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, 2022

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

For the transition period from

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.

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

, 2022 was 38,889,501 shares.

Table of Contents

MARCUS & MILLICHAP, INC.

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. Mine Safety Disclosures		36
Item 5. Other Information		36
Item 6. Exhibits		36

SIGNATURES

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, 2022 (Unaudited)			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	315,695		$	382,140
Commissions receivable, net		13,854			17,230
Prepaid expenses		10,373			13,220
Marketable debt securities, available-for-sale (includes amortized cost of $220,015 and $183,915 at March 31, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)		218,988			183,868
Advances and loans, net		5,889			6,403
Other assets		6,027			5,270

Total current assets		570,826			608,131
Property and equipment, net		23,249			23,192
Operating lease right-of-use assets, net		77,928			81,528
Marketable debt securities, available-for-sale (includes amortized cost of $54,519 and $111,858 at March 31, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)		52,980			112,610
Assets held in rabbi trust		10,916			11,508
Deferred tax assets, net		33,470			33,736
Goodwill and other intangible assets, net		59,434			48,105
Advances and loans, net		139,087			113,242
Other assets		12,273			13,146

Total assets	$	980,163		$	1,045,198


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other liabilities	$	24,388		$	24,271
Deferred compensation and commissions		54,994			114,685
Dividends payable		50,694			—
Income tax payable		28,042			17,853
Operating lease liabilities		18,276			18,973
Accrued bonuses and other employee related expenses		15,863			49,848

Total current liabilities		192,257			225,630
Deferred compensation and commissions		45,603			53,536
Operating lease liabilities		56,307			58,334
Other liabilities		10,607			11,394

Total liabilities		304,774			348,894


Commitments and contingencies		—			—

Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and outstanding shares – none at March 31, 2022 and December 31, 2021, respectively		—			—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued and outstanding shares – 39,795,399 and 39,692,373 at March 31, 2022 and December 31, 2021, respectively		4			4
Additional paid-in capital		122,782			121,844
Retained earnings		554,193			573,546
Accumulated other comprehensive income (loss)		(1,590	)		910

Total stockholders’ equity		675,389			696,304

Total liabilities and stockholders’ equity	$	980,163		$	1,045,198

See accompanying notes to condensed consolidated financial statements.

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Revenues:
Real estate brokerage commissions	$	286,909		$	162,796
Financing fees		26,453			17,843
Other revenues		6,102			3,338

Total revenues		319,464			183,977

Operating expenses:
Cost of services		196,768			109,103
Selling, general and administrative		74,535			51,677
Depreciation and amortization		3,911			2,997

Total operating expenses		275,214			163,777

Operating income		44,250			20,200
Other income, net		450			1,044
Interest expense		(160	)		(146	)

Income before provision for income taxes		44,540			21,098
Provision for income taxes		11,757			6,086

Net income	$	32,783		$	15,012

Other comprehensive (loss) income:
Marketable debt securities, available-for-sale:
Change in net unrealized gains/losses		(2,357	)		(621	)
Less: reclassification adjustment for net gains included in other income, net		(84	)		—

Net change, net of tax of $838 and $(215) for the three months ended March 31, 2022 and 2021, respectively		(2,441	)		(621	)
Foreign currency translation gain (loss), net of tax of $0 for each of the three months ended March 31, 2022 and 2021, respectively		(59	)		(113	)

Total other comprehensive (loss) income		(2,500	)		(734	)

Comprehensive income	$	30,283		$	14,278


Earnings per share:
Basic	$	0.82		$	0.38
Diluted	$	0.81		$	0.37
Weighted average common shares outstanding:
Basic		39,989			39,757
Diluted		40,474			40,124

See accompanying notes to condensed consolidated financial statements.

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for shares)

(Unaudited)


	Three Months Ended March 31, 2022
	Preferred Stock				Common Stock					Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Shares			Amount		Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2021		—	$	—		39,692,373		$	4	$	121,844		$	—	$	573,546		$	910		$	696,304
Net and comprehensive income (loss)		—		—		—			—		—			—		32,783			(2,500	)		30,283
Stock-based award activity
Stock-based compensation		—		—		—			—		3,856			—		—			—			3,856
Issuance of common stock for vesting of restricted stock units		—		—		167,263			—		—			—		—			—			—
Shares withheld related to net share settlement of stock-based awards		—		—		(64,237	)		—		(2,918	)		—		—			—			(2,918	)
Dividends on common stock		—		—		—			—		—			—		(52,136	)		—			(52,136	)

Balance as of March 31, 2022		—	$	—		39,795,399		$	4	$	122,782		$	—	$	554,193		$	(1,590	)	$	675,389


	Three Months Ended March 31, 2021
	Preferred Stock				Common Stock					Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings		Accumulated Other Comprehensive Income			Total
	Shares		Amount		Shares			Amount		Additional Paid-In Capital			Stock Notes Receivable From Employees		Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance at December 31, 2020		—	$	—		39,401,976		$	4	$	113,182		$	—	$	431,076	$	2,574		$	546,836
Net and comprehensive income		—		—		—			—		—			—		15,012		(734	)		14,278
Stock-based award activity
Stock-based compensation		—		—		—			—		2,288			—		—		—			2,288
Issuance of common stock for vesting of restricted stock units		—		—		149,117			—		—			—		—		—			—
Shares withheld related to net share settlement of stock-based awards		—		—		(50,127	)		—		(1,733	)		—		—		—			(1,733	)

Balance as of March 31, 2021		—	$	—		39,500,966		$	4	$	113,737		$	—	$	446,088	$	1,840		$	561,669

See accompanying notes to condensed consolidated financial statements.

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MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net income	$	32,783		$	15,012
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		3,911			2,997
Noncash lease expense		5,961			6,009
Credit loss recovery		(167	)		(146	)
Stock-based compensation		3,856			2,288
Deferred taxes, net		1,104			909
Unrealized foreign exchange (gains) losses		(151	)		(157	)
Net realized gains on marketable debt securities, available-for-sale		(113	)		(1	)
Other non-cash items		11			(49	)
Changes in operating assets and liabilities:
Commissions receivable		3,430			1,776
Prepaid expenses		2,850			74
Advances and loans		(25,084	)		(4,440	)
Other assets		(794	)		(1,187	)
Accounts payable and other liabilities		1,308			2,071
Income tax receivable/payable		10,189			4,786
Accrued bonuses and other employee related expenses		(33,990	)		(9,362	)
Deferred compensation and commissions		(65,384	)		(33,781	)
Operating lease liabilities		(5,031	)		(5,275	)
Other liabilities		(2,224	)		(1,626	)

Net cash flows used in operating activities		(67,535	)		(20,102	)

Cash flows from investing activities
Acquisition of businesses, net of cash received		(12,500	)		229
Purchases of marketable debt securities, available-for-sale		(40,551	)		(81,264	)
Proceeds from sales and maturities of marketable debt securities, available-for-sale		61,970			85,065
Issuances of employee notes receivable		(71	)		(40	)
Payments received on employee notes receivable		18			250
Purchase of property and equipment		(1,883	)		(1,099	)

Net cash flows provided by investing activities		6,983			3,141

Cash flows from financing activities
Taxes paid related to net share settlement of stock-based awards		(2,918	)		(1,733	)
Principal payments on stock appreciation rights liability		(1,761	)		(1,481	)
Principal payments on contingent and deferred consideration		(1,264	)		(1,302	)

Net cash flows used in financing activities		(5,943	)		(4,516	)

Effect of currency exchange rate changes on cash and cash equivalents		50			33

Net (decrease) in cash and cash equivalents		(66,445	)		(21,444	)
Cash and cash equivalents at beginning of period		382,140			243,152

Cash and cash equivalents at end of period	$	315,695		$	221,708


Supplemental disclosures of cash flow information
Interest paid during the period	$	499		$	697

Income taxes paid, net	$	464		$	339

See accompanying notes to condensed consolidated financial statements.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Description of Business

Marcus & Millichap, Inc. (the “Company,” “Marcus & Millichap,” or “MMI”), a Delaware corporation, is a brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. As of March 31, 2022, MMI operates 81 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

Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements and notes include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto, including the Company’s accounting policies for the year ended December 31, 2021 included in the Company’s Annual Report on Form

10-K

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

Considerations Related to the

COVID-19

Pandemic

The Company may continue to experience operational and financial impacts due to the ongoing

COVID-19

pandemic and actual results may differ from the Company’s current estimates and historical trends because of that uncertainty. Notwithstanding the potential continuing impact of the

COVID-19

pandemic and changes in interest rates on the current macroeconomic environment, the Company believes it is well positioned to achieve long-term growth.

See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” and Note 8 – “Fair Value Measurements” for further discussions on the potential impacts of

COVID-19.

Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 and ratings 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.

In September 2021, the Company entered into a Strategic Alliance (“Strategic Alliance”) with M&T Reality Capital Corporation (“MTRCC”) pursuant to which the Company has agreed to provide loan opportunities that may be funded through MTRCC’s Delegated Underwriting and Servicing Agreement (“DUS Agreement”) with the Federal National Mortgage Association (“Fannie Mae”) and which requires MTRCC to guarantee a portion of each loan funded. On a

loan-by-loan

basis, the Company, at its option, can indemnify a portion of MTRCC’s guarantee obligation of loan opportunities presented to and closed by MTRCC though the DUS Agreement. The Company manages and limits the concentration of risk related to the guarantees assumed by monitoring the underlying property type, geographic location, credit of the borrowers, underlying debt service coverage, and loan to value ratios.

The Company derives its revenues from a broad range of real estate investors, owners, and users in the United States and Canada, none of which individually represents a significant concentration of credit risk. The Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the likelihood of collection. For the three months ended March 31, 2022 and 2021, 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, 2022, the Company’s Canadian operations represented 2.3% of total revenues. During the three months ended March 31, 2021, the Company’s Canadian operations represented less than 2% of total revenues.

During each of the three months ended March 31, 2022 and 2021, no office represented 10% or more of total revenues.

Revenue Recognition

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

Real Estate Brokerage Commissions

Contracts for representing buyers and sellers of real estate are usually negotiated on a

transaction-by-transaction

basis. The consideration associated with the successful outcome remains constrained until the completion of a transaction which, in almost all cases, is at the close of escrow. At that time, the Company recognizes revenue related to the transaction. The Company’s fee agreements do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the transaction closes.

Financing Fees

Contracts for representing potential borrowers are usually negotiated on a

transaction-by-transaction

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

Loan Performance Fees

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

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Guarantee Obligations

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

Mortgage Servicing

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

Other Revenues

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

Recent Accounting Pronouncements

Pending Adoption

In March 2020, the FASB issued Accounting Standards Update (“ASU”)

No. 2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

(“ASU

2020-04”).

ASU

2020-04

provides temporary optional exceptions to the guidance in U.S. GAAP on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). ASU

2020-04

is effective for all entities upon issuance and may be applied prospectively to contract modifications through December 31, 2022. The guidance applies to the Company’s Credit Agreement (see Note 13 – “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, 2022, the Company has not drawn funds from the credit facility. The Company continues to evaluate the impact of this new standard but does not expect ASU

2020-04

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

2.	Property and Equipment, Net

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


	March 31, 2022			December 31, 2021
Computer software and hardware equipment	$	35,404		$	33,819
Furniture, fixtures and equipment		24,817			24,511
Less: accumulated depreciation and amortization		(36,972	)		(35,138	)

	$	23,249		$	23,192

During the three months ended March 31, 2022 and 2021, the Company

wrote-off

approximately $22,000 and $41,000, respectively, of fully depreciated computer software and hardware equipment and furniture, fixtures and equipment.

As of March 31, 2022 and 2021, property and equipment additions incurred but not yet paid included in accounts payable and other liabilities were $406,000 and $275,000, respectively.

3.	Operating Leases

The Company has operating leases for all of its facilities and autos. As of March 31, 2022 and December 31, 2021, operating lease

right-of-use

(“ROU”) assets, net were $77.9 million and $81.5 million, respectively.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The operating lease cost, included in selling, general and administrative expense in the condensed consolidated statement

of net and comprehensive income, consisted of the following (in thousands):


	Three Months Ended March 31,
	2022			2021
Operating lease cost:
Lease cost (1)	$	6,544		$	6,589
Variable lease cost (2)		1,363			1,400
Sublease income		(234	)		(33	)

	$	7,673		$	7,956

(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, 2022
Remainder of 2022	$	15,484
2023		18,311
2024		15,829
2025		13,320
2026		9,716
Thereafter		7,027

Total future minimum lease payments		79,687
Less imputed interest		(5,104	)

Present value of operating lease liabilities	$	74,583

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


	Three Months Ended March 31,
	2022		2021
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	5,589	$	5,862
Noncash activity:
ROU assets obtained in exchange for operating lease liabilities	$	2,435	$	3,004
Tenant improvements owned by lessor related to ROU assets (1)	$	66	$	55

(1)	Reclassification from other assets current.

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


	March 31, 2022			December 31, 2021
Weighted average remaining operating lease term		4.44 years			4.57 years
Weighted average discount rate		2.9	%		2.9	%

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.	Investments in Marketable Debt Securities, Available for Sale

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

available-for-sale,

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


	March 31, 2022
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments:
U.S. treasuries	$	101,141	$	—	$	—	$	(849	)	$	100,292
Corporate debt		118,271		—		7		(193	)		118,085
Asset-backed securities (“ABS”) and other		603		—		8		—			611

	$	220,015	$	—	$	15	$	(1,042	)	$	218,988

Long-term investments:
U.S. treasuries	$	12,420	$	—	$	9	$	(311	)	$	12,118
U.S. government sponsored entities		674		—		—		(18	)		656
Corporate debt		34,300		—		147		(1,141	)		33,306
Asset-backed securities (“ABS”) and other		7,125		—		5		(230	)		6,900

	$	54,519	$	—	$	161	$	(1,700	)	$	52,980


	December 31, 2021
	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments:
U.S. treasuries	$	35,767	$	—	$	—	$	(34	)	$	35,733
Corporate debt		148,148		—		22		(35	)		148,135

	$	183,915	$	—	$	22	$	(69	)	$	183,868

Long-term investments:
U.S. treasuries	$	70,902	$	—	$	128	$	(263	)	$	70,767
U.S. government sponsored entities		726		—		22		(3	)		745
Corporate debt		33,197		—		962		(146	)		34,013
ABS and other		7,033		—		82		(30	)		7,085

	$	111,858	$	—	$	1,194	$	(442	)	$	112,610

The Company’s investments in marketable debt securities,

available-for-sale,

that have been in a continuous unrealized loss position, for which an allowance for credit losses has not been recorded, by type of security consisted of the following (in thousands):


	March 31, 2022
	Less than 12 months					12 months or greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. treasuries	$	111,232	$	(1,160	)		—		—		$	111,232	$	(1,160	)
U.S. government sponsored entities		549		(8	)		105		(10	)		654		(18	)
Corporate debt		137,510		(1,277	)		618		(57	)		138,128		(1,334	)
ABS and other		6,181		(230	)		—		—			6,181		(230	)

	$	255,472	$	(2,675	)	$	723	$	(67	)	$	256,195	$	(2,742	)

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2021
	Less than 12 months					12 months or greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. treasuries	$	103,019	$	(297	)	$	—	$	—		$	103,019	$	(297	)
U.S. government sponsored entities		115		(3	)		—		—			115		(3	)
Corporate debt		115,908		(173	)		146		(8	)		116,054		(181	)
ABS and other		2,915		(30	)		—		—			2,915		(30	)

	$	221,957	$	(503	)	$	146	$	(8	)	$	222,103	$	(511	)

Gross realized gains and losses from the sales of the Company’s marketable debt securities,

available-for-sale,

consisted of the following (in thousands):


	Three Months Ended March 31,
	2022		2021
Gross realized gains (1)	$	113	$	1

Gross realized losses (1)	$	—	$	—

(1)	Recorded in other income, net in the condensed consolidated statements of net and comprehensive income. The cost basis of securities sold were determined based on the specific identification method.

The Company invests its excess cash in a diversified portfolio of fixed and variable rate debt securities to meet current and future cash flow needs. All investments are made in accordance with the Company’s approved investment policy. As of March 31, 2022, the portfolio had an average credit rating of AA and a weighted term to contractual maturity of 1.4 years, with 161 securities in the portfolio representing an unrealized aggregate loss

$2.7 million or 1% of amortized cost, and a weighted average credit rating of AA+.

As of March 31, 2022, the Company performed an impairment analysis and determined an allowance for credit losses was not required. The Company determined that it did not have an intent to sell and it was not more likely than not that the Company would be required to sell any security based on its current liquidity position, or to maintain compliance with its investment policy, specifically as it relates to minimum credit ratings. The Company evaluated the securities with an unrealized loss considering severity of loss, credit ratings, specific credit events during the period since acquisition, overall likelihood of default, market sector, potential impact from the current economic environment, geopolitical unrest and a review of an issuer’s and securities’ liquidity and financial strength, as needed. The Company concluded that it would receive all scheduled interest and principal payments. The Company, therefore, determined qualitatively that the unrealized loss was related to changes in interest rates and other market factors and therefore no allowance for credit losses was required.

Amortized cost and fair value of marketable debt securities,

available-for-sale,

by contractual maturity consisted of the following (in thousands, except weighted average data):


	March 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	220,015	$	218,988	$	183,915	$	183,868
Due after one year through five years		36,442		35,478		96,035		96,257
Due after five years through ten years		12,978		12,582		11,129		11,601
Due after ten years		5,099		4,920		4,694		4,752

	$	274,534	$	271,968	$	295,773	$	296,478

Weighted average contractual maturity				1.4 years				1.5 years

Actual maturities may differ from contractual maturities because certain issuers have the right to prepay certain obligations with or without prepayment penalties.

5.	Acquisitions, Goodwill and Other Intangible Assets

During the three months ended March 31, 2022, the Company expanded its network of financing professionals and provided further diversification to its financing services.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company completed an acquisition of a business that was accounted for as a business combination and the results have been included in the condensed consolidated financial statements beginning on the acquisition date. Terms of the acquisition principally included cash paid at closing.

The goodwill recorded as part of the acquisition primarily arose from the acquired assembled workforce and brokerage and financing sales platforms. The Company expects all of the goodwill to be tax deductible, with the

tax-deductible

amount of goodwill related to the contingent and deferred consideration to be determined once the cash payments are made to settle any contingent and deferred consideration. The goodwill resulting from acquisitions is allocated to the Company’s one reporting unit.

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


	March 31, 2022							December 31, 2021
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Goodwill and intangible assets:
Goodwill	$	38,101	$	—		$	38,101	$	34,071	$	—		$	34,071
Intangible assets (1)		32,444		(11,111	)		21,333		23,974		(9,940	)		14,034

	$	70,545	$	(11,111	)	$	59,434	$	58,045	$	(9,940	)	$	48,105

(1)	Total weighted average amortization period was 5.2 years and 4.4 years as of March 31, 2022 and December 31, 2021, respectively.

Amortization expense for the intangible assets was $1.2 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.

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


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	34,071	$	33,375
Additions from acquisitions (1)		4,030		671
Impairment losses		—		—

Ending balance	$	38,101	$	34,046

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

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


	March 31, 2022
Remainder of 2022	$	3,512
2023		4,617
2024		4,101
2025		3,881
2026		2,156
Thereafter		3,066

	$	21,333

The Company evaluates goodwill for impairment annually in the fourth quarter. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing, which indicate that it is more likely than not an impairment loss has occurred. The Company evaluates its intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2022, the Company considered the impact of the continuing

COVID-19

pandemic and geopolitical unrest and evaluated its goodwill and intangible assets for impairment testing. The Company estimated the recoverability of the intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows that the Company expects the asset to generate. The sum of the undiscounted expected future cash flows was greater than the carrying amount of the intangible assets. The Company concluded that as of March 31, 2022, there was no impairment of its goodwill and intangible assets.

6.	Selected Balance Sheet Data

Allowances on Advances and Loans, and Commissions Receivable

Allowance for credit losses for advances and loans and commissions receivable as of March 31, 2022 and December 31, 2021 was $667,000 and $794,000, respectively.

Other Assets

Other assets consisted of the following (in thousands):


	Current				Non-Current
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Mortgage servicing rights (“MSRs”), net of amortization	$	—	$	—	$	951	$	1,855
Security deposits		—		—		1,484		1,395
Employee notes receivable (1)		67		40		—		—
Securities, held-to-maturity (2)		—		—		9,500		9,500
Customer trust accounts and other		5,960		5,230		338		396

	$	6,027	$	5,270	$	12,273	$	13,146

(1)	Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $0 and $10 for the three months ended March 31, 2022 and March 31, 2021, respectively. See Note 7 – “Related-Party Transactions” for additional information.

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

MSRs

The net change in the carrying value of MSRs consisted of the following (in thousands):


	Three Months Ended March 31,
	2022			2021
Beginning balance	$	1,855		$	1,897
Additions		—			303
Amortization		(904	)		(138	)

Ending balance	$	951		$	2,062

The portfolio of loans serviced by the Company aggregated $1.7 billion for each of the periods ended March 31, 2022 and December 31, 2021. See Note 8 – “Fair Value Measurements” for additional information on MSRs. In the three months ended March 31, 2022, the Company received cancellation notices on certain servicing contracts. Amortization of those contracts was adjusted to reflect the cancellations.

In connection with MSR activities, the Company holds funds in escrow for the benefit of the lenders. These funds, which totaled $2.6 million and $4.1 million as of March 31, 2022 and December 31, 2021, respectively, and the offsetting obligations are not presented in the Company’s condensed consolidated financial statements as they do not represent assets and liabilities of the Company.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation and Commissions

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


	Current				Non-Current
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Stock appreciation rights (“SARs”) liability (1)	$	2,323	$	2,241	$	12,731	$	14,918
Commissions payable to investment sales and financing professionals		51,195		110,769		25,082		31,697
Deferred compensation liability (1)		749		1,080		7,790		6,921
Other		727		595		—		—

	$	54,994	$	114,685	$	45,603	$	53,536

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no longer being considered a service provider. As a result of the retirement of certain participants, estimated amounts to be paid to the participants within the next twelve months have been classified as current.

SARs Liability

Prior to the IPO, certain employees of the Company were granted SARs under a stock-based compensation program assumed by MMC. In connection with the IPO, the SARs agreements were revised, the MMC liability of $20.0 million for the SARs was frozen as of March 31, 2013 and was transferred to MMI through a capital distribution. The SARs liability will be settled with each participant in ten annual installments in January of each year upon retirement or termination from service, or in full upon consummation of a change in control of the Company.

Under the revised agreements, MMI is required to accrue interest on the outstanding balance beginning on January 1, 2014 at a rate based on the

10-year

treasury note, plus 2%. The rate resets annually. The rates at January 1, 2022 and 2021 were 3.63% and 2.93%, respectively. MMI recorded interest expense related to this liability of $135,000 and $122,000 for the three months ended March 31, 2022 and 2021, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During each of the three months ended March 31, 2022 and 2021, the Company made total payments of $2.2 million, consisting of principal and accumulated interest.

Commissions Payable

Certain investment sales professionals can earn additional commissions after meeting certain annual revenue thresholds. These commissions are recognized as cost of services in the period in which they are earned as they relate to specific transactions closed. The Company may defer payment of certain commissions, at its election, for up to three years. Commissions payable that are not expected to be paid within twelve months are classified as long-term.

Deferred Compensation Liability

A select group of management is eligible to participate in the Marcus & Millichap Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a

non-qualified

deferred compensation plan that is intended to comply with Section 409A of the Internal Revenue Code and permits participants to defer compensation up to the limits set forth in the Deferred Compensation Plan. Amounts are paid out generally when the participant is no longer a service provider; however, an

in-service

payout election is available to participants. Participants may elect to receive payouts as a lump sum or quarterly over a two to fifteen-year period. The Company elected to fund the Deferred Compensation Plan through company owned variable life insurance policies. The Deferred Compensation Plan is managed by a third-party institutional fund manager, and the deferred compensation and investment earnings are held as a Company asset in a rabbi trust, which is recorded in assets held in rabbi trust in the accompanying condensed consolidated balance sheets. The assets in the trust are restricted unless the Company becomes insolvent, in which case the trust assets are subject to the claims of the Company’s creditors. The Company may also, in its sole and absolute discretion, elect to withdraw at any time a portion of the trust assets by an amount by which the fair market value of the trust assets exceeds 110% of the aggregate deferred compensation liability represented by the participants’ accounts. Estimated payouts within the next twelve months for participants that have separated from service or elected in service payout have been classified as current. During the three months ended March 31, 2022 and 2021, the Company made total payments to participants of $365,000 and $371,000, respectively.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The assets held in the rabbi trust are carried at the cash surrender value of the variable life insurance policies, which represents its fair value. The net change in the carrying value of the assets held in the rabbi trust and the net change in the carrying value of the deferred compensation liability, each exclusive of additional contributions, distributions and trust expenses, consisted of the following (in thousands):


	Three Months Ended March 31,
	2022			2021
Increase (Decrease) in the carrying value of the assets held in the rabbi trust (1)	$	(525	)	$	333

Increase (Decrease) in the net carrying value of the deferred compensation obligation (2)	$	(532	)	$	260

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

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

Other Liabilities

Other liabilities consisted of the following (in thousands):


	Non-Current
	March 31, 2022		December 31, 2021
Deferred consideration (1)	$	3,300	$	4,689
Contingent consideration (1)		5,782		6,631
Dividends Payable		1,443		—
Other		82		74

	$	10,607	$	11,394

(1)	Includes a measurement period adjustment in 2021 and a settlement of deferred consideration made during the three months ended March 31, 2022 and 2021, which represents a noncash investing activity. See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” for additional information.

7 .	Related-Party Transactions

Shared and Transition Services

Certain services are provided to the Company under a Transition Services Agreement (“TSA”) between MMC and the Company. The TSA is intended to provide certain services until the Company acquires these services separately. Under the TSA, the Company incurred net costs (charge-back) during the three months ended March 31, 2022 and 2021 of $12,000 and $19,000, respectively. These amounts are included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income.

Brokerage and Financing Services with the Subsidiaries of MMC

MMC has wholly or majority owned subsidiaries that buy and sell commercial real estate properties. The Company performs certain brokerage and financing services related to transactions of the subsidiaries of MMC. For the three months ended March 31, 2022 and 2021, the Company earned real estate brokerage commissions and financing fees of $1,598,000 and $457,000, respectively, from transactions with subsidiaries of MMC related to these services. The Company incurred cost of services of $954,000 and $274,000, respectively, related to these revenues.

Operating Lease with MMC

The Company has an operating lease with MMC for a single-story office building located in Palo Alto, California, which expires on May 31, 2022. The related operating lease cost was $333,000 for each of the three months ended March 31, 2022 and 2021, respectively. Operating lease cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income. See Note 3 – “Operating Leases” for additional information.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Payable and Other Liabilities with MMC

As of March 31, 2022 and December 31, 2021, accounts payable and other liabilities with MMC totaling $101,000 and $93,000, respectively, remain unpaid and are included in accounts payable and other liabilities in the accompanying condensed consolidated balance sheets.

Other

The Company makes advances to

non-executive

employees from

time-to-time.

At March 31, 2022 and December 31, 2021, the aggregate principal amount for employee notes receivable was $67,000 and $40,000, respectively, which is included in other assets (current and

non-current)

in the accompanying condensed consolidated balance sheets. See Note 6 – “Selected Balance Sheet Data” for additional information.

As of March 31, 2022, George M. Marcus, the Company’s founder and Chairman, beneficially owned approximately 38% of the Company’s issued and outstanding common stock, including shares owned by Phoenix Investments Holdings, LLC and the Marcus Family Foundation II.

8.	Fair Value Measurements

U.S. GAAP defines the fair value of a financial instrument as the amount that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company is responsible for the determination of fair value and the supporting methodologies and assumptions. The Company uses various pricing sources and third parties to provide and validate the values utilized.

The degree of judgment used in measuring the fair value of financial instruments is generally inversely correlated with the level of observable valuation inputs. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.

Assets recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of the three “levels” based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:

•

Level

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

•

Level

Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

•

Level

Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Recurring Fair Value Measurements

The Company values its investments including commercial paper and floating NAV money market funds recorded in cash and cash equivalents, investments in marketable debt securities,

available-for-sale,

assets held in the rabbi trust, deferred compensation liability and contingent and deferred consideration at fair value on a recurring basis.

Fair values for investments included in cash and cash equivalents and marketable debt securities,

available-for-sale

were determined for each individual security in the investment portfolio and all these securities are Level 1 or 2 measurements as appropriate.

Fair values for assets held in the rabbi trust and related deferred compensation liability were determined based on the cash surrender value of the company owned variable life insurance policies and underlying investments in the trust, and are Level 2 and Level 1 measurements, respectively.

Contingent consideration in connection with acquisitions, is carried at fair value and determined on a

contract-by-contract

basis, calculated using unobservable inputs based on a probability of achieving EBITDA and other performance requirements, and is a Level 3 measurement. Deferred consideration in connection with acquisitions is carried at fair value and calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time, and is a Level 2 measurement.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Assets and liabilities carried at fair value on a recurring basis consisted of the following (in thousands):


	March 31, 2022								December 31, 2021
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets:
Assets held in rabbi trust	$	10,916	$	—	$	10,916	$	—	$	11,508	$	—	$	11,508	$	—

Cash equivalents (1) :
Commercial paper	$	32,223	$	—	$	32,223	$	—	$	8,948	$	—	$	8,948	$	—
Money market funds		51,403		51,403		—		—		210,985		210,985		—		—

	$	83,626	$	51,403	$	32,223	$	—	$	219,933	$	210,985	$	8,948	$	—


Marketable debt securities, available-for-sale:
Short-term investments:
U.S. treasuries	$	100,292	$	100,292	$	—	$	—	$	35,733	$	35,733	$	—	$	—
U.S. government sponsored entities		—		—		—		—		—		—		—		—
Corporate debt		118,085		—		118,085		—		—		—		—		—
ABS and other		611		—		611		—		148,135		—		148,135		—

	$	218,988	$	100,292	$	118,696	$	—	$	183,868	$	35,733	$	148,135	$	—


Long-term investments:
U.S. treasuries	$	12,118	$	12,118	$	—	$