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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
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 March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                    to                    
Commission File Number:
001-36155
 
MARCUS & MILLICHAP, INC.
(Exact name of registrant as specified in its Charter)
 
     
Delaware
 
35-2478370
(State or Other Jurisdiction of
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 May 4, 2020 was 39,273,941 shares.
 
 

Table of Contents
MARCUS & MILLICHAP, INC.
TABLE OF CONTENTS
         
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
6
 
 
 
 
 
 
 
 
7
 
 
 
 
 
 
 
 
27
 
 
 
 
 
 
 
 
38
 
 
 
 
 
 
 
 
39
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
 
 
 
 
 
 
 
40
 
 
 
 
 
 
 
 
40
 
 
 
 
 
 
 
 
41
 
 
 
 
 
 
 
 
41
 
 
 
 
 
 
 
 
41
 
 
 
 
 
 
 
 
41
 
 
 
 
 
 
 
 
42
 
 
 
 
2

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for shares and par value)
                 
 
March 31,
2020
(Unaudited)
   
December 31,
2019
 
Assets
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
  $
189,760
    $
232,670
 
Commissions receivable, net
   
3,600
     
5,003
 
Prepaid expenses
   
9,072
     
10,676
 
Income tax receivable
   
929
     
4,999
 
Marketable debt securities,
available-for-sale
(includes amortized cost and an allowance for credit losses of $143,115 and $0, respectively, at March 31, 2020)
   
143,864
     
150,752
 
Advances and loans, net
   
1,969
     
2,882
 
Other assets
   
2,871
     
3,185
 
                 
Total current assets
   
352,065
     
410,167
 
Property and equipment, net
   
23,173
     
22,643
 
Operating lease
right-of-use
assets, net
   
88,454
     
90,535
 
Marketable debt securities,
available-for-sale
(includes amortized cost and an allowance for credit losses of $44,954 and $0, respectively, at March 31, 2020)
   
45,210
     
60,809
 
Assets held in rabbi trust
   
7,992
     
9,452
 
Deferred tax assets, net
   
20,959
     
22,122
 
Goodwill and other intangible assets, net
   
31,254
     
22,312
 
Advances and loans, net
   
96,857
     
66,647
 
Other assets
   
4,365
     
4,347
 
                 
Total assets
  $
670,329
    $
709,034
 
                 
Liabilities and stockholders’ equity
   
     
 
Current liabilities:
   
     
 
Accounts payable and other liabilities
  $
10,642
    $
10,790
 
Notes payable to former stockholders
   
6,564
     
6,564
 
Deferred compensation and commissions
   
25,253
     
44,301
 
Operating lease liabilities
   
17,715
     
17,762
 
Accrued bonuses and other employee related expenses
   
5,339
     
22,388
 
                 
Total current liabilities
   
65,513
     
101,805
 
Deferred compensation and commissions
   
28,220
     
45,628
 
Operating lease liabilities
   
61,677
     
63,155
 
Other liabilities
   
5,627
     
3,539
 
                 
Total liabilities
   
161,037
     
214,127
 
                 
Commitments and contingencies
   
  
     
  
 
Stockholders’ equity:
   
     
 
Preferred stock, $0.0001 par value:
   
     
 
Authorized shares – 25,000,000; issued and outstanding shares – none at March 31, 2020 and December 31, 2019, respectively
   
  
     
  
 
Common stock, $0.0001 par value:
   
     
 
Authorized shares – 150,000,000; issued and outstanding shares – 39,272,429 and 39,153,195 at March 31, 2020 and December 31, 2019, respectively
   
4
     
4
 
Additional
paid-in
capital
   
105,601
     
104,658
 
Stock notes receivable from employees
   
(4
)    
(4
)
Retained earnings
   
401,308
     
388,271
 
Accumulated other comprehensive income
   
2,383
     
1,978
 
                 
Total stockholders’ equity
   
509,292
     
494,907
 
                 
Total liabilities and stockholders’ equity
  $
670,329
    $
709,034
 
                 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)
                 
 
Three Months Ended
March 31,
 
 
2020
   
2019
 
Revenues:
 
 
Real estate brokerage commissions
  $
 171,829
    $
 
144,937
 
Financing fees
   
15,351
     
13,732
 
Other revenues
   
3,537
     
2,038
 
                 
Total revenues
   
190,717
     
160,707
 
                 
Operating expenses:
   
     
 
Cost of services
   
113,757
     
91,688
 
Selling, general and administrative expense
   
54,860
     
48,918
 
Depreciation and amortization expense
   
2,464
     
1,832
 
                 
Total operating expenses
   
171,081
     
142,438
 
                 
Operating income
   
19,636
     
18,269
 
Other (expense) income, net
   
(366
)    
3,375
 
Interest expense
   
(283
)    
(349
)
                 
Income before provision for income taxes
   
18,987
     
21,295
 
Provision for income taxes
   
5,917
     
5,657
 
                 
Net income
   
13,070
     
15,638
 
                 
Other comprehensive (loss) income:
   
     
 
Marketable debt securities,
available-for-sale:
   
     
 
Change in unrealized (losses) gains
   
(497
)    
858
 
Less: reclassification adjustment for net losses (gains) included in other (expense) income, net
   
11
     
(9
)
                 
Net change, net of tax of $(168) and $288 for the three months ended March 31, 2020 and 2019, respectively
   
(486
)    
849
 
Foreign currency translation gain (loss), net of tax of $0 for each of the three months ended March 31, 2020 and 2019
   
891
     
(98
)
                 
Total other comprehensive income
   
405
     
751
 
                 
Comprehensive income
  $
13,475
    $
16,389
 
                 
Earnings per share:
   
     
 
Basic
  $
0.33
    $
0.40
 
Diluted
  $
0.33
    $
0.40
 
Weighted average common shares outstanding:
   
     
 
Basic
   
39,541
     
39,311
 
Diluted
   
39,646
     
39,515
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
4

Table of Contents
MARCUS & MILLICHAP, Inc.
CONDENSED Consolidated StatementS of Stockholders’ Equity
(in thousands, except for shares)
(Unaudited)
                                                                         
 
Three Months Ended March 31, 2020
 
 
Preferred Stock
   
Common Stock
   
Additional
Paid-In

Capital
   
Stock Notes
 Receivable
From
 Employees
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Total
 
 
 
 
Shares
   
Amount
   
Shares
   
Amount
 
Balance at December 31, 2019
 
 
  
 
 
$
  
 
 
 
39,153,195
 
 
$
4
 
 
$
104,658
 
 
$
(4
)
 
$
388,271
 
 
$
1,978
 
 
$
494,907
 
Cumulative effect of a change in accounting principle, net of tax
 
 
—  
 
 
 
  
 
 
 
—  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
(33
)
 
 
  
 
 
 
(33
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2020, as adjusted
 
 
  
 
 
 
  
 
 
 
39,153,195
 
 
 
4
 
 
 
104,658
 
 
 
(4
)
 
 
388,238
 
 
 
1,978
 
 
 
494,874
 
Net and comprehensive income
 
 
—  
 
 
 
  
 
 
 
—  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
13,070
 
 
 
405
 
 
 
13,475
 
Stock-based award activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
2,632
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
2,632
 
Issuance of common stock for vesting of restricted stock units
 
 
  
 
 
 
  
 
 
 
170,106
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
Shares withheld related to net share settlement of stock-based awards
 
 
  
 
 
 
  
 
 
 
(50,872
)
 
 
  
 
 
 
(1,689
)
 
 
  
 
 
 
  
 
 
 
  
 
 
 
(1,689
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2020
 
 
  
 
 
$
   
 
 
 
39,272,429
 
 
$
4
 
 
$
105,601
 
 
$
(4
)
 
$
401,308
 
 
$
2,383
 
 
$
509,292
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                         
 
Three Months Ended March 31, 20
19
 
 
Preferred Stock
   
Common Stock
   
Additional
Paid-In

Capital
   
Stock Notes
 Receivable
From
 Employees
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Total
 
 
 
 
Shares
   
Amount
   
Shares
   
Amount
 
Balance at December 31, 2018
 
 
  
 
 
$
   
 
 
 
38,814,464
 
 
$
4
 
 
$
97,458
 
 
$
(4
)
 
$
311,341
 
 
$
775
 
 
$
409,574
 
Net and comprehensive income
 
 
—  
 
 
 
  
 
 
 
—  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
15,638
 
 
 
751
 
 
 
16,389
 
Stock-based award activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
2,341
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
2,341
 
Issuance of common stock for vesting of restricted stock units
 
 
  
 
 
 
  
 
 
 
284,396
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
Shares withheld related to net share settlement of stock-based awards
 
 
  
 
 
 
  
 
 
 
(56,426
)
 
 
  
 
 
 
(2,212
)
 
 
  
 
 
 
  
 
 
 
  
 
 
 
(2,212
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2019
 
 
  
 
 
$
   
 
 
 
39,042,434
 
 
$
4
 
 
$
97,587
 
 
$
(4
)
 
$
326,979
 
 
$
1,526
 
 
$
426,092
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
 
2020
   
2019
 
Cash flows from operating activities
 
 
 
 
 
 
Net income
  $
13,070
    $
15,638
 
Adjustments to reconcile net income to net cash used in operating activities:
   
     
 
Depreciation and amortization expense
   
2,464
     
1,832
 
Amortization of
right-of-use
assets
   
5,500
     
5,081
 
Credit loss recovery
   
(120
)    
(104
)
Stock-based compensation
   
2,632
     
2,341
 
Deferred taxes, net
   
1,345
     
2,243
 
Unrealized f
oreign exchange lo
ss
 
 
1,024
 
 
 
 
Net realized (gains) losses on marketable debt securities,
available-for-sale
   
(53
)    
12
 
Other
non-cash
items
   
485
     
28
 
Changes in operating assets and liabilities:
   
     
 
Commissions receivable
   
1,350
     
(1,171
)
Prepaid expenses
   
1,576
     
(929
)
Advances and loans
   
(29,441
)    
(6,663
)
Other assets
   
(100
   
(2,149
)
Accounts payable and other liabilities
   
(923
)    
2,067
 
Income tax receivable/payable
   
4,070
     
3,117
 
Accrued bonuses and other employee related expenses
   
(17,035
)    
(20,060
)
Deferred compensation and commissions
   
(33,898
)    
(35,838
)
Operating lease liabilities
   
(4,477
)    
(4,110
)
Other liabilities
   
(262
)    
67
 
                 
Net cash used in operating activities
   
(52,793
)    
(38,598
)
                 
Cash flows from investing activities
 
 
 
 
 
 
Acquisition, net of cash received
   
(6,000
)    
  
 
Purchases of marketable debt securities,
available-for-sale
   
(28,919
)    
(30,117
)
Proceeds from sales and maturities of marketable debt securities,
available-for-sale
   
50,623
     
55,833
 
Issuances of employee notes receivable
   
(211
)    
  
 
Payments received on employee notes receivable
   
1
     
1
 
Purchase of property and equipment
   
(2,397
)    
(1,644
)
                 
Net cash provided by investing activities
   
13,097
     
24,073
 
                 
Cash flows from financing activities
 
 
 
 
 
 
Taxes paid related to net share settlement of stock-based awards
   
(1,689
)    
(2,212
)
Principal payments on stock appreciation rights liability
   
(1,251
)    
186
 
                 
Net cash used in financing activities
   
(2,940
)    
(2,026
)
                 
Effect of currency exchange rate changes on cash and cash equivalents
   
(274
)
   
  
 
                 
Net decrease in cash and cash equivalents
   
(42,910
)    
(16,551
)
Cash and cash equivalents at beginning of period
   
232,670
     
214,683
 
                 
Cash and cash equivalents at end of period
  $
189,760
    $
198,132
 
                 
Supplemental disclosures of cash flow information
 
 
 
 
 
 
Interest paid during the period
  $
845
    $
1,751
 
                 
Income taxes paid, net
  $
503
    $
296
 
                 
See accompanying notes to condensed consolidated financial statements.
6

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Description of Business and Basis of Presentation
Description of Business
Marcus & Millichap, Inc., (the “Company”, “Marcus & Millichap”, or “MMI”), a Delaware corporation, is a brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of March 31, 2020, 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 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
i
n November 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
of Regulation
 S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements and notes include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form
10-K
filed on March 2, 2020 with the SEC. The results of the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, for other interim periods or future years.
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.
Segment Reporting
The Company follows U.S. GAAP for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of the Company’s operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing (including mortgage servicing) and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute the Company’s only operating segment for financial reporting purposes.
Reclassifications
Certain prior-period amounts in the condensed consolidated balance sheet and statement of cash flows, Note 7 – “Selected Balance Sheet Data” and Note 10 – “Fair Value Measurements” have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported condensed consolidated results of operations.
 
7

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
Accounting Policies and Recent Accounting Pronouncements
Accounting Policies
The complete list of the Company’s accounting policies is included in the Company’s Annual Report on Form
10-K
filed on March 2, 2020 with the SEC. The following are updated, or new accounting policies related to the adoption of the credit losses standard.
Cash and Cash Equivalents
The Company considers cash equivalents to include short-term, highly liquid investments with maturities of three months or less when purchased. Portions of the balance of cash and cash equivalents were held in financial institutions, various money market funds with fixed and floating net asset values and short-term commercial paper. Money market funds have floating net asset values and may be subject to gating or liquidity fees. The Company assesses short-term commercial papers for impairment in connection with investments in marketable debt securities,
available-for-sale.
The likelihood of realizing material losses from cash and cash equivalents, including the excess of cash balances over federally insured limits, is remote.
Commissions Receivable, Net
Commissions receivable, net consists of commissions earned on brokerage and financing transactions for which payment has not yet been received. The Company evaluates the need for an allowance for credit losses based on consideration of historical experience, current conditions and forecasts of future economic conditions. The majority of commissions receivable are settled within 10 days after the close of escrow. The allowance for credit losses for commissions receivable was not material as of March 31, 2020 and December 31, 2019.
Advances and Loans, Net
Advances and loans, net includes amounts advanced and loans due from the Company’s investment sales and financing professionals.
In order to attract and retain highly skilled professionals, from time to time, the Company advances funds to its investment sales and financing professionals. The advances are typically in the form of forgivable loans that have terms that are generally between 5 and 10 years. The principal amount of a forgivable loan and accrued interest are forgiven over the term of the loan, so long as the investment sales and financing professionals continue to be a service provider with the Company, or upon achieving contractual performance criteria. Amounts forgiven are charged to selling, general and administrative expense at the time the amounts are forgiven. If the investment sales and financing professional’s relationship with the Company is terminated before the amount advanced is forgiven, the unforgiven amount becomes due and payable. The Company evaluates the need for an allowance for credit losses based on amounts advanced and expected forgiveness, in consideration of historical experience, current conditions and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable. Accrued interest, when applicable, has historically been immaterial.
The Company, from time to time, enters into various agreements with certain of its investment sales and financing professionals whereby these individuals receive loans. The notes receivable along with stated interest, are typically collected from future commissions or repaid based on the terms stipulated in the respective agreements that are generally between 1 and 7 years . The Company evaluates the need for an allowance for credit losses for the loans based on historical experience, current conditions and reasonable and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable.
8

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Investments in Marketable Debt Securities,
Available-for-Sale
The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities (“ABS”) and other. The Company considers its investments in marketable debt securities to be
available-for-sale,
and accordingly are recorded at their fair values. The Company determines the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with accretion and amortization of purchase premiums and discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other (expense) income, net in the condensed consolidated statements of net and comprehensive income. The Company typically invests in highly-rated debt securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
The Company reviews quarterly its investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. The Company excludes accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income (loss), net of applicable taxes. The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. The Company evaluates
write-off
of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.
Determining whether a credit loss exists requires a high degree of judgment and the Company considers both qualitative and quantitative factors in making its determination. The Company evaluates its intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, the Company evaluates, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations and changes in base and market interest rates. If qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, the Company typically does not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are the Company’s best estimate based on past events, current conditions and reasonable and supportable economic forecasts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, investments in marketable debt securities,
available-for-sale,
security deposits (included under other assets,
non-current)
and commissions receivable, net. Cash and cash equivalents are placed with high-credit quality financial institutions and invested in high-credit quality money market funds and commercial paper. Concentrations of marketable debt securities,
available-for-sale
are limited by the approved investment policy.
To reduce its credit risk, the Company monitors the credit standing of the financial institutions money market funds that represent amounts recorded as cash and cash equivalents. The Company historically has not experienced any significant losses related to cash and cash equivalents.
The Company derives its revenues from a broad range of real estate investors, owners, and users in the United States and Canada, none of which individually represents a significant concentration of credit risk. The Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the likelihood of collection. For the three months ended March 31, 2020 and 2019, 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 the three months ended March 31, 2020 and 2019, the Company’s Canadian operations represented approximately 2% and 1% of total revenues, respectively.
During the three months ended March 31, 2020, one office represented 10% or more of total revenues. During the three months ended March 31, 2019, no office represented 10% or more of total revenues.
9

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
 2016-13,
Financial Instruments—Credit Losses
(“ASU
2016-13”).
The new standard requires the use of an expected-loss model for financial assets measured at amortized cost and marketable debt securities,
available-for
sale, which requires that identified credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) is permitted in the reporting period that the change occurs. Previously, U.S. GAAP prohibited reflecting any reversals of impairment charges. The Company adopted the new standard on January 1, 2020 using the modified-retrospective transition method for assets measured at amortized cost other than marketable debt securities,
available-for-sale,
which was adopted using a prospective transition approach as required by the new standard. On the adoption date, the Company recorded a cumulative-effect adjustment related to an allowance for credit losses related to commissions receivable and advances and loans, net of tax in the amount of $33,000 with the offset to retained earnings as of the beginning of the period presented after adoption. The adoption of ASU
2016-13
did not have a material impact on the Company’s investment policy and impairment model for marketable debt securities,
available-for-sale.
The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment.
In August 2018, the FASB issued ASU No.
 2018-15,
Internal-Use Software (Subtopic 350-40)—Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
(“ASU
2018-15”).
ASU
2018-15
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an internal use software license), by permitting a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an
internal-use
software project. The Company adopted the new standard effective January 1, 2020 using the prospective method. The adoption of ASU
2018-15
did not have a material effect on the Company’s condensed consolidated financial statements.
Pending Adoption
In December 2019, the FASB issued ASU No.
 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”).
ASU
2019-12
is effective for reporting periods beginning after December 15, 2020 with early adoption permitted. For the Company, the new standard will be effective on January 1, 2021. ASU
2019-12
simplifies the accounting for income taxes by eliminating certain exceptions including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes such as
step-up
in tax basis for goodwill and interim recognition of enactment of tax laws or rate changes. The Company is currently evaluating the impact of this new standard and does not expect ASU
2019-12
to have a material effect on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU No.
 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(“ASU
2020-04”).
ASU
2020-04
provides temporary optional exceptions to the guidance in U.S. GAAP on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. ASU
2020-04
is effective for all entities upon issuance and may be applied prospectively to contract modifications through December 31, 2022. The guidance applies to the Company’s Credit Agreement (see Note 15 – “Commitments and Contingencies”), which references LIBOR, and will generally allow it to account for and present a modification as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. As of March 31, 2020, the Company has not drawn funds from the credit facility. The Company continues to evaluate the impact of this new standard and does not expect ASU
2020-04
to have a material effect on its condensed consolidated financial statements.
10

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
                 
 
March 31, 
2020
   
December 31,
 
2019
 
Computer software and hardware equipment
  $
27,191
    $
25,252
 
Furniture, fixtures, and equipment
   
23,375
     
23,468
 
Less: accumulated depreciation and amortization
   
(27,393
)    
(26,077
)
                 
  $
23,173
    $
22,643
 
                 
 
 
 
 
 
 
 
 
 
 
 
During the three months ended March 31, 2020 and 2019, the Company
wrote-off
approximately $191,000 and $233,000, respectively, of fully depreciated computer software and hardware equipment and furniture, fixtures and equipment.
As of March 31, 2020 and 2019, property and equipment additions incurred but not yet paid included in accounts payable and other liabilities were $259,000 and $473,000, respectively.
The Company evaluates its fixed assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As of March 31, 2020, the Company considered the novel coronavirus
(“COVID-19”)
pandemic as a triggering event and evaluated its fixed assets for impairment testing. The Company concluded that as of March 31, 2020, there was
 
no
 
impairment of its property and equipment.
 
4.
Operating Leases
 
 
 
 
 
 
 
 
 
 
 
 
The Company has operating leases for all of its facilities and autos. As of March 31, 2020 and December 31, 2019, operating lease
right-of-use
(“ROU”) assets were $114.5 million and $111.1 million, respectively, and the related accumulated amortization was $26.0 million and $20.6 million, respectively.
The operating lease cost, included in selling, general and administrative expense in the condensed consolidated statement of net and comprehensive income, consisted of the following (in thousands):
                 
 
 
Three Months Ended 
March 31,
 
 
 
2020
   
2019
 
Operating lease cost:
   
     
 
Lease cost
 
 
(1)
 
$
 
 
6,263
    $
 
 
5,909
 
Variable lease cost
 
 
(2)
   
1,396
     
1,206
 
Sublease income
   
(77
)    
(88
)
                 
  $
7,582
    $
7,027
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
(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):
 
         
 
March 31,
 
2020
 
Remainder of 2020
  $
15,952
 
2021
   
19,294
 
2022
   
15,342
 
2023
   
12,065
 
2024
   
9,887
 
Thereafter
   
14,838
 
         
Total future minimum lease payments
   
87,378
 
Less imputed interest
   
(7,986
)
         
Present value of operating lease liabilities
  $
79,392
 
         
 
 
 
 
 
 
 
 
 
 
 
11

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information and noncash activity related to the operating leases consisted of the following (in thousands):
                 
 
Three Months Ended
March 31,
 
 
2020
   
2019
 
Operating cash flow information:
   
     
 
Cash paid for amounts included in the measurement of operating lease liabilities
  $
5,223
    $
4,842
 
Noncash activity:
   
     
 
ROU assets obtained in exchange for operating lease liabilities
  $
 
 
3,109
    $