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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, 2022
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-36155
 
 
MARCUS & MILLICHAP, INC.
(Exact name of registrant as specified in its Charter)
 
 
 
Delaware
  
35-2478370
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
   
23975 Park Sorrento, Suite 400
Calabasas, California
  
91302
(Address of Principal Executive Offices)
  
(Zip Code)
(818)
212-2250
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
  
MMI
  
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     
Yes  ☒    No  ☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter time period that the registrant was required to submit such files).     
Yes
  ☒      No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
   ☒   
Accelerated filer

   ☐
       
Non-accelerated
filer		   ☐    Smaller reporting company   ☐
Emerging growth company
 
☐
  
 
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).     Yes
  
☐    No  
☒
Number of shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding as of August 1, 2022 wa
s 39,964,292 shares.
 
 
 
Table of Contents
MARCUS & MILLICHAP, INC.
TABLE OF CONTENTS
 
 
  
Page
 
  
  
 
3
 
  
 
3
 
  
 
4
 
  
 
5
 
  
 
7
 
  
 
8
 
  
 
25
 
  
 
37
 
  
 
38
 
  
  
 
39
 
  
 
39
 
  
 
39
 
  
 
39
 
  
 
39
 
  
 
39
 
  
 
40
 
  
 
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, 2022
(Unaudited)
 
 
December 31,
2021
 
Assets
  
 
Current assets:
  
 
Cash and cash equivalents
    $ 211,651     $ 382,140  
Commissions receivable, net
      14,138       17,230  
Prepaid expenses
      10,046       13,220  
Marketable debt securities,
available-for-sale
(includes amortized cost of $254,487 and $183,915 at June 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)
      253,040       183,868  
Advances and loans, net
      3,605       6,403  
Other assets, current
      5,880       5,270  
    
 
 
    
 
 
  
Total current assets
      498,360       608,131  
Property and equipment, net
      25,338       23,192  
Operating lease
right-of-use
assets, net
      84,351       81,528  
Marketable debt securities,
available-for-sale
(includes amortized cost of $80,767 and $111,858 at June 30, 2022 and December 31, 2021, respectively, and $0 allowance for credit losses)
      77,588       112,610  
Assets held in rabbi trust
      9,587       11,508  
Deferred tax assets, net
      35,233       33,736  
Goodwill and other intangible assets, net
      58,263       48,105  
Advances and loans, net
      164,469       113,242  
Other assets,
non-current
      13,573       13,146  
    
 
 
    
 
 
  
Total assets
    $ 966,762     $ 1,045,198  
    
 
 
    
 
 
  
     
Liabilities and stockholders’ equity
                 
Current liabilities:
                 
Accounts payable and accrued expenses
    $ 13,022     $ 15,487  
Deferred compensation and commissions
      55,387       114,685  
Income tax payable
      2,848       17,853  
Operating lease liabilities
      18,632       18,973  
Accrued bonuses and other employee related expenses
      30,586       49,848  
Other liabilities, current
      7,567       8,784  
    
 
 
    
 
 
  
Total current liabilities
      128,042       225,630  
Deferred compensation and commissions
      48,096       53,536  
Operating lease liabilities
      63,366       58,334  
Other liabilities,
non-current
      10,088       11,394  
    
 
 
    
 
 
  
Total liabilities
      249,592       348,894  
    
 
 
    
 
 
  
     
Commitments and contingencies
      —         —    
     
Stockholders’ equity:
                 
Preferred stock, $0.0001 par value:
                 
Authorized shares – 25,000,000; issued and outstanding shares – none at June 30, 2022 and December 31, 2021, respectively
      —         —    
Common stock, $0.0001 par value:
                 
Authorized shares – 150,000,000; issued and outstanding shares – 39,964,292 and 39,692,373 at June 30, 2022 and December 31, 2021, respectively
      4       4  
Additional
paid-in
capital
      123,767       121,844  
Retained earnings
      596,361       573,546  
Accumulated other comprehensive income (loss)
      (2,962 )      910  
    
 
 
    
 
 
  
Total stockholders’ equity
      717,170       696,304  
    
 
 
    
 
 
  
Total liabilities and stockholders’ equity
    $ 966,762     $ 1,045,198  
    
 
 
    
 
 
  
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,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Revenues:
  
 
 
 
Real estate brokerage commissions
    $ 354,685     $ 252,903     $ 641,594     $ 415,699  
Financing fees
      36,811       28,214       63,264       46,057  
Other revenues
      4,461       3,829       10,563       7,167  
    
 
 
    
 
 
    
 
 
    
 
 
  
Total revenues
      395,957       284,946       715,421       468,923  
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating expenses:
                                 
Cost of services
      256,042       178,585       452,810       287,688  
Selling, general and administrative
      79,841       61,797       154,376       113,474  
Depreciation and amortization
      3,332       2,959       7,243       5,956  
    
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      339,215       243,341       614,429       407,118  
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating income
      56,742       41,605       100,992       61,805  
Other (expense) income, net
      (461 )      1,370       (11 )      2,414  
Interest expense
      (158 )      (146 )      (318 )      (292 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Income before provision for income taxes
      56,123       42,829       100,663       63,927  
Provision for income taxes
      13,955       11,297       25,712       17,383  
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income
    $ 42,168     $ 31,532     $ 74,951    
$
 46,544  
    
 
 
    
 
 
    
 
 
    
 
 
  
Other comprehensive loss:
  
 
 
 
Marketable debt securities,
available-for-sale:
  
 
 
 
Change in net unrealized gains/losses
      (1,558 )      146       (3,915 )      (475 ) 
Less: reclassification adjustment for net gains included in other income (expense), net
      7       3       (77 )      3  
    
 
 
    
 
 
    
 
 
    
 
 
  
Net change, net of tax of $528 and $1,366 for the three and six months ended June 30, 2022, and $(51
)
and $164 for the three and six months ended June 30, 2021, respectively
      (1,551 )      149       (3,992 )      (472 ) 
Foreign currency translation gain (loss), net of tax of $0 for each of the three and six months ended June 30, 2022 and 2021, respectively
      179       (217 )      120       (330 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total other comprehensive loss
      (1,372 )      (68 )      (3,872 )      (802 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income
    $ 40,796     $ 31,464     $ 71,079     $ 45,742  
    
 
 
    
 
 
    
 
 
    
 
 
  
Earnings per share:
  
 
 
 
Basic
    $ 1.05     $ 0.79     $ 1.87     $ 1.17  
Diluted
    $ 1.04     $ 0.78     $ 1.85     $ 1.16  
Weighted average common shares outstanding:
                                 
Basic
      40,048       39,877       40,018       39,817  
Diluted
      40,342       40,139       40,390       40,112  
See accompanying notes to condensed consolidated financial statements.
 
4
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MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for shares)
(Unaudited)
 
 
  
Three Months Ended June 30, 2022
 
 
  
Preferred Stock
 
  
Common Stock
 
  
Additional
Paid-in

Capital
 
 
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Total
 
 
  
Shares
 
  
Amount
 
  
Shares
 
 
Amount
 
Balance at March 31, 2022
      —        $  —          39,795,399     $ 4      $ 122,782     $ 554,193      $ (1,590 )    $ 675,389  
Net and comprehensive income (loss)
      —          —          —         —          —         42,168        (1,372 )      40,796  
Stock-based award activity
                                                                     
Stock-based compensation
      —          —          —         —          4,275       —          —         4,275  
Shares issued pursuant to employee stock purchase plan
      —          —          11,089       —          414       —          —         414  
Issuance of common stock for settlement of deferred stock units
      —          —          166,449       —          —         —          —         —    
Issuance of common stock for vesting of restricted stock units
      —          —          44,971       —          —         —          —         —    
Issuance of common stock for stock settled deferred consideration
      —          —          28,673       —          1,417       —          —         1,417  
Issuance of common stock for unvested restricted stock awards
      —          —          11,494       —          —         —          —         —    
Shares withheld related to net share settlement of stock-based awards
      —          —          (93,783 )      —          (5,121 )      —          —         (5,121 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Balance as of June 30, 2022
      —        $ —          39,964,292     $ 4      $ 123,767     $ 596,361      $ (2,962 )    $ 717,170  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
 
 
  
Three Months Ended June 30, 2021
 
 
  
Preferred Stock
 
  
Common Stock
 
  
Additional
Paid-In

Capital
 
 
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Total
 
 
  
Shares
 
  
Amount
 
  
Shares
 
 
Amount
 
Balance at Mach 31, 2021
      —        $  —          39,500,966     $ 4      $ 113,737     $ 446,088      $ 1,840     $ 561,669  
Net and comprehensive income (loss)
      —          —          —         —          —         31,532        (68 )      31,464  
Stock-based award activity
                                                                     
Stock-based compensation
      —          —          —         —          2,662       —          —         2,662  
Shares issued pursuant to employee stock
purchase plan
      —          —          11,635       —          369       —          —         369  
Issuance of common stock for vesting of
restricted stock units
      —          —          34,198       —          —         —          —         —    
Issuance of common stock for unvested
restricted stock awards
      —          —          12,492       —          —         —          —         —    
Issuance of common stock for stock settled
deferred consideration
      —          —          27,481       —          1000       —          —         1,000  
Shares withheld related to net share
settlement of stock-based awards
      —          —          (8,412 )      —          (311 )      —          —         (311 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Balance as of June 30, 2021
      —        $ —          39,578,360     $ 4      $ 117,457     $ 477,620      $ 1,772     $ 596,853  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
See accompanying notes to condensed consolidated financial statements.
 
5
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MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for shares)
(Unaudited)
 
 
  
Six Months Ended June 30, 2022
 
 
  
Preferred Stock
 
  
Common Stock
 
  
Additional
Paid-in

Capital
 
 
Retained
Earnings
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Total
 
 
  
Shares
 
  
Amount
 
  
Shares
 
 
Amount
 
Balance at December 31, 2021
      —        $ —          39,692,373     $ 4      $ 121,844     $ 573,546     $ 910     $ 696,304  
Net and comprehensive income (loss)
      —          —          —         —          —         74,951       (3,872 )      71,079  
Dividends
      —          —          —                  —         (52,136 )      —         (52,136 ) 
Stock-based award activity
                                                                    
Stock-based compensation
      —          —          —         —          8,131       —         —         8,131  
Shares issued pursuant to employee stock purchase plan
      —          —          11,089       —          414       —         —         414  
Issuance of common stock for settlement of deferred stock units
      —          —          166,449       —          —         —         —         —    
Issuance of common stock for vesting of restricted stock units
      —          —          212,234       —          —         —         —         —    
Issuance of common stock for stock settled deferred consideration
      —          —          28,673       —          1,417       —         —         1,417  
Issuance of common stock for unvested restricted stock awards
      —          —          11,494       —          —         —         —         —    
Shares withheld related to net share settlement of stock-based awards
      —          —          (158,020 )      —          (8,039 )      —         —         (8,039 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
Balance as of June 30, 2022
      —        $ —          39,964,292     $ 4      $ 123,767     $ 596,361     $ (2,962 )    $ 717,170  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
 
 
  
Six Months Ended June 30, 2021
 
 
  
Preferred Stock
 
  
Common Stock
 
  
Additional
Paid-In

Capital
 
 
Retained
Earnings
 
  
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Total
 
 
  
Shares
 
  
Amount
 
  
Shares
 
 
Amount
 
Balance at December 31, 2020
      —        $ —          39,401,976     $ 4      $ 113,182     $ 431,076      $ 2,574     $ 546,836  
Net and comprehensive income (loss)
      —          —          —         —          —         46,544        (802 )      45,742  
Stock-based award activity
                                                                     
Stock-based compensation
      —          —          —         —          4,950       —          —         4,950  
Shares issued pursuant to employee stock purchase plan
      —          —          11,635       —          369       —          —         369  
Issuance of common stock for vesting of restricted stock units
      —          —          183,315       —          —         —          —         —    
Issuance of common stock for unvested restricted stock awards
      —          —          12,492       —          —         —          —         —    
Issuance of common stock for stock settled deferred consideration
      —          —          27,481       —          1,000       —          —         1,000  
Shares withheld related to net share settlement of stock-based awards
      —          —          (58,539 )      —          (2,044 )      —          —         (2,044 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Balance as of June 30, 2021
      —        $ —          39,578,360     $ 4      $ 117,457     $ 477,620      $ 1,772     $ 596,853  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
See accompanying notes to condensed consolidated financial statements.
 
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MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
  
Six Months
E
nded June 30,
 
 
  
2022
 
 
2021
 
Cash flows from operating activities
  
      
 
      
Net income
    $ 74,951     $ 46,544  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
                 
Depreciation and amortization
      7,243       5,956  
Noncash lease expense
      11,944       11,850  
Credit loss recovery
      (28 )     (137 ) 
Stock-based compensation
      8,131       4,950  
Deferred taxes, net
      (130 )      780  
Unrealized foreign exchange losses (gains)
      403       (560 ) 
Net realized gains on marketable debt
securities, available-for-sale
      (96 )      (10 ) 
Other non-cash
items
      (22 )     196  
Changes in operating assets and liabilities:
                 
Commissions receivable
      2,922       (4,781 ) 
Prepaid expenses
      3,177       (239 ) 
Advances and loans
      (48,539 )      (7,086 ) 
Other assets
      (2,818 )      (2,138 ) 
Accounts payable and accrued expenses
      (2,684 )      4,988  
Income tax receivable/payable
      (15,005 )      (1,345 ) 
Accrued bonuses and other employee related expenses
      (19,260 )      3,005  
Deferred compensation and commissions
      (61,047 )      (15,968 ) 
Operating lease liabilities
      (9,759 )      (10,557 ) 
Other liabilities
      (1,223 )      (1,982 ) 
    
 
 
    
 
 
  
Net cash (used in) provided by operating activities

      (51,840 )      33,466  
Cash flows from investing activities
                 
Acquisition of businesses, net of cash received
      (12,500 )      229  
Purchases of marketable debt
securities, available-for-sale
      (174,259 )      (199,513 ) 
Proceeds from sales and maturities of marketable debt
securities, available-for-sale
      135,206       159,968  
Issuances of employee notes receivable
      (71 )      (40 ) 
Payments received on employee notes receivable
      71       276  
Purchase of property and equipment
      (5,022 )      (2,770 ) 
    
 
 
    
 
 
  
Net cash used in investing activities
      (56,575 )      (41,850 ) 
Cash flows from financing activities
                 
Taxes paid related to net share settlement of stock-based awards
      (8,039 )      (2,044 ) 
Proceeds from issuance of shares pursuant to employee stock purchase plan
      414       369  
Dividends paid
      (50,082 )      —    
Principal payments on stock appreciation rights liability
      (1,761 )      (1,481 ) 
Principal payments on deferred and contingent consideration
      (2,431 )      (1,302 ) 
    
 
 
    
 
 
  
Net cash used in financing activities
      (61,899 )      (4,458 ) 
    
 
 
    
 
 
  
Effect of currency exchange rate changes on cash and cash equivalents
      (175 )      104  
    
 
 
    
 
 
  
Net decrease in cash and cash equivalents
      (170,489 )      (12,738 ) 
Cash and cash equivalents at beginning of period
      382,140       243,152  
    
 
 
    
 
 
  
Cash and cash equivalents at end of period
    $ 211,651     $ 230,414  
  
 
 
 
 
 
 
 
Supplemental cash flow disclosures:
                 
Interest paid during the period
    $ 514     $ 714  
Income taxes paid, net
    $ 40,046     $ 17,897  
Supplemental disclosures of noncash investing and financing activities:
                 
Unpaid purchases of property and equipment
    $ 1,196     $ 250  
Right-of-use
assets obtained in exchange for operating lease liabilities
    $ 15,169     $ 14,254  
Issuance of stock for the settlement of deferred consideration
    $ 1,417     $ 1,000  
Measurement period adjustment of acquisition related contingent consideration
    $ —       $ (100 ) 
See accompanying notes to condensed consolidated financial statements.
 
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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 June 30, 2022, MMI operates 82 offices in the United States and Canada through its wholly-owned subsidiaries, including the operations of Marcus & Millichap Capital Corporation.
Reorganization and Initial Public Offering
MMI was formed in June 2013 in preparation for Marcus & Millichap Company (“MMC”) to
spin-off
its majority-owned subsidiary, Marcus & Millichap Real Estate Investment Services, Inc. (“MMREIS”). Prior to the initial public 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, 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 and six months ended June 30, 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.
The Company reclassified certain items within accounts payable and accrued expenses to other liabilities, current in the December 31, 2021 condensed consolidated balance sheet to conform with current period presentation.
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.
Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, investments in marketable debt securities,
available-for-sale,
security deposits 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.
 
8
Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
In September 2021, the Company entered into a Strategic Alliance (“Strategic Alliance”) with M&T Realty Capital Corporation (“MTRCC”) pursuant to which the Company has agreed to provide loan opportunities that may be funded through MTRCC’s Delegated Underwriting and Servicing Agreement (“DUS Agreement”) with the Federal National Mortgage Association (“Fannie Mae”) and which requires MTRCC to guarantee a portion of each loan funded. On a
loan-by-loan
basis, the Company, at its option, can indemnify a portion of MTRCC’s guarantee obligation of loan opportunities presented to and closed by MTRCC though the DUS Agreement. The Company manages and limits the concentration of risk related to the guarantees assumed by monitoring the underlying property type, geographic location, credit of the borrowers, underlying debt service coverage, and loan to value ratios.
The Company derives its revenues from a broad range of real estate investors, owners, and users in the United States and Canada, none of which individually represents a significant concentration of credit risk. The Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the likelihood of collection. For the three and six months ended June 30, 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
both
the three and six months ended June 30, 2022, the Company’s Canadian operations represented 2.2% of total revenues. During the three and six months ended June 30, 2021, the Company’s Canadian operations represented approximately 2.4% and 2.2% of total revenues, respectively.
During each of the three and six months ended June 30, 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 interests in commercial properties and generates financing fees from securing financing on purchase transactions, from refinancing its clients’ existing mortgage debt and other ancillary fees associated with financing activities, including, but not limited to, mortgage servicing, debt and equity advisory services, loan sales, due diligence services, guarantee fees, loan performance fees and other consulting. The Company’s contracts, except as noted below, do not contain multiple-element arrangements, variable consideration, financing components, significant noncash consideration, licenses, long-term contracts with customers or other items affecting the transaction price.
Real Estate Brokerage Commissions
Contracts for representing buyers and sellers of real estate are usually negotiated on a
transaction-by-transaction
basis. The consideration associated with the successful outcome remains constrained until the completion of a transaction which, in almost all cases, is at the close of escrow. At that time, the Company recognizes revenue related to the transaction. The Company’s fee agreements do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the transaction closes.
Financing Fees
Contracts for representing potential borrowers are usually negotiated on a
transaction-by-transaction
basis. The consideration associated with the successful outcome remains constrained until the completion of a transaction which, in almost all cases, is at the time the loan closes. At that time, the Company recognizes revenue related to the transaction. The Company’s fee arrangements, with certain exceptions, do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the loan closes.
Loan Performance Fees
- For loans originated through the Strategic Alliance with MTRCC, the Company receives variable consideration in the form of loan performance fees based on a portion of the servicing fees expected to be received under the servicing contract for servicing the loan. As the Company is not obligated to perform any servicing functions and has no further obligations related to the transaction giving rise to the loan performance fees, the estimated value of the loan performance fees to be received is recorded at the time the loan closes and are collected over the estimated term of the related loan. Any changes in the estimate of loan performance fees to be received are recorded in revenue in the period the estimate changes.
Guarantee Obligations
- For certain loans originated through the Strategic Alliance with MTRCC, the Company may agree, at its option, to indemnify MTRCC for a portion of MTRCC’s obligations for loans sold to Fannie Mae. For these loans, the Company allocates a portion of the transaction price and records a loan guarantee obligation based on its fair value. Revenue for this stand ready obligation is recorded on a straight-line basis over the term of the estimated guarantee period and is recorded in financing fees in the condensed consolidated statements of net 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.
 
9
Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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 12 – “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, 2022, the Company has not drawn funds from the credit facility. The Company evaluated this new standard and determined that ASU
2020-04
will have no impact on its condensed consolidated financial statements.
 
2.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
     June 30,
2022		      December 31,
2021		  
Computer software and hardware equipment
    $ 38,204      $ 33,819  
Furniture, fixtures and equipment
      25,613        24,511  
Less: accumulated depreciation and amortization
      (38,479 )       (35,138 ) 
    
 
 
     
 
 
  
     $ 25,338      $ 23,192  
    
 
 
     
 
 
  
Depreciation expense for property and equipment wa
s $1.8 million for each of the three months ended June 30, 2022 and 2021, and $3.7 million and $3.6 million for the six months ended June 30, 2022 and 2021, respectively.
 
10
Table of Contents
MARCUS & MILLICHAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3.
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):
 
 
  
June 30, 2022
 
 
  
Amortized
Cost
 
  
Allowance
for Credit
Losses
 
  
Gross
Unrealized
Gains
 
  
Gross
Unrealized
Losses
 
 
Fair
Value
 
Short-term investments:
  
  
  
  
 
U.S. treasuries
    $ 123,715      $ —        $ —        $ (1,233 )    $ 122,482  
Corporate debt
      129,913        —          —          (206 )      129,707  
Asset-backed securities (“ABS”) and other
      859        —          1        (9 )      851  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
     $ 254,487      $ —        $ 1      $ (1,448 )    $ 253,040  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Long-term investments:
                                            
U.S. treasuries
    $ 40,827      $ —        $ —        $ (619 )    $ 40,208  
U.S. government sponsored entities
      646        —          —          (42 )      604  
Corporate debt
      31,956        —          1        (2,100 )      29,857  
ABS and other
      7,338        —          3        (422 )      6,919  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
     $ 80,767      $ —        $ 4      $ (3,183 )    $ 77,588  
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
  
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):
 
 
  
June 30, 2022
 
 
  
Less than 12 months
 
 
12 months or greater
 
 
Total
 
 
  
Fair
Value
 
  
Gross
Unrealized
Losses
 
 
Fair
Value
 
  
Gross
Unrealized
Losses
 
 
Fair
Value
 
  
Gross
Unrealized
Losses
 
U.S. treasuries
    $ 162,281      $ (1,852 )    $ —