Marcus & Millichap, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements

12 Months Ended

Dec. 31, 2019

10.	Fair Value Measurements

Recurring Fair Value Measurements

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


	December 31, 2019								December 31, 2018
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets:
Assets held in rabbi trust	$	9,452	$	—	$	9,452	$	—	$	8,268	$	—	$	8,268	$	—

Cash equivalents (1) :
Commercial paper and other	$	5,087	$	—	$	5,087	$	—	$	1,599	$	1,599	$	—	$	—
Money market funds		185,513		185,513		—		—		163,126		163,126		—		—

	$	190,600	$	185,513	$	5,087	$	—	$	164,725	$	164,725	$	—	$	—

Marketable securities, available-for-sale:
Short-term investments:
U.S. treasuries	$	124,580	$	124,580	$	—	$	—	$	121,180	$	121,180	$	—	$	—
U.S. government sponsored entities		—		—		—		—		3,505		—		3,505		—
Corporate debt		26,172		—		26,172		—		11,951		—		11,951		—
ABS and other		—		—		—		—		800		—		800		—

	$	150,752	$	124,580	$	26,172	$	—	$	137,436	$	121,180	$	16,256	$	—

Long-term investments:
U.S. treasuries	$	24,423	$	24,423	$	—	$	—	$	45,010	$	45,010	$	—	$	—
U.S. government sponsored entities		1,355		—		1,355		—		1,507		—		1,507		—
Corporate debt		26,471		—		26,471		—		31,837		—		31,837		—
ABS and other		8,560		—		8,560		—		4,855		—		4,855		—

	$	60,809	$	24,423	$	36,386	$	—	$	83,209	$	45,010	$	38,199	$	—

Liabilities:
Contingent consideration	$	4,788	$	—	$	—	$	4,788	$	2,875	$	—	$	—	$	2,875

Deferred compensation liability	$	8,241	$	8,241	$	—	$	—	$	7,893	$	7,893	$	—	$	—

(1)	Included in cash and cash equivalents on the accompanying consolidated balance sheets.

There were no transfers in or out of Level 3 during the year ended December 31, 2019.

As of December 31, 2019 and 2018, contingent consideration has a maximum undiscounted payment of $7.3 million and $4.2 million, respectively. Assuming the achievement of the applicable performance criteria and/or service and time requirements, the Company anticipates these

earn-out

payments will be made over the next one to seven-year period. Changes in fair value are included in selling, general and administrative expense

in the consolidated statements of net and comprehensive income. A reconciliation of contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands):


	December 31,
	2019			2018
Beginning balance	$	2,875		$	—
Contingent consideration in connection with acquisitions (1)		2,382			2,674
Change in fair value of contingent consideration		202			201
Payments of contingent consideration		(671	)		—

Ending balance	$	4,788		$	2,875

(1)	Contingent consideration in connections with acquisitions represents noncash investing activity.

Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis consisted of the following (dollars in thousands):

Fair Value at

December 31, 2019

Valuation Technique

Unobservable inputs

Range (Weighted

Average)

(1)

Contingent consideration

4,788

Discounted cash flow

Expected life of cash flows

0.4-5.8

years (2.3 years)

Discount rate

3.6%-5.0%

(4.1%)

Probability of achievement

33.0%-100.0%

(81.8%)

(1)	Unobservable inputs were weighted by the relative fair value of the instruments.

Nonrecurring Fair Value Measurements

MSRs are carried at the lower of amortized cost or fair value. The fair value of the MSRs approximated the carrying value at December 31, 2019 and 2018.

Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial assets measured at fair value on a nonrecurring basis consisted of the following (dollars in thousands):

Fair Value at

December 31, 2019

Valuation Technique

Unobservable inputs

Range (Weighted

Average)

(1)

MSRs

2,204

Discounted cash flow

Constant prepayment rates

0.0%-20.0%

(10.0%)

Constant default rate

2.0%-2.0%

(2.0%)

Loss severity

40.0%-40.0%

(40.0%)

Discount rate

9.5%-9.7%

(9.7%)

(1)	Weighted average is based on the 10% constant prepayment rate scenario which the Company uses as the reported fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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