-year return rate on most acquisitions. Barring a major capital markets disruption, we believe the pool of capital seeking placement in commercial~~new climate. Healthy real estate ~~should sustain strong transaction~~fundamentals, the sector's inflation-hedging aspects and competitive yields bode well for capital flows and trading activity ~~through 2021 and into 2022.~~in the long-term.

Investor Sentiment and Investment Activity

We ~~rely on investors to buy~~facilitate investors' buying, selling, and ~~sell~~financing properties in order to generate commissions. Investors’ desires and need 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, who make up the largest source of revenue, are often motivated to buy, sell and/or refinance properties due to personal circumstances, such as death, divorce, partnership breakups and estate planning.

Although commercial real estate sales volume activity began to decrease in the third quarter, it remained quite strong from a historical perspective. It should be noted, however, that the majority of the transactions that closed in the third

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~~Third~~ quarter ~~commercial real estate transaction activity was notably strong, well above~~were likely placed under contract in the ~~pandemic restrained third~~first or second quarter before the Federal Reserve began to place significantly increased pressure on the financial markets. As the market has shifted, investors have become more cautious, with some buyers choosing not to complete under contract acquisitions and in some cases losing earnest money deposits. Transaction delays and cancellations demonstrate the rising caution in the marketplace. Different property types and markets have felt varying levels of ~~2020~~impact. Office properties, particularly those in the urban core, face the greatest uncertainty, while more inflation-resistant properties such as apartments, self-storage and even surpassing the third quarter of 2019 for most property types. Positive market and economic factors including rising commercial real estate space demand, strong liquidity, low interest rates, expectations of a robust economic momentum and positive demographics aligned to spur investor optimism. The demand for several types of commercial real estate,hotels, particularly in growth markets, ~~was robust. Buyers~~are better positioned to sustain buyer interest. Sales of “defensive” assets such as single-tenant net lease properties backed by high credit tenants have also remained active. Economic uncertainty, together with the rapidly changing capital markets have widened the buyer/seller expectation gap, often ~~compete to place capital, driving record pricing for some property types in select markets. Although property types~~

~~hard-hit~~

byslowing the pandemic are still going through price discovery, momentum remains strong. Office property sales face the greatest uncertainty due to questions about corporate strategies for returning to the offices. Office pricing has recently become more stable, but we believe another

~~COVID-19~~

surge could potentially disrupt the return to office timetable again, creating a new round of pricing instability. Another area of investor uncertainty centers on potential tax reform, but recent communications from the House of Representatives suggests that changes to very importanttransaction process and restraining commercial real estate ~~focused tax policies~~sales activity. Nonetheless, we believe the significant volume of investor capital looking for less volatile investment opportunities than are offered by other types of investments such as the ~~1031 tax deferred exchange and the~~

~~step-up~~

~~basis are improbable at this time. This has bolstered investor confidence, but until the final version of any tax policy changes are officially adopted,~~stock market may favor hard assets like commercial real estate ~~investors could remain wary. Despite these areas of uncertainty, we believe~~that offer some inflation resistance. Over the ~~overall enthusiasm for~~long-term, commercial real estate ~~investment as demonstrated by increasing transaction activity remains positive.~~

~~Seasonality~~

~~Our real estate brokerage commissions and financing fees have tended~~tends to be ~~seasonal~~less volatile than most other investment classes 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 due to an industry-wide focus of clients to complete transactions towards the end of the calendar year. This historical trend can be disrupted both positively and negatively by major economic events, political events, natural disasters or pandemics such as the

~~COVID-19~~

~~pandemic, which may impact, among other things,~~could attract additional 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, among others. Private client investors may accelerate or delay transactions due to personal or business-related reasons unrelated to economic events. In addition, our operating margins are typically lowerattention during the ~~second half~~period of ~~each year due to our commission structure for some of our senior investment sales~~economic 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 or may not continue to the same degree experienced in prior years.financial market instability.

~~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 and advisory 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.

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 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-~~ $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-~~ $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 on loan performance, equity advisory services, loan sales, loan guarantees and ancillary ~~fees~~services associated with financing activities. We recognize ~~mortgage servicing revenues~~guarantee fees over the term of the guarantee and other fees when we have no further obligations, generally upon the ~~acquisition~~closing of a ~~servicing obligation.~~transaction. We ~~generate~~previously generated mortgage servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related mortgage servicing functions, activities and services.

We recognized mortgage servicing revenues upon the acquisition of a servicing obligation.

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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.

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 can also ~~have the ability to~~ earn additional commissions after meeting certain annual financial 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 orto three years, at our election, and paid at the beginning of the second, third or 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 seven 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

income and 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.~~

Credit Agreement.

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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 in which we operate due to differing tax rates in those jurisdictions and the impact of permanent items, including compensation charges, qualified transportation fringe benefits, 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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. 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 September 30, ~~2021~~2022 and ~~2020,~~2021, we closed more than ~~3,300~~3,000 and ~~2,100~~3,300 investment sales, financing and other transactions, respectively, with total sales volume of approximately ~~$20.8~~$22.6 billion and ~~$9.1~~$20.8 billion, respectively. During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, we closed more than ~~8,900~~9,500 and ~~5,900~~8,900 investment sales, financing and other transactions, respectively, with total sales volume of ~~approximately $50.2~~$69.9 billion and ~~$27.8~~$50.2 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
Real Estate Brokerage	2022			2021			2022			2021
Average Number of Investment Sales Professionals	1,792			1,909			1,823			1,934
Average Number of Transactions per Investment Sales Professional	1.25			1.29			3.88			3.30
Average Commission per Transaction	$	130,405		$	122,052		$	132,213		$	112,246
Average Commission Rate	1.63		%	1.82		%	1.70		%	1.84		%
Average Transaction Size (in thousands)	$	7,981		$	6,721		$	7,781		$	6,108
Total Number of Transactions	2,246			2,456			7,068			6,374
Total Sales Volume (in millions)	$	17,926		$	16,507		$	54,999		$	38,931


	Three Months Ended September 30,						Nine Months Ended September 30,
Financing (1)	2022			2021			2022			2021
Average Number of Financing Professionals	87			86			86			86
Average Number of Transactions per Financing Professional	5.95			6.98			20.17			20.67
Average Fee per Transaction	$	44,751		$	42,319		$	44,363		$	36,126
Average Fee Rate	0.70		%	0.77		%	0.74		%	0.82		%
Average Transaction Size (in thousands)	$	6,350		$	5,503		$	6,021		$	4,390
Total Number of Transactions	518			600			1,735			1,778
Total Financing Volume (in millions)	$	3,289		$	3,302		$	10,447		$	7,806

(1)Operating metrics exclude certain financing fees not directly associated to transactions.

   Three Months Ended
September 30, Nine Months Ended
September 30,
Real Estate Brokerage
   2021 2020 2021 2020
Average Number of Investment Sales Professionals
   1,909 1,917 1,934 1,911
Average Number of Transactions per Investment Sales Professional
   1.29 0.80 3.30 2.21
Average Commission per Transaction
   $ 122,052 $ 92,236 $ 112,246 $ 98,659
Average Commission Rate
   1.82 % 2.01 % 1.84 % 1.99 %
Average Transaction Size (in thousands)
   $ 6,721 $ 4,581 $ 6,108 $ 4,947
Total Number of Transactions
   2,456 1,527 6,374 4,217
Total Sales Volume (in millions)
   $ 16,507 $ 6,995 $ 38,931 $ 20,861

Three Months Ended

September 30,

Nine Months Ended

September 30,

Financing
(1)
   2021 2020 2021 2020
Average Number of Financing Professionals
   86 82 86 86
Average Number of Transactions per Financing Professional
   6.98 5.39 20.67 15.13
Average Fee per Transaction
   $ 42,319 $ 33,531 $ 36,126 $ 31,607
Average Fee Rate
   0.77 % 0.88 % 0.82 % 0.89 %
Average Transaction Size (in thousands)
   $ 5,503 $ 3,828 $ 4,390 $ 3,533
Total Number of Transactions
   600 442 1,778 1,301
Total Financing Volume (in millions)
   $ 3,302 $ 1,692 $ 7,806 $ 4,597

~~(1)~~

~~Operating metrics exclude certain financing fees not directly associated to transactions.~~

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Comparison of Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Below are key operating results for the three months ended September 30, ~~2021~~2022 compared to the three months ended September 30, ~~2020~~2021 (dollars in thousands):


	Three Months Ended September 30, 2022		Percentage of Revenue		Three Months Ended September 30, 2021		Percentage of Revenue		Change
									Dollar				Percentage
Revenues:
Real estate brokerage commissions	$	292,889	90.4	%	$	299,759	90.2	%	$	(6,870)	-2.3	%	(2.3)	%
Financing fees	28,099		8.7		29,391		8.8		(1,292)		-4.4	%	(4.4)	%
Other revenues	2,852		0.9		3,233		1.0		(381)		-11.8	%	(11.8)	%
Total revenues	323,840		100		332,383		100		(8,543)		-2.6	%	(2.6)	%
Operating expenses:
Cost of services	217,360		67.1		219,194		65.9		(1,834)		-0.8	%	(0.8)	%
Selling, general and administrative	73,004		22.6		64,673		19.5		8,331		12.9	%	12.9	%
Depreciation and amortization	2,924		0.9		2,850		0.9		74		2.6	%	2.6	%
Total operating expenses	293,288		90.6		286,717		86.3		6,571		2.3	%	2.3	%
Operating income	30,552		9.4		45,666		13.7		(15,114)		-33.1	%	(33.1)	%
Other income, net	978		0.3		323		0.1		655		202.8	%	202.8	%
Interest expense	(229)		0.0		(144)		0.0		(85)		59.0	%	59.0	%
Income before provision for income taxes	31,301		9.7		45,845		13.8		(14,544)		-31.7	%	(31.7)	%
Provision for income taxes	9,939		3.1		11,921		3.6		(1,982)		-16.6	%	(16.6)	%
Net income	$	21,362	6.6	%	$	33,924	10.2	%	$	(12,562)	-37.0	%	(37.0)	%
Adjusted EBITDA (1)	$	36,633	11.3	%	$	50,985	15.3	%	$	(14,352)	-28.1	%	(28.1)	%

(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.”

   Three Months
Ended
September 30, 2021 Percentage
of
Revenue Three Months
Ended
September 30, 2020 Percentage
of
Revenue Change
Dollar Percentage
Revenues:

Real estate brokerage commissions
   $ 299,759 90.2 % $ 140,844 88.8 % $ 158,915 112.8 %
Financing fees
   29,391 8.8 15,620 9.9 13,771 88.2 %
Other revenues
   3,233 1.0 2,111 1.3 1,122 53.2 %


Total revenues
   332,383 100.0 158,575 100.0 173,808 109.6 %


Operating expenses:

Cost of services
   219,194 65.9 99,707 62.9 119,487 119.8 %
Selling, general and administrative
   64,673 19.5 49,722 31.4 14,951 30.1 %
Depreciation and amortization
   2,850 0.9 2,606 1.6 244 9.4 %


Total operating expenses
   286,717 86.3 152,035 95.9 134,682 88.6 %


Operating income
   45,666 13.7 6,540 4.1 39,126
nm
(2)
Other income (expense), net
   323 0.1 1,615 1.0 (1,292 ) (80.0 )%
Interest expense
   (144 ) 0.0 (199 ) (0.1 ) 55 (27.6 )%


Income before provision for income taxes
   45,845 13.8 7,956 5.0 37,889
nm
(2)
Provision for income taxes
   11,921 3.6 1,916 1.2 10,005
nm
(2)


Net income
   $ 33,924 10.2 % $ 6,040 3.8 % $ 27,884
nm
(2)


Adjusted EBITDA
(1)
   $ 50,985 15.3 % $ 12,229 7.7 % $ 38,756
nm
(2)

~~(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.”~~

~~(2)~~

~~Not meaningful~~

Revenues

Our total revenues were ~~$332.4~~$323.8 million for the three months ended September 30, ~~2021~~2022 compared to ~~$158.6~~$332.4 million for the same period in ~~2020,~~2021, a decrease of $8.5 million, or 2.6%. Total revenues decreased as a result of decreases in real estate brokerage commissions, financing fees and other revenues, as described below.

Real estate brokerage commissions. Revenues from real estate brokerage commissions decreased to $292.9 million for the three months ended September 30, 2022 from $299.8 million for the same period in 2021, a decrease of $6.9 million, or 2.3%. While the number of transactions decreased by 8.6%, the sales volume increased by 8.6%, driven by revenue from the combined Middle Market and Larger Transaction Market, which increased 9.9%, representing 41.0% of the brokerage revenue in the third quarter of 2022 compared to 36.5% in the third quarter of 2021. As larger transactions typically earn lower commission rates, the average commission rate has decreased by 19 basis points in the third quarter of 2022 compared to the same quarter in 2021, which was the main driver for the overall decrease in revenue.

Financing fees. Revenues from financing fees decreased to $28.1 million for the three months ended September 30, 2022 from $29.4 million for the same period in 2021, a decrease of $1.3 million, or 4.4%, resulting primarily from a 13.7% decrease in the number of financing transactions, partially offset by a 5.7% increase in the average fee per transaction. The average fee rate declined by 7 basis points due to an increase in the average transaction size of 15.4% as a result of an increase in the number of larger size financing transactions, which typically earn lower commission rates.

Other revenues. Other revenues decreased to $2.9 million for the three months ended September 30, 2022 from $3.2 million for the same period in 2021, a decrease of $0.4 million, or 11.8%. The decrease was primarily driven by decreases

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in consulting and advisory services during the three months ended September 30, 2022, compared to the same period in 2021.

Total Operating Expenses

Our total operating expenses were $293.3 million for the three months ended September 30, 2022 compared to $286.7 million for the same period in 2021, an increase of ~~$173.8~~$6.6 million, or ~~109.6%~~2.3%. The increase was due to increases in selling, general, and administrative expenses, partially offset by decreases in cost of services, as described below. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities.

Cost of services. Cost of services decreased to $217.4 million for the three months ended September 30, 2022 from $219.2 million for the same period in 2021, a decrease of $1.8 million, or 0.8%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenues noted above. Cost of services as a percentage of total revenues increased to 67.1% compared to 65.9% for the same period in 2021 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier due to the increase in sales volume.

Selling, general, and administrative expense. Selling, general and administrative expense for the third quarter of 2022 increased to $73.0 million, from $64.7 million compared to the same period in the prior year, an increase of $8.3 million or 12.9%. The change was primarily due to increases in (i) compensation related costs; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) return to in-person agent and client business events, conferences, and meetings.

Depreciation and amortization expense. Depreciation and amortization expense was $2.9 million for both the three months ended September 30, 2022 and 2021.

Other Income, Net

Other income, net increased to $1.0 million for the three months ended September 30, 2022 from $0.3 million for the same period in 2021. The increase of $0.7 million was primarily driven by an increase of $1.9 million in income from investments, partially offset by an increase in foreign exchange loss of $0.9 million and an unfavorable change of $0.3 million in the value of our deferred compensation plan assets that are held in a rabbi trust.

Interest Expense

Interest expense increased by an immaterial amount for the three months ended September 30, 2022 compared to the same period in 2021, and primarily relates to interest expense on the Company’s SARs liability.

Provision for Income Taxes

The provision for income taxes was $9.9 million for the three months ended September 30, 2022, compared to $11.9 million for the same period in 2021, a decrease of $2.0 million. The effective income tax rate for the three months ended September 30, 2022, was 31.7% compared to 26.0% for the same period in 2021. The effective income tax rate increased primarily due to an increase in the valuation allowance with respect to our Canadian operations.

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Comparison of Nine Months Ended September 30, 2022 and 2021

Below are key operating results for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 (dollars in thousands):


	Nine Months Ended September 30, 2022		Percentage of Revenue		Nine Months Ended September 30, 2021		Percentage of Revenue		Change
									Dollar		Percentage
Revenues:
Real estate brokerage commissions	$	934,483	89.9	%	$	715,458	89.3	%	$	219,025	30.6	%
Financing fees	91,363		8.8		75,448		9.4		15,915		21.1	%
Other revenues	13,415		1.3		10,400		1.3		3,015		29.0	%
Total revenues	1,039,261		100.0		801,306		100.0		237,955		29.7	%
Operating expenses:
Cost of services	670,170		64.5		506,882		63.3		163,288		32.2	%
Selling, general and administrative	227,380		21.9		178,147		22.2		49,233		27.6	%
Depreciation and amortization	10,167		0.9		8,806		1.1		1,361		15.5	%
Total operating expenses	907,717		87.3		693,835		86.6		213,882		30.8	%
Operating income	131,544		12.7		107,471		13.4		24,073		22.4	%
Other income, net	967		0.1		2,737		0.3		(1,770)		(64.7)	%
Interest expense	(547)		(0.1)		(436)		(0.1)		(111)		25.5	%
Income before provision for income taxes	131,964		12.7		109,772		13.6		22,192		20.2	%
Provision for income taxes	35,651		3.4		29,304		3.7		6,347		21.7	%
Net income	$	96,313	9.3	%	$	80,468	9.9	%	$	15,845	19.7	%
Adjusted EBITDA	$	151,394	14.6	%	$	124,790	15.6	%	$	26,604	21.3	%

Revenues

Our total revenues were $1.0 billion for the nine months ended September 30, 2022 compared to $801.3 million for the same period in 2021, an increase of $238.0 million, or 29.7%. Total revenues increased as a result of increases in real estate brokerage commissions, financing fees and other revenues, as described below.

Real estate brokerage commissions.

Revenues from real estate brokerage commissions increased to ~~$299.8~~$934.5 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$140.8~~$715.5 million for the same period in ~~2020,~~2021, an increase of ~~$158.9~~$219.0 million, or ~~112.8%~~30.6%. The increase was primarily driven by a ~~136.0%~~41.3% increase in overall sales volume generated by a ~~60.8%~~10.9% increase in the number of investment sales transactions and a ~~46.7%~~27.4% increase in average transaction ~~size, partially offset by a 19 basis points reduction in~~size. The revenue from the combined Middle Market and Larger Transaction Market increased 52.7% for the nine months ended September 30, 2022 as compared to the same period last year and represented 40.5% of the brokerage revenue for the nine months ended September 30, 2022, versus 34.6% of the brokerage revenue for the nine months ended September 30, 2021. The average commission rates ~~due~~in the nine months ended September 30, 2022 decreased by 14 basis points compared to the same period last year, primarily as a result of the increase in the number of larger ~~proportion of~~ transactions, ~~closed from the Larger Transaction Market segment.~~which typically earn lower commission rates.

Financing ~~fees.~~

fees. Revenues from financing fees increased to ~~$29.4~~$91.4 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$15.6~~$75.4 million for the same period in ~~2020,~~2021, an increase of ~~$13.8~~$15.9 million, or ~~88.2%~~21.1%, ~~in part spurred by growth~~resulting primarily from ~~our recent acquisitions and other ancillary financing fees. The increase was driven by~~ a ~~95.2%~~37.1% increase in average transaction size and a 33.8% increase in total financing volume, partially offset by ~~an 11 basis points~~a 2.4% decrease ~~in average commission rates due in part to fees from certain larger loan transactions. Financing volume was impacted by a 35.7% increase~~ in the number of financing transactions. The average fee rate declined by 8 basis points as larger transactions ~~and a 43.8% increase in average transaction size.~~typically earn lower commission rates.

Other ~~revenues.~~

revenues. Other revenues increased to ~~$3.2~~$13.4 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$2.1~~$10.4 million for the same period in ~~2020,~~2021, an increase of ~~$1.1~~$3.0 million, or ~~53.2%~~29.0%. The increase was primarily driven by increases in consulting and advisory services during the ~~three~~nine months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020.~~2021.

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Total Operating Expenses

Our total operating expenses were ~~$286.7~~$907.7 million for the ~~three~~nine months ended September 30, ~~2021~~2022 compared to ~~$152.0~~$693.8 million for the same period in ~~2020,~~2021, an increase of ~~$134.7~~$213.9 million, or ~~88.6%~~30.8%. The increase was due to increases in cost of services, which are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities, selling, general and administrative costs and depreciation and amortization expense, as described below.

~~Table of Contents~~

Cost of services.

Cost of services increased to ~~$219.2~~$670.2 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$99.7~~$506.9 million for the same period in ~~2020,~~2021, an increase of ~~$119.5~~$163.3 million, or ~~119.8%~~32.2%. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a ~~percent~~percentage of total revenues increased to ~~65.9%~~64.5% compared to ~~62.9%~~63.3% for the same period in ~~2020~~2021 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier ~~than anticipated.~~due to the increase in sales volume.

Selling, general, and administrative expense.

Selling, general and administrative expense for ~~the three~~nine months ended September 30, ~~2021~~2022 increased ~~$15.0 million, or 30.1%,~~ to ~~$64.7~~$227.4 million from ~~$49.7~~$178.1 million ~~for~~compared to the same period in ~~2020.~~2021, an increase of $49.2 million, or 27.6%. The change was primarily due to increases in (i) compensation related ~~costs, primarily driven by increases in management performance compensation due to a significant year-over-year growth in operating results;~~costs; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) ~~facilities expenses due~~return to ~~expansion of existing offices;~~in-person agent and ~~(iv) legal costs.~~client business events, conferences, and meetings.

Depreciation and amortization expense.

Depreciation and amortization expense increased to ~~$2.9~~$10.2 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$2.6~~$8.8 million for the same period in ~~2020,~~2021, an increase of ~~$0.2~~$1.4 million, or ~~9.4%.~~15.5%, principally related to additional amortization of intangible assets related to recent acquisitions and additional amortization of mortgage servicing rights due to the cancellation notices received on certain servicing contracts.

Other Income, ~~(Expense),~~ Net

Other income, ~~(expense),~~ net decreased to ~~$0.3~~$1.0 million for the ~~three~~nine months ended September 30, ~~2021~~2022 from ~~$1.6~~$2.7 million for the same period in ~~2020.~~2021. The decrease of $1.7 million was primarily driven by ~~(i)~~an increase in foreign exchange loss of $1.6 million, an unfavorable change of $3.1 million in the value of our deferred compensation plan assets that are held in a rabbi ~~trust; (ii) a reduction~~trust, partially offset by an increase of $2.5 million of income from investments and $0.4 million in ~~interest income on our investments in marketable debt securities,~~

~~available-for-sale~~sublease income.

~~due to an overall decrease in interest rates; and (iii) a foreign currency loss related to our Canadian operations.~~

Interest Expense

Interest expense ~~decreased to $0.1 million~~increased by an immaterial amount for the ~~three~~nine months ended September 30, 2022 compared to the same period in 2021, ~~from $0.2~~and primarily relates to interest expense on the Company’s SARs liability.

Provision for Income Taxes

The provision for income taxes was $35.7 million for the nine months ended September 30, 2022, compared to $29.3 million for the same period in ~~2020. The decrease for the three months ended September 30,~~ 2021, ~~was primarily due to a decrease in interest expense on SARs liability.~~

~~Provision for Income Taxes~~

~~The provision for income taxes was $11.9 million for the three months ended September 30, 2021 compared to $1.9 million in the same period in 2020,~~ an increase of ~~$10.0~~$6.3 million. The effective income tax rate for the ~~three~~nine months ended September 30, ~~2021~~2022, was ~~26.0%~~27.0% compared to ~~24.1%~~26.7% for the same period in ~~2020.~~2021. The effective income tax rate increased primarily due to the change in the relationship of permanent nondeductible items to income before provision for income taxes and an increase in the valuation allowance with respect to our Canadian operations. These increases were partially offset by ~~an increase in~~the windfall tax benefits, net related to the settlement of stock-based ~~awards and a decrease in Canadian losses, which are subject to a full valuation allowance.~~

awards.

~~Table of Contents~~

~~Comparison of Nine Months Ended September 30, 2021 and 2020~~

~~Below are key operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 (dollars in thousands):~~

   Nine Months
Ended
September 30, 2021 Percentage
of
Nine Months
Ended Percentage
of
Change
Revenue September 30, 2020 Revenue Dollar Percentage
Revenues:

Real estate brokerage commissions
   $ 715,458 89.3 % $ 416,044 89.1 % $ 299,414 72.0 %
Financing fees
   75,448 9.4 43,674 9.4 31,774 72.8 %
Other revenues
   10,400 1.3 6,974 1.5 3,426 49.1 %


Total revenues
   801,306 100.0 466,692 100.0 334,614 71.7 %


Operating expenses:

Cost of services
   506,882 63.3 287,207 61.5 219,675 76.5 %
Selling, general and administrative
   178,147 22.2 148,101 31.7 30,046 20.3 %
Depreciation and amortization
   8,806 1.1 7,822 1.8 984 12.6 %


Total operating expenses
   693,835 86.6 443,130 95.0 250,705 56.6 %


Operating income
   107,471 13.4 23,562 5.0 83,909
nm
(2)
Other income (expense), net
   2,737 0.3 4,224 0.9 (1,487 ) (35.2 )%
Interest expense
   (436 ) (0.1 ) (695 ) (0.1 ) 259 (37.3 )%


Income before provision for income taxes
   109,772 13.6 27,091 5.8 82,681
nm
(2)
Provision for income taxes
   29,304 3.7 7,875 1.7 21,429
nm
(2)


Net income
   $ 80,468 9.9 % $ 19,216 4.1 % $ 61,252
nm
(2)


Adjusted EBITDA
(1)
   $ 124,790 15.6 % $ 38,757 8.3 % $ 86,033
nm
(2)

~~(1)~~

~~“Non-GAAP~~

~~Financial Measure.”~~

~~(2)~~

~~Not meaningful~~

~~Revenues~~

Our total revenues were $801.3 million for the nine months ended September 30, 2021 compared to $466.7 million for the same period in 2020, an increase of $334.6 million, or 71.7%. Total revenues increased as a result of increases in real estate brokerage commissions, financing fees and other revenues, as described below.

~~Real estate brokerage commissions.~~

Revenues from real estate brokerage commissions increased to $715.5 million for the nine months ended September 30, 2021, from $416.0 million for the same period in 2020, an increase of $299.4 million, or 72.0%. The increase was primarily driven by an 86.6% increase in sales volume generated by a 51.2% increase in the number of investment sales transactions and a 23.5% increase in the average transaction size. These increases were partially offset by a 15 basis points reduction in average commission rates due to a larger proportion of transactions closed from the Larger Transaction Market segment.

~~Financing fees.~~

Revenues from financing fees increased to $75.4 million for the nine months ended September 30, 2021 from $43.7 million for the same period in 2020, an increase of $31.8 million, or 72.8%, in part spurred by growth from our recent acquisitions and other ancillary financing fees. The increase was driven by a 69.8% increase in financing volume, partially offset by a 7 basis points reduction in average commission rates due in part to fees from certain larger loan transactions. Financing volume was impacted by a 24.3% increase in average transaction size and a 36.7% increase in the number of financing transactions.

~~Other revenues.~~

Other revenues increased to $10.4 million for the nine months ended September 30, 2021 from $7.0 million for the same period in 2020, an increase of $3.4 million, or 49.1%. The increase was primarily driven by an increase in consulting and advisory services during the nine months ended September 30, 2021, compared to the same period in 2020.

~~Total Operating Expenses~~

Our total operating expenses were $693.8 million for the nine months ended September 30, 2021 compared to $443.1 million for the same period in 2020, an increase of $250.7 million, or 56.6%. The increase was due to increases in cost of services, which are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities, selling, general and administrative costs and depreciation and amortization expense, as described below.

~~Table of Contents~~

~~Cost of services.~~

Cost of services increased to $506.9 million for the nine months ended September 30, 2021 from $287.2 million for the same period in 2020, an increase of $219.7 million, or 76.5%. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a percent of total revenues increased to 63.3% compared to 61.5% for the same period in 2020 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier than prior years and 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 nine months ended September 30, 2021 increased $30.0 million, or 20.3%, to $178.1 million from $148.1 million for the same period in 2020. The increase was primarily due to increases in (i) compensation related costs, primarily driven by increases in management performance compensation due to a significant year-over-year increase in operating results; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; (iii) facilities expenses due to expansion of existing offices; and (iv) net change in value of contingent and deferred consideration in connection with our acquisition activities. These increases were partially offset by decreases in (i) sales operations support and promotional marketing expenses primarily due to the cancellation of the Company’s annual sales recognition event typically held during the first quarter of 2021 due to ongoing concerns about the pandemic; and (ii) legal costs.

~~Depreciation and amortization expense.~~

Depreciation and amortization expense increased to $8.8 million for the nine months ended September 30, 2021 from $7.8 million for the same period in 2020, an increase of $1.0 million, or 12.6%. The increase was primarily driven by capital expenditures due to our growth.

~~Other Income (Expense), Net~~

Other income (expense), net decreased to $2.7 million for the nine months ended September 30, 2021 from $4.2 million for the same period in 2020. The decrease was primarily driven by a reduction in interest income on our investments in marketable debt securities,

~~available-for-sale~~

due to an overall decrease in interest rates. This decrease was partially offset by (i) a favorable change in the value of our deferred compensation plan assets that are held in a rabbi trust; and (ii) a foreign currency gain related to our Canadian operations.

~~Interest Expense~~

Interest expense decreased to $0.4 million for the nine months ended September 30, 2021 from $0.7 million for the same period in 2020. The decrease for the nine months ended September 30, 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 $29.3 million for the nine months ended September 30, 2021 compared to $7.9 million in the same period in 2020, an increase of $21.4 million, or 272.1%. The effective income tax rate for the nine months ended September 30, 2021 was 26.7% compared to 29.1% for the same period in 2020. The effective income tax rate decreased primarily due to an increase in windfall tax benefits, net related to the settlement of stock-based awards and a decrease in Canadian losses which are subject to a full valuation allowance, partially offset by a net increase in permanent and other items.

~~Table of Contents~~

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~~ Mortgage Servicing Rights (“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 a supplemental metric and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a useful

Table of Contents

management metric to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and

non-cash

items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	21,362	$	33,924	$	96,313	$	80,468
Adjustments:
Interest income and other (1)	(2,365)		(503)		(3,959)		(1,470)
Interest expense	229		144		547		436
Provision for income taxes	9,939		11,921		35,651		29,304
Depreciation and amortization	2,924		2,850		10,167		8,806
Stock-based compensation	4,544		2,703		12,675		7,653
Non-cash MSR activity (2)	—		(54)		—		(407)
Adjusted EBITDA	$	36,633	$	50,985	$	151,394	$	124,790

(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.

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2021    2020    2021    2020
Net income
   $ 33,924    $ 6,040    $ 80,468    $ 19,216
Adjustments:

Interest income and other
(1)
   (503 )    (889 )    (1,470 )    (4,090 )
Interest expense
   144    199    436    695
Provision for income taxes
   11,921    1,916    29,304    7,875
Depreciation and amortization
   2,850    2,606    8,806    7,822
Stock-based compensation
   2,703    2,383    7,653    7,551
Non-cash
MSR activity
(2)
   (54 )    (26 )    (407 )    (312 )








Adjusted EBITDA
(3)
   $ 50,985    $ 12,229    $ 124,790    $ 38,757

~~(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 increase in Adjusted EBITDA for the three and nine months ended September 30, 2021, compared to the same period in 2020 is primarily due to an increase in total revenues and a lower 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.~~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.~~Credit Agreement.

~~Table of Contents~~

Cash Flows

Our total cash and cash equivalents balance ~~increased~~decreased by ~~$37.9~~$111.3 million to ~~$281.0~~$270.9 million at September 30, ~~2021,~~2022, compared to ~~$243.2~~$382.1 million at December 31, ~~2020.~~2021. The following table sets forth our summary cash flows for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):

   Nine Months Ended
September 30,
   2021    2020
Net cash provided by (used in) operating activities
   $ 99,593    $ (28,266 )
Net cash used in investing activities
   (55,782 )    (21,381 )
Net cash used in financing activities
   (6,081 )    (9,819 )




Effect of currency exchange rate changes on cash and cash equivalents
   125    (92 )




Net increase (decrease) in cash and cash equivalents
   37,855    (59,558 )
Cash and cash equivalents at beginning of period
   243,152    232,670




Cash and cash equivalents at end of period
   $ 281,007    $ 173,112


	Nine Months Ended September 30,
	2022		2021
Net cash flows (used in) provided by operating activities	$	(11,775)	$	99,593
Net cash flows used in investing activities	(31,291)		(55,782)
Net cash flows used in financing activities	(67,774)		(6,081)
Effect of currency exchange rate changes on cash and cash equivalents	(436)		125
Net (decrease) increase in cash and cash equivalents	(111,276)		37,855
Cash and cash equivalents at beginning of period	382,140		243,152
Cash and cash equivalents at end of period	$	270,864	$	281,007

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Operating Activities

Cash flows ~~provided by~~used in operating activities were ~~$99.6~~$11.8 million for the nine months ended September 30, ~~2021~~2022 compared to cash flows ~~used in~~provided by operating activities of ~~$28.3~~$99.6 million for the same period in ~~2020. Net~~2021. The $111.4 million decrease in cash ~~provided by~~flows from operating activities ~~is driven by our net income adjusted for~~

~~non-cash~~

~~items and changes in operating assets and liabilities. The $127.9 million improvement in operating cash flows~~ for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 was primarily due to ~~higher total revenues and a lower proportion of~~increased operating expenses ~~compared to total revenues, differences~~as discussed above, an increase in ~~timing of certain payments~~advances and ~~receipts, a reduction in advances~~loans to our investment sales and financing professionals, a higher amount of bonuses and ~~lower bonus payments~~deferred compensation and commissions paid ~~during~~in the first quarter of ~~2021 compared to the same period in 2020 due to the significant decline in operating results for the year ended December 31, 2020. The improvement in operating cash flows was~~2022, and increased payments of income taxes. These increases were partially offset by ~~a reduction in the deferral~~increased revenues as discussed above. The cash flows from operating activities are also affected by timing of certain ~~discretionary commissions.~~cash receipts and payments.

Investing Activities

Cash flows used in investing activities were ~~$55.8~~$31.3 million for the nine months ended September 30, ~~2021~~2022 compared to ~~$21.4~~cash flows used in investing activities of $55.8 million for the same period in ~~2020.~~2021. The ~~$34.4~~$24.5 million ~~increased usage~~decrease in cash used in investing activities for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 was primarily due to a ~~$38.5~~net decrease of $41.8 million ~~increase~~ in net ~~purchases of marketable debt securities and a $9.5 million purchase of~~

~~held-to-maturity~~

~~securities, with no such comparable outflow for the same period in 2020. The increased usage in investing cash flows was partially offset by a $12.1 million reduction in~~ cash used to purchase securities in ~~acquisitions of businesses, net of cash received during the nine months ended September 30, 2021~~2022 compared to the same period in ~~2020.~~2021, partially offset by $12.5 million paid in 2022 for the acquisition of a business and an increase of $4.3 million in purchases of property and equipment in 2022 over the same period in 2021.

Financing Activities

Cash flows used in financing activities were ~~$6.1~~$67.8 million for the nine months ended September 30, ~~2021~~2022 compared to ~~$9.8~~$6.1 million for the same period in ~~2020.~~2021. The ~~$3.7~~$61.7 million ~~reduction in~~additional cash ~~flows~~flow used in financing activities for the nine months ended September 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 was primarily ~~impacted by principal payments on notes payable~~due to ~~former stockholders,~~the payment of $50.2 million of dividends and $5.7 million in stock repurchases in 2022, which ~~were fully repaid during the second quarter~~did not occur in 2021, and an increase of ~~2020, partially offset by increases in principal payments on contingent and deferred consideration in connection with acquisitions and~~$4.9 million of taxes paid related to net share settlement of stock-based awards.

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. As of September 30, ~~2021,~~2022, cash and cash equivalents and marketable debt securities,

available-for-sale,

aggregated ~~$528.4~~$572.0 million, and we had $59.5 million of borrowing capacity under our ~~credit agreement.~~Credit Agreement.

~~Table of Contents~~

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~~2025 (the “Credit Agreement”). See Note 1312 – “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements for additional information on the Credit Agreement.

Off Balance Sheet Arrangements

The Company, in connection with the Strategic Alliance with M&T Realty Capital Corporation (“MTRCC”), has agreed to provide loan opportunities that may be funded through MTRCC’s agreement with Fannie Mae which requires MTRCC to guarantee a portion of each funded loan. On a loan-by-loan basis, the Company, at its option, can assume a portion of MTRCC’s guarantee obligation to Fannie Mae of loan opportunities presented to and closed by MTRCC. As of September 30, 2022, the Company has agreed to a maximum aggregate guarantee obligation of $54.1 million relating to loans with an unpaid balance of $324.9 million. The maximum guarantee obligation is not representative of the actual loss we would incur. The Company would be liable for this amount only if all of the loans for which it is providing a guarantee to MTRCC were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.

~~Contractual Obligations and Commitments~~40

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Material Cash Requirements

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, ~~2020~~2021 through the date the condensed consolidated financial statements were ~~issued.~~issued, other than for the payment of dividends declared by our board of directors in the first quarter of 2022, aggregating $52.1 million, and a semi-annual regular dividend of $0.25 per share on outstanding common stock declared on August 2, 2022, aggregating $10.5 million.

~~Off Balance Sheet Arrangements~~

~~We do not have any~~

~~off-balance~~

~~sheet arrangements.~~

Inflation

Our ~~revenues~~commissions 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 various macroeconomic factors, including the effects of the COVID-19 pandemic on the broader economy.

~~COVID-19~~

~~pandemic.~~The Federal Reserve’s efforts to combat inflation through monetary policy including ramping-up quantitative tightening and by raising the Federal Funds Rate has escalated. While commercial real estate investments are generally considered to be relatively inflation resistant, the upward pressure on interest rates has the potential to affect investor activity and therefore transactional activity from which we generate revenues. Investor activity could depend on the magnitude of changes in interest rates relative to the elevated level of capital liquidity targeting commercial real estate. The actual economic impact from ~~inflation/deflation to~~inflation on our business remains 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, ~~2020.~~2021.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – “Description of Business, Basis of Presentation and Recent Accounting Pronouncements” of our Notes to 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 sponsored entities, corporate debt, asset-backed securities and other. As of September 30, ~~2021,~~2022, the fair value of investments in marketable debt securities,

available-for-sale

was ~~$247.4~~$301.1 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 as of September 30, ~~2021.~~2022. Maturities are maintained consistent with our short-, medium- and long-term liquidity objectives.

~~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

Table of Contents

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. The following table sets forth the impact on the fair value of our investments as of September 30, ~~2021~~2022 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)
2% Decrease …..................	$	5,576
1% Decrease …..................	$	2,788
1% Increase …..................	$	(2,787)
2% Increase …..................	$	(5,572)

Change in Interest Rates
   Approximate Change in
Fair Value of Investments
Increase (Decrease)
2% Decrease
   $ 2,604
1% Decrease
   $ 1,788
1% Increase
   $ (3,299 )
2% Increase
   $ (6,597 )

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~~Historically foreign ~~currency~~ exchange rate ~~gains and losses have~~risk has not been material.

However, due to the strengthening of the US dollar against the Canadian dollar, we recognized a $1.3 million unrealized foreign exchange loss in the third quarter of 2022.

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,~~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 (2013 framework). Based on such evaluation, our management has concluded that as of September 30, ~~2021,~~2022, 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 September 30, ~~2021~~2022 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 a ~~significant~~ number of our employees and independent contractors are still working ~~remotely due to~~

~~the COVID-19 pandemic.~~

remotely. The design of our processes and controls allow for remote execution with accessibility to secure data. WeGiven the current environment, 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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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, ~~2020, other than the updated risk factors below relating to the Technology and Cybersecurity.~~

~~Technology and Cybersecurity Risks~~

~~If we do not respond to technological innovations or changes or upgrade our technology systems, our growth prospects and results of operations could be adversely affected.~~

To remain competitive, we must continue to enhance and improve the functionality, features and security of our technology infrastructure. Infrastructure upgrades may require significant capital investment outside of the normal course of business. In the future, we will likely need to improve and upgrade our technology, database systems and network infrastructure in order to allow our business to grow in both size and scope. Without such improvements, our operations might suffer from unanticipated system disruptions, slow performance or unreliable service levels, any of which could negatively affect our ability to provide rapid customer service. We may face significant delays in introducing new services, investment sales professional tools and enhancements. Moreover, if we do not keep pace with the rapid innovations and changes taking place in information technology in our industry, we could be at a competitive disadvantage. If competitors introduce new products and services using new technologies, our proprietary technology and systems may become less competitive, and our business may be harmed. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve.

Interruption, data security breaches, or failure of our information technology, communications systems or data services could hurt our ability to effectively provide our services, which could damage our reputation and harm our operating results.

Our business requires the continued operation of information technology and communication systems and network infrastructure. Our ability to conduct our national business may be adversely impacted by disruptions or breaches to these systems or infrastructure. Our information technology and communications systems are vulnerable to damage or disruption from fire, power loss, telecommunications failure, system malfunctions, computer viruses, third-party misconduct or penetration and criminal acts, natural disasters such as hurricanes, earthquakes, wildfires and floods, acts of war or terrorism, or other events which are beyond our control. For example, in August 2021, we were subject to a cybersecurity attack on our information technology systems. We immediately engaged cybersecurity experts to secure and restore all essential systems and were able to do so with no material disruption to our business.

In addition, the operation and maintenance of these systems and networks is, in some cases, dependent on third-party technologies, systems and service providers for which there is no certainty of uninterrupted availability. Any of these events could cause system interruption, delays, and loss of critical data or intellectual property (such as our client lists and information, business methods and research) and may also disrupt our ability to provide services to or interact with our clients, and we may not be able to successfully implement contingency plans that depend on communication or travel. We have business continuity plans and backup systems to reduce the potentially adverse effect of such events, but our business continuity planning may not be sufficient and cannot account for all eventualities. A catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected. Our business relies significantly on the use of commercial real estate data. We produce much of this data internally, but a significant portion is purchased from third-party providers for which there is no certainty of uninterrupted availability. A disruption of our ability to provide data to our professionals and/or clients could damage our reputation, and our operating results could be adversely affected.

2021.

~~Table of Contents~~

~~Failure to maintain the security of our information and technology networks, including personally identifiable and client information could adversely affect us.~~

Security breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer. In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and intellectual property and that of our clients and personally identifiable information of our employees and contractors, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure have been subject to, and may in the future be vulnerable to, various cyber-attacks, such as hacking, spoofing and phishing attacks and ransomware attacks, or our systems may be breached due to employee error, malfeasance or other disruptions. A significant actual or potential theft, loss, fraudulent use or misuse of client, employee or other personally identifiable data, whether by third parties or as a result of employee malfeasance or

~~otherwise, non-compliance with~~

our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could result in significant costs, fines, litigation or regulatory actions against us. Such an event could additionally disrupt our operations and the services we provide to clients, damage our reputation, and cause a loss of confidence in our services, which could adversely affect our business, revenues and competitive position. Additionally, we increasingly rely on third-party data storage providers, including cloud storage solution providers, resulting in less direct control over our data. Such third parties may also be vulnerable to security breaches and compromised security systems, which could adversely affect our reputation.

We rely on the collection and use of personally identifiable information from clients to conduct our business. We disclose our information collection and dissemination practices in a published privacy statement on our websites, which we may modify from time to time. We may be subject to legal claims, government action, including under the Racketeer Influenced and Corrupt Organizations Act, and damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy statement, client expectations or the law. In the event we or the vendors with which we contract to provide services on behalf of our clients were to suffer a breach of personally identifiable information, our customers could terminate their business with us. Further, we may be subject to claims to the extent individual employees or investment sales and financing professionals breach or fail to adhere to company policies and practices and such actions jeopardize any personally identifiable information. In addition, concern among potential buyers or sellers about our privacy practices could keep them from using our services or require us to incur significant expense to alter our business practices or educate them about how we use personally identifiable information. We maintain cyber security insurance, but there can be no assurance that it will be adequate to cover past or future incidents.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

~~None.~~

On August 2, 2022, our Board of Directors authorized a common stock repurchase program of up to $70 million. As of September 30, 2022, $62.4 million of common stock remains eligible for repurchase under the program.

Share repurchase activity during the nine months ended September 30, 2022 was as follows:


Periods	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022	—	$	—	—	$	—
August 1, 2022 - August 31, 2022	—	$	—	—	$	—
September 1, 2022 - September 30, 2022	226,795	$	33.41	226,795	$	62,422,637
Total	226,795			226,795	$	62,422,637

(1)Excludes shares withheld for employee taxes upon vesting of stock-based awards. Stock repurchases under our program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

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Item 5. Other Information

John David Parker and Richard Matricaria Employment Agreements

On August 4, 2022, the Company entered into employment agreements (the “Employment Agreements”) with John David Parker in his capacity as Chief Operating Officer – Eastern Division and Richard Matricaria in his capacity as Chief Operating Officer – Western Division. The Employment Agreements set forth the terms of their continued employment in such roles. The Employment Agreements include the following material terms:

•Messrs. Parker and Matricaria’s employment with the Company is at-will and either the Company or the executive may terminate his respective Employment Agreement with or without cause.

•Messrs. Parker and Matricaria are entitled to receive a monthly salary of $33,333.33 paid in semi-monthly installments, pro-rated for less than a full year of service.

•Messrs. Parker and Matricaria are each eligible to receive an annual discretionary cash incentive bonus targeted at $1,550,000 per calendar year for 2022 and continuing thereafter. Such bonuses will be based 60% on the Company’s financial and non-financial performance against goals, and 40% based on personal goals that will be set with each executive’s input. In the event that the Company does not meet a minimum of 50% of its pre-tax income goal, no bonuses will be paid to the executives for that year, unless special considerations are determined by the compensation committee of the Company’s board of directors (the “Compensation Committee”).

•Messrs. Parker and Matricaria are eligible for long term incentive compensation in the form of RSUs. Subject to the approval of the Compensation Committee, each executive will be eligible to receive an RSU grant potential equivalent of up to 50% of such executive’s actual discretionary cash bonus earned and paid each year, subject to the clawback rules implemented by the Securities and Exchange Commission and/or the exchange listing standards. Twenty-five percent of the RSU long-term incentive compensation will be based on the year’s overall results and twenty-five percent will be based on progress toward achieving the Company’s long-term goals and such executive’s contribution towards those long-term goals.

The foregoing summary of the Employment Agreements does not purport to be complete and is subject in its entirety by the terms of each Employment Agreement, copies of which are filed as Exhibits 10.2 and 10.3 hereto and incorporated herein by reference.

~~None.~~

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Item 6. Exhibits


Exhibit No.						Description

~~Exhibit No.~~


10.1+						~~Description~~ Second Amended and Restated Credit Agreement dated July 28, 2022, by and between Marcus & Millichap, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q (No. 001 -36155) for the quarter ended June 30, 2022, filed on August 5, 2022).

31.1*10.2+						Employment Agreement by and between John David Parker and Marcus & Millichap, Inc., dated August 4, 2022 (incorporated by reference to Exhibit 10.2 to the registrant’s quarterly report on Form 10-Q (No. 001 -36155) for the quarter ended June 30, 2022, filed on August 5, 2022).

10.3+						Employment Agreement by and between Richard Matricaria and Marcus & Millichap, Inc., dated August 4, 2022 (incorporated by reference to Exhibit 10.3 to the registrant’s quarterly report on Form 10-Q (No. 001 -36155) for the quarter ended June 30, 2022, filed on August 5, 2022).

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*						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021,~~2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Net ~~and Comprehensive~~ Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, ~~(iv)~~(v) Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

____________

+ Previously filed.

* Filed herewith.

** Furnished, not filed.

*	~~Filed herewith.~~

**	~~Furnished, not filed.~~

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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

~~Date:~~

~~November 5, 2021~~

~~By:~~

~~/s/ Hessam Nadji~~

~~Hessam Nadji~~

~~President and Chief Executive Officer~~

~~(Principal Executive Officer)~~

Date:

November ~~5, 2021~~

4, 2022

By:

~~By:~~/s/ Hessam Nadji

Hessam Nadji

President and Chief Executive Officer

(Principal Executive Officer)

Date:

November 4, 2022

By:

/s/ Steven F. DeGennaro

Steven F. DeGennaro

Chief Financial Officer

(Principal Financial Officer)

Table of Contents

HIDDEN IXBRL


	September 30, 2021 (Unaudited)		December 31, 2020

Assets
Current assets:
Cash and cash equivalents	$	281,007	$	243,152
Commissions receivable, net		15,377		10,391
Prepaid expenses		9,232		10,153
Marketable debt securities, available-for-sale (includes amortized cost of $116,852 and $158,148 at September 30, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)		116,902		158,258
Advances and loans, net		3,017		2,413
Other assets		4,436		4,711

Total current assets		429,971		429,078
Property and equipment, net		22,890		23,436
Operating lease right-of-use assets, net		85,250		84,024
Marketable debt securities, available-for-sale (includes amortized cost of $128,788 and $45,181 at September 30, 2021 and December 31, 2020, respectively, and $0 allowance for credit losses)		130,502		47,773
Assets held in rabbi trust		11,056		10,295
Deferred tax assets, net		24,410		21,374
Goodwill and other intangible assets, net		48,974		52,053
Advances and loans, net		108,709		106,913
Other assets		13,318		4,176

Total assets	$	875,080	$	779,122



Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other liabilities	$	20,025	$	18,288
Deferred compensation and commissions		53,068		58,106
Income tax payable		5,658		3,726
Operating lease liabilities		19,745		19,190
Accrued bonuses and other employee related expenses		32,066		21,007

Total current liabilities		130,562		120,317
Deferred compensation and commissions		38,638		38,745
Operating lease liabilities		60,970		59,408
Other liabilities		12,641		13,816

Total liabilities		242,811		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 September 30, 2021 and December 31, 2020, respectively		0		0
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued and outstanding shares – 39,666,785 and 39,401,976 at September 30, 2021 and December 31, 2020, respectively		4		4
Additional paid-in capital		118,974		113,182
Retained earnings		511,544		431,076
Accumulated other comprehensive income		1,747		2,574

Total stockholders’ equity		632,269		546,836

Total liabilities and stockholders’ equity	$	875,080	$	779,122



	Three Months Ended September 30, 2020
	Preferred Stock				Common Stock					Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Shares			Amount		Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
Balance at June 30, 2020		0	$	0		39,328,017		$	4	$	108,308		$	0	$	401,414	$	3,187		$	512,913
Net and comprehensive income (loss)		—		0		—			0		0			0		6,040		(236	)		5,804
Stock-based award activity
Stock-based compensation		0		0		0			0		2,383			0		0		0			2,383
Issuance of common stock for vesting of restricted stock units		0		0		50,912			0		0			0		0		0			0
Shares withheld related to net share settlement of stock-based awards		0		0		(2,452	)		0		(66	)		0		0		0			(66	)

Balance as of September 30, 2020		0	$	0		39,376,477		$	4	$	110,625		$	0	$	407,454	$	2,951		$	521,034


	Nine Months Ended September 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		Additional Paid-In Capital			Stock Notes Receivable From Employees			Retained Earnings			Accumulated Other 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			19,216			973		20,189
Stock-based award activity
Stock-based compensation		0		0		0			0		7,551			0			0			0		7,551
Shares issued pursuant to employee stock purchase plan		0		0		15,923			0		371			0			0			0		371
Issuance of common stock for vesting of restricted stock units		0		0		248,391			0		0			0			0			0		0
Issuance of common stock for unvested restricted stock awards		0		0		19,516			0		0			0			0			0		0
Shares withheld related to net share settlement of stock-based awards		0		0		(60,548	)		0		(1,955	)		0			0			0		(1,955	)
Reduction of stock notes receivable from employees		—		0		—			0		0			4			0			0		4

Balance as of September 30, 2020		0	$	0		39,376,477		$	4	$	110,625		$	0		$	407,454		$	2,951	$	521,034


	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities
Net income	$	80,468		$	19,216
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		8,806			7,822
Amortization of right-of-use assets		17,773			16,883
Credit loss recovery		25			55
Stock-based compensation		7,653			7,551
Deferred taxes, net		(2,847	)		6,050
Unrealized foreign exchange (gains) losses		(298	)		276
Net realized gains on marketable debt securities, available-for-sale		(78	)		(180	)
Other non-cash items		361			930
Changes in operating assets and liabilities:
Commissions receivable		(5,297	)		(1,928	)
Prepaid expenses		925			1,988
Advances and loans		(2,434	)		(36,905	)
Other assets		(1,076	)		(1,087	)
Accounts payable and other liabilities		4,020			(1,373	)
Income tax receivable/payable		1,932			(5,024	)
Accrued bonuses and other employee related expenses		11,223			(12,145	)
Deferred compensation and commissions		(4,499	)		(17,593	)
Operating lease liabilities		(15,889	)		(13,504	)
Other liabilities		(1,175	)		702

Net cash provided by (used in) operating activities		99,593			(28,266	)

Cash flows from investing activities
Acquisition of businesses, net of cash received		229			(11,821	)
Purchases of marketable debt securities, available-for-sale		(291,063	)		(179,221	)
Proceeds from sales and maturities of marketable debt securities, available-for-sale		248,540			175,226
Purchases of securities, held-to-maturity		(9,500	)		0
Issuances of employee notes receivable		(40	)		(243	)
Payments received on employee notes receivable		290			90
Purchase of property and equipment		(4,238	)		(5,412	)

Net cash used in investing activities		(55,782	)		(21,381	)

Cash flows from financing activities
Taxes paid related to net share settlement of stock-based awards		(3,230	)		(1,955	)
Proceeds from issuance of shares pursuant to employee stock purchase plan		369			371
Principal payments on notes payable to former stockholders		0			(6,564	)
Principal payments on stock appreciation rights liability		(1,481	)		(1,251	)
Principal payments on contingent and deferred consideration		(1,739	)		(420	)

Net cash used in financing activities		(6,081	)		(9,819	)

Effect of currency exchange rate changes on cash and cash equivalents		125			(92	)

Net increase (decrease) in cash and cash equivalents		37,855			(59,558	)
Cash and cash equivalents at beginning of period		243,152			232,670

Cash and cash equivalents at end of period	$	281,007		$	173,112


Supplemental disclosures of cash flow information
Interest paid during the period	$	734		$	1,208

Income taxes paid, net	$	30,168		$	6,849


	September 30, 2021			December 31, 2020
Computer software and hardware equipment	$	32,766		$	30,955
Furniture, fixtures and equipment		23,946			23,418
Less: accumulated depreciation and amortization		(33,822	)		(30,937	)

	$	22,890		$	23,436


	September 30, 2021


Remainder of 2021	$	5,958
2022		20,560
2023		17,256
2024		14,769
2025		12,462
Thereafter		15,603

Total future minimum lease payments		86,608
Less imputed interest		(5,893	)

Present value of operating lease liabilities	$	80,715


	September 30, 2021			December 31, 2020

Weighted average remaining operating lease term		4.71 years			4.70 years
Weighted average discount rate		2.9	%		3.1	%


	Advances and Loans			Commissions Receivable			Total

Beginning balance as of January 1, 2021	$	563		$	94		$	657
Credit loss (recovery)		116			(91	)		25
Write-offs		(60	)		0			(60	)

Ending balance as of September 30, 2021	$	619		$	3		$	622


	Advances and Loans			Commissions Receivable			Total
Beginning balance as of January 1, 2020	$	512		$	32	(1)	$	544
Credit loss expense		13			42			55
Write-offs		(50	)		0			(50	)

Ending balance as of September 30, 2020	$	475		$	74		$	549


	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, 2020 (1)		16,728			637,650			264,001			918,379		$	33.73
Granted		12,492			269,474			81,566			363,532		$	38.74
Vested		(16,728	)		(163,758	)		(77,968	)		(258,454	)	$	31.93
Transferred		0			(9,057	)		9,057			0		$	34.49
Forfeited/canceled		0			(25,470	)		(6,345	)		(31,815	)	$	33.06

Nonvested shares at September 30, 2021 (1)		12,492			708,839			270,311			991,642		$	35.52

Unrecognized stock-based compensation expense as of September 30, 2021 (2)	$	265		$	22,090		$	8,499		$	30,854

Weighted average remaining vesting period (years) as of September 30, 2021		0.59			3.60			3.44			3.53



	Three Months Ended September 30,						Nine Months Ended September 30,
Financing (1)	2021			2020			2021			2020
Average Number of Financing Professionals		86			82			86			86
Average Number of Transactions per Financing Professional		6.98			5.39			20.67			15.13
Average Fee per Transaction	$	42,319		$	33,531		$	36,126		$	31,607
Average Fee Rate		0.77	%		0.88	%		0.82	%		0.89	%
Average Transaction Size (in thousands)	$	5,503		$	3,828		$	4,390		$	3,533
Total Number of Transactions		600			442			1,778			1,301
Total Financing Volume (in millions)	$	3,302		$	1,692		$	7,806		$	4,597


	Three Months Ended September 30, 2021			Percentage of Revenue			Three Months Ended September 30, 2020			Percentage of Revenue			Change
	Three Months Ended September 30, 2021			Percentage of Revenue			Three Months Ended September 30, 2020			Percentage of Revenue			Dollar			Percentage
Revenues:
Real estate brokerage commissions	$	299,759			90.2	%	$	140,844			88.8	%	$	158,915			112.8	%
Financing fees		29,391			8.8			15,620			9.9			13,771			88.2	%
Other revenues		3,233			1.0			2,111			1.3			1,122			53.2	%

Total revenues		332,383			100.0			158,575			100.0			173,808			109.6	%

Operating expenses:
Cost of services		219,194			65.9			99,707			62.9			119,487			119.8	%
Selling, general and administrative		64,673			19.5			49,722			31.4			14,951			30.1	%
Depreciation and amortization		2,850			0.9			2,606			1.6			244			9.4	%

Total operating expenses		286,717			86.3			152,035			95.9			134,682			88.6	%

Operating income		45,666			13.7			6,540			4.1			39,126			nm	(2)
Other income (expense), net		323			0.1			1,615			1.0			(1,292	)		(80.0	)%
Interest expense		(144	)		0.0			(199	)		(0.1	)		55			(27.6	)%

Income before provision for income taxes		45,845			13.8			7,956			5.0			37,889			nm	(2)
Provision for income taxes		11,921			3.6			1,916			1.2			10,005			nm	(2)

Net income	$	33,924			10.2	%	$	6,040			3.8	%	$	27,884			nm	(2)

Adjusted EBITDA (1)	$	50,985			15.3	%	$	12,229			7.7	%	$	38,756			nm	(2)


	Nine Months Ended September 30, 2021			Percentage of			Nine Months Ended			Percentage of			Change
	Nine Months Ended September 30, 2021			Revenue			September 30, 2020			Revenue			Dollar			Percentage
Revenues:
Real estate brokerage commissions	$	715,458			89.3	%	$	416,044			89.1	%	$	299,414			72.0	%
Financing fees		75,448			9.4			43,674			9.4			31,774			72.8	%
Other revenues		10,400			1.3			6,974			1.5			3,426			49.1	%

Total revenues		801,306			100.0			466,692			100.0			334,614			71.7	%

Operating expenses:
Cost of services		506,882			63.3			287,207			61.5			219,675			76.5	%
Selling, general and administrative		178,147			22.2			148,101			31.7			30,046			20.3	%
Depreciation and amortization		8,806			1.1			7,822			1.8			984			12.6	%

Total operating expenses		693,835			86.6			443,130			95.0			250,705			56.6	%

Operating income		107,471			13.4			23,562			5.0			83,909			nm	(2)
Other income (expense), net		2,737			0.3			4,224			0.9			(1,487	)		(35.2	)%
Interest expense		(436	)		(0.1	)		(695	)		(0.1	)		259			(37.3	)%

Income before provision for income taxes		109,772			13.6			27,091			5.8			82,681			nm	(2)
Provision for income taxes		29,304			3.7			7,875			1.7			21,429			nm	(2)

Net income	$	80,468			9.9	%	$	19,216			4.1	%	$	61,252			nm	(2)

Adjusted EBITDA (1)	$	124,790			15.6	%	$	38,757			8.3	%	$	86,033			nm	(2)


Change in Interest Rates	Approximate Change in Fair Value of Investments Increase (Decrease)
2% Decrease	$	2,604
1% Decrease	$	1,788
1% Increase	$	(3,299	)
2% Increase	$	(6,597	)