10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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

☐	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

☒

☐

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

☒

☐

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.

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

☐

☒

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.

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.

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.

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
	Preferred Stock				Common Stock
	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
	Preferred Stock				Common Stock
	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.

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.

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

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.

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.

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.

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.

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

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


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements			Page

Condensed Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019			3

Condensed Consolidated Statements of Net and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)			4

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)			5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)			6

Notes to Condensed Consolidated Financial Statements (Unaudited)			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27

Item 3. Quantitative and Qualitative Disclosures About Market Risk			38

Item 4. Controls and Procedures			39

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			40

Item 1A. Risk Factors			40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40

Item 3. Defaults Upon Senior Securities			41

Item 4. Mine Safety Disclosures			41

Item 5. Other Information			41

Item 6. Exhibits			41

SIGNATURES			42


	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	$