Marcus & Millichap, Inc. Annual Report 2018

FY2018 Annual Report · Marcus & Millichap, Inc.

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NYSE: MMI

2018

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

• Nearly 2,000 investment sales and ﬁnancing professionals
• Serving investors with 80 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 22, 2019

2018 was a year of key milestones for Marcus & Millichap
as we:

key investments to strengthen and grow our financing business,
which is essential to our overall client value proposition.

• Completed our 48th year of serving real estate investors
and celebrated our fifth year as a public company;
• Achieved record transaction volume, revenue and net
income (adjusting for a lower tax rate);
• Extended our position as the largest brokerage firm
specializing in real estate investment sales and financing
by transaction count and sales force size;
• Enhanced our traditional organic growth with
select acquisitions.

of 18.1%1

Marcus & Millichap achieved record revenue of $814.8 million,
up 13.2% year-over-year and record net income of $87.3
million, an increase
as compared to 2017 on a tax
rate adjusted basis. Our brokerage sales volume grew 18.4%
compared to an estimated 6-8% sales volume growth for the
broader commercial real estate market, which we believe points
to market share gains. This performance was a direct result of our
focus on client relationships and intensified investor outreach,
as well as our commitment to providing best-of-class research
and advisory services. The company continued its tradition of
investing in proprietary technology, systems and brokerage
support that enables our team to expose each property to the
most qualified buyers in the marketplace.

Industry Position
During 2018, Marcus & Millichap closed nearly 9,500
transactions totaling over $46 billion in sales volume. We grew
our investment sales and financing team by 158 professionals,
or 8.7%, to nearly 2,000 professionals in 80 offices. The
dedication of our highly trained and specialized professionals
and their ability to tailor our systems and offerings to meet
individual client needs are the foundation of our success.
Marcus & Millichap was once again the leading firm by
total transactions in the vital Private Client Market segment,
typically comprised of asset sales below $10 million in value.
This market segment consistently accounts for more than 80%
of all commercial property sales in the marketplace. We believe
we are in a strong position to capture greater market share in
this fragmented space.

Our Middle Market and Larger Transaction Market segments
revenue grew 28% and 35%, respectively. As our specialty
product divisions and Institutional Property Advisors (IPA)
platform have seasoned, the company is augmenting our
service offerings to major private and institutional investors.
Indeed, a large number of investors that transacted in these
higher value market segments have been our repeat clients
for many years. We strive to enhance our client network and
ensure thatthey can grow their portfolios with our support and
value-added services.

Our financing division, Marcus & Millichap Capital Corporation
(MMCC), achieved revenue growth of 16% and remained a top
financing intermediary by transaction count. We are making

Lastly, to supplement our traditional organic growth model,
we completed four acquisitions in 2018 that bring exciting
synergies, client relationships and cultural similarities to our
platform. We are actively pursuing additional select, high
quality, complementary companies to augment our services and
growth plan.

Market Environment
Commercial real estate fundamentals should remain healthy
in 2019. This forecast is supported by limited new supply in
most property types and markets, lack of over-leveraging in
this cycle and evidence of sustainable economic growth. We
believe real estate remains a compelling investment and expect
to see healthy sales and financing activity. A bid/ask spread
among buyers and sellers typical of a maturing real estate cycle
and potential interest rate volatility will require additional time,
education and training on our part to bring buyers and sellers
together. At the same time, our record performance in 2018
will be a challenging comparable. Our strategy is to leverage
investor outreach, continue to grow our sales force and help
clients maximize market opportunities once again.

Looking Forward
From the start, our management philosophy has been driven
by a quest to build for the long term with a constant focus on
client service. Notwithstanding the cyclicality of real estate
markets, we are thinking ahead to service enhancements,
creative leveraging of technology and better ways to train
and support our professionals. Marcus & Millichap is well-
positioned to increase its market share both organically and
through acquisitions over the coming years. We ended 2018
with approximately $400 million of cash on hand and core-cash
investments. We plan to make appropriate investments in our
platform as well as strategic, accretive acquisitions that bring
value to our clients domestically and internationally.

We would like to thank our team for their dedication and
commitment to MMI and you, our shareholders, for your
continued support. We are committed to delivering value in the
years ahead.

Sincerely,

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

Hessam Nadji
President,
Chief Executive Officer

l GAAP to Non-GAAP reconciliation is disclosed in the Company’s fiscal year 2018 fourth quarter earnings press release, which is included as an exhibit to the Form 8-K that was
l
furnished to the SEC on February 20, 2019.

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, 2018
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

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

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 È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 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 every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and 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.
È
Large accelerated filer
‘
Non-accelerated filer
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the registrant’s voting stock held by non-affiliates at June 30, 2018 was approximately $814.9 million, based
on the closing price per share of common stock on June 29, 2018 of $39.01 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 February 19, 2019, there were 38,975,984 shares of the registrant’s common stock outstanding.

‘
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 2, 2019 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, 2018.

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

Properties
Legal Proceedings

TABLE OF CONTENTS

PART I

PART II

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

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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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 that the market position, market opportunity and market size information that is included in this
Annual Report on Form 10-K is 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, 2018 since full year 2018 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
of multifamily, retail, office and industrial buildings, with a value of $1 million or more.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

outlook for 2019 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 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.

PART I

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.

Item 1. Business

Company Overview

Marcus & Millichap, Inc. (“MMI”) is a leading national real estate services firm specializing in commercial

real estate investment sales, financing, research and advisory services. 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 84% of total U.S. commercial property transactions greater than
$1 million in the marketplace in 2018. As of December 31, 2018, we had nearly 2,000 investment sales and
financing professionals that are primarily exclusive independent contractors who provide real estate investment
brokerage and financing services to sellers and buyers of commercial real estate. In 2018, we closed 9,472 sales,
financing and other transactions with total volume of approximately $46.4 billion.

We service clients 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 48-year history of providing investment brokerage and financing services through proprietary
inventory and marketing systems, policies and culture of information sharing and in-depth investment
brokerage training, all of which are 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;

•

nearly 2,000 investment sales and financing professionals providing consistent services and exclusive
client representation across multiple property types;

a broad geographic platform consisting of 80 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 11 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.

Our Services

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. In 2018, approximately 92% of our revenues were generated from real estate brokerage
commissions, 7% from financing fees and 1% from other revenues, including consulting and advisory services.

We divide commercial real estate into four major market segments, characterized by price in order to

understand trends in our revenue from period to period:

•

Properties priced 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 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. The investment
brokerage and financing businesses serving private clients within the private client market segment represents the
largest part of our business, which differentiates us from our competitors. In 2018, approximately 65% of our
brokerage commissions came from this 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. Private clients are
often motivated to buy, sell and/or refinance properties not only for business reasons but also due to personal
circumstances, 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. 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.

Geographic Locations

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

North America 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. We have grown to have offices in 35 states across the
United States and in 4 provinces in Canada, encompassing 59 offices in major metropolitan markets and 21
offices in mid-market locations. During the year ended December 31, 2018, we completed acquisitions that
expanded our IPA business and expanded our presence in the financing market in the Midwest and in the real
estate brokerage market in Canada.

Below is a map reflecting the geographic location of our offices as of December 31, 2018.

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. Our investment sales professionals also represent
buyers in fulfilling their investment real estate acquisition needs. Commissions from real estate investment
brokerage sales accounted for approximately 92% of our revenues in 2018. 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.

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 2018, we closed 7,079 real estate brokerage transactions in a broad range of commercial property types,
with a total sales volume of approximately $36.1 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.

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.

We service clients in all 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. 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. Because commission rates earned on commercial properties are typically inversely correlated
with sales price, our expansion into the middle and larger transaction market segments, has led to our average
commission rates fluctuating 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 2018 compared to 2017:

Real Estate Brokerage:

Number Volume

Revenues Number Volume

Revenues

2018

2017

Change

<$1 million . . . . . . . . . . . . . . . . . . . . . . 1,077
Private client market

($1-$10 million) . . . . . . . . . . . . . . . . 5,230
472

Middle market (≥$10-$20 million) . . . .
Larger transaction market

(in millions) (in thousands)

695

$ 29,677

1,062

661

$ 27,952

$ 1,725

16,645
6,462

483,967
116,850

4,891
361

15,029
4,906

444,081
91,035

339
111

1,616
1,556

39,886
25,815

(≥$20 million) . . . . . . . . . . . . . . . . . .

300

12,268

116,861

248

9,879

86,325

2,389

30,536

7,079

$ 36,070

$ 747,355

6,562

$ 30,475

$ 649,393

517

$ 5,595

$ 97,962

Financing

Marcus & Millichap Capital Corporation (“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 2018, MMCC completed 1,678 financing transactions with a sales volume of approximately $6.2 billion,
which 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 2018, approximately 46% of MMCC’s revenues came from
placing acquisition financing, 44% from refinancing activities and 10% 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 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.

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., or 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., or 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. 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 therefore maximizing 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 and over 60% of the commission pool. 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 and short-term investment horizons. Private clients are
often motivated to buy, sell and/or refinance properties not only for business reasons but also due to personal
circumstances, such as death, divorce, changes in partnership structures and other personal or financial
circumstances. 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 10 brokerage firms accounting for approximately 24% of transactions
in 2018. Marcus & Millichap is the leading broker in the $1-$10 million private client market segment with an
8.3% 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 national 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, promote 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 offering growth opportunities and 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

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 2017. 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. Integrating all these services into one national platform increases opportunities to
maximize value for our clients across multiple property types, market segments and geographies.

Local 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 11 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 achieves better results for our clients.

Growth Strategy

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 following graph shows the number of transactions and sales volume of investment
sales, financing and other transactions from 2009 to 2018:

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$45

$40

$35

$30

$25

$20

$15

$10

3,421

$8.9

9,472

10,000

8,715

8,995

8,979

7,667

6,608

6,149

5,231

4,461

$22.0

$24.0

$17.5

$13.5

$42.3

$42.2

$46.4

$37.8

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9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sales Volume

Number of Transactions

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
nearly 2,000 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 24% of 2018 transactions in this market segment. 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 2018, we reached an all-time high in the
number of investment sales professionals, ending the year with 1,866.

Pursue Selective Acquisitions

Acquisitions have become a strategy to supplement the growth of our salesforce. We continually explore
acquisition opportunities to augment our brokerage and financing businesses. We primarily look for acquisitions
of small-to-medium size brokerage and financing businesses or teams of professionals with consistent revenue
and earnings trends, which will expand our geographic and property type coverage.

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. We are organized to provide our unique brokerage and financing services to them in those market
segments. Our ability to connect 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

Our focus on growth for MMCC continues to be expanding our 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 and related services in offices that do not have an MMCC
presence and expanding our service platform by increasing 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, 2018, we have 42
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 16.4%
year-over-year growth in financing fees ($57.8 million in financing fees in 2018 from $49.7 million in 2017).

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. 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., Newmark Knight Frank, NAI Global and Jones Lang
LaSalle. Our major financing competitors include HFF, Inc., CBRE Group, Inc., Jones Lang LaSalle, Walker &
Dunlop and NorthMarq Capital, LLC. These 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 2018, we relaunched MNet with significant new capabilities, which allow our sales force to find listings

with more targeted criteria, such as searching by demographic data surrounding a target property. The new
version of MNet significantly reduces the time required to find properties that meet a client’s needs.

A related application, MNet-Offering, is a system for automating the production of property marketing
materials and launching marketing campaigns. 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 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.

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 71,000 new visitors per month and 856,000 page
views per month (all based on data from Google Analytics) and also serve as a portal for delivery of online
marketing materials and for deal collaboration.

Marketing and Branding

We are known for our 48 years 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 local, regional and national management
team focused on client service and growing the firm.

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 1,400 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 and numerous newspapers in major metropolitan
cities. 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 and MNet-Offering. 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, and we maintain real estate and other broker licenses in 45
states in the United States and four 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, 2018, we had 1,977 investment sales and financing professionals of which 1,873 are

exclusive independent contractors and the remainder are our employees. Most of our investment sales
professionals are classified as independent contractors under state and IRS guidelines. As such, we generally do
not pay for the professionals’ expenses or benefits or withhold payroll taxes; rather they are paid from the
commissions earned by us upon the closing of a transaction, and these individuals do not earn a salary from
which taxes are withheld. Our investment sales and financing professionals hold applicable real estate sales
licenses for their function and execute a “Salespersons Agreement” setting out the relationship between the
professional and us. Each professional is obligated to provide brokerage services exclusively to us, and is
provided access to our 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.

We had 831 employees as of December 31, 2018, consisting of 104 employees as financing professionals,
25 employees in communications and marketing, 18 employees in research and 684 employees in management,
support and general and administrative functions. We believe our employee relations are good.

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 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 Risks, 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 us are the risks associated with general economic conditions and
commercial real estate market conditions 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 market participants to the
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. Any of the foregoing would adversely
affect the operation and income of commercial real estate properties.

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 brokerage 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. 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. 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
projections or economic 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. This
could result in these competitors recruiting our employees and investment sales and financing professionals,
cause us to increase our level of compensation or commission necessary to retain employees or investment sales
and financing professionals, and/or require us to 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 2018, we earned approximately 34% of our revenues from offices 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 and wildfires, could
disproportionately affect us. A downturn in investment real estate demand or economic conditions in California
and other regions could result in a further decline in our total gross commission income which could have an
adverse effect on our business, financial condition and results of operations.

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 of our 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, financial condition, results of operations, 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 the 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 business,
financial condition, results of operations, and the value of our stock.

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. Further,
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.

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. 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.

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, 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 frequently 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. 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 management team and depends in part on their skills and knowledge to implement.
Our focus on new growth and investment initiatives 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-level management team 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 define 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 or commission
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 operations. 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 and
commercial mortgage servicing provided through our subsidiary, Marcus & Millichap Capital Corporation. We
expect to incur expenses relating to acquisitions, 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.

If we acquire businesses in the future, we may experience high transaction and integration costs, the
integration process may be disruptive to our business and the acquired businesses may not perform as we
expect.

From time to time, we pursue strategic acquisitions to add and enhance our real estate brokerage and

financing service offerings. The companies we have acquired have generally been regional or specialty firms that
expand our network of investing and financing professionals and/or provide further diversification to our
brokerage and financing services. Our acquisition structures may include deferred and/or contingent
consideration payments in future periods that are subject to the passage of time or achievement of certain
performance metrics and other conditions. Acquisitions also frequently involve significant costs related to
integrating culture, information technology, accounting, reporting and management services and rationalizing
personnel levels. If we are unable to fully integrate the culture, 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 adversely affected.

In addition, the 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 businesses acquired will prove
incorrect, which could have an adverse effect on our business, financial condition and results of operations.

A majority of our revenue is derived from transaction fees, which are not long-term contracted sources of
recurring 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.

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.

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, require excessive expenditures 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 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, wildfires 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 business continuity plans and backup systems to reduce
the potentially adverse effect of such events, but our business continuity 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.

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, 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.

We are obligated to develop and maintain proper and effective internal control over financial reporting. If we
fail to maintain an effective system of internal controls, we may not be able to accurately report financial
results or prevent fraud.

Effective internal controls are necessary to provide reliable financial reports and to assist in the effective
prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business.

We must annually evaluate our internal control procedures to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires our management and auditors to assess the effectiveness of internal
controls. If we fail to remedy or maintain the adequacy of our internal controls when such standards are
modified, supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or
criminal penalties or shareholder litigation.

In addition, failure to maintain adequate internal controls could result in financial statements that do not
accurately reflect our financial condition. There can be no assurance that we will be able to continue to complete
the work necessary to fully comply with the requirements of the Sarbanes-Oxley Act or that our management and
external auditors will continue to conclude that our internal controls are effective.

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 our overall financial condition. Additionally, should we choose or are required
to sell these securities in the future at a loss, 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.

Changes in United States Generally Accepted Accounting Principles (“U.S. GAAP”) could adversely affect
our financial results and may require significant changes to our internal accounting systems and processes.

We prepare our consolidated financial statements in conformity with U.S. GAAP. These principles are

subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies
formed to interpret and create appropriate accounting principles and guidance. The FASB periodically issues new
accounting standards on a variety of topics. For information regarding new accounting standards, please refer to
Note 2 of Notes to Consolidated Financial Statements under the heading “Accounting Policies and Recent
Accounting Pronouncements.” These and other such standards generally result in different accounting principles,
which may significantly impact our reported results or could result in variability of our financial results.

Our existing goodwill and other intangible assets could become impaired, which may require us to take
non-cash charges.

Under current accounting guidelines, we evaluate our goodwill and other intangible assets for potential
impairment annually or more frequently if circumstances indicate impairment may have occurred. We perform
the required annual goodwill impairment evaluation in the fourth quarter of each year. Any impairment of
goodwill or other intangible assets would result in a non-cash charge against earnings, and such charge could
materially adversely affect our reported results of operations and the market price of our common stock in future
periods.

In preparing our financial statements we make certain assumptions, judgments and estimates that affect
amounts reported in our consolidated financial statements, which, if not accurate, may significantly impact
our financial results.

We make assumptions, judgments and estimates that affect amounts reported in our consolidated financial
statements. These assumptions, judgments and estimates are drawn from historical experience and various other
factors that we believe are reasonable under the circumstances as of the date of the consolidated financial
statements. Actual results could differ materially from our estimates, and such differences could significantly
impact our financial results.

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 41% of our outstanding

common stock as of December 31, 2018. Because of Mr. Marcus’s substantial ownership of our outstanding
common stock, he may be able to significantly influence 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 2017 and
2018, the price of our shares has ranged from a high of $41.45 per share to a low of $23.22 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, issuances of shares under our Amended and Restated 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, 2018, there were
approximately 15.2 million shares of our common stock outstanding, which could be 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. For our executive offices in Calabasas, California, we lease
approximately 25,028 square feet, net of sublease under a lease that expires in December 2021. We lease all of
our brokerage offices (typically less than 12,000 square feet) and other support facilities in United States and
Canada aggregating approximately 578,000 square feet. We believe that our current facilities are adequate to
meet our needs through the end of 2019; 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 an accrual for loss contingencies
quarterly and record 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 15 – “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.

As of February 19, 2019, there were 16 stockholders of record, and the closing price of our common stock

was $39.56 per share as reported on the NYSE.

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 December 31, 2013 through December 31, 2018 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 have been publicly traded over the last
five years with certain business lines reasonably comparable to ours. The graph assumes that $100 was invested
at the market close on December 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 5 YEAR CUMULATIVE TOTAL RETURN
Among Marcus & Millichap, Inc, the S&P 500 Index, and a Peer Group

$250

$200

$150

$100

$50

12/13

12/14

12/15

12/16

12/17

12/18

Marcus & Millichap, Inc.

S&P 500

Peer Group

Marcus & Millichap, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00

223.15
113.69
136.44

195.57
115.26
139.64

179.33
129.05
114.38

218.86
157.22
163.32

230.40
150.33
144.86

Base Period
12/31/2013

12/2014

12/2015

12/2016

12/2017

12/2018

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities

None.

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,
2018, 2017 and 2016, and the consolidated balance sheet data at December 31, 2018 and 2017. 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,
2015 and 2014 and the consolidated balance sheet data at December 31, 2016, 2015 and 2014, 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:

Years Ended December 31,

2018

2017

2016

2015

2014

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

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 814,816 $ 719,700 $ 717,450 $ 689,055 $ 572,188
350,102
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . .
84,606
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
33,452
Provision for income taxes(1) . . . . . . . . . . . . . . . .

446,557
96,132
47,702

502,883
112,287
29,963

423,389
114,651
47,018

444,768
106,501
42,445

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,257 $ 51,524 $ 64,657 $ 66,350 $ 49,531

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

2.23 $
2.22 $

1.32 $
1.32 $

1.66 $
1.66 $

1.71 $
1.69 $

1.27
1.27

Weighted average common shares outstanding:

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

39,149
39,383

38,988
39,100

38,899
39,035

38,848
39,162

38,851
38,978

Balance Sheet Data:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 214,683 $ 220,786 $ 187,371 $ 96,185 $ 149,159
Marketable securities, available-for-sale(2) . . . . . $ 220,645 $ 125,659 $ 104,929 $ 134,255 $ 14,752
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 566,380 $ 459,664 $ 394,016 $ 321,225 $ 233,604
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . $ 63,950 $ 61,517 $ 56,986 $ 57,224 $ 49,591
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,806 $ 144,776 $ 135,162 $ 132,235 $ 116,795
Total stockholders’ equity . . . . . . . . . . . . . . . . . . $ 409,574 $ 314,888 $ 258,854 $ 188,990 $ 116,809

Other Data:

. . . . . . . . . . . . . . . . . . . . . . $ 129,457 $ 111,716 $ 118,296 $ 124,140 $ 92,824
Adjusted EBITDA(3)
Investment sales and financing professionals . . .
1,494
Sales volume (dollars in millions) . . . . . . . . . . . . $ 46,355 $ 42,191 $ 42,312 $ 37,847 $ 33,139

1,607

1,819

1,737

1,977

(1)

(2)

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% starting in 2018. In
addition, we adopted Accounting Standards Update No. 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. 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 Amended and Restated 2013 Omnibus Equity Incentive Plan. Prior to
2017, windfalls tax benefits, net were recorded directly to additional paid in capital. The Company
recognized $1.9 million and $2.9 million in windfall tax benefits, net during the years ended December 31,
2018 and 2017, respectively, as a reduction in the Company’s provision for income taxes.
Includes both short-term and long-term marketable securities, available-for-sale.

(3) Adjusted EBITDA is not a measurement of our financial performance under U.S. generally accepted
accounting principles (“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, 2018, we had
1,977 investment sales and financing professionals that are primarily exclusive independent contractors operating
in 80 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, 2018, we closed 9,472 investment sales, financing and other transactions with total sales volume
of approximately $46.4 billion. During the year ended December 31, 2017, we closed 8,979 sales, financing and
other transactions with total sales volume of approximately $42.2 billion.

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, 2018, approximately 92% of our revenues were generated
from real estate brokerage commissions, 7% from financing fees and 1% 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 identify 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, capital markets and
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 affect

investor sentiment and, ultimately, the demand for our services from investors in real estate. The U.S. economy
sustained momentum through the fourth quarter as the tax legislation stimulus aligned with tight unemployment
and elevated confidence levels. Strong job creation and accelerating wage growth reinforced new household
formation as well as consumption, lifting retail sales and contributing to broad-based economic growth. As
companies continue to face a very tight hiring climate, they are expanding operations to additional cities to tap
talent pools in new markets. This trend is supporting commercial real estate in an array of smaller cities across
the country. Volatile financial markets, weakening international economies and elevated tariffs cloud the outlook
for 2019 with some risk, but the baseline outlook remains positive. Despite any hurdles ahead, we remain
optimistic the economic expansion will carry through 2019, and this momentum will benefit the commercial real
estate sector.

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. The strong pace of economic growth has maintained elevated demand for
all types of commercial real estate space, sustaining positive real estate fundamentals. We believe momentum
should carry through 2019 as steady hiring, wage growth, consumption and household formation reinforce the
sector. National apartment and industrial properties closed 2018 with their lowest year-end vacancy rates in over
15 years, and office and retail properties also reached their lowest vacancy rates in 10 years. Hotels maintained
all-time record-high occupancy rates in 2018. Although construction remains elevated for apartments, self-
storage facilities, hotels and industrial properties, demand has kept pace on a macro level. There are some
pockets of oversupply risk in select major metropolitan areas, but rising construction costs are beginning to slow
the development cycle. Positive fundamentals continue to place upward pressure on seller asking price
expectations, while buyers are increasingly focused on the maturing cycle and the associated risks. As a result,
the expectation gap between buyers and sellers continues to restrain transaction momentum.

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. Rapid changes in interest rates, as well as steady and protracted
movements of interest rates in one direction, whether increases or decreases, 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. Recent interest rate volatility and the U.S. Federal
Reserve’s indication that they are likely to ease the upward pressure on interest rates could favor high caliber
investors with established track-records. As interest rates have declined, banks have modestly tightened their
underwriting, so the lower rates may be a mixed blessing. Uncertainty created by trade tensions, stock market
volatility and questions surrounding international economies and monetary policy remain modest headwinds for
real estate capital, but overall liquidity remains elevated. The disciplined underwriting standards should help
sustain the sector over the long-term by curbing speculative investment and oversupply risk.

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. Investor sentiment remains stable, at an elevated level by historical standards. The combination of
economic momentum, elevated sentiment and positive fundamentals across most property types has raised seller

expectations, causing them to price assets aggressively in many cases. Buyers, however, are demonstrating more
caution in their underwriting as they consider the maturing growth cycle and the prospects of a recession
occurring during their hold period. The resulting gap in expectations continues to be a modest but steady
headwind, extending the marketing and closing timelines. Nonetheless, transaction velocity has continued to
nudge higher. We believe that positive economic and fundamentals performance is balancing with caution
surrounding the maturing cycle and financial market volatility to deliver generally stable sales activity. This trend
could be disrupted by a major economic or political event, but the baseline outlook remains stable.

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, pursuant to 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.

Because our business is transaction oriented, we rely on investment sales and financing professionals to
continually develop leads, identify properties to sell, market those properties and close the sale 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 paid 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 mortgage servicing revenue, mortgage servicing fees and ancillary fees associated with financing activities.
We recognize mortgage servicing revenues upon the acquisition of a servicing obligation. We generate mortgage
servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related
mortgage servicing functions, activities and services.

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 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,
because there are some who are initially paid a salary and certain of our financing professionals are employees,
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, transaction costs related to acquisitions, changes in fair value for contingent consideration and other
administrative expenses. Also included in selling, general and administrative are expenses for stock-based
compensation to non-employee directors, employees and independent contractors (i.e. investment sales and
financing professionals) under the Amended and Restated 2013 Omnibus Equity Incentive Plan (“2013 Plan”)
and the 2013 Employee Stock Purchase Plan (“ESPP”).

Depreciation and amortization expense

Depreciation expense consists of depreciation recorded on our computer software and hardware and

furniture, fixture and equipment. Depreciation is provided over estimated useful lives ranging from three to seven
years for owned assets. Amortization expense consists of (i) amortization recorded on our mortgage servicing
rights (“MSRs”) using the interest method over the period that servicing income is expected to be received and
(ii) amortization recorded on intangible assets amortized on a straight-line basis using a useful life between one
and six years.

Other income (expense), net

Other income (expense), net primarily consists of interest income, net gains or losses on our deferred

compensation plan assets, 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. Our provision for income taxes includes the windfall tax benefits, net, from shares issued in
connection with our 2013 Plan and ESPP.

We record deferred taxes, 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”) was
enacted, which reduced the U.S. federal statutory tax rate from 35% to 21% beginning in 2018. As a result of the
Act, a one-time charge of $11.6 million was recorded 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, 2018, 2017 and
2016. 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, 2018, 2017 and 2016, we closed more than 9,400, 8,900 and 8,900 sales, financing and
other transactions with total sales volume of approximately $46.4 billion, $42.2 billion and $42.3 billion,
respectively. Such key metrics for real estate brokerage and financing activities are as follows:

Years Ended
December 31,

2018

2017

2016

Real Estate Brokerage:

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)

1,726
4.10
$105,574

1,649
3.98
$ 98,963

1,527
4.24
$102,258

2.07%
5,095
7,079
$ 36,070

2.13%

$ 4,644
6,562
$ 30,475

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

Years Ended
December 31,

2018

2017

2016

Financing(1):

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 Financing Volume (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100
16.78
$ 33,176

95
17.97
$ 28,960

98
16.83
$ 26,314

0.89%
3,716
1,678
6,236

0.88%

$ 3,299
1,707
$ 5,632

0.85%
3,093
1,651
5,107

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

Comparison of Years Ended December 31, 2018 and 2017

Below are key operating results for the year ended December 31, 2018 compared to the results for the year

ended December 31, 2017 (dollars in thousands):

Year
Ended
December 31,
2018

Percentage
of
Revenue

Year
Ended
December 31,
2017

Percentage
of
Revenue

Change

Dollar

Percentage

Revenues:

Real estate brokerage

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

$ 747,355
57,817
9,644

91.7% $ 649,393
49,653
20,654

7.1
1.2

90.2% $ 97,962
8,164
(11,010)

6.9
2.9

15.1%
16.4
(53.3)

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

814,816

100.0

719,700

100.0

95,116

13.2

Operating expenses:

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

Depreciation and

502,883

61.7

446,557

62.0

56,326

12.6

193,349

23.7

171,648

23.8

21,701

12.6

amortization expense . . .

6,297

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

702,529

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

112,287
6,333
(1,400)

Income before provision for income

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

117,220
29,963

0.8

86.2

13.8
0.8
(0.2)

14.4
3.7

5,363

623,568

96,132
4,590
(1,496)

99,226
47,702

0.8

86.6

13.4
0.6
(0.2)

13.8
6.6

934

78,961

16,155
1,743
96

17.4

12.7

16.8
38.0
(6.4)

17,994
(17,739)

18.1
(37.2)

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

$ 87,257

10.7% $ 51,524

7.2% $ 35,733

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

$ 129,457

15.9% $ 111,716

15.5% $ 17,741

69.4%

15.9%

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S. generally accepted
accounting principles (“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 $814.8 million in 2018 compared to $719.7 million in 2017, an increase of
$95.1 million, or 13.2%. Total revenues increased primarily as a result of increases in real estate brokerage
commissions and financing fees, partially offset by a decrease in other revenues.

Real estate brokerage commissions. Revenues from real estate brokerage commissions increased to
$747.4 million in 2018 from $649.4 million in 2017, an increase of $98.0 million, or 15.1%. The increase was
primarily driven by the increase in the number of investment sales transactions (7.9%) and an increase in average
transaction size (9.7%). These factors combined generated the increase in sales volume of 18.4%. This increase
was partially offset by a decrease in average commission rates (6 basis points) due to a larger proportion of our
transactions that closed in the middle and larger transaction market segments, which generate lower commission
rates.

Financing fees. Revenues from financing fees increased to $57.8 million in 2018 from $49.7 million in

2017, an increase of $8.2 million, or 16.4%. The increase was spurred by recent hiring and growth from
acquisitions during 2018. The increase was primarily driven by growth in financing volume (10.7%), which was
generated by an increase in average transaction size (12.6%), partially offset by a decrease in the number of
financing transactions (1.7%).

Other revenues. Other revenues decreased to $9.6 million in 2018 from $20.7 million in 2017, a decrease of

$11.0 million or 53.3%. The decrease was primarily driven by two large consulting and advisory services fees
earned during 2017 with no such comparable fees in 2018.

Total operating expenses

Our total operating expenses were $702.5 million in 2018 compared to $623.6 million in 2017, an increase

of $79.0 million, or 12.7%. The increase was primarily due to increases in cost of services, which are variable
commissions paid to our investment sales professionals and compensation related costs in connection with our
financing activities, selling, general and administrative costs and to a lesser extent depreciation and amortization,
as described below.

Cost of services. Cost of services in 2018 increased $56.3 million, or 12.6%, to $502.9 million from
$446.6 million in 2017. The increase was primarily due to increased commission expenses driven by the related
increased revenues noted above. Cost of services as a percent of total revenues decreased to 61.7% in 2018
compared to 62.0% in 2017 primarily due to a decrease in the proportion of transactions closed by our more
senior investment sales professionals who are compensated generally at higher commission rates.

Selling, general and administrative expense. Selling, general and administrative expense in 2018 increased

$21.7 million, or 12.6%, to $193.3 million from $171.6 million in 2017. 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 $8.5 million increase in compensation related costs, including
salaries and related benefits and management performance compensation; (ii) a $5.2 million increase in sales and
promotional marketing expenses to support increased sales activity; (iii) a $2.7 million increase in facilities
expenses due to expansion of existing offices and (iv) a $2.6 million increase in other expense categories, net,
primarily driven by an increase in professional fees. In addition, selling, general and administrative expense was
impacted by (i) a $2.8 million increase in stock-based compensation expense due to fluctuations in our stock
price and incremental stock-based awards since fourth quarter of 2017 and (ii) a $0.1 million decrease in legal
costs and accruals.

Depreciation and amortization expense. Depreciation and amortization expense increased to $6.3 million in
2018 from $5.4 million in 2017, an increase of $0.9 million, or 17.4%. The increase is primarily driven by capital
expenditures due to our expansion and growth.

Other income (expense), net

Other income (expense), net increased to $6.3 million in 2018 from $4.6 million in 2017, an increase of
$1.7 million, or 38.0%. The increase was primarily driven by an increase in interest income on our investments in
marketable securities, available-for-sale, partially offset by a decrease in the value of our deferred compensation
plan assets that are held in a Rabbi Trust and foreign currency losses.

Interest expense

There were no significant changes in interest expenses in 2018 as compared to 2017.

Provision for income taxes

The provision for income taxes was $30.0 million for 2018 compared to $47.7 million in 2017, a decrease of
$17.7 million, or 37.2%. The effective tax rate for 2018 was 25.6%, compared with 48.1% in 2017. The decrease
in the effective tax rate was primarily due to the decrease in the federal statutory rate from 35% to 21%,
including a $11.6 million one-time charge in 2017 related to the revaluation of our deferred taxes resulting from
the decrease in the statutory rate, partially offset by an increase in permanent and other items. Permanent and
other items increased in 2018 compared to 2017 due to changes in tax laws under the Act, primarily relating to
changes to Section 162(m) of the Internal Revenue Code and the tax rules regarding the deductibility of
entertainment expenses. As a result of our periodic review of uncertain tax positions, we recorded a provision of
approximately $1.2 million and penalties of $0.2 million in 2018.

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
11,786

6.9
2.9

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

6.1
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

446,557

administrative expense . . . . . .

171,648

Depreciation and 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

62.0

23.8

0.8

86.6

13.4
0.6
(0.2)

13.8
6.6

444,768

161,794

4,387

610,949

106,501
2,134
(1,533)

107,102
42,445

62.0

22.6

0.6

85.2

14.8
0.3
(0.2)

14.9
5.9

1,789

9,854

976

12,619

(10,369)
2,456
37

(7,876)
5,257

0.3

0.4

6.1

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 that are held in a
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 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 the Accounting Standards
Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“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 ESPP to be
recorded in the provisions for income taxes. Prior to 2016, any windfall tax benefits 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, (v) stock-based compensation expense, and
(vi) non-cash MSRs activity. 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. 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 items. 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:

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

Years Ended December 31,

2018

2017

2016

2015

2014

$ 87,257

$ 51,524

$ 64,657

$ 66,350

$ 49,531

(7,052)
1,400
29,963
6,297
11,983
(391)

(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
—

Adjusted EBITDA(4)

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

$ 129,457

$ 111,716

$118,296

$124,140

$ 92,824

(1) Other for the years ended December 31, 2018, 2017, 2016 and 2015 includes net realized gains (losses) on

(2)

marketable securities available-for-sale.
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% starting in 2018. 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. Prior to 2017, windfalls tax benefits, net were
recorded directly to additional paid in capital. 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 $1.9 million and $2.9 million in
windfall tax benefits, net during the years ended December 31, 2018 and 2017, respectively, as a reduction
in the Company’s provision for income taxes.

(3) Non-cash MSRs activity includes the assumption of servicing obligations following the completion of our

(4)

business acquisition in 2018.
The increase in Adjusted EBITDA in 2018 compared to 2017 is primarily due to higher total revenues and a
lower proportion of operating expenses compared to revenues.

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 $817,000 and $421,000 at December 31, 2018 and 2017,

respectively.

Cash Flows

Our total cash and cash equivalents balance decreased by $6.1 million to $214.7 million at December 31,
2018, compared to $220.8 million at December 31, 2017. The following table sets forth our summary cash flows
for the years ended December 31, 2018, 2017 and 2016 (in thousands):

Years Ended December 31,

2018

2017

2016

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

$ 117,314
(117,980)
(5,437)

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

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

Net (decrease) increase in cash and cash

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

(6,103)
220,786

33,415
187,371

91,186
96,185

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

$ 214,683

$ 220,786

$ 187,371

Operating Activities

2018 Compared to 2017. Cash flows provided by operating activities were $117.3 million in 2018 compared

to $66.5 million in 2017. 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 $50.8 million improvement in operating cash
flows for 2018 compared to 2017 was primarily due to increases in our sales volume of real estate brokerage and
financing activities, the reduction in our effective income tax rate, differences in timing of payments and receipts,
a decrease in advances to our investment sales and financing professionals, a change in bonus accruals and an
increase in stock-based compensation. These improvements in operating cash flows were partially offset by a
decrease in the deferral of certain discretionary and other commissions.

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.

Investing Activities

2018 Compared to 2017. Cash flows used in investing activities were $118.0 million in 2018 compared to

$27.3 million in 2017. The change in cash flows used in investing activities in 2018 compared to the same period
in 2017 was primarily due to $94.5 million in net purchases of marketable securities, available-for-sale for the
year ended December 31, 2018 compared to $20.3 million in 2017. The year ended December 31, 2018 includes
a $14.9 million use of cash for business acquisitions with no comparable costs for the year ended December 31,
2017. See Note 3 – “Acquisitions, Goodwill and Other Intangible Assets” of our Notes to Consolidated Financial
Statements for additional information.

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.

Financing Activities

2018 Compared to 2017. Cash flows used in financing activities were $5.4 million in 2018 compared to
$5.8 million in 2017. The change in cash flows used in financing activities in 2018 compared to the same period
in 2017 was primarily impacted by net changes in stock-based award activity and taxes paid related to net share
settlement of stock-based awards. See Note 11 – “Stock-Based Compensation Plans” our Notes to Consolidated
Financial Statements for additional information.

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 11 – “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 the
foreseeable future. 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, among other
factors, to fund acquisitions or to otherwise finance 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 as of December 31, 2018. As of December 31, 2018, 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 15 – “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, 2018 (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) . . . . . . . . . .
Contingent consideration(6) . . . . . . . . . . . . . . .
Other(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$ 87,394
29,316
8,370
39,992
7,893
2,875
2,254

Less than
1 Year

$ 19,649
1,810
1,473
16,009
1,288
771
468

1-3 Years

$ 36,120
3,878
6,897
23,983
2,490
1,263
540

3-5
Years

$ 21,173
4,666
—
—
690
609
—

More
Than 5
Years

Other(8)

$ —
$ 10,452
—
18,962
—
—
—
—
— 3,425
232
—
— 1,246

$ 178,094

$ 41,468

$ 75,171

$ 27,138

$ 29,646

$ 4,671

(1)

(2)

(3)

(4)

See Note 15 – “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 4.684% on January 1, 2019 and reflect required payments that resulted from the retirement of
certain executives. See Note 5 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial
Statements.
See Note 7– “Notes Payable to Former Stockholders” of our Notes to the Consolidated Financial
Statements.
Includes short-term and long-term deferred commissions payable. See Note 5 – “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 $8.3 million to settle outstanding
amounts when they become due. Amounts assume no increase in asset or liability due to future returns. See
Note 5 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial Statements.

(6) Relates to contingent consideration in connection with our business acquisitions. See Note 3 –

“Acquisitions, Goodwill and Other Intangible Assets” and Note 9 – “Fair Value Measurements” of our
Notes to the Consolidated Financial Statements.

(7) Relates to amounts that may be advanced to sales and financing professionals and uncertain tax positions.
See Note 12 – “Income Taxes” and Note 15 – “Commitments and Contingencies” of our Notes to the
Consolidated Financial Statements.

(8) 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 and relates to our deferred compensation liability and
uncertain tax positions. Payments for deferred compensation liability are based on the participants’ elections
at the time of deferral. The net liability for uncertain tax positions may be payable by us in the future. The
ultimate resolution depends on many factors and assumptions; accordingly, we are not able to reasonably
estimate the timing of such payments.

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; Use of Estimates

We prepare our financial statements in accordance with U.S. GAAP. 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 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. We generate financing fees from securing financing on purchase
transactions, and we also earn fees from refinancing our clients’ existing mortgage debt and other financing
activities, including mortgage servicing. Other revenues include fees generated from consulting and advisory
services, as well as referral fees from other real estate brokers. Our contracts contain one performance obligation
related to our real estate brokerage, financing and consulting and advisory services offered to buyers and sellers
of commercial real estate and provide that we are operating as a principal in all its revenue generating activities.
We do 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.
Accordingly, we determined that the transaction price is fixed and determinable and collectability is reasonably
assured. We recognize revenue in principally all cases at the close of escrow for real estate brokerage, at the
close of loan for financing, when services are provided, or upon closing of the transaction for other revenues.

Stock-Based Compensation

We follow 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 2013 Plan and ESPP.

After adoption of ASU No. 2016-09 on January 1, 2017, we account for forfeitures prospectively as they

occur.

For awards made to our employees and directors, we initially value restricted stock units and restricted stock

awards based on the grant date closing price of our common stock. For awards with periodic vesting, we

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.

We adopted ASU No. 2018-7, Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting awards (“ASU 2018-7”) on July 1, 2018. As a result, awards
made to independent contractors, on or after the adoption date are be measured based on the grant date closing
price of our common stock consistent with awards made to our employees and directors. Unvested awards issued
to independent contractors as of the adoption date of July 1, 2018 were remeasured at the adoption date stock
price. We will recognize the remaining unrecognized value of unvested awards over the remaining performance
period based on the adoption date stock price with no further remeasurement through the performance
completion date. Prior to the adoption of ASU 2018-7, we determined that the fair value of the awards made to
independent contractors would be measured based on the fair value of the equity instrument as it is more reliably
measurable than the fair value of the consideration received. We used the grant date as the performance
commencement date, and the measurement date was the date the services were completed, which was the vesting
date. As a result, we recorded 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.

If there are any modifications or cancellations of the underlying unvested share-based awards, we may be

required to accelerate, increase or cancel any remaining unrecognized or previously recorded stock-based
compensation expense.

For shares issued under the ESPP, we determined that the plan was a compensatory plan and are required to

expense the fair value of the awards over each six-month offering period. We estimate the fair value of these
awards using the Black-Scholes option pricing model. 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 we have not, and currently do 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 (i) differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis, and (ii) operating losses and tax credit
carryforwards. We measure existing deferred tax assets and liabilities using enacted tax rates that are 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. We periodically evaluate 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, we consider 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 a 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.

We evaluate our tax positions 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 assess our inventory of tax positions with respect to all applicable
income tax issues for all open tax years (in each respective jurisdiction) and determine whether uncertain tax
positions are required to be recognized in our consolidated financial statements.

We recognize interest and penalties incurred as income tax expense.

Investments in Marketable Securities, Available-for-Sale

We maintain 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. 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 from the purchase
date through the estimated maturity date, including consideration of variable maturities and contractual call
provisions, are included in other income (expense), net in the consolidated statements of net and comprehensive
income. See Note 6 – “Investments in Marketable Securities” for additional information.

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. We typically invest in highly-
rated securities, and our 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.

Litigation

We are 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 proceedings cannot be determined, we use judgment in the evaluation of 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 noncancelable term of the lease, which
considers potential renewals and early termination clauses. We record the difference between the amount charged
to rent expense and the rent paid as a deferred rent obligation (included in the accounts payable and other
liabilities and deferred rent and other liabilities captions). 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 lesser of seven years or the expected lease term as a charge to rent expense.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 – “Accounting Policies and
Recent Accounting Pronouncements” of our Notes to the Consolidated Financial Statements set forth in Item 8 of

this Annual Report on Form 10-K. The accounting pronouncement related to leases is expected to have a material
impact on the Company’s consolidated balance sheets but will not have a material impact on the Company’s
consolidated statements of net and comprehensive income. Although we do not believe any of the other
accounting pronouncements listed in that note will have a significant impact on our business, we are still in the
process of determining the impact some of the new pronouncements may have on our consolidated financial
statements.

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, 2018, the fair value of investments in marketable securities, available-for-sale was $220.6 million.
The primary objective of our investment activity is to maintain the safety of principal, and to 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 because 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, 2018. 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 or positively impact their fair market value should interest rates generally rise or fall.
Accordingly, we also may have interest rate risk with variable interest 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 weighted average duration of the securities in our portfolio (dollars in
thousands):

Change in Interest Rates

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

Approximate Change in
Fair Value of Investments
Increase (Decrease)

$ 5,545
$ 2,772
$(2,771)
$(5,542)

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 under the 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, 2018, 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, 2018. In conducting its
assessment, management used the criteria issued by COSO. Based on this assessment, management concluded
that, as of December 31, 2018, our internal control over financial reporting was effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2018 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included
herein.

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

our internal control over financial reporting 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, 2018 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, 2019 are as follows:

Name

Hessam Nadji
Mitchell R. LaBar
Martin E. Louie

Hessam Nadji

Age

Position(s)

President, Chief Executive Officer and Director
53
59 Chief Operating Officer and Executive Vice President
57 Chief Financial Officer

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.

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 2, 2019 (“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 middle 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 2, 2019, which
information will appear under the caption entitled “Compensation Discussion and Analysis” 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 2, 2019, 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, 2018.

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)

(a)

1,206,045

—

1,206,045

(b)

$ —

—

$ —

(c)

5,717,055

—

5,717,055

(1) Consists of deferred stock units (“DSUs”) and restricted stock units (“RSUs”) granted under the Company’s

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

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

Includes 5,491,161 shares available for future issuance under the 2013 Plan. Includes 225,894 shares
available for future issuance under the ESPP, including shares subject to purchase during the current
offering period, which commenced on November 15, 2018 (the exact number of which will not be known
until the purchase date on May 15, 2019). 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.
Pursuant to the terms of the ESPP, on the first day of each fiscal year, beginning with the 2015 fiscal year,
the number of shares authorized for issuance under the ESPP 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)

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 2, 2019, 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 2, 2019, which
information will appear under the caption entitled “Proposal 2: Ratification of Appointment of Independent
Registered Public Accounting Firm for 2019” 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.

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2018 and 2017

Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2018,

2017 and 2016

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and

2016

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016

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).

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).

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).

Number

10.4†

10.5†

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13†

10.14

10.15

10.16

10.17

Description

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).

Amended and Restated 2013 Omnibus Equity Incentive Plan, as amended (incorporated by
reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2017 filed on March 16, 2018).

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
(incorporated by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017 filed on March 16, 2018).

10.18†

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).

Number

10.19†

10.20†

Description

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).

Marcus & Millichap, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1
to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on
August 9, 2018).

10.21†*

Retirement Agreement and Release of All Claims between the Company and William E. Hughes
dated as of February 8, 2018.

21.1*

23.1*

31.1*

31.2*

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.

32.1**

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

Not applicable.

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 1, 2019

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 (Principal
Executive Officer)

March 1, 2019

Chief Financial Officer (Principal

March 1, 2019

Financial Officer)

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

March 1, 2019

Director

March 1, 2019

Director

March 1, 2019

Director

March 1, 2019

Director

March 1, 2019

Director

March 1, 2019

Director

March 1, 2019

MARCUS & MILLICHAP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2018, 2017

and 2016

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements

Page

F-2
F-4

F-5
F-6
F-7
F-8

F-1

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors 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, 2018 and 2017, 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, 2018, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2018
and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2019 expressed an
unqualified opinion thereon.

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 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 error or fraud. 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 1, 2019

F-2

Report of Independent Registered Public Accounting Firm

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

Opinion on Internal Control over Financial Reporting

We have audited Marcus & Millichap, Inc.’s (the Company) internal control over financial reporting as of

December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (PCAOB) the consolidated balance sheets of the Company as of December 31, 2018 and 2017,
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, 2018, and the related notes, and our report dated
March 1, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we

plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk

that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Los Angeles, California
March 1, 2019

F-3

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2018

2017

$214,683
4,948
7,904
—
137,436
6,368

371,339
13,892
19,550
83,209
8,268
22,959
15,385
31,778

$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

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

$566,380

$459,664

Liabilities and stockholders’ equity
Current liabilities:

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

$ 11,035
1,087
47,910
4,486
28,338

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

92,856
49,887
6,564
7,499

9,202
1,035
49,180
—
23,842

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

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

156,806

144,776

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

—

Preferred stock, $0.0001 par value:

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

December 31, 2018 and 2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Common stock, $0.0001 par value:

Authorized shares – 150,000,000; issued and outstanding shares – 38,814,464

and 38,374,011 at December 31, 2018 and 2017, respectively . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock notes receivable from employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
97,458
(4)
311,341
775

4
89,877
(4)
224,071
940

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

409,574

314,888

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

$566,380

$459,664

See accompanying notes to consolidated financial statements.

F-4

MARCUS & MILLICHAP, INC.
CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME
(dollar and share amounts in thousands, except per share amounts)

Years Ended December 31,

2018

2017

2016

Revenues:

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

$747,355
57,817
9,644

$649,393
49,653
20,654

$662,220
43,444
11,786

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

814,816

719,700

717,450

Operating expenses:

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

502,883
193,349
6,297

446,557
171,648
5,363

444,768
161,794
4,387

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

702,529

623,568

610,949

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

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

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income:

Marketable securities, available-for-sale:

112,287
6,333
(1,400)

117,220
29,963

87,257

96,132
4,590
(1,496)

99,226
47,702

51,524

106,501
2,134
(1,533)

107,102
42,445

64,657

Change in unrealized (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reclassification adjustment for net losses (gains) included in

(536)

other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change, net of tax of $(177), $139 and $197 for the years ended

December 31, 2018, 2017 and 2016, respectively . . . . . . . . . . . . . . . . .

(529)

Foreign currency translation gain (loss), net of tax of $0 for each of the

years ended December 31, 2018, 2017 and 2016, respectively . . . . . . .

Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

377

(152)

193

—

193

(63)

130

403

(90)

313

353

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

$ 87,105

$ 51,654

$ 65,010

Earnings per share:

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

$
$

2.23
2.22

$
$

1.32
1.32

$
$

1.66
1.66

Weighted average common shares outstanding:

39,149
39,383

38,988
39,100

38,899
39,035

See accompanying notes to consolidated financial statements.

F-5

MARCUS & MILLICHAP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollar amounts in thousands)

Series A
Redeemable

Preferred Stock Common Stock Additional
Paid-In
Shares Amount
Capital

Shares Amount

Stock Notes
Receivable
From
Employees

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income (Loss)

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

$— 37,396,456
—
—

4
—

$80,591
—

$ (4)
—

$107,942
64,657

$ 457
353

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)

—

172,599

(52)

172,547
51,524

—

810

—

810
130

—

Total

$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

Cumulative effect of a change in accounting

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

—

Balance at January 1, 2018, as adjusted . . . . . . . . . . —
Net and comprehensive income . . . . . . . . . . . . —

— 38,374,011
—
—

Stock-based award activity

—

4
—

—

89,877
—

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 . . . . . . . . . . . . . . . . . —

—

11,983

21,001 —

621

237,052 —

317,236 —

12,852 —

—

(147,688) —

(5,023)

—

(4)

—

224,084
87,257

(13)

927
(152)

—

314,888
87,105

11,983

621

—

(5,023)

Balance as of December 31, 2018 . . . . . . . . . . . . . . —

$— 38,814,464

$97,458

$ (4)

$311,341

$ 775

$409,574

See accompanying notes to consolidated financial statements.

F-6

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 (gains) losses 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 other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses and other employee related expenses . . . . . . . . . . . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Acquisitions, net of cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . .

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2018

2017

2016

$ 87,257

$ 51,524

$ 64,657

6,297
291
11,983
(142)
(10)
—
—
(194)

4,783
1,757
1,500
—
(7,247)
226
5,794
4,676
(438)
781

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

117,314

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

(14,926)
(208,460)
113,911
18
(451)
(8,072)
—

—
(65,093)
44,753
27
(481)
(6,554)
10

—

(107,898)
137,593
12
(455)
(9,473)
40

(117,980)

(27,338)

19,819

621
(5,023)
—
(1,035)

(5,437)

653
(5,451)
—
(986)

(5,784)

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

(3,119)

91,186
96,185

Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,103)
220,786

33,415
187,371

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

$ 214,683

$220,786

$ 187,371

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

2,195

1,912

628

Income taxes paid, net

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

$ 24,311

$ 35,002

$ 37,350

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

employee notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contingent consideration and deferred payments in connection with acquisitions . . . . . .

192

243

325

(359) $

3,727

$ — $

—

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, 2018, MMI operates 80 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.

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.

Reclassifications

Certain prior-period amounts in Note 12 – “Income Taxes” have been reclassified to conform to the current

period presentation. These changes had no impact on the previously reported consolidated results of operations or
any totals or subtotals therein.

2. Accounting Policies and Recent Accounting Pronouncements

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, 2018 and 2017, portions of the balance of
cash and cash equivalents were held in five 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 cash and cash equivalents, including 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. The Company generates financing fees from securing

F-8

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

financing on purchase transactions, and we also earn fees from refinancing its clients’ existing mortgage debt and
other financing activities, including mortgage servicing. Other revenues include fees generated from consulting
and advisory services, as well as referral fees from other real estate brokers. The Company’s 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 provide that it is operating as a principal in all 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. Accordingly, the Company determined that the
transaction price is fixed and determinable and collectability is reasonably assured. The Company recognizes
revenue in principally all cases at the close of escrow for real estate brokerage, at the close of loan for financing,
when services are provided, or upon closing of the transaction for other revenues.

Mortgage Servicing Rights and Fees

Mortgage servicing rights (“MSRs”) are recorded at fair value upon acquisition of a servicing contract based
on internal models using contractual information and the assumptions of a market participant. The Company has
elected the amortization method for the subsequent measurement of MSRs. MSRs are carried at the lower of
amortized cost or fair value. All MSRs are amortized using the interest method over the period that servicing
income is expected to be received. MSRs are included in other assets non-current in the accompanying
consolidated balance sheets. See Note 5 – “Selected Balance Sheet Data” for additional information.
Amortization related to the MSRs is included in depreciation and amortization expense in the accompanying
consolidated statements of net and comprehensive income.

In connection with MSRs activities, the Company holds funds in escrow for the benefit of the lenders. These

funds, which totaled $2.1 million and $0 as of December 31, 2018 and 2017, respectively and the offsetting
obligations, are not presented in the Company’s financial statements as they do not represent assets and liabilities
of the Company. Revenue from the fees on such accounts is included in financing revenue in the consolidated
statements of net and comprehensive income.

We recognize mortgage servicing revenues upon the acquisition of a servicing contract. The Company
records servicing fees when earned provided the loans are current and the debt service payments are made by the
borrowers. MSRs and related servicing fees are recorded in financing fees in the accompanying consolidated
statements of net and comprehensive income.

Capitalization of Internal Labor

Certain costs related to the development or purchase of internal-use software are capitalized. Internal costs

that are incurred in the preliminary project stage are expensed as incurred. Direct consulting costs and certain
payroll and related costs that are incurred during the development stage of a project are capitalized and
depreciated using the straight-line method over a useful life of five years. Capitalized costs are recorded in
property and equipment, net, and depreciation is recorded in depreciation and amortization in the consolidated
financial statements. Depreciation begins for software that has been placed into production and is ready for its
intended use. Post-implementation costs such as training, maintenance and support are expensed as incurred. The
Company evaluates the carrying value of capitalized software for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable.

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

F-9

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

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, 2018 and 2017.

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. Commissions are 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 from the purchase date through the estimated maturity date, including consideration of
variable maturities and contractual call provisions, are included in other income (expense), net in the
consolidated statements of net and comprehensive income. See Note 6 – “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 that 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 financial condition of
the issuer and any changes thereto, changes in market interest rates and 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. 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.

Assets Held in Rabbi Trust

The Company maintains a non-qualified deferred compensation program for certain employees. Deferred
amounts are invested in variable whole life insurance policies owned by the Company for the participants benefit
and are held in a Rabbi Trust. Participants elect to invest in various hypothetical 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 expense in the consolidated statements of net and comprehensive income.

Fair Value Measurements

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

F-10

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

responsible for the determination of fair value and the supporting methodologies and assumptions. The Company
uses various pricing sources and third parties to provide and validate the values utilized.

The degree of judgment used in measuring the fair value of financial instruments is generally inversely

correlated 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 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.

Recurring Fair Value Measurements

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

recorded in cash and cash equivalents, investments in marketable securities, available-for-sale, assets held in the
Rabbi Trust, acquired MSR contracts and contingent consideration at fair value on a recurring basis. Fair values
for investments included in cash and cash equivalents and marketable securities, available-for-sale were
determined for each individual security in the investment portfolio and all these securities are measured as Levels
1 or 2 as appropriate.

Fair values for assets held in the Rabbi Trust and related deferred compensation liability were determined

based on the underlying investments in the trust and are measured as Level 2 and Level 1, respectively.

Contingent consideration in connection with acquisitions is carried at fair value, and determined on a
contract-by-contract basis based on probability weighted discounted cash flows based on achieving EBITDA and
other service requirements and is measured as Level 3.

The Company values MSRs at fair value upon acquisition of a servicing contract. MSRs do not trade in an
active, open market with readily observable prices, and are measured as Level 3. The estimated fair value of the
Company’s MSRs are developed using discounted cash flow models that calculate the present value of estimated
future net servicing income. The life of the underlying loan is estimated giving consideration to the contractually
specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs
to service and other economic factors. The Company’s model assumes full prepayment of the loan at or near the
point where the prepayment provisions have expired. The MSRs have principally similar risk characteristics. The
assumptions used to estimate the fair value of MSRs are based on internal models and are periodically compared
to assumptions used by other market participants. Due to the relatively few transactions in the MSR market, the
Company experienced little volatility in the assumptions used during the periods presented. Additionally, the
Company does not expect to see much volatility in the assumptions for the foreseeable future. Management

F-11

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

actively monitors the assumptions used and makes adjustments to those assumptions when market conditions
change, or other factors indicate such adjustments are warranted. The Company periodically reassesses and
adjusts, when necessary, the underlying inputs and assumptions used in the model to reflect observable market
conditions and assumptions that a market participant would consider in valuing an MSR asset. The Company
carries MSRs at the lower of amortized cost or fair value and evaluates the carrying value for impairment
quarterly. The Company engages a third party to assist in determining the estimated fair value of its existing
MSRs quarterly.

Nonrecurring Fair Value Measurements

The Company reviews the carrying value of MSRs, intangibles, goodwill and other assets for indications of
impairment quarterly. When indications of potential impairment are identified, the Company may be required to
determine the fair value of those assets and record an adjustment for the carrying amount in excess of the fair
value determined. Any fair value determination would be based on valuation approaches appropriate in the
circumstances and utilize Level 2 and Level 3 measurements as required.

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 the other assets, net current and other assets non-current captions), accounts payable
and other liabilities 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 interest at fixed 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 the deferred compensation
and commissions current and deferred compensation and commissions non-current captions) bears interest at a
variable rate based on U.S. Treasuries, and 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.

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, MSRs, security deposits made in connection with operating leases, customer trust accounts,
employee notes receivable and other assets and 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

F-12

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

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, which will
generally be ratably over a contracted service period, or in reaching contractual performance criteria. 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 other liabilities, 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 potential 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 the
accounts payable and other liabilities 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 lesser of seven years or the expected lease term, as a charge to rent
expense.

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 proceedings cannot be determined, the Company uses judgment in the
evaluation of claims and the need for accrual for loss contingencies quarterly. The Company records an accrual
for litigation related losses where the likelihood of loss is both probable and estimable. The Company accrues
legal fees for litigation as the legal services are provided.

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, 2018, 2017 and 2016 were $1.1 million, $824,000 and

$1.2 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 (i) differences between the

F-13

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and
(ii) 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 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 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 Company evaluates its tax positions 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. The Company assesses its inventory of tax positions with respect to all
applicable income tax issues for all open tax years (in each respective jurisdiction) and determines whether
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 (“2013 Plan”) and 2013 Employee Stock Purchase Plan (“ESPP”).

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
prospectively as they occur.

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.

The Company adopted ASU No. 2018-7, Compensation-Stock Compensation (Topic 718): Improvements to

Nonemployee Share-Based Payment Accounting awards (“ASU 2018-7”) on July 1, 2018. As a result, awards
made to independent contractors on or subsequent to July 1, 2018 are measured based on the grant date closing
price of the Company’s common stock consistent with awards made to the Company’s employees and directors.
Unvested awards issued to independent contractors as of the adoption date of July 1, 2018 were remeasured at the
adoption date stock price. The Company will recognize the remaining unrecognized value of unvested awards

F-14

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

over the remaining performance period based on the adoption date stock price, with no further remeasurement
through the performance completion date. Prior to the adoption of ASU 2018-7, the Company determined that
the fair value of the awards made to independent contractors would be measured based on the fair value of the
equity instrument as it is more reliably measurable than the fair value of the consideration received. The
Company used the grant date as the performance commencement date, and the measurement date was the date
the services were completed, which was the vesting date. As a result, the Company recorded 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.

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 shares issued under the ESPP, 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 ESPP.

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 (e.g. 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.

F-15

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

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 period. 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
and other assets non-current), investments in marketable securities, available-for-sale, security deposits (included
under other assets, non-current) and commissions receivable. 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 money
market funds that represent amounts in 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, 2018, 2017 and 2016, 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, 2018, 2017 and 2016, the Company’s Canadian operations

represented less than 1% of total revenues.

During the twelve months ended December 31, 2018, 2017 and 2016, no office represented 10% or more of

total revenues.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, under which
the consideration for the acquisition, including the fair value of any contingent consideration, is allocated to the
assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities
assumed (both specific and contingent) at their acquisition date fair values as determined by management as of
the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as
incurred and not considered in determining the fair value of the acquired assets. The excess of the consideration
over the assets acquired net of liabilities assumed is recognized as goodwill. Adjustments to contingent
consideration in periods subsequent to the completion of acquisitions and acquisition-related costs are reflected
in selling, general and administrative expense in the consolidated statements of net and comprehensive income.

Goodwill

The Company evaluates goodwill for impairment annually in the fourth quarter. In addition to the annual

impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred

F-16

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

in the period subsequent to the annual impairment testing which indicate that it is more likely than not an
impairment loss has occurred. The Company currently has only one reporting unit, therefore, all goodwill is
allocated to that one reporting unit.

Intangible Assets

The Company’s intangible assets primarily include non-compete agreements and customer relationships that

resulted from its business combinations. These intangible assets are amortized on a straight-line basis using a
useful life between one and six years. The Company evaluates its intangible assets for impairment at least
annually, or as events or changes in circumstances indicate the carrying value may be impaired.

Segment Reporting

The Company follows U.S. GAAP for segment reporting, which requires reporting information on operating

segments in interim and annual financial statements. Substantially all of the Company’s operations involve the
delivery of commercial real estate services to our customers including real estate investment sales, financing
(including MSRs revenue) 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from

Contracts with Customers (“ASU 2014-09”), which supersedes virtually all of the existing revenue recognition
guidance under U.S. GAAP, and requires entities to recognize revenue for the transfer to a 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 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
ASUs 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 was
effective for reporting periods beginning after December 15, 2017. The Company adopted the new standard on
January 1, 2018 using the modified retrospective method.

The Company assessed the impact 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 provide 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 that the transaction price is generally fixed and
determinable, and collectability is reasonably assured. Revenue was and will continue to 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, did not have an effect on the manner or timing of the recognition of the Company’s revenue.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a
Business (“ASU 2017-01”). ASU 2017-01 changed the definition of a business in an effort to assist entities with

F-17

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

evaluating whether a set of transferred assets, liabilities and activities is a business. ASU 2017-01 was effective
for the Company on January 1, 2018 and had no impact to the Company’s consolidated financial statements as of
adoption date.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other: Simplifying the

Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill
impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 is effective for the Company
on January 1, 2020, with early adoption permitted. The qualitative assessment remains optional and is
unchanged. The Company prospectively adopted ASU 2017-04 in the second quarter of 2018. There was no
impact to the Company as the Company was, prior to the adoption, not required to evaluate goodwill for
impairment.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 is effective for reporting periods
beginning after December 15, 2018 and early adoption is permitted. ASU 2018-02 permits companies that elect
to make the reclassification adjustment the option to apply the guidance retrospectively or to record the
reclassification as of the beginning of the period of adoption. The Company adopted the new standard on
January 1, 2018 and elected to make the reclassification adjustment pertaining to the stranded tax effects
resulting from the enactment of the Tax Cuts and Jobs Act from accumulated other comprehensive income to
retained earnings as of the beginning of the period, which was in the amount of $13,000.

In June 2018, the FASB issued ASU No. 2018-7, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”). ASU 2018-7 is effective for
reporting periods beginning after December 15, 2018, including interim periods within that reporting period.
Early adoption is permitted, including in interim periods, but no earlier than an entity’s adoption of ASC 606,
Revenue from Contracts with Customers. The ASU requires equity-classified share-based payment awards issued
to non-employees to be measured based on the grant date price, instead of the previous requirement to remeasure
the awards through the performance completion date. For the Company, the new standard would have been
effective during the first quarter of 2019 with early adoption permitted. The Company elected to early adopt ASU
2018-7 during the third quarter of 2018. As a result of the adoption, awards issued to non-employees prior to the
adoption date of July 1, 2018 were remeasured at the adoption date stock price. The Company will recognize the
remaining unrecognized value of unvested non-employee awards over the remaining performance period based
on the adoption date stock price with no further remeasurement through the performance completion date.
Awards issued to nonemployees on or subsequent to the adoption date will be based on the grant date stock price.

Pending Adoption

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), to increase transparency

and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. The Company will adopt the new standard effective January 1, 2019,
and the Company’s consolidated balance sheets will be impacted by the recording of a lease liability and right of
use asset (“ROU”) for virtually all of its current operating leases. Adoption of the ASU 2016-02 will result in the
recognition of ROU assets and lease liabilities for operating leases of approximately $84.5 million and
$76.7 million, respectively, as of January 1, 2019. Upon adoption the Company, in determining ROU assets, also
considered currently recorded amounts related to differences in straight line lease expense and cash lease
payments and prepaid rent. Accordingly, the adoption of the new standard will have a material impact on the
Company’s consolidated balance sheets but will not have a material impact on the Company’s consolidated
statements of net and comprehensive income.

F-18

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

The Company will elect available practical expedients permitted under the guidance, which among other
items, allow the Company to (i) carry forward its historical lease classification, (ii) not reassess leases for the
definition of lease under the new standard, (iii) utilize a discount rate as of the effective date and (iv) not record
leases that expired or were terminated prior to the effective date.

The Company will make an accounting policy election to account for lease and non-lease components as a

single lease component.

In preparation for adoption of the standard, the Company implemented internal controls and key system

functionality to enable the preparation of the required financial information.

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 that
the change occurs. Current U.S. GAAP prohibits reflecting reversals of credit losses in current period earnings.
At December 31, 2018, the Company had $220.6 million in marketable securities, available for sale which would
be subject to this new standard. As of December 31, 2018, 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 and does not expect the
standard to have a material impact on its financial statements at adoption or in subsequent periods.

In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs

(Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). ASU
2017-08 is effective for reporting periods beginning after December 15, 2018, and early adoption is permitted.
For the Company, the new standard will be effective January 1, 2019. ASU 2017-08 shortens the amortization
period of a callable security that is held at a premium to the earliest call date of that security instead of the
contractual life of the security. The Company does not expect ASU 2017-08 to have a material effect on its
consolidated financial statements upon adoption or in subsequent periods.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU
2018-13 is effective for reporting periods beginning after December 15, 2019 and early adoption is permitted.
For the Company, the new standard will be effective on January 1, 2020. ASU 2018-13 modifies prior disclosure
requirements for fair value measurement. ASU 2018-13 removes certain disclosure requirements related to the
fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers
between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty, and
adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurement. As of December 31, 2018, the Company had contingent
consideration liability of $2.9 million measured as Level 3. The Company is currently evaluating the impact of
this new standard and does not expect ASU 2018-13 to have a material effect on its consolidated financial
statements.

In August 2018, the FASB issued ASU No. 2018-15, Internal-Use Software (Subtopic 350-40)—Customer’s

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
(“ASU 2018-15”). ASU 2018-15 is effective for reporting periods beginning after December 15, 2019 and early
adoption is permitted. For the Company, the new standard will be effective on January 1, 2020. ASU 2018-15

F-19

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal use software license), by requiring a customer in a
cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the
arrangement was an internal-use software project. The Company is currently evaluating the impact of this new
standard and does not expect ASU 2018-15 to have a material effect on its consolidated financial statements.

3. Acquisitions, Goodwill and Other Intangible Assets

During the twelve months ended December 31, 2018, the Company completed four acquisitions and the
results of each of the acquisitions have been included in the consolidated financial statements beginning on their
respective acquisition date. The acquisitions expand the Company’s network of its real estate sales and financing
professionals and loan originators and provides further diversification to its loan origination platform and
financing services. Aggregate terms of these acquisitions included: (i) cash paid at closing of approximately
$14.9 million, net of cash received and (ii) the fair value of contingent consideration and deferred payments,
which will be paid over the next one to seven-year period after the related acquisition dates based on
achievement of certain EBITDA targets or service and time requirements. Contingent consideration and deferred
payments are included in accounts payable and other liabilities and deferred rent and other liabilities in the
consolidated balance sheets. The Company determined the fair value of the future payments aggregated
$3.7 million, including contingent consideration of $2.7 million using a probability-weighted, discounted cash
flow estimate based on achieving EBITDA targets. As of December 31, 2018, contingent consideration has a
maximum undiscounted payment of $4.2 million. See Note 9 – “Fair Value Measurements” for additional
information on contingent consideration.

The acquisitions were accounted for as business combinations. Based on preliminary purchase price
allocations, $2.0 million, net, was allocated to mortgage servicing rights, including assets of $2.1 million and
liabilities $0.1 million, $4.2 million was allocated to the fair values of intangible assets, $0.8 million to other
assets noncurrent and $0.1 million to acquired working capital, with the remainder of $11.5 million allocated to
goodwill.

The goodwill recorded as part of the acquisitions primarily arose from the acquired assembled workforce

and commercial sales, lending and servicing platforms. The Company expects all of the goodwill to be tax
deductible, with the tax-deductible amount of goodwill related to the contingent consideration to be determined
once the cash payments are made to settle the contingent consideration. The goodwill resulting from these
acquisitions is allocated to the Company’s one reporting unit.

Goodwill and intangible assets, net consisted of the following (in thousands):

December 31, 2018

December 31, 2017

Gross Carrying
Amount

Accumulated
Amortization Net Book Value

Gross Carrying
Amount

Accumulated
Amortization Net Book Value

Goodwill and intangible

assets:

Goodwill(1)
Intangible assets(1)

. . . . . . . .
. .

$ 11,459
4,240

$ 15,699

—
(314)

(314)

$ 11,459
3,926

$ 15,385

—
—

—

—
—

—

—
—

—

(1) Represents additions from acquisitions.

F-20

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

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

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisitions . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
4,240
(314)

$ —
—
—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,926

$ —

December 31,

2018

2017

Estimated amortization expense for intangible assets for the next five years and thereafter consisted of the

following (in thousands):

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and Equipment, Net

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

December 31,
2018

$ 836
817
729
633
589
322

$3,926

December 31,

2018

2017

Computer software and hardware equipment . . . . . . . . . . .
Furniture, fixtures and equipment
. . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . . . .

$ 20,427
24,227
(25,104)

$ 16,247
21,695
(20,789)

$ 19,550

$ 17,153

During the years ended December 31, 2018 and 2017, the Company wrote-off approximately $1.4 million

and $2.9 million, respectively, of fully depreciated computer software and hardware equipment and furniture,
fixtures and equipment.

F-21

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,

2018

2017

2018

2017

Mortgage servicing rights, net of amortization . . . . . . . . . .
Due from independent contractors, net(1)(2) . . . . . . . . . . . . .
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee notes receivable(3) . . . . . . . . . . . . . . . . . . . . . . . .
Customer trust accounts and other . . . . . . . . . . . . . . . . . . .

$ —
3,831
—
156
2,381

$ —
3,672
—
366
1,491

$ 2,209
27,157
1,196
370
846

$ —
21,726
1,158
255
24

$6,368

$5,529

$31,778

$23,163

(2)

(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 four years.
Includes allowance for doubtful accounts related to current receivables of $514 and $494 as of
December 31, 2018 and 2017, respectively. The Company recorded a provision for bad debt expense of
$291, $219 and $47 and wrote off $271, $38 and $93 of these receivables for the years ended December 31,
2018, 2017 and 2016, respectively. Any cash receipts on notes are applied first to unpaid principal balance
prior to any income being recognized.
See Note 8 – “Related-Party Transactions” for additional information.

(3)

MSRs

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

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-Current
December 31,

2018

$ —
2,121
391
(303)

$2,209

2017

$ —
—
—
—

$ —

The portfolio of loans serviced by the Company aggregated $1.6 billion and $0 as of December 31, 2018

and 2017, respectively.

F-22

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

Deferred Rent and Other Liabilities

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

Non-Current
December 31,

2018

2017

Deferred rent and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,445
2,054

$4,505
—

$7,499

$4,505

(1)

The current portion of contingent consideration in the amount of $821 is included in accounts payable and
other liabilities in the consolidated balance sheets.

Deferred Compensation and Commissions

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

Stock appreciation rights (“SARs”) liability(1)
. . . . . . . .
Commissions payable to investment sales and financing
professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability(1) . . . . . . . . . . . . . . . . . .

Current
December 31,

Non-Current
December 31,

2018

2017

2018

2017

$ 1,810

$ 1,662

$19,299

$20,217

44,812
1,288

46,257
1,261

23,983
6,605

21,924
7,220

$47,910

$49,180

$49,887

$49,361

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no
longer being considered as a service provider. As a result of the retirement of certain participants, estimated
amounts to be paid to the participants within the next twelve months have been classified as current.

SARs Liability

Prior to the IPO, certain employees of the Company were granted SARs under a stock-based compensation
program assumed by MMC. In connection with the IPO, the SARs agreements were revised, the MMC liability
of $20.0 million for the SARs was frozen as of March 31, 2013, and was transferred to MMI through a capital
distribution. The SARs liability will be settled with each participant in ten annual installments in January of each
year upon retirement or termination from service, or in full upon consummation of a change in control of the
Company.

Under the revised agreements, MMI is required to accrue interest on the outstanding balance beginning on

January 1, 2014 at a rate based on the 10-year treasury note, plus 2%. The rate resets annually. The rates at
January 1, 2018, 2017 and 2016 were 4.409%, 4.446% and 4.273%, respectively. MMI recorded interest expense
related to this liability of $891,000, $931,000 and $914,000 for the years ended December 31, 2018, 2017 and
2016, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have
been classified as current. The Company made total payments consisting of accumulated interest of $1.7 million
and $1.4 million during the years ended December 31, 2018 and 2017, respectively.

F-23

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

Commissions Payable

Certain investment sales professionals have the ability to earn additional commissions after meeting certain
annual revenue thresholds. These commissions are recognized as cost of services in the period in which they are
earned as they relate to specific transactions closed. The Company has the ability to defer payment of certain
commissions, at its election, for up to three years. Commissions payable that are not expected to be paid within
twelve months are classified as long-term.

Deferred Compensation Liability

A select group of management is eligible to participate in the Marcus & Millichap Deferred Compensation

Plan (the “Deferred Compensation Plan”). The plan is a non-qualified deferred compensation plan that is
intended to comply with Section 409A of the Internal Revenue Code and permits participants to defer
compensation up to 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 in which case the trust assets are subject to the claims of the Company’s creditors. The Company may
also, in its sole and absolute discretion, elect to withdraw at any time a portion of the trust assets by an amount by
which the fair market value of the trust assets exceeds 110% of the aggregate deferred compensation liability
represented by the participants’ accounts. Estimated payouts within the next twelve months for participants that
have separated from service have been classified as current. During the years ended December 31, 2018 and
2017, the Company made total payments to participants of $1.3 million and $607,000, respectively.

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):

(Decrease) increase in the carrying value of the assets held in the

rabbi trust(1)

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

$(326)

$849

$470

(Decrease) increase in the net carrying value of the deferred

compensation obligation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(306)

$904

$452

December 31,

2018

2017

2016

(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-24

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, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

December 31, 2017

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments:

U.S. treasuries . . . . . . . . . . . $121,252 $
U.S. government sponsored
entities . . . . . . . . . . . . . . .
Corporate debt securities . .
Asset-backed securities and
other . . . . . . . . . . . . . . . .

3,512
11,962

806

7 $

(79) $121,180 $57,712 $ — $

(88) $ 57,624

—
—

—

(7)
(11)

3,505
11,951

7,016
8,931

(6)

800

—

—
—

—

(8)
(3)

7,008
8,928

—

Long-term investments:

$137,532 $

7 $ (103) $137,436 $73,659 $ — $

(99) $ 73,560

U.S. treasuries . . . . . . . . . . . $ 44,997 $
U.S. government sponsored
entities . . . . . . . . . . . . . . .
Corporate debt securities . .
Asset-backed securities and
other . . . . . . . . . . . . . . . .

1,569
32,467

4,889

128 $ (115) $ 45,010 $18,111 $

7 $ (164) $ 17,954

—

(62)
(633)

1,507
5,306
31,837 22,505

(46)

4,855

6,180

—
268

(62)
(54)

5,244
22,719

(15)

6,182

$ 83,922 $

143 $ (856) $ 83,209 $52,102 $

292 $ (295) $ 52,099

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

$(576)

$127,326

$(158)

$63,229

12 months or longer . . . . . . . . . . . . . . . . . . . . . . . . . .

$(383)

$ 30,609

$(236)

$44,961

December 31, 2018

December 31, 2017

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross realized losses(1)

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

December 31,

2018

2017

(2)

$ —

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

The cost basis of securities sold were determined based on the specific identification method.

As of December 31, 2018, 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

F-25

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

impaired. 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, 2018

December 31, 2017

Amortized
Cost

$137,532
61,875
17,310
4,737

Fair Value

$137,436
61,846
16,747
4,616

Amortized
Cost

$ 73,659
30,644
15,090
6,368

Fair Value

$ 73,560
30,517
15,200
6,382

$221,454

$220,645

$ 125,761

$125,659

Weighted average contractual maturity . . . . . . . . .

1.8 years

2.6 years

Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay

certain obligations with or without prepayment penalties.

7. 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 the former stockholders (“the Notes”). Such 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 with a final principal payment due during the second quarter of 2020. During each of the
years ended December 31, 2018 and 2017, the Company made total payments on the Notes of $1.5 million,
including principal and interest.

Accrued interest included in accounts payable and other liabilities in the accompanying consolidated

balance sheets pertaining to the Notes consisted of the following (in thousands):

Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$271

$305

December 31,

2018

2017

Interest expense pertaining to the Notes consisted of the following (in thousands):

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$404

$454

$502

Years Ended
December 31,

2018

2017

2016

F-26

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

Future minimum principal payments on the Notes consisted of the following (in thousands):

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2018

$1,087
6,564

$7,651

8. 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, 2018, 2017 and 2016, the Company incurred net costs of
$197,000, $210,000 and $227,000 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, 2018, 2017 and 2016, the Company earned real estate brokerage commissions
and financing fees of $7.7 million, $2.1 million and $5.1 million, respectively, from transactions with
subsidiaries of MMC related to these services. The Company incurred cost of services of $4.6 million,
$1.2 million and $3.0 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 for each of the
years ended December 31, 2018, 2017 and 2016, respectively. Rent expense is included in selling, general and
administrative expense in the accompanying consolidated statements of net and comprehensive income.

Accounts Payable and Other Liabilities with MMC

As of December 31, 2018 and 2017, accounts payable and other liabilities with MMC totaling $101,000 and

$91,000, respectively, remain unpaid and are included in accounts payable and other liabilities in the
accompanying consolidated balance sheets.

Other

The Company makes advances to non-executive employees from time-to-time. At December 31, 2018 and
2017, the aggregate principal amount for employee notes receivable was $526,000 and $621,000, respectively,
which is included in other assets (current and non-current) in the accompanying consolidated balance sheets. See
Note 5 – “Selected Balance Sheet Data” for additional information.

F-27

MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements

As of December 31, 2018, George M. Marcus, the Company’s founder and Co-Chairman, beneficially
owned approximately 41% 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

Assets and liabilities carried at fair value on a recurring basis consisted of the following (in thousands):

December 31, 2018

December 31, 2017

Fair Value Level 1

Level 2

Level 3

Fair Value Level 1

Level 2

Level 3

Assets:
Assets held in rabbi trust . . . . . . . . $

Cash equivalents(1):

Commercial paper and

8,268 $ — $ 8,268 $ — $

8,787 $ — $ 8,787 $ —

other . . . . . . . . . . . . . . . . . . $

1,599 $

Money market funds . . . . . . . 163,126 163,126

1,599 $ — $ — $ 11,441 $ — $11,441 $ —
—

— 157,788 157,788

—

$164,725 $164,725 $ — $ — $169,229 $157,788 $11,441 $ —

Marketable securities,
available-for-sale:

Short-term investments:

U.S. treasuries . . . . . . . . $121,180 $121,180 $ — $ — $ 57,624 $ 57,624 $ — $ —
U.S. government