Marcus & Millichap, Inc. Annual Report 2017

FY2017 Annual Report · Marcus & Millichap, Inc.

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NYSE: MMI

2017

MARCUS & MILLICHAP, INC.
ANNUAL REPORT

Mission Statement

At Marcus & Millichap, our commitment is to help our clients create
and preserve wealth by providing them with the best real estate
investment sales, ﬁnancing, research and advisory services.

Founded on Specialization – A Culture of Client Results
Powered by Research and Technology

■ Dedicated to real estate investment brokerage since 1971

■ The industry leader in real estate investment transactions

• More than 1,800 investment sales and ﬁnancing professionals
• Serving investors with 78 oﬃces throughout the U.S. and Canada
• Integrated marketing system matching buyers and sellers
• Specialized coverage by property type

■ A leading source of real estate ﬁnancing and capital markets expertise

■ A trusted provider of market research and advisory services

TO OUR SHAREHOLDERS

March 23, 2018

We began 2017 recognizing that uncertainty surrounding
possible tax legislation and rising interest rates would
dampen the pace of the real estate investment sales market.
By expanding our client outreach and marketing programs,
the company achieved a modest revenue increase to nearly
$720 million amid slowing market sales. Net Income
(adjusted for a one-time charge associated with the Tax
Cuts and Jobs Act), contracted by 2.4% as we completed
(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:82)(cid:73)(cid:192)(cid:70)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:69)(cid:85)(cid:82)(cid:78)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)
support systems and our proprietary technology platform.
We strongly believe that these investments are essential
to our long-term competitiveness. We are encouraged by
our continued market share gains and improving revenue
growth trajectory in the second half of 2017. Achieving
healthy levels of earnings growth is our top priority for
2018 and beyond.

Market Environment
The commercial real estate market continues to post
healthy occupancy, generally balanced new supply,
(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:69)(cid:88)(cid:81)(cid:71)(cid:68)(cid:81)(cid:87)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:17)(cid:3)(cid:54)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)
over the past two years are indicative of shifting buyer/
seller expectations following several years of price gains
exacerbated by external factors. This is familiar territory
for us as we have helped investors navigate through many
market cycles throughout our 47-year history. We achieve
this by integrating comprehensive research, advisory
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:85)(cid:72)(cid:68)(cid:79)(cid:3) (cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)
marketing platform. Our founding principle of fostering
long-term client relationships regardless of market
conditions has propelled the company to our current
industry position and will continue to drive us forward.

Industry Position
(cid:48)(cid:68)(cid:85)(cid:70)(cid:88)(cid:86)(cid:3) (cid:9)(cid:3) (cid:48)(cid:76)(cid:79)(cid:79)(cid:76)(cid:70)(cid:75)(cid:68)(cid:83)(cid:3) (cid:11)(cid:49)(cid:60)(cid:54)(cid:40)(cid:29)(cid:3) (cid:48)(cid:48)(cid:44)(cid:12)(cid:3) (cid:82)(cid:81)(cid:70)(cid:72)(cid:3) (cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3) (cid:85)(cid:68)(cid:81)(cid:78)(cid:72)(cid:71)
as the industry leader by number of transactions and
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:86)(cid:17)(cid:3)(cid:48)(cid:48)(cid:44)
closed nearly 9,000 transactions and over $42 billion
in sales volume last year, serving investors with over
(cid:20)(cid:15)(cid:27)(cid:19)(cid:19)(cid:3) (cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:26)(cid:27)(cid:3) (cid:82)(cid:73)(cid:192)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) (cid:50)(cid:88)(cid:85)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3)
the private client market segment continues to be the
highest in the industry and registered another year of
growth. The dominant size and fragmented nature of
the private client market provide room for growth and
broadening the MMI brand. Marcus & Millichap Capital
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:48)(cid:48)(cid:38)(cid:38)(cid:12)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:80)(cid:72)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:20)(cid:19)(cid:19)(cid:3) (cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:86)(cid:3) (cid:90)(cid:75)(cid:82)

(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:20)(cid:15)(cid:26)(cid:19)(cid:19)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:7)(cid:24)(cid:17)(cid:25)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3)(cid:48)(cid:48)(cid:38)(cid:38)(cid:3)(cid:83)(cid:79)(cid:68)(cid:92)(cid:86)(cid:3)(cid:68)(cid:3)(cid:89)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:82)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:15)
(cid:85)(cid:72)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3)
(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3) (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3) (cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:86)(cid:3) (cid:76)(cid:79)(cid:79)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:20)(cid:23)(cid:17)(cid:22)(cid:8)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)

MMI is also a leading provider in key specialty segments,
particularly seniors housing, hospitality, self-storage,
student housing, manufactured housing and affordable
(cid:68)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:183)(cid:86)(cid:3) (cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:192)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:3) (cid:76)(cid:86)
(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3) (cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:73)(cid:192)(cid:70)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)
segments as well as larger transactions. Our institutional
brokerage presence is also expanding which is vital to the
retention of our maturing professionals and increasing
the investment options of our major clients.

Looking Forward
Healthy supply/demand fundamentals and lack of over-
leveraging in the current cycle point to steady yet cautious
capital demand for commercial real estate. The passage
of the new tax law has improved investor sentiment as it
retains favorable commercial real estate provisions. At the
(cid:86)(cid:68)(cid:80)(cid:72)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:82)(cid:3) (cid:76)(cid:81)(cid:193)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:86)
and higher interest rates. Overall, we expect a gradual and
moderate improvement in market sales throughout the
(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:192)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:82)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)
our clients develop and execute the right strategies.

MMI is solidly positioned to achieve long-term growth
and create shareholder value. Our robust capital base
(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:74)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:193)(cid:72)(cid:91)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3) (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:192)(cid:81)(cid:71)(cid:3) (cid:81)(cid:72)(cid:90)(cid:15)(cid:3)
innovative ways to support our brokers. Our collaborative
culture and tradition of developing the most effective
professionals in the industry through our training
programs form the foundation for achieving our growth
plan. We thank our clients for placing their trust in the
Marcus & Millichap team and our shareholders for your
continued support and partnership.

(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:85)(cid:72)(cid:79)(cid:92)(cid:15)

M M

George M. Marcus
G
Co-Chairman of the Boardardd
of Directors

Hessam Nadji
President,
President
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017
OR

‘ 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
(State or other jurisdiction of
incorporation or organization)

35-2478370
(I.R.S. Employer
Identification No.)

23975 Park Sorrento, Suite 400 Calabasas, California, 91302
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (818) 212-2250
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, par value $0.0001 per share

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ‘ No È
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 È No ‘
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company È
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. È
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the registrant’s voting stock held by non-affiliates at June 30, 2017 was approximately $458.8 million, based
on the closing price per share of common stock on that date of $26.36 as reported on the New York Stock Exchange. Shares of common
stock known by the registrant to be beneficially owned by directors and executive officers of the registrant and 10% stockholders are not
included in the computation. The registrant, however, has made no determination that such persons are “affiliates” within the meaning of
Rule 12b-2 under the Securities Exchange Act of 1934.
As of March 5, 2018, there were 38,578,808 shares of the registrant’s common stock outstanding.

‘
‘ (Do not check if a smaller reporting company)

È
Accelerated filer
Smaller reporting company ‘

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement to be delivered to stockholders in connection with the annual meeting of stockholders to
be held on May 4, 2018 are incorporated by reference into Part III of this Annual Report on Form 10-K. Such Proxy Statement will
be filed with the United States Securities and Exchange Commission (the “SEC”) within 120 days of the registrant’s fiscal year ended
December 31, 2017.

TABLE OF CONTENTS

PART I

Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures

Properties
Legal Proceedings

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

PART II

Equity Securities
Selected Financial Data

Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

Financial Statements and Supplementary Data

PART III

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary

SIGNATURES

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32
32

33
35
37
54
55
55
55
56

57
58

58
59
59

60
62

MARKET, INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning the
commercial real estate industry and the markets in which we operate, including our general expectations and
market position, market opportunity and market size, is based on (i) information gathered from various sources,
(ii) certain assumptions that we have made, and (iii) on our knowledge of the commercial real estate market.
While we believe our market position, market opportunity and market size information included in this Annual
Report on Form 10-K are generally reliable, such information is inherently imprecise. Unless indicated
otherwise, the industry data included herein is generally based on information available through the nine months
ended September 30, 2017 since full year 2017 information may not yet have been published. We use market
data from Costar Group, Inc. and Real Capital Analytics that consists of list side information of sales
transactions, with a value of $1 million or more, of multifamily, retail, office and industrial buildings.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements, including the Company’s business

outlook for 2018 and expectations for market share growth. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends affecting the financial
condition of our business. Forward-looking statements should not be read as a guarantee of future performance or
results and will not necessarily be accurate indications of the times at, or by, which such performance or results
will be achieved. Forward-looking statements are based on information available at the time those statements are
made and/or management’s good faith belief as of that time with respect to future events and are subject to risks
and uncertainties that could cause actual performance or results to differ materially from those expressed in or
suggested by the forward-looking statements. Important factors that could cause such differences include, but are
not limited to:

• market trends in the commercial real estate market or the general economy;

•

our ability to attract and retain qualified managers and investment sales and financing professionals;

the effects of increased competition on our business;

our ability to successfully enter new markets or increase our market share;

our ability to successfully expand our services and businesses and to manage any such expansions;

our ability to retain existing clients and develop new clients;

our ability to keep pace with changes in technology;

any business interruption or technology failure and any related impact on our reputation;

changes in interest rates, tax laws, including the recently enacted Tax Cuts and Jobs Act, employment
laws or other government regulation affecting our business; and

other risk factors included under “Risk Factors” in this Annual Report on Form 10-K.

In addition, in this Annual Report, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,”

“intend,” “expect,” “predict,” “potential”, “should” and similar expressions, as they relate to our company, our
business and our management, are intended to identify forward-looking statements. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this Annual Report on Form 10-K may
not occur and actual results could differ materially from those anticipated or implied in the forward-looking
statements.

Forward-looking statements speak only as of the date of this Annual Report on Form 10-K. You should not

put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking
information, except to the extent required by applicable laws. If we update one or more forward-looking
statements, no inference should be drawn that we will make additional updates with respect to those or other
forward-looking statements.

Unless the context requires otherwise, the words “Marcus & Millichap,” “Marcus & Millichap Real Estate
Investment Services,” “MMREIS,” “we,” the “Company,” “us” and “our” refer to Marcus & Millichap, Inc.,
Marcus & Millichap Real Estate Investment Services, Inc. and its other consolidated subsidiaries.

PART I

Item 1. Business

Overview

Marcus & Millichap, Inc. (“MMI”) is a leading national brokerage firm specializing in commercial real
estate investment sales, financing, research and advisory services. We have been the top broker in the United
States based on the number of investment transactions for over 10 years. As of December 31, 2017, we had over
1,800 investment sales and financing professionals in 78 offices in the United States and Canada that provide
investment brokerage and financing services to sellers and buyers of commercial real estate. In 2017, we closed
8,979 sales, financing and other transactions with total sales volume of approximately $42.2 billion.

We divide commercial real estate into four major market segments, characterized by price:

•

Properties with prices less than $1 million;

• Private client market: properties priced from $1 million up to $10 million;

• Middle market: properties priced from $10 million up to $20 million; and

•

Larger transaction market: properties priced from $20 million and above.

We service clients in all of these market segments by underwriting, marketing, selling and financing

commercial real estate properties in a manner that maximizes value for sellers and provides buyers with the largest
and most diverse inventory of commercial properties. Our business model is based on several key attributes:

•

a 47-year history of providing investment brokerage and financing services through a proprietary
marketing system, policies and culture of information sharing and in-depth investment brokerage
training, all of which is executed under the supervision of a dedicated management team focused on
client service and growing the firm;

• market leading share and brand within the $1-$10 million private client market segment, which

consistently represents more than 80% of total U.S. commercial property transactions greater than
$1 million in the marketplace;

• Over 1,800 investment sales and financing professionals providing consistent services and exclusive

client representation across multiple property types;

•

a broad geographic platform consisting of 78 offices in the United States and Canada powered by
information sharing and proprietary real estate marketing technologies;

an ability to scale with our private clients as they grow and connect private capital with larger assets
through our Institutional Property Advisors (“IPA”) group;

a financing team integrated with our brokerage sales force providing independent mortgage brokerage
services;

an experienced management team overseeing our offices, with an average of approximately 10 years of
real estate investment brokerage experience with our Company;

our managers not competing with or participating in investment sales professionals’ commissions;
because they are in a support and leadership role as company executives; and

industry-leading research and advisory services tailored to the needs of our clients and supporting our
investment sales and financing professionals.

The investment brokerage and financing businesses serving private clients within the $1-$10 million private
client market segment represent the largest part of our business, which differentiates us from our competitors. In
2017, approximately 68% of our brokerage commissions came from this market segment. Accordingly, our
business model distinguishes us from our national competitors, who may focus primarily on the more volatile
larger transaction market segment or on other business activities such as leasing or property management, and
from our local and regional competitors, who lack a broad national platform.

Our business model and geographic footprint provide an unparalleled level of connectivity to the

marketplace for our clients. Our investment sales and financing professionals are specialized by property type
and by local market area, as we believe this focused expertise brings value to our clients. Our broad geographic
coverage, encompassing 78 offices in the United States and Canada, combined with our local and national
property expertise and significant relationships with both buyers and sellers, provides exposure and access to
properties across the United States and Canada. This connectivity to a broad marketplace increases liquidity and
opportunities for our clients as we maximize the value of their properties by accessing the largest pool of
qualified buyers through our network of sales professionals and proprietary real estate inventory and marketing
system. By closing more transactions annually than any other brokerage firm in the private client market
segment, our investment sales professionals are able to provide clients with a broad and deep perspective in
multiple property types in real estate markets locally, regionally and nationally.

Our experienced management team is responsible for developing and mentoring our investment sales and

financing professionals creating a consistent culture of information sharing and environment of best practices to
maximize value for our clients. Our managers are compensated as executives incentivized to grow their offices
and do not participate in commissions generated by our investment sales and financing professionals. This
structure eliminates any competition with our sales force and puts the emphasis on investment sales and
financing professionals’ support and client service. In addition, we support our clients and investment sales and
financing teams with market and property focused research, publications and custom analysis.

We generate revenues by collecting fees upon the sale and financing of commercial properties. These fees

consist of commissions collected upon the sale of a property and fees collected from the placement of loans. The
fees are principally based upon the sales price of the property or amount financed. In 2017, approximately 90%
of our revenues were generated from real estate brokerage commissions, 7% from financing fees and 3% from
other revenues, including consulting and advisory services.

Corporate Information

We were formed as a sole proprietorship in 1971, incorporated in California on August 26, 1976 as G. M.
Marcus & Company, and we were renamed as Marcus & Millichap, Inc. in August 1978, Marcus & Millichap
Real Estate Investment Brokerage Company in September 1985, and Marcus & Millichap Real Estate Investment
Services, Inc. (“MMREIS”) in February 2007. Prior to the completion of our initial public offering (“IPO”),
MMREIS was majority-owned by Marcus & Millichap Company (“MMC”) and all of MMREIS’ preferred and
common stock outstanding was held by MMC and its affiliates or officers and employees of MMREIS. In June
2013, in preparation for the spin-off of its real estate investment services business (the “Spin-Off”), MMC
formed a holding company called Marcus & Millichap, Inc. (“MMI”) in Delaware. Prior to the completion of our
IPO, the shareholders of MMREIS contributed the shares of MMREIS to MMI in exchange for common stock of
MMI, and MMREIS became a wholly owned subsidiary of MMI. On November 5, 2013, MMI completed its
IPO.

Our principal executive offices are located at 23975 Park Sorrento, Suite 400 Calabasas, California 91302.

Our telephone number at this location is (818) 212-2250. Our website address is www.MarcusMillichap.com.
The information on our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

Competitive Strengths

We believe the following strengths provide us with a competitive advantage and opportunities for success:

National Platform Built on Investment Brokerage and Financing Services

We have built a leading national platform serving our clients’ needs of investment brokerage and financing

services. We continue to be focused on investment brokerage and financing services as opposed to other
businesses such as leasing or property management. We equip our highly qualified investment sales and
financing professionals in 78 offices across the United States and Canada with proprietary real estate marketing
technologies and processes to market investment real estate for our clients. Our commitment to specialization is
reflected in how we generally organize our investment sales and financing professionals by market area and
property type, which enhances our investment sales and financing professionals’ skills, relationships and market
knowledge required for achieving the best results for our clients. As a result of these founding principles, we
offer an efficient system of matching every property with the largest pool of qualified buyers and maximize value
in the process.

Market Leader in the Private Client Market Segment

Since our founding in 1971, we have focused on being the leading service provider to the $1-$10 million

private client market segment. This segment is the largest by ownership and transaction count and, consistently
accounts for over 80% of total U.S. commercial property transactions. It is comprised of high-net-worth
individuals, partnerships and small private fund managers with both passive, long-term investments, as well as
those with opportunistic, short-term investment horizons. Private clients are often motivated to buy, sell and/or
refinance properties due to personal circumstances such as death, divorce, partnership breakups and estate
planning in addition to macroeconomic and capital market trends and events. The vast size and personal
transaction drivers of private clients make this market segment the most active in terms of sales velocity.
Therefore, sales in the private client market segment over the long term tend to be less volatile than higher priced
properties priced at $10 million and above. In addition, this market segment is highly fragmented with the top ten
brokerage firms accounting for approximately 25% of transactions in 2017. Marcus & Millichap is the leading
broker in the $1-$10 million private client market segment with an 8.8% market share by transaction count. With
our established market leadership and brand name, Marcus & Millichap has significant room for market share
expansion by further consolidating its leadership position in this market segment.

In addition, the private client market segment is characterized by high barriers to entry. These barriers

include the need for a large specialized sales force prospecting private clients, difficulties in identifying,
establishing and maintaining relationships with such investors, capabilities of exposing properties to a large pool
of potential buyers and the challenge of serving their needs locally, regionally and nationally. We believe this
private client market segment is the least covered market segment by other national firms and is significantly
underserved by local and regional firms that lack a multi-market platform.

Platform Built for Maximizing Investor Value

We have built our business to maximize value for real estate investors through an integrated set of services

geared toward our clients’ needs. We are committed to an investment brokerage specialization, provide one of
the largest sales force in the industry, a culture and policy of information sharing on each property we represent
and equip our investment sales professionals with proprietary real estate inventory and marketing technologies
that enhance the marketability of the properties we represent. Our system generates real-time buyer-seller
matching and maximizes value one property at a time. Our investment sales organization can therefore
underwrite, position and market investment real estate to the largest pool of qualified buyers. We coordinate
proactive marketing campaigns across investor relationships and resources of the entire firm, far beyond the
capabilities of an individual listing agent. These efforts produce wide exposure to investors whom we identify as

high-probability bidders for each property. To grow with our clients, we established the IPA group to serve the
needs of our private client investors that are now seeking higher valued properties as well as larger institutional
investors. Our ability to bridge private capital with larger, institutional assets creates value for private and larger
transaction clients while strengthening the retention of our investment sales and financing professionals.

We have one of the largest teams of financing professionals in the investment brokerage industry through
Marcus & Millichap Capital Corporation (“MMCC”). MMCC provides financing expertise and access to debt
and capital sources by identifying and securing competitive loan pricing and terms for our clients across a broad
range of potential lenders and financing alternatives. We are a leading mortgage broker in the industry based on
the number of financing transactions closed in 2016. Finally, our dedicated market research teams analyze the
latest local and national economic and real estate trends and produce proprietary analyses for our clients enabling
them to make informed investment and financing decisions. Our research team produces more than 1,100 reports,
publications, presentations and briefs addressing real estate investment trends. Integrating all these services into
one national platform increases opportunities to maximize value for our clients across multiple property types,
market segments and geographies.

Management with Significant Investment Brokerage Experience

Our management team members, as executives of the firm, are dedicated to recruiting, training, developing

and supporting our investment sales and financing professionals. The majority of our management team are
former senior investment sales professionals of our Company who now focus on management, do not compete
with our sales force and have an average of approximately 10 years of real estate investment brokerage
experience with our Company. Our training, development and mentoring programs rely greatly on the regional
managers’ personal involvement. Their past experience as senior investment sales professionals plays a key role
in developing new and experienced investment sales and financing professionals. They help our junior
professionals establish technical and client service skills as well as setting up, developing and growing
relationships with clients. We believe this management structure has helped differentiate the firm from our
competitors and ultimately achieve better results for our clients.

Growth Strategy

We have a long track record of growing our business model driven by opening new offices, recruiting,
training and developing new investment sales and financing professionals as well as deploying our client-focused
business model to increase coverage of specialty property types and the middle and larger transaction market
segments. Our long-term growth plan has focused on investing in our current business model through growing
internally and by providing our unique business model to a wider client base. Since 2010, our revenue has
increased threefold, and we have grown from slightly over 1,000 investment sales and financing professionals to
over 1,800 investment sales and financing professionals in the United States and Canada. Our future growth will
depend on continually expanding our national footprint and optimizing the size, product segmentation and
specialization of our team of investment sales and financing professionals. The key strategies of our growth plan
include:

Increase Market Share in the Private Client Market Segment

The $1-$10 million private client market segment is fragmented and underserved. The top 10 brokerage

firms accounted for only approximately 25% of 2017 transactions in this market segment. Our industry leading
market share in this segment increased to 8.8% in 2017 from approximately 7.5% in 2013. Our leading position
in this market segment and inherent fragmentation continues to provide significant opportunity for us to expand
and bring our client service offerings to a larger portion of this expansive market segment. We can continue to
leverage our existing platform, relationships and brand recognition among private clients to grow through
expanded marketing and coverage.

Focused Office Expansion

Since we currently have offices in most major-market and mid-market metropolitan cities, our growth is
expected to come from focused office expansion, targeted hiring and increased coverage of specialty property
types. We have targeted markets based on population, employment, level of commercial real estate sales,
inventory and competitive landscape. Our optimal office plans are used to capitalize on these factors by tailoring
sales force size, coverage and composition by office and business activity to direct efforts to offices with the
most opportunity where we believe we can leverage our national footprint and proprietary real estate marketing
technologies. These initiatives do not require a significant increase in the number of offices or a significant
increase in the size of our offices, which allows us to leverage our current office locations without significant
incremental investment.

Expand and Develop Our Team of Investment Sales Professionals

A key to growing our business is hiring, training and developing investment sales professionals. We have

increased our focus on hiring experienced investment sales professionals through our recruiting department,
specialty directors and regional managers in support of our optimal office plans. Our new investment sales
professionals are trained in all aspects of real estate fundamentals, client service and proprietary marketing
technologies through formal training, apprenticeship programs and mentorship by our dedicated regional, district
and division managers. As these investment sales professionals mature, we continue to provide them with
identified best practices and training in specialty property types. We believe this model creates a high level of
teamwork, as well as operational and client service consistency. During 2017, we reached an all-time high in the
number of investment sales professionals, ending the year with over 1,800.

Grow in Specialty Property Types and Middle and Larger Transaction Market Segment Presence

Leveraging our current business model into specialty property types and to the middle and larger transaction

market segments opens up significant opportunities for growth.

Specialty Property Types

We believe that specialty property types, including hospitality, self-storage, seniors housing, land and
manufactured housing offer significant opportunities for our clients. By deploying our unique business model to
increase coverage of these property types, we can create growth for us as well as enhance value for our clients
through diversification. To create these opportunities, we are increasing our property type expertise by
continuing to strategically add specialty directors who can bring added management capacity, business
development and investment sales professional support. These executives will work with our sales management
team to increase investment sales professional hiring, training, development and redeployment and to execute
various branding and marketing campaigns to expand our presence in these targeted property types. The number
and volume of transactions in the primary property types of multifamily, retail, office and industrial should
continue to grow with upside opportunity, particularly in the office and industrial properties. At the same time,
we intend to continue to grow our presence in specialty property types.

Middle and Larger Transaction Market Segments Presence

Our extensive relationships with private client investors who typically invest in the $1-$10 million private

client market segment have enabled us to capture a greater portion of commercial real estate transactions in
excess of $10 million and bridge the private client market investor to the middle market and larger transaction
market segments in recent years. As property values increase and investors grow and expand, they require larger
properties and we are organized to provide our unique brokerage and financing services to them in those market
segments. Our ability to connect historically private client capital with middle and larger transaction market

segment properties allows us to continue to serve our clients as they grow and plays a major role in
differentiating our services. In 2011, we introduced a group dedicated to serving major investors branded as IPA,
specifically to service larger multifamily investors. This strategy has met with great success and market
acceptance and provides a vehicle for growth by delivering our unique service platform within the middle and
larger transaction multifamily, retail and office property types. The growth of our investors and introduction of
IPA has driven incremental growth for us.

Expand Marcus & Millichap Capital Corporation Financing Business

We are dedicated to growing our financing services through our MMCC platform. Our focus continues to be

expanding financing services in markets currently served by our investment brokerage offices, increasing the
capacity of financing professionals in offices we currently serve, integrating financing professionals in offices
that do not have an MMCC presence and expanding our service platform by creating access to a broad array of
capital resources. We have established alliances with national capital sources that provide highly competitive
access to an assortment of financing products including products sponsored by Fannie Mae, Freddie Mac and
HUD. These alliances serve to expand our partner’s distribution networks while affording our financing
professionals and clients with more favorable pricing and service. Our internally developed training programs are
directed to enhancing our branding, skill development, increasing our internal capture rate and cross-selling with
a focus on the MMCC value proposition for our brokerage and non-brokerage clients. We will continue to seek
out and hire experienced financing professionals and capital markets teams to grow our MMCC business to
support the growth in our service platform and establish relationships with various capital sources. As of
December 31, 2017, we have 40 offices with financing professionals embedded within our brokerage teams. We
continue to capitalize on the synergies our financing professionals provide to our client focused service platform
with approximately 14.3% growth in financing fees to $49.7 million in 2017 from $43.4 million in 2016.

Our Company

We provide investment brokerage and financing services to investors of all sizes and types of commercial
real estate properties. We are the leading national investment brokerage company in the $1-$10 million private
client market segment. This is the largest and most active market segment and comprised approximately 85% of
total U.S. commercial property transactions in 2017. We have over 1,800 investment sales and financing
professionals in 78 offices in the United States and Canada. We have 58 offices concentrated in 47 major markets
consisting of metropolitan areas with a population of at least one million and 20 offices in 20 mid-market
locations consisting of metropolitan areas with a population of less than one million. We leverage our
relationships with investors and use proprietary marketing tools to match properties with qualified buyers. Our
financing professionals obtain competitive debt financing for buyers of our properties and owners who need to
refinance or restructure their positions.

We have a 47-year history in the real estate marketplace. The real estate market is cyclical, and our results

are impacted by many macroeconomic and microeconomic factors as discussed in Item 1A – Risk Factors and
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors
Affecting Our Business. We have demonstrated the ability, over the long-term, to manage through the cyclical
market and continue to be a leader in the $1-10 million private client market segment. The most recent downturn
began in 2007 when the global credit markets began to show signs of distress resulting in a shortage of liquidity
in some financing markets, including real estate. Beginning in late 2008, the credit crisis and recession greatly
affected the commercial real estate industry, resulting in a dramatic decline in sales volume and number of
transactions. Despite the severity of the market downturn, we maintained all of our offices and services, enabling
us to quickly take advantage of the market recovery and resume our growth. As the real estate and financing
markets recovered after 2009, our sales volume has steadily grown and now exceeds pre-downturn levels both as
a result of the market transaction growth and executing our growth initiatives, which expanded our market

presence. The following graph shows the number of transactions and sales volume of investment sales, financing
and other transactions from 2008 to 2017:

Sales Volume
Number of Transactions

6,608

$24.0

6,149

$22.0

5,231

$17.5

4,461

$13.5

4,338

$13.9

3,421

$8.9

)
s
n
o
i
l
l
i

B
n
i
(

e
m
u
l
o
V
s
e
l
a
S

$50

$45

$40

$35

$30

$25

$20

$15

$10

8,995

$42.3

8,979

$42.2

8, 715

$37.8

7,667

$33.1

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

s
n
o
i
t
c
a
s
n
a
r
T

f
o
r
e
b
m
u
N

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Geographic Locations

We have grown to have offices in 35 states across the United States and in three provinces in Canada, with

over 1,800 investment sales and financing professionals in 58 offices in major metropolitan markets and 20
offices in mid-market locations. Below is a map reflecting the geographic location of our offices as of
December 31, 2017.

Geographic Concentrations

We were founded in 1971 in the western United States and we continue to increase our presence in states in

the Mid-Atlantic, Northeast, Midwest, Mountain and the South regions through execution of our growth
strategies by targeting markets based on population, employment, level of commercial real estate sales, inventory
and competitive landscape opportunities where we believe the markets will benefit from our business model. The
following charts set forth the percentage of transactions by region for our investment sales transactions in 2017
and 2016.

2017

15%

36%

33%

16%

Western (1)

Mid-Atlantic/
Northeast

Midwest/Mountain/
South/Southwest
Southeast

2016

15%

37%

32%

16%

Western (1)

Mid-Atlantic/
Northeast

Midwest/Mountain/
South/Southwest
Southeast

(1)

Includes our Canadian operations, which represented less than 1% of our total revenues in each period
presented.

Commercial Real Estate Market Segments

We divide the commercial real estate market into four major market segments, characterized by investment

size. Our strength is in serving private clients in the $1-$10 million private client market segment, which
contributed approximately 68% of our brokerage commissions in 2017. In addition, we achieved growth by
leveraging the strength of our relationships in the private client market segment to increase our share of the
middle and larger transaction market segments. Commission percentages are generally lower in the middle and
larger transaction market segments since commission rates earned on commercial properties are typically
inversely correlated with sales price. Because of the expansion into the middle and larger transaction market
segments, we have seen our average commission rates fluctuate from period-to-period as a result of changes in
the relative mix of transactions closed in the middle and larger transaction market segments as compared to the
private client market segment.

The following table sets forth the number of transactions, sales volume and revenue by commercial real

estate market segment for real estate brokerage in 2017 compared to 2016:

2017

2016

Change

Real Estate Brokerage:

Number Volume

Revenues

Number Volume

Revenues

Number Volume

Revenues

<$1 million . . . . . . . . . . . . . . . . . . . . . . . 1,062
Private client market ($1-$10 million) . . 4,891
Middle market (≥$10-$20 million) . . . . .
361
Larger transaction market (≥$20 million)
248

661
15,029
4,906
9,879

$ 27,952
444,081
91,035
86,325

1,070
4,779
374
253

682
15,274
5,099
10,907

$ 29,217
447,366
88,568
97,069

(8)
112
(13)
(5)

(21)
(245)
(193)
(1,028)

$ (1,265)
(3,285)
2,467
(10,744)

(in millions) (in thousands)

6,562

$30,475

$649,393

6,476

$31,962

$662,220

$(1,487)

$(12,827)

Property Type

We have a long history and significant expertise in our primary property types of multifamily, retail, office
and industrial. We have expanded our expertise in the specialty property types by hiring and assigning specialty
directors to coordinate our national presence in these property types and expand our market share.

The following table sets forth the number and sales volume (dollars in billions) of investment sales,

financing and other transactions in 2017 compared to 2016 by property type:

2017

2016

Change

Number Volume Number Volume Number Volume

Primary Property Types:

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,322
3,553
662
353

Total Primary Property Types . . . . . . . . . . . . . . . . . . . . . .

7,890

Specialty Property Types:

Hospitality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Self-Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured Housing . . . . . . . . . . . . . . . . . . . . . . .
Seniors Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mixed - Use / Other . . . . . . . . . . . . . . . . . . . . . . . . . .

237
195
273
95
53
236

Total Specialty Property Types . . . . . . . . . . . . . . . . . . . . .

1,089

8,979

$21.5
11.5
2.7
1.3

$37.0

1.3
1.1
0.7
0.6
0.5
1.0

3,308
3,671
585
255

7,819

242
190
267
113
85
279

$20.2
12.0
2.8
1.0

$36.0

1.3
1.3
0.8
0.4
1.5
1.0

$ 5.2

$42.2

1,176

8,995

$ 6.3

$42.3

14
(118)
77
98

(5)
5
6
(18)
(32)
(43)

(87)

(16)

$ 1.3
(0.5)
(0.1)
0.3

$ 1.0

—
(0.2)
(0.1)
0.2
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Our Services

We serve clients with one property, multiple properties and large investment portfolios. The largest group of

investors we serve typically transacts in the $1-$10 million private client market segment. Properties in this
market segment are characterized by higher asset turnover rates due to the type of investor as compared to other
market segments. Investors in the private client market segment typically transact due to personal circumstances
and business reasons, such as death, divorce, changes in partnership structures and other personal or financial
circumstances. Therefore, private client investors are influenced less by the macroeconomic trends than other
large scale investors, making the private client market segment less volatile over the long-term than other market
segments. We offer three primary services to our clients, commercial real estate investment brokerage and
financing and ancillary services including other research, advisory and consulting services.

Commercial Real Estate Investment Brokerage

Our primary business and source of revenue is the representation of commercial property owners as their
exclusive investment broker in the sale of their properties. Commissions from real estate investment brokerage
sales accounted for approximately 90% of our revenues in 2017. Sales are generated by maintaining relationships
with property owners, providing market information and trends to them during their investment or “hold” period
and being selected as their representative when they decide to sell, buy additional property or exchange their
property for another property. We collect commissions upon the sale of each property based on a percentage of
sales price. These commission percentages are typically inversely correlated with sales price and thus are
generally higher for smaller transactions. Our investment sales professionals also represent buyers in fulfilling
their investment real estate acquisition needs; however, the vast majority of our investment sales business is
generated from our exclusive representation of sellers.

We underwrite, value, position and market properties to reach the largest and most qualified pool of buyers.
We offer our clients the industry’s largest team of investment sales professionals, who operate with a culture and
policy of information sharing powered by our proprietary system, MNet, which enables real-time buyer-seller
matching. We use a proactive marketing campaign that leverages the investor relationships of our entire sales

force, direct marketing and a suite of proprietary web-based tools that connects each asset with the right buyer
pool. We strive to maximize value for the seller by generating high demand for each property. Our approach also
provides a diverse, consistently underwritten inventory of investment real estate for buyers. When a client
engages one of our investment sales professionals, they are engaging an entire system, structure and organization
committed to maximizing value for them.

In 2017, we closed 6,562 real estate brokerage transactions in a broad range of commercial property types,
with a total sales volume of approximately $30.5 billion. In the last 10 years, we have closed more transactions
than any other firm. We have significantly diversified our business beyond our historical focus on multifamily
properties.

The majority of our business activity is in the $1-$10 million private client market segment and is aligned
with the largest real estate market segment. During 2017, we closed 4,891 real estate brokerage transactions in
this market segment, which comprised approximately 89% of our total real estate brokerage transactions greater
than $1 million and 71% of our brokerage commissions for transactions greater than $1 million. Of the
commercial real estate industry as a whole, the $1-$10 million private client market segment represented over
80% of total U.S. commercial property transactions greater than $1 million in 2017.

We are building on our track record of growth in multifamily, retail, office and industrial properties by

expanding our coverage of additional property types. These include hospitality, self-storage, seniors housing,
land and manufactured housing properties, where we are already a leading broker but have significant room for
additional growth due to market size, fragmentation and specific geographic market opportunities. We are also
expanding our specialty group management and support infrastructure, specialized branding and business
development customized for each property type and intensifying our recruiting efforts, for management and
investment sales and financing professionals. These efforts should expand our presence and result in increased
business in these property types.

Financing

MMCC is a broker of debt financing for commercial properties principally in the under $10 million market
segments. We generate revenue in the form of financing fees collected from the placement of loans with banks,
insurance companies, government agencies, commercial mortgage backed securities (“CMBS”), and conduits. In
addition to placing financing for acquisitions, we also place loans for refinancing for individual assets and
portfolios. MMCC’s financing fees vary by loan amount and type. In 2017, MMCC completed more than 1,700
financing transactions with a sales volume of approximately $5.6 billion and accounted for approximately 7% of
our revenues. MMCC’s size, market reach and sales volume enable us to establish long-term relationships and
special programs with various capital sources. This, in turn, improves MMCC’s value proposition to borrowers
seeking competitive financing rates and terms. MMCC is not limited to promoting in-house or exclusive capital
sources and seeks the most competitive financing solution for each client’s specific needs and circumstances.
During 2017, approximately 48% of MMCC’s revenues came from placing acquisition financing, 44% from
refinancing activities and 8% from other financing activities.

MMCC is fully integrated with our investment sales force in our brokerage offices. MMCC financing
professionals are supervised by our regional managers, who promote cross-selling, information sharing, business
referrals and high quality client service within the offices. The MMCC national network of financing
professionals is supported by a dedicated, nationally focused management team coordinating access to a broad
range of national and regional capital sources including bank lenders, conduit lenders, CMBS lenders, structured
debt facilitators (mezzanine and preferred equity), Freddie Mac and Fannie Mae programs, HUD and other GSE
lending programs. With these resources coupled with the latest property and capital markets information, we are
able to access and deliver the best loan structures, financing rates and terms to meet our clients’ financial
objectives.

Ancillary Services: Research, Advisory and Consulting

Our research, advisory and consulting services are designed to assist clients in forming their investment

strategy and making transaction decisions. Our advisory and consulting services are coordinated with both our
investment sales and financing professionals and are designed to provide market and property focused market
research, publications and customized analysis that increase customer loyalty and long-term relationships.

We also provide a wide range of advisory and consulting services to developers, lenders, owners, real estate
investment trusts, high net worth individuals, pension fund advisors and other institutions. Our advisory services
include opinions of value, operating and financial performance benchmarking analysis, specific asset buy-sell
strategies, market and submarket analysis and ranking, portfolio strategies by property type, market strategy,
development and redevelopment feasibility studies and other services.

Seasonality

There is seasonality in our real estate brokerage commissions and financing fees, which has generally
caused our revenues, operating income, net income and cash flows from operating activities to be lower in the
first half of the year and higher in the second half of the year, particularly in the fourth quarter. For a more
detailed description of our seasonality, refer to Item 1A – Risk Factors – External Business Risks – “Seasonal
fluctuations and other market data in the investment real estate industry could adversely affect our business and
make comparisons of our quarterly results difficult” and Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Overview – Seasonality of this Annual Report on Form 10-K.

Competition

We compete in real estate brokerage and financing within the commercial real estate industry on a national,

regional and local basis. Competition is based on a number of critical factors, including the quality and expertise of
our investment sales and financing professionals, our execution skills, sales support, brand recognition and our
business reputation. We primarily compete with other brokerage and financing firms that seek investment brokerage
and financing business from real estate owners and investors. To a lesser extent, we compete with in-house real
estate departments, owners who may transact without using a brokerage firm, direct lenders, consulting firms and
investment managers, some of which may have greater financial resources than we do. Our relative competitive
position also varies across geographies, property types and services. In investment sales, our competitors on a
national level include CBRE Group, Inc., Cushman & Wakefield, Colliers International, HFF, Inc. and Jones Lang
LaSalle. Our major financing competitors include HFF, Inc., CBRE Group, Inc., Jones Lang LaSalle, Walker &
Dunlop, Grandbridge Real Estate Capital and NorthMarq Capital, LLC. The investment sales firms mainly focus on
larger sales and institutional investors and are not heavily concentrated in our largest market segment, which is the
$1-$10 million private client market segment. However, there is crossover and competition between us and these
firms. As a result of the fragmentation in the market, there are also numerous local and regional competitors in our
markets, as well as competitors specializing in certain property types. Despite recent consolidation, the commercial
real estate services industry remains highly fragmented and competitive.

Competition to attract and retain qualified professionals is also intense in each of our geographic regions
and across all property types. We offer what we believe to be competitive compensation and support programs to
our professionals. Our ability to continue to compete effectively will depend on retaining, motivating and
appropriately compensating our professionals.

Technology

We have a long-standing tradition of technological orientation, innovation and advancement. Our efforts

include the development of proprietary applications designed to make the process of matching buyer and sellers
faster and more efficient as well as state-of-the-art communication technology, infrastructure, internet presence
and electronic marketing.

We have a proprietary internal marketing system, MNet, which allows our sales force to share listing
information with investors across the country. MNet is an integrated tool that contains our entire national
property inventory, which allows our sales force to search for properties based on investors’ acquisition criteria.
This system is an essential part of connecting buyers and sellers through our national platform. Our policies
require information sharing among our sales force, and the MNet system automates the process of matching each
property we represent to the largest pool of qualified buyers tracked by our national sales force. A part of MNet,
called Buyer Needs, enables our sales force to register the investment needs of various buyers, which are then
matched to our available inventory on a real-time basis.

In 2016, we began the deployment of an improved proprietary system for automating the production of
property marketing materials and launching marketing campaigns, which we call MNet-Offering, replacing our
previous system called iMpact. MNet-Offering allows our investment sales professionals to create a listing
proposal or marketing package, which automatically imports property information, data on comparable properties
and other information, and then dynamically populates our e-marketing, print, and Internet media. This system
allows our sales force to rapidly create professionally branded and designed materials for marketing properties on
behalf of our clients in an efficient and timely manner. This new web-based application improves sales force
efficiency by tightly integrating MNet data for transaction history, sales and rent comparables, and market
insights that differentiate our sales force in the marketplace. The proposals and marketing packages produced by
MNet-Offering also deliver updated content and expanded demographic and financial analysis to better market
those properties for our clients. We completed the rollout of MNet-Offering for all property types in the first half
of 2017 and have begun planning to sunset the legacy iMpact application.

Our website is designed not only to bring in new clients for our investment sales and financing

professionals, but also to make our inventory of properties available for maximum exposure for our sellers, and
to provide buyers an opportunity to engage with our investment sales and financing professionals. We actively
qualify leads generated from the contact forms, and pass those leads to our agents via our customer relationship
management platform. Our websites average approximately 64,000 visitors per month and over 850,000 page
views per month (all based on data from Google Analytics) and also serves as a portal for delivery of online
marketing materials and for deal collaboration.

Marketing and Branding

Our 47 years of investment brokerage specialization and concentration in the $1-$10 million private client

market segment have established our brand as the leading broker of investment real estate as well as a trusted
source of financing solutions and market research. In recent years we have also garnered recognition among
larger private investors and institutions due to our integrated platform and capability of linking private and
institutional capital. We continue to strengthen and broaden the Company’s name recognition and credibility by
executing a variety of marketing and branding strategies. Locally, our offices and investment sales and financing
professionals engage in numerous events, direct mail campaigns, investor symposiums and participate in real
estate conferences and organizations for various market segments and property types. Our regional managers and
investment sales and financing professionals develop long-term client relationships and promote the Company’s
brand through these activities.

Our research division produces more than 1,100 publications and client presentations per year and has
become a leading source of information for the industry as well as the general business media. We provide
research on 10 commercial property types covering: multifamily, retail, office, industrial, single-tenant net lease,
seniors housing, self-storage, hospitality, medical office and manufactured housing, as well as capital markets/
financing. This research includes analysis and forecasting of the economy, capital markets, real estate
fundamentals, investment, pricing and yield trends, and is designed to assist investors in their strategy formation
and decisions relating to specific assets and help our investment sales professionals develop and maintain
relationships with clients.

Our transactional and market research expertise result in significant print, radio, television and online media

coverage including most major real estate publications such as Real Estate Forum, Multi-Housing News,
Commercial Property Executive and National Real Estate Investor as well as local market and major national
news outlets such as CNBC, Fox Business, The Wall Street Journal, Los Angeles Times, Chicago Tribune,
Bloomberg Businessweek, Forbes and Investors Business Daily. Our CEO is frequently interviewed on national
business channels, such as CNBC, Bloomberg and Fox Business, to address the commercial real estate market.
We frequently have featured speaking roles in key regional and national industry events, and we are regularly
quoted in regional and national publications and media, and deliver content directly to the real estate investment
community through print, electronic publications and video. Nationally, our specialty groups and capital markets
executives actively participate in various trade organizations, many of which focus on specific property types and
provide an effective vehicle for client relationship development and branding.

We believe all these activities create significant exposure and name recognition for our firm, which fosters

and builds strong, long-term client relationships.

Intellectual Property

We hold various trademarks and trade names, which include the “Marcus & Millichap” name. Although we
believe our intellectual property plays a role in maintaining our competitive position in a number of the markets
that we serve, we do not believe we would be materially, adversely affected by the expiration or termination of
our trademarks or trade names or the loss of any of our other intellectual property rights other than the Marcus &
Millichap name. With respect to the Marcus & Millichap name, we maintain trademark registrations for these
service marks.

In addition to trade names, we have developed proprietary technologies for the provision of real estate
investment services, such as MNet, MNet-Offering and iMpact. We also offer proprietary research to clients
through our research division. While we seek to secure our rights under applicable intellectual property
protection laws in these and any other proprietary assets that we use in our business, we do not believe any of
these other items of intellectual property are material to our business in the aggregate.

Government Regulation

We are subject to various real estate regulations, as such we maintain real estate and other broker licenses in

45 states in the United States and three provinces in Canada. We are a licensed broker in each state in which we
have an office, as well as those states where we frequently do business. We are also subject to numerous other
federal, state and local laws and regulations that contain general standards for, and prohibitions on, the conduct
of real estate brokers and sales associates, including agency duties, collection of commissions, telemarketing,
advertising and consumer disclosures.

Employees and Investment Sales and Financing Professionals

As of December 31, 2017, we had 1,819 investment sales and financing professionals of which 1,733 are

exclusive independent contractors and the remainder are our employees.

We had 774 employees as of December 31, 2017, consisting of 86 employees as financing professionals, 21

employees in communications and marketing, 18 employees in research and 649 employees in management,
support and general and administrative functions. We believe our employee relations are good.

Most of the Company’s investment sales professionals are classified as independent contractors under state
and IRS guidelines. As such, the Company generally does not pay for the professionals’ expenses or benefits or
withhold payroll taxes; rather they are paid from the commissions earned by the Company upon the closing of a
transaction, and these individuals do not earn a salary from which taxes are withheld. Almost all of the

investment sales professionals hold applicable real estate sales licenses and execute a “Salespersons Agreement”
setting out the relationship between the professional and the Company. Each professional is obligated to provide
brokerage services exclusively to the Company, and is provided access to the Company’s information
technology, research and other support and business forms. Each professional generally reports on their activities
to either the local regional manager, or in some cases, to product specialty managers.

Our investment sales and financing professionals are located in offices throughout the United States and
Canada, each led by a regional manager with previous investment brokerage experience and an active real estate
or brokerage license. We have regional managers and investment sales managers, who are responsible for hiring,
developing and deploying investment sales professionals, managing regional and mid-market offices and
supervising MMCC originators and support staff in their area of responsibility. We also have six division
managers who oversee multiple offices; division managers hire, develop, and support our office management and
provide additional leadership and support for our local sales management team. Finally, our management
structure includes national specialty directors who lead each property type. Our national specialty directors
develop our national and local brand in each property type, develop major accounts and coordinate multi-market
assignments on behalf of large clients.

Traditionally, our growth has been driven by recruiting, training and developing new investment sales and
financing professionals. Our new investment sales and financing professionals are trained in our technical and
client service standards through a comprehensive program starting with pre-training, formal training and
apprenticeship programs. While continuing to improve the recruiting, training and developing of new investment
sales and financing professionals remains a major priority, we have also expanded our strategy to include more
experienced investment sales and financing professionals who fit our culture and values. Over the past several
years, experienced investment sales and financing professionals, including some top performers previously with
national competitors, have joined the firm and have become productive members of our team. As investment
sales and financing professionals mature, we continue with specialized training and best practices sessions by
tenure, which are conducted by senior management, regional managers, leading investment sales professionals
and our national specialty directors. The goal of this rigorous approach to training is to continually improve our
team’s skill set and client services. Our sales force conducts business the same way across the country to deliver
a high level of consistency, professionalism and reliability to our clients who often buy and sell investments in
variety of property types and locations.

Our investment sales and financing professionals receive a percentage of the commission received by the
Company. As investment sales and financing professionals become more senior, they receive a larger percentage
of the commission based on tenure and production. Depending on the aggregate gross commissions, a portion of
the investment sales and financing professional’s commission may be deferred for three years.

Emerging Growth Company Status

We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of

2012 (the “JOBS Act”), and we will continue to be an “emerging growth company” until December 31, 2018.
Currently, we may choose to take advantage of exemptions from various reporting requirements applicable to
other public companies but not to “emerging growth companies,” including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and
exemptions from the requirements of holding a non-binding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved.

We have irrevocably elected to opt out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(b) of the JOBS Act, and therefore, we are subject to the same new
or revised accounting standards as other public companies that are not “emerging growth companies.”

Available Information

Our website address is www.MarcusMillichap.com. Information on our website does not constitute part of

this report and inclusions of our internet address in this Annual Report on Form 10-K are inactive textual
references only. We are required to file current, annual and quarterly reports, proxy statements and other
information required by the Exchange Act, with the SEC. We make available free of charge through a link
provided on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain
large stockholders, and any amendments to those documents filed or furnished pursuant to the Exchange Act.
Such reports are available as soon as reasonably practicable after they are filed with the SEC.

The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports,
proxy and information statements and other information regarding the Company that we file electronically with
the SEC at www.sec.gov.

We also make available on our website and will provide print copies to stockholders upon request, (i) our
corporate governance guidelines, (ii) our code of ethics, and (iii) charters of the audit, compensation, corporate
governance and nominating committees of our board of directors.

From time to time, we may announce key information in compliance with Regulation FD by disclosing that

information on our website.

Item 1A. Risk Factors

Investing in our securities involves a high degree of risk. You should consider carefully the following risk

factors and the other information in this Annual Report on Form 10-K, including our consolidated financial
statements and related notes, before making any investment decisions regarding our securities. If any of the
following risks actually occur, our business, financial condition and operating results could be adversely
affected. As a result, the trading price of our securities could decline and you may lose part or all of your
investment.

Overview

We are impacted by and manage many risk factors detailed below affecting our business including External

Business Risks, Human Resource and Personnel Risks, Internal Business Risks, and Risks related to the
Ownership of Our Common Stock. Many of these factors described below in External Business Risk, are outside
of our control. In addition, we are a personnel and relationship intensive business rather than a capital intensive
business. While all the risk factors discussed below have the potential to negatively impact our business, the most
significant risks facing the Company are the general economic conditions and commercial real estate market
conditions risk and our ability to attract and retain qualified and experienced managers and investment sales and
financing professionals.

External Business Risks

General economic conditions and commercial real estate market conditions have had and may in the future
have a negative impact on our business.

We may be negatively impacted by periods of economic downturns, recessions and disruptions in the capital

markets; credit and liquidity issues in the capital markets, including international, national, regional and local
markets; tax and regulatory changes and corresponding declines in the demand for commercial real estate
investment and related services. Historically, commercial real estate markets and, in particular, the U.S.
commercial real estate market, have tended to be cyclical and related to the flow of capital to the sector, the
condition of the economy as a whole and to the perceptions and confidence of the market participants as to the
relevant economic outlook. Cycles in the real estate markets may lead to similar cycles in our earnings and
significant volatility in our stock price. Further real estate markets may “lag” behind the broader economy such
that even when underlying economic fundamentals improve in a given market, additional time may be required
for these improvements to translate into strength in the real estate markets. The “lag” may be exacerbated when
banks delay their resolution of commercial real estate assets whose values are less than their associated loans.

Negative economic conditions, changes in interest rates, credit and the availability of capital, both debt and/
or equity, disruptions in capital markets, uncertainty of the tax and regulatory environment and/or declines in the
demand for commercial real estate investment and related services in international and domestic markets or in
significant markets in which we do business, have had and could have in the future a material adverse effect on
our business, results of operations and/or financial condition. In particular, the commercial real estate market is
directly impacted by (i) the lack of debt and/or equity financing for commercial real estate transactions,
(ii) increased interest rates and changes in monetary policies by the U.S Federal Reserve, (iii) changes in the
perception that commercial real estate is an accepted asset class for portfolio diversification, (iv) changes in tax
policy affecting the attractiveness of real estate as an investment choice, (v) changes in regulatory policy
impacting real estate development opportunities and capital markets and (vi) slowdowns in economic activity
that could cause residential and commercial tenant demand to decline, which would adversely affect the
operation and income of commercial real estate properties. Severe restrictions in debt and/or equity liquidity as
well as the lack of the availability of credit in the markets we serviced in 2010, 2009 and 2008 significantly
reduced the volume and pace of commercial real estate transactions compared with past periods. These
restrictions also had a general negative effect upon commercial real estate prices themselves.

These and other types of events could lead to a decline in transaction activity as well as a decrease in
property values which, in turn, would likely lead to a reduction in brokerage commissions and financing fees
relating to such transactions. These effects would likely cause us to realize lower revenues from our transaction
service fees, including investment sales commissions, which fees usually are tied to the transaction value and are
payable upon the successful completion of a particular transaction. Such declines in transaction activity and value
would likely also significantly reduce our financing activities and revenues. For example, the disruptions and
dislocations in the global credit markets during 2008 and 2009 created significant restrictions in the availability
of credit, especially on transitional assets and in the secondary and tertiary markets. In turn, the volume and pace
of commercial real estate transactions were significantly reduced, as were property values, which generally
peaked in 2007 and fell through 2010.

Fiscal uncertainty, significant changes and volatility in the financial markets and business environment and

similar significant changes in the global, political, security and competitive landscape, make it increasingly
difficult for us to predict our revenue and earnings into the future. As a result, any revenue or earnings guidance
or outlook which we may give may be affected by such events or may otherwise turn out to be inaccurate.

We have numerous significant competitors and potential future competitors, some of which may have greater
resources than we do, and we may not be able to continue to compete effectively.

We compete in investment sales and financing within the commercial real estate industry. Our investment

sales focus is on the private client market segment, which is highly fragmented. The fragmentation of our market
makes it challenging to effectively gain market share. While we have a competitive advantage over other national
firms in the private client market segment, we also face competition from local and regional service providers
who have existing relationships with potential clients. Furthermore, transactions in the private client market
segment are smaller than many other commercial real estate transactions. Although the brokerage commissions
in this segment are generally a higher percentage of the sales price, the smaller size of the transactions requires us
to close many more transactions to sustain revenues. If the commission structure or the velocity of transactions
were to change, we could be disproportionately affected by changes compared to other companies that focus on
larger transactions, institutional clients and other segments of the commercial real estate market.

There is no assurance that we will be able to continue to compete effectively, maintain our current fee
arrangements with our private clients, maintain current margin levels or counteract increased competition. The
services we provide to our clients are highly competitive on a national, regional and local level. Depending on
the geography, property type or service, we face competition from, including, but not limited to, commercial real
estate service providers, in-house real estate departments, private owners and developers, commercial mortgage
servicers, institutional lenders, research and consulting firms, and investment managers, some of whom are
clients and many of whom may have greater financial resources than we do. In addition, future changes in laws
and regulations could lead to the entry of other competitors. Many of our competitors are local, regional or
national firms. Although most are substantially smaller than we are, some of these competitors are larger on a
local, regional or national basis, and we believe more national firms are exploring entry into or expansion in the
$1-$10 million private client market segment. We may face increased competition from even stronger
competitors in the future due to a trend toward acquisitions and consolidation. We are also subject to competition
from other large national and multi-national firms as well as regional and local firms that have similar service
competencies to ours. Our existing and future competitors may choose to undercut our fees, increase the levels of
compensation they are willing to pay to their employees and investment sales and financing professionals, and
either recruit our employees and investment sales and financing professionals or cause us to increase our level of
compensation necessary to retain employees or investment sales and financing professionals, or recruit new
employees or investment sales and financing professionals. These occurrences could cause our revenue to
decrease, and/or expenses to increase which could have an adverse effect on our business, financial condition and
results of operations.

Our brokerage operations are subject to geographic and commercial real estate market risks, which could
adversely affect our revenues and profitability.

Our real estate brokerage offices are located in and around large metropolitan areas as well as mid-market

regions throughout the United States and Canada. Local and regional economic conditions in these locations
could differ materially from prevailing conditions in other parts of the country. We realize more of our revenues
in California. In 2017, we earned approximately 33% in California. In particular, as a result of this concentration,
we are subject to risks related to the California economy and real estate markets more than in other geographic
markets. In addition to economic conditions, this geographic concentration means that California-specific
legislation, taxes and regional disasters, such as earthquakes, could disproportionately affect us. A downturn in
investment real estate demand or economic conditions in these regions could result in a further decline in our
total gross commission income and profitability and have a material adverse effect on us.

Seasonal fluctuations and other market data in the investment real estate industry could adversely affect our
business and make comparisons of our quarterly results difficult.

Our revenue and profits have historically tended to be significantly higher in the second half of each year

than in the first half of the year. This is a result of a general focus in the real estate industry on completing or
documenting transactions by calendar year end and because certain expenses are relatively constant throughout
the year. This historical trend can be disrupted both positively and negatively by major economic, regulatory or
political events impacting investor sentiment for a particular property type or location, current and future
projections of interest rates and tax rates, attractiveness of other asset classes, market liquidity and the extent of
limitations or availability of capital allocations for larger institutional buyers, to name a few. As a result, our
historical pattern of seasonality may or may not continue to the same degree experienced in the prior years and
may make it difficult to determine during the course of the year whether planned results will be achieved, and
thus to adjust to changes in expectations.

A change in the tax laws relating to like-kind exchanges could adversely affect our business and the value of
our stock.

Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), provides for tax-free

exchanges of real property for other real property. Legislation has been proposed on several occasions that would
repeal or restrict the application of Section 1031. If tax-free exchanges under Section 1031 were to be limited or
unavailable, our clients or prospective clients may decide not to purchase or sell property that they would have
otherwise purchased or sold due to the tax consequences of the transaction, thus reducing the commissions we
would have otherwise received. Any repeal or significant change in the tax rules pertaining to like-kind
exchanges could have a substantial adverse impact on our business and the value of our stock.

A change in the tax laws could adversely affect our business and value of our stock.

The Code and state and local tax codes contain numerous provisions, regulations and interpretations. We
operate in numerous states and cities in the United States and in Canada and are exposed to the risk of complying
with those tax codes. Changes in tax laws in the various jurisdictions in which we operate may impact taxes we
are required to pay and our ability to transact business in the jurisdictions. Further, such changes may make
operating in these jurisdictions unprofitable and may unfavorably impact our results of operations and ability to
execute our growth plans.

In addition, changes in tax laws can impact investors’ perceived value of real estate, timing of transactions

and perception of real estate as favorable investment. As a result, such changes may increase or decrease
investors’ desire to engage in real estate transactions, which could have an unfavorable impact on our financial
condition and results of operations.

The Internet could devalue our information services and lead to reduced client relationships, which could
reduce the demand for our services.

The dynamic nature of the Internet, which has substantially increased the availability and transparency of
information relating to commercial real estate listings and transactions, could change the way commercial real
estate transactions are done. This has occurred to some extent in the residential real estate market as online
brokerage and/or auction companies have eroded part of the market for traditional residential real estate
brokerage firms. The proliferation of large amounts of data on the Internet could also devalue the information
that we gather and disseminate as part of our business model and may harm certain aspects of our investment
brokerage business in the event that principals of transactions prefer to transact directly with each other. The
rapid dissemination and increasing transparency of information, particularly for public companies, increases the
risks to our business that could result from negative media or announcements about ethics lapses, improper
behavior or other operational problems, which could lead clients to terminate or reduce their relationships with
us.

Our businesses, financial condition, results of operations and prospects could be adversely affected by new
laws or regulations or by changes in existing laws or regulations or the application thereof. If we fail to
comply with laws and regulations applicable to us, including in our role as a real estate broker or mortgage
broker, we may incur significant financial penalties.

We are subject to numerous federal, state, local and foreign regulations specific to the services we perform

in our business, as well as laws of broader applicability, such as securities, financial services and employment
laws. In general, the brokerage of real estate transactions requires us to maintain applicable licenses where we
perform these services. If we fail to maintain our licenses or conduct these activities without a license, or violate
any of the regulations covering our licenses, we may be required to pay fines (including treble damages in certain
states) or return commissions received or have our licenses suspended or revoked. We could also be subject to
disciplinary or other actions in the future due to claimed noncompliance with these regulations, which could have
a material adverse effect on our operations and profitability.

Our business is also governed by various laws and regulations, limiting the manner in which prospective
clients may be contacted, including federal and state “Do Not Call” and “Do Not Fax” regulations. We may be
subject to legal claims and governmental action if we are perceived to be acting in violation of these laws and
regulations. We may also be subject to claims to the extent individual employees or investment sales and
financing professionals breach or fail to adhere to company policies and practices designed to maintain
compliance with these laws and regulations. The penalties for violating these laws and regulations, can be
material, and could result in changes in which we are able to contact prospective clients.

As the size and scope of commercial real estate transactions have increased significantly during the past

several years, both the difficulty of ensuring compliance with numerous licensing regimes and the possible loss
resulting from non-compliance have increased. New or revised legislation or regulations applicable to our
business, both within and outside of the United States, as well as changes in administrations or enforcement
priorities may have an adverse effect on our business. Such new or revised legislation or regulations applicable to
our business may impact transaction volumes and values, increase the costs of compliance or prevent us from
providing certain types of services in certain jurisdictions or in connection with certain transactions or clients.
For example, legislation which limits or prohibits dual agency, which is under consideration in California, could
have an adverse impact on our revenues. We are unable to predict how any of these new laws, rules, regulations
and proposals will be implemented or in what form, or whether any additional or similar changes to laws or
regulations, including the interpretation or implementation thereof, will occur in the future. Risks of legislative
changes, including as a result of interpretive guidance or other directives from the current administration, and
new laws, regulations and interpretations may also come into effect. The impact of any new or revised legislation
or regulations under the current administration is unknown. Any such action could affect us in substantial and
unpredictable ways and could have an adverse effect on our business, financial condition and results of
operations.

Human Resource and Personnel Risks

If we are unable to attract and retain qualified and experienced managers, investment sales and financing
professionals, our growth may be limited and our business and operating results could suffer.

Our most important asset is people, and our continued success is highly dependent upon the efforts of our

managers and investment sales and financing professionals. If these managers or investment sales and financing
professionals depart, we will lose the substantial time and resources we have invested in training and developing
those individuals and our business, financial condition and results of operations may suffer. Additionally, such
departures may have a disproportionate adverse effect on our operations if our most experienced investment sales
and financing professionals do not remain with us or if departures occur in geographic areas where substantial
amounts of our real estate brokerage commissions and financing fee revenues are generated.

Our competitors may attempt to recruit our investment sales and financing professionals or change

commission structures in the market place. For a variety of reasons, the exclusive independent contractor
arrangements we have entered into or may enter into with investment sales professionals may not prevent these
investment sales professionals from departing and competing against us due to our commission compensation
being relatively less attractive to our investment sales and financing professionals. We currently do not have
employment agreements with most key employees, and there is no assurance that we will be able to retain their
services.

An increasing component of our growth has also occurred through the recruiting, training and retention of
key experienced investment sales and financing professionals. Any future growth through attracting these types
of professionals will be partially dependent upon the continued availability of qualified candidates fitting the
culture of our firm at reasonable terms and conditions. However, individuals whom we would like to recruit or
retain may not agree to terms and conditions acceptable to us. In addition, the recruiting of new personnel
involves risks that the persons acquired will not perform in accordance with expectations and that business
judgments concerning the value, strengths and weaknesses of persons recruited will prove incorrect.

If we lose the services of our executive officers or certain other members of our senior management team, we
may not be able to execute our business strategy.

Our success depends in a large part upon the continued service of our senior management team, who are
important to our vision, strategic direction and culture. Our current long-term business strategy was developed in
large part by our senior-level officers and depends in part on their skills and knowledge to implement, and also
includes a focus on new growth and investment initiatives that may require additional management expertise to
successfully execute our strategy. We may not be able to offset the impact on our business of the loss of the
services of our senior management or other key officers or employees or be able to recruit additional or
replacement talent, which could negatively impact our business, financial condition and results of operations.

Our business could be hurt if we are unable to retain our business philosophy and culture of information-
sharing and efforts to retain our philosophy and culture could adversely affect our ability to maintain and
grow our business.

Our policy of information-sharing, matching properties with large pools of investors and the emphasis that

we place on our clients, our people and our culture defines our business philosophy and differentiates our
services. Various factors could adversely affect this culture. If we do not continue to develop and implement the
right processes and tools to manage our changing enterprise and maintain this culture, our ability to compete
successfully and achieve our business objectives could be impaired, which could negatively impact our business,
financial condition and results of operations.

The concentration of sales among our top investment sales and financing professionals could lead to losses if
we are unable to retain them.

Our most successful investment sales and financing professionals are responsible for a significant
percentage of our revenues. They also serve as mentors and role models, and provide invaluable training for
younger professionals, which is an integral part of our culture. This concentration among our top investment
sales and financing professionals of real estate brokerage commissions and financing fees revenues can lead to
greater and more concentrated risk of loss if we are unable to retain them, and could have a material adverse
impact on our business and financial condition. Furthermore, many of our investment sales and financing
professionals work in teams. If a team leader or manager leaves our Company, his or her team members may
leave with the team leader.

Most of our sales professionals are independent contractors, not employees, and if laws, regulations or rulings
mandate that they be employees, our business would be adversely impacted.

Most of our investment sales professionals are retained as independent contractors, and we are subject to the

Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor
classification. These regulations and guidelines are subject to judicial and agency interpretation, and it could be
determined that the independent contractor classification is inapplicable to some or all of our investment sales
professionals. Further, if legal standards for classification of these investment sales professionals as independent
contractors change or appear to be changing, it may be necessary to modify our compensation structure for these
investment sales professionals in some or all of our markets, including paying additional compensation or
reimbursing expenses. If we are forced to classify these investment sales professionals as employees, we would
also become subject to laws regarding employee classification and compensation, and to claims regarding
overtime, minimum wage, and meal and rest periods. We could also incur substantial costs, penalties and
damages due to future challenges by current or former investment sales professionals to our classification or
compensation practices. Any of these outcomes could result in substantial costs to us, could significantly impair
our financial condition and our ability to conduct our business as we choose, and could damage our reputation
and impair our ability to attract clients and investment sales and financing professionals.

Fraud, or theft, which is difficult to detect and deter, could harm us by impairing our ability to attract and
retain clients and subjecting us to significant legal liability and reputational harm.

If our employees or investment sales and financing professionals engage in misconduct, our business could

be adversely affected. It is not always possible to deter misconduct, and the precautions we take to deter and
prevent this activity may not be effective in all cases. If our employees or investment sales and financing
professionals were to engage in unethical business practices, improperly use, disseminate, fail to disseminate or
disclose information provided by our clients, we could be subject to regulatory sanctions, suffer serious harm to
our reputation, financial position and current client relationships and significantly impair our ability to attract
future clients. These events could adversely affect our business, financial condition and results of operation. To
the extent any fraud or theft of funds or misconduct result in losses that exceeds our insurance coverage, our
business could be materially adversely affected.

Internal Business Risks

We may fail to successfully differentiate our brand from those of our competitors, which could adversely
affect our revenues.

The value of our brand and reputation is one of our most important assets. An inherent risk in maintaining
our brand is we may fail to successfully differentiate the scope and quality of our service and product offerings
from those of our competitors, or we may fail to sufficiently innovate or develop improved products or services
that will be attractive to our clients. Additionally, given the rigors of the competitive marketplace in which we
operate, there is the risk we may not be able to continue to find ways to operate more productively and more

cost-effectively, including by achieving economies of scale, or we will be limited in our ability to further reduce
the costs required to operate on a nationally coordinated platform.

Our attempts to expand our services and businesses may not be successful and we may expend significant
resources without corresponding returns.

We intend to expand our specialty groups, particularly multi-tenant retail, office, industrial and hospitality,

as well as various niche segments, including multifamily tax credit, affordable housing, student housing,
manufactured housing, seniors housing and self-storage. We also plan to grow our financing services provided
through our subsidiary, Marcus & Millichap Capital Corporation. We expect to incur expenses relating to
recruitment, training, and expanding our markets and services. The planned expansion of services and platforms
requires significant resources, and there can be no assurance we will compete effectively, attract or train a
sufficient number of professionals to support the expansion, or operate these businesses profitably. We may incur
significant expenses for these plans without corresponding returns, which would harm our business, financial
condition and results of operations.

If we experience significant growth in the future, such growth may be difficult to sustain and may place
significant demands on our administrative, operational and financial resources.

If we experience significant growth in the future, such growth could place additional demands on our

resources and increase our expenses, as we will have to commit additional management, operational and
financial resources to maintain appropriate operational and financial systems to adequately support expansion.
There can be no assurance we will be able to manage our expanding operations effectively or we will be able to
maintain or accelerate our growth, and any failure to do so could adversely affect our ability to generate revenue
and control our expenses, which could adversely affect our business, financial condition and results of
operations. Moreover, we may have to delay, alter or eliminate the implementation of certain aspects of our
growth strategy due to events beyond our control, including, but not limited to, changes in general economic
conditions and commercial real estate market conditions. Such delays or changes to our growth strategy may
adversely affect our business.

A majority of our revenue is derived from transaction fees, which are not long-term contracted sources of
revenue and are subject to external economic conditions, and declines in those engagements could have a
material adverse effect on our financial condition and results of operations.

We historically have earned principally all of our revenue from real estate brokerage transactions and
financing fees. We expect that we will continue to rely heavily on revenue from these sources for substantially all
of our revenue for the foreseeable future. A decline in number of transactions completed or in the value of the
commercial real estate we sell could significantly decrease our revenues which would adversely affect our
business, financial condition and results of operations.

If we are unable to retain existing clients and develop new clients, our financial condition may be adversely
affected.

We are substantially dependent on long-term client relationships and on revenue received for services
provided for them. Our listing agreements generally expire within six months and depend on the cooperation of
the client during the pendency of the agreement, as is typical in the industry. In this competitive market, if we are
unable to maintain these relationships or are otherwise unable to retain existing clients and develop new clients,
our business, results of operations and/or financial condition may be materially adversely affected. Historically, a
global economic downturn and weaknesses in the markets in which our clients and potential clients compete have
led to a lower volume of transactions and fewer real estate clients generally, which makes it more difficult to
maintain existing and establish new client relationships. These effects could increase again in the wake of the
continuing political and economic uncertainties in the United States and in other countries.

If we do not respond to technological innovations or changes or upgrade our technology systems, our growth
prospects and results of operations could be adversely affected.

To remain competitive, we must continue to enhance and improve the functionality, features and security of

our technology infrastructure. Infrastructure upgrades may require significant capital investment outside of the
normal course of business. In the future, we will likely need to improve and upgrade our technology, database
systems and network infrastructure in order to allow our business to grow in both size and scope. Without such
improvements, our operations might suffer from unanticipated system disruptions, slow performance or
unreliable service levels, any of which could negatively affect our ability to provide rapid customer service. We
may face significant delays in introducing new services, investment sales professional tools and enhancements.
Moreover, if we do not keep pace with the rapid innovations and changes taking place in information technology
in our industry, we could be at a competitive disadvantage. If competitors introduce new products and services
using new technologies, our proprietary technology and systems may become less competitive, and our business
may be harmed. In addition, the expansion and improvement of our systems and infrastructure may require us to
commit substantial financial, operational and technical resources, with no assurance that our business will
improve.

Interruption, unauthorized breaches, or failure of our information technology, communications systems or
data services could hurt our ability to effectively provide our services, which could damage our reputation and
harm our operating results.

Our business requires the continued operation of information technology and communication systems and

network infrastructure. Our ability to conduct our national business may be adversely impacted by disruptions or
breaches to these systems or infrastructure. Our information technology and communications systems are
vulnerable to damage or disruption from fire, power loss, telecommunications failure, system malfunctions,
computer viruses, third-party misconduct or penetration and criminal acts, natural disasters such as hurricanes,
earthquakes and floods, acts of war or terrorism, or other events which are beyond our control. In addition, the
operation and maintenance of these systems and networks is, in some cases, dependent on third-party
technologies, systems and service providers for which there is no certainty of uninterrupted availability. Any of
these events could cause system interruption, delays, and loss of critical data or intellectual property (such as our
client lists and information, business methods and research) and may also disrupt our ability to provide services
to or interact with our clients, and we may not be able to successfully implement contingency plans that depend
on communication or travel. We have disaster recovery plans and backup systems to reduce the potentially
adverse effect of such events, but our disaster recovery planning may not be sufficient and cannot account for all
eventualities. A catastrophic event that results in the destruction or disruption of any of our data centers or our
critical business or information technology systems could severely affect our ability to conduct normal business
operations and, as a result, our future operating results could be adversely affected. Our business relies
significantly on the use of commercial real estate data. We produce much of this data internally, but a significant
portion is purchased from third-party providers for which there is no certainty of uninterrupted availability. A
disruption of our ability to provide data to our professionals and/or clients could damage our reputation, and our
operating results could be adversely affected.

Failure to maintain the security of our information and technology networks, including personally identifiable
and client information could adversely affect us.

Security breaches and other disruptions could compromise our information and expose us to liability, which

could cause our business and reputation to suffer. In the ordinary course of our business, we collect and store
sensitive data, including our proprietary business information and intellectual property and that of our clients and
personally identifiable information of our employees and contractors, in our data centers and on our networks.
The secure processing, maintenance and transmission of this information is critical to our operations. Despite our
security measures, our information technology and infrastructure may be vulnerable to various cyber-attacks,
such as hacking, spoofing and phishing attacks, or our systems may be breached due to employee error,

malfeasance or other disruptions. A significant actual or potential theft, loss, fraudulent use or misuse of client,
employee or other personally identifiable data, whether by third parties or as a result of employee malfeasance or
otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of
our privacy and security policies with respect to such data could result in significant costs, fines, litigation or
regulatory actions against us. Such an event could additionally disrupt our operations and the services we provide
to clients, damage our reputation, and cause a loss of confidence in our services, which could adversely affect our
business, revenues and competitive position. Additionally, we increasingly rely on third-party data storage
providers, including cloud storage solution providers, resulting in less direct control over our data. Such third
parties may also be vulnerable to security breaches and compromised security systems, which could adversely
affect our reputation.

In addition, we rely on the collection and use of personally identifiable information from clients to conduct

our business. We disclose our information collection and dissemination practices in a published privacy
statement on our websites, which we may modify from time to time. We may be subject to legal claims,
government action, including under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and
damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy
statement, client expectations or the law. In the event we or the vendors with which we contract to provide
services on behalf of our clients were to suffer a breach of personally identifiable information, our customers
could terminate their business with us. Further, we may be subject to claims to the extent individual employees or
investment sales and financing professionals breach or fail to adhere to company policies and practices and such
actions jeopardize any personally identifiable information. In addition, concern among potential buyers or sellers
about our privacy practices could keep them from using our services or require us to incur significant expense to
alter our business practices or educate them about how we use personally identifiable information.

Failure to appropriately deal with actual or perceived conflicts of interest could adversely affect our
businesses.

Outside of our employees and investment sales and financing professionals, our reputation is one of our
most important assets. As we have expanded the scope of our services, we increasingly have to address potential,
actual or perceived conflicts of interest relating to the services we provide to our existing and potential clients.
For example, conflicts may arise between our position as an advisor to both the buyer and seller in commercial
real estate sales transactions or in instances when a potential buyer requests that we represent them in securing
the necessary capital to acquire an asset we are selling for another client or when a capital source takes an
adverse action against an owner client that we are advising in another matter. From time to time, we also advise
or represent entities and parties affiliated with us in commercial real estate transactions which also involve
clients unaffiliated with us. In this context, we may be subject to complaints or claims of a conflict of interest.
While we believe we have attempted to adopt various policies, controls and procedures to address or limit actual
or perceived conflicts, these policies and procedures may not be adequate or carry attendant costs and may not be
adhered to by our employees. Appropriately dealing with conflicts of interest is complex and difficult and our
reputation could be damaged and cause us to lose existing clients or fail to gain new clients if we fail, or appear
to fail, to deal appropriately with conflicts of interest, which could have an adverse effect on our business,
financial condition and results of operations.

If we acquire companies or recruit significant groups of personnel in the future, we may experience high
transaction and integration costs, the integration process may be disruptive to our business and the acquired
businesses and/or personnel may not perform as expected.

Our growth strategy may include the future acquisition of companies and/or recruitment of people and may
involve significant transaction-related expenses. Transaction-related expenditures include severance costs, lease
termination costs, transaction costs, deferred financing costs, possible regulatory costs and merger-related costs,
among others. We may also experience difficulties in integrating operations and accounting systems acquired
from other companies. These challenges include the diversion of management’s attention from the regular

operations of our business and the potential loss of our key clients, our key associates or those of the acquired
operations, each of which could harm our financial condition and results of operation. We believe some
acquisitions could initially have an adverse impact on revenues, expenses, operating income and net income.
Acquisitions also frequently involve significant costs related to integrating people, information technology,
accounting, reporting and management services and rationalizing personnel levels. If we are unable to fully
integrate the accounting, reporting and other systems of the businesses we acquire, we may not be able to
effectively manage them and our financial results may be materially affected. Moreover, the integration process
itself may be disruptive to our business as it requires coordination of culture, people and geographically diverse
organizations and implementation of new accounting and information technology systems.

In addition, acquisitions of businesses involve risks that the businesses acquired will not perform in
accordance with expectations, that the expected synergies associated with acquisitions will not be achieved and
that business judgments concerning the value, strengths and weaknesses of the people and the businesses
acquired will prove incorrect, which could have an adverse effect on our business, financial condition and results
of operations.

We may face significant liabilities and/or damage to our professional reputation as a result of litigation
allegations and negative publicity.

As a licensed real estate broker, we and our licensed professionals and brokers are subject to regulatory due
diligence, disclosure and standard-of-care obligations. The actual or perceived failure to fulfill these obligations
could subject us or our professionals and brokers to litigation from parties who attempted to or in fact financed,
purchased or sold properties that we or they brokered, managed or had some other involvement. We could
become subject to claims by those who either wished to participate or did participate in real estate transactions
alleging that we did not fulfill our regulatory, contractual or other legal obligations. We also face potential
conflicts of interest claims when we represent both the buyer and the seller in a transaction.

We depend on our business relationships and our reputation for integrity and high-caliber professional

services to attract and retain clients. As a result, allegations by private litigants or regulators, whether the
ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us
or our investment activities, whether or not valid, may harm our reputation and damage our business prospects.
In addition, if any lawsuits were brought against us and resulted in a finding of substantial legal liability, it could
materially, adversely affect our business, financial condition or results of operations or cause significant
reputational harm to us, which could materially impact our business.

Some of these litigation risks may be mitigated by the commercial insurance we maintain in amounts we
believe are appropriate. However, in the event of a substantial loss, our commercial insurance coverage and/or
self-insurance reserve levels might not be sufficient to pay the full damages, or the scope of available coverage
may not cover certain types of claims. Further, the value of otherwise valid claims we hold under insurance
policies could become uncollectible in the event of the covering insurance company’s insolvency, although we
seek to limit this risk by placing our commercial insurance only with highly-rated companies. Any of these
events could negatively impact our business, financial condition or results of operations.

We are an “emerging growth company,” and any decision on our part to comply only with certain reduced
reporting and disclosure requirements applicable to emerging growth companies could make our common
stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, until December 31, 2018. As an

“emerging growth company,” we may choose to take advantage of exemptions from various reporting
requirements applicable to other public companies but not to “emerging growth companies,” including, but not
limited to; (i) not being required to have our independent registered public accounting firm audit our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act, which may increase the risk that

weaknesses or deficiencies in the internal control over financial reporting go undetected; (ii) reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, which may make it
more difficult for investors and securities analysts to evaluate our company; and (iii) exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive if we choose to rely on these
exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future
disclosure, there may be a less active trading market for our common stock and our stock price may be more
volatile.

We are obligated to develop and maintain proper and effective internal control over financial reporting. These
internal controls may or may not be subject to auditor attestation, which may adversely affect investor
confidence in our Company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, to furnish a report by
management on, among other things, the effectiveness of our internal control over financial reporting. This
assessment includes disclosure of any material weaknesses identified by our management in our internal control
over financial reporting.

We are required to disclose changes made in our internal control and procedures on a quarterly basis.

However, our independent registered public accounting firm will not be required to formally attest to the
effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no
longer an “emerging growth company,” as defined in the JOBS Act, which will likely be on December 31, 2018.
At such time, our independent registered public accounting firm may issue a report that is adverse in the event it
is not satisfied with the level at which our controls are documented, designed or operating. Our remediation
efforts may not enable us to avoid a material weakness in the future. In addition, to comply with the requirements
of being a public company, we may need to undertake various actions, such as implementing new internal
controls and procedures and hiring additional accounting or internal audit staff.

Our investments in marketable securities are subject to certain risks which could affect our overall financial
condition, results of operations or cash flows.

We invest a portion of our available cash and cash equivalent balances in money market funds, some of
which have floating net asset values or by purchasing marketable securities with maturities in excess of three
months in a managed portfolio in a variety of fixed or variable rate debt securities, including U.S. government
and federal agency securities and corporate debt securities. The primary objective of our investment activity is to
maintain the safety of principal, provide for future liquidity requirements while maximizing yields without
significantly increasing risk. Should any of our investments or marketable securities lose value or have their
liquidity impaired, it could affect the Company’s overall financial condition. Additionally, should we choose or
are required to sell these securities in the future, our consolidated operating results or cash flows may be affected.

We may be deemed to be an investment company due to our investments in marketable securities,
available-for-sale and, if such a determination were made, we would become subject to significant regulation
that would adversely affect our business.

We may be deemed to be an investment company under the Investment Company Act of 1940 if, among

other things, we own “investment securities” with a value exceeding 40% of the value of our total assets, unless

we qualify under a particular exemption or safe harbor. We invest part of our available cash and cash equivalents
in variety of short-term, investment grade securities, some of which may qualify as “investment securities” under
the Investment Company Act. Investment companies are subject to registration under the Investment Company
Act and compliance with a variety of restrictions and requirements. If we were to be deemed an investment
company we would become subject to these restrictions and requirements, and the consequences of having been
an investment company without registering under the Investment Company Act could have a material adverse
effect on our business, financial condition and results of operations, as well as restrict our ability to sell and issue
securities, borrow funds, engage in various transactions or other activities and make certain investment decisions.
In addition, we may incur significant costs or limitation on business opportunities to avoid investment company
status if an exemption from the Investment Company Act were to be considered unavailable to us at a time when
the value of our “investment securities” exceeds 40% of the value of our total assets. We believe that we satisfy
the conditions to be exempt from the Investment Company Act because, among other things, we are engaged
directly and primarily in a business other than that of investing, reinvesting, owning, holding or trading in
securities. However, absent an exemptive order from the SEC, our status of being exempt cannot be assured.

Risks related to the Ownership of Our Common Stock

Our Co-Chairman and founder controls a significant interest in our stock, and the concentrated ownership of
our common stock may prevent other stockholders from influencing significant decisions.

George M. Marcus, our Co-Chairman and founder beneficially owns approximately 49% of our outstanding

common stock as of December 31, 2017. Because Mr. Marcus controls the voting power of our outstanding
common stock, he is able to determine the outcome of corporate actions requiring stockholder approval,
including the election and removal of directors, so long as he controls a significant portion of our common stock.

The price of our common stock may fluctuate significantly and you could lose all or part of your investment.

Volatility in the market price of our common stock may prevent shareholders from being able to sell shares

of our common stock at or above the price shareholders paid for them. The market price for our common stock
could fluctuate significantly for various reasons, including quarterly and annual variations in our results and
those of our competitors; changes to the competitive landscape; estimates and projections by the investment
community; the arrival or departure of key personnel, especially the retirement or departure of key senior
investment sales and financing professionals and management; the introduction of new services by us or our
competitors; acquisitions, strategic alliances or joint ventures involving us or our competitors; and general global
and domestic economic, credit and liquidity issues, market or political conditions. For example, in 2016 and
2017, the price of our shares has ranged from a high of $32.72 per share to a low of $18.77 per share.

As a result of these factors, investors in our common stock may not be able to resell their shares at or above

the price paid to acquire the stock or may not be able to resell them at all. These broad market and industry
factors may materially reduce the market price of our common stock, regardless of our operating performance. In
addition, price volatility may be greater if the public float and trading volume of our common stock is low.

If our Co-Chairman sells a controlling interest in our Company to a third party in a private transaction, you
may not realize any change-of-control premium on shares of our common stock and we may become subject to
the control of a presently unknown third party.

Our Co-Chairman and controlling stockholder has the ability, should he choose to do so, to sell some or all

of the shares of our common stock that he controls in a private transaction, which, if sufficient in size, could
result in a change of control of our Company. The ability of our Co-Chairman and controlling stockholder to
privately sell the shares of our common stock that he controls, with no requirement for a concurrent offer to be
made to acquire all of our common stock that will be publicly traded hereafter, could prevent shareholders from
realizing any change-of-control premium on shares of our common stock that may otherwise accrue to entities

controlled by our Co-Chairman on a private sale of our common stock. If entities controlled by our Co-Chairman
privately sell a significant equity interest in our Company, we may become subject to the control of a presently
unknown third party. Such third party may have conflicts of interest with those of other stockholders.
Furthermore, if our Co-Chairman sells a controlling interest in our Company to a third party, our commercial
agreements and relationships could be impacted, all of which may adversely affect our ability to run our business
as described herein and may have a material adverse effect on our operating results and financial condition.

Our Co-Chairman may have actual or potential conflicts of interest because of his position with MMC.

George M. Marcus serves as a Co-Chairman of our board of directors and is Chairman of the board of
directors of MMC. In addition, Mr. Marcus beneficially owns most of the outstanding stock of MMC. His
position at MMC and the ownership of any MMC equity or equity awards creates, or may create the appearance
of conflicts of interest if and when he is faced with decisions that could have different implications for MMC and
for us.

If securities analysts do not publish research or reports about our business or if they downgrade our Company
or our sector, or we do not meet expectations of the analysts the price of our common stock could decline.

The trading market for our common stock depends in part on the research and reports that industry or
financial analysts publish about us or our business. These research reports about our business may contain
information about the Company, including but not limited to estimates of our future results of operations and
stock price. We do not control these analysts, nor can we assure that any analysts will continue to follow us, issue
research reports or publish information that accurately predicts our actual results or stock price. Furthermore, if
we do not meet the expectations of industry or financial analysts or one or more of the analysts who do cover us
downgrades our Company or our industry, or the stock of any of our competitors, the price of our common stock
could decline. If one or more of these analysts ceases coverage of our Company, we could lose visibility in the
market, which in turn could cause the price of our common stock to decline.

Significant fluctuations in our revenues and net income may make it difficult for us to achieve steady earnings
growth on a quarterly or an annual basis, which may make the comparison between periods difficult and may
cause the price of our common stock to decline.

We have experienced and may continue to experience fluctuations in revenues and net income as a result of

many factors, including, but not limited to, economic conditions, capital market disruptions, the timing of
transactions, revenue mix and the timing of additional selling, general and administrative expenses to support
growth initiatives. We provide many of our services pursuant to contracts that typically expire within six months
and that are dependent on the client’s cooperation. Consequently, many of our clients can terminate or
significantly reduce their relationships with us on very short notice for any reason.

We plan our capital and operating expenditures based on our expectations of future revenues and, if
revenues are below expectations in any given quarter or year, we may be unable to adjust capital or operating
expenditures in a timely manner to compensate for any unexpected revenue shortfall, which could have an
immediate material adverse effect on our business, financial condition and results of operation.

Future sales or the perception of future sales of a substantial amount of our common stock may depress the
price of shares of our common stock.

Future sales, the lifting of common stock resale restrictions that will expire in November of next year,
issuances of shares under our 2013 Omnibus Equity Incentive Plan and 2013 Employee Stock Purchase Plan or
the availability of a substantial amount of our common stock in the public market could adversely affect the
prevailing market price of our common stock and could impair our ability to raise capital through the future sales
of equity securities. As of December 31, 2017, there were approximately 19.6 million shares of our common
stock outstanding, which could be registered and sold in a private or public sale. Substantially all of these shares
are beneficially owned by entities controlled by George M. Marcus our Co-Chairman.

We may issue shares of our common stock or other securities from time to time as consideration for future

acquisitions and investments. If any such acquisition or investment is significant, the number of shares of our
common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may
issue may in turn be substantial. We may also grant registration rights covering those shares of our common
stock or other securities in connection with any such acquisitions and investments.

We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future
issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial
amounts of our common stock (including shares of our common stock issued in connection with an acquisition),
or the perception that such sales could occur, may adversely affect prevailing market prices for our common
stock.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our principal executive offices are located at 23975 Park Sorrento, Suite 400, Calabasas, California 91302

where our telephone number is (818) 212-2250. We lease approximately 24,028 (net of sublease) square feet,
under a lease that expires in December 2021 for our executive offices in Calabasas, California. We also lease all
of our 78 brokerage offices (typically less than 12,000 square feet) and other support facilities in United States
and Canada aggregating approximately 591,000 square feet, primarily for our investment sales and financing
professionals and support personnel. We believe that our current facilities are adequate to meet our needs through
the end of 2018; however, as we continue to expand in various midmarket locations and grow our market share in
existing metropolitan areas, we may need to lease additional space.

Item 3. Legal Proceedings

We are involved in claims and legal actions arising in the ordinary course of our business, some of which

involve claims for damages that are substantial in amount. Most of these litigation matters are covered by
insurance which contain deductibles, exclusions, claim limits and aggregate policy limits. Such litigation and
other proceedings may include, but are not limited to, actions relating to commercial relationships, standard
brokerage disputes like the alleged failure to disclose physical or environmental defects or property expenses or
contracts, the alleged inadequate disclosure of matters relating to the transaction like the relationships among the
parties to the transaction, potential claims or losses pertaining to the asset, vicarious liability based upon conduct
of individuals or entities outside of our control, general fraud claims, conflicts of interest claims, employment
law claims, including claims challenging the classification of our sales professionals as independent contractors,
claims alleging violations of state consumer fraud statutes and intellectual property. While the ultimate liability
for these legal proceeding cannot be determined, we review the need for our accrual for loss contingencies
quarterly and records an accrual for litigation related losses where the likelihood of loss is both probable and
estimable. We do not believe, based on information currently available to us, that the final outcome of these
proceedings will have a material adverse effect on our consolidated financial position, results of operations or
cash flows.

For information on our legal proceedings, see Note 14 – “Commitments and Contingencies” of our

accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Market Information

Our common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “MMI” since
October 31, 2013. Prior to that time, there was no public market for our stock. The following table sets forth for
the indicated period the high and low intra-day sales prices per share for our common stock on the NYSE.

2016:

First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017:

High

Low

$28.34
$27.73
$28.99
$30.31

$28.51
$26.94
$27.87
$32.72

$18.77
$23.60
$24.35
$22.93

$23.22
$23.40
$24.34
$26.43

As of March 5, 2018, there were 23 stockholders of record, and the closing price of our common stock was

$31.55 per share as reported on the NYSE.

Dividends

We do not pay a regular dividend. We may evaluate our dividend policy in the future. Any declaration and

payment of future dividends to holders of our common stock will be at the discretion of the board of directors
and will depend on many factors, including our financial condition, earnings, cash flows, capital requirements,
level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other
considerations that our board of directors deems relevant.

Stock Performance Graph

The performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any
filing of Marcus & Millichap, Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the
Exchange Act.

The following graph shows a comparison from October 31, 2013 through December 31, 2017 of the

cumulative total return for our common stock, the Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and an
industry peer group for this period. The industry peer group is comprised of the following publicly-traded real
estate services companies: CBRE Group, Inc., Jones Lang LaSalle Incorporated and HFF, Inc. (collectively “Peer
Group”). These three companies represent our primary competitors that are publicly traded with certain business
lines reasonably comparable to ours. The graph assumes that $100 was invested at the market close on
October 31, 2013 in the common stock of Marcus & Millichap Inc., the S&P 500 Index and the Peer Group, and
assumes reinvestments of dividends. The stock price performance of the following graph is not necessarily
indicative of future stock price performance.

COMPARISON OF 50 MONTH CUMULATIVE TOTAL RETURN
Among Marcus & Millichap, Inc, the S&P 500 Index, and a Peer Group

$400

$350

$300

$250

$200

$150

$100

$50

$0
10/13 12/13

3/14

6/14 9/14

12/14

3/15

6/15

9/15

12/15

3/16 6/16

9/16

12/16

3/17 6/17

9/17

12/17

Marcus & Millichap, Inc

S&P 500

Peer Group

Base Period
10/31/2013 March 31,

June 30,

September 30,

December 31,

—
—
—

132.94
107.57
122.30

279.28
121.26
171.58

189.20
123.42
124.97

183.16
144.62
139.29

—
—
—

190.09
113.20
138.15

343.82
121.60
168.67

189.34
126.45
112.34

196.42
149.08
150.57

—
—
—

225.48
114.47
129.73

342.70
113.77
143.74

194.86
131.32
121.68

201.12
155.76
155.38

111.03
105.66
111.20

247.76
120.12
151.81

217.14
121.78
155.41

199.11
136.35
127.26

243.00
166.11
181.54

2013:

Marcus & Millichap, Inc.
S&P 500
Peer Group

2014:

Marcus & Millichap, Inc.
S&P 500
Peer Group

2015:

Marcus & Millichap, Inc.
S&P 500
Peer Group

2016:

Marcus & Millichap, Inc.
S&P 500
Peer Group

2017:

Marcus & Millichap, Inc.
S&P 500
Peer Group

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities

None.

100.00
100.00
100.00

—
—
—

Item 6. Selected Financial Data

The following selected consolidated financial and other data should be read in conjunction with Part II,
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our
consolidated financial statements and the related notes included in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K.

The following table presents the consolidated statement of income data for the years ended December 31,
2017, 2016 and 2015, and the consolidated balance sheet data at December 31, 2017 and 2016. Such financial
data are derived from our audited consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. The table also presents the consolidated statement of income data for the years ended December 31,
2014 and 2013 and the consolidated balance sheet data at December 31, 2015, 2014 and 2013, which are derived
from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.
Our historical results are not necessarily indicative of our results in any future period.

Statement of Income Data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based and other compensation in connection

with IPO (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes (2) . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net (loss) income attributable to Marcus &
Millichap Real Estate Investment Services, Inc.
prior to initial public offering on October 31,
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income attributable to Marcus & Millichap, Inc.

Years Ended December 31,

2017

2016

2015

2014

2013

(in thousands except per share, investment sales and financing
professional and sales volume amounts)

$719,700
446,557

$717,450
444,768

$689,055
423,389

$572,188
350,102

$435,895
264,637

—
96,132
47,702

—
106,501
42,445

—
114,651
47,018

—
84,606
33,452

31,268
21,286
13,735

$ 51,524

$ 64,657

$ 66,350

$ 49,531

8,206

—

(1,045)

subsequent to initial public offering . . . . . . . . . . . . .

$ 51,524

$ 64,657

$ 66,350

$ 49,531

9,251

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.32
1.32

$
$

1.66
1.66

$
$

1.71
1.69

$
$

1.27
1.27

$
$

0.24
0.24

Weighted average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,988
39,100

38,899
39,035

38,848
39,162

38,851
38,978

38,787
38,815

Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, available-for-sale (3) . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .

Other Data:
. . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (4)
Investment sales and financing professionals . . . . . . .
Sales volume (dollars in millions) . . . . . . . . . . . . . . . .

$220,786
$125,659
$459,664
$ 61,517
$144,776
$314,888

$187,371
$104,929
$394,016
$ 56,986
$135,162
$258,854

$ 96,185
$134,255
$321,225
$ 57,224
$132,235
$188,990

$149,159
$ 14,752
$233,604
$ 49,591
$116,795
$116,809

$100,952
$ —
$167,309
$ 48,052
$104,812
$ 62,497

$111,716
1,819
$ 42,191

$118,296
1,737
$ 42,312

$124,140
1,607
$ 37,847

$ 92,824
1,494
$ 33,139

$ 61,286
1,313
$ 23,975

(1) Consists of non-cash stock based compensation and other compensation charges incurred in connection with

our IPO.
Prior to the IPO in October 2013, we were subject to a tax-sharing agreement whereby we provided for
income taxes using an effective tax rate of 43.5%. As part of the IPO, the tax-sharing agreement with MMC
was terminated. Provision for income taxes for 2017, includes a one-time charge in the amount of
$11.6 million in connection with the remeasurement of deferred tax assets, net due to enactment of the Tax
Cuts and Jobs Act, which reduced the U.S. federal statutory corporate tax rate from 35% to 21%. In
addition, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting in 2017
that required any windfall tax benefits, net of shortfalls to be recorded as a discrete item in our provision for
income taxes. The Company recognized $2.9 million in windfall tax benefits, net during 2017 as a reduction
in the Company’s provision for income taxes.
Includes both short-term and long-term marketable securities, available-for-sale.

(2)

(3)

(4) Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be
considered as an alternative to net income, operating income or any other measures derived in accordance
with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net
income, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Non-GAAP Financial Measure.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction

with our audited consolidated financial statements and the accompanying notes thereto included elsewhere
herein. The following discussion contains, in addition to historical information, forward-looking statements that
include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those factors set forth under Item 1A – Risk Factors
and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors
Affecting Our Business of this Annual Report on Form 10-K.

Overview

Our Business

We are a leading national brokerage firm specializing in commercial real estate investment sales, financing,

research and advisory services. We have been the top commercial real estate investment broker in the United
States based on the number of investment transactions over the last 10 years. As of December 31, 2017, we had
over 1,800 investment sales and financing professionals operating in 78 offices who provide real estate brokerage
and financing services to sellers and buyers of commercial real estate. We also offer market research, consulting
and advisory services to our clients. During the year ended December 31, 2017, we closed 8,979 sales, financing
and other transactions with total volume of approximately $42.2 billion, compared to 8,995 sales, financing and
other transactions with total sales volume of approximately $42.3 billion in 2016.

We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the
financing of, commercial properties and by providing consulting and advisory services. Real estate brokerage
commissions are typically based upon the value of the property, and financing fees are typically based upon the
size of the loan. During the year ended December 31, 2017, approximately 90% of our revenues were generated
from real estate brokerage commissions, 7% from financing fees and 3% from other revenues, including
consulting and advisory services.

Factors Affecting Our Business

Our business and our operating results, financial condition and liquidity are significantly affected by the
number and size of commercial real estate investment sales and financing transactions we close in any period.
The number and size of these transactions are affected by our ability to recruit and retain investment sales and
financing professionals, identify and contract properties for sale and those that need financing and refinancing.
We principally monitor the commercial real estate market through four factors, which generally drive our
business. The factors are the economy, commercial real estate supply and demand, interest rates, availability of
financing, capital markets conditions, investment sentiment and investment activity.

The Economy

Our business is dependent on economic conditions within the markets in which we operate. Changes in the
economy on a global, national, regional or local basis can have a positive or a negative impact on our business.
Economic indicators and projections related to job growth, unemployment, interest rates, retail spending and
confidence trends can have a positive or a negative impact on our business. Overall market conditions can have
an effect on investor sentiment and, ultimately, the demand for our services from investors in real estate.
Significant disasters such as the hurricanes that struck Texas and Florida in 2017 can also affect local economies
and investor behavior. The post-disaster assessment and recovery process can delay in-process transactions or
change investor decisions to hold, buy or sell commercial real estate. Our national footprint allows us to support
our clients in balancing the opportunities and risks of changing regional economic conditions. We believe the
U.S. economy remains poised for growth this year, as the tax rate reductions under the new tax law act as a

stimulus for personal and corporate spending. Job creation last year was marginally slower than in 2016 and
hiring should remain stable in 2018. Notably, despite the potential for accelerated economic growth and the
elevated number of job openings, we believe the tight unemployment rate will restrain hiring. Further, we believe
the demand for additional qualified personnel will continue to place upward pressure on wages, and increase
risks of rising inflation. It is widely anticipated that the new leadership of the Federal Reserve will continue to
cautiously exert upward pressure on interest rates to contain inflationary risk. We believe sentiment about
economic expansion in 2018 remains conservatively optimistic, though some uncertainty surrounding fiscal
policy, deregulation, inflation risk and other initiatives by the Trump administration could weigh on activity.

Commercial Real Estate Supply and Demand

Our business is dependent on the willingness of investors to invest in or sell commercial real estate, which is

affected by factors beyond our control. These factors include the supply of commercial real estate coupled with
user demand for these properties and the performance of real estate assets when compared with other investment
alternatives, such as stocks and bonds. Despite the generally moderate pace of economic growth over the past
eight years, we believe commercial real estate offers a compelling option for investors, as real estate
fundamentals generally remain balanced. The slow-but-steady economic gains have generated demand while
keeping construction levels limited for most property types on a national scale, although construction has begun
to elevate for some property types in certain metropolitan areas. We believe the maturing cycle, combined with
volatility in financial markets, inflation trends and rising interest rates have caused investors and lenders to
assume more cautious underwriting assumptions resulting in a slowdown in sales. Furthermore, many investors
are still delaying transactions as they await additional clarity on how the new tax law, regulatory easing and
economic initiatives will affect investments. We believe a boost to investor sentiment will likely emerge as
clarity on government policies and growth initiatives comes forth. Although the new tax law appears promising,
many investors are still waiting for additional guidance from the IRS and the U.S. Treasury on how the new rules
will be applied. We believe that these factors should continue to support long-term commercial real estate
investor demand and, therefore, demand for our brokerage and financing services.

Capital Markets

Credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the
commercial real estate market. Real estate purchases are often financed with debt and, as a result, credit and
liquidity impact transaction activity and prices. Changes in interest rates, as well as steady and protracted
movements of interest rates in one direction, whether increase or decrease, could adversely or positively affect
the operations and income potential of commercial real estate properties. These changes also influence the
demand of investors for commercial real estate investments. We believe indications from the U.S. Federal
Reserve of future interest rate increases, a reduction of the Federal Reserve balance sheet, uncertainty as to the
impact of new fiscal policies, stock market volatility and rising longer term interest rates remain a short-term
headwind for real estate transactions. In addition, a change of the Chairperson of the Federal Reserve could alter
Federal Reserve policies and have a meaningful impact on interest rates and investor activity. We have continued
to see disciplined underwriting from lenders as well as ample liquidity in the market.

Investor Sentiment and Investment Activity

We rely on investors to buy and sell properties in order to generate commissions. Investors’ desires to
engage in real estate transactions are dependent on many factors that are beyond our control. The economy,
supply and demand for properly positioned properties, available credit and market events impact investor
sentiment and, therefore, transaction velocity. In addition, our private clients are often motivated to buy, sell and/
or refinance properties due to personal circumstances such as death, divorce, partnership breakups and estate
planning. We believe that we are in a maturing real estate cycle. During the last two years, the sales transaction
market has continued to step-down from peak levels set in 2015. The combination of interest rate volatility

together with, regulatory easing and infrastructure initiatives have caused a portion of the active investors to
assume a more wait-and-see attitude toward investment decisions. Although a new tax law is effective,
considerable uncertainty surrounding the rules and implementation of the new tax laws remains. As the IRS and
Treasury Department provide additional clarity, and investors digest the information and its application to their
assets, we believe investors will begin to revive their activity levels. We believe that the healthy property
fundamentals and lack of over-leveraging during the past several years support an active, but more tempered,
market environment.

Seasonality

Our real estate brokerage commissions and financing fees have tended to be seasonal and, combined with
other factors, can affect an investor’s ability to compare our financial condition and results of operations on a
quarter-by-quarter basis. Historically, this seasonality has generally caused our revenue, operating income, net
income and cash flows from operating activities to be lower in the first half of the year and higher in the second
half of the year, particularly in the fourth quarter. The concentration of earnings and cash flows in the last six
months of the year, particularly in the fourth quarter, is due to an industry-wide focus of clients to complete
transactions towards the end of the calendar year. This historical trend can be disrupted both positively and
negatively by major economic or political events impacting investor sentiment for a particular property type or
location, volatility in financial markets, current and future projections of interest rates, attractiveness of other
asset classes, market liquidity and the extent of limitations or availability of capital allocations for larger property
buyers, among others. Private client investors may accelerate or delay transactions due to personal or business
related reasons unrelated to economic events. In addition, our operating margins are typically lower during the
second half of each year due to our commission structure for some of our senior investment sales and financing
professionals. These senior investment sales and financing professionals are on a graduated commission schedule
that resets annually in which higher commissions are paid for higher sales volumes. Our historical pattern of
seasonality may or may not continue to the same degree experienced in prior years.

Operating Segments

We follow the guidance for segment reporting, which requires reporting information on operating segments
in interim and annual financial statements. Substantially all of our operations involve the delivery of commercial
real estate services to our customers including real estate investment sales, financing 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 only one operating segment for financial
reporting purposes.

Key Financial Measures and Indicators

Revenues

Our revenues are primarily generated from our real estate investment sales business. In addition to real
estate brokerage commissions, we generate revenues from financing fees and from other revenues, which are
primarily comprised of consulting and advisory fees.

Our business is transaction oriented and, as such, we rely on investment sales and financing professionals to
continually develop leads, identify properties to sell, market those properties and close sales timely to generate a
consistent flow of revenue. While our sales volume is impacted by seasonality factors, the timing of closings is
also dependent on many market and personal factors unique to a particular client or transaction, particularly
clients transacting in the $1-$10 million private client market segment. These factors can cause transactions to be
accelerated or delayed beyond our control. Further, commission rates earned are generally inversely related to the
value of the property sold. As a result of our expansion into the middle and larger transaction market segments,
we have seen our overall commission rates fluctuate from period-to-period as a result of changes in the relative

mix of the number and volume of transactions closed in the middle and larger transaction market segments as
compared to the $1-$10 million private client market segment. These factors may result in period-to-period
variations in our revenues that differ from historical patterns.

A small percentage of our transactions include retainer fees and/or breakage fees. Retainer fees are credited
against a success-based fee upon the closing of a transaction or a breakage fee. Transactions that are terminated
before completion will sometimes generate breakage fees, which are usually calculated as a set amount or a
percentage of the fee we would have received had the transaction closed.

Real estate brokerage commissions

We earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking

to sell or investors seeking to buy properties. Revenues from real estate brokerage commissions are typically
recognized at the close of escrow.

Financing fees

We earn financing fees by securing financing on purchase transactions or by securing refinancing of our
clients’ existing mortgage debt. We recognize financing fee revenues at the time the loan closes and we have no
remaining significant obligations for performance in connection with the transaction. To a lesser extent, we also
earn ancillary fees associated with financing activities.

Other revenues

Other revenues include fees generated from consulting and advisory services performed by our investment

sales professionals, as well as referral fees from other real estate brokers. Revenues from these services are
recognized as they are performed and completed.

Operating Expenses

Our operating expenses consist of cost of services, selling, general and administrative expenses and
depreciation and amortization. The significant components of our expenses are further described below.

Cost of services

The majority of our cost of services expense is predominately variable commissions paid to our investment
sales professionals and compensation-related costs related to our financing activities. Commission expenses are
directly attributable to providing services to our clients for investment sales and financing services. Most of our
investment sales and financing professionals are independent contractors and are paid commissions; however,
there are some who are initially paid a salary and certain of our financing professionals are employees and, as
such, costs of services also include employee-related compensation, employer taxes and benefits for those
employees. The commission rates we pay to our investment sales and financing professionals vary based on
individual contracts negotiated and are generally higher for the more experienced professionals. Some of our
most senior investment sales and financing professionals also have the ability to earn additional commissions
after meeting certain annual revenue thresholds. These additional commissions are recognized as cost of services
in the period in which they are earned. Payment of a portion of these additional commissions are generally
deferred for a period of three years, at the Company’s election, and paid at the beginning of the fourth calendar
year. Cost of services also includes referral fees paid to other real estate brokers where the Company is the
principal service provider. Cost of services, therefore, can vary based on the commission structure of the
independent contractors that closed transactions in any particular period.

Selling, general and administrative expenses

The largest expense component within selling, general and administrative expenses is personnel expenses
for our management team and sales and support staff. In addition, these costs include facilities costs (excluding
depreciation and amortization), staff related expenses, sales, marketing, legal, telecommunication, network, data
sources and other administrative expenses. Also included in selling, general and administrative expenses is stock-
based compensation to non-employee directors, employees and independent contractors (i.e. investment sales and
financing professionals) under our 2013 Omnibus Equity Incentive Plan, as amended (“2013 Plan”) and the 2013
Employee Stock Purchase Plan (“2013 ESPP Plan”).

Depreciation and amortization expense

Depreciation and amortization expense consists of depreciation and amortization recorded on our computer

software and hardware and furniture, fixture and equipment. Depreciation and amortization are provided over
estimated useful lives ranging from three to seven years for owned assets or over the lesser of the asset estimated
useful lives or the related lease term for leasehold improvements.

Other Income (Expense), Net

Other income (expense), net primarily consists of net gains or losses on our deferred compensation plan
assets, interest income and realized gains and losses on our marketable securities, available-for-sale, foreign
currency gains and losses and other non-operating gains and losses.

Interest Expense

Interest expense primarily consists of interest expense associated with the stock appreciation rights

(“SARs”) liability, notes payable to former stockholders and our credit agreement.

Provision for Income Taxes

We are subject to U.S. and Canadian federal taxes and individual state and local taxes based on the income

generated in the jurisdictions in which we operate. Our effective tax rate fluctuates as a result of the change in the
mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions and other
permanent items. Prior to December 31, 2016, windfall benefits, net from shares issued in connection with our
2013 Plan and 2013 ESPP Plan were recorded to additional paid in capital. Effective January 1, 2017, as a result
of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU
2016-09”), any windfall tax benefits, net are recorded in our provision for income taxes.

We record deferred tax assets, net based on the tax rate expected to be in effect at the time those items are

expected to be recognized for tax purposes. On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”)
legislation was enacted, which reduced the U.S. federal statutory tax rate from 35% to 21% beginning in 2018.
As a result of the change in the future federal statutory tax rate, our recorded deferred tax assets, net were
required to be revalued to reflect the new tax rate now expected to be in effect in 2018 and beyond. This one-time
charge of $11.6 million was recorded as of the enactment date in our provision for income taxes in the fourth
quarter of 2017.

Results of Operations

Following is a discussion of our results of operations for the years ended December 31, 2017, 2016 and
2015. The tables included in the period comparisons below provide summaries of our results of operations. The
period-to-period comparisons of financial results are not necessarily indicative of future results.

Key Operating Metrics

We regularly review a number of key metrics to evaluate our business, measure our performance, identify

trends affecting our business, formulate financial projections and make strategic decisions. During the years
ended December 31, 2017, 2016 and 2015, we closed more than 8,900, 8,900 and 8,700 sales, financing and
other transactions with total volume of approximately $42.2 billion, $42.3 billion and $37.8 billion, respectively.
Such key metrics for real estate brokerage and financing activities are as follows:

Real Estate Brokerage:

Years Ended
December 31,

2017

2016

2015

Average Number of Investment Sales Professionals . . . . . . . . . . . . . . . . . . . . . . .
Average Number of Transactions per Investment Sales Professional . . . . . . . . . .
Average Commission per Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Commission Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Transaction Size (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Number of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales Volume (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,649
3.98
$98,963

1,527
4.24
$102,258

1,428
4.43
$99,901

2.13%

$ 4,644
6,562
$30,475

2.07%
4,935
6,476
$ 31,962

2.22%

$ 4,492
6,332
$28,444

Financing (1):

Years Ended
December 31,

2017

2016

2015

Average Number of Financing Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Number of Transactions per Financing Professional
. . . . . . . . . . . . . . .
Average Fee per Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Transaction Size (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Number of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales Volume (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95
17.97
$28,960

98
16.83
$ 26,314

85
18.84
$26,582

0.88%

$ 3,299
1,707
$ 5,632

0.85%
3,093
1,651
5,107

0.87%

$ 3,053
1,601
$ 4,888

(1) Operating metrics calculated excluding certain financing fees not directly associated to transactions.

Comparison of Years Ended December 31, 2017 and 2016

Below are key operating results for the year ended December 31, 2017 compared to the results for the year

ended December 31, 2016 (dollars in thousands):

Year
Ended
December 31,
2017

Percentage
of
Revenue

Year
Ended
December 31,
2016

Percentage
of
Revenue

Change

Dollar

Percentage

Revenues:

Real estate brokerage

commissions . . . . . . . . .
Financing fees . . . . . . . . . .
Other revenues . . . . . . . . .

$649,393
49,653
20,654

90.2% $662,220
43,444
6.9
11,786
2.9

92.3% $(12,827)
6,209
6.1
8,868
1.6

(1.9)%
14.3
75.2

Total revenues . . . . . . . . . . . . . . . . . .

719,700

100.0

717,450

100.0

2,250

Operating expenses:

Cost of services . . . . . . . . .
Selling, general, and
administrative
expense . . . . . . . . . . . . .

Depreciation and

446,557

62.0

444,768

62.0

1,789

171,648

23.8

161,794

22.6

9,854

6.1

0.3

0.4

amortization expense . .

5,363

Total operating expenses . . . . . . . . .

623,568

Operating income . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . .
Interest expense . . . . . . . . . . . . . . . .

Income before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . .

96,132
4,590
(1,496)

99,226
47,702

0.8

86.6

13.4
0.6
(0.2)

13.8
6.6

4,387

610,949

106,501
2,134
(1,533)

107,102
42,445

0.6

85.2

14.8
0.3
(0.2)

14.9
5.9

976

12,619

(10,369)
2,456
37

(7,876)
5,257

22.2

2.1

(9.7)
nm
(2.4)

(7.4)
12.4

Net income . . . . . . . . . . . . . . . . . . . .

$ 51,524

7.2% $ 64,657

9.0% $(13,133)

(20.3)%

Adjusted EBITDA (1)

. . . . . . . . . . . .

$111,716

15.5% $118,296

16.5% $ (6,580)

(5.6)%

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be
considered as an alternative to net income, operating income or any other measures derived in accordance
with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net
income, see “Non-GAAP Financial Measure.”

Revenues

Our total revenues were $719.7 million in 2017 compared to $717.5 million in 2016, an increase of

$2.3 million or 0.3%. Total revenues increased primarily as a result of increases in other revenues and financing
fees, partially offset by a decrease in real estate brokerage commissions.

Real estate brokerage commissions. Revenues from real estate brokerage commissions decreased to
$649.4 million in 2017 from $662.2 million in 2016, a decrease of $12.8 million or 1.9%. The decrease was
driven by the decrease in sales volume (4.7%). This decrease was partially offset by an increase in average
commission rates (6 basis points) primarily due to improved rates in the middle market transaction segment.

Financing fees. Revenues from financing fees increased to $49.7 million in 2017 from $43.4 million in 2016,
an increase of $6.2 million or 14.3%. The increase was driven by growth in sales volume (10.3%) primarily due to
an increase in financing purchase transactions and an increase in average fee rates (3 basis points).

Other revenues. Other revenues increased to $20.7 million in 2017 from $11.8 million in 2016, an increase
of $8.9 million or 75.2%. The increase was primarily driven by two large consulting and advisory services fees
earned during 2017 with no such comparable fees during 2016.

Total operating expenses

Our total operating expenses were $623.6 million in 2017 compared to $610.9 million in 2016, an increase

of $12.6 million, or 2.1%. The increase was primarily due to increases in selling, general and administrative
costs, cost of services, which is predominantly variable commissions paid to our investment sales professionals
and compensation-related costs related to our financing activities and, to a lesser extent, depreciation and
amortization expense, as described below.

Cost of services. Cost of services in 2017 increased $1.8 million, or 0.4%, to $446.6 million from

$444.8 million in 2016. The increase was primarily due to increased commission expenses driven by increased
revenues noted above. Cost of services as a percent of total revenues remained consistent at 62.0% in 2017 and
2016.

Selling, general and administrative expense. Selling, general and administrative expense in 2017 increased

$9.9 million, or 6.1%, to $171.6 million from $161.8 million in 2016. Increases in our selling, general and
administrative expense have been driven by our growth plans and investments in technology, sales and marketing
tools and marketing and expansion of our services supporting our investment sales and financing professionals.
These initiatives have primarily driven (i) a $6.5 million increase in sales operations support and promotional
marketing expenses to support sales activity and (ii) a $2.2 million increase in facilities expenses due to
expansion of existing offices. In addition, selling, general and administrative expense increased due to (i) a
$2.1 million increase in stock-based compensation due to fluctuations in our stock price and incremental stock-
based awards since the fourth quarter of 2016 and (ii) a $0.2 million increase in legal costs and accruals. These
increases were partially offset by (i) a $0.5 million decrease in compensation related costs, including salaries and
related benefits and management performance compensation primarily due to management and compensation
realignments and (ii) a $0.6 million decrease in other expense categories, net.

Depreciation and amortization expense. Depreciation and amortization expense increased to $5.4 million in

2017 from $4.4 million in 2016, an increase of $1.0 million, or 22.2%. The increase is primarily driven by our
expansion and growth and investment in technology to redesign sales and marketing tools.

Other income (expense), net

Other income (expense), net increased to $4.6 million in 2017 from $2.1 million in 2016, an increase of
$2.5 million, or 115.1%. The increase was primarily driven by increases in interest income on our investments in
marketable securities, available-for-sale and the value of our deferred compensation plan assets held in the rabbi
trust. These increases were enhanced by realized losses on our investments in marketable securities,
available-for-sale, primarily due to a security sold during the first quarter of 2016, which no longer met our
investment policy criteria with no such comparable realized losses during 2017.

Interest expense

There were no significant changes in interest expenses in 2017 as compared to 2016.

Provision for income taxes

The provision for income taxes was $47.7 million for 2017 compared to $42.4 million in 2016, an increase

of $5.3 million, or 12.4%. The effective tax rate for 2017 was 48.1%, compared with 39.6% in 2016. The

increase in the effective tax rate was primarily due to a $11.6 million one-time charge related to the revaluation
of the our deferred taxes, net in 2017 from changes in the U.S. federal statutory tax rate as result of the enactment
of the Act. The provision was partially reduced by $2.9 million of windfall tax benefits, net in connection with
our 2013 Plan recorded in our provision for income taxes as a result of the adoption of ASU 2016-09 in January
2017. ASU 2016-09 requires the difference in book and tax deductions associated with the settlement of shares
under our 2013 Plan and certain disqualifying dispositions of shares issued under our 2013 ESPP Plan to be
recorded in the provision for income taxes. Prior to 2016, any windfall tax benefits were recorded directly to
additional paid-in capital.

Comparison of Years Ended December 31, 2016 and 2015

Below are key operating results for the year ended December 31, 2016 compared to the results for the year

ended December 31, 2015 (dollars in thousands):

Year
Ended
December 31,
2016

Percentage
of
Revenue

Year
Ended
December 31,
2015

Percentage
of
Revenue

Change

Dollar

Percentage

Revenues:

Real estate brokerage

commissions . . . . . . . . . . . . . .
Financing fees . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . .

$662,220
43,444
11,786

92.3% $632,574
42,558
13,923

6.1
1.6

91.8% $29,646
886
(2,137)

6.2
2.0

4.7%
2.1
(15.3)

Total revenues . . . . . . . . . . . . . . . . . . .

717,450

100.0

689,055

100.0

28,395

Operating expenses:

Cost of services . . . . . . . . . . . . . .
Selling, general, and

444,768

administrative expense . . . . . .

161,794

Depreciation and amortization

expense . . . . . . . . . . . . . . . . . .

4,387

Total operating expenses . . . . . . . . . . .

610,949

Operating income . . . . . . . . . . . . . . . .
Other income (expense), net
. . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . .

106,501
2,134
(1,533)

Income before provision for income

taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . .

107,102
42,445

62.0

22.6

0.6

85.2

14.8
0.3
(0.2)

14.9
5.9

4.1

5.0

9.5

423,389

61.4

21,379

147,710

21.4

14,084

3,305

574,404

114,651
443
(1,726)

113,368
47,018

0.6

83.4

16.6
—
(0.2)

16.4
6.8

1,082

36,545

(8,150)
1,691
193

32.7

6.4

(7.1)
nm
(11.2)

(6,266)
(4,573)

(5.5)
(9.7)

Net income . . . . . . . . . . . . . . . . . . . . . .

$ 64,657

9.0% $ 66,350

9.6% $ (1,693)

(2.6)%

Adjusted EBITDA (1) . . . . . . . . . . . . . .

$118,296

16.5% $124,140

18.0% $ (5,844)

(4.7)%

Revenues

Our total revenues were $717.5 million in 2016 compared to $689.1 million in 2015, an increase of
$28.4 million or 4.1%. Total revenues increased primarily as a result of increases in real estate brokerage
commissions, which contributed to substantially all of the total increase. A slight increase in financing fees,
partially offset by a decrease in other revenues contributed the remaining change in total revenues.

Real estate brokerage commissions. Revenues from real estate brokerage commissions increased to
$662.2 million in 2016 from $632.6 million in 2015, an increase of $29.6 million or 4.7%. The increase was
driven by a combination of the growth in the number of investment sales transactions (2.3%) and average
transaction size (9.9%), partially offset by a decrease in average commission rates (15 basis points) due to a
larger proportion of our transactions that closed in the >$20 million larger transaction market segment, which
generate lower commission rates.

Financing fees. Revenues from financing fees increased to $43.4 million in 2016 from $42.6 million in

2015, an increase of $0.9 million or 2.1%. The increase was driven by an increase in the number of loan

transactions (3.1%) due to an increase in the average number of financing professionals (15.3%), partially offset
by a decrease in average fee rates (2 basis points) due in part to fees from certain larger loan transactions during
2016 as compared to 2015. Larger loan transactions generally earn a lower fee percentage.

Other revenues. Other revenues decreased to $11.8 million in 2016 from $13.9 million in 2015, a decrease
of $2.1 million or 15.3%. The decrease was primarily driven by a decrease in consulting and advisory services
during 2016 as compared to 2015.

Operating expenses

Our total operating expenses were $610.9 million in 2016 compared to $574.4 million in 2015, an increase

of $36.5 million, or 6.4%. Expenses increased primarily due to an increase in cost of services, which is
predominantly variable commissions paid to our investment sales professionals and compensation-related costs
related to our financing activities. Selling, general and administrative costs and to a lesser extent depreciation and
amortization increased as well, as described below.

Cost of services. Cost of services in 2016 increased $21.4 million, or 5.0%, to $444.8 million from
$423.4 million in 2015. The increase was primarily due to increased commission expenses driven by increased
revenues. Cost of services as a percent of total revenues increased to 62.0% for 2016 compared to 61.4% in 2015
primarily due to an increase in proportion of transactions closed by our more senior investment sales
professionals who are compensated generally at higher commission rates, partially offset by a reduction in
referral fees.

Selling, general and administrative expense. Selling, general and administrative expense in 2016 increased

$14.1 million, or 9.5%, to $161.8 million from $147.7 million in 2015. Increases in our selling, general and
administrative expense have been driven by our growth and investments in technology, sales and marketing tools
and marketing and expansion of our services supporting our investment sales and financing professionals. These
initiatives have primarily driven (i) a $6.7 million increase in sales and promotional marketing expenses to
support increased sales activity and our annual sales recognition event; (ii) a $6.1 million increase in facilities
expenses due to expansion of existing offices; (iii) a $5.7 million increase in salaries and related benefits as a
result of increases in headcount in corporate and sales office support in connection with our growth and
expansion of services supporting our investment sales and financing professionals; (iv) a $2.7 million increase in
other expense categories, net, primarily driven by our expansion and growth. In addition, selling, general and
administrative expense increased $2.5 million due to legal costs and accruals, partly driven by settlement of
outstanding litigation and recoveries from a settlement with an insurance carrier during the twelve months ended
December 31, 2015, which reduced legal costs in that period. These increases were offset by a $9.6 million
decrease in management performance-related compensation driven by reduced bonus accruals due to
management exceeding performance criteria during 2015.

Depreciation and amortization expense. Depreciation and amortization expense increased to $4.4 million in

2016 from $3.3 million in 2015, an increase of $1.1 million, or 32.7%. The increase is primarily driven by our
expansion and growth and investment in technology to redesign sales and marketing tools.

Other income (expense), net

Other income (expense), net increased to $2.1 million in 2016 from $0.4 million in 2015. The increase was

primarily driven by an increase in the value of our foreign currency gains related to our Canadian operations,
interest income on our investments in marketable securities, available-for-sale and deferred compensation plan
assets held in the rabbi trust. The increase was partially offset by realized losses on our investments in
marketable securities, available-for-sale, due to a security sold during 2016, which no longer met our investment
policy criteria with no such similar realized losses in 2015.

Interest expense

There were no significant changes in interest expenses in 2016 as compared to 2015.

Provision for income taxes

The provision for income taxes was $42.4 million for 2016 as compared to $47.0 million in 2015, a decrease
of $4.6 million or 9.7%. The effective tax rate for 2016 was 39.6%, compared with 41.5% in 2015. The decrease
in the effective tax rate was primarily due to the change in the Company’s effective state tax rate on deferred
taxes in 2015, which was minimal in 2016, lower net operating losses for our Canadian operations in 2016, which
are subject to a full valuation allowance and other permanent items, primarily gains on company owned variable
life insurance policies.

The provisions for income taxes excludes the difference in book and tax deductions associated with the
settlement of shares under the Company’s 2013 Plan and disqualifying dispositions of shares issued from our
2013 ESPP Plan. Such tax benefits, which aggregated $2.7 million in 2016 and $6.2 million in 2015,
respectively, were recorded directly to additional paid-in capital.

Non-GAAP Financial Measure

In this Annual Report on Form 10-K, we include a non-GAAP financial measure, adjusted earnings before

interest income/expense, taxes, depreciation and amortization and stock-based compensation, or Adjusted
EBITDA. We define Adjusted EBITDA as net income before (i) interest income and other, including net realized
gains (losses) on marketable securities, available-for-sale and cash and cash equivalents, (ii) interest expense,
(iii) provision for income taxes, (iv) depreciation and amortization and (v) stock-based compensation expense.
We use Adjusted EBITDA in our business operations to evaluate the performance of our business, develop
budgets and measure our performance against those budgets, among other things. We also believe that analysts
and investors use Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance.
However, Adjusted EBITDA has material limitations as an analytical tool and should not be considered in
isolation, or as a substitute for analysis of our results as reported under U.S. generally accepted accounting
principles (“U.S. GAAP”). We find Adjusted EBITDA as a useful tool to assist in evaluating performance
because Adjusted EBITDA eliminates items related to capital structure, taxes and non-cash stock-based
compensation charges. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a
performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our
financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating
income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not
calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used
by other companies.

A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted

EBITDA is as follows (in thousands):

Net income . . . . . . . . . . . . . . . . . . . . . . .
Adjustments:

Years Ended December 31,

2017

2016

2015

2014

2013

$ 51,524

$ 64,657

$ 66,350

$49,531

$ 8,206

Interest income and other (1) . . . . . .
Interest expense . . . . . . . . . . . . . . .
Provision for income taxes (2) . . . . .
Depreciation and amortization . . . .
Stock-based compensation (3) . . . . .

(3,514)
1,496
47,702
5,363
9,145

(1,761)
1,533
42,445
4,387
7,035

(1,373)
1,726
47,018
3,305
7,114

(50)
1,651
33,452
3,206
5,034

356
105
13,735
3,043
35,841

Adjusted EBITDA (4)

. . . . . . . . . . . . . . .

$111,716

$118,296

$124,140

$92,824

$61,286

(1) Other for the years ended December 31, 2017, 2016 and 2015 includes net realized gains (losses) on

marketable securities available-for-sale. The year ended December 31, 2013 includes employer taxes related
to deferred stock units (“DSUs”) and restricted stock in connection with the IPO.
The year ended December 31, 2017, includes a one-time charge in the amount of $11.6 million in
connection with the remeasurement of deferred tax assets, net due to enactment of the Act, which reduced
the U.S. federal statutory corporate tax rate from 35% to 21%. In addition, we adopted a new accounting
pronouncement in 2017 that required any windfall tax benefits, net of shortfalls to be recorded as a discrete
item in our provision for income taxes. These windfalls/shortfalls arise from the difference in the grant date
price and the vesting date price of employee and non-employee directors vesting of equity awards granted
under the Company’s 2013 Plan. The Company recognized $2.9 million in windfall tax benefits, net during
the year ended December 31, 2017 as a reduction in the Company’s provision for income taxes.
The year ended December 31, 2013 includes non-cash stock-based compensation charges of $30.9 million
in connection with the IPO.
The decrease in Adjusted EBITDA in 2017 compared to 2016 is primarily due to a higher proportion of
operating expenses compared to revenues, partially offset by higher total revenues.

(2)

(3)

(4)

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, marketable
securities, available-for-sale and, if necessary, borrowings under our credit agreement. In order to enhance yield
to us, we have invested a portion of our cash in money market funds and in fixed and variable income debt
securities, in accordance with our investment policy approved by the board of directors. Certain of our
investments in money market funds may not maintain a stable net asset value and may impose fees on
redemptions and/or gate fees. Although we have historically funded our operations through operating cash flows,
there can be no assurance that we can continue to meet our cash requirements entirely through our operations,
cash and cash equivalents, proceeds from the sale of marketable securities, available-for-sale or availability under
our credit agreement.

Cash held in our Canadian operations aggregated $421,000 and $404,000 at December 31, 2017 and 2016,

respectively.

Cash Flows

Our total cash and cash equivalents balance increased by $33.4 million to $220.8 million at December 31,

2017, compared to $187.4 million at December 31, 2016. The following table sets forth our summary cash flows
for the years ended December 31, 2017, 2016 and 2015 (in thousands):

Years Ended December 31,

2017

2016

2015

Net cash provided by operating activities . . . . . . . . . .
Net cash (used in) provided by investing activities . .
Net cash (used in) provided by financing activities . .

$ 66,537
(27,338)
(5,784)

$ 74,486
19,819
(3,119)

$ 72,120
(126,929)
1,835

Net increase (decrease) in cash and cash

equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . .

33,415
187,371

91,186
96,185

(52,974)
149,159

Cash and cash equivalents at end of period . . . . . . . .

$220,786

$187,371

$ 96,185

Operating Activities

2017 Compared to 2016. Cash flows provided by operating activities were $66.5 million in 2017 compared

to $74.5 million in 2016. Net cash provided by operating activities is driven by our net income adjusted for

non-cash items and changes in operating assets and liabilities. The $7.9 million decrease in cash flows provided
by operating activities in 2017 compared to the same period in 2016 was primarily due to differences in timing of
payments and receipts, an increase in advances to our investment sales and financing professionals, a reduction in
the deferral of certain discretionary and other commissions and a higher proportion of operating expenses
compared to revenues. Additionally, we made distributions of $1.4 million of the SARs liability during 2017 with
no such comparable payments during the same period in 2016. These decreases were offset by a change in bonus
accruals.

2016 Compared to 2015. Cash flows provided by operating activities were $74.5 million in 2016 compared

to $72.1 million in 2015. Net cash provided by operating activities is driven by our net income adjusted for
non-cash items and changes in operating assets and liabilities. The $2.4 million increase in cash flows provided
by operating activities in 2016 compared to the same period in 2015 was primarily due to the net effect of the
growth of our business, differences in timing of payments and receipts, a reduction in the deferral of certain
discretionary commissions, lower bonuses and a reduction of advances to our investment sales and financing
professionals.

Investing Activities

2017 Compared to 2016. Cash flows used in investing activities were $27.3 million in 2017 compared to

cash flows provided by investing activities of $19.8 million in 2016. The change in cash flows used in investing
activities in 2017 compared to the same period in 2016 was primarily due to $20.3 million in net purchases of
marketable securities, available-for-sale for the year ended December 31, 2017 compared to $29.7 million in net
proceeds from the sale of marketable securities, available-for-sale for the same period in 2016.

2016 Compared to 2015. Cash flows provided by investing activities were $19.8 million in 2016 compared

to cash flows used in investing activities of $126.9 million in 2015. The change in cash flows provided by
investing activities in 2016 compared to the same period in 2015 was primarily due to $29.7 million in net
proceeds from the sale of marketable securities, available-for-sale for the year ended December 31, 2016
compared to $119.9 million in net purchases for the same period in 2015.

Financing Activities

2017 Compared to 2016. Cash flows used in financing activities were $5.8 million in 2017 compared to
$3.1 million in 2016. The change in cash flows used in financing activities in 2017 compared to the same period
in 2016 was primarily impacted by net changes in stock-based award activity and taxes paid related to net share
settlement of stock-based awards. The net change in stock-based award activity in 2016 included excess tax
benefits from stock-based award activity with no such comparable amounts in 2017 due to the adoption of new
accounting rules. See Note 10 – “Stock-Based Compensation Plans” our Notes to Consolidated Financial
Statements for additional information.

2016 Compared to 2015. Cash flows used in financing activities were $3.1 million in 2016 compared to

cash flows provided by financing activities of $1.8 million in 2015. The change in cash flows used in financing
activities in 2016 compared to the same period in 2015 was primarily impacted by net changes in stock-based
award activity, including excess tax benefit from stock-based award activity and taxes paid related to net share
settlement of stock-based awards. See Note 10 – “Stock-Based Compensation Plans” our Notes to Consolidated
Financial Statements for additional information.

Liquidity

We believe that our existing balances of cash and cash equivalents, cash flows expected to be generated
from our operations, proceeds from the sale of marketable securities, available-for-sale and borrowings available
under the Credit Agreement (defined below) will be sufficient to satisfy our operating requirements for at least

the next twelve months. If we need to raise additional capital through public or private debt or equity financings,
strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on
acceptable terms or at all. Our failure to raise sufficient capital, when needed, could prevent us from funding
acquisitions or otherwise financing our growth or operations. In addition, our notes payable to former
stockholders and SARs liability have provisions, which could accelerate repayment of outstanding principal and
accrued interest and adversely impact our liquidity.

Credit Agreement

On June 18, 2014, we entered into a Credit Agreement with Wells Fargo Bank, National Association
(“Bank”), dated as of June 1, 2014 (the “Credit Agreement”). The Credit Agreement is intended to provide for
future liquidity needs, if needed. The Credit Agreement provides for a $60.0 million principal amount senior
secured revolving credit facility that is guaranteed by all of the Company’s domestic subsidiaries (the “Credit
Facility”), which, as amended, matures on June 1, 2020. We may borrow, repay and reborrow amounts under the
Credit Facility until its maturity date, at which time all amounts outstanding under the Credit Facility must be
repaid in full. We must pay a commitment fee of up to 0.1% per annum, payable quarterly, based on the amount
of unutilized commitments under the Credit Facility.

The Credit Facility includes a $10.0 million sublimit for the issuance of standby letters of credit, of which

$533,000 was utilized at December 31, 2017. As of December 31, 2017, there were no amounts outstanding
under the Credit Agreement.

Borrowings under the Credit Facility bear interest, at our option, at either the (i) Base Rate (defined as the

highest of (a) the Bank’s prime rate, (b) the Federal Funds Rate plus 1.5% and (c) one-month LIBOR plus 1.5%),
or (ii) at a variable rate between 0.875% and 1.125% above LIBOR, based upon the total funded debt to EBITDA
ratio.

The Credit Facility contains customary covenants, including financial covenants (which require us, on a

combined basis with our guarantors, to maintain (i) an EBITDAR Coverage Ratio (as defined in the Credit
Agreement) of not less than 1.25:1.0 as of each quarter end on a rolling 4-quarter basis and (ii) total funded debt
to EBITDA not greater than 2.0:1.0), reporting requirements and events of default. The Credit Facility is secured
by substantially all of our assets, including pledges of 100% of the stock or other equity interest of each
subsidiary except to the extent such property constitutes the capital stock of a controlled foreign corporation (as
defined in the Internal Revenue Code), in which case no such pledge is required.

See Note 14 – “Commitments and Contingencies” of our Notes to Consolidated Financial Statements for

additional information on the Credit Agreement.

Contractual Obligations and Commitments

The contractual obligations and other commitments consisted of the following at December 31, 2017 (in

thousands):

Operating lease obligations (1)
. . . . . . . . . . . . . .
SARs liability (principal and interest) (2) . . . . . .
Notes payable (principal and interest) (3) . . . . . .
Deferred commissions payable (4)
. . . . . . . . . . .
Deferred compensation liability (5) . . . . . . . . . . .
Other (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$ 86,897
30,413
9,843
36,404
8,481
2,860

Less than
1 Year

$18,650
1,662
1,472
14,480
1,261
1,855

1-3 Years

3-5 Years

$31,891
3,625
8,371
21,924
2,522
1,005

$22,361
4,235
—
—
1,664
—

More Than
5 Years

$13,995
20,891
—
—
—
—

Other (7)

$ —
—
—
—
3,034
—

$174,898

$39,380

$69,338

$28,260

$34,886

$3,034

(1)

(2)

(3)

(4)

See Note 14 – “Commitments and Contingencies” of our Notes to the Consolidated Financial Statements.
Forecasted principal payments are based on each participant’s estimated retirement age and contractual
interest rate of 4.409% on January 1, 2018 and reflect required payments that resulted from the retirement of
certain executives. See Note 4 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial
Statements.
See Note 6 – “Notes Payable to Former Stockholders” of our Notes to the Consolidated Financial
Statements.
Includes short-term and long-term deferred commissions payable. See Note 4 – “Selected Balance Sheet
Data” of our Notes to the Consolidated Financial Statements.

(5) Represents current estimated payouts for participants currently receiving payments based on their elections
at the time of deferral. The Company holds assets held in Rabbi Trust of $8.8 million to settle outstanding
amounts when they become due. Amounts assume no increase in asset or liability due to future returns. See
Note 4 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial Statements.
See Note 14 – “Commitments and Contingencies” of our Notes to the Consolidated Financial Statements.
(7) Amounts in Other represent amounts where payments are dependent on future events, which may occur at
any time from less than 1 year to more than 5 years, based on the participants’ elections at the time of
deferral.

(6)

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Inflation

Our commissions and other variable costs related to revenue are primarily affected by real estate market
supply and demand, which may be affected by general economic conditions including inflation. However, to
date, we do not believe that general inflation has had a material impact upon our operations.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with U.S. generally accepted accounting principles. In

applying many of these accounting principles, we make assumptions, estimates and/or judgments that affect the
reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base
our estimates and judgments on historical experience and other assumptions that we believe are reasonable under
the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and our actual
results may change negatively or positively based on changing circumstances or changes in our analyses. If
actual amounts are ultimately different from our estimates, the revisions are included in our results of operations
for the period in which the actual amounts become known.

We believe that the critical accounting policies discussed below involve a greater degree of judgment or
complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical
to aid in fully understanding and evaluating our consolidated financial condition and results of operations. See
the notes to our consolidated financial statements for a summary of our significant accounting policies.

Revenue Recognition

We generate real estate brokerage commissions by acting as a broker for real estate owners or investors

seeking to buy or sell commercial properties. Revenues from real estate brokerage commissions and financing
fees from securing financing on purchase transactions as well as fees earned from refinancing our clients’
existing mortgage debt and other financing activities are recognized, in principally all cases, on the close of
escrow or when the loan closes.

Stock-Based Compensation

We initially value restricted stock units and restricted stock awards based on the grant date closing price of
our common stock and recognize the related expense on a straight-line basis over the requisite service period for
the entire award, subject to periodic adjustments to ensure that the cumulative amount of expense recognized
through the end of any reporting period is at least equal to the portion of the grant date value of the award that
has vested through that date. Awards made to our independent contractors, who are primarily our investment
sales professionals, are accounted for as liability awards and require remeasurement to fair value at the end of
each reporting period. We may be required to use judgment in determining the service period for awards granted
based on contract terms. After adoption of ASU 2016-09 on January 1, 2017, we account for forfeitures as they
occur.

We estimate the grant-date fair value for issuances under the 2013 ESPP Plan using the Black-Scholes

option-pricing model. We determined that the plan was a compensatory plan and the Company is required to
expense the fair value of the awards over each six-month offering period. We use judgments and assumptions in
determining the value of the awards. We calculate the expected volatility based on the historical volatility of our
common stock and the risk-free interest rate based on the U.S. Treasury yield curve in effect at the time of grant,
both consistent with the term of the offering period. We incorporate no forfeiture rate and include no expected
dividend yield as the Company has not paid, and currently does not intend to pay, a regular dividend.

Income Taxes

We account for income taxes under the asset and liability method. We recognize deferred tax assets and
liabilities for the future tax consequences attributable to (1) differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis, and (2) operating losses and tax credit
carryforwards. We measure existing deferred tax assets and liabilities using enacted tax rates expected to apply to
taxable income in the years in which we expect to have temporary differences realized or settled. We recognize
in the provision for income taxes the effect on deferred tax assets and liabilities of a change in tax rates in the
period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is
more-likely-than-not that some portion or all of the deferred tax asset will not be realized.

Because of the nature of our business, which includes activity in the U.S. and Canada, incorporating
numerous states and provinces as well as local jurisdictions, our tax position can be complex. As such, we use
estimates to determine state tax apportionment, foreign and local taxes, recognized and unrecognized tax
positions, tax related interest and penalties, valuation allowances and other permanent items, all which impact
our effective tax rate. Changes in these estimates are as a result of changes in the mix of our activity in the
various jurisdictions in which we operate and changes in the nature and extent of other estimates.

We evaluate the tax positions taken quarterly. The threshold for recognizing the benefits of tax return
positions in the financial statements is “more likely than not” to be sustained by the taxing authority and requires
measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is
more than 50% likely to be realized.

We recognize interest and penalties incurred as income tax expense.

Investments in Marketable Securities, Available-for-sale

We maintain a portfolio of cash equivalents and investments in a variety of fixed and variable rate debt
securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt securities, asset-backed
securities and other. We consider our investment in marketable securities to be available-for-sale. Accordingly,
these investments are recorded at their fair values, with unrealized gains or losses recorded in other
comprehensive income (loss), net of tax. We determine the appropriate classification of investments in

marketable securities at the time of purchase. Interest, along with accretion and amortization of purchase
premiums and discounts, which are recorded over the remaining weighted average life of the security, are
included in other income (expense), net in the consolidated statements of net and comprehensive income.

We regularly review our investment portfolio to determine if any security is other-than-temporarily

impaired, which would require us to record an impairment charge in the period any such determination is made.
In making this judgment, we evaluate, among other items, the time frame and extent to which the fair market
value of a security is less than its amortized cost and our intent and ability to sell, or whether we will more likely
than not be required to sell, the security before recovery of its amortized cost basis. The assumptions and
judgments may change based on changes in our operations or future plans.

The Company may sell certain of its marketable securities, available-for-sale prior to their stated maturities

Litigation

We are subject to various legal proceeding and claims that arise in the ordinary course of business, some of
which involve claims for damages that are substantial in amount. Most of these litigation matters are covered by
insurance which contain deductibles, exclusions, claim limits and aggregate policy limits. While the ultimate
liability for these legal proceeding cannot be determined, we use judgment in the evaluation claims and the need
for accrual for loss contingencies quarterly. We record an accrual for litigation related losses where we determine
the likelihood of loss is both probable and estimable. We accrue legal fees for litigation as the legal services are
provided.

Leases

We lease all of our facilities under operating lease agreements. Lease agreements may contain periods of

free rent or reduced rent or contain predetermined fixed increases in the minimum rent. We recognize the
minimum lease payments as rent expense on a straight-line basis over the noncancellable term of the lease. We
record the difference between the amount charged to rent expense and the rent paid as a deferred rent obligation.
We typically lease general purpose built-out office space, which reverts to the lessor upon termination of the
lease. Any payments for improvements, net of incentives received, are recorded as prepaid rent. Prepaid rent is
amortized using the straight-line method over the expected lease term as a charge to rent expense.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 – “Accounting Policies” of our

Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We maintain a portfolio of investments in a variety of fixed and variable debt rate securities, including U.S.

government and federal agency securities, corporate debt securities, asset backed securities and other. As of
December 31, 2017, the fair value of investments in marketable securities, available-for-sale was $125.7 million.
The primary objective of our investment activity is to maintain the safety of principal, provide for future liquidity
requirements while maximizing yields without significantly increasing risk. While some investments may be
securities of companies in foreign countries, all investments are denominated and payable in U.S. Dollars. We do
not enter into investments for trading or speculative purposes. While our intent is not to sell these investment
securities prior to their stated maturities, we may choose to sell any of the securities for strategic reasons
including, but not limited to, anticipated capital requirements, anticipation of credit deterioration, duration

management and when a security no longer meets the criteria of the Company’s investment policy. We do not
use derivatives or similar instruments to manage our interest rate risk. We seek to invest in high quality
investments. The weighted average rating (exclusive of cash and cash equivalents) was AA as of December 31,
2017. Maturities are maintained consistent with our short-, medium- and long-term liquidity objectives.

Currently, our portfolio of investments predominantly consists of fixed interest rate debt securities;
however, a portion of our investment portfolio may consist of variable interest rate debt securities. Our
investments in fixed interest rate debt securities are subject to market risk. Changes in prevailing interest rates
may adversely impact their fair market value should interest rates generally rise or fall. Accordingly, we also
may have interest rate risk with the variable rate debt securities as the income produced may decrease if interest
rates fall. The following table sets forth the impact on the fair value of our investments from changes in interest
rates based on the duration of the securities (dollars in thousands):

Change in Interest Rates

2% Decrease
1% Decrease
1% Increase
2% Increase

Approximate Change in
Fair Value of Investments
Increase (Decrease)

$ 3,788
$ 1,967
$(1,967)
$(3,933)

Due to the nature of our business and the manner in which we conduct our operations, we believe we do not

face any material interest rate risk with respect to other assets and liabilities, equity price risk or other market
risks. The functional currency of our Canadian operations is the Canadian dollar. We are exposed to foreign
currency exchange rate risk for the settlement of transactions of the Canadian operations as well as unrealized
translation adjustments. To date, realized foreign currency exchange rate gains and losses have not been material.

Item 8. Financial Statements and Supplementary Data

See pages beginning at F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting, as such term is defined in Exchange Act Rules 13a-15(f), including maintenance of (i) records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and
procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States of
America, (b) our receipts and expenditures are being made only in accordance with authorizations of
management and our board of directors and (c) we will prevent or timely detect unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial statements.

Our management, with the supervision and participation of our chief executive officer (“CEO”) and chief
financial officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of the end of the period covered by this Annual
Report on Form 10-K, based on the criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). Based on

such evaluation, our management has concluded that as of December 31, 2017, our disclosure controls and
procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and
that such information is accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our system of internal control is designed to provide reasonable assurance regarding the reliability of
financial reporting and preparation of our financial statements for external reporting purposes in accordance with
United States generally accepted accounting principles. Our management, including our CEO and CFO, assessed
the effectiveness of our internal control over financial reporting as of December 31, 2017. In conducting its
assessment, management used the criteria issued by the COSO. Based on this assessment, management
concluded that, as of December 31, 2017, our internal control over financial reporting was effective based on
those criteria.

Management, including our CEO and CFO, does not expect that our disclosure controls and procedures, or

our internal controls will prevent all error and fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of
controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have
been detected.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is required to apply judgment in
evaluating the benefits of possible controls and procedures relative to their costs. Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting objectives because of the inherent
limitations of any system of internal control. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses of judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by collusion or improper overriding of
controls. As a result of such limitations, there is risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, this risk.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

Executive Officers

PART III

The names and ages of our executive officers and directors as of March 1, 2018 are as follows:

Name

Age

Position(s)

Hessam Nadji
Mitchell R. LaBar
Martin E. Louie
William E. Hughes, Jr.

52
President, Chief Executive Officer and Director
58 Chief Operating Officer and Executive Vice President
56 Chief Financial Officer
68

Senior Vice President, Marcus and Millichap Capital Corporation

Hessam Nadji

Mr. Nadji has served as President and Chief Executive Officer and as a director of the Company since
March 31, 2016. Prior to his appointment as President and Chief Executive Officer of the Company, Mr. Nadji
served as senior executive vice president from May 2015. Mr. Nadji joined the Company as vice president of
research in 1996, became senior vice president in 1997, was appointed managing director in 2000, and became
chief strategy officer and senior vice president responsible for the Company’s specialty brokerage divisions as
well as research, advisory services and marketing in 2013. Mr. Nadji has extensive knowledge of the Company
and over 30 years of experience working in the real estate industry. Mr. Nadji received a B.S. in information
management and computer science from City University in Seattle.

Mitchell R. LaBar

Mr. LaBar has served as Executive Vice President and Chief Operating Officer since March 2016. Before

assuming this position, Mr. LaBar was employed with the Company from 1984 to 2008. He joined the Company
in 1984 as an investment sales professional, was promoted to regional manager, then division manager and, then,
served as a managing director in the Company until 2008. Mr. LaBar was instrumental in helping grow certain of
the Company’s markets, including offices in Southern California and subsequently Manhattan and other offices
in the Northeast. In 2008, Mr. LaBar left the Company to pursue private real estate investing for his family trust.
From March 2015 to March 2016, Mr. LaBar served as a consultant to the Company. He received a B.S. in
Economics from Brigham Young University.

Martin E. Louie

Mr. Louie has served as Chief Financial Officer since 2010. Prior to becoming Chief Financial Officer,

Mr. Louie was First Vice President of Finance beginning in 2009, and Vice President of Finance from 2006 to
2009. Mr. Louie has served as a senior financial executive with worldwide responsibilities for various
companies, including Sony Pictures Entertainment, The Walt Disney Co., Infineon Technologies and West
Marine. In those roles, he was responsible for accounting, strategic planning, financial planning and analysis,
treasury and investor relations. Prior to that, Mr. Louie, who is a CPA, was with KPMG. Mr. Louie received a
B.A. in Economics from the University of California, Los Angeles and an MBA in Finance from the University
of Southern California.

William E. Hughes, Jr.

Mr. Hughes has served as Senior Vice President of our subsidiary MMCC since 2000. He became a

Managing Director of Marcus & Millichap in 2008. Mr. Hughes is responsible for managing MMCC’s operations
on a national basis. He joined Marcus & Millichap in 1996 and has a diversified background in real estate
finance, financial consulting and modeling, project feasibility, leasing, construction management and real estate

development. Prior to joining the Company, Mr. Hughes held various senior executive roles with several
financial and real estate investment firms. He received a B.S. in Business Administration from the University of
Southern California. In January 2018, we announced that Mr. Hughes is transitioning into retirement.

Other Proxy Information

Certain information required by this Item is incorporated herein by reference to information appearing in

our definitive Proxy Statement for our Annual Meeting of Stockholders to be held on May 4, 2018 (“Proxy
Statement”), which information will appear under the captions entitled “Proposal 1: Election of Directors” and
“Other Matters” in the Proxy Statement.

Code of Ethics

We have adopted a Code of Ethics that applies to all of our executive officers and directors. The Code of
Ethics is posted on our website. The Internet address for our website is http://www.marcusmillichap.com, and the
Code of Ethics may be found as follows:

•

From our main web page, click on “Investor Relations” at the bottom of the main web page.

• Next click on “Corporate Governance” in the left hand navigation bar.

• The click on “Governance Documents.”

•

Finally, click on “Code of Ethics.”

We intend to satisfy the disclosure requirements under Item 5.05(c) of Form 8-K regarding an amendment

to, or waiver from, a provision of the Code of Ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller or persons performing similar functions by posting
such information on our website, at the address and location specified above.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to information appearing in our

definitive Proxy Statement for our Annual Meeting of Stockholders to be held on May 4, 2018, which
information will appear under the caption entitled “Compensation of the Named Executive Officers and
Directors” in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this Item is incorporated herein by reference to information appearing in our

definitive Proxy Statement for our Annual Meeting of Stockholders to be held on May 4, 2018, which
information will appear under the captions entitled “Principal Stockholders” in the Proxy statement.

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of December 31, 2017.

All outstanding awards relate to our common stock.

Plan Category

Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity compensation plans not approved by

security holders . . . . . . . . . . . . . . . . . . . . . . . . .

Number of Securities to
be Issued Upon
Exercise of
Outstanding Options,
Warrants
and Rights (1)

Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (2)

Number of Securities
Remaining for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a)
(c) (3) (4) (5)

(a)

1,529,741

—

1,529,741

(b)

$ —

—

$ —

(c)

5,833,812

—

5,833,812

(1) Consist of deferred stock units (“DSUs”) and restricted stock units (“RSUs”) granted under the 2013

Omnibus Equity Incentive Plan (the “2013 Plan”). Excludes RSAs granted under the 2013 Plan, purchase
rights granted under the Company’s 2013 Employee Stock Purchase Plan (the “2013 ESPP Plan”) and cash
settled SARs.

(2) Outstanding DSUs and RSUs have no exercise price.
(3)

Includes 5,586,917 shares available for future issuance under the 2013 Plan. Includes 246,895 shares
available for future issuance under the 2013 ESPP Plan, including shares subject to purchase during the
current offering period, which commenced on November 15, 2017. Subject to the number of shares
remaining in the share reserve, the maximum number of shares purchasable by any participant on any one
purchase date for any purchase period, including the current purchase period may not exceed 1,250 shares.
In February 2017, the board of directors approved an amendment to the 2013 Plan, which was approved by
the shareholders in May 2017. Pursuant to the amendment to the 2013 Plan, the automatic share increase
provision was removed. See Note 10 – “Stock-Based Compensation Plans” of our Notes to the Consolidated
Financial Statements.
Pursuant to the terms of the 2013 ESPP Plan, on the first day of each fiscal year, beginning with the 2015
fiscal year, the number of shares authorized for issuance under the 2013 ESPP Plan is automatically
increased by the lesser of: (i) 366,667 shares of our common stock; (ii) 1% of the outstanding shares of our
common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the
Board may determine.

(4)

(5)

Item 13. Certain Relationships and Related Transactions, and Director Independence

Any information required by this Item is incorporated herein by reference to information appearing in our

definitive Proxy Statement for our Annual Meeting of Stockholders to be held on May 4, 2018, which
information will appear under the captions entitled “Proposal 1: Election of Directors” and “Certain
Relationships and Related Party Transactions” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to information appearing in our

definitive Proxy Statement for our Annual Meeting of Stockholders to be held on May 4, 2018, which
information will appear under the caption entitled “Proposal 2: Ratification of Appointment of Independent
Registered Public Accounting Firm for 2018” in the Proxy Statement.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this Report:

(1) Consolidated Financial Statements

The consolidated financial statements listed in the accompanying Index to Consolidated Financial

Statements are attached to this Form 10-K beginning on page F-1.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2017,

2016 and 2015

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and

2015

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

The financial statement schedules have been omitted because they are not applicable or the information

required to be set forth therein is included in the consolidated financial statements or notes thereto.

(b) Exhibits

The following exhibits are included herein or incorporated herein by reference:

Number

Description

3.1

3.2

4.1

10.1

10.2

10.3

Amended and Restated Certificate of Incorporation of Marcus & Millichap, Inc., (incorporated by
reference to Exhibit 3.1 to the registrant’s quarterly report with respect to the quarter ended
September 30, 2013 on Form 10-Q filed on November 22, 2013).

Amended and Restated Bylaws of Marcus & Millichap, Inc., (incorporated by reference to
Exhibit 3.2 to the registrant’s quarterly report with respect to the quarter ended September 30, 2013
on Form 10-Q filed on November 22, 2013).

Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the registrant’s registration
statement on Form S-1 (No. 333-191316) filed on September 23, 2013).

Form of Contribution Agreement by and among Marcus & Millichap, Inc., Marcus & Millichap
Company, and certain other shareholders of Marcus & Millichap Real Estate Investment Services,
Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s registration statement on Form S-1
(No. 333-191316) filed on September 23, 2013).

Separation and Distribution Agreement by and between Marcus & Millichap, Inc. and Marcus &
Millichap Company dated October 31, 2013 (incorporated by reference to Exhibit 10.1 to the
registrant’s quarterly report on Form 10-Q for the quarter ended September 30, 2013 filed on
November 22, 2013).

Tax Matters Agreement by and between Marcus & Millichap, Inc. and Marcus & Millichap
Company dated October 31, 2013 (incorporated by reference to Exhibit 10.2 to the registrant’s
quarterly report on Form 10-Q for the quarter ended September 30, 2013 filed on November 22,
2013).

10.4

10.5†

Transition Services Agreement by and between Marcus & Millichap, Inc. and Marcus & Millichap
Company dated October 31, 2013 (incorporated by reference to Exhibit 10.3 to the registrant’s
quarterly report on Form 10-Q for the quarter ended September 30, 2013 filed on November 22,
2013).

Form of Indemnification Agreement by and between Marcus & Millichap, Inc. and each of its
Officers and Directors (incorporated by reference to Exhibit 10.7 to the registrant’s registration
statement on Form S-1 (No. 333-191316) filed on September 23, 2013).

10.6†*

Amended and Restated 2013 Omnibus Equity Incentive Plan.

10.7†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13†

10.14†

10.15

10.16

10.17

10.18*

10.19†

Form of Deferred Stock Unit Award Agreement under 2013 Omnibus Equity Incentive Plan
(incorporated by reference to Exhibit 10.9 to the registrant’s registration statement on Form S-1
(No. 333-191316) filed on September 23, 2013).

Form of Stock Option Award Agreement under 2013 Omnibus Equity Incentive Plan (incorporated
by reference to Exhibit 10.10 to the registrant’s registration statement on Form S-1 (No. 333-191316)
filed on September 23, 2013).

Form of Restricted Stock Unit Award Agreement under 2013 Omnibus Equity Incentive Plan
(incorporated by reference to Exhibit 10.11 to the registrant’s registration statement on Form S-1
(No. 333-191316) filed on September 23, 2013).

Form of Restricted Stock Award Agreement under 2013 Omnibus Equity Incentive Plan
(incorporated by reference to Exhibit 10.12 to the registrant’s registration statement on Form S-1/A
(No. 333-191316) filed on October 21, 2013).

Form of Amendment, Restatement and Freezing of Stock Appreciation Rights Agreement
(Section 409A grandfathered) (incorporated by reference to Exhibit 10.14 to the registrant’s
registration statement on Form S-1 (No. 333-191316) filed on September 23, 2013).

Form of Sale Restriction Agreement (incorporated by reference to Exhibit 10.15 to the registrant’s
registration statement on Form S-1 (No. 333-191316) filed on September 23, 2013).

2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.16 to the registrant’s
registration statement on Form S-1/A (No. 333-191316) filed on October 28, 2013).

Executive Short-Term Incentive Plan, dated March 13, 2014 (incorporated by reference to
Exhibit 99.1 to the registrant’s Current Report on Form 8-K filed on March 17, 2014).

Credit Agreement, by and between Marcus & Millichap, Inc. and Wells Fargo Bank, National
Association dated as of June 1, 2014 (incorporated by reference to Exhibit 10.1 to the registrant’s
Current Report on Form 8-K filed on June 24, 2014).

First Amendment to Credit Agreement, between the Company and Wells Fargo Bank, National
Association dated as of August 21, 2015 (incorporated by reference to Exhibit 10.1 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 filed on November 9,
2015).

Second Amendment to Credit Agreement and Amended and Restated Revolving Line of Credit Note,
between the Company and Wells Fargo Bank, National Association dated as of August 10, 2016
(incorporated by reference to Exhibit 10.23 to the registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2016 filed on November 7, 2016).

Third Amendment to Credit Agreement and Amended and Restated Revolving Line of Credit Note,
between the Company and Wells Fargo Bank, National Association dated as of October 16, 2017.

Employment Agreement between the Company and Hessam Nadji effective as of March 31, 2016
(incorporated by reference to Exhibit 10.21 to the registrant’s Current Report on Form 8-K/A
(No. 001-36155) filed on April 8, 2016).

10.20†

10.21†

10.22†

21.1*

23.1*

31.1*

31.2*

32.1**

Retirement Agreement and Release of All Claims between the Company and John J. Kerin dated
as of June 13, 2016 (incorporated by reference to Exhibit 10.22 to the registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2016 filed on August 8, 2016).

Employment Agreement between the Company and Mitchell R. LaBar effective as of March 31,
2016 (incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K
for the year ended December 31, 2016 filed on March 16, 2017).

Retirement Agreement and Release of All Claims between the Company and Gene A. Berman
dated as of January 25, 2017 (incorporated by reference to Exhibit 10.24 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed on May 10, 2017).

List of Subsidiaries.

Consent of Ernst & Young LLP.

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Document

101.LAB*

XBRL Taxonomy Label Linkbase Document

101.PRE*

XBRL Taxonomy Presentation Linkbase Document

Indicates management contract or compensatory plan.
†
*
Filed herewith.
** Furnished, not filed.

Not applicable.

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 16, 2018

Marcus & Millichap, Inc.

/s/ Hessam Nadji

Hessam Nadji
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Hessam Nadji

Hessam Nadji

/s/ Martin E. Louie

Martin E. Louie

/s/ Kurt H. Schwarz

Kurt H. Schwarz

/s/ George M. Marcus

George M. Marcus

/s/ William A. Millichap

William A. Millichap

/s/ Norma J. Lawrence

Norma J. Lawrence

/ s/ Nicholas F. McClanahan

Nicholas F. McClanahan

/s/ George T. Shaheen

George T. Shaheen

/s/ Don C. Watters

Don C. Watters

Director, President and Chief Executive Officer March 16, 2018
(Principal Executive Officer)

March 16, 2018

Chief Financial Officer
(Principal Financial Officer)

Vice President of Finance and Chief
Accounting Officer (Principal Accounting
Officer)

Director

MARCUS & MILLICHAP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2017, 2016

and 2015

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements

Page

F-2
F-3

F-4
F-5
F-6
F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Marcus & Millichap, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marcus & Millichap, Inc. (the Company)

as of December 31, 2017 and 2016, the related consolidated statements of net and comprehensive income,
stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017
and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain
an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Los Angeles, California
March 16, 2018

F-2

MARCUS & MILLICHAP, INC.

CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands, except per share amounts)

Assets
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, available–for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held in rabbi trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2017

2016

$220,786
9,586
9,661
1,308
73,560
5,529

320,430
15,392
17,153
52,099
8,787
22,640
23,163

$187,371
4,809
8,094
1,182
27,454
5,102

234,012
13,285
16,355
77,475
7,337
35,571
9,981

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$459,664

$394,016

Liabilities and stockholders’ equity
Current liabilities:

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable to former stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses and other employee related expenses . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable to former stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,202
1,035
49,180
23,842

83,259
49,361
7,651
4,505

$ 10,133
986
44,754
22,303

78,176
44,455
8,686
3,845

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

144,776

135,162

Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:

—

Preferred stock, $0.0001 par value:

Authorized shares – 25,000,000; issued and outstanding shares – none at

December 31, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Common stock, $0.0001 par value:

Authorized shares – 150,000,000; issued and outstanding shares – 38,374,011

and 37,882,266 at December 31, 2017 and 2016, respectively . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock notes receivable from employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
89,877
(4)
224,071
940

4
85,445
(4)
172,599
810

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

314,888

258,854

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$459,664

$394,016

See accompanying notes to consolidated financial statements.

F-3

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME

(dollar and share amounts in thousands, except per share amounts)

Years Ended December 31,

2017

2016

2015

Revenues:

Real estate brokerage commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$649,393
49,653
20,654

$662,220
43,444
11,786

$632,574
42,558
13,923

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

719,700

717,450

689,055

Operating expenses:

Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expense . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . .

446,557
171,648
5,363

444,768
161,794
4,387

423,389
147,710
3,305

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

623,568

610,949

574,404

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:

Unrealized gains (losses) on marketable securities, net of tax of $139,
$197 and $(394) for the years ended December 31, 2017, 2016 and
2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign currency translation gain (loss), net of tax of $0, $0 and $(90)

for the years ended December 31, 2017, 2016 and 2015,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96,132
4,590
(1,496)

99,226
47,702

51,524

106,501
2,134
(1,533)

107,102
42,445

114,651
443
(1,726)

113,368
47,018

64,657

66,350

193

313

(592)

(63)

130

353

890

298

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 51,654

$ 65,010

$ 66,648

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.32
1.32

$
$

1.66
1.66

$
$

1.71
1.69

Weighted average common shares outstanding:

38,988
39,100

38,899
39,035

38,848
39,162

See accompanying notes to consolidated financial statements.

F-4

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(dollar amounts in thousands)

Series A
Redeemable
Preferred Stock

Shares Amount Shares Amount

Common Stock Additional

Stock Notes
Receivable
From
Employees

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income

Paid-In
Capital

$— 36,918,442 $

$75,058
—

$ (4)
—

$ 41,592
66,350

$159
298

Balance as of December 31, 2014 . . . . . . . . . . . . . . . —
Net and comprehensive income . . . . . . . . . . . . . —

Stock-based award activity

Stock-based compensation . . . . . . . . . . . . —
Issuance of common stock pursuant to

employee stock purchase plan . . . . . . . . —

Issuance of common stock for settlement

of deferred stock units . . . . . . . . . . . . . . —

Issuance of common stock for vesting of

restricted stock units . . . . . . . . . . . . . . . —

Issuance of common stock for unvested

restricted stock awards . . . . . . . . . . . . . —

Shares withheld related to net share

settlement of stock-based awards . . . . . —

Windfall tax benefit from stock-based

award activity . . . . . . . . . . . . . . . . . . . . —

—

4
—

—

34,152 —

455,151 —

195,830 —

10,110 —

7,114

976

—

(217,229) —

(8,730)

—

4
—

6,173

80,591
—

Balance as of December 31, 2015 . . . . . . . . . . . . . . . —
Net and comprehensive income . . . . . . . . . . . . . —

— 37,396,456
—
—

Stock-based award activity

Stock-based compensation . . . . . . . . . . . . —
Issuance of common stock pursuant to

employee stock purchase plan . . . . . . . . —

Issuance of common stock for settlement

of deferred stock units . . . . . . . . . . . . . . —

Issuance of common stock for vesting of

restricted stock units . . . . . . . . . . . . . . . —

Issuance of common stock for unvested

restricted stock awards . . . . . . . . . . . . . —

Shares withheld related to net share

settlement of stock-based awards . . . . . —

Windfall tax benefit from stock-based

award activity . . . . . . . . . . . . . . . . . . . . —

—

7,035

30,080 —

673

435,026 —

231,971 —

14,742 —

—

(226,009) —

(5,565)

—

2,711

Balance as of December 31, 2016 . . . . . . . . . . . . . . . —

— 37,882,266

85,445

Cumulative effect of a change in accounting

principle, net of tax . . . . . . . . . . . . . . . . . . . . —

—

Balance at January 1, 2017, as adjusted . . . . . . . . . . —
Net and comprehensive income . . . . . . . . . . . . . —

— 37,882,266
—
—

Stock-based award activity

—

4
—

85,530
—

Stock-based compensation . . . . . . . . . . . . —
Issuance of common stock pursuant to

employee stock purchase plan . . . . . . . . —

Issuance of common stock for settlement

of deferred stock units . . . . . . . . . . . . . . —

Issuance of common stock for vesting of

restricted stock units . . . . . . . . . . . . . . . —

Issuance of common stock for unvested

restricted stock awards . . . . . . . . . . . . . —

Shares withheld related to net share

settlement of stock-based awards . . . . . —

—

9,145

30,209 —

653

351,801 —

284,837 —

17,538 —

—

(192,640) —

(5,451)

—

(4)

—

(4)

—

(4)

—

107,942
64,657

—

172,599

(52)

172,547
51,524

—

457
353

—

810

—

810
130

—

Total

$116,809
66,648

7,114

976

—

(8,730)

6,173

188,990
65,010

7,035

673

—

(5,565)

2,711

258,854

258,887
51,654

9,145

653

—

(5,451)

Balance as of December 31, 2017 . . . . . . . . . . . . . . . —

$— 38,374,011 $

$89,877

$ (4)

$224,071

$940

$314,888

See accompanying notes to consolidated financial statements.

F-5

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized losses (gains) on marketable securities,

available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from stock-based award activity . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based award activity . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Commissions receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held in rabbi trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . .
Income tax receivable (payable) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses and other employee related expenses . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . .
Deferred rent obligation and other liabilities . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Purchases of marketable securities, available-for-sale . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of marketable securities,

available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments received on employee notes receivable . . . . . . . . . . . . . . . . . . . . . .
Issuances of employee notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . .

Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
Proceeds from issuance of shares pursuant to employee stock purchase

plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlement of stock-based awards . . . . . . . . .
Excess tax benefit from stock-based award activity . . . . . . . . . . . . . . . . . . . .
Principal payments on notes payable to former stockholders . . . . . . . . . . . . .

Years Ended December 31,

2017

2016

2015

$ 51,524

$ 64,657

$ 66,350

5,363
219
9,145
12,825

(2)

—
—
108

(4,777)
(1,567)
(2,107)
(700)
(13,665)
(572)
(126)
1,782
8,427
660

66,537

4,387
47
7,035
(483)

123
2,711
(2,711)
444

(1,467)
(552)
(4,210)
(1,263)
(803)
964
2,867
(8,218)
10,988
(30)

74,486

3,305
281
7,114
65

(132)
10,483
(10,483)
509

70
(6)
(5,430)
(1,514)
(8,027)
(912)
(6,649)
3,261
12,360
1,475

72,120

(65,093)

(107,898)

(146,050)

44,753
27
(481)
(6,554)
10

137,593
12
(455)
(9,473)
40

26,142
22
(247)
(6,796)
—

(27,338)

19,819

(126,929)

653
(5,451)
—
(986)

673
(5,565)
2,711
(938)

(3,119)
91,186
96,185

976
(8,730)
10,483
(894)

1,835
(52,974)
149,159

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .

(5,784)
33,415
187,371

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$220,786

$ 187,371

$ 96,185

F-6

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(dollar amounts in thousands)

Years Ended December 31,

2017

2016

2015

Supplemental disclosures of cash flow information
Interest paid during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,912

628

868

Income taxes paid, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$35,002

$37,350

$43,120

Supplemental disclosures of noncash investing and financing activities
Reduction of accrued bonuses and other employee related expenses in settlement
of employee notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

243

325

Property and equipment additions incurred but not yet paid included in accounts

payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (359) $

Settlements of deferred compensation obligation with trust assets . . . . . . . . . . . . .

$ — $ — $

208

462

See accompanying notes to consolidated financial statements.

F-7

Marcus & Millichap, Inc.
Notes to 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 December 31, 2017, MMI operates 78 offices in the United States and Canada through its wholly-owned
subsidiary, Marcus & Millichap Real Estate Investment Services, Inc. (“MMREIS”), which includes the
operations of Marcus & Millichap Capital Corporation (“MMCC”).

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, MMREIS (“Spin-Off”). 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 on October 30, 2013.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). The 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.

2. Accounting Policies

Cash and Cash Equivalents

The Company considers cash and cash equivalents to include short-term, highly liquid investments with

maturities of three months or less when purchased. At December 31, 2017 and 2016, portions of the balance of
cash and cash equivalents were held in four financial institutions, various money market funds with fixed and
floating net asset values and short-term commercial paper. Money market funds that have floating net asset
values and may be subject to gating or liquidity fees. Management believes the likelihood of realizing material
losses from the excess of cash balances over federally insured limits is remote.

Revenue Recognition

The Company generates real estate brokerage commissions by acting as a broker for real estate owners or

investors seeking to buy or sell commercial properties. Revenues from real estate brokerage commissions are
recognized when there is persuasive evidence of an arrangement, all services have been provided, the price is
fixed and determinable and collectability is reasonably assured. These criteria are typically met at the close of
escrow. The Company generates financing fees from securing financing on purchase transactions as well as fees
earned from refinancing its clients’ existing mortgage debt and other financing activities. Revenues from
financing fees are recognized at the time the loan closes and there are no remaining significant obligations for
performance in connection with the transaction. Other revenues generally include fees generated from consulting
and advisory services, as well as referral fees from other real estate brokers. Revenues from these services are
recognized when the services are provided or upon closing of the transaction.

F-8

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Commissions Receivable

Commissions receivable consists of commissions earned on brokerage transactions for which payment has

not yet been received. The Company evaluates the need for an allowance for doubtful accounts based on the
specific-identification of potentially uncollectible accounts. The majority of commissions receivable are settled
within 10 days after the close of escrow. As a result, the Company did not require an allowance for commissions
receivable at December 31, 2017 and 2016.

Cost of Services

Cost of services principally consists of variable commissions, compensation-related costs related to the
Company’s financing activities and other costs for the Company’s investment sales and financing professionals
related to transactions closed in the period. Investment sales and financing professionals’ commissions are
generally accrued based on revenue from transactions generated by the Company’s investment sales and
financing professionals. Investment sales and financing professionals are compensated at commission rates based
on individual agreements and a portion of the commissions due upon the closing of a transaction may be deferred
in accordance with their contracts.

Investments in Marketable 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 securities, asset-backed securities
and other. The Company considers its investment in marketable securities to be available-for-sale. Accordingly,
these investments are recorded at their fair values, with unrealized gains or losses recorded in other
comprehensive income (loss), net of tax. The Company determines the appropriate classification of investments
in marketable securities at the time of purchase. Interest along with accretion and amortization of purchase
premiums and discounts, which are recorded over the remaining weighted average life of the security, are
included in other income (expense), net in the consolidated statements of net and comprehensive income. See
Note 5 – “Investments in Marketable Securities” for additional information.

The Company regularly reviews its investment portfolio to determine if any security is other-than-

temporarily impaired, which would require the Company to record an impairment charge in the period any such
determination is made. In making this judgment, the Company evaluates, among other items, the time frame and
extent to which the fair market value of a security is less than its amortized cost, the Company’s intent and ability
to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its
amortized cost basis.

Assets Held in Rabbi Trust

The Company provides a non-qualified deferred compensation program to certain employees. Deferred
amounts are invested in variable whole life insurance policies owned by the Company for the participants benefit
and held in a Rabbi Trust. Participants elect to invest in various equity and debt securities offered within the plan
on a notional basis. The net change in the carrying value of the underlying assets held in the Rabbi Trust is
recorded in other income (expense), net. The change in the deferred compensation liability as a result the change
in the notional value of the participants accounts is recorded as a component of selling general and administrative
expenses in the consolidated statements of net and comprehensive income.

Recurring Fair Value Measurements

The Company carries its investments including commercial paper and floating NAV money market funds

recorded in cash and cash equivalents, investments in marketable securities, available-for-sale and assets held in

F-9

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

the Rabbi Trust at fair value. U.S. GAAP defines the fair value of a financial instrument as the amount that would
be received from the sale of an asset in an orderly transaction between market participants at the measurement
date. The Company is responsible for the determination of the value of the investment carried and fair value and
the supporting methodologies and assumptions. The Company uses various pricing sources to validate the values
utilized.

The degree of judgment used in measuring the fair value of financial instruments generally inversely
correlates with the level of observable valuation inputs. Financial instruments with quoted prices in active
markets generally have more pricing observability and less judgment is used in measuring fair value. Financial
instruments for which no quoted prices are available have less observability and are measured at fair value using
valuation models or other pricing techniques that require more judgment.

Assets recorded at fair value in the consolidated balance sheets are measured and classified in accordance
with a fair value hierarchy consisting of the three “levels” based on the observability of inputs available in the
marketplace used to measure the fair values as discussed below:

•

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability, or

Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the
asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to the model.

Investment in marketable securities, available-for-sale and assets held in the Rabbi Trust are carried at fair

value based on observable inputs available. All these securities are measured as Levels 1 or 2 as appropriate. The
Company has no investments measured as Level 3.

Assets and Liabilities not Measured at Fair Value

The Company’s commissions receivable, amounts due from employees and investment sales and financing
professionals (included in other assets, net current and other assets non-current captions), accounts payable and
accrued expenses and commissions payable (included in deferred compensation and commissions current and
deferred compensation and commissions non-current captions) are carried at cost, which approximates fair value
based on their immediate or short-term maturities and terms which approximate current market rates.

The Company’s obligations under notes payable to former stockholders bear fixed interest rates. The

Company has determined that the carrying value on these instruments approximates fair value. As the
Company’s obligations under stock appreciation rights (“SARs”) liability (included in deferred compensation
and commissions current and deferred compensation and commissions non-current captions) bear interest at a
variable rate based on U.S. Treasuries, the Company has determined that the carrying value approximates their
fair value.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and amortization. The Company

uses the straight-line method for depreciation and amortization. Depreciation and amortization are generally
provided over estimated useful lives ranging from three to seven years.

F-10

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

The Company evaluates its fixed assets for impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable.

Other Assets

Other assets consist primarily of amounts due from the Company’s investment sales and financing
professionals, security deposits made in connection with operating leases, customer trust accounts, employee
notes receivable and other receivables.

The Company, from time to time, advances funds to its investment sales and financing professionals.
Certain amounts may bear a nominal interest rate, with any cash receipts on notes applied first to any unpaid
principal balance prior to any income being recognized. The Company generally has the ability to collect a
portion of these amounts from future commissions due to the investment sales and financing professional. The
Company may forgive a portion of the amount over time depending on the nature of the advance generally
ratably over a contracted service period. Amounts forgiven are charged to selling, general and administrative
expense at the time the amounts are forgiven. The Company evaluates the need for an allowance for these
amounts based on the specific identification of potentially uncollectible amounts and provides an allowance
based on consideration of historical experience. Amounts are generally written off upon separation from the
Company of the investment sales and financing professional as a service provider or when amounts are
determined to be no longer collectable.

In connection with a brokerage transaction, the Company may need to, or be required to, hold cash in

escrow for a transaction participant. These amounts are deposited into separate customer trust accounts
controlled by the Company. The amounts are included in current other assets, net with a corresponding liability
included in accounts payable and accrued expenses, both in the consolidated balance sheets.

Leases

The Company leases all of its facilities under operating lease agreements. Lease agreements may contain
periods of free rent or reduced rent or contain predetermined fixed increases in the minimum rent. The Company
recognizes the minimum lease payments as rent expense on a straight-line basis over the noncancellable term of
the lease, which considers renewals and early termination clauses. The Company records the difference between
the amount charged to rent expense and the rent paid as a deferred rent obligation (included in accounts payable
and accrued expenses and deferred rent and other liabilities captions). The Company typically leases general
purpose built-out office space, which reverts to the lessor upon termination of the lease. Any payments for
improvements, net of incentives received, are recorded as prepaid rent. Prepaid rent is amortized using the
straight-line method over the expected lease term as a charge to rent expense.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs are included in selling, general, and

administrative expense in the accompanying consolidated statements of net and comprehensive income.

Advertising costs for the years ended December 31, 2017, 2016 and 2015 was $824,000, $1.2 million and

$1.1 million, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method. The Company recognizes

deferred tax assets and liabilities for the future tax consequences attributable to (1) differences between the

F-11

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and
(2) operating losses and tax credit carryforwards. The Company measures existing deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in the years in which the Company expects
to have temporary differences to be realized or settled. The Company recognizes in the provision for income
taxes the effect on deferred tax assets and liabilities of a change in tax rates in the period that includes the
enactment date. The Company periodically evaluates the deferred tax assets to assess whether it is likely that the
deferred tax assets will be realized. In determining whether a valuation allowance is required, the Company
considers the timing of deferred tax reversals, current year taxable income and historical performance. Valuation
allowances are provided against deferred tax assets when it is more-likely-than-not that some portion or all of the
deferred tax asset will not be realized.

Because of the nature of the Company’s business, which includes activity in the U.S. and Canada,
incorporating numerous states and provinces as well as local jurisdictions, the Company’s tax position can be
complex. As such, the Company’s effective tax rate is subject to changes as a result of fluctuations in the mix of
its activity in the various jurisdictions in which the Company operates including changes in tax rates, state
apportionment, tax related interest and penalties, valuation allowances and other permanent items.

The threshold for recognizing the benefits of tax return positions in the financial statements is “more likely

than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-
likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized. The Company’s
inventory of tax positions has been assessed with respect to all applicable income tax issues for all open tax years
(in each respective jurisdiction), and the Company has concluded that no uncertain tax positions are required to
be recognized in the Company’s consolidated financial statements.

The Company recognizes interest and penalties incurred as income tax expense.

Stock-Based Compensation

The Company follows the accounting guidance for share based payments which requires the measurement

and recognition of compensation expense for all stock based awards made to employees, independent contractors
and non-employee directors. Awards are issued under the Amended and Restated 2013 Omnibus Equity
Incentive Plan (the “2013 Plan”) and 2013 Employee Stock Purchase Plan (“2013 ESPP Plan”).

For awards made to the Company’s employees and directors, the Company initially values restricted stock

units and restricted stock awards based on the grant date closing price of the Company’s common stock. For
awards with periodic vesting, the Company recognizes the related expense on a straight-line basis over the
requisite service period for the entire award, subject to periodic adjustments to ensure that the cumulative amount
of expense recognized through the end of any reporting period is at least equal to the portion of the grant date
value of the award that has vested through that date.

For awards made to independent contractors, which are the Company’s investment sales and financing
professionals, the Company determined that the fair value of the award shall be measured based on the fair value
of the equity instrument as it is more reliably measureable than the fair value of the consideration received. The
Company uses the grant date as the performance commitment date, and the measurement date for these awards is
the date the services are completed, which is the vesting date. As a result, the Company records stock-based
compensation for these awards over the vesting period on a straight-line basis with periodic adjustments during
the vesting period for changes in the fair value of the awards.

After adoption of Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-
Based Payment Accounting (“ASU 2016-09”) on January 1, 2017, the Company accounts for forfeitures as they
occur.

F-12

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

If there are any modifications or cancellations of the underlying unvested share-based awards, the Company
may be required to accelerate, increase or cancel any remaining unrecognized or previously recorded stock-based
compensation expense.

For awards issued under the 2013 ESPP Plan, the Company determined that the plan was a compensatory
plan and is required to expense the fair value of the awards over each six-month offering period. The Company
estimates the fair value of these awards using the Black-Scholes option pricing model. The Company calculates
the expected volatility based on the historical volatility of the Company’s common stock and the risk-free interest
rate based on the U.S. Treasury yield curve in effect at the time of grant, both consistent with the term of the
offering period. The Company incorporates no forfeiture rate and includes no expected dividend yield as the
Company has not, and currently does not intend to pay a regular dividend.

Earnings per Share

Basic weighted average shares outstanding includes vested, but un-issued, Deferred Stock Units (“DSU’s).
The difference between basic and diluted weighted average shares outstanding represents the dilutive impact of
common stock equivalents consisting of shares to be issued under the 2013 Plan and 2013 ESPP Plan.

Foreign Currency Translation

The Company prepares the financial statements of its Canadian subsidiary using the local currency as the
functional currency. The assets and liabilities of the Company’s Canadian subsidiary are translated in to U.S.
dollars at the rates of exchange at the balance sheet date with the resulting translation adjustments included as a
separate component of stockholder’s equity through other comprehensive income (loss) in the consolidated
statements of net and comprehensive income.

Income and expenses are translated at the average monthly rates of exchange. The Company includes gains

and losses from foreign currency transactions in other income (expense), net in the consolidated statements of net
and comprehensive income.

The effect of foreign currency translation on cash and cash equivalents is reflected in cash flows from
operating activities on the consolidated statements of cash flows, and is not material for any period presented.

Taxes Collected From Clients and Remitted to Governmental Authorities

The Company accounts for tax assessed by any governmental authority that is based on revenue or
transaction value (i.e. sales, use and value added taxes) on a net basis, and, accordingly, such amounts are not
included in revenue. Collected amounts are recorded as a current liability until paid.

Use of Estimates

The preparation of 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk principally
consist of cash and cash equivalents, due from independent contractors (included under other assets, net current

F-13

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

and other assets non-current captions), investments in marketable securities, available-for-sale, security deposits
(included under other assets, non-current caption) and commissions receivables. 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 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 that hold the

Company’s 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 requires collateral on a case-by-case basis. The Company maintains allowances, as needed, for
estimated credit losses based on management’s assessment of the likelihood of collection. For the twelve months
ended December 31, 2017, 2016 and 2015, 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.

During the twelve months ended December 31, 2017, 2016 and 2015, the Company’s Canadian operations

represented less than 1% of total revenues.

During the twelve months ended December 31, 2017, 2016 and 2015 no office represented 10% or more of

total revenues.

Segment Reporting

The Company follows the guidance 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 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.

Recent Accounting Pronouncements

Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09. ASU 2016-09
changes the accounting for share-based payment awards issued to employees. The Company adopted this new
standard effective on January 1, 2017. The Company adopted the provisions of ASU 2016-09 on a prospective
basis except for the change in the accounting for forfeitures, where the Company adopted the provision on a
modified retrospective basis with a cumulative-effect adjustment as of January 1, 2017.

As a result of the adoption, in periods subsequent to December 31, 2016, windfall tax benefits, net are
recorded as a discrete item in the Company’s provision for income taxes. The Company recognized $2.9 million
in windfall tax benefits, net during the year ended December 31, 2017 as a reduction in the provision for income
taxes in the consolidated statements of net and comprehensive income. See Note 11 – “Income Taxes” for
additional information. Prior to the adoption, any windfall tax benefits, net were recorded in additional paid in

F-14

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

capital. Additionally, in periods subsequent to December 31, 2016, excess tax benefits for share-based payments
are included in cash flows from operating activities rather than cash flows from financing activities, prior periods
have not been adjusted. Further, the Company changed its accounting for forfeitures from estimating awards that
are not expected to vest to recording forfeitures when they actually occur. The cumulative effect adjustment as of
January 1, 2017 related to forfeitures was a charge to retained earnings of approximately $52,000 (net of tax) and
is expected to have a minor impact on the timing of stock based compensation subsequent to January 1, 2017.
See Note 10 – “Stock-Based Compensation Plans” for additional information.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope

of Modification Accounting (“ASU 2017-09”), which provides guidance about which changes to the terms or
conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU
2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for
as modifications. The guidance clarifies that modification accounting will be applied if the value, vesting
conditions or classification of the award changes. The Company adopted ASU 2017-09 during the year ended
December 31, 2017. The adoption did not have any impact on the Company’s consolidated financial position or
results of operations.

Pending Adoption

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU
2014-09”), which supersedes virtually all of the current revenue recognition guidance under U.S. GAAP, and
requires entities to recognize revenue for transfer to customer of promised goods or services in an amount that
reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or
services. Subsequent to the issuance of ASU 2014-09, the FASB issued ASU No. 2015-14, Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU No. 2016-08, Revenue from Contacts
with Customers: Principal Versus Agent Considerations, ASU No. 2016-10, Revenue from Contracts with
Customers: Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts
with Customers: Narrow-Scope Improvements and Practical Expedients. The additional ASU’s clarified certain
provisions of ASU 2014-09 in response to recommendations from the Transition Resources Group established by
the FASB and extended the required adoption of ASU 2014-09 which is now effective for reporting periods
beginning after December 15, 2017 and early adoption is permitted as of the original effective date.

The Company assessed the impacts of the standard and determined that its contracts contain one

performance obligation related to its real estate brokerage, financing and consulting and advisory services offered
to buyers and sellers of commercial real estate and that it is operating as a principal in all of its revenue
generating activities. The Company does not have multiple-element arrangements, variable consideration,
financing components, significant noncash consideration, licenses, long-term contracts with customers or other
items affecting the transaction price. The Company determined the transaction price is fixed and determinable
and collectability is reasonably assured. Revenue should be recognized in principally all cases at the close of
escrow for real estate brokerage, close of loan for financing and when services are provided upon closing of the
transaction for other revenues. Accordingly, the adoption of ASU 2014-09, as clarified, will not have an effect on
the manner or timing of the recognition of the Company’s revenue.

ASU 2014-09 permits two implementation approaches, one requiring retrospective application of the new

standard with restatement of prior years and one requiring prospective application of the new standard with
disclosure of results under old standards. The Company will adopt the new standard on January 1, 2018 using the
prospective application method.

In February 2016, the FASB issued ASU No. 2016-02, Leases, to increase transparency and comparability

by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing

F-15

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

arrangements. The Company is still evaluating the impact of the new standard and has begun evaluating the
population of all leases and related systems and internal control considerations. The Company will be required to
adopt the new standard in 2019, and the Company’s consolidated balance sheets will be impacted by the
recording of a lease liability and right of use asset for virtually all of its current operating leases. As of
December 31, 2017, the Company has remaining contractual obligations for operating leases (autos and office),
which aggregate approximately $86.9 million. Accordingly, the Company anticipates that the adoption of the
new standard will have a material impact on the Company’s consolidated balance sheet. The amount of which
and the potential impact on the consolidated statements of net and comprehensive income and consolidated
statements of cash flows has yet to be determined.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”).

ASU 2016-13 is effective for reporting periods beginning after December 15, 2019 and early adoption is
permitted. For the Company, the new standard will be effective January 1, 2020. Under ASU 2016-13, the
Company will be required to use an expected-loss model for its marketable securities, available-for sale, which
requires that 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 the
change occurs. Current U.S. GAAP prohibits reflecting reversals of credit losses in current period earnings. At
December 31, 2017, the Company had $125.7 million in marketable securities, available for sale which would be
subject to this new standard. As of December 31, 2017, these marketable securities, available for sale have an
average credit rating of AA and no impairment write-downs have been recorded. The Company is currently
evaluating the impact of this new standard on its investment policy and investments.

Property and Equipment, Net

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

Computer software and hardware equipment . . . . . . . . . . .
Furniture, fixtures, and equipment . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . . . .

$ 16,247
21,695
(20,789)

$ 14,583
20,066
(18,294)

$ 17,153

$ 16,355

December 31,

2017

2016

During the years ended December 31, 2017 and 2016, the Company wrote-off approximately $2.9 million
and $2.8 million, respectively, of fully depreciated computer software and hardware and furniture, fixtures, and
equipment.

F-16

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Selected Balance Sheet Data

Other Assets

Other assets consisted of the following (in thousands):

Current
December 31,

Non-Current
December 31,

2017

2016

2017

2016

Due from independent contractors, net (1) (2) . . . . . . . . . . . . .
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Employee notes receivable (3)
Customer trust accounts and other . . . . . . . . . . . . . . . . . . . .

$3,672
—
366
1,491

$2,231
—
314
2,557

$21,726
1,158
255
24

$8,702
1,059
132
88

$5,529

$5,102

$23,163

$9,981

(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. As of December 31, 2017 and 2016, the
weighted average interest rate for notes receivable due from the Company’s investment sales and financing
professionals was approximately 3.5% and 3.3%, respectively. Any cash receipts on notes are applied first
to unpaid principal balance prior to any income being recognized.
Includes allowance for doubtful accounts related to current receivables of $494 and $313 as of
December 31, 2017 and 2016, respectively. The Company recorded a provision for bad debt expense of
$219, $47 and $281 and wrote off $38, $93 and $115 of these receivables for the years ended December 31,
2017, 2016 and 2015, respectively.
See Note 7 – “Related-Party Transactions” for additional information.

(2)

(3)

Deferred Compensation and Commissions

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

SARs liability (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions payable to investment sales and financing
professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .

Deferred compensation liability (1)

Current
December 31,

Non-Current
December 31,

2017

2016

2017

2016

$ 1,662

$ 1,366

$20,217

$20,949

46,257
1,261

42,781
607

21,924
7,220

17,101
6,405

$49,180

$44,754

$49,361

$44,455

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no longer
being considered as an employee or service provider. As a result of the retirement of certain participants,
estimated amounts to be paid to the participants within the next twelve months has 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

F-17

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

year upon retirement or termination from service. 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, 2017, 2016 and 2015 were 4.446%, 4.273% and 4.173%,
respectively. MMI recorded interest expense related to this liability of $931,000, $914,000 and $857,000 for the
years ended December 31, 2017, 2016 and 2015, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have

been classified as current. During the twelve months ended December 31, 2017, the Company made total
payments (consisting of accumulated interest) of $1.4 million classified as an operating cash flow in the deferred
compensation and commissions caption in the accompanying consolidated statements of cash flows.

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 a Deferred Compensation Plan. The plan is a
409A plan and permits the participant to defer compensation up to limits as determined by the 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, as defined in the Deferred Compensation Plan, in
which case the trust assets are subject to the claims of MMI’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 have been classified as current. During the year ended December 31, 2017, the Company made total
payments to participants of $607,000.

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):

Increase (decrease) in the carrying value of the assets held in the

rabbi trust (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$849

$470

$(57)

Increase (decrease) in the carrying value of the deferred

compensation obligation (2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$904

$452

$(67)

December 31,

2017

2016

2015

(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.

F-18

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Investments in Marketable Securities

Amortized cost and fair value of marketable securities, available-for-sale, by type of security consisted of

the following (in thousands):

December 31, 2017

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments:

U.S. treasuries . . . . . . . . . . . . . $57,712
U.S. government sponsored

entities . . . . . . . . . . . . . . . . .
Corporate debt securities . . . .

7,016
8,931

$ —

$ (88) $57,624 $24,987

$ —

$ (30) $24,957

—
—

(8)
(3)

7,008
8,928

2,497
—

—
—

2,497
—

$73,659

$ —

$ (99) $73,560 $27,484

$ —

$ (30) $27,454

Long-term investments:

U.S. treasuries . . . . . . . . . . . . . $18,111
U.S. government sponsored

entities . . . . . . . . . . . . . . . . .

5,306
Corporate debt securities . . . . 22,505
Asset-backed securities and

other

. . . . . . . . . . . . . . . . . .

6,180

$(164) $17,954 $40,865

$ —

$(229) $40,636

—
268

(62)
(54)

5,244 12,618
22,719 17,841

(15)

6,182

6,557

—
74

(58)
(165)

12,560
17,750

(46)

6,529

$(498) $77,475

$52,102

$ 292

$(295) $52,099 $77,881

The amortized cost and fair value of the Company’s investments in available-for-sale securities that have

been in a continuous unrealized loss position consisted of the following (in thousands):

Less than 12 months . . . . . . . . . . . . . . . . . . . . . . . . . .

$(158)

$63,229

$(491)

$86,105

12 months or longer . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(236)

$44,961

$ (37)

721

December 31, 2017

December 31, 2016

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Gross realized gains and gross realized losses from the sales of the Company’s available-for-sale securities

consisted of the following (in thousands):

Gross realized gains (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 43

Gross realized losses (1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

$(166)

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

The cost basis of securities sold were determined on the specific identification method.

December 31,

2017

2016

F-19

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

The Company may sell certain of its marketable securities, available-for-sale prior to their stated maturities

for strategic reasons including, but not limited to, anticipated liquidity and capital requirements, anticipated
credit deterioration, duration management or when a security no longer meets the criteria of the Company’s
investment policy. During 2016, the Company sold one security, which no longer met the requirements of its
investment policy for a loss of $152,000.

As of December 31, 2017, the Company considers the declines in market value of its marketable securities,
available-for-sale to be temporary in nature and does not consider any of its investments other-than-temporarily
impaired. The Company typically invests in highly-rated securities, and its investment policy generally limits the
amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade,
with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
When evaluating an investment for other-than-temporary impairment the Company reviews factors such as the
length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer
and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more
likely than not it will be required to sell the investment before recovery of the investment’s cost basis. The
Company has no current intent to sell and it is not more likely than not that the Company will be required to sell
these investments before recovery of their amortized cost basis, which may be at maturity. The Company may
sell certain of its marketable securities, available-for-sale prior to their stated maturities for strategic reasons
including, but not limited to, anticipated liquidity and capital requirements, anticipated credit deterioration,
duration management or when a security no longer meets the criteria of the Company’s investment policy.

Amortized cost and fair value of marketable securities, available-for-sale, by contractual maturity consisted

of the following (in thousands):

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2017

December 31, 2016

Amortized
Cost

$ 73,659
30,644
15,090
6,368

Fair
Value

$ 73,560
30,517
15,200
6,382

Amortized
Cost

$ 27,484
57,309
14,992
5,580

Fair
Value

$ 27,454
57,144
14,841
5,490

$125,761

$125,659

$105,365

$104,929

Weighted average maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.6 years

3.5 years

Actual maturities may differ from contractual maturities because certain borrowers are required to make

principal payments or have the right to prepay certain obligations with or without prepayment penalties.

6. Notes Payable to Former Stockholders

In conjunction with the Spin-Off and IPO, notes payable to certain former stockholders of MMREIS were
issued in settlement of restricted stock and SARs awards that were redeemed by MMREIS upon the termination
of employment by these former stockholders (“the Notes”). The Notes had been previously assumed by MMC,
and were transferred to the Company. The Notes are unsecured and bear interest at 5% with annual principal and
interest installments and a final principal payment due during the second quarter of 2020. During each of the
years ended December 31, 2017 and 2016, the Company made total payments on the Notes, including interest, of
$1.5 million.

F-20

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Accrued interest included in accounts payable and accrued expenses in the accompanying consolidated

balance sheets pertaining to the Notes consisted of the following (in thousands):

Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$305

$337

December 31,

2017

2016

Interest expense pertaining to the Notes consisted of the following (in thousands):

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$454

$502

$548

Years Ended December 31,

2017

2016

2015

Future minimum principal payments on the Notes consisted of the following (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2017

$1,035
1,087
6,564
—
—

$8,686

7. Related-Party Transactions

Shared and Transition Services

Prior to October 2013, the Company operated under a shared services arrangement with MMC whereby the

Company was charged for actual costs specifically incurred on behalf of the Company or allocated to the
Company on a pro rata basis. Beginning in October 2013, certain services are provided to the Company under a
Transition Services Agreement (“TSA”) between MMC and the Company, which replaced the pre-IPO shared
services arrangement. The TSA is intended to provide certain services until the Company acquires the services
separately. During the years ended December 31, 2017, 2016 and 2015, the Company incurred net costs of
$210,000, $227,000 and $257,000 under the TSA, respectively. These amounts are included in selling, general
and administrative expense in the accompanying consolidated statements of net and comprehensive income.

Brokerage and Financing Services with the Subsidiaries of MMC

MMC has wholly or majority owned subsidiaries that buy and sell commercial real estate properties. The

Company performs certain brokerage and financing services related to transactions of the subsidiaries of MMC.
For the years ended December 31, 2017, 2016 and 2015, the Company generated real estate brokerage
commissions and financing fees of $2.1 million, $5.1 million and $2.7 million, respectively, from subsidiaries of
MMC related to these services. The Company incurred cost of services of $1.2 million, $3.0 million and
$1.6 million, respectively, related to these revenues.

Operating Lease with MMC

The Company has an operating lease with MMC for a single story office building located in Palo Alto,
California, which expires on May 31, 2022. Rent expense for this lease aggregated $1.0 million, $1.0 million and

F-21

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

$693,500 for the years ended December 31, 2017, 2016 and 2015, respectively. Rent expense is included in
selling, general and administrative expense in the accompanying consolidated statements of net and
comprehensive income.

Accounts Payable and Accrued Expenses with MMC

As of December 31, 2017 and 2016, accounts payable and accrued expenses with MMC totaling $91,000

and $303,000, respectively, remain unpaid and are included in accounts payable and accrued expenses in the
accompanying consolidated balance sheets.

Other

The Company makes advances to non-executive employees from time-to-time. At December 31, 2017 and
2016, the aggregate principal amount for employee notes receivable was $621,000 and $446,000, respectively,
which is included in other assets, net current and other assets non-current captions in the accompanying
consolidated balance sheets. See Note 4 – “Selected Balance Sheet Data” for additional information.

As of December 31, 2017, George M. Marcus, the Company’s founder and Co-Chairman, beneficially
owned approximately 49% of the Company’s issued and outstanding common stock, including shares owned by
Phoenix Investments Holdings, LLC and the Marcus Family Foundation II.

Fair Value Measurements

Recurring Fair Value Measurements

The Company values its investments including assets held in rabbi trust, commercial paper, money market
funds and investments in marketable securities, available-for-sale at fair value on a recurring basis. Fair values
were determined for each individual security in the investment portfolio.

F-22

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Assets carried at fair value are categorized into one of the three categories described in Note 2 –

“Accounting Policies” and consisted of the following (in thousands):

Assets held in rabbi trust . . . . . . $

8,787 $ — $ 8,787 $ — $

7,337 $ — $ 7,337 $ —

December 31, 2017

December 31, 2016

Fair Value Level 1

Level 2

Level 3

Fair Value Level 1

Level 2

Level 3

Cash and cash equivalents (1) :

Commercial Paper . . . . . . . $ 11,441 $ — $11,441 $ — $
Money market funds . . . . . 157,788 157,788

9,987 $ — $ 9,987 $ —
—

— 142,503 142,503

—

$169,229 $157,788 $11,441 $ — $152,490 $142,503 $ 9,987 $ —

Marketable securities,
available-for-sale:

Short-term investments:

U.S. Treasuries . . . . . . $ 57,624 $ 57,624 $ — $ — $ 24,957 $ 24,957 $ — $ —
U.S. Government
Sponsored
Entities . . . . . . . . . .

7,008

2,497

—

Corporate debt

securities . . . . . . . .

8,928

—

8,928

—

$ 73,560 $ 57,624 $15,936 $ — $ 27,454 $ 24,957 $ 2,497 $ —

Long-term investments:

U.S. Treasuries . . . . . . $ 17,954 $ 17,954 $ — $ — $ 40,636 $ 40,636 $ — $ —
U.S. Government
Sponsored
Entities . . . . . . . . . .

— 12,560

5,244

—

Corporate debt

securities . . . . . . . .

22,719

— 22,719

— 17,750

Asset-backed

securities and
other . . . . . . . . . . . .

6,182

—

6,182

—

6,529

—

6,529

—

$ 52,099 $ 17,954 $34,145 $ — $ 77,475 $ 40,636 $36,839 $ —

(1)

Included in cash and cash equivalents.

See Note 2 – “Accounting Policies” for information on fair value of the Company’s other financial

instruments.

There were no transfers in or out of Level 1 and Level 2 during the year ended December 31, 2017.

Stockholders’ Equity

Common Stock

As of December 31, 2017 and 2016, there were 38,374,011 and 37,882,266 shares of common stock,
$0.0001 par value, issued and outstanding, respectively. Such amounts include unvested restricted stock awards
issued to non-employee directors. See Note 13 – “Earnings Per Share” for additional information.

F-23

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Preferred Stock

The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At

December 31, 2017 and 2016, there were no preferred shares issued or outstanding.

Accumulated Other Comprehensive (Loss) Income

The components of accumulated other comprehensive (loss) income as of December 31, 2017, by

component, net of income taxes consisted of the following (in thousands):

Beginning balance, December 31, 2016 . . . . . . . . . . . . . . . .

$(255)

$1,065

Unrealized
gains and
(losses) of
available-
for-sale
securities

Foreign
currency
translation (2)

Total

$810

Other comprehensive income (loss) before

reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amounts reclassified from accumulated other

comprehensive (loss) income (1) . . . . . . . . . . . . . . . . .

Net current-period other comprehensive income (loss) . . . . .

193

—

193

(63)

130

—

(63)

—

130

Ending balance, December 31, 2017 . . . . . . . . . . . . . . . . . . .

$ (62)

$1,002

$940

(1)

(2)

Included as a component of other income (expense), net in the consolidated statements of net and
comprehensive income. Reclassifications are determined on a specific identification basis.
The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is
operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided
related to the cumulative foreign currency translation adjustments. See Note 11 – “Income Taxes” for
additional information.

10. Stock-Based Compensation Plans

2013 Omnibus Equity Incentive Plan

The board of directors adopted the 2013 Omnibus Equity Incentive Plan (“2013 Plan”), which became
effective upon the Company’s IPO. In February 2017, the board of directors approved an amendment to the 2013
Plan, which was approved by the shareholders in May 2017. Grants are made from time to time by the
Company’s board of directors at its discretion subject to certain restrictions as to the number and value of shares
that may be granted to any individual. Upon adoption of the 2013 Plan, 5,500,000 shares of common stock were
initially reserved for the issuance of awards. Pursuant to the automatic increases previously provided for in the
2013 Plan, the board of directors approved share reserve increases aggregating 3,300,000. Pursuant to the
amendment to the 2013 Plan referenced above, the automatic share increase provision was removed. At
December 31, 2017, there were 5,586,917 shares available for future grants under the Plan.

Awards Granted and Settled

Under the 2013 Plan, the Company has issued restricted stock awards (“RSAs”) to non-employee directors

and restricted stock units (“RSUs”) to employees and independent contractors. Substantially all RSAs vest in
equal annual installments over a three-year period from the date of grant. All RSUs vest in equal annual
installments over a five-year period from the date of grant. Any unvested awards are canceled upon termination

F-24

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

of service. Awards accelerate upon death subject to approval by the compensation committee. As of
December 31, 2017, there were no issued or outstanding options, SARs, performance units or performance shares
awards.

During the year ended December 31, 2017, 279,679 shares of RSUs vested and 284,837 shares of common

stock were delivered, including 5,158 shares that vested in 2016 and 55,289 shares of common stock were
withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares
on the vesting date. During the year ended December 31, 2017, 351,801 fully vested DSUs settled and 137,351
shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on
the market value of the shares on the vesting date. The shares withheld for taxes were returned to the share
reserve and are available for future issuance in accordance with provisions of the 2013 Plan.

During the year ended December 31, 2017, the Company recorded windfall tax benefits, net of $2.9 million

as a discrete item in the Company’s provision for income taxes when awards were settled as a result of the
adoption of ASU 2016-09 during 2017. Prior to January 1, 2017, windfall tax benefits, net were recorded as a
component of additional paid-in capital. During the year ended December 31, 2016, the Company recorded
windfall tax benefits, net of $2.7 million as a component of additional paid-in capital. See Note 11 – “Income
Taxes” for additional information.

Outstanding Awards

Activity under the 2013 Plan consisted of the following (dollars in thousands, except per share data):

RSA Grants to Non-
Employee Directors

RSU Grants to
Employees

RSU Grants to
Independent
Contractors

Nonvested shares at December 31, 2015 (1)

. . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . . . . . . . . . .

Nonvested shares at December 31, 2016 (1)

. . .

Granted

February 2017 . . . . . . . . . . . . . . . . .
May 2017 . . . . . . . . . . . . . . . . . . . . .
August 2017 . . . . . . . . . . . . . . . . . . .
November 2017 . . . . . . . . . . . . . . . . .

Total Granted . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . . . . . . . . . .

Nonvested shares at December 31, 2017 (1)

. . .

Unrecognized stock-based compensation
expense as of December 31, 2017 (2)

. . . . . .

Weighted average remaining vesting period

35,364
14,742
(20,994)
—
—

29,112

—
13,986
3,552
—

17,538
(15,918)
—
—

30,732

468,969
239,012
(104,820)
2,062
(38,743)

521,780
81,880
(132,309)
(2,062)
(14,451)

Total

1,026,113
335,634
(258,123)

—
(53,194)

566,480

454,838

1,050,430

139,013
8,156
7,889
9,528

164,586
(140,480)
(58,503)
(31,224)

7,272
11,652
51,308
12,194

82,426
(139,199)
58,503
(6,304)

146,285
33,794
62,749
21,722

264,550
(295,597)

—
(37,528)

Weighted-
Average Grant
Date Fair Value
Per Share

$21.17
23.76
19.88
14.54
20.07

$22.38

26.86
21.21
25.70
23.30

500,859

450,264

981,855

$23.90

534

9,753

$ 10,030

20,317

(years) as of December 31, 2017 . . . . . . . . .

1.71

3.13

2.65

2.86

(1) Nonvested RSU’s will be settled through the issuance of new shares of common stock.
(2)

The total unrecognized compensation expense is expected to be recognized over a weighted-average period
of approximately 2.86 years.

F-25

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

For the years ended December 31, 2017, 2016 and 2015, the aggregate fair value of vested RSUs and RSAs

were $7.8 million, $7.0 million and $7.5 million, respectively.

As of December 31, 2017 and 2016, remaining outstanding fully vested DSUs were 578,618 and 930,419,
respectively. For the years ended December 31, 2017, 2016 and 2015, the fair value of fully vested DSUs was
$10.2 million, $10.4 million and $18.6 million, respectively. See “Amendments to Restricted Stock and SARs”
section below and Note 13 – “Earnings Per Share” for additional information. Future share settlements of DSUs
by year consisted of the following:

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2017

237,052
60,373
281,193

578,618

Employee Stock Purchase Plan

In 2013, the Company adopted the 2013 Employee Stock Purchase Plan (“2013 ESPP Plan”). The 2013
ESPP Plan qualifies under Section 423 of the IRS Code and provides for consecutive, non-overlapping 6-month
offering periods. The offering periods generally start on the first trading day on or after May 15 and
November 15 of each year. Qualifying employees may purchase shares of the Company stock at a 10% discount
based on the lower of the market price at the beginning or end of the offering period, subject to IRS limitations.
The Company determined that the 2013 ESPP Plan was a compensatory plan and is required to expense the fair
value of the awards over each 6-month offering period.

The 2013 ESPP Plan initially had 366,667 shares of common stock reserved and 246,895 and 277,104
shares of common stock remain available for issuance at December 31, 2017 and 2016, respectively. The 2013
ESPP Plan provides for annual increases in the number of shares available for issuance under the ESPP, equal to
the least of (i) 366,667 shares, (ii) 1% of the outstanding shares on such date, or (iii) an amount determined by
the board. Pursuant to the provisions of the 2013 ESPP Plan, the board of directors determined share reserve
increases have not been required. At December 31, 2017, total unrecognized compensation cost related to the
2013 ESPP Plan was $58,000 and is expected to be recognized over a weighted average period of 0.37 years.

Amendments to Restricted Stock and SARs

Restricted Stock

In connection with the IPO, the formula settlement value of all outstanding shares of stock held by the plan
participants was removed, and all such shares of stock are subject to sales restrictions that lapse at a rate of 20%
per year for five years if the participant remains employed by the Company. In the event of death or termination
of employment after reaching the age of 67, 100% of the shares of stock will be released from the resale
restriction. Further, 100% of the shares of stock will be released from the resale restriction upon the
consummation of a change of control of the Company. Of the original 3,689,326 shares subject to resale
restriction, 732,020 shares remain subject to sales restriction for the year ended December 31, 2017.

F-26

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

SARs and DSUs

Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were

frozen at the liability amount, and will be paid out to each participant in installments upon retirement or
termination as employee or service provider under the terms of the revised SARs agreements. To replace
beneficial ownership in the SARs, the difference between the book value liability and the fair value of the awards
was granted to plan participants in the form of DSUs, which were fully vested upon receipt and will be settled in
actual stock at a rate of 20% per year if the participant remains a service provider to the Company during that
period (otherwise all unsettled shares of stock upon termination from service will be settled five years from the
termination date, unless otherwise agreed to by the Company). In the event of death or termination of service
after reaching the age of 67, 100% of the DSUs will be settled.

Summary of Stock-Based Compensation

The Company adopted ASU 2016-09 on January 1, 2017 and changed its accounting for forfeitures on a
prospective basis from estimating awards that are not expected to vest to recording forfeitures when they actually
occur. As a result of the change in the accounting for forfeitures, the Company recorded a cumulative effect
adjustment to retained earnings of approximately $52,000 (net of tax) as of January 1, 2017. Components of
stock-based compensation are included in selling, general and administrative expense in the consolidated
statements of net and comprehensive income consisted of the following (in thousands, except common stock
price):

Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . .
RSAs – non-employee directors . . . . . . . . . . . . . . . . . . . . . . . .
RSUs – employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
RSUs – independent contractors (1)

Years Ended December 31,

2017

2016

2015

$ 128
397
3,750
4,870

$ 169
422
3,130
3,314

$ 285
319
2,351
4,159

$9,145

$7,035

$7,114

Common stock price at beginning of period . . . . . . . . . . . . . .
Common stock price at end of period . . . . . . . . . . . . . . . . . . .
Increase (decrease) in stock price . . . . . . . . . . . . . . . . . . . . . .

$26.72
$32.61
$ 5.89

$29.14
$26.72
$ (2.42)

$33.25
$29.14
$ (4.11)

(1)

The Company grants RSUs to independent contractors (i.e. investment sales and financing professionals),
who are considered non-employees under the accounting standards. Accordingly, such awards are required
to be measured at fair value at the end of each reporting period until settlement. Stock-based compensation
expense is therefore impacted by the changes in the Company’s common stock price during each reporting
period.

F-27

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

11. Income Taxes

The provision (benefit) for income taxes consisted of the following (in thousands):

Years Ended December 31,

2017

2016

2015

Income (loss) before provision for income

taxes:

United States . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . .

$100,031
(805)

$108,797
(1,695)

$116,448
(3,080)

$ 99,226

$107,102

$113,368

The provision (benefit) for income taxes

consisted of the following:

Federal:

Current . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . .

$ 28,993
13,249

$ 36,228
(337)

$ 39,895
(1,853)

State:

Current . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . .

$ 42,242

$ 35,891

$ 38,042

5,883
(423)

5,460

6,700
(146)

6,554

7,058
1,918

8,976

$ 47,702

$ 42,445

$ 47,018

On December 22, 2017, the Tax Cuts and Job Act (“the Act”) legislation was enacted, which significantly
changed the U.S. corporate income tax laws by, among other items, reducing the U.S. corporate income tax rate
to 21% from 35% starting in 2018, further limiting 162(m) deductions and creating a territorial tax system with a
one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result of the Act, the
Company revalued its deferred taxes, net due to the changes in the U.S. corporate statutory federal income tax
rate and recorded a net charge of $11.6 million in the provision for income taxes during the fourth quarter of
2017. Although the Company’s accounting for certain income tax effects of the Act is incomplete, it was
determined that the $11.6 million charge is a reasonable estimate of those effects. When the IRS issues additional
guidance and regulations enabling the Company to finalize certain tax positions, the Company will be able to
conclude whether any further adjustments are required to be made to its deferred tax asset, net balance as of
December 31, 2017. Any adjustments to this provisional amount will be reported no later than the fourth quarter
of 2018, as a component of the provision for income taxes in the reporting period in which any such adjustments
are determined.

F-28

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Significant components of the Company’s deferred tax assets, net consisted of the following (in thousands):

December 31,

2017

2016

Deferred Tax Assets:

Accrued expenses and bonuses . . . . . . . . . . . . . . . . . . .
Bad debt and other reserves . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating and capital loss carryforwards . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,307
1,416
12,693
9,144
1,283
1,809
6
622

$ 1,455
2,191
19,511
14,978
1,731
1,637
173
497

Deferred tax assets before valuation allowance . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,280
(1,893)

42,173
(1,723)

Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,387

$40,450

Deferred Tax Liabilities:

Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (2,861)
(886)

$ (3,850)
(1,029)

Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3,747)

(4,879)

Deferred Tax Assets, Net

. . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,640

$35,571

As of December 31, 2017, and 2016, the Company had state and Canadian net operating and capital losses

(“NOLs”) of approximately $7.8 million and $6.4 million, respectively, which will begin to expire in 2019.
Certain limitations may be placed on NOLs as a result of “changes in control” as defined in Section 382 of the
Internal Revenue Code. In the event a change in control occurs, it will have the effect of limiting the annual
usage of the carryforwards in future years. Additional changes in control in future periods could result in further
limitations of the Company’s ability to offset taxable income. In addition, the utilization of these NOLs may be
subject to certain limitations under state and foreign laws.

A valuation allowance is required when it is more-likely-than not that all or a portion of a deferred tax asset
will not be realized. Realization of deferred tax asset is dependent upon taxable income in prior carryback years,
estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary
differences. Management determined that as of December 31, 2017 and 2016, $1.9 million and $1.7 million,
respectively, of the deferred tax assets related to state and Canadian losses do not satisfy the recognition criteria
and therefore have recorded a valuation allowance for this amount. The valuation allowance for deferred tax
assets was increased by $170,000, $412,000 and $583,000 during 2017, 2016 and 2015, respectively. The
increases are primarily related to the Company’s Canadian operations.

F-29

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

The provision for income taxes differs from the amount computed by applying the statutory federal

corporate income tax rate of 35% to income before provision for income taxes and consisted of the following (in
thousands):

Years Ended December 31,

2017

2016

2015

Amount Rate

Income tax expense at the federal

statutory rate of 35% . . . . . . . . . . . . . $34,729 35.0% $37,485 35.0% $39,679 35.0%

State income tax expense, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of state rate change on deferred

3,577

3.6%

4,346

4.1%

4,569

4.0%

taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

(30) —

(79) (0.1)% 1,273

1.1%

Windfall tax benefits, net of shortfalls

related to stock-based
compensation . . . . . . . . . . . . . . . . . . .

Permanent differences related to

compensation charges, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . .
Effect of rate and other changes on
federal deferred taxes, net due to
enactment of Tax Cuts and Jobs
Act

. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,568) (2.6)%

— —

30 —
170

0.2%

39 —
412

0.4%

81
583

0.1%
0.5%

11,644 11.7%
0.2%

150

— —
242

0.2%

— —
833

0.8%

$47,702 48.1% $42,445 39.6% $47,018 41.5%

During the year ended December 31, 2016, the Company recorded $2.7 million as a credit to additional
paid-in capital in the accompanying consolidated balance sheets, in connection with windfall tax benefits, net
associated with the settlement of DSUs/RSUs/RSAs. Effective January 1, 2017, as a result of the adoption of
ASU 2016-09, any windfall tax benefits, net are recorded in the Company’s provision for income taxes in the
consolidated statements of net and comprehensive income.

As of December 31, 2017 and 2016, the Company has no liabilities for unrecognized tax benefits or any

related interest or penalties.

The Company is subject to tax in various jurisdictions and, as a matter or ordinary course, the Company is
subject to income tax examinations by the federal, state and foreign taxing authorities for the tax years 2013 to
2017. The Company is not currently under income tax examination by any taxing authorities.

The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is
operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided related
to the cumulative translation adjustments.

12. Retirement Plans

Effective January 2014, the Company has its own defined contribution plan (the “Contribution Plan”) under

Section 401(k) of the Internal Revenue Code for all eligible employees who have completed one month of
service. The Contribution Plan is subject to the provisions of the Employee Retirement Income Security Act of

F-30

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

1974, as amended. Participants may contribute up to 100% of their annual eligible compensation, subject to IRS
limitation and ERISA. The Company makes matching contributions of 50% on the first 8% of employee
contributions per pay period up to a maximum of the employee’s compensation, up to a maximum of $4,000 per
eligible employee per year. Company matching contributions aggregated $733,000, $628,000 and $570,000 for
the years ended December 31, 2017, 2016 and 2015, respectively, which is included in selling, general and
administrative expense in the consolidated statements of net and comprehensive income.

13. Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 consisted of the

following (in thousands, except per share data):

Years Ended December 31,

2017

2016

2015

Numerator (Basic and Diluted):

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$51,524

$64,657

$66,350

Denominator:
Basic
Weighted Average Common Shares Issued and Outstanding . . . . . . . . . . . . .
Deduct: Unvested RSAs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Fully vested DSUs (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,142
(29)
875

37,637
(36)
1,298

37,141
(43)
1,750

Weighted Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . . .

38,988

38,899

38,848

Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.32

1.66

1.71

Diluted
Weighted Average Common Shares Outstanding from above . . . . . . . . . . . .
Add: Dilutive effect of RSUs, RSAs & ESPP . . . . . . . . . . . . . . . . . . . . .

38,988
112

38,899
136

38,848
314

Weighted Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . . .

39,100

39,035

39,162

Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.32

1.66

1.69

Antidilutive shares excluded from diluted earnings per common share (3)

. . . . . . .

512

516

(1) RSAs were issued and outstanding to the non-employee directors and generally have a three-year vesting
term subject to service requirements. See Note 10 – “Stock-Based Compensation Plans” for additional
information.
Shares are included in weighted average common shares outstanding as the shares are fully vested but have
not yet been delivered. See Note 9 – “Stockholders’ Equity” for additional information.
Primarily pertaining to RSU grants to the Company’s employees and independent contractors.

(2)

(3)

F-31

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

14. Commitments and Contingencies

Operating Leases

Future minimum lease payments under non-cancelable operating leases for office facilities and automobiles

with terms in excess of one year consisted of the following (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

December 31, 2017

$18,650
16,468
15,423
12,997
9,364
13,995

$86,897

Deferred rent totaled $4.8 million and $4.3 million as of December 31, 2017 and 2016, respectively. The
noncurrent portion is included in defered rent and other liabilities and the current portion is included in accounts
payable and accrued expenses in the accompanying consolidated balance sheets. Rental expense was
$25.6 million, $23.4 million and $17.8 million for the years ended December 31, 2017, 2016 and 2015,
respectively and is included in selling, general, and administrative expense in the accompanying consolidated
statements of net and comprehensive income.

Certain facility leases provide for rental escalations related to increases in the lessors’ direct operating

expenses.

The Company subleases certain office space to subtenants. The rental income received from these subleases

is included as a reduction of rental expense and was not material for the years ended December 31, 2017, 2016
and 2015, respectively.

Credit Agreement

On June 18, 2014, the Company entered into a Credit Agreement with Wells Fargo Bank, National

Association (“Bank”), dated as of June 1, 2014 (the “Credit Agreement”). The Credit Agreement provides for a
$60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of the Company’s
domestic subsidiaries (the “Credit Facility”), which, as amended, matures on June 1, 2020. The Company may
borrow, repay and reborrow amounts under the Credit Facility until its maturity date, at which time all amounts
outstanding under the Credit Facility must be repaid in full.

Borrowings under the Credit Agreement are available for general corporate purposes and working

capital. The Credit Facility includes a $10.0 million sublimit for the issuance of standby letters of credit of which
$533,000 was utilized at December 31, 2017. Borrowings under the Credit Facility will bear interest, at the
Company’s option, at either the (i) Base Rate (defined as the highest of (a) the Bank’s prime rate, (b) the Federal
Funds Rate plus 1.5% and (c) one-month LIBOR plus 1.5%), or (ii) at a variable rate between 0.875% and
1.125% above LIBOR, based upon the total funded debt to EBITDA ratio. In connection with executing the
Credit Agreement, as amended, the Company paid bank fees and other expenses, which are being amortized over
the remaining term of the Credit Agreement. The Company pays a commitment fee of up to 0.1% per annum,
payable quarterly, based on the amount of unutilized commitments under the Credit Facility. The amortization

F-32

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

and commitment fee is included in interest expense in the accompanying consolidated statements of net and
comprehensive income and was $110,000, $116,000 and $130,000 during the years ended December 31, 2017,
2016 and 2015, respectively. As of December 31, 2017, there were no amounts outstanding under the Credit
Agreement.

The Credit Facility contains customary covenants, including financial and other covenant reporting
requirements and events of default. Financial covenants require the Company, on a combined basis with its
guarantors, to maintain (i) an EBITDAR Coverage Ratio (as defined in the Credit Agreement) of not less than
1.25:1.0 as of each quarter end and (ii) total funded debt to EBITDA not greater than 2.0:1.0 as of each quarter
end both on a rolling 4-quarter basis. The Credit Facility is secured by substantially all assets of the Company,
including pledges of 100% of the stock or other equity interest of each subsidiary except for the capital stock of a
controlled foreign corporation (as defined in the Internal Revenue Code). As of December 31, 2017, the
Company was in compliance with all financial and non-financial covenants.

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business, some of which involve claims for damages that are substantial in amount. Most of these litigation
matters are covered by insurance, which contain deductibles, exclusions, claim limits and aggregate policy limits.
While the ultimate liability for these legal proceeding cannot be determined, the Company reviews the need for
its accrual for loss contingencies quarterly and records an accrual for litigation related losses where the likelihood
of loss is both probable and estimable. The Company believes that the ultimate resolution of the legal
proceedings will not have a material adverse effect on its financial condition or results of operations. The
Company accrues legal fees for litigation as the legal services are provided.

Other

In connection with certain agreements with investment sales and financing professionals, the Company may
agree to advance amounts to its investment sales and financing professionals upon reaching certain performance
goals. Such commitments as of December 31, 2017 aggregated $2.9 million.

15. Selected Quarterly Financial Data (Unaudited)

The Company’s real estate brokerage commissions and financing fees are seasonal, which can affect an
investor’s ability to compare the Company’s financial condition and results of operation on a quarter-by-quarter
basis. Historically, this seasonality has caused the Company’s revenue, operating income, net income and cash
flows from operating activities to be lower in the first half of the year and higher in the second half of the year,
particularly in the fourth quarter. These concentrations are due to an industry-wide focus of clients to complete
transactions towards the end of the calendar year. In addition, the Company’s gross margins are typically lower
during the second half of each year due to its commission structure for some of its senior investment sales and
financing professionals. These senior investment sales and financing professionals are on a graduated
commission schedule whose commission rates generally increase as they meet certain production thresholds.

F-33

Marcus & Millichap, Inc.
Notes to Consolidated Financial Statements

Three Months Ended

Dec. 31
2017

Sep. 30
2017

Jun. 30
2017

Mar. 31
2017

Dec. 31
2016

Sep. 30
2016

Jun. 30
2016

Mar. 31
2016

(in thousands, except per share data)

Consolidated Financial
Statement Data:

Total revenues . . . . . . . . $202,776 $183,341 $180,371 $153,212 $189,157 $180,634 $183,387 $164,272
96,153
Cost of services . . . . . . . . 131,730 114,803 110,377
24,858
24,998
Operating income . . . . . .
Net income . . . . . . . . . . .
14,815
15,569
Earnings per share:

89,647 121,637 113,852 113,126
28,832
19,048
17,524
12,000

27,403
8,480

24,683
15,475

24,905
15,144

27,906
17,174

Basic . . . . . . . . . . . . $
Diluted . . . . . . . . . . $

0.22 $
0.22 $

0.40 $
0.39 $

0.40 $
0.40 $

0.31 $
0.31 $

0.44 $
0.44 $

0.39 $
0.39 $

0.45 $
0.45 $

0.38
0.38

F-34

Board of Directors

Executive Oﬃcers

Corporate Information

George M. Marcus
Co-Chairman

William A. Millichap
Co-Chairman

Hessam Nadji
President, Chief Executive Oﬃcer

Norma J. Lawrence
Partner (Retired)
KPMG LLP

Nicholas F. McClanahan
Managing Director (Retired)
Merrill Lynch

George T. Shaheen
Chairman of the Board
Korn/Ferry International

Don C. Watters
Director Emeritus
McKinsey & Company

Hessam Nadji
President, Chief Executive Oﬃcer

Mitchell R. LaBar
Executive Vice President
Chief Operating Oﬃcer

Martin E. Louie
Senior Vice President
Chief Financial Oﬃcer

William E. Hughes
Senior Vice President
Marcus & Millichap
Capital Corporation

Gregory A. LaBerge
First Vice President
Chief Administrative Oﬃcer

Corporate Headquarters
Marcus & Millichap, Inc.
23975 Park Sorrento
Suite 400
Calabasas, CA 91302
Phone: (818) 212-2250
Fax: (818) 212-2260

Investor Relations
You may request a copy of documents
at no cost by contacting:
Evelyn Infurna
ICR
evelyn.infurna@icrinc.com
(203) 682-8265
Email updates are also available
through the Investor Relations
page on Marcus & Millichap’s
website at www.marcusmillichap.com

Stock Exchange
New York Stock Exchange
NYSE Trading Symbol: MMI