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, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

7.	Selected Balance Sheet Data

Advances and Loans, Net and Commissions Receivable, Net

Allowance for credit losses for advances and loans and commissions receivable consisted of the following (in thousands):


	Advances and Loans			Commissions Receivable			Total
Beginning balance as of January 1, 2021	$	563		$	94		$	657
Credit loss expense (recovery)		255			(89	)		166
Write-offs		(29	)		—			(29	)

Ending balance as of December 31, 2021	$	789		$	5		$	794


	Advances and Loans			Commissions Receivable			Total
Beginning balance as of January 1, 2020	$	512		$	32	(1)	$	544
Credit loss expense		126			62			188
Write-offs		(75	)		—			(75	)

Ending balance as of December 31, 2020	$	563		$	94		$	657

(1)	Includes cumulative-effect adjustment related to the adoption of ASU No. 2016-13, Financial Instruments—Credit Losses.

Other Assets

Other assets consisted of the following (in thousands):


	Current December 31,				Non-Current December 31,
	2021		2020		2021		2020
MSRs, net of amortization	$	—	$	—	$	1,855	$	1,897
Security deposits		—		—		1,395		1,461
Employee notes receivable (1)		40		185		—		246
Securities, held-to-maturity (2)		—		—		9,500		—
Customer trust accounts and other		5,230		4,526		396		572

	$	5,270	$	4,711	$	13,146	$	4,176

(1)	Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $10 and $0 for the years ended December 31, 2021 and 2020, respectively. See Note 8 – “Related-Party Transactions” for additional information.

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

MSRs

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


	December 31,
	2021			2020
Beginning balance	$	1,897		$	2,002
Additions		483			441
Amortization		(525	)		(546	)

Ending balance	$	1,855		$	1,897

The portfolio of loans serviced by the Company aggregated $1.7 billion and $1.6 billion for the periods ended December 31, 2021 and 2020, respectively. See Note 9 – “Fair Value Measurements” for additional information on MSRs.

In connection with MSR activities, the Company holds funds in escrow for the benefit of the lenders. These funds, which totaled $4.1 million and $3.2 million as of December 31, 2021 and 2020, respectively, and the offsetting obligations are not presented in the Company’s consolidated financial statements as they do not represent assets and liabilities of the Company.

Deferred Compensation and Commissions

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


	Current December 31,				Non-Current December 31,
	2021		2020		2021		2020
SARs liability (1)	$	2,241	$	2,162	$	14,918	$	16,671
Commissions payable to investment sales and financing professionals		110,769		54,082		31,697		15,306
Deferred compensation liability (1)		1,080		1,519		6,921		6,768
Other		595		343		—		—

	$	114,685	$	58,106	$	53,536	$	38,745

(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 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, 2021, 2020 and 2019 were 2.930%, 3.920% and 4.684% , respectively. MMI recorded interest expense related to this liability of $488,000, $710,000 and $904,000 for the years ended December 31, 2021, 2020 and 2019, 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, 2021 and 2020, the Company made total payments of $2.2 million and $2.1 million, consisting of principal and 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 each of the years ended December 31, 2021 and 2020, the Company made total payments to participants of $1.5 million.

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,
	2021		2020		2019
Increase in the carrying value of the assets held in the rabbi trust (1)	$	1,445	$	1,042	$	1,353

Increase in the net carrying value of the deferred compensation obligation (2)	$	1,104	$	799	$	1,293

(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.

Other Liabilities

Other liabilities consisted of the following (in thousands):


	Non-Current December 31,
	2021		2020
Deferred consideration (1)(2)	$	4,689	$	8,582
Contingent consideration (1)(2)		6,631		4,219
Other		74		1,015

	$	11,394	$	13,816

(1)

The current portions of deferred consideration in the amounts of $5,112 and $6,666 as of December 31, 2021 and 2020, respectively, are included in accounts payable and other liabilities in the consolidated balance sheets. The current portions of contingent consideration in the amounts of $2,681 and $1,353 as of December 31, 2021 and 2020, respectively, are included in accounts payable and other liabilities in the consolidated balance sheets.

(2)	Includes a measurement period adjustment and a reduction in deferred consideration settled in stock made during the year ended December 31, 2021, which represents a noncash investing activity. See Note 6 – “Acquisitions, Goodwill and Other Intangible Assets” for additional information.