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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 June 30, 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
 
(I.R.S. Employer
Incorporation or Organization)
 
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 August 4, 2020 was 39,328,017 shares.
 
 
 

Table of Contents
MARCUS & MILLICHAP, INC.
TABLE OF CONTENTS
 
  
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     8  
     29  
     43  
     44  
  
     45  
     45  
     46  
     46  
     46  
     46  
     46  
  
 
2

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for shares and par value)
 
     June 30, 2020
(Unaudited)
     December 31,
2019
 
Assets
     
Current assets:
     
Cash and cash equivalents
   $ 154,880      $ 232,670  
Commissions receivable, net
     4,956        5,003  
Prepaid expenses
     8,391        10,676  
Income tax receivable
     4,224        4,999  
Marketable debt securities,
available-for-sale
(includes amortized cost of $169,195 and $150,517
 
at June 30, 2020 and December 31, 2019, respectively, and $0
 
allowance for credit losses)
     169,768        150,752  
Advances and loans, net
     1,830        2,882  
Other assets
     3,619        3,185  
  
 
 
    
 
 
 
Total current assets
     347,668        410,167  
Property and equipment, net
     23,429        22,643  
Operating lease
right-of-use
assets, net
     86,035        90,535  
Marketable debt securities,
available-for-sale
(includes amortized cost of $40,808 and $59,468
 
at June 30, 2020 and December 31, 2019, respectively, and $0
 
allowance for credit losses)
     42,781        60,809  
Assets held in rabbi trust
     9,081        9,452  
Deferred tax assets, net
     17,710        22,122  
Goodwill and other intangible assets, net
     37,829        22,312  
Advances and loans, net
     101,781        66,647  
Other assets
     4,501        4,347  
  
 
 
    
 
 
 
Total assets
   $ 670,815      $ 709,034  
  
 
 
    
 
 
 
Liabilities and stockholders’ equity
     
Current liabilities:
     
Accounts payable and other liabilities
   $ 10,914      $ 10,790  
Notes payable to former stockholders
               6,564  
Deferred compensation and commissions
     25,549        44,301  
Operating lease liabilities
     17,880        17,762  
Accrued bonuses and other employee related expenses
     4,211        22,388  
  
 
 
    
 
 
 
Total current liabilities
     58,554        101,805  
Deferred compensation and commissions
     31,388        45,628  
Operating lease liabilities
     60,262        63,155  
Other liabilities
     7,698        3,539  
  
 
 
    
 
 
 
Total liabilities
     157,902        214,127  
  
 
 
    
 
 
 
Commitments and contingencies
                   
Stockholders’ equity:
     
Preferred stock, $0.0001 par value:
     
Authorized shares – 25,000,000; issued and outstanding shares – none at June 30, 2020
 
and December 31, 2019, respectively
                   
Common stock, $0.0001 par value:
     
Authorized shares – 150,000,000; issued and outstanding shares – 39,328,017 and 39,153,195 at June 30, 2020 and December 31, 2019, respectively
     4        4  
Additional
paid-in
capital
     108,308        104,658  
Stock notes receivable from employees
               (4
Retained earnings
     401,414        388,271  
Accumulated other comprehensive income
     3,187        1,978  
  
 
 
    
 
 
 
Total stockholders’ equity
     512,913        494,907  
  
 
 
    
 
 
 
Total liabilities and stockholders’ equity
   $ 670,815      $ 709,034  
  
 
 
    
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
3

Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)
 
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2020     2019     2020     2019  
Revenues:
        
Real estate brokerage commissions
   $
 
103,371     $
 
188,680     $
 
275,200     $
 
333,617  
Financing fees
     12,703       17,742       28,054       31,474  
Other revenues
     1,326       3,171       4,863       5,209  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues
     117,400       209,593       308,117       370,300  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses:
        
Cost of services
     73,743       127,847       187,500       219,535  
Selling, general and administrative
     43,519       52,836       98,379       101,754  
Depreciation and amortization
     2,752       1,932       5,216       3,764  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     120,014       182,615       291,095       325,053  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating (loss) income
     (2,614     26,978       17,022       45,247  
Other income (expense), net
     2,975       3,119       2,609       6,494  
Interest expense
     (213     (340     (496     (689
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before provision for income taxes
     148       29,757       19,135       51,052  
Provision for income taxes
     42       8,478       5,959       14,135  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income
     106       21,279       13,176       36,917  
  
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss):
        
Marketable debt securities,
available-for-sale:
        
Change in unrealized gains
     1,214       856       717       1,714  
Less: reclassification adjustment for net losses (gains) included in other income
(expense), net
     13       (9     24       (18
  
 
 
   
 
 
   
 
 
   
 
 
 
Net change, net of tax of $421, $283, $253 and $571 for the three and six months ended June 30, 2020 and 2019, respectively
     1,227       847       741       1,696  
Foreign currency translation (loss) gain, net of tax of $0 for each of the three and six months ended June 30, 2020 and 2019
     (423     (216     468       (314
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other comprehensive income
     804       631       1,209       1,382  
  
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income
   $ 910     $ 21,910     $ 14,385     $ 38,299  
  
 
 
   
 
 
   
 
 
   
 
 
 
Earnings per share:
        
Basic
   $        $ 0.54     $ 0.33     $ 0.94  
Diluted
   $        $ 0.54     $ 0.33     $ 0.93  
Weighted average common shares outstanding:
        
Basic
     39,629       39,395       39,585       39,353  
Diluted
     39,673       39,527       39,662       39,524  
See accompanying notes to condensed consolidated financial statements.
 
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Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for shares)
(Unaudited)
 
    Three Months Ended June 30, 2020  
    Preferred Stock     Common Stock     Additional
Paid-In

Capital
    Stock Notes
Receivable
From
Employees
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  
    Shares     Amount     Shares     Amount  
Balance at March 31, 2020
           $          39,272,429     $ 4     $ 105,601     $ (4   $
 
401,308     $ 2,383     $
 
509,292  
Net and comprehensive income
    —                  —                                    106       804       910  
Stock-based award activity
                 
Stock-based compensation
                                        2,536                                  2,536  
Shares issued pursuant to employee stock purchase plan
                      15,923                371                                  371  
Issuance of common stock for vesting of restricted stock units
                      27,373                                                        
Issuance of common stock for unvested restricted stock awards
                      19,516                                                        
Shares withheld related to net share settlement of stock-based awards
                      (7,224              (200                                (200
Reduction of stock notes receivable from employees
    —                  —                           4                         4  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance as of June 30, 2020
        $       39,328,017     $ 4     $
 
108,308     $     $ 401,414     $ 3,187     $ 512,913  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
    Three Months Ended June 30, 2019  
    Preferred Stock     Common Stock     Additional
Paid-In

Capital
    Stock Notes
Receivable
From
Employees
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  
    Shares     Amount     Shares     Amount  
Balance at March 31, 2019
           $          39,042,434     $ 4     $ 97,587     $ (4   $
 
326,979     $ 1,526     $
 
426,092  
Net and comprehensive income
    —                  —                                    21,279       631       21,910  
Stock-based award activity
                 
Stock-based compensation
                                        2,585                                  2,585  
Shares issued pursuant to employee stock purchase plan
                      11,022                338                                  338  
Issuance of common stock for vesting of restricted stock units
                      40,823                                                        
Issuance of common stock for unvested restricted stock awards
                      10,542                                                        
Shares withheld related to net share settlement of stock-based awards
                      (13,960              (412                                (412
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance as of June 30, 2019
           $          39,090,861     $ 4     $
 
100,098     $ (4   $ 348,258     $ 2,157     $ 450,513  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
5

Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands, except for shares)
(Unaudited)
 
    Six Months Ended June 30, 2020  
    Preferred Stock     Common Stock     Additional
Paid-In

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

Capital
    Stock Notes
Receivable
From
Employees
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  
    Shares     Amount     Shares     Amount  
Balance at December 31, 2018
           $          38,814,464     $ 4     $ 97,458     $ (4
)
 
  $
 
311,341     $ 775     $
 
409,574  
Net and comprehensive income
    —                  —                                    36,917       1,382       38,299  
Stock-based award activity
                 
Stock-based compensation
                                        4,926                                  4,926  
Shares issued pursuant to employee stock purchase plan
                      11,022                338                                  338  
Issuance of common stock for vesting of restricted stock units
                      325,219                                                        
Issuance of common stock for unvested restricted stock awards
                      10,542                                                        
Shares withheld related to net share settlement of stock-based awards
                      (70,386              (2,624                                (2,624
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance as of June 30, 2019
           $          39,090,861     $ 4     $ 100,098     $ (4
)
  $ 348,258     $ 2,157     $ 450,513  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
6

Table of Contents
MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
     Six Months Ended
June 30,
 
     2020     2019  
Cash flows from operating activities
    
Net income
   $ 13,176     $ 36,917  
Adjustments to reconcile net income to net cash used in operating activities:
    
Depreciation and amortization
     5,216       3,764  
Amortization of
right-of-use
assets
     11,151       10,242  
Credit loss recovery
     (78     (13
Stock-based compensation
     5,168       4,926  
Deferred taxes, net
     4,172       3,863  
Unrealized foreign exchange loss
     557           
Net realized (gains) losses on marketable debt securities,
available-for-sale
     (117     (12
Other
non-cash
items
     567       (228
Changes in operating assets and liabilities:
    
Commissions receivable
     (5     (820
Prepaid expenses
     2,259       (1,689
Advances and loans
     (34,149     (17,614
Other assets
     (1,059     (3,753
Accounts payable and other liabilities
     (1,204     14  
Income tax receivable/payable
     775       (9,248
Accrued bonuses and other employee related expenses
     (18,168     (14,228
Deferred compensation and commissions
     (31,425     (28,291
Operating lease liabilities
     (9,016     (8,169
Other liabilities
     331       (24
  
 
 
   
 
 
 
Net cash used in operating activities
     (51,849     (24,363
  
 
 
   
 
 
 
Cash flows from investing activities
    
Acquisition of businesses, net of cash received
     (11,821         
Purchases of marketable debt securities,
available-for-sale
     (95,266     (79,357
Proceeds from sales and maturities of marketable debt securities,
available-for-sale
     95,028       103,108  
Issuances of employee notes receivable
     (211         
Payments received on employee notes receivable
     1       1  
Purchase of property and equipment
     (4,190     (4,126
  
 
 
   
 
 
 
Net cash (used in) provided by investing activities
     (16,459     19,626  
  
 
 
   
 
 
 
Cash flows from financing activities
    
Taxes paid related to net share settlement of stock-based awards
     (1,889     (2,624
Proceeds from issuance of shares pursuant to employee stock purchase plan
     371       338  
Principal payments on notes payable to former stockholders
     (6,563     (1,087
Principal payments on stock appreciation rights liability
     (1,251     185  
  
 
 
   
 
 
 
Net cash used in financing activities
     (9,332     (3,188
  
 
 
   
 
 
 
Effect of currency exchange rate changes on cash and cash equivalents
     (150         
  
 
 
   
 
 
 
Net decrease in cash and cash equivalents
     (77,790     (7,925
Cash and cash equivalents at beginning of period
     232,670       214,683  
  
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $
 
154,880     $
 
206,758  
  
 
 
   
 
 
 
Supplemental disclosures of cash flow information
    
Interest paid during the period
   $ 1,193     $ 1,967  
  
 
 
   
 
 
 
Income taxes paid, net
   $ 1,013     $ 19,520  
  
 
 
   
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
7

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 June 30, 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 in 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 six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, for other interim periods or
for
future years.
Considerations Related to the
COVID-19
Pandemic
The
COVID-19
pandemic and resultant shutdown of economic activity across much of the world has led to sharp increases in unemployment, dislocations in debt and equity markets and businesses instituting cost-cutting and capital-preservation measures. There has been a significant impact on commercial real estate markets in the United States and Canada that started at the end of first quarter 2020 and continued through the end of the second quarter of 2020, as many property owners and occupiers have put transactions on hold, driving significantly lower sales volumes. The Company expects the effects of the COVID-19 pandemic to continue to adversely impact its financial position, results of operations, and cash flows for the remainder of 2020.
See Note 3 – “Property and Equipment, Net”, Note 6 – “Acquisitions, Goodwill and Other Intangible Assets”, Note 10 – “Fair Value Measurements” and Note 15 – “Commitments and Contingencies”
for further discussion on
COVID-19.
Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, including the impact
COVID-19
may have on our business. Actual results could differ from those estimates.
 
8

Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Segment Reporting
The Company follows U.S. GAAP for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of the Company’s operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing (including mortgage servicing) and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute the Company’s only operating segment for financial reporting purposes.
Reclassifications
Certain prior-period amounts in the condensed consolidated balance sheet and statement of cash flows, Note 7 – “Selected Balance Sheet Data” and Note 10 – “Fair Value Measurements” have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported condensed consolidated results of operations.
 
2.
Accounting Policies and Recent Accounting Pronouncements
Accounting Policies
The complete list of the Company’s accounting policies is included in the Company’s Annual Report on Form
10-K
filed on March 2, 2020 with the SEC. The following are updated, or new accounting policies related to the adoption of the credit losses standard.
Cash and Cash Equivalents
The Company considers cash equivalents to include short-term, highly liquid investments with maturities of three months or less when purchased. Portions of the balance of cash and cash equivalents were held in financial institutions, various money market funds with fixed and floating net asset values and short-term commercial paper. Money market funds have floating net asset values and may be subject to gating or liquidity fees. The Company assesses short-term commercial paper for impairment in connection with investments in marketable debt securities,
available-for-sale.
The likelihood of realizing material losses from cash and cash equivalents, including the excess of cash balances over federally insured limits, is remote.
Commissions Receivable, Net
Commissions receivable, net consists of commissions earned on brokerage and financing transactions for which payment has not yet been received. The Company evaluates the need for an allowance for credit losses based on consideration of historical experience, current conditions and forecasts of future economic conditions. The majority of commissions receivable are settled within 10 days after the close of escrow.
Advances and Loans, Net
Advances and loans, net includes amounts advanced and loans due from the Company’s investment sales and financing professionals.
In order to attract and retain highly skilled professionals, from time to time, the Company advances funds to its investment sales and financing professionals. The advances are typically in the form of forgivable loans that have terms that are generally between 5 and 10 years. The principal amount of a forgivable loan and accrued interest are forgiven over the term of the loan, so long as the investment sales and financing professionals continue to be a service provider with the Company, or upon achieving contractual performance criteria. Amounts forgiven are charged to selling, general and administrative expense at the time the amounts are forgiven. If the investment sales and financing professional’s relationship with the Company is terminated before the amount advanced is forgiven, the unforgiven amount becomes due and payable. The Company evaluates the need for an allowance for credit losses based on amounts advanced and expected forgiveness, in consideration of historical experience, current conditions and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable. Accrued interest, when applicable, has historically been immaterial.
 
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The Company, from time to time, enters into various agreements with certain of its investment sales and financing professionals whereby these individuals receive loans. The notes receivable along with stated interest, are typically collected from future commissions or repaid based on the terms stipulated in the respective agreements that are generally between 1 and 7 years. The Company evaluates the need for an allowance for credit losses for the loans based on historical experience, current conditions
and
reasonable forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable.
Investments in Marketable Debt Securities,
Available-for-Sale
The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities (“ABS”) and other. The Company considers its investments in marketable debt securities to be
available-for-sale,
and accordingly are recorded at their fair values. The Company determines the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expense), net in the condensed consolidated statements of net and comprehensive income. The Company typically invests in highly-rated debt securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
The Company reviews quarterly its investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. The Company excludes accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income/loss, net of applicable taxes. The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. The Company evaluates
write-off
of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.
Determining whether a credit loss exists requires a high degree of judgment and the Company considers both qualitative and quantitative factors in making its determination. The Company evaluates its intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, the Company evaluates, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations and changes in base and market interest rates. If qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, the Company typically does not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are the Company’s best estimate based on past events, current conditions and reasonable and supportable economic forecasts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, investments in marketable debt securities,
available-for-sale,
security deposits (included under other assets,
non-current)
and commissions receivable, net. Cash and cash equivalents are placed with high-credit quality financial institutions and invested in high-credit quality money market funds and commercial paper. Concentrations of marketable debt securities,
available-for-sale
are limited by the approved investment policy.
To reduce its credit risk, the Company monitors the credit standing of the financial institutions money market funds that represent amounts recorded as cash and cash equivalents. The Company historically has not experienced any significant losses related to cash and cash equivalents.
The Company derives its revenues from a broad range of real estate investors, owners, and users in the
United
States
and
Canada, none of which individually represents a significant concentration of credit risk. The Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the likelihood of collection. For the three and six months ended June 30, 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.
 
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MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
During the three and six months ended June 30, 2020, the Company’s Canadian operations represented approximately 2% of total revenues. During the three and six months ended June 30, 2019, the Company’s Canadian operations represented less than 1% of total revenues.
During the three and six months ended June 30, 2020 and 2019, no office represented 10% or more of total revenues.
Recent Accounting Pronouncements
Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-13,
Financial
Instruments
-
Credit
Losses
(“ASU
2016-13”).
The new standard requires the use of an expected-loss model for financial assets measured at amortized cost and marketable debt securities,
available-for
sale, which requires that identified credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) is permitted in the reporting period that the change occurs. Previously, U.S. GAAP prohibited reflecting any reversals of impairment charges. The Company adopted the new standard on January 1, 2020 using the modified-retrospective transition method for assets measured at amortized cost other than marketable debt securities,
available-for-sale,
which was adopted using a prospective transition approach as required by the new standard. On the adoption date, the Company recorded a cumulative-effect adjustment related to an allowance for credit losses
associated with
commissions receivable and advances and loans, net of tax in the amount of $33,000 with the offset to retained earnings as of the beginning of the period presented after adoption. The adoption of ASU
2016-13
did not have a material impact on the Company’s investment policy and impairment model for marketable debt securities,
available-for-sale.
The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities,
available-for-sale,
for the purposes of identifying and measuring an impairment.
In August 2018, the FASB issued ASU
No. 2018-15,
Internal-Use
Software
(Subtopic 350-40
) -
Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
(“ASU
2018-15”).
ASU
2018-15
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an internal use software license), by permitting a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an
internal-use
software project. The Company adopted the new standard effective January 1, 2020
,
using the prospective method. The adoption of ASU
2018-15
did not have a material effect on the Company’s condensed consolidated financial statements.
Pending Adoption
In December 2019, the FASB issued ASU
No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”).
ASU
2019-12
is effective for reporting periods beginning after December 15, 2020 with early adoption permitted. For the Company, the new standard will be effective on January 1, 2021. ASU
2019-12
simplifies the accounting for income taxes by eliminating certain exceptions including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes such as
step-up
in tax basis for goodwill and interim recognition of enactment of tax laws or rate changes. The Company is currently evaluating the impact of this new standard and does not expect ASU
2019-12
to have a material effect on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU
No. 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(“ASU
2020-04”).
ASU
2020-04
provides temporary optional exceptions to the guidance in U.S. GAAP on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) 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 June 30, 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.
 
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MARCUS &
MILLICHAP
, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
     June 30,
2020
     December 31,
2019
 
Computer software and hardware equipment
   $ 28,445      $ 25,252  
Furniture, fixtures, and equipment
     23,114        23,468