NYSE: MMI
2019
MARCUS & MILLICHAP, INC.
ANNUAL REPORT
REAL ESTATE INVESTMENT SALES » FINANCING » RESEARCH » ADVISORY SERVICES
Mission Statement
At Marcus & Millichap, our commitment is to help our clients create
and preserve wealth by providing them with the best real estate
investment sales, financing, research and advisory services.
Founded on Specialization—A Culture of Client Results
Powered by Research and Technology
■ Dedicated to real estate investment brokerage since 1971
■ The industry leader in real estate investment transactions
• More than 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
February 20, 2020
Last year, Marcus & Millichap (MMI) reached its second-
highest revenue in our nearly 50-year history, despite
increased market volatility and slower transaction activity.
Revenue of $806 million was just 1% below 2018, which was
up 13.2% and marked an all-time record. The final period of
2019 established a new quarterly revenue watermark as our
efforts to offset a challenging market environment throughout
the year generated improved results and set the stage for
positive momentum in 2020. Notwithstanding our frustration
with essentially flat revenue last year, we are building on the
company’s history of long-term growth and shareholder value
creation. Over the past five years, MMI’s total revenues grew
41%, net income was up 55% and our sales force grew by
35% while cash, cash equivalents and core cash investments
expanded by 167% to nearly $400 million.
In this spirit, last year we increased strategic investments
in critical areas. This included new proprietary technology,
expanded investor symposiums, our sales force’s business
development as well as acquisition of complementary firms.
As a result of these endeavors, we doubled our presence in
Canada and added several market leaders to our U.S. team.
Net income of $77 million, which was 12% lower than the
prior year, reflects these vital investments and a 3.8% decrease
in controllable expenses. We remain highly selective in our
cost allocation, strategic investments and tight underwriting
of acquisitions.
Total volume of nearly $50 billion set a new record, supported
by a 15% boost in financing volume and a 2% rise in investment
brokerage. This contrasts with an estimated 4% decline in
market sales for the year, which we believe indicates market
share expansion for MMI. We entered 2020 with a brand that
is stronger than ever, reinforced market dominance in the
private client market segment and an expanded platform with
over 2,000 investment sales and financing professionals in
82 offices. The Marcus & Millichap sales force is the largest
of its kind in the commercial real estate industry, fortified by
our expansive training and brokerage support system. We are
committed to building on this foundation to better serve our
clients and achieve solid growth in the years ahead.
Market Environment
Last year’s market challenge was correlated with a reversal of
interest rates. In 2018, the Federal Reserve aggressively raised
interest rates and messaged further increases in 2019, which
motivated investors to execute transactions. In early 2019, the
Fed lowered interest rates and messaged further decreases.
Many investors postponed transactions in anticipation of
lower-cost debt as a result. We believe that the bottoming
of the interest rate lowering cycle in October of last year,
combined with the continued healthy real estate supply-
demand conditions and steady job growth, continued to bode
well for the market outlook. We are cautiously optimistic
about the year ahead given a more dovish stance by the
Fed, evidence of sustainable economic growth and expected
resolution of macro/global issues.
Industry Position
The company closed over 9,700 transactions in 2019, more
than any other firm in the industry, and remains the category
leader in the private client segment. This market segment
consists of asset sales priced $1 million to $10 million and
accounted for 83% of commercial real estate transactions last
year. For MMI, this segment contributed 67% of our total
revenues in 2019, reflecting close alignment with the largest
part of the marketplace.
Our middle and larger transaction segments were particularly
challenged in 2019, with revenues declining a combined 8.1%
after a combined 32% growth in 2018. Our record 2018 in
these segments set a particularly challenging comparison as did
the typical variability of larger sales. Through our expanding
Institutional Property Advisors (IPA) division and our maturing
sales force, MMI is positioned to become a formidable
competitor in larger transactions. Our goal with this part of
our growth strategy is to support the career development of
our professionals as they mature while leveraging the trend of
an increasing number of private investors consolidating their
smaller-asset portfolios into larger, higher-quality properties.
Our financing division, Marcus & Millichap Capital Corporation
(MMCC), had another strong year as its revenue grew nearly
15% year over year. We believe MMCC is our largest growth
opportunity as it provides an essential service to our clients,
which we can scale significantly. It is a fast-growing revenue
stream with a compound annual growth rate of 16.9% since our
IPO in 2013.
Looking Forward
Marcus & Millichap’s growth plan is driven by gaining share
in the private client market segment, diversifying our product
coverage, expanding our penetration in larger transactions
and significantly growing our financing services. We are
highly focused on retaining our best talent by helping each
professional maximize their potential. Our acquisition pipeline
is encouraging and includes quality firms that will contribute
to our platform and benefit from our proprietary tools, brand
and management support. We place a great deal of value on
our culture of loyalty, collaboration and singular focus on client
results. We are keenly aware of industry changes and the ever-
evolving impact of technology and we will make the right
investments to lead in these areas while remaining steadfast in
our commitment to value creation for our shareholders.
We would like to thank our team for their hard work and commitment
to MMI and our shareholders for your continued support.
Sincerely,
George M. Marcus
Co-Chairman of the
Board of Directors
Hessam Nadji
President,
Chief Executive Officer
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
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
OR
For the transition period from
to
.
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
Trading Symbol (s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
MMI
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 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, 2019 was approximately $704.0 million, based on the closing
price per share of common stock on June 28, 2019 of $30.85 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.
‘
Accelerated filer
Smaller reporting company ‘
As of February 18, 2020, there were 39,192,372 shares of the registrant’s common stock outstanding.
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 5,
2020 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, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
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, 2019 since full year 2019 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.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements, including the Company’s business
outlook for 2020 and expectations for changes (or fluctuations) in 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 may 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;
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our ability to attract and retain qualified senior executives, 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, 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.
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PART I
Unless the context requires otherwise, the words “Marcus & Millichap,” “Marcus & Millichap Real Estate
Investment Services,” “MMREIS,” “MMI,” “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 2019. As of December 31, 2019, we had 2,021 investment sales and financing
professionals that are primarily exclusive commission based independent contractors who provide real estate
investment brokerage and financing services to sellers and buyers of commercial real estate in 82 offices in the
United States and Canada. In 2019, we closed 9,726 sales, financing and other transactions with total sales
volume of approximately $49.7 billion.
We service clients by underwriting, marketing, selling and financing commercial real estate properties in a
manner that maximizes value for sellers, provides buyers with the largest and most diverse inventory of
commercial properties and secures the most competitive financing from lenders for borrowers. Our business
model is based on several key attributes:
•
a 49-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. These services are executed by our salesforce 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;
•
•
•
•
•
•
•
investment sales and financing professionals providing exclusive client representation across multiple
property types;
a broad geographic platform 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 by accessing a wide range of lenders on behalf of our clients;
an experienced management team overseeing our offices, with an average of 11 years of real estate
investment brokerage experience with our Company;
our managers are in a support and leadership role as company executives and do not compete with or
participate in investment sales professionals’ commissions; and
industry-leading research and advisory services tailored to the needs of our clients and supporting our
investment sales and financing professionals.
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Corporate Information
We were formed as a sole proprietorship in 1971, incorporated in California on August 26, 1976 as G. M.
Marcus & Company, and we were renamed as Marcus & Millichap, Inc. in August 1978, Marcus & Millichap
Real Estate Investment Brokerage Company in September 1985, and Marcus & Millichap Real Estate Investment
Services, Inc., (“MMREIS”), in February 2007. Prior to the completion of our initial public offering (“IPO”),
MMREIS was majority-owned by Marcus & Millichap Company (“MMC”) and all of MMREIS’ preferred and
common stock outstanding was held by MMC and its affiliates or officers and employees of MMREIS. In June
2013, in preparation for the spin-off of its real estate investment services business, MMC formed a Delaware
holding company called Marcus & Millichap, Inc., or MMI. 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.
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 2019, approximately 91% of our revenues were generated from real estate brokerage
commissions, 8% 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 represent the
largest part of our business, which differentiates us from our competitors. In 2019, approximately 67% 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 and middle market segments, 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,
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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 34 states across the United States
and in 4 provinces in Canada. In 2018 and 2019, we completed acquisitions that expanded our presence in the
financing market in the Midwest and in the real estate brokerage market in Canada. In 2018, we also added
commercial mortgage servicing to our financing services.
Below is a map reflecting the geographic location of our 82 offices as of December 31, 2019.
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 91% of our revenues in 2019. 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
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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 2019, we closed 7,042 real estate brokerage transactions in a broad range of commercial property types,
with a total sales volume of approximately $36.9 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 strength 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. We expect that these efforts will 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 investment sales transactions, sales volume and revenue by
commercial real estate market segment for real estate brokerage in 2019 compared to 2018:
Real Estate Brokerage:
Number Volume
Revenues Number Volume
Revenues Number Volume
Revenues
2019
2018
Change
<$1 million . . . . . . . . . . . . . . . . . . . 1,011
Private client market
($1-$10 million)
. . . . . . . . . . . . . 5,311
Middle market
(in millions) (in thousands)
(in millions) (in thousands)
(in millions) (in thousands)
$
657
$ 27,012
1,077
$
695
$ 29,677
(66)
$ (38)
$ (2,665)
17,239
487,528
5,230
16,645
483,967
81
594
3,561
(≥$10-$20 million) . . . . . . . . . . .
441
6,002
107,818
472
6,462
116,850
(31)
(460)
(9,032)
Larger transaction market
(≥$20 million) . . . . . . . . . . . . . . .
279
12,960
106,998
300
12,268
116,861
7,042
$36,858
$729,356
7,079
$36,070
$747,355
(21)
(37)
692
(9,863)
$ 788
$(17,999)
Financing
Marcus & Millichap Capital Corporation (“MMCC”) is a financial intermediary that arranges debt financing
for commercial properties. Our advisors help to arrange financing for both new acquisitions and the refinancing
of individual assets and portfolios. We generate revenue in the form of financing fees collected from the
placement of loans with banks, insurance companies, government agencies, conduit lenders, debt funds and hard
money lenders. We also receive on-going servicing fees from certain lenders and other incentives based on
reaching certain production thresholds. MMCC’s financing fees vary by loan amount, transactional complexity
and loan type. In 2019, MMCC completed 1,944 financing transactions representing total financing volume of
approximately $7.2 billion, which yielded $66.3 million in financing fees, accounting for approximately 8% of
our total revenues. The combination of MMCC’s size, market reach and financing volume enables us to establish
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long-term relationships and special programs with various capital sources. This, in turn, improves MMCC’s
value proposition to borrowers who are seeking competitive financing rates and terms. MMCC is not limited to
promoting in-house or exclusive capital sources. Rather, MMCC seeks out the most competitive financing
solution for each client’s specific needs and circumstances. During 2019, approximately 42% of MMCC’s
revenues came from placing acquisition financing, 48% from refinancing activities and 10% from other financing
activities.
MMCC is fully integrated with the 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 customer service within the offices. The MMCC national network of financing
professionals is also supported by a dedicated, nationally focused management team coordinating access to a
broad range of national and regional capital sources including banks, life insurance companies, Fannie Mae,
Freddie Mac, FHA, debt funds, hard money lenders and structured debt facilitators (preferred equity and
mezzanine providers). By combining these resources with the latest property and capital markets information, we
can differentiate ourselves in the marketplace and deliver tailored financial solutions that 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 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.
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, financing and other services complementary to our
business. 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 approximately 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
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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 2019. We are the leading broker in the $1-$10 million private client market segment based on transaction
count in 2019. With our established market leadership and brand name, we have 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, the 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, and providing
one of the largest sales force in the industry, promoting a culture and policy of information sharing on each
property we represent, and equipping 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 2018. 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 local 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 local
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 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
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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
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 2010 to 2019:
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$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
8,995
8,979
8,715
7,667
$37.8
$33.1
$42.3
$42.2
6,149
6,608
5,231
4,461
$22.0
$24.0
$17.5
$13.5
9,726
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9,472
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2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
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
over 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 transactions in this market segment in 2019. 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
10
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 2019, we reached an all-time high in the
number of investment sales professionals, ending the year with 1,925.
Pursue Selective Acquisitions
Acquisitions have become a strategy to supplement the growth of our salesforce and services we provide to
our clients. 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. We expect
the number and volume of transactions in the primary property types of multifamily, retail, office and industrial
to 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
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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 investors 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. We have a group dedicated to serving major investors, branded as IPA, specifically to service larger
multifamily investors. This strategy has met 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 plan for the growth of MMCC continues to be focused on expanding our financing services in markets
currently served by our investment brokerage offices. This includes increasing the capacity of financing
professionals in offices we currently serve and integrating financing professionals and related services in offices
that do not have an MMCC presence. We will also continue to expand our service platform by increasing access
to a broad array of new capital resources. We have established alliances with national capital sources that provide
access to an assortment of highly competitive products including Fannie Mae, Freddie Mac and HUD. These
alliances serve to expand the distribution network for each of our lender partners, while affording our financing
professionals and clients with more favorable pricing and service. We will continue to seek out and hire
experienced financing professionals and capital markets teams to grow our MMCC business, support the growth
of our service platform and establish relationships with various capital sources. Further, our internally developed
training programs are directed at enhancing the skill sets for our advisors, promoting the MMCC value
proposition and increasing our internal capture rate with our brokerage clients and increasing activity with
non-brokerage clients. As of December 31, 2019, we have 41 offices with financing professionals embedded
within our brokerage teams. We continue to capitalize on the synergies our financing professionals provide to our
client focused service platform with approximately 14.7% year-over-year growth in financing fees ($66.3 million
in financing fees in 2019 from $57.8 million in 2018).
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, Newmark Group, Inc., NAI Global and JLL. Our financing
competitors include institutional firms such as CBRE Group, Inc., JLL, Walker & Dunlop and NorthMarq
Capital, LLC and a large group of local and regional mortgage banking firms. These investment sales firms
mainly focus on larger sales and institutional investors and are not heavily concentrated in our largest market
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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 75,000 new visitors per month and 841,000 page
views per month and also serve as a portal for delivery of online marketing materials and for deal collaboration.
Marketing and Branding
We are known for our 49 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.
13
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 our 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 our brand through these activities.
Our research division produces more than 1,500 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 numerous newspapers in major metropolitan cities. Our CEO is frequently
interviewed on national business channels, such as CNBC, Bloomberg, Yahoo! Finance 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 46
states in the United States and four provinces in Canada. We are a licensed broker in each state in which we have
14
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, 2019, we had 2,021 investment sales and financing professionals of which 1,929 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 877 employees as of December 31, 2019, consisting of 92 employees as financing professionals, 34
employees in communications and marketing, 19 employees in research and 732 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 about us 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, nominating
and corporate governance and executive 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.
15
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, (vi) slowdowns in economic activity that
could cause residential and commercial tenant demand to decline, and (vii) declines in the regional or local
demand for commercial real estate, or significant disruptions in other segments of the real estate markets could
adversely affect our results of operations. 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
16
relating to such transactions. These effects would likely cause us to realize lower revenues from our transaction
service fees, including brokerage 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.
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.
Our business has been and may in the future be adversely affected by restrictions in the availability of debt or
equity capital as well as a lack of adequate credit and the risk of deterioration of the debt or credit markets and
commercial real estate markets.
Restrictions on the availability of capital, both debt and/or equity, can create significant reductions in the
liquidity and flow of capital to the commercial real estate markets. Severe restrictions in debt or equity liquidity
as well as the lack of the availability of credit in the markets we service can significantly reduce the volume and
pace of commercial real estate transactions. These restrictions can also have a general negative effect upon
commercial real estate prices themselves. Our business is particularly sensitive to the volume of activity and
pricing in the commercial real estate market. This has had, and may have in the future, a significant adverse
effect on our business.
We cannot predict with any degree of certainty the magnitude or duration of developments in the credit
markets and commercial real estate markets as it is inherently difficult to make accurate predictions with respect
to such macroeconomic movements that are beyond our control. This uncertainty limits our ability to plan for
future developments. In addition, uncertainty regarding market conditions may limit the ability of other
participants in the credit markets or commercial real estate markets to plan for the future. As a result, market
participants may act more conservatively than they might in a stabilized market, which may perpetuate and
amplify the adverse developments in the markets we service. While business opportunities may emerge from
assisting clients with transactions relating to distressed commercial real estate assets, there can be no assurance
that the volume of such transactions will be sufficient to meaningfully offset the declines in transaction volumes
within the overall commercial real estate market.
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
17
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 2019, we earned approximately 32% 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 as well as the
impact of climate change, 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
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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.
New laws or regulations or changes in existing laws or regulations or the application thereof could adversely
affect our businesses, financial condition, results of operations and prospects.
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
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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.
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.
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 marketplace. 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
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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, some of whom have recently retired or will be transitioning to
new positions, 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
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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
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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. Any failure to manage our growth 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.
Our growth plan includes completing acquisitions, which may or may not happen depending on the
acquisition opportunities that are available in the marketplace.
Our ability to grow by acquiring companies or assets and by making investments to complement our
existing businesses will depend upon the availability of suitable acquisition candidates. If we are unable to find
suitable acquisition candidates, if we are unable to attract the interest of such candidates, or if we are unable to
successfully negotiate and complete such acquisitions, that could limit our ability to grow.
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, that
we will experience attrition from professionals licensed or associated with the acquired companies 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
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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.
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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,
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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.
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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.
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 owns a significant portion of our common stock, which may prevent other
stockholders from influencing significant decisions, and the sale of such stock may depress the price of our
common stock and impair our ability to raise capital.
George M. Marcus, our Co-Chairman and founder beneficially owns approximately 15.7 million shares, or
approximately 40% of our outstanding common stock as of December 31, 2019. 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. Mr. Marcus’ shares may also be sold in a public or private
sale which 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.
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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, during the
two-year period ended December 31, 2019, the price of our shares has ranged from a high of $43.50 per share to
a low of $27.84 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.
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 substantially all 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 us, 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.
28
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.
We may issue shares of our common stock or other securities from time to time as consideration for future
acquisitions and investments. If any such acquisition or investment is significant, the number of shares of our
common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may
issue may in turn be substantial. We may also grant registration rights covering those shares of our common
stock or other securities in connection with any such acquisitions and investments.
We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future
issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial
amounts of our common stock (including shares of our common stock issued in connection with an acquisition), or
the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our principal executive offices are located at 23975 Park Sorrento, Suite 400, Calabasas, California 91302
where our telephone number is (818) 212-2250. We lease all of our brokerage offices (typically less than 12,000
square feet) and other support facilities in United States and Canada. We believe that our current facilities are
adequate to meet our needs through the end of 2020; 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 our
insurance policies, 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 16 – “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.
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “MMI”.
As of February 18, 2020, there were 13 stockholders of record, and the closing price of our common stock
was $37.33 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, 2014 through December 31, 2019 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., JLL and HFF Inc. (through July 2019 when it was acquired by
JLL) (collectively “Peer Group”). These 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, 2014 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
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/14
12/15
12/16
12/17
12/18
12/19
Marcus & Millichap, Inc.
S&P 500 Index
Peer Group
30
Marcus & Millichap, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 100.00
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
87.64
101.38
102.37
80.36
113.51
83.72
98.08
138.29
119.62
103.25
132.23
106.05
112.03
173.86
157.24
Base Period
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities
None.
31
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,
2019, 2018 and 2017, and the consolidated balance sheet data at December 31, 2019 and 2018. 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,
2016 and 2015 and the consolidated balance sheet data at December 31, 2017, 2016 and 2015, 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,
2019
2018
2017
2016
2015
(in thousands except per share, investment sales and financing
professional and sales volume amounts)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $806,428 $814,816 $719,700 $717,450 $689,055
423,389
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,651
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,018
. . . . . . . . . . . . . . . . . .
Provision for income taxes(1)
498,878
96,423
30,582
444,768
106,501
42,445
446,557
96,132
47,702
502,883
112,287
29,963
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,930 $ 87,257 $ 51,524 $ 64,657 $ 66,350
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.95 $
1.95 $
2.23 $
2.22 $
1.32 $
1.32 $
1.66 $
1.66 $
1.71
1.69
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,404
39,548
39,149
39,383
38,988
39,100
38,899
39,035
38,848
39,162
Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $232,670 $214,683 $220,786 $187,371 $ 96,185
. . . . . . . $211,561 $220,645 $125,659 $104,929 $134,255
Marketable securities, available-for-sale(2)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $709,034 $566,380 $459,664 $394,016 $321,225
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $112,322 $ 63,950 $ 61,517 $ 56,986 $ 57,224
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $214,127 $156,806 $144,776 $135,162 $132,235
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . $494,907 $409,574 $314,888 $258,854 $188,990
Other Data:
Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . . . . . . $115,551 $129,457 $111,716 $118,296 $124,140
Investment sales and financing professionals . . . . .
1,607
Sales volume (dollars in millions) . . . . . . . . . . . . . . $ 49,706 $ 46,355 $ 42,191 $ 42,312 $ 37,847
1,737
1,977
2,021
1,819
(1)
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 our Amended and Restated 2013 Omnibus Equity Incentive Plan. Prior to 2017,
windfalls tax benefits, net were recorded directly to additional paid in capital.
32
(2)
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.”
33
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 –
Overview – 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, 2019, we had
2,021 investment sales and financing professionals that are primarily exclusive independent contractors operating
in 82 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, 2019, we closed 9,726 investment sales, financing and other transactions with total sales volume
of approximately $49.7 billion. During the year ended December 31, 2018, we closed 9,472 sales, financing and
other transactions with total sales volume of approximately $46.4 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, 2019, approximately 91% of our revenues were generated
from real estate brokerage commissions, 8% from financing fees and 1% from other revenues, including
consulting and advisory services.
During 2019, we acquired one business that was accounted for as a business combination and the results
have been included in our consolidated financial statements beginning on the acquisition date. This acquisition
expanded our network of real estate sales professionals and provided further diversification to our real estate
brokerage 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 that 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
investor 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, including
global trade, interest rate changes and job creation, can affect investor sentiment and, ultimately, the demand for
our services from investors in real estate.
34
The U.S. economy maintained moderate, but steady growth in the fourth quarter of 2019. It appears the low
inflation, low unemployment climate has granted the Federal Reserve policy latitude, allowing them to maintain
low interest rates. Steady job creation, averaging 176,000 (based on data from the Bureau of Labor Statistics)
positions per month last year, and moderate wage growth may sustain above-average household formation and
consumption levels, contributing to economic growth this year. This momentum may be partially offset by
uncertainty surrounding the upcoming elections, geopolitical tensions in the Middle East and concerns about the
potential contagion risks of the Coronavirus.
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.
Commercial real estate supply and demand remain in alignment, with vacancy rates generally holding
steady at cycle-low levels. The tight labor market and the accelerated pace of household formation continues to
drive strong apartment housing demand, particularly in the workforce housing segments. Real estate sectors
supported by consumption and discretionary spending remain stable, with hotel and self-storage space demand
outpacing historical averages, while retail demand has balanced with the very limited construction levels.
Industrial space demand, which has been more sensitive to risks sparked by the trade war and other international
factors, has tapered in recent months, curtailing space absorption. In conjunction with elevated big-box
construction, industrial vacancy levels have ticked up from the record-low levels set last year. Office space
demand remains stable as positive job creation balances with decreased square footage per employee to keep
vacancy rates flat.
Capital Markets
Credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the
commercial real estate market. Real estate purchases are often financed with debt and, as a result, credit and
liquidity impact transaction activity and prices. Changes in interest rates, as well as steady and protracted
movements of interest rates in one direction, whether increases or decreases, could adversely or positively affect
the operations and income potential of commercial real estate properties, as well as lender and equity
underwriting for real estate investments. These changes influence the demand of investors for commercial real
estate investments.
Market liquidity remains elevated despite lenders’ modest tightening of underwriting standards. The broad
range of capital sources, including the increased multifamily lending available through Fannie Mae and Freddie
Mac, may sustain mainstream lending activity. Capital available for value-add concepts and outlying markets
appears to remain strong, but often includes secondary and mezzanine financing options. The Federal Reserve’s
commitment to keeping rates low, reiterated at their January 2020 meeting, has helped keep the 10-year Treasury
in the 1.6% range, exceptionally low by historical measures. This could offer buyers increased positive leverage,
which could support more aggressive bids on acquisitions, but sellers continue to price assets at a premium,
keeping the bid-ask spread widened. Sales activity continues to fluctuate on a quarter-by-quarter basis.
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.
35
Low interest rates and steady yields have continued to attract investment to real estate through direct
investment as well as a multitude of REITs, equity funds and syndication options. Despite the compelling yield
options and strong fundamentals across most property types, buyers remain cautious about the economic outlook
and risks that may emerge during their target hold period. In many cases, investors are underwriting to a more
conservative long-term outlook. Sellers, however, have been slow to reduce asking prices, and a transactional
hurdle has emerged. The gap in pricing expectations is expected to remain a modest but steady headwind,
extending asset marketing and closing timelines.
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
36
mix of the number and volume of investment sales 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 our 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 we are 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.
37
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.
Results of Operations
Following is a discussion of our results of operations for the years ended December 31, 2019, 2018 and
2017. 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
38
ended December 31, 2019, 2018 and 2017, we closed more than 9,700, 9,400 and 8,900 investment sales,
financing and other transactions, respectively, with total sales volume of approximately $49.7 billion,
$46.4 billion and $42.2 billion, respectively. Such key metrics for real estate brokerage and financing activities
(excluding other transactions) are as follows:
Years Ended
December 31,
2019
2018
2017
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,843
3.82
$103,572
1,726
4.10
$105,574
1,649
3.98
$98,963
$
1.98%
5,234
7,042
$ 36,858
$
2.07%
5,095
7,079
$ 36,070
2.13%
$ 4,644
6,562
$30,475
Years Ended
December 31,
2019
2018
2017
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
19.06
$ 32,680
100
16.78
$ 33,176
95
17.97
$28,960
0.88%
3,693
1,944
7,180
$
$
0.89%
3,716
1,678
6,236
0.88%
$ 3,299
1,707
$ 5,632
$
$
(1) Operating metrics calculated excluding certain financing fees not directly associated to transactions.
39
Comparison of Years Ended December 31, 2019 and 2018
Below are key operating results for the year ended December 31, 2019 compared to the results for the year
ended December 31, 2018 (dollars in thousands):
Year
Ended
December 31,
2019
Percentage
of
Revenue
Year
Ended
December 31,
2018
Percentage
of
Revenue
Change
Dollar
Percentage
Revenues:
Real estate brokerage
commissions . . . . . . . . . . . . .
Financing fees . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . .
$729,356
66,293
10,779
90.4% $747,355
57,817
8.2
9,644
1.4
91.7% $(17,999)
8,476
7.1
1,135
1.2
(2.4)%
14.7
11.8
Total revenues . . . . . . . . . . . . . . . . . .
806,428
100.0
814,816
100.0
(8,388)
(1.0)
Operating expenses:
Cost of services . . . . . . . . . . . . .
Selling, general and
498,878
administrative expense . . . . .
203,110
Depreciation and amortization
expense . . . . . . . . . . . . . . . . .
8,017
Total operating expenses . . . . . . . . .
710,005
Operating income . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
96,423
12,477
(1,388)
Income before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . .
107,512
30,582
61.9
25.1
1.0
88.0
12.0
1.5
(0.2)
13.3
3.8
502,883
193,349
6,297
702,529
112,287
6,333
(1,400)
117,220
29,963
61.7
23.7
0.8
86.2
13.8
0.8
(0.2)
14.4
3.7
(4,005)
(0.8)
9,761
5.0
1,720
7,476
(15,864)
6,144
12
27.3
1.1
(14.1)
97.0
(0.9)
(9,708)
619
(8.3)
2.1
Net income . . . . . . . . . . . . . . . . . . . .
$ 76,930
9.5% $ 87,257
10.7% $(10,327)
(11.8)%
Adjusted EBITDA(1) . . . . . . . . . . . . .
$115,551
14.3% $129,457
15.9% $(13,906)
(10.7)%
(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 $806.4 million in 2019 compared to $814.8 million in 2018, a decrease of
$8.4 million, or 1.0%. Total revenues decreased as a result of decreased real estate brokerage commissions,
partially offset by increases in financing fees and other revenues, as described below.
Real estate brokerage commissions. Revenues from real estate brokerage commissions decreased to
$729.4 million in 2019 from $747.4 million in 2018, a decrease of $18.0 million, or 2.4%. The decrease was
primarily driven by the decrease in the average commission rate to 1.98% in 2019 compared to 2.07% in 2018
despite the 2.2% increase in total investment sales volume in 2019 compared to 2018. The 9 basis point decrease
in average commission rate was the result of the 2.7% increase in the average transaction size. Commission rates
for larger investment sales are generally lower than commission rates for smaller sales.
40
Financing fees. Revenues from financing fees increased to $66.3 million in 2019 from $57.8 million in
2018, an increase of $8.5 million, or 14.7%. The increase was in part spurred by growth from acquisitions during
2018 and was primarily driven by a 15.1% increase in financing volume. The increase in financing volume was
in part due to an increase in refinancing activity resulting from a reduction in interest rates. The average fee rate
for 2019 was comparable to the average fee rate for 2018. Financing volume was primarily impacted by the
15.9% increase in the number of financing transactions as there was little change in the average transaction size.
Other revenues. Other revenues increased to $10.8 million in 2019 from $9.6 million in 2018, an increase of
$1.1 million or 11.8%. The increase was primarily driven by increases in consulting and advisory services during
2019 compared to the same period in 2018.
Total operating expenses
Our total operating expenses were $710.0 million in 2019 compared to $702.5 million in 2018, an increase
of $7.5 million, or 1.1%. The increase was primarily due to increases in selling, general and administrative costs
and to a lesser extent depreciation and amortization, partially offset by a decrease in costs of services, which are
primarily variable commissions paid to our investment sales professionals and compensation related costs in
connection with our financing activities, as described below.
Cost of services. Cost of services in 2019 decreased $4.0 million, or 0.8%, to $498.9 million from
$502.9 million in 2018. The decrease was primarily due to decreased commission expenses driven by the related
decreased total revenues noted above. Cost of services as a percent of total revenues slightly increased to 61.9%
for 2019 compared to 61.7% for 2018 primarily due to mix in brokerage compensation.
Selling, general and administrative expense. Selling, general and administrative expense in 2019 increased
$9.8 million, or 5.0%, to $203.1 million from $193.3 million in 2018. 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 $7.2 million increase in sales operations support and promotional
marketing expenses; (ii) a $3.2 million increase in facilities expenses due to expansion of offices; (iii) a
$3.1 million increase in net other expense categories, primarily driven by an increase in certain licensing fees;
and (iv) a $0.1 million increase in compensation related costs, primarily driven by increases in salaries and
related benefits and deferred compensation obligations, partially offset by the reduction in management
compensation. These increases were partially offset by a $2.7 million decrease in stock-based compensation
primarily driven by the restricted stock units, which were granted in connection with our initial public offering,
vesting in full in January 2019, and a $1.1 million decrease in legal costs.
Depreciation and amortization expense. Depreciation and amortization expense increased to $8.0 million in
2019 from $6.3 million in 2018, an increase of $1.7 million, or 27.3%. The increase was primarily driven by
amortization of intangible assets, capital expenditures due to our expansion and growth and MSRs.
Other income (expense), net
Other income (expense), net increased to $12.5 million in 2019 from $6.3 million in 2018, an increase of
$6.1 million, or 97.0%. The increase was primarily driven by increases in interest income on our investments in
marketable securities, available-for-sale, an increase in the value of our deferred compensation plan assets and
foreign currency gains (losses).
Interest expense
There were no significant changes in interest expenses in 2019 as compared to 2018.
41
Provision for income taxes
The provision for income taxes was $30.6 million for 2019 compared to $30.0 million in 2018, an increase
of $0.6 million, or 2.1%. The effective tax rate for 2019 was 28.4%, compared with 25.6% in 2018. The increase
in the effective tax rate was primarily due to reduced windfall tax benefits recognized in 2019 compared to
$1.5 million recognized in 2018 primarily as a result of no deferred stock units settling in 2019, an increase in
our consolidated state tax rate and an increase in the valuation allowance with respect to our Canadian
operations.
Comparison of Years Ended December 31, 2018 and 2017
A discussion regarding our results of operations for the year ended December 31, 2018 compared to the
results for the year ended December 31, 2017 can be found under Item 7 – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Results of Operations” in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 1, 2019, which is available
on the SEC’s website at www.sec.gov and the Investor Relations section of our website at
www.MarcusMillichap.com.
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, stock-based compensation and other non-cash
items, 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, and (vi) non-cash MSR 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 to be 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:
Years Ended December 31,
2019
2018
2017
2016
2015
$ 76,930
$ 87,257
$ 51,524
$ 64,657
$ 66,350
Interest income and other(1)
. . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Provision for income taxes(2)
Depreciation and amortization . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
Non-cash MSR activity(3) . . . . . . . . . . . . . .
(10,322)
1,388
30,582
8,017
9,278
(322)
(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
—
Adjusted EBITDA(4) . . . . . . . . . . . . . . . . . . . . . .
$115,551
$129,457
$111,716
$118,296
$124,140
42
(1) Other includes net realized gains (losses) on marketable securities available-for-sale.
(2)
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 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 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 our 2013 Plan.
(3) Non-cash MSR activity includes the assumption of servicing obligations.
(4)
The decrease in Adjusted EBITDA for the year ended December 31, 2019 compared to the same period in
2018 is primarily due to lower total revenues and a higher proportion of operating expenses compared to
total 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 Flows
Our total cash and cash equivalents balance increased by $18.0 million to $232.7 million at December 31,
2019, compared to $214.7 million at December 31, 2018. The following table sets forth our summary cash flows
for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Years Ended December 31,
2019
2018
2017
Net cash provided by operating activities . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . .
$ 25,287
(3,422)
(3,878)
$ 117,314
(117,980)
(5,437)
$ 66,537
(27,338)
(5,784)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . .
17,987
214,683
(6,103)
220,786
33,415
187,371
Cash and cash equivalents at end of year . . . . . . . . . . .
$232,670
$ 214,683
$220,786
Operating Activities
2019 Compared to 2018. Cash flows provided by operating activities were $25.3 million in 2019 compared
to cash flows provided by operating activities of $117.3 million in 2018. 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 $92.0 million decrease in operating cash flows for 2019 compared to 2018 was primarily due to a decrease in
our real estate brokerage revenue and a higher proportion of operating expenses compared to total revenues,
differences in timing of certain payments and receipts, an increase in advances to our investment sales and
financing professionals, an increase in bonus payments in 2019 related to bonuses earned based on 2018
performance, and a reduction in the discretionary deferral of certain commissions.
43
Investing Activities
2019 Compared to 2018. Cash flows used in investing activities were $3.4 million for 2019 compared to
cash flows used in investing activities of $118.0 million for the same period in 2018. The $114.6 million
decreased usage in cash for investing activities in 2019 compared to 2018 was primarily due to $11.6 million in
net proceeds from sales and maturities of marketable securities, available-for-sale for 2019 compared to
$94.5 million in net purchases of marketable securities, available-for-sale for 2018 and an additional net
$8.8 million of outflow for acquisitions in 2018 over acquisition activity in 2019. See Note 6 – “Acquisitions,
Goodwill and Other Intangible Assets” of our Notes to Consolidated Financial Statements for additional
information.
Financing Activities
2019 Compared to 2018. Cash flows used in financing activities were $3.9 million for 2019 compared to
$5.4 million for the same period in 2018. The change in cash flows used in financing activities for 2019
compared to 2018 was primarily impacted by taxes paid related to net share settlement of stock-based awards and
payments for contingent consideration in 2019 with no such comparable outflow for the same period in 2019. See
Note 12 – “Stock-Based Compensation Plans” of 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 agreements have provisions, which could accelerate repayment of outstanding
principal and accrued interest and adversely impact our liquidity.
Credit Agreement
We have a Credit Agreement with Wells Fargo Bank, National Association for a $60.0 million principal
amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures
on June 1, 2022 (the “Credit Agreement”). See Note 16 – “Commitments and Contingencies” of our Notes to
Consolidated Financial Statements for additional information on the Credit Agreement.
44
Contractual Obligations and Commitments
The contractual obligations and other commitments consisted of the following at December 31, 2019 (in
thousands):
Operating lease liabilities, including imputed
interest(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
Less than
1 Year
1-3 Years
3-5
Years
More
Than 5
Years
Other(8)
$ 89,241
25,880
6,897
34,158
8,241
4,788
2,146
$21,262
2,080
6,897
13,339
1,553
1,238
1,235
$33,889
4,408
—
20,819
2,126
2,163
—
$21,317
2,334
—
—
34
1,142
—
$ —
$12,773
—
17,058
—
—
—
—
— 4,528
—
245
911
—
$171,351
$47,604
$63,405
$24,827
$30,076
$5,439
(1)
(2)
(3)
(4)
See Note 4 – “Operating Leases” 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 3.920% on January 1, 2020 and reflect required payments that result from the retirement of
certain executives. See Note 7 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial
Statements.
See Note 8– “Notes Payable to Former Stockholders” of our Notes to the Consolidated Financial
Statements.
Includes short-term and long-term deferred commissions payable. See Note 7 – “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. We hold assets held in rabbi trust of $9.5 million to settle outstanding amounts when
they become due. Amounts assume no increase in asset or liability due to future returns. See Note 7 –
“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 6 –
“Acquisitions, Goodwill and Other Intangible Assets” and Note 10 – “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 13 – “Income Taxes” and Note 16 – “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, if any.
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.
45
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.
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, our
effective tax rate is subject to changes as a result of fluctuations in the mix of our activity in various jurisdictions
in which we operate including changes in tax rates, state apportionment, tax related interest and penalties,
valuation allowances and other permanent items. Calculating some of the amounts involves a high degree of
judgment.
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.
Leases
We utilize operating leases for all our facilities and autos. We determine if an arrangement is a lease at
inception. Right-of-use assets (“ROU assets”) represent our right to use an underlying asset for the lease term and
lease liabilities represent our contractual obligation to make lease payments under the lease. Operating leases are
included in the operating lease ROU assets, non-current, and operating lease liabilities, current and non-current,
captions in the consolidated balance sheets.
46
Operating lease ROU assets and liabilities are recognized on the commencement date based on the present
value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent,
predetermined fixed increases in the minimum rent and renewal or termination options, all of which add
complexity and impact the determination of the lease term and lease payments to be used in calculating the lease
liability. Certain facility leases provide for rental escalations related to increases in the lessors’ direct operating
expenses. We use the implicit rate in the lease when determinable. As most of our leases do not have a
determinable implicit rate, determining the rate to be used in our calculations is judgmental. We use a derived
incremental borrowing rate based on borrowing options under our credit agreement and apply a spread over
treasury rates for the indicated term of the lease based on the information available on the commencement date of
the lease. We typically lease general purpose built-out office space, which reverts to the lessor upon termination
of the lease. Any payments for completed improvements, determined to be owed by the lessor, net of incentives
received, are recorded as an increase to the ROU asset and considered in the determination of the lease cost.
We have lease agreements with lease and non-lease components, which are accounted for as a single lease
component. Lease cost is recognized on a straight-line basis over the lease term. Variable lease payments consist
of common area costs, insurance, taxes utilities, parking and other lease related costs, which are determined
principally based on billings from landlords.
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, 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 5 – “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.
Calculating an impairment charge requires a high degree of judgment. 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, the financial condition of the issuer and any changes thereto, changes in market interest rates 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.
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 had a material impact on our
consolidated balance sheet as of December 31, 2019 but did not have a material impact on the consolidated
statement of net and comprehensive income for the year ended December 31, 2019. 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 of the new pronouncements may have on our consolidated
financial statements.
47
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, corporate debt, asset backed securities and other. As of December 31, 2019, the
fair value of investments in marketable securities, available-for-sale was $211.6 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 our 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, 2019. 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
as of December 31, 2019 from changes in interest rates based on the weighted average duration of the securities
in our portfolio (in thousands):
Change in Interest Rates
2% Decrease
1% Decrease
1% Increase
2% Increase
Approximate Change in
Fair Value of Investments
Increase (Decrease)
$ 4,320
$ 2,333
$(2,333)
$(4,664)
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
48
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, 2019, 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, 2019. In conducting its
assessment, management used the criteria issued by COSO. Based on this assessment, management concluded
that, as of December 31, 2019, our internal control over financial reporting was effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2019 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, 2019 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
49
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.
50
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 2, 2020 are as follows:
Name
Hessam Nadji
Martin E. Louie
Gregory A. LaBerge
Hessam Nadji
Age
Position(s)
President, Chief Executive Officer and Director
54
58 Chief Financial Officer
49
First Vice President, Chief Administrative Officer
Mr. Nadji has served as President and Chief Executive Officer and as a director of the Company since
March 2016. Mr. Nadji previously served as senior executive vice president and chief strategy officer. He joined
the Company as vice president of research in 1996 and held various other senior management roles through the
years, including chief marketing officer and head of the Company’s specialty brokerage divisions. He played a
leading role in the Company’s initial public offering in 2013. Mr. Nadji received a B.S. in information
management and computer science from City University in Seattle and has over 30 years of experience working
in the real estate industry.
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. As previously
announced, Mr. Louie will be stepping down as Chief Financial Officer to assume a new position within the
Company focusing on corporate initiatives once his successor has been appointed. 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.
Gregory A. LaBerge
Mr. LaBerge has served as First Vice President and Chief Administrative Officer since 2015. Mr. LaBerge
joined Marcus & Millichap in 2005 as an investment broker, became a regional manager in 2008, and was named
national director of our National Hospitality Group in 2012. Prior to that, he worked for 10 years as a
management consultant, five years with Ernst & Young, and for Diamond Technology Partners (now part of
PricewaterhouseCoopers). His expertise was in working with Fortune 500 companies on strategic and operational
initiatives. Mr. LaBerge received his Bachelor of Arts degree in economics from Northwestern University and his
M.B.A. from the Kelley School of Business at Indiana University.
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 5, 2020 (“Proxy
Statement”), which information will appear under the captions entitled “Corporate Governance-Board
Committees and Charters ” and “Other Matters-Delinquent Section 16(a) Reports” in the Proxy Statement.
51
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 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.
• Then 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 5, 2020, which
information will appear under the caption entitled “Compensation Discussion and Analysis” and “Executive
Compensation” 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 5, 2020, 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, 2019.
All outstanding awards relate to our common stock.
Plan Category
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)
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,124,161
(a)
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,124,161
(b)
$—
—
$—
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a))(3) (4)
(c)
5,460,208
—
5,460,208
(1) Consists of deferred stock units (“DSUs”) and restricted stock units (“RSUs”) granted under our Amended
and Restated 2013 Omnibus Equity Incentive Plan (“2013 Plan”). Excludes restricted stock awards granted
under the 2013 Plan, purchase rights granted under our 2013 Employee Stock Purchase Plan (“ESPP”) and
cash settled SARs.
52
(2) Outstanding DSUs and RSUs have no exercise price.
(3)
Includes 5,255,735 shares available for future issuance under the 2013 Plan. Includes 204,473 shares
available for future issuance under the ESPP, including shares subject to purchase during the current
offering period, which commenced on November 15, 2019 (the exact number of which will not be known
until the purchase date on May 15, 2020). 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 5, 2020, which
information will appear under the captions entitled “Corporate Governance-Director Independence” 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 5, 2020, which
information will appear under the caption entitled “Proposal 2: Ratification of Appointment of Independent
Registered Public Accounting Firm for 2020” in the Proxy Statement.
53
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, 2019 and 2018
Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2019,
2018 and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and
2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
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
3.1
3.2
4.1
4.2*
10.1
10.2†
10.3†
Description
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).
Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934.
Transition Services Agreement by and between Marcus & Millichap, Inc. and Marcus & Millichap
Company dated October 31, 2013 (incorporated by reference to Exhibit 10.3 to the registrant’s
quarterly report on Form 10-Q for the quarter ended September 30, 2013 filed on November 22,
2013).
Form of Indemnification Agreement by and between Marcus & Millichap, Inc. and each of its
Officers and Directors (incorporated by reference to Exhibit 10.7 to the registrant’s registration
statement on Form S-1 (No. 333-191316) filed on September 23, 2013).
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).
54
Number
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13
Description
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).
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).
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).
Amended and Restated Credit Agreement, between the Company and Wells Fargo Bank, National
Association dated May 28, 2019 (incorporated by reference to Exhibit 10.1 to the registrant’s
Current Report on Form 8-K filed on June 3, 2019).
10.14*
First Amendment to Amended and Restated Credit Agreement, between the Company and Wells
Fargo Bank, National Association dated November 27, 2019.
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.
55
Number
101*
Description
The following financial statements from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019, formatted in Inline XBRL: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Net and Comprehensive Income, (iii) Consolidated Statements of
Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated
Financial Statements, tagged as blocks of text and including detailed tags.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Indicates management contract or compensatory plan.
†
*
Filed herewith.
** Furnished, not filed.
(c) Financial Statement Schedules
Not applicable.
Item 16. Form 10-K Summary
Not applicable.
56
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 2, 2020
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/ Lauralee E. Martin
Lauralee E. Martin
/ 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 2, 2020
Chief Financial Officer
(Principal Financial Officer)
March 2, 2020
First Vice President of Finance and
Chief Accounting Officer
(Principal Accounting Officer)
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
57
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MARCUS & MILLICHAP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2019, 2018
and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To 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, 2019 and 2018, 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, 2019, 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, 2019
and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2019, 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, 2019,
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 2, 2020 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical matter or on the accounts or disclosures to which
it relates.
F-2
Description of the Matter
Deferred Commissions Payable
At December 31, 2019, the Company’s commissions payable to investment
sales and financing professionals was $61.5 million. As discussed in Note 7 to
the consolidated financial statements, certain investment sales and financing
professionals have the ability to earn additional commissions after meeting
certain annual revenue thresholds. All 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. These payments are referred
to as deferred commissions.
Auditing the Company’s deferred commissions was complex with regard to
evaluating the completeness of the population of investment sales and financing
professionals eligible for deferred commissions and the accuracy of the
investment sales and financing professionals’ revenue thresholds used in
determining deferred commissions earned.
How We Addressed the
Matter in Our Audit
We evaluated the design and tested the operating effectiveness of the
Company’s internal controls over the deferred commissions process. For
example, we tested controls over the completeness and accuracy of the data used
in calculating the deferred commissions, including approvals.
To test the deferred commissions payable, we performed audit procedures that
included, among others, performing a predictive test in which we evaluated the
completeness of the deferred commissions schedule based on investment sales
and financing professionals’ sales performance. Additionally, we performed
procedures to obtain evidence of eligibility approval and performed a hindsight
analysis to evaluate the amount of cash disbursed to the amount of deferred
commissions payable previously accrued.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Los Angeles, California
March 2, 2020
F-3
Report of Independent Registered Public Accounting Firm
To 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, 2019, 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, 2019, 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, 2019 and 2018,
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, 2019, and the related notes and our report dated
March 2, 2020 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 2, 2020
F-4
MARCUS & MILLICHAP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for shares and par value)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, available–for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held in rabbi trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable to former stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses and other employee related expenses . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable to former stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
Preferred stock, $0.0001 par value:
December 31,
2019
2018
$232,670
5,003
10,676
4,999
150,752
6,067
410,167
—
22,643
90,535
60,809
9,452
22,122
22,312
70,994
$709,034
$ 10,790
6,564
44,301
—
17,762
22,388
101,805
45,628
—
63,155
3,539
214,127
—
$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
$566,380
$ 11,035
1,087
47,910
4,486
—
28,338
92,856
49,887
6,564
—
7,499
156,806
—
Authorized shares – 25,000,000; issued and outstanding shares – none at
December 31, 2019 and 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock, $0.0001 par value:
Authorized shares – 150,000,000; issued and outstanding shares – 39,153,195
and 38,814,464 at December 31, 2019 and 2018, respectively . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock notes receivable from employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
104,658
(4)
388,271
1,978
494,907
$709,034
4
97,458
(4)
311,341
775
409,574
$566,380
See accompanying notes to consolidated financial statements.
F-5
MARCUS & MILLICHAP, INC.
CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Years Ended December 31,
2018
2017
2019
Revenues:
Real estate brokerage commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$729,356
66,293
10,779
$747,355
57,817
9,644
$649,393
49,653
20,654
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
806,428
814,816
719,700
Operating expenses:
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
498,878
203,110
8,017
502,883
193,349
6,297
446,557
171,648
5,363
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
710,005
702,529
623,568
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,423
12,477
(1,388)
Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107,512
30,582
112,287
6,333
(1,400)
117,220
29,963
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,930
87,257
Other comprehensive income (loss):
Marketable securities, available-for-sale:
Change in unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reclassification adjustment for net (gains) losses included in
1,822
(536)
other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(43)
7
Net change, net of tax of $611, $(177) and $139 for the years ended
December 31, 2019, 2018 and 2017, respectively . . . . . . . . . . . . . . . . .
1,779
(529)
Foreign currency translation (loss) gain, net of tax of $0 for each of the
years ended December 31, 2019, 2018 and 2017, respectively . . . . . . .
Total other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(576)
1,203
377
(152)
96,132
4,590
(1,496)
99,226
47,702
51,524
193
—
193
(63)
130
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,133
$ 87,105
$ 51,654
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.95
1.95
$
$
2.23
2.22
$
$
1.32
1.32
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,404
39,548
39,149
39,383
38,988
39,100
See accompanying notes to consolidated financial statements.
F-6
MARCUS & MILLICHAP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for shares)
Series A
Redeemable
Preferred Stock
Shares Amount
Common Stock Additional
Paid-In
Shares Amount
Capital
Stock Notes
Receivable
From
Employees
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance as of December 31, 2016 . . . . . . . . . . . . . . —
$— 37,882,266
$
4
$ 85,445
$ (4)
$172,599
$ 810
$258,854
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
—
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)
(52)
172,547
51,524
—
—
—
—
—
—
—
810
130
—
—
—
—
—
—
33
258,887
51,654
9,145
653
—
—
—
(5,451)
(4)
—
—
—
—
—
—
—
Balance as of December 31, 2017 . . . . . . . . . . . . . . —
— 38,374,011
4
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 (loss) . . . . . . . —
— 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)
Balance as of December 31, 2018 . . . . . . . . . . . . . . —
Net and comprehensive income . . . . . . . . . . . . —
— 38,814,464
—
—
4
—
97,458
—
Stock-based award activity:
Stock-based compensation . . . . . . . . . . . . . . . —
Issuance of common stock pursuant to
employee stock purchase plan . . . . . . . . . . . —
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 . . . . . . . . . . . . . . . . . —
—
—
—
—
—
—
—
9,278
21,421 —
378,194 —
12,806 —
657
—
—
(73,690) —
(2,735)
—
(4)
—
—
—
—
—
—
—
(4)
—
—
—
—
—
—
13
224,084
87,257
(13)
927
(152)
—
—
—
—
—
—
—
—
—
—
—
—
311,341
76,930
775
1,203
—
—
—
—
—
—
—
—
—
—
—
314,888
87,105
11,983
621
—
—
—
(5,023)
409,574
78,133
9,278
657
—
—
(2,735)
Balance as of December 31, 2019 . . . . . . . . . . . . . . —
$— 39,153,195
$
4
$104,658
$ (4)
$388,271
$1,978
$494,907
See accompanying notes to consolidated financial statements.
F-7
MARCUS & MILLICHAP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2018
2019
2017
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains on marketable securities, available-for-sale . . . . . . .
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 . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 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 . . . . . . . . .
Principal payments on notes payable to former stockholders . . . . . . . . . . . . .
Principal payments on stock appreciation rights liability . . . . . . . . . . . . . . . .
Payments of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,930
$ 87,257
$ 51,524
8,017
21,207
114
9,278
226
(87)
(176)
(55)
(2,740)
—
—
(45,176)
(486)
(9,485)
(5,889)
(8,975)
(17,102)
(314)
25,287
6,297
—
291
11,983
(142)
(10)
(194)
4,783
1,757
1,500
—
(7,247)
226
5,794
4,676
(438)
—
781
117,314
5,363
—
219
9,145
12,825
(2)
108
(4,777)
(1,567)
(2,107)
(700)
(13,665)
(572)
(126)
1,782
8,427
—
660
66,537
(6,083)
(168,083)
(14,926)
(208,460)
—
(65,093)
179,693
42
(200)
(8,812)
21
(3,422)
113,911
18
(451)
(8,072)
—
(117,980)
44,753
27
(481)
(6,554)
10
(27,338)
657
(2,735)
(1,087)
(185)
(528)
(3,878)
17,987
214,683
$ 232,670
621
(5,023)
(1,035)
—
—
(5,437)
(6,103)
220,786
$ 214,683
653
(5,451)
(986)
—
—
(5,784)
33,415
187,371
$220,786
Supplemental disclosures of cash flow information
Interest paid during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,107
$
2,195
$
1,912
Income taxes paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,841
$ 24,311
$ 35,002
See accompanying notes to consolidated financial statements.
F-8
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, 2019, MMI operates 82 offices in the United States and Canada through its wholly-owned
subsidiaries, including the operations of Marcus & Millichap Capital Corporation.
Reorganization and Initial Public Offering
MMI was formed in June 2013 in preparation for Marcus & Millichap Company (“MMC”) to spin-off its
majority owned subsidiary, Marcus & Millichap Real Estate Investment Services, Inc. (“MMREIS”). Prior to the
initial public offering (“IPO”) of MMI, all of the preferred and common stockholders of MMREIS (including
MMC and employees of MMREIS) contributed all of their outstanding shares to MMI, in exchange for new
MMI common stock. As a result, MMREIS became a wholly-owned subsidiary of MMI. Thereafter, MMC
distributed 80.0% of the shares of MMI common stock to MMC’s shareholders and exchanged the remaining
portion of its shares of MMI common stock for cancellation of indebtedness of MMC. MMI completed its IPO
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 13 – “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, 2019 and 2018, portions of the balance of
cash and cash equivalents were held in financial institutions, various money market funds with fixed and floating
net asset values and short-term commercial paper. Money market funds have floating net asset values and may be
subject to gating or liquidity fees. 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
financing on purchase transactions, from refinancing its clients’ existing mortgage debt and other financing
F-9
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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. 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 7 – “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.
The Company measures MSRs at fair value on a nonrecurring basis. MSRs are a Level 3 measurement. The
Company’s MSRs do not trade in an active, open market with readily observable prices. The estimated fair value
of the Company’s MSRs were developed using a discounted cash flow model that calculates the present value of
estimated future net servicing income. The model considers contractual provisions and assumptions of market
participants including specified servicing fees, prepayment assumptions, delinquency rates, late charges, other
ancillary revenue, costs to service and other economic factors. 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.
In connection with MSR activities, the Company holds funds in escrow for the benefit of the lenders. These
funds and the offsetting obligations are not presented in the Company’s consolidated financial statements as they
do not represent assets and liabilities of the Company.
The Company recognizes 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 Software
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.
F-10
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Commissions Receivable
Commissions receivable consists of commissions earned on brokerage and financing transactions for which
payment has not yet been received. The Company evaluates the need for an allowance for doubtful accounts
based on the specific-identification of potentially uncollectible accounts. The majority of commissions receivable
are settled within 10 days after the close of escrow. As a result, the Company did not require an allowance for
commissions receivable at December 31, 2019 and 2018.
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, asset-backed securities (“ABS”)
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 5 – “Investments in Marketable Securities”
for additional information.
The Company regularly reviews its investment portfolio to determine if any security is other-than-
temporarily impaired, which would require the Company to record an impairment charge in the period that any
such determination is made. Calculating an impairment charge requires a high degree of judgment. 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 supporting the deferred
obligation 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.
F-11
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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
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: Unobservable 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. Management estimates
include certain pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
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, deferred compensation liability 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 Level 1 or 2 measurements as appropriate.
Fair values for assets held in the rabbi trust and related deferred compensation liability were determined
based on the cash surrender value of the company owned variable life insurance policies and underlying
investments in the trust, and are Level 2 and Level 1 measurements, respectively.
Contingent consideration in connection with acquisitions, is carried at fair value and determined on a
contract-by-contract basis, calculated using a probability weighted discounted cash flow model based on the
probability of achieving EBITDA and other performance and service requirements (refer to Note 10 – “Fair
Value Measurements”), and is a Level 3 measurement. The Company has experienced little volatility in the
unobservable inputs used during the periods presented. Additionally, the Company does not expect to see much
volatility in the unobservable inputs for the foreseeable future.
Nonrecurring Fair Value Measurements
In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a
nonrecurring basis. The Company reviews the carrying value of MSRs, intangibles, goodwill and other assets for
F-12
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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, which are
appropriate under 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) bear 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
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.
F-13
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Leases
The Company utilizes operating leases for all its facilities and autos. The Company determines if an
arrangement is a lease at inception. Right-of-use assets (“ROU assets”) represent the Company’s right to use an
underlying asset for the lease term and lease liabilities represent the Company’s contractual obligation to make
lease payments under the lease. Operating leases are included in operating lease ROU assets, non-current, and
operating lease liabilities current and non-current captions in the consolidated balance sheets.
Operating lease ROU assets and liabilities are recognized on the commencement date based on the present
value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent,
predetermined fixed increases in the minimum rent and renewal or termination options, all of which add
complexity and impact the determination of the lease term and lease payments to be used in calculating the lease
liability. Certain facility leases provide for rental escalations related to increases in the lessors’ direct operating
expenses. The Company uses the implicit rate in the lease when determinable. As most of the Company’s leases
do not have a determinable implicit rate, determining the rate to be used in its calculations is judgmental. The
Company uses a derived incremental borrowing rate based on borrowing options under its credit agreement and
applies a spread over treasury rates for the indicated term of the lease based on the information available on the
commencement date of the lease. The Company typically leases general purpose built-out office space, which
reverts to the lessor upon termination of the lease. Any payments for completed improvements, determined to be
owed by the lessor, net of incentives received, are recorded as an increase to the ROU asset and considered in the
determination of the lease cost.
The Company has lease agreements with lease and non-lease components, which are accounted for as a
single lease component. Lease cost is recognized on a straight-line basis over the lease term. Variable lease
payments consist of common area costs, insurance, taxes, utilities, parking and other lease related costs, which
are determined principally based on billings from landlords.
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, 2019, 2018 and 2017 were $889,000, $1.1 million and
$824,000, 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-14
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. Calculating
some of the amounts involves a high degree of judgment.
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”).
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 accounts for forfeitures prospectively as they
occur. The Company adopted Accounting Standards Update (“ASU”) No. 2018-7, Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting awards (“ASU
2018-7”) on July 1, 2018. 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. Subsequent to the adoption of ASU 2018-7, awards made to independent
F-15
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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 over the remaining
performance period based on the adoption date stock price, with no further remeasurement through the
performance completion date.
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 (“DSUs”).
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
realized 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.
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.
F-16
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk principally
consist of cash and cash equivalents, investments in marketable 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 recorded as cash and cash equivalents. The Company historically has not
experienced any significant losses related to cash and cash equivalents.
The Company derives its revenues from a broad range of real estate investors, owners, and users in the
United States and Canada, none of which individually represents a significant concentration of credit risk. The
Company maintains allowances, as needed, for estimated credit losses based on management’s assessment of the
likelihood of collection. For the years ended December 31, 2019, 2018 and 2017, 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 years ended December 31, 2019, 2018 and 2017, the Company’s Canadian operations
represented less than 1% of total revenues.
During the years ended December 31, 2019, 2018 and 2017, 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. The excess of the consideration over the assets acquired net of liabilities assumed is
recognized as goodwill. In connection with certain acquisitions, the Company enters into agreements to pay
additional cash amounts based on the achievement of certain performance measures and/or service and time
requirements. Subsequent to the completion of the acquisition, the Company evaluates the fair value of
contingent consideration quarterly based on estimates of the probability of achieving certain financial metrics
and/or service and time requirements. Adjustments to contingent consideration in periods subsequent to the
completion of an acquisition are reflected in selling, general and administrative expense in the consolidated
statements of net and comprehensive income.
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. 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-17
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, customer relationships and
contracts in progress 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 its 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases, to
increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and
disclosing key information about leasing arrangements. The Company adopted the new standard effective
January 1, 2019 using the modified retrospective transition method, which resulted in the recognition of ROU
assets and lease liabilities for operating leases. 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. ROU assets and operating lease obligations in connection with adoption of the new
lease standard were $76.7 million. On the adoption date, the Company reclassified deferred rent in the amount of
$5.6 million (the noncurrent portion was included in deferred rent and other liabilities, and the current portion
was included in accounts payable and other liabilities in the accompanying consolidated balance sheets) and
prepaid rent in the amount of $13.4 million to ROU assets. The Company also reclassified prepaid rent in the
amount of $462,000 to other assets, current.
The adoption of the new standard had a material impact on the Company’s consolidated balance sheet, but
did not have a material impact on the Company’s consolidated statement of net and comprehensive income.
The Company elected 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 made an accounting policy election to account for lease and non-lease components as a single
lease component.
F-18
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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”). The
Company adopted the new standard effective January 1, 2019. ASU 2017-08 shortens the amortization period of
a callable security that was acquired at a premium to the earliest call date of that security instead of the
contractual life of the security. The adoption of ASU 2017-08 did not have a material effect on the Company’s
consolidated financial statements.
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 would have been effective on January 1, 2020. The Company elected to early
adopt ASU 2018-13 during the fourth quarter of 2019. 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 for recurring and nonrecurring fair value measurements, such as disclosing the range and
weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Other than
changing certain disclosures, ASU 2018-13 had no impact on the Company’s consolidated financial statements.
Pending Adoption
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 on 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 impairment losses. The Company is
currently evaluating the impact of this new standard on its investment policy and impairment model for
marketable securities, available-for-sale and other financial assets, and due to the average credit rating of its
marketable securities, and nature and type of the available-for-sale and other financial assets it holds, the
Company does not expect ASU 2016-13 to have a material impact on its consolidated financial statements at
adoption or in subsequent periods.
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
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal use software license), by permitting a customer in a
cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the
arrangement was an internal-use software project. The Company does not expect ASU 2018-15 to have a
material effect on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is effective for reporting periods beginning after
December 15, 2020 and early adoption is permitted. For the Company, the new standard will be effective on
January 1, 2021. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions
F-19
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
including the methodology for calculating income taxes in an interim period and the recognition of deferred tax
liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for
income taxes such as step-up in tax basis for goodwill and interim recognition of enactment of tax laws or rate
changes. The Company is currently evaluating the impact of this new standard and does not expect ASU 2019-12
to have a material effect on its consolidated financial statements.
3.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Computer software and hardware equipment . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . .
$ 25,252
23,468
(26,077)
$ 20,427
24,227
(25,104)
$ 22,643
$ 19,550
December 31,
2019
2018
During the years ended December 31, 2019 and 2018, the Company wrote-off approximately $5.0 million
and $1.4 million, respectively, of fully depreciated computer software and hardware equipment and furniture,
fixtures and equipment.
As of December 31, 2019 and 2018, noncash investing activity related to property and equipment additions
incurred but not yet paid included in accounts payable and other liabilities were $619,000 and $246,000,
respectively.
4. Operating Leases
The Company has operating leases for all of its facilities and autos. As of December 31, 2019, operating
lease ROU assets were $111.1 million and the related accumulated amortization was $20.6 million.
The operating lease cost, included in selling, general and administrative expense in the consolidated
statement of net and comprehensive income, consisted of the following (in thousands):
Operating lease cost:
Lease cost(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Variable lease cost(2)
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31, 2019
$24,372
5,305
(305)
$29,372
(1)
(2)
Includes short-term lease cost and ROU asset amortization.
Primarily relates to common area maintenance, property taxes, insurance, utilities and parking.
F-20
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Maturities of lease liabilities consisted of the following (in thousands):
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest
Year Ended
December 31,
$21,262
19,002
14,887
11,657
9,660
12,773
89,241
(8,324)
Present value of operating lease liabilities . . . . . . . . . . . . .
$80,917
Supplemental cash flow information and noncash activity related to the operating leases consisted of the
following (in thousands):
Year Ended
December 31, 2019
Operating cash flow information:
Cash paid for amounts included in the
measurement of operating lease liabilities . . .
$20,266
Noncash activity:
ROU assets obtained in exchange for operating
lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant improvements owned by lessor related to
ROU assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,548
$ 5,952
(1) Reclassification from other assets current.
Additional noncash activity in connection with the adoption of the new lease standard on January 1, 2019
included recording of $76.7 million of ROU assets and operating lease liabilities, and reclassifying $7.8 million
in prepaid rent and deferred rent to ROU assets.
Other information related to the operating leases consisted of the following:
Weighted average remaining operating lease term . . .
Weighted average discount rate . . . . . . . . . . . . . . . . .
5.04 years
3.8%
December 31, 2019
As of the December 31, 2018, prior to the adoption of the new leases standard, deferred rent totaled
$5.6 million. The noncurrent portion is included in deferred rent and other liabilities and the current portion is
included in accounts payable and other liabilities in the accompanying consolidated balance sheet as of
December 31, 2018. Rental expense was $27.7 million and $25.6 million for the years ended December 31, 2018
and 2017, respectively, and is included in selling, general and administrative expense in the accompanying
consolidated statements of net and comprehensive income.
F-21
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
5.
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, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Short-term investments:
U.S. treasuries . . . . . . . . . . $124,389 $ 196
U.S. government sponsored
entities . . . . . . . . . . . . . .
Corporate debt . . . . . . . . . .
ABS and other . . . . . . . . . .
—
26,128
—
—
44
—
$
(5) $124,580 $121,252
$
7
$ (79) $121,180
—
—
—
—
26,172
—
3,512 —
11,962 —
806 —
(7)
(11)
(6)
3,505
11,951
800
Long-term investments:
$150,517 $ 240
$
(5) $150,752 $137,532
$
7
$(103) $137,436
U.S. treasuries . . . . . . . . . . $ 24,188 $ 235
U.S. government sponsored
entities . . . . . . . . . . . . . .
Corporate debt . . . . . . . . . .
ABS and other . . . . . . . . . .
1,353
25,447
8,480
3
1,027
93
$ — $ 24,423 $ 44,997
$128
$(115) $ 45,010
(1)
(3)
(13)
1,355
26,471
8,560
1,569 —
32,467
4,889
3
12
(62)
(633)
(46)
1,507
31,837
4,855
$ 59,468 $1,358
$
(17) $ 60,809 $ 83,922
$143
$(856) $ 83,209
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 . . . . . . . . . . . . . . . . . . . . . . . . .
12 months or longer . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019
December 31, 2018
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair Value
$(21)
$ (1)
$47,823
$(576)
$127,326
$
566
$(383)
$ 30,609
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2019
2018
2017
$
$
134
(47)
$
$
12
$
2
(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, 2019, the Company considered the declines in market value of its marketable securities,
available-for-sale to be temporary in nature and does not consider any of its investments other-than-temporarily
impaired. The Company has no current intent to sell and it is not more likely than not that the Company will be
F-22
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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, except weighted average data):
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, 2019
December 31, 2018
Amortized
Cost
$150,517
41,123
12,813
5,532
Fair Value
$150,752
41,794
13,467
5,548
Amortized
Cost
$137,532
61,875
17,310
4,737
Fair Value
$137,436
61,846
16,747
4,616
$209,985
$211,561
$221,454
$220,645
Weighted average contractual maturity . . . . . . . . .
1.7 years
1.8 years
Actual maturities may differ from contractual maturities because certain issuers have the right to prepay
certain obligations with or without prepayment penalties.
6. Acquisitions, Goodwill and Other Intangible Assets
During 2019, the Company expanded its network of its real estate sales professionals and provided further
diversification to its real estate brokerage services.
In the fourth quarter, the Company completed an acquisition of one business that was accounted for as a
business combination and the results have been included in the consolidated financial statements beginning on
the acquisition date. The acquisition included aggregate consideration of $8.5 million and included: (i) cash paid
at closing and (ii) the fair value of contingent consideration and deferred payments using a probability-weighted,
discounted cash flow estimate on achieving certain financial metrics 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. See Note 10 – “Fair Value Measurements”
for additional information on contingent consideration.
The goodwill recorded as part of the acquisition primarily arose from the acquired assembled workforce and
commercial sales 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 the acquisition is allocated
to the Company’s one reporting unit.
F-23
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Goodwill and intangible assets, net consisted of the following (in thousands):
December 31, 2019
December 31, 2018
Goodwill and intangible assets:
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Goodwill(1)
Intangible assets(1)(2)
. . . . . . . . . . . . . . $15,072 $
. . . . . . .
9,050
—
(1,810)
$15,072
7,240
$24,122 $
(1,810)
$22,312
Gross
Carrying
Amount
$11,459
4,240
$15,699
Accumulated
Amortization
Net Book
Value
$ —
(314)
$ 11,459
3,926
$
(314)
$ 15,385
(1) Represents additions from acquisitions.
(2)
Total weighted average amortization period was 4.37 years and 5.14 years as of December 31, 2019 and
2018, respectively.
The changes in the carrying amount of goodwill consisted of the following (in thousands):
Years Ended December 31,
2019
2018
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisitions . . . . . . . . . . . . . . . . . . . . . . .
Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,459
3,613
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,072
$ —
11,459
—
$11,459
Estimated amortization expense for intangible assets for the next five years and thereafter consisted of the
following (in thousands):
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
$2,493
1,623
1,245
1,242
637
$7,240
F-24
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
7.
Selected Balance Sheet Data
Other Assets
Other assets consisted of the following (in thousands):
Current
December 31,
Non-Current
December 31,
2019
2018
2019
2018
MSRs, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Due from independent contractors, net(1)(2) . . . . . . . . . . . . .
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee notes receivable(3) . . . . . . . . . . . . . . . . . . . . . . . .
Customer trust accounts and other . . . . . . . . . . . . . . . . . . .
$ —
2,882
—
65
3,120
$ —
3,831
—
156
2,381
$ 2,002
66,647
1,345
323
677
$ 2,209
27,157
1,196
370
846
$6,067
$6,368
$70,994
$31,778
(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 five years.
Includes allowance for doubtful accounts related to current receivables of $512 and $514 as of
December 31, 2019 and 2018, respectively. The Company recorded a provision for bad debt expense of
$114, $291 and $219 and wrote off $116, $271 and $38 of these receivables for the years ended
December 31, 2019, 2018 and 2017, respectively. Any cash receipts on notes are applied first to unpaid
principal balance prior to any income being recognized.
(3) Reduction of accrued bonuses and other employee related expenses in settlement of employee notes
receivable represents noncash investing activity and was $60 and $192 for the years ended December 31,
2019 and 2018, respectively. See Note 9 – “Related-Party Transactions” for additional information.
MSRs
The net change in the carrying value of MSRs consisted of the following (in thousands):
December 31,
2019
2018
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,209
—
337
(544)
$ —
2,121
391
(303)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,002
$2,209
The portfolio of loans serviced by the Company aggregated $1.6 billion as of December 31, 2019 and 2018.
See Note 10 – “Fair Value Measurements” for additional information on MSRs.
The funds held in escrow for the benefit of the lenders totaled $2.6 million and $2.1 million as of
December 31, 2019 and December 31, 2018, respectively.
F-25
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Deferred Compensation and Commissions
Deferred compensation and commissions consisted of the following (in thousands):
SARs liability(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions payable to investment sales and financing
professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability(1) . . . . . . . . . . . . . . . . . .
Current
December 31,
Non-Current
December 31,
2019
2018
2019
2018
$ 2,080
$ 1,810
$18,122
$19,299
40,668
1,553
44,812
1,288
20,818
6,688
23,983
6,605
$44,301
$47,910
$45,628
$49,887
(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 separation as a service provider 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, 2019, 2018 and 2017 were 4.684%, 4.409% and 4.446%, respectively. MMI recorded interest expense
related to this liability of $904,000, $891,000 and $931,000 for the years ended December 31, 2019, 2018 and
2017, respectively.
Estimated payouts within the next twelve months for participants that have separated from service have
been classified as current. During the years ended December 31, 2019 and 2018, the Company made total
payments of $1.8 million, consisting of principal ($185,000) and accumulated interest ($1.6 million) and
$1.7 million, consisting of accumulated interest, respectively.
Commissions Payable
Certain investment sales professionals have the ability to earn additional commissions after meeting certain
annual revenue thresholds. These commissions are recognized as cost of services in the period in which they are
earned as they relate to specific transactions closed. The Company has the ability to defer payment of certain
commissions, at its election, for up to three years. Commissions payable that are not expected to be paid within
twelve months are classified as long-term.
Deferred Compensation Liability
A select group of management is eligible to participate in the Marcus & Millichap Deferred Compensation
Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a non-qualified deferred
F-26
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
compensation plan that is intended to comply with Section 409A of the Internal Revenue Code and permits
participants to defer compensation up to the limits set forth in the Deferred Compensation Plan. Amounts are
paid out generally when the participant is no longer a service provider; however, an in-service payout election is
available to participants. Participants may elect to receive payouts as a lump sum or quarterly over a two to
fifteen-year period. The Company elected to fund the Deferred Compensation Plan through company owned
variable life insurance policies. The Deferred Compensation Plan is managed by a third-party institutional fund
manager, and the deferred compensation and investment earnings are held as a Company asset in a rabbi trust,
which is recorded in assets held in rabbi trust in the accompanying consolidated balance sheets. The assets in the
trust are restricted unless the Company becomes insolvent, in which case the trust assets are subject to the claims
of the Company’s creditors. The Company may also, in its sole and absolute discretion, elect to withdraw at any
time a portion of the trust assets by an amount by which the fair market value of the trust assets exceeds 110% of
the aggregate deferred compensation liability represented by the participants’ accounts. Estimated payouts within
the next twelve months for participants that have separated from service or elected in service payout have been
classified as current. During the years ended December 31, 2019 and 2018, the Company made total payments to
participants of $1.6 million and $1.3 million, respectively.
The assets held in the rabbi trust are carried at the cash surrender value of the variable life insurance
policies, which represents its fair value. The net change in the carrying value of the assets held in the rabbi trust
and the net change in the carrying value of the deferred compensation liability, each exclusive of additional
contributions, distributions and trust expenses consisted of the following (in thousands):
Increase (decrease) in the carrying value of the assets held in the
rabbi trust(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,353
$(326)
$849
Increase (decrease) in the net carrying value of the deferred
compensation obligation(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,293
$(306)
$904
Years Ended December 31,
2019
2018
2017
(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.
Deferred Rent and Other Liabilities
Deferred rent and other liabilities consisted of the following (in thousands):
December 31,
2019
2018
Deferred rent(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration and other(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
3,539
$5,445
2,054
$3,539
$7,499
(1)
(2)
The Company does not have deferred rent in 2019 due to adoption of the new lease standard on January 1,
2019.
The current portion of contingent consideration in the amounts of $1,238 and $821 as of December 31, 2019
and 2018, respectively, are included in accounts payable and other liabilities in the consolidated balance
sheets.
F-27
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
8. 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 in the amount of $6.6 million due during the second quarter
of 2020. During each of the years ended December 31, 2019 and 2018, the Company made total payments on the
Notes of $1.5 million, including principal and interest.
9. Related-Party Transactions
Shared and Transition Services
Certain services are provided to the Company under a Transition Services Agreement (“TSA”) between
MMC and the Company. The TSA is intended to provide certain services until the Company acquires the
services separately. Under the TSA, the Company incurred net costs during the years ended December 31, 2019,
2018 and 2017 of $127,000, $197,000 and $210,000, 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, 2019, 2018 and 2017, the Company earned real estate brokerage commissions
and financing fees of $5.2 million, $7.7 million and $2.1 million, respectively, from transactions with
subsidiaries of MMC related to these services. The Company incurred cost of services of $3.0 million,
$4.6 million and $1.2 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. The related operating lease cost was $1.3 million for the year ended
December 31, 2019 and $1.0 million for each of the years ended December 31, 2018 and 2017, respectively.
Operating lease cost is included in selling, general and administrative expense in the accompanying consolidated
statements of net and comprehensive income. See Note 4 – “Operating Leases” for additional information.
Accounts Payable and Other Liabilities with MMC
As of December 31, 2019 and 2018, accounts payable and other liabilities with MMC totaling $88,000 and
$101,000, 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, 2019 and
2018, the aggregate principal amount for employee notes receivable was $388,000 and $526,000, respectively,
which is included in other assets (current and non-current) in the accompanying consolidated balance sheets. See
Note 7 – “Selected Balance Sheet Data” for additional information.
F-28
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
As of December 31, 2019, George M. Marcus, the Company’s founder and Co-Chairman, beneficially
owned approximately 40% of the Company’s issued and outstanding common stock, including shares owned by
Phoenix Investments Holdings, LLC and the Marcus Family Foundation II.
10. 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, 2019
December 31, 2018
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):
9,452 $ — $ 9,452 $ — $
8,268 $ — $ 8,268 $ —
Commercial paper and other . . . $
Money market funds . . . . . . . . . 185,513 185,513
5,087 $ — $ 5,087 $ — $
1,599 $
— 163,126 163,126
1,599 $ — $ —
—
—
—
$190,600 $185,513 $ 5,087 $ — $164,725 $164,725 $ — $ —
Marketable securities,
available-for-sale:
Short-term investments:
U.S. treasuries . . . . . . . . . . $124,580 $124,580 $ — $ — $121,180 $121,180 $ — $ —
U.S. government sponsored
entities . . . . . . . . . . . . . .
Corporate debt . . . . . . . . . .
ABS and other . . . . . . . . . .
—
3,505
— 26,172 — 11,951
800
—
— 3,505
— 11,951
800
—
—
26,172
—
—
—
—
—
—
—
—
Long-term investments:
$150,752 $124,580 $26,172 $ — $137,436 $121,180 $16,256 $ —
U.S. treasuries . . . . . . . . . . $ 24,423 $ 24,423 $ — $ — $ 45,010 $ 45,010 $ — $ —
U.S. government sponsored
entities . . . . . . . . . . . . . .
Corporate debt . . . . . . . . . .
ABS and other . . . . . . . . . .
— 1,355 —
1,507
— 26,471 — 31,837
4,855
— 8,560 —
— 1,507
— 31,837
— 4,855
1,355
26,471
8,560
—
—
—
$ 60,809 $ 24,423 $36,386 $ — $ 83,209 $ 45,010 $38,199 $ —
Liabilities:
Contingent consideration . . . . . . . . . . $
4,788 $ — $ — $4,788 $
2,875 $ — $ — $ 2,875
Deferred compensation liability . . . . $
8,241 $
8,241 $ — $ — $
7,893 $
7,893 $ — $ —
(1)
Included in cash and cash equivalents on the accompanying consolidated balance sheets.
There were no transfers in or out of Level 3 during the year ended December 31, 2019.
As of December 31, 2019 and 2018, contingent consideration has a maximum undiscounted payment of
$7.3 million and $4.2 million, respectively. Assuming the achievement of the applicable performance criteria
and/or service and time requirements, the Company anticipates these earn-out payments will be made over the
next one to seven-year period. Changes in fair value are included in selling, general and administrative expense
F-29
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
in the consolidated statements of net and comprehensive income. A reconciliation of contingent consideration
measured at fair value on a recurring basis consisted of the following (in thousands):
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration in connection with acquisitions(1) . . .
Change in fair value of contingent consideration . . . . . . . . . . .
Payments of contingent consideration . . . . . . . . . . . . . . . . . . .
December 31,
2019
2018
$2,875
2,382
202
(671)
$ —
2,674
201
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,788
$2,875
(1) Contingent consideration in connections with acquisitions represents noncash investing activity.
Quantitative information about the valuation technique and significant unobservable inputs used in the
valuation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis consisted of
the following (dollars in thousands):
Fair Value at
December 31, 2019
Valuation Technique
Unobservable inputs
Range (Weighted
Average)(1)
Contingent
consideration . .
$4,788
Discounted cash flow Expected life of cash flows 0.4-5.8 years (2.3 years)
3.6%-5.0% (4.1%)
Probability of achievement 33.0%-100.0% (81.8%)
Discount rate
(1) Unobservable inputs were weighted by the relative fair value of the instruments.
Nonrecurring Fair Value Measurements
MSRs are carried at the lower of amortized cost or fair value. The fair value of the MSRs approximated the
carrying value at December 31, 2019 and 2018.
Quantitative information about the valuation technique and significant unobservable inputs used in the
valuation of the Company’s Level 3 financial assets measured at fair value on a nonrecurring basis consisted of
the following (dollars in thousands):
Fair Value at
December 31, 2019
Valuation Technique
Unobservable inputs
Range (Weighted
Average)(1)
MSRs . . . . . . . . . .
$2,204
Discounted cash flow Constant prepayment rates
Constant default rate
0.0%-20.0% (10.0%)
2.0%-2.0% (2.0%)
Loss severity 40.0%-40.0% (40.0%)
9.5%-9.7% (9.7%)
Discount rate
(1) Weighted average is based on the 10% constant prepayment rate scenario which the Company uses as the
reported fair value.
11. Stockholders’ Equity
Common Stock
As of December 31, 2019 and 2018, there were 39,153,195 and 38,814,464 shares of common stock,
$0.0001 par value, issued and outstanding, which include unvested restricted stock awards issued to
non-employee directors, respectively. See Note 15 – “Earnings per Share” for additional information.
F-30
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Preferred Stock
The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At
December 31, 2019 and 2018, there were no preferred shares issued or outstanding.
Accumulated Other Comprehensive Income/Loss
Amounts reclassified from accumulated other comprehensive income/loss are included as a component of
other income (expense), net in the consolidated statements of net and comprehensive income. The
reclassifications were determined on a specific identification basis.
The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is
operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not provided related
to the cumulative foreign currency translation adjustments.
12. Stock-Based Compensation Plans
2013 Omnibus Equity Incentive Plan
The Company’s board of directors adopted the 2013 Plan, which became effective upon the Company’s
IPO. In February 2017, the board of directors amended the 2013 Plan, which was approved by the Company’s
stockholders in May 2017. Grants are made from time to time by the compensation committee of the Company’s
board of directors at its discretion subject to certain restrictions as to the number and value of shares that may be
granted to any individual. In addition, non-employee directors receive annual grants under a director
compensation policy. At December 31, 2019, there were 5,255,735 shares available for future grants under the
2013 Plan.
Awards Granted and Settled
Under the 2013 Plan, the Company has issued restricted stock awards (“RSAs”) to non-employee directors
and restricted stock units (“RSUs”) to employees and independent contractors. RSAs vest in equal annual
installments over a one-year or three-year period from the date of grant. All RSUs vest in equal annual
installments over a five-year period from the date of grant or earlier as approved by the compensation committee
of the Company’s board of directors. Any unvested awards are canceled upon termination as a service provider.
Awards accelerate upon death subject to approval by the compensation committee. As of December 31, 2019,
there were no issued or outstanding options, SARs, performance units or performance share awards under the
2013 Plan.
During the year ended December 31, 2019, 378,194 shares of RSUs were vested and 73,690 shares of
common stock were withheld to pay applicable required employee statutory withholding taxes based on the
market value of the shares on the vesting date. The shares withheld for taxes were returned to the share reserve
and are available for future issuance in accordance with provisions of the 2013 Plan. During the year ended
December 31, 2019, there were no DSUs that settled.
F-31
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Outstanding Awards
Activity under the 2013 Plan consisted of the following (dollars in thousands, except weighted average per
share data):
RSA Grants
to
Non-employee
Directors
RSU Grants to
Employees
RSU Grants to
Independent
Contractors
Total
Weighted-
Average Grant Date
Fair Value Per
Share
30,732
12,852
(16,488)
—
—
27,096
12,806
(22,422)
—
—
500,859
142,760
(146,122)
(23,755)
(1,960)
471,782
260,274
(186,311)
(8,136)
(12,494)
450,264
102,466
(171,114)
23,755
(12,674)
392,697
82,050
(191,883)
8,136
(33,520)
981,855
258,078
(333,724)
—
(14,634)
891,575
355,130
(400,616)
—
(46,014)
$23.90
34.94
22.31
30.69
30.17
$27.59
38.51
24.29
29.68
30.65
Nonvested shares at December 31,
2017(1)
. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Transferred . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . .
Nonvested shares at December 31,
2018(1)
. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Transferred . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . .
Nonvested shares at December 31,
2019(1)
. . . . . . . . . . . . . . . . . . . . .
17,480
525,115
257,480
800,075
$33.91
Unrecognized stock-based
compensation expense as of
December 31, 2019(2)
. . . . . . . . .
Weighted average remaining
vesting period (years) as of
December 31, 2019 . . . . . . . . . . .
$
234
$ 13,959
$
7,821
$ 22,014
0.39
3.61
3.34
3.48
(1) Nonvested RSUs will be settled through the issuance of new shares of common stock.
(2)
The total unrecognized compensation expense is expected to be recognized over a weighted-average period
of approximately 3.48 years.
The aggregate fair value of RSUs and RSAs that vested were $14.6 million, $11.1 million and $7.8 million
for the years ended December 31, 2019, 2018 and 2017, respectively.
The fair value of fully vested DSUs that settled was $0, $8.3 million and $10.2 million for the years ended
December 31, 2019, 2018 and 2017, respectively. See “SARs and DSUs” section below and Note 15 – “Earnings
per Share” for additional information. The remaining outstanding fully vested DSUs were 341,566 as of
December 31, 2019 and 2018, and 578,618 as of December 31, 2017. Future share settlements of DSUs by year
consisted of the following:
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019
60,373
281,193
341,566
F-32
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
ESPP
In 2013, the Company adopted the ESPP. The ESPP is intended to qualify under Section 423 of the Internal
Revenue Code and provides for consecutive, non-overlapping 6-month offering periods. The offering periods
generally start on the first trading day on or after May 15 and November 15 of each year. Qualifying employees
may purchase shares of the Company stock at a 10% discount based on the lower of the market price at the
beginning or end of the offering period, subject to IRS limitations. The Company determined that the ESPP was a
compensatory plan and is required to expense the fair value of the awards over each 6-month offering period.
The ESPP initially had 366,667 shares of common stock reserved, and 204,473 and 225,894 shares of
common stock remain available for issuance for each of the periods at December 31, 2019 and 2018,
respectively. The ESPP provides for annual increases in the number of shares available for issuance under the
ESPP, equal to the least of (i) 366,667 shares, (ii) 1% of the outstanding shares on such date, or (iii) an amount
determined by the compensation committee of the board of directors. Pursuant to the provisions of the ESPP, the
board of directors has determined to not provide for any annual increases to date. At December 31, 2019, total
unrecognized compensation cost related to the ESPP was $69,000 and is expected to be recognized over a
weighted average period of 0.37 years.
SARs and DSUs
Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were
frozen at the liability amount, and will be paid out to each participant in installments upon retirement or
departure under the terms of the revised SARs agreements. To replace beneficial ownership in the SARs, the
difference between the book value liability and the fair value of the awards was granted to plan participants in the
form of DSUs, which were fully vested upon receipt and will be settled in actual stock at a rate of 20% per year if
the participant remains employed by the Company during that period (otherwise all unsettled shares of stock
upon termination from service will be settled five years from the termination date, unless otherwise agreed to by
the Company). In the event of death or termination of service after reaching the age of 67, 100% of the DSUs
will be settled.
Summary of Stock-Based Compensation
Components of stock-based compensation are included in selling, general and administrative expense in the
consolidated statements of net and comprehensive income and consisted of the following (in thousands):
Years Ended December 31,
2019
2018
2017
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSAs – non-employee directors . . . . . . . . . . . . . . . . . . . . . . .
RSUs – employees(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs – independent contractors(2) . . . . . . . . . . . . . . . . . . . . .
$ 139
643
5,419
3,077
$
109
632
4,233
7,009
$ 128
397
3,750
4,870
$9,278
$11,983
$9,145
(1)
(2)
2019 includes expense related to the acceleration of vesting of certain RSUs.
The Company grants RSUs to independent contractors (i.e. investment sales and financing professionals),
who are considered non-employees. Prior to the adoption of ASU No. 2018-07 on July 1, 2018, such awards
were required to be measured at fair value at the end of each reporting period until settlement. Stock-based
compensation expense was therefore impacted by the changes in the Company’s common stock price during
each reporting period prior to the adoption. New awards after the date of adoption 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 non-employee directors.
F-33
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
13. Income Taxes
The components of income (loss) from continuing operations before provision for income taxes consisted of
the following (in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,425
(4,913)
$119,446
(2,226)
$100,031
(805)
$107,512
$117,220
$ 99,226
Years Ended December 31,
2019
2018
2017
The provision (benefit) for income taxes consisted of the following (in thousands):
Years Ended December 31,
2019
2018
2017
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,638
665
$24,101
(268)
$28,993
13,249
$23,303
$23,833
$42,242
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,718
(507)
$ 6,004
162
$ 5,883
(423)
$ 7,211
$ 6,166
$ 5,460
Foreign:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
68
$ —
$ —
—
$ —
(36)
(36)
$
68
$
$30,582
$29,963
$47,702
F-34
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
Significant components of the Company’s deferred tax assets, net consisted of the following (in thousands):
December 31,
2019
2018
Deferred Tax Assets:
Accrued expenses and bonuses . . . . . . . . . . . . . . . . . .
Bad debt and other reserves . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease ROU assets, net
. . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating and capital loss carryforwards . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 2,481
2,744
13,346
21,761
7,847
—
3,612
—
139
328
$ 2,258
1,840
13,337
—
8,912
1,470
2,335
330
11
25
Deferred tax assets before valuation allowance . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,258
(3,921)
30,518
(2,570)
Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,337
$27,948
Deferred Tax Liabilities:
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ (4,422)
(20,117)
(940)
(552)
(184)
$ (4,086)
—
(789)
—
(114)
Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26,215)
(4,989)
Deferred Tax Assets, Net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,122
$22,959
As of December 31, 2019, and 2018, the Company had state and Canadian net operating loss carryforwards
of approximately $14.0 million and $9.4 million, respectively, principally all of which will begin to expire in
2033.
A valuation allowance is required when it is more-likely-than not that all or a portion of a deferred tax asset
will not be realized. Realization of a deferred tax asset is dependent upon taxable income in prior carryback
years, estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary
differences. The Company determined that as of December 31, 2019 and 2018, $3.9 million and $2.6 million,
respectively, of the deferred tax assets related to state and Canadian losses do not satisfy the recognition criteria.
The Company has therefore recorded a valuation allowance for this amount. The valuation allowance for
deferred tax assets was increased by $1.4 million, $677,000 and $170,000 during 2019, 2018 and 2017,
respectively. The increases are primarily related to the Company’s Canadian operations.
F-35
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
The provision for income taxes differs from the amount computed by applying the statutory federal
corporate income tax rate to income before provision for income taxes and consisted of the following (dollars in
thousands):
Years Ended December 31,
2019
2018
2017
Amount
Rate
Amount
Rate
Amount
Rate
Income tax expense at the federal
statutory rate . . . . . . . . . . . . . . . . . . . . .
$ 22,578
21.0% $ 24,616
21.0% $ 34,729
35.0%
State income tax expense, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
5,698
5.3%
4,550
3.9%
3,577
3.6%
Windfall tax benefits, net related to
stock-based compensation . . . . . . . . . .
Change in valuation allowance . . . . . . . .
Effect of rate and other changes on
federal deferred taxes, net due to
enactment of Tax Cuts and Jobs Act
(“the Act”)(1) . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .
Permanent and other items(2)
(196)
1,351
(0.2)% (1,535)
677
1.3%
(1.3)% (2,568)
170
0.6%
(2.6)%
0.2%
—
1,151
—
1.0%
—
1,655
—
1.4%
11,644
150
11.7%
0.2%
$ 30,582
28.4% $ 29,963
25.6% $ 47,702
48.1%
(1) On December 22, 2017, the Act was enacted, which significantly changed the U.S. corporate income tax
laws by, among other items, reducing the U.S. corporate income tax rate to 21% from 35% starting in 2018,
further limiting 162(m) deductions and creating a territorial tax system with a one-time mandatory tax on
previously deferred foreign earnings of U.S. subsidiaries. As a result of the Act, the Company revalued its
deferred taxes, net due to the changes in the U.S. corporate statutory federal income tax rate and recorded a
net charge of $11.6 million in the provision for income taxes in 2017. The Company’s accounting for
income tax effects of the Act was completed as of December 31, 2018.
Permanent items relate principally to compensation charges, qualified transportation fringe benefits, reversal
of uncertain tax positions and meals and entertainment.
(2)
A reconciliation of the beginning and ending amounts of unrecognized tax benefits consisted of the
following (in thousands):
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increase (decrease) as a result of positions taken:
Prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of applicable statutes of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2019
2018
2017
$1,246
$ — $ —
1,246
—
—
—
—
—
(471) —
—
—
—
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 775
$1,246
$ —
It is reasonably possible that the unrecognized tax benefits balance may decrease by $701,000 during the
next 12 months due to the expiration of the statute of limitations. During the years ended December 31, 2019 and
2018, penalties of $136,000 and $167,000, respectively, were recorded relating to unrecognized tax benefits.
F-36
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
The Company is subject to tax in various jurisdictions and, as a matter of ordinary course, the Company
may be subject to income tax examinations by the federal, state and foreign taxing authorities for the tax years
2015 to 2019. The Company is not currently under income tax examination by any taxing authority.
The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as this
subsidiary is operating at a loss and has no earnings and profits to remit. As a result, deferred taxes were not
provided related to the cumulative translation adjustments.
14. Retirement Plans
Effective January 2014, the Company has its own defined contribution plan (the “Contribution Plan”) under
Section 401(k) of the Internal Revenue Code for all eligible employees who have completed one month of
service. The Contribution Plan is subject to the provisions of the Employee Retirement Income Security Act of
1974 (“ERISA”), as amended. Participants may contribute up to 100% of their annual eligible compensation,
subject to IRS limitations and ERISA. The Company makes matching contributions of 50% on the first 8% of
employee contributions per pay period up to a maximum of $4,000. Employees become vested in these Company
contributions 33% upon one year of service, 66% upon two years of service and 100% upon three years of
service. Company matching contributions aggregated $1.1 million, $920,000 and $733,000 for the years ended
December 31, 2019, 2018 and 2017, respectively, which is included in selling, general and administrative
expense in the consolidated statements of net and comprehensive income.
15. Earnings per Share
Basic and diluted earnings per share for the years ended December 31, 2019, 2018 and 2017 consisted of the
following (in thousands, except per share data):
Years Ended December 31,
2019
2018
2017
Numerator (Basic and Diluted):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$76,930
$87,257
$51,524
Denominator:
Basic
Weighted Average Common Shares Issued and
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Deduct: Unvested RSAs(1)
Add: Fully vested DSUs(2)
39,083
(21)
342
38,637
(30)
542
38,142
(29)
875
Weighted Average Common Shares Outstanding . . .
39,404
39,149
38,988
Basic earnings per common share . . . . . . . . . . . . . . . . . . .
$
1.95
$
2.23
$
1.32
Diluted
Weighted Average Common Shares Outstanding
from above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,404
39,149
38,988
Add: Dilutive effect of RSUs, RSAs &
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144
234
112
Weighted Average Common Shares Outstanding . . .
39,548
39,383
39,100
Diluted earnings per common share . . . . . . . . . . . . . . . . . .
$
1.95
$
2.22
$
1.32
Antidilutive shares excluded from diluted earnings per
common share(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348
137
512
F-37
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
(1) RSAs were issued and outstanding to the non-employee directors and have a one-year or three-year vesting
term subject to service requirements. See Note 12 – “Stock-Based Compensation Plans” for additional
information.
Shares are included in weighted average common shares outstanding as the shares are fully vested but have
not yet been delivered. See Note 12 – “Stock-Based Compensation Plans” for additional information.
Primarily pertaining to RSU grants to the Company’s employees and independent contractors.
(3)
(2)
16. Commitments and Contingencies
Credit Agreement
On June 18, 2014, the Company entered into a Credit Agreement with Wells Fargo Bank, National
Association (the “Bank”), as amended and restated on May 28, 2019, which was amended on November 27, 2019
(the “Credit Agreement”). The Credit Agreement provides for a $60.0 million principal amount senior secured
revolving credit facility that is guaranteed by all of the Company’s domestic subsidiaries (the “Credit Facility”)
and matures on June 1, 2022. The Company may borrow, repay and reborrow amounts under the Credit Facility
until its maturity date, at which time all amounts outstanding under the Credit Facility must be repaid in full.
Borrowings under the Credit Agreement are available for general corporate purposes and working
capital. The Credit Facility includes a $10.0 million sublimit for the issuance of standby letters of credit of which
$533,000 was utilized at December 31, 2019. Borrowings under the Credit Facility will bear interest, at the
Company’s option, at either (i) a fluctuating rate per annum 2.00% below the Base Rate (defined as the highest of
(a) the Bank’s prime rate, (b) one-month LIBOR plus 1.50%, and (c) the federal funds rate plus 1.50%), or (ii) at
a fixed rate per annum determined by Bank to be 0.875% above LIBOR. In connection with the amendment of
the Credit Agreement, the Company paid bank fees and other expenses, which are being amortized over the
remaining term of the Credit Agreement. The Company pays a commitment fee of up to 0.1% per annum,
payable quarterly, based on the amount of unutilized commitments under the Credit Facility. The amortization
and commitment fee is included in interest expense in the accompanying consolidated statements of net and
comprehensive income and was $94,000, $104,000 and $110,000 during the years ended December 31, 2019,
2018 and 2017, respectively. As of December 31, 2019, there were no amounts outstanding under the Credit
Agreement.
The Credit Facility contains customary covenants, including financial and other covenant reporting
requirements and events of default. Financial covenants require the Company, on a combined basis with its
guarantors, to maintain (i) an EBITDAR Coverage Ratio (as defined in the Credit Agreement) of not less than
1.25:1.0 as of each quarter end, determined on a rolling four-quarter basis, and (ii) total funded debt to EBITDA
not greater than 2.0:1.0 as of each quarter end, determined on a rolling four-quarter basis, and also limit
investments in foreign entities and cap certain other loans. The Credit Facility is secured by substantially all
assets of the Company, including pledges of 100% of the stock or other equity interest of each subsidiary except
for the capital stock of a controlled foreign corporation (as defined in the Internal Revenue Code), in which case
no such pledge is required. As of December 31, 2019, the Company was in compliance with all financial and
non-financial covenants and has not experienced any limitation in its operations as a result of the covenants.
Other
In connection with certain agreements with investment sales and financing professionals, the Company may
agree to advance amounts to certain investment sales and financing professionals upon reaching certain
performance goals. Such commitments as of December 31, 2019 aggregated $1.2 million.
F-38
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
17. Subsequent Events
In January 2020, the Company completed the acquisition of a real estate brokerage business in the United
States.
In connection with agreements in principal with investment sales and financing professionals and business
acquisitions, the Company entered into commitments through the date these consolidated financial statements
were issued, aggregating $48.2 million, of which $33.6 million has been paid. Such commitments to investment
sales and financing professionals may be subject to various conditions.
18. Selected Quarterly Financial Data (Unaudited)
The Company’s real estate brokerage commissions and financing fees are seasonal, which can affect an
investor’s ability to compare the Company’s financial condition and results of operation on a quarter-by-quarter
basis. Historically, this seasonality has caused the Company’s revenue, operating income, net income and cash
flows from operating activities to be lower in the first half of the year and higher in the second half of the year,
particularly in the fourth quarter. These concentrations are due to an industry-wide focus of clients to complete
transactions towards the end of the calendar year. In addition, the Company’s gross margins are typically lower
during the second half of each year due to its commission structure for some of its senior investment sales and
financing professionals. These senior investment sales and financing professionals are on a graduated
commission schedule whose commission rates generally increase as they meet certain production thresholds.
Consolidated Financial
Statement Data:
Three Months Ended
Dec. 31
2019
Sep. 30
2019
Jun. 30
2019
Mar. 31
2019
Dec. 31
2018
Sep. 30
2018
Jun. 30
2018
Mar. 31
2018
(in thousands, except per share data)
Total revenues . . . . . . . $237,908 $198,220 $209,593 $160,707 $230,283 $210,590 $199,402 $174,541
101,649
Cost of services . . . . . .
23,464
Operating income . . . .
Net income . . . . . . . . .
18,011
Earnings per share:
124,147
24,072
19,292
148,469
32,489
26,225
132,896
27,384
20,854
155,196
27,104
20,721
127,847
26,978
21,279
119,869
28,950
22,167
91,688
18,269
15,638
Basic . . . . . . . . . . $
Diluted . . . . . . . . . $
0.53 $
0.52 $
0.49 $
0.49 $
0.54 $
0.54 $
0.40 $
0.40 $
0.67 $
0.66 $
0.53 $
0.53 $
0.57 $
0.56 $
0.46
0.46
F-39
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Board of Directors
Executive Officers
Corporate Information
George M. Marcus
Co-Chairman
William A. Millichap
Co-Chairman
Hessam Nadji
President, Chief Executive Officer
Norma J. Lawrence
Partner (Retired)
KPMG LLP
Lauralee E. Martin
CEO (Retired)
HCP, Inc.
Nicholas F. McClanahan
Managing Director (Retired)
Merrill Lynch
George T. Shaheen
Former Chairman of the Board
Korn/Ferry International
Don C. Watters
Director Emeritus
McKinsey & Company
Hessam Nadji
President and Chief
Executive Officer
Martin E. Louie
Senior Vice President /
Chief Financial Officer
Gregory A. LaBerge
Senior Vice President /
Chief Administrative Officer
Corporate Headquarters
Marcus & Millichap, Inc.
23975 Park Sorrento
Suite 400
Calabasas, CA 91302
Phone: (818) 212-2250
Fax: (818) 212-2260
Investor Relations
You may request a copy of documents
at no cost by contacting:
Evelyn Infurna
ICR
evelyn.infurna@icrinc.com
(203) 682-8265
Email updates are also available
through the Investor Relations
page on Marcus & Millichap’s
website at www.marcusmillichap.com
Stock Exchange
New York Stock Exchange
NYSE Trading Symbol: MMI
www.marcusmillichap.com