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

Annual report pursuant to Section 13 and 15(d)

Selected Balance Sheet Data

Selected Balance Sheet Data

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

7.	Selected Balance Sheet Data

Other Assets

Other assets consisted of the following (in thousands):


	Current December 31,				Non-Current December 31,
	2019		2018		2019		2018
MSRs, net of amortization	$	—	$	—	$	2,002	$	2,209
Due from independent contractors, net (1)(2)		2,882		3,831		66,647		27,157
Security deposits		—		—		1,345		1,196
Employee notes receivable (3)		65		156		323		370
Customer trust accounts and other		3,120		2,381		677		846

	$	6,067	$	6,368	$	70,994	$	31,778

(1)	Represents amounts advanced, notes receivable and other receivables due from the Company’s investment sales and financing professionals. The notes receivable, along with interest, are typically collected from future commissions and are generally due in one to five years.

(2)

Includes allowance for doubtful accounts related to current receivables of $512 and $514 as of December 31, 2019 and 2018, respectively. The Company recorded a provision for bad debt expense of $114, $291 and $219 and wrote off $116, $271 and $38 of these receivables for the years ended December 31, 2019, 2018 and 2017, respectively. Any cash receipts on notes are applied first to unpaid principal balance prior to any income being recognized.

(3)	Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable represents noncash investing activity and was $60 and $192 for the years ended December 31, 2019 and 2018, respectively. See Note 9 – “Related-Party Transactions” for additional information.

MSRs

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


	December 31,
	2019			2018
Beginning balance	$	2,209		$	—
Additions from acquisition		—			2,121
Additions		337			391
Amortization		(544	)		(303	)

Ending balance	$	2,002		$	2,209

The portfolio of loans serviced by the Company aggregated $1.6 billion as of December 31, 2019 and 2018. See Note 10 – “Fair Value Measurements” for additional information on MSRs.

The funds held in escrow for the benefit of the lenders totaled $

2.6

million and $

2.1

million as of December 31, 2019 and December 31, 2018, respectively.

Deferred Compensation and Commissions

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


	Current December 31,				Non-Current December 31,
	2019		2018		2019		2018
SARs liability (1)	$	2,080	$	1,810	$	18,122	$	19,299
Commissions payable to investment sales and financing professionals		40,668		44,812		20,818		23,983
Deferred compensation liability (1)		1,553		1,288		6,688		6,605

	$	44,301	$	47,910	$	45,628	$	49,887

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no longer being considered as a service provider. As a result of the separation as a service provider 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, 2019, 2018 and 2017 were 4.684%, 4.409% and 4.446%, respectively. MMI recorded interest expense related to this liability of $904,000, $891,000 and $931,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During the years ended December 31, 2019 and 2018, the Company made total payments of $1.8 million, consisting of principal ($185,000) and accumulated interest ($1.6 million) and $1.7 million, consisting of accumulated interest, respectively.

Commissions Payable

Certain investment sales professionals have the ability to 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 has the ability to 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 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 years ended December 31, 2019 and 2018, the Company made total payments to participants of $1.6 million and $1.3 million, respectively.

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):


	Years Ended December 31,
	2019		2018			2017
Increase (decrease) in the carrying value of the assets held in the rabbi trust (1)	$	1,353	$	(326	)	$	849

Increase (decrease) in the net carrying value of the deferred compensation obligation (2)	$	1,293	$	(306	)	$	904

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

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

Deferred Rent and Other Liabilities

Deferred rent and other liabilities consisted of the following (in thousands):


	December 31,
	2019		2018
Deferred rent (1)	$	—	$	5,445
Contingent consideration and other (2)		3,539		2,054

	$	3,539	$	7,499

(1)	The Company does not have deferred rent in 2019 due to adoption of the new lease standard on January 1, 2019.

(2)	The current portion of contingent consideration in the amounts of $1,238 and $821 as of December 31, 2019 and 2018, respectively, are included in accounts payable and other liabilities in the consolidated balance sheets.