Marcus & Millichap, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Selected Balance Sheet Data

Selected Balance Sheet Data

9 Months Ended

Sep. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

6.	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 (recovery)		116			(91	)		25
Write-offs		(60	)		—			(60	)

Ending balance as of September 30, 2021	$	619		$	3		$	622


	Advances and Loans			Commissions Receivable			Total
Beginning balance as of January 1, 2020	$	512		$	32	(1)	$	544
Credit loss expense		13			42			55
Write-offs		(50	)		—			(50	)

Ending balance as of September 30, 2020	$	475		$	74		$	549

(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				Non-Current
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Mortgage servicing rights (“MSRs”), net of amortization	$	—	$	—	$	1,919	$	1,897
Security deposits		—		—		1,445		1,461
Employee notes receivable (1)		66		185		—		246
Securities, held-to-maturity		—		—		9,500		—
Customer trust accounts and other		4,370		4,526		454		572

	$	4,436	$	4,711	$	13,318	$	4,176

(1)	Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $10 and $0 for the nine months ended September 30, 2021 and 2020, respectively. See Note 7 – “Related-Party Transactions” for additional information.

MSRs

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


	Nine Months Ended September 30,
	2021			2020

Beginning balance	$	1,897		$	2,002
Additions		421			425
Amortization		(399	)		(404	)

Ending balance	$	1,919		$	2,023

The portfolio of loans serviced by the Company aggregated $1.7 billion and $1.6 billion for the periods ended September 30, 2021 and December 31, 2020, respectively. See Note 8 – “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 $3.1 million and $3.2 million as of September 30, 2021 and December 31, 2020, respectively, and the offsetting obligations are not presented in the Company’s condensed 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				Non-Current
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Stock appreciation rights (“SARs”) liability (1)	$	2,241	$	2,162	$	14,796	$	16,671
Commissions payable to investment sales and financing professionals		49,175		54,082		17,012		15,306
Deferred compensation liability (1)		1,132		1,519		6,830		6,768
Other		520		343		—		—

	$	53,068	$	58,106	$	38,638	$	38,745

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no longer being considered 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 and 2020 were 2.930% and 3.920%, respectively. MMI recorded interest expense related to this liability of $122,000 and $178,000 for the three months ended September 30, 2021 and 2020, respectively, and $366,000 and $533,000 for the nine months ended September 30, 2021 and 2020, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During the nine months ended September 30, 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 r

bbi trust, which is recorded in assets held in rabbi trust in the accompanying condensed 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 nine months ended September 30, 2021 and 2020, the Company made total payments to participants of $1.2 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):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021		2020

(Decrease) increase in the carrying value of the assets held in the rabbi trust (1)	$	(59	)	$	434	$	932	$	170

(Decrease) increase in the net carrying value of the deferred compensation obligation (2)	$	(43	)	$	388	$	720	$	88

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

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

Other Liabilities

Other liabilities consisted of the following (in thousands):


	Non-Current
	September 30, 2021		December 31, 2020

Deferred consideration (1) (2)	$	5,809	$	8,582
Contingent consideration (1) (2)		5,812		4,219
Other		1,020		1,015

	$	12,641	$	13,816

(1)

The current portions of deferred consideration in the amounts of $5,418 and $6,666 as of September 30, 2021 and December 31, 2020, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets. The current portions of contingent consideration in the amounts of $2,286 and $1,353 as of September 30, 2021 and December 31, 2020, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets.

(2)	Includes a measurement period adjustment and a reduction in deferred consideration settled in stock made during the nine months ended September 30, 2021, which represents a noncash investing activity. See Note 5 – “Acquisitions, Goodwill and Other Intangible Assets” for additional information.