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 June 30, 2020

☐	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		(I.R.S. Employer
Incorporation or Organization)		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 August 4, 2020 was 39,328,017 shares.

Table of Contents

MARCUS & MILLICHAP, INC.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Page

Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2020 (Unaudited) and December 31, 2019		3
Condensed Consolidated Statements of Net and Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)		4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)		7
Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		44

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		45
Item 1A. Risk Factors		45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3. Defaults Upon Senior Securities		46
Item 4. Mine Safety Disclosures		46
Item 5. Other Information		46
Item 6. Exhibits		46

SIGNATURES

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, 2020 (Unaudited)		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	154,880	$	232,670
Commissions receivable, net		4,956		5,003
Prepaid expenses		8,391		10,676
Income tax receivable		4,224		4,999
Marketable debt securities, available-for-sale (includes amortized cost of $169,195 and $150,517 at June 30, 2020 and December 31, 2019, respectively, and $0 allowance for credit losses)		169,768		150,752
Advances and loans, net		1,830		2,882
Other assets		3,619		3,185

Total current assets		347,668		410,167
Property and equipment, net		23,429		22,643
Operating lease right-of-use assets, net		86,035		90,535
Marketable debt securities, available-for-sale (includes amortized cost of $40,808 and $59,468 at June 30, 2020 and December 31, 2019, respectively, and $0 allowance for credit losses)		42,781		60,809
Assets held in rabbi trust		9,081		9,452
Deferred tax assets, net		17,710		22,122
Goodwill and other intangible assets, net		37,829		22,312
Advances and loans, net		101,781		66,647
Other assets		4,501		4,347

Total assets	$	670,815	$	709,034


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other liabilities	$	10,914	$	10,790
Notes payable to former stockholders		—		6,564
Deferred compensation and commissions		25,549		44,301
Operating lease liabilities		17,880		17,762
Accrued bonuses and other employee related expenses		4,211		22,388

Total current liabilities		58,554		101,805
Deferred compensation and commissions		31,388		45,628
Operating lease liabilities		60,262		63,155
Other liabilities		7,698		3,539

Total liabilities		157,902		214,127


Commitments and contingencies		—		—

Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares – 25,000,000; issued and outstanding shares – none at June 30, 2020 and December 31, 2019, respectively		—		—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued and outstanding shares – 39,328,017 and 39,153,195 at June 30, 2020 and December 31, 2019, respectively		4		4
Additional paid-in capital		108,308		104,658
Stock notes receivable from employees		—		(4	)
Retained earnings		401,414		388,271
Accumulated other comprehensive income		3,187		1,978

Total stockholders’ equity		512,913		494,907

Total liabilities and stockholders’ equity	$	670,815	$	709,034

See accompanying notes to condensed consolidated financial statements.

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,
	2020			2019			2020			2019
Revenues:
Real estate brokerage commissions	$	103,371		$	188,680		$	275,200		$	333,617
Financing fees		12,703			17,742			28,054			31,474
Other revenues		1,326			3,171			4,863			5,209

Total revenues		117,400			209,593			308,117			370,300

Operating expenses:
Cost of services		73,743			127,847			187,500			219,535
Selling, general and administrative		43,519			52,836			98,379			101,754
Depreciation and amortization		2,752			1,932			5,216			3,764

Total operating expenses		120,014			182,615			291,095			325,053

Operating (loss) income		(2,614	)		26,978			17,022			45,247
Other income (expense), net		2,975			3,119			2,609			6,494
Interest expense		(213	)		(340	)		(496	)		(689	)

Income before provision for income taxes		148			29,757			19,135			51,052
Provision for income taxes		42			8,478			5,959			14,135

Net income		106			21,279			13,176			36,917


Other comprehensive income (loss):
Marketable debt securities, available-for-sale:
Change in unrealized gains		1,214			856			717			1,714
Less: reclassification adjustment for net losses (gains) included in other income (expense), net		13			(9	)		24			(18	)

Net change, net of tax of $421, $283, $253 and $571 for the three and six months ended June 30, 2020 and 2019, respectively		1,227			847			741			1,696
Foreign currency translation (loss) gain, net of tax of $0 for each of the three and six months ended June 30, 2020 and 2019		(423	)		(216	)		468			(314	)

Total other comprehensive income		804			631			1,209			1,382

Comprehensive income	$	910		$	21,910		$	14,385		$	38,299


Earnings per share:
Basic	$	—		$	0.54		$	0.33		$	0.94
Diluted	$	—		$	0.54		$	0.33		$	0.93
Weighted average common shares outstanding:
Basic		39,629			39,395			39,585			39,353
Diluted		39,673			39,527			39,662			39,524

See accompanying notes to condensed consolidated financial statements.

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for shares)

(Unaudited)


	Three Months Ended June 30, 2020
	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 March 31, 2020		—	$	—		39,272,429		$	4	$	105,601		$	(4	)	$	401,308	$	2,383	$	509,292
Net and comprehensive income		—		—		—			—		—			—			106		804		910
Stock-based award activity
Stock-based compensation		—		—		—			—		2,536			—			—		—		2,536
Shares issued pursuant to employee stock purchase plan		—		—		15,923			—		371			—			—		—		371
Issuance of common stock for vesting of restricted stock units		—		—		27,373			—		—			—			—		—		—
Issuance of common stock for unvested restricted stock awards		—		—		19,516			—		—			—			—		—		—
Shares withheld related to net share settlement of stock-based awards		—		—		(7,224	)		—		(200	)		—			—		—		(200	)
Reduction of stock notes receivable from employees		—		—		—			—		—			4			—		—		4

Balance as of June 30, 2020		—	$	—		39,328,017		$	4	$	108,308		$	—		$	401,414	$	3,187	$	512,913


	Three Months Ended June 30, 2019
	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 March 31, 2019		—	$	—		39,042,434		$	4	$	97,587		$	(4	)	$	326,979	$	1,526	$	426,092
Net and comprehensive income		—		—		—			—		—			—			21,279		631		21,910
Stock-based award activity
Stock-based compensation		—		—		—			—		2,585			—			—		—		2,585
Shares issued pursuant to employee stock purchase plan		—		—		11,022			—		338			—			—		—		338
Issuance of common stock for vesting of restricted stock units		—		—		40,823			—		—			—			—		—		—
Issuance of common stock for unvested restricted stock awards		—		—		10,542			—		—			—			—		—		—
Shares withheld related to net share settlement of stock-based awards		—		—		(13,960	)		—		(412	)		—			—		—		(412	)

Balance as of June 30, 2019		—	$	—		39,090,861		$	4	$	100,098		$	(4	)	$	348,258	$	2,157	$	450,513

See accompanying notes to condensed consolidated financial statements.

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands, except for shares)

(Unaudited)


	Six Months Ended June 30, 2020
	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, 2019		—	$	—		39,153,195		$	4	$	104,658		$	(4	)	$	388,271		$	1,978	$	494,907
Cumulative effect of a change in accounting principle, net of tax		—		—		—			—		—			—			(33	)		—		(33	)

Balance at January 1, 2020, as adjusted		—		—		39,153,195			4		104,658			(4	)		388,238			1,978		494,874
Net and comprehensive income		—		—		—			—		—			—			13,176			1,209		14,385
Stock-based award activity
Stock-based compensation		—		—		—			—		5,168			—			—			—		5,168
Shares issued pursuant to employee stock purchase plan		—		—		15,923			—		371			—			—			—		371
Issuance of common stock for vesting of restricted stock units		—		—		197,479			—		—			—			—			—		—
Issuance of common stock for unvested restricted stock awards		—		—		19,516			—		—			—			—			—		—
Shares withheld related to net share settlement of stock-based awards		—		—		(58,096	)		—		(1,889	)		—			—			—		(1,889	)
Reduction of stock notes receivable from employees		—		—		—			—		—			4			—			—		4

Balance as of June 30, 2020		—	$	—		39,328,017		$	4	$	108,308		$	—		$	401,414		$	3,187	$	512,913


	Six Months Ended June 30, 2019
	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, 2018		—	$	—		38,814,464		$	4	$	97,458		$	(4	)	$	311,341	$	775	$	409,574
Net and comprehensive income		—		—		—			—		—			—			36,917		1,382		38,299
Stock-based award activity
Stock-based compensation		—		—		—			—		4,926			—			—		—		4,926
Shares issued pursuant to employee stock purchase plan		—		—		11,022			—		338			—			—		—		338
Issuance of common stock for vesting of restricted stock units		—		—		325,219			—		—			—			—		—		—
Issuance of common stock for unvested restricted stock awards		—		—		10,542			—		—			—			—		—		—
Shares withheld related to net share settlement of stock-based awards		—		—		(70,386	)		—		(2,624	)		—			—		—		(2,624	)

Balance as of June 30, 2019		—	$	—		39,090,861		$	4	$	100,098		$	(4	)	$	348,258	$	2,157	$	450,513

See accompanying notes to condensed consolidated financial statements.

MARCUS & MILLICHAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities
Net income	$	13,176		$	36,917
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		5,216			3,764
Amortization of right-of-use assets		11,151			10,242
Credit loss recovery		(78	)		(13	)
Stock-based compensation		5,168			4,926
Deferred taxes, net		4,172			3,863
Unrealized foreign exchange loss		557			—
Net realized (gains) losses on marketable debt securities, available-for-sale		(117	)		(12	)
Other non-cash items		567			(228	)
Changes in operating assets and liabilities:
Commissions receivable		(5	)		(820	)
Prepaid expenses		2,259			(1,689	)
Advances and loans		(34,149	)		(17,614	)
Other assets		(1,059	)		(3,753	)
Accounts payable and other liabilities		(1,204	)		14
Income tax receivable/payable		775			(9,248	)
Accrued bonuses and other employee related expenses		(18,168	)		(14,228	)
Deferred compensation and commissions		(31,425	)		(28,291	)
Operating lease liabilities		(9,016	)		(8,169	)
Other liabilities		331			(24	)

Net cash used in operating activities		(51,849	)		(24,363	)

Cash flows from investing activities
Acquisition of businesses, net of cash received		(11,821	)		—
Purchases of marketable debt securities, available-for-sale		(95,266	)		(79,357	)
Proceeds from sales and maturities of marketable debt securities, available-for-sale		95,028			103,108
Issuances of employee notes receivable		(211	)		—
Payments received on employee notes receivable		1			1
Purchase of property and equipment		(4,190	)		(4,126	)

Net cash (used in) provided by investing activities		(16,459	)		19,626

Cash flows from financing activities
Taxes paid related to net share settlement of stock-based awards		(1,889	)		(2,624	)
Proceeds from issuance of shares pursuant to employee stock purchase plan		371			338
Principal payments on notes payable to former stockholders		(6,563	)		(1,087	)
Principal payments on stock appreciation rights liability		(1,251	)		185

Net cash used in financing activities		(9,332	)		(3,188	)

Effect of currency exchange rate changes on cash and cash equivalents		(150	)		—

Net decrease in cash and cash equivalents		(77,790	)		(7,925	)
Cash and cash equivalents at beginning of period		232,670			214,683

Cash and cash equivalents at end of period	$	154,880		$	206,758


Supplemental disclosures of cash flow information
Interest paid during the period	$	1,193		$	1,967

Income taxes paid, net	$	1,013		$	19,520

See accompanying notes to condensed consolidated financial statements.

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business and Basis of Presentation

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, 2020, 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

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 for the year ended December 31, 2019 included in the Company’s Annual Report on Form

10-K

filed on March 2, 2020 with the SEC. The results of the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, for other interim periods or

for

future years.

Considerations Related to the

COVID-19

Pandemic

The

COVID-19

pandemic and resultant shutdown of economic activity across much of the world has led to sharp increases in unemployment, dislocations in debt and equity markets and businesses instituting cost-cutting and capital-preservation measures. There has been a significant impact on commercial real estate markets in the United States and Canada that started at the end of first quarter 2020 and continued through the end of the second quarter of 2020, as many property owners and occupiers have put transactions on hold, driving significantly lower sales volumes. The Company expects the effects of the COVID-19 pandemic to continue to adversely impact its financial position, results of operations, and cash flows for the remainder of 2020.

See Note 3 – “Property and Equipment, Net”, Note 6 – “Acquisitions, Goodwill and Other Intangible Assets”, Note 10 – “Fair Value Measurements” and Note 15 – “Commitments and Contingencies”

for further discussion on

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, including the impact

COVID-19

may have on our business. Actual results could differ from those estimates.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Reporting

The Company follows U.S. GAAP for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of the Company’s operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing (including mortgage servicing) and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute the Company’s only operating segment for financial reporting purposes.

Reclassifications

Certain prior-period amounts in the condensed consolidated balance sheet and statement of cash flows, Note 7 – “Selected Balance Sheet Data” and Note 10 – “Fair Value Measurements” have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported condensed consolidated results of operations.

2.	Accounting Policies and Recent Accounting Pronouncements

Accounting Policies

The complete list of the Company’s accounting policies is included in the Company’s Annual Report on Form

10-K

filed on March 2, 2020 with the SEC. The following are updated, or new accounting policies related to the adoption of the credit losses standard.

Cash and Cash Equivalents

The Company considers cash equivalents to include short-term, highly liquid investments with maturities of three months or less when purchased. Portions of the balance of cash and cash equivalents were held in financial institutions, various money market funds with fixed and floating net asset values and short-term commercial paper. Money market funds have floating net asset values and may be subject to gating or liquidity fees. The Company assesses short-term commercial paper for impairment in connection with investments in marketable debt securities,

available-for-sale.

The likelihood of realizing material losses from cash and cash equivalents, including the excess of cash balances over federally insured limits, is remote.

Commissions Receivable, Net

Commissions receivable, net consists of commissions earned on brokerage and financing transactions for which payment has not yet been received. The Company evaluates the need for an allowance for credit losses based on consideration of historical experience, current conditions and forecasts of future economic conditions. The majority of commissions receivable are settled within 10 days after the close of escrow.

Advances and Loans, Net

Advances and loans, net includes amounts advanced and loans due from the Company’s investment sales and financing professionals.

In order to attract and retain highly skilled professionals, from time to time, the Company advances funds to its investment sales and financing professionals. The advances are typically in the form of forgivable loans that have terms that are generally between 5 and 10 years. The principal amount of a forgivable loan and accrued interest are forgiven over the term of the loan, so long as the investment sales and financing professionals continue to be a service provider with the Company, or upon achieving contractual performance criteria. Amounts forgiven are charged to selling, general and administrative expense at the time the amounts are forgiven. If the investment sales and financing professional’s relationship with the Company is terminated before the amount advanced is forgiven, the unforgiven amount becomes due and payable. The Company evaluates the need for an allowance for credit losses based on amounts advanced and expected forgiveness, in consideration of historical experience, current conditions and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable. Accrued interest, when applicable, has historically been immaterial.

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MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company, from time to time, enters into various agreements with certain of its investment sales and financing professionals whereby these individuals receive loans. The notes receivable along with stated interest, are typically collected from future commissions or repaid based on the terms stipulated in the respective agreements that are generally between 1 and 7 years. The Company evaluates the need for an allowance for credit losses for the loans based on historical experience, current conditions

and

reasonable forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable.

Investments in Marketable Debt Securities,

Available-for-Sale

The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities (“ABS”) and other. The Company considers its investments in marketable debt securities to be

available-for-sale,

and accordingly are recorded at their fair values. The Company determines the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expense), net in the condensed consolidated statements of net and comprehensive income. The Company typically invests in highly-rated debt securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.

The Company reviews quarterly its investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. The Company excludes accrued interest from both the fair value and the amortized cost basis of marketable debt securities,

available-for-sale,

for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income/loss, net of applicable taxes. The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. The Company evaluates

write-off

of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.

Determining whether a credit loss exists requires a high degree of judgment and the Company considers both qualitative and quantitative factors in making its determination. The Company evaluates its intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, the Company evaluates, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations and changes in base and market interest rates. If qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, the Company typically does not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are the Company’s best estimate based on past events, current conditions and reasonable and supportable economic forecasts.

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 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.

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, 2020 and 2019, 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.

MARCUS & MILLICHAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three and six months ended June 30, 2020, the Company’s Canadian operations represented approximately 2% of total revenues. During the three and six months ended June 30, 2019, the Company’s Canadian operations represented less than 1% of total revenues.

During the three and six months ended June 30, 2020 and 2019, no office represented 10% or more of total revenues.

Recent Accounting Pronouncements

Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No. 2016-13,

Financial

Instruments

Credit

Losses

(“ASU

2016-13”).

The new standard requires the use of an expected-loss model for financial assets measured at amortized cost and marketable debt securities,

available-for

sale, which requires that identified credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) is permitted in the reporting period that the change occurs. Previously, U.S. GAAP prohibited reflecting any reversals of impairment charges. The Company adopted the new standard on January 1, 2020 using the modified-retrospective transition method for assets measured at amortized cost other than marketable debt securities,

available-for-sale,

which was adopted using a prospective transition approach as required by the new standard. On the adoption date, the Company recorded a cumulative-effect adjustment related to an allowance for credit losses

associated with

commissions receivable and advances and loans, net of tax in the amount of $33,000 with the offset to retained earnings as of the beginning of the period presented after adoption. The adoption of ASU

2016-13

did not have a material impact on the Company’s investment policy and impairment model for marketable debt securities,

available-for-sale.

The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities,

available-for-sale,

for the purposes of identifying and measuring an impairment.

In August 2018, the FASB issued ASU

No. 2018-15,

Internal-Use

Software

(Subtopic 350-40

) -

Customer’s

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

(“ASU

2018-15”).

ASU

2018-15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software (and hosting arrangements that include an internal use software license), by permitting a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an

internal-use

software project. The Company adopted the new standard effective January 1, 2020

using the prospective method. The adoption of ASU

2018-15

did not have a material effect on the Company’s condensed consolidated financial statements.

Pending Adoption

In December 2019, the FASB issued ASU

No. 2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

(“ASU

2019-12”).

ASU

2019-12

is effective for reporting periods beginning after December 15, 2020 with early adoption permitted. For the Company, the new standard will be effective on January 1, 2021. ASU

2019-12

simplifies the accounting for income taxes by eliminating certain exceptions including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes such as

step-up

in tax basis for goodwill and interim recognition of enactment of tax laws or rate changes. The Company is currently evaluating the impact of this new standard and does not expect ASU

2019-12

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

In March 2020, the FASB issued 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. 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 15 – “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, 2020, the Company has not drawn funds from the credit facility. The Company continues to evaluate the impact of this new standard and does not expect ASU

2020-04

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

Table of Contents

MARCUS &

MILLICHAP

, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.	Property and Equipment, Net

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


	June 30, 2020		December 31, 2019
Computer software and hardware equipment	$	28,445	$	25,252
Furniture, fixtures, and equipment		23,114		23,468