☒ | 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 |
Delaware | 35-2478370 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol (s) | Name of each exchange on which registered | ||
Common Stock, | MMI | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
Emerging growth company | ☐ |
4 | ||||||||||
17 | ||||||||||
31 | ||||||||||
31 | ||||||||||
31 | ||||||||||
32 | ||||||||||
58 | ||||||||||
2019 | 2018 | Change | ||||||||||||||||||||||||||||||||||
Real Estate Brokerage: | Number | Volume | Revenues | Number | Volume | Revenues | Number | Volume | Revenues | |||||||||||||||||||||||||||
(in millions) | (in thousands) | (in millions) | (in thousands) | (in millions) | (in thousands) | |||||||||||||||||||||||||||||||
<$1 million | 1,011 | $ | 657 | $ | 27,012 | 1,077 | $ | 695 | $ | 29,677 | (66 | ) | $ | (38 | ) | $ | (2,665 | ) | ||||||||||||||||||
Private client market ($1-$10 million) | 5,311 | 17,239 | 487,528 | 5,230 | 16,645 | 483,967 | 81 | 594 | 3,561 | |||||||||||||||||||||||||||
Middle market ( ≥ $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 | (21 | ) | 692 | (9,863 | ) | |||||||||||||||||||||||||
7,042 | $ | 36,858 | $ | 729,356 | 7,079 | $ | 36,070 | $ | 747,355 | (37 | ) | $ | 788 | $ | (17,999 | ) | ||||||||||||||||||||
2020 | 2019 | Change | ||||||||||||||||||||||||||||||||||
Real Estate Brokerage: | Number | Volume | Revenues | Number | Volume | Revenues | Number | Volume | Revenues | |||||||||||||||||||||||||||
(in millions) | (in thousands) | (in millions) | (in thousands) | (in millions) | (in thousands) | |||||||||||||||||||||||||||||||
<$1 million | 944 | $ | 600 | $ | 24,456 | 1,011 | $ | 657 | $ | 27,012 | (67 | ) | $ | (57 | ) | $ | (2,556 | ) | ||||||||||||||||||
Private client market ($1 - <$10 million) | 4,773 | 15,115 | 421,767 | 5,311 | 17,239 | 487,528 | (538 | ) | (2,124 | ) | (65,761 | ) | ||||||||||||||||||||||||
Middle market ($10 - <$20 million) | 316 | 4,311 | 81,621 | 441 | 6,002 | 107,818 | (125 | ) | (1,691 | ) | (26,197 | ) | ||||||||||||||||||||||||
Larger transaction market ( ³ $20 million) | 255 | 12,026 | 105,320 | 279 | 12,960 | 106,998 | (24 | ) | (934 | ) | (1,678 | ) | ||||||||||||||||||||||||
6,288 | $ | 32,052 | $ | 633,164 | 7,042 | $ | 36,858 | $ | 729,356 | (754 | ) | $ | (4,806 | ) | $ | (96,192 | ) | |||||||||||||||||||
Base Period 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | |||||||||||||||||||
Marcus & Millichap, Inc. | 100.00 | 87.64 | 80.36 | 98.08 | 103.25 | 112.03 | ||||||||||||||||||
S&P 500 | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | ||||||||||||||||||
Peer Group | 100.00 | 102.37 | 83.72 | 119.62 | 106.05 | 157.24 |
Base Period 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | |||||||||||||||||||
Marcus & Millichap, Inc. | 100.00 | 91.70 | 111.91 | 117.81 | 127.83 | 127.76 | ||||||||||||||||||
S&P 500 Index | 100.00 | 111.96 | 136.40 | 130.42 | 171.49 | 203.04 | ||||||||||||||||||
Peer Group (2020) | 100.00 | 80.38 | 111.50 | 96.61 | 142.94 | 132.71 | ||||||||||||||||||
Peer Group (2019) | 100.00 | 81.78 | 116.85 | 103.60 | 153.60 | 149.07 |
Years Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(in thousands except per share, investment sales and financing professional and sales volume amounts) | ||||||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
Total revenues | $ | 806,428 | $ | 814,816 | $ | 719,700 | $ | 717,450 | $ | 689,055 | ||||||||||
Cost of services | 498,878 | 502,883 | 446,557 | 444,768 | 423,389 | |||||||||||||||
Operating income | 96,423 | 112,287 | 96,132 | 106,501 | 114,651 | |||||||||||||||
Provision for income taxes (1) | 30,582 | 29,963 | 47,702 | 42,445 | 47,018 | |||||||||||||||
Net income | $ | 76,930 | $ | 87,257 | $ | 51,524 | $ | 64,657 | $ | 66,350 | ||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 1.95 | $ | 2.23 | $ | 1.32 | $ | 1.66 | $ | 1.71 | ||||||||||
Diluted | $ | 1.95 | $ | 2.22 | $ | 1.32 | $ | 1.66 | $ | 1.69 | ||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 39,404 | 39,149 | 38,988 | 38,899 | 38,848 | |||||||||||||||
Diluted | 39,548 | 39,383 | 39,100 | 39,035 | 39,162 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 232,670 | $ | 214,683 | $ | 220,786 | $ | 187,371 | $ | 96,185 | ||||||||||
Marketable securities, available-for-sale (2) | $ | 211,561 | $ | 220,645 | $ | 125,659 | $ | 104,929 | $ | 134,255 | ||||||||||
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 | 2,021 | 1,977 | 1,819 | 1,737 | 1,607 | |||||||||||||||
Sales volume (dollars in millions) | $ | 49,706 | $ | 46,355 | $ | 42,191 | $ | 42,312 | $ | 37,847 |
Years Ended December 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
(in thousands except per share, investment sales and financing professional and sales volume amounts) | ||||||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
Total revenues | $ | 716,906 | $ | 806,428 | $ | 814,816 | $ | 719,700 | $ | 717,450 | ||||||||||
Cost of services | 447,879 | 498,878 | 502,883 | 446,557 | 444,768 | |||||||||||||||
Operating income | 53,614 | 96,423 | 112,287 | 96,132 | 106,501 | |||||||||||||||
Provision for income taxes (1) | 16,526 | 30,582 | 29,963 | 47,702 | 42,445 | |||||||||||||||
Net income | $ | 42,838 | $ | 76,930 | $ | 87,257 | $ | 51,524 | $ | 64,657 | ||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 1.08 | $ | 1.95 | $ | 2.23 | $ | 1.32 | $ | 1.66 | ||||||||||
Diluted | $ | 1.08 | $ | 1.95 | $ | 2.22 | $ | 1.32 | $ | 1.66 | ||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 39,642 | 39,404 | 39,149 | 38,988 | 38,899 | |||||||||||||||
Diluted | 39,735 | 39,548 | 39,383 | 39,100 | 39,035 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 243,152 | $ | 232,670 | $ | 214,683 | $ | 220,786 | $ | 187,371 | ||||||||||
Marketable debt securities, available-for-sale (2) | $ | 206,031 | $ | 211,561 | $ | 220,645 | $ | 125,659 | $ | 104,929 | ||||||||||
Total assets | $ | 779,122 | $ | 709,034 | $ | 566,380 | $ | 459,664 | $ | 394,016 | ||||||||||
Long-term liabilities | $ | 111,969 | $ | 112,322 | $ | 63,950 | $ | 61,517 | $ | 56,986 | ||||||||||
Total liabilities | $ | 232,286 | $ | 214,127 | $ | 156,806 | $ | 144,776 | $ | 135,162 | ||||||||||
Total stockholders’ equity | $ | 546,836 | $ | 494,907 | $ | 409,574 | $ | 314,888 | $ | 258,854 | ||||||||||
Other Data: | ||||||||||||||||||||
Adjusted EBITDA (3) | $ | 75,699 | $ | 115,551 | $ | 129,457 | $ | 111,716 | $ | 118,296 | ||||||||||
Investment sales and financing professionals | 2,097 | 2,021 | 1,977 | 1,819 | 1,737 | |||||||||||||||
Sales volume (dollars in millions) | $ | 43,407 | $ | 49,706 | $ | 46,355 | $ | 42,191 | $ | 42,312 |
(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 UpdateNo. 2016-09, Improvements to Employee Share-Based Payment Accounting 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. |
(2) | Includes both short-term and long-term marketable debt 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.” |
Years Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Real Estate Brokerage: | ||||||||||||
Average Number of Investment Sales Professionals | 1,843 | 1,726 | 1,649 | |||||||||
Average Number of Transactions per Investment Sales Professional | 3.82 | 4.10 | 3.98 | |||||||||
Average Commission per Transaction | $ | 103,572 | $ | 105,574 | $ | 98,963 | ||||||
Average Commission Rate | 1.98 | % | 2.07 | % | 2.13 | % | ||||||
Average Transaction Size (in thousands) | $ | 5,234 | $ | 5,095 | $ | 4,644 | ||||||
Total Number of Transactions | 7,042 | 7,079 | 6,562 | |||||||||
Total Sales Volume (in millions) | $ | 36,858 | $ | 36,070 | $ | 30,475 |
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Real Estate Brokerage: | ||||||||||||
Average Number of Investment Sales Professionals | 1,920 | 1,843 | 1,726 | |||||||||
Average Number of Transactions per Investment Sales Professional | 3.28 | 3.82 | 4.10 | |||||||||
Average Commission per Transaction | $ | 100,694 | $ | 103,572 | $ | 105,574 | ||||||
Average Commission Rate | 1.98 | % | 1.98 | % | 2.07 | % | ||||||
Average Transaction Size (in thousands) | $ | 5,097 | $ | 5,234 | $ | 5,095 | ||||||
Total Number of Transactions | 6,288 | 7,042 | 7,079 | |||||||||
Total Sales Volume (in millions) | $ | 32,052 | $ | 36,858 | $ | 36,070 | ||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Financing (1) : | ||||||||||||
Average Number of Financing Professionals | 86 | 102 | 100 | |||||||||
Average Number of Transactions per Financing Professional | 22.59 | 19.06 | 16.78 | |||||||||
Average Fee per Transaction | $ | 33,747 | $ | 32,680 | $ | 33,176 | ||||||
Average Fee Rate | 0.85 | % | 0.88 | % | 0.89 | % | ||||||
Average Transaction Size (in thousands) | $ | 3,948 | $ | 3,693 | $ | 3,716 | ||||||
Total Number of Transactions | 1,943 | 1,944 | 1,678 | |||||||||
Total Financing Volume (in millions) | $ | 7,672 | $ | 7,180 | $ | 6,236 |
Years Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Financing (1) : | ||||||||||||
Average Number of Financing Professionals | 102 | 100 | 95 | |||||||||
Average Number of Transactions per Financing Professional | 19.06 | 16.78 | 17.97 | |||||||||
Average Fee per Transaction | $ | 32,680 | $ | 33,176 | $ | 28,960 | ||||||
Average Fee Rate | 0.88 | % | 0.89 | % | 0.88 | % | ||||||
Average Transaction Size (in thousands) | $ | 3,693 | $ | 3,716 | $ | 3,299 | ||||||
Total Number of Transactions | 1,944 | 1,678 | 1,707 | |||||||||
Total Financing Volume (in millions) | $ | 7,180 | $ | 6,236 | $ | 5,632 |
(1) | Operating metrics calculated excluding certain financing fees not directly associated to transactions. |
Year Ended December 31, 2019 | Percentage of Revenue | Year Ended December 31, 2018 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 729,356 | 90.4 | % | $ | 747,355 | 91.7 | % | $ | (17,999 | ) | (2.4 | )% | |||||||||||
Financing fees | 66,293 | 8.2 | 57,817 | 7.1 | 8,476 | 14.7 | ||||||||||||||||||
Other revenues | 10,779 | 1.4 | 9,644 | 1.2 | 1,135 | 11.8 | ||||||||||||||||||
Total revenues | 806,428 | 100.0 | 814,816 | 100.0 | (8,388 | ) | (1.0 | ) | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of services | 498,878 | 61.9 | 502,883 | 61.7 | (4,005 | ) | (0.8 | ) | ||||||||||||||||
Selling, general and administrative expense | 203,110 | 25.1 | 193,349 | 23.7 | 9,761 | 5.0 | ||||||||||||||||||
Depreciation and amortization expense | 8,017 | 1.0 | 6,297 | 0.8 | 1,720 | 27.3 | ||||||||||||||||||
Total operating expenses | 710,005 | 88.0 | 702,529 | 86.2 | 7,476 | 1.1 | ||||||||||||||||||
Operating income | 96,423 | 12.0 | 112,287 | 13.8 | (15,864 | ) | (14.1 | ) | ||||||||||||||||
Other income (expense), net | 12,477 | 1.5 | 6,333 | 0.8 | 6,144 | 97.0 | ||||||||||||||||||
Interest expense | (1,388 | ) | (0.2 | ) | (1,400 | ) | (0.2 | ) | 12 | (0.9 | ) | |||||||||||||
Income before provision for income taxes | 107,512 | 13.3 | 117,220 | 14.4 | (9,708 | ) | (8.3 | ) | ||||||||||||||||
Provision for income taxes | 30,582 | 3.8 | 29,963 | 3.7 | 619 | 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 | )% | |||||||||||
Year Ended December 31, 2020 | Percentage of Revenue | Year Ended December 31, 2019 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 633,164 | 88.3 | % | $ | 729,356 | 90.4 | % | $ | (96,192 | ) | (13.2 | )% | |||||||||||
Financing fees | 70,538 | 9.8 | 66,293 | 8.2 | 4,245 | 6.4 | % | |||||||||||||||||
Other revenues | 13,204 | 1.9 | 10,779 | 1.4 | 2,425 | 22.5 | % | |||||||||||||||||
Total revenues | 716,906 | 100.0 | 806,428 | 100.0 | (89,522 | ) | (11.1 | )% | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of services | 447,879 | 62.5 | 498,878 | 61.9 | (50,999 | ) | (10.2 | )% | ||||||||||||||||
Selling, general and administrative | 204,514 | 28.5 | 203,110 | 25.1 | 1,404 | 0.7 | % | |||||||||||||||||
Depreciation and amortization | 10,899 | 1.5 | 8,017 | 1.0 | 2,882 | 35.9 | % | |||||||||||||||||
Total operating expenses | 663,292 | 92.5 | 710,005 | 88.0 | (46,713 | ) | (6.6 | )% | ||||||||||||||||
Operating income | 53,614 | 7.5 | 96,423 | 12.0 | (42,809 | ) | (44.4 | )% | ||||||||||||||||
Other income (expense), net | 6,650 | 0.9 | 12,477 | 1.5 | (5,827 | ) | (46.7 | )% | ||||||||||||||||
Interest expense | (900 | ) | (0.1 | ) | (1,388 | ) | (0.2 | ) | 488 | (35.2 | )% | |||||||||||||
Income before provision for income taxes | 59,364 | 8.3 | 107,512 | 13.3 | (48,148 | ) | (44.8 | )% | ||||||||||||||||
Provision for income taxes | 16,526 | 2.3 | 30,582 | 3.8 | (14,056 | ) | (46.0 | )% | ||||||||||||||||
Net income | $ | 42,838 | 6.0 | % | $ | 76,930 | 9.5 | % | $ | (34,092 | ) | (44.3 | )% | |||||||||||
Adjusted EBITDA (1) | $ | 75,699 | 10.6 | % | $ | 115,551 | 14.3 | % | $ | (39,852 | ) | (34.5 | )% | |||||||||||
(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.” |
Years Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net income | $ | 76,930 | $ | 87,257 | $ | 51,524 | $ | 64,657 | $ | 66,350 | ||||||||||
Adjustments: | ||||||||||||||||||||
Interest income and other (1) | (10,322 | ) | (7,052 | ) | (3,514 | ) | (1,761 | ) | (1,373 | ) | ||||||||||
Interest expense | 1,388 | 1,400 | 1,496 | 1,533 | 1,726 | |||||||||||||||
Provision for income taxes (2) | 30,582 | 29,963 | 47,702 | 42,445 | 47,018 | |||||||||||||||
Depreciation and amortization | 8,017 | 6,297 | 5,363 | 4,387 | 3,305 | |||||||||||||||
Stock-based compensation | 9,278 | 11,983 | 9,145 | 7,035 | 7,114 | |||||||||||||||
Non-cash MSR activity(3) | (322 | ) | (391 | ) | — | — | — | |||||||||||||
Adjusted EBITDA (4) | $ | 115,551 | $ | 129,457 | $ | 111,716 | $ | 118,296 | $ | 124,140 | ||||||||||
Years Ended December 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net income | $ | 42,838 | $ | 76,930 | $ | 87,257 | $ | 51,524 | $ | 64,657 | ||||||||||
Adjustments: | ||||||||||||||||||||
Interest income and other (1) | (5,048 | ) | (10,322 | ) | (7,052 | ) | (3,514 | ) | (1,761 | ) | ||||||||||
Interest expense | 900 | 1,388 | 1,400 | 1,496 | 1,533 | |||||||||||||||
Provision for income taxes (2) | 16,526 | 30,582 | 29,963 | 47,702 | 42,445 | |||||||||||||||
Depreciation and amortization | 10,899 | 8,017 | 6,297 | 5,363 | 4,387 | |||||||||||||||
Stock-based compensation | 9,905 | 9,278 | 11,983 | 9,145 | 7,035 | |||||||||||||||
Non-cash MSR activity(3) | (321 | ) | (322 | ) | (391 | ) | — | — | ||||||||||||
Adjusted EBITDA (4) | $ | 75,699 | $ | 115,551 | $ | 129,457 | $ | 111,716 | $ | 118,296 | ||||||||||
(1) | Other includes net realized gains (losses) on marketable debt 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 andnon-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, |
Years Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Net cash provided by operating activities | $ | 25,287 | $ | 117,314 | $ | 66,537 | ||||||
Net cash used in investing activities | (3,422 | ) | (117,980 | ) | (27,338 | ) | ||||||
Net cash used in financing activities | (3,878 | ) | (5,437 | ) | (5,784 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 17,987 | (6,103 | ) | 33,415 | ||||||||
Cash and cash equivalents at beginning of year | 214,683 | 220,786 | 187,371 | |||||||||
Cash and cash equivalents at end of year | $ | 232,670 | $ | 214,683 | $ | 220,786 | ||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Net cash provided by operating activities | $ | 38,088 | $ | 25,287 | $ | 117,314 | ||||||
Net cash used in investing activities | (17,228 | ) | (3,422 | ) | (117,980 | ) | ||||||
Net cash used in financing activities | (10,330 | ) | (3,878 | ) | (5,437 | ) | ||||||
Effect of currency exchange rate changes on cash and cash equivalents | (48 | ) | — | — | ||||||||
Net increase (decrease) in cash and cash equivalents | 10,482 | 17,987 | (6,103 | ) | ||||||||
Cash and cash equivalents at beginning of year | 232,670 | 214,683 | 220,786 | |||||||||
Cash and cash equivalents at end of year | $ | 243,152 | $ | 232,670 | $ | 214,683 | ||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Other (8) | |||||||||||||||||||
Operating lease liabilities, including imputed interest (1) | $ | 89,241 | $ | 21,262 | $ | 33,889 | $ | 21,317 | $ | 12,773 | $ | — | ||||||||||||
SARs liability (principal and interest) (2) | 25,880 | 2,080 | 4,408 | 2,334 | 17,058 | — | ||||||||||||||||||
Notes payable (principal and interest) (3) | 6,897 | 6,897 | — | — | — | — | ||||||||||||||||||
Deferred commissions payable (4) | 34,158 | 13,339 | 20,819 | — | — | — | ||||||||||||||||||
Deferred compensation liability (5) | 8,241 | 1,553 | 2,126 | 34 | — | 4,528 | ||||||||||||||||||
Contingent consideration (6) | 4,788 | 1,238 | 2,163 | 1,142 | 245 | — | ||||||||||||||||||
Other (7) | 2,146 | 1,235 | — | — | — | 911 | ||||||||||||||||||
$ | 171,351 | $ | 47,604 | $ | 63,405 | $ | 24,827 | $ | 30,076 | $ | 5,439 | |||||||||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Other (7) | |||||||||||||||||||
Operating lease liabilities, including imputed interest (1) | $ | 84,523 | $ | 22,970 | $ | 31,413 | $ | 20,938 | $ | 9,202 | $ | — | ||||||||||||
SARs liability (principal and interest) (2) | 22,356 | 2,162 | 4,515 | 4,896 | 10,783 | — | ||||||||||||||||||
Deferred commissions payable (3) | 34,592 | 19,286 | 15,306 | — | — | — | ||||||||||||||||||
Deferred compensation liability (4) | 8,287 | 1,519 | 1,026 | 127 | — | 5,615 | ||||||||||||||||||
Contingent consideration (5) | 5,572 | 1,353 | 2,277 | 1,573 | 369 | — | ||||||||||||||||||
Deferred consideration (5) | 15,248 | 6,666 | 6,998 | 1,584 | — | — | ||||||||||||||||||
Other (6) | 21,230 | 12,511 | 2,331 | 880 | 440 | 5,068 | ||||||||||||||||||
$ | 191,808 | $ | 66,467 | $ | 63,866 | $ | 29,998 | $ | 20,794 | $ | 10,683 | |||||||||||||
(1) | See Note 4 – “Operating Leases” of our Notes to the Consolidated Financial Statements. |
(2) | Forecasted principal payments are based on each participant’s estimated retirement age and contractual interest rate of |
(3) |
Includes short-term and long-term deferred commissions payable. See Note 7 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial Statements. |
(4) | 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 See Note 7 – “Selected Balance Sheet Data” of our Notes to the Consolidated Financial Statements. |
(5) | Relates to contingent and deferred 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. |
(6) | 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. |
(7) | Amounts in Other represent amounts where payments are dependent on future events, which may occur at any time from less than 1 year to more than 5 years 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. |
Fair Value of Investments Increase (Decrease) | ||||
Change in Interest Rates | Approximate Change in Fair Value of Investments Increase (Decrease) | |||
2% Decrease | $ | 1,873 | ||
1% Decrease | $ | 1,368 | ||
1% Increase | $ | (2,103 | ) | |
2% Increase | $ | (4,205 | ) |
Name | Age | Position(s) | ||||
Hessam Nadji | President, Chief Executive Officer and Director | |||||
Steven F. DeGennaro | 57 | Executive Vice President and Chief Financial Officer | ||||
Gregory A. LaBerge | 50 | Senior Vice President, Chief Administrative Officer | ||||
Martin E. Louie | ||||||
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) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (3) (4) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 1,124,161 | $ | — | 5,460,208 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
1,124,161 | $ | — | 5,460,208 | |||||||||
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) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (3) (4) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 1,243,217 | $ | — | 5,092,371 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
1,243,217 | $ | — | 5,092,371 | |||||||||
(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. |
(2) | Outstanding DSUs and RSUs have no exercise price. |
(3) | Includes |
(4) | 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. Pursuant to the provisions of the ESPP, the Board has determined to not provide for any annual increases to date. |
(a) | The following documents are filed as part of this Report: |
(1) | Consolidated Financial Statements |
(2) | Financial Statement Schedules |
(b) | Exhibits |
Number | Description | |||
3.1 | ||||
3.2 | ||||
4.1 | ||||
4.2 | ||||
10.1 | ||||
10.2† | ||||
10.3† | ||||
Number | Description | ||||
10.4† | |||||
10.5† | |||||
10.6† | |||||
10.7† | |||||
10.8† | |||||
10.9† | |||||
10.10† | |||||
10.11† | |||||
10.12† | |||||
10.13 | |||||
10.14 | |||||
10.15 | |||||
10.16† | |||||
10.17* | |||||
21.1* | |||||
23.1* | |||||
31.1* | |||||
Number | Description | |||
31.2* | ||||
32.1** | ||||
101* | The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, | |||
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 |
Dated: March 1, 2021 | ||||||||||
Marcus & Millichap, | ||||||||||
/s/ Hessam Nadji | ||||||||||
Hessam Nadji | ||||||||||
President and Chief Executive Officer |
Signature | Title | Date | ||||
/s/ Hessam Nadji Hessam Nadji | Director, President and Chief Executive Officer (Principal Executive Officer) | March | ||||
/s/ | Chief Financial Officer (Principal Financial Officer) | March | ||||
/s/ Kurt H. Schwarz Kurt H. Schwarz | First Vice President of Finance and Chief Accounting Officer (Principal Accounting Officer) | March | ||||
/s/ George M. Marcus George M. Marcus | Director | March | ||||
/s/ | ||||||
Norma J. Lawrence | Director | March | ||||
/s/ Lauralee E. Martin Lauralee E. Martin | Director | March | ||||
/s/ Nicholas F. McClanahan Nicholas F. McClanahan | Director | March | ||||
/s/ George T. Shaheen George T. Shaheen | Director | March | ||||
/s/ Don C. Watters Don C. Watters | Director | March |
Page | |||||
Deferred Commissions Payable
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Los Angeles, California March 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, 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, 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. F-4 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 MARCUS & MILLICHAP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for shares and par value)
See accompanying notes to consolidated financial statements. F-6 MARCUS & MILLICHAP, INC. CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME (in thousands, except per share amounts)
See accompanying notes to consolidated financial statements. F-7 MARCUS & MILLICHAP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except for shares)
F-8 MARCUS & MILLICHAP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
See accompanying notes to consolidated financial statements. F-9
MARCUS & MILLICHAP, INC.
Notes to Consolidated Financial Statements
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, 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 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. Considerations Related to the COVID-19 PandemicThe COVID-19 pandemic and resultant shutdown of economic activity across much of the world has led to sharp increases in unemployment, volatility in debt and equity markets and businesses instituting cost-cutting and capital-preservation measures. There has been a significant impact on commercial real estate markets in the United States and Canada that started at the end of first quarter 2020 and continued through the second quarter of 2020 as many property owners have put transactions on hold, driving significantly lower sales volumes. During the second half of the 2020, the Company experienced improvement in transaction activity. The Company could experience other potential impacts as a result of the COVID-19 pandemic. Actual results may differ from the Company’s current estimates as there is considerable uncertainty around the scope and duration of theCOVID-19 pandemic, and, as a result, the extent of the impact ofCOVID-19 on the Company’s operational and financial performance is uncertain and cannot be predicted. The Company expects the effects of theCOVID-19 pandemic to continue to impact its financial position, results of operations, and cash flows for at least the first quarter of 2021.See Note 3 – “Property and Equipment, Net”, Note 6 – “Acquisitions, Goodwill and Other Intangible Assets”, Note 10 – “Fair Value Measurements” and Note 16 – “Commitments and Contingencies” for further discussion on COVID-19. Reclassifications Certain prior-period amounts in the consolidated balance sheet and statement of cash flows, Note F-10 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements the current period presentation. These changes had no impact on the previously reported consolidated results of
Accounting Policies Cash and Cash Equivalents The Company considers available-for-sale. 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 ancillary fees associated with financing activities, including, but not limited to, mortgage 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.Commissions Receivable, Net Commissions receivable, net consists of commissions earned on brokerage and financing transactions for which payment has not yet been received. The Company evaluates the need for an allowance for F-11 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements based on Advances and Loans, Net Advances and loans, net includes amounts advanced and loans due from the Company’s investment sales and financing professionals. In order to attract and retain highly skilled professionals, from time to time, the Company The principal amount of a forgivable loan and accrued interest are forgiven over the term of the loan, so long as the investment sales and financing professionals continue to be a service provider with the Company, and/or upon achieving contractual performance criteria. Amounts forgiven are charged to selling, general and administrative expense at the time the amounts are forgiven. If the investment sales and financing professional’s relationship with the Company is terminated before the amount advanced is forgiven, the unforgiven amount becomes due and payable. The Company evaluates the need for an allowance for credit losses based on amounts advanced, expected forgiveness, consideration of historical experience, current conditions and forecasts of future economic conditions. Estimated credit losses, net of any reversals, are charged to credit loss expense included in selling, general and administrative expense. Amounts are generally written off when amounts are determined to be no longer collectable. Accrued interest, when applicable, has historically been immaterial. The Company, from time to time, enters into various agreements with certain of its investment sales and financing professionals whereby these individuals receive loans. The notes receivable, along with stated interest, are typically collected from future commissions 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. Some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual financial 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 one to three years, at our election, and paid at the beginning of the second and fourth calendar year. These deferred commissions are included in deferred compensation and commissions (current and non-current) captions in the accompanying consolidated balance sheets. Cost of services also includes referral fees paid to other real estate brokers where we are the principal service provider. Investments in Marketable Debt Securities, Available-for-Sale The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, F-12 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities (“ABS”) and other. The Company considers its available-for-sale, The Company available-for-sale, write-off of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.Determining whether a credit loss exists requires a high degree of judgment and the 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 of the change in the notional value of the participants accounts is recorded as a component of selling, general and administrative expense in the consolidated statements of net and comprehensive income.Fair Value Measurements U.S. GAAP defines the fair value of a financial instrument as the amount that would be received from the F-13 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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: Level 2: Level 3: 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 debt securities, available-for-sale, Fair values for investments included in cash and cash equivalents and marketable debt securities, available-for-sale 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 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 F-14 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements goodwill and other assets for indications of impairment 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 commissionsThe 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 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. 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 MARCUS & MILLICHAP, Notes to Consolidated Financial Statements 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. 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 non-current, and operating lease liabilities current andnon-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. F-16 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements Advertising costs for the years ended December 31, 2020, 2019 and 2018 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 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 (“RSUs”) and restricted stock awards (“RSAs”) 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 F-17 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements Accounting 2018-7”) on July 1, 2018. Prior to the adoption of ASU2018-7, 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 ASU2018-7, awards made to independentcontractors 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 0 forfeiture rate and includes 0 expected dividend yield as the Company has 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 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 F-18 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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. Concentrations of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, investments in marketable debt securities, available-for-sale, security deposits (included under other assets, non-current) and commissions 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, 2020, 2019 and 2018, During the year ended December 31, 2020, the Company’s Canadian operations represented less than 2% of total revenues. During the years ended December 31, 2019 During the years ended December 31, 2020, 2019 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 and deferred consideration, is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities assumed F-19 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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. 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 and Other Intangible Assets 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 in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred. The initial impairment evaluation of goodwill is a qualitative assessment and is performed to assess whether the fair value of a reporting unit (“RU”) is less than its carrying amount. The Company proceeds to the quantitative impairment test if it is more likely than not that the fair value of the RU is less than its carrying amount. If the Company determines the quantitative impairment test is required, the estimated fair value of the RU is compared to its carrying amount, including goodwill. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. The Company currently has only one The Company evaluates its finite-lived intangible assets for impairment at least annually, or as events or changes in circumstances indicate the carrying value may not be recoverable. The Company records an impairment loss if impairment triggers exist and the fair value of the asset is less than the asset’s carrying amount. The Company measures recoverability by comparing the carrying amount to the future undiscounted cash flows that the intangible assets are expected to generate. If the carrying value of the intangible assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value exceeds its fair value. 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 generally amortized on a straight-line basis using a useful life between one and 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 Recent Accounting Pronouncements Adopted In No. 2016-13”). TheMARCUS & MILLICHAP, Notes to Consolidated Financial Statements financial assets measured at amortized cost and marketable debt securities, available-for sale, which requires that identified credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) are permitted in the reporting period that the change occurs. Previously, U.S. GAAP prohibited reflecting any reversals of impairment charges. The Company adopted the new standard on January 1, 2020 using the modified-retrospective transition method for assets measured at amortized cost other than marketable debt securities, available-for-sale, which was adopted using a prospective transition approach as required by the new standard. On the adoption date, the Company recorded a cumulative-effect adjustment related to an allowance for credit losses associated with commissions receivable and advances and loans, net of tax in the amount of $33,000 with the offset to retained earnings as of the beginning of the period presented after adoption. The adoption of ASU 2016-13 did not have a material impact on the Company’s investment policy and impairment model for marketable debt securities,available-for-sale. available-for-sale, In No. Internal-Use Software (Subtopic350-40) - Customer’s Accounting for Implementation Costs 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 obtaininternal-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 aninternal-use software project. The Company adopted the new standard effective January 1, 2018-15 did not have a material effect on the Company’s consolidated financial statements.In No. 2019-12 is effective for reporting periods beginning after December 15, 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities related to outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes such asstep-up in tax basis for goodwill and interim recognition of enactment of tax laws or rate changes. The Company Pending Adoption In No. Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial 2020-04 provides temporary optional exceptions to the guidance in U.S. GAAP on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). ASU2020-04 is effective for F-21 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements
Property and equipment, net consisted of the following (in thousands):
During the years ended December 31, wrote-off approximately As of December 31, 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. As of December 31, 2020, the Company considered the impact of COVID-19 pandemic and evaluated its property and equipment for potential indicators of impairment. The Company concluded that as of December 31, 2020, therewere 0 indicators of impairment of its property and equipment.
The Company has operating leases for all of its facilities and autos. As of December 31, 2020 and 2019, operating lease ROU assets were $126.9 million and $111.1 million, respectively, and the related accumulated amortization was $42.9 million and $20.6 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):
F-22 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements Maturities of lease liabilities by year consisted of the following (in thousands):
Supplemental cash flow information and noncash activity related to the operating leases consisted of the following (in thousands):
Other information related to the operating leases consisted of the following:
MARCUS & MILLICHAP, Notes to Consolidated Financial Statements
Amortized cost, allowance for credit losses, gross unrealized gains/losses in accumulated other comprehensive income/loss and fair value of marketable debt securities, available-for-sale,
F-24 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements The available-for-sale
Gross realized gains and available-for-sale
The Company invests its excess cash in a diversified portfolio of fixed and variable rate debt securities to meet current and future cash flow needs. All investments are made in accordance with the Company’s approved investment policy. As of December 31, 2020, the portfolio had an average credit rating of AA and weighted term to final maturity of 1.6 years, with 29 securities in the portfolio with an unrealized loss aggregating $50,000, or 0.1% of amortized cost, and a weighted average credit rating of AA+. As of December 31, required to sell any security based on its current liquidity position, or to maintain compliance with its investment policy, specifically as it relates to minimum credit ratings. The Company evaluated the securities with an unrealized loss considering severity of loss, credit ratings, specific credit events during the period since acquisition, overall likelihood of default, market sector, potential impact F-25 MARCUS & MILLICHAP, Notes to Consolidated Financial Statements Amortized cost and fair value of marketable debt securities, available-for-sale,
Actual maturities may differ from contractual maturities because certain issuers may have the right or obligation to prepay certain obligations with or without prepayment penalties.
During The Company completed 4businessesthat $17.9 million (exclusive of cash acquired) (ii) the fair value of contingent consideration The Company recognized $1.3 million of acquisition-related costs that were expensed as incurred during the year ended December 31, 2020, which was included in selling, general and administrative expense in the accompanying consolidated statements of net and comprehensive income. F-26 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements The goodwill recorded as part of the acquisitions primarily arose from the acquired assembled workforce and brokerage and financing sales platforms. The Company expects all of the goodwill to be tax deductible, with the tax-deductible amount of goodwill related to the contingent and deferred consideration to be determined once the cash payments are made to settle any contingent and deferred consideration. The goodwill resulting from acquisitions is allocated to the Company’s 1 RU.Goodwill and intangible assets, net consisted of the following (in thousands):
The changes in the carrying amount of goodwill consisted of the following (in thousands):
Estimated amortization expense for intangible assets by year for the next five years and thereafter consisted of the following (in thousands):
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 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 evaluates its intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. F-27 MARCUS & MILLICHAP, Notes to Consolidated Financial Statements As of December 31, 2020, the Company considered the impact of COVID-19 pandemic and evaluated its goodwill and intangible assets for impairment testing. The Company considered qualitative and quantitative factors, including the impact from theCOVID-19 induced economic slowdown and current projected recovery timeframes. The Company estimated the recoverability of the intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows that the Company expects the asset to generate. The sum of the undiscounted expected future cash flows was greater than the carrying amount of the intangible assets. The Company concluded that as of December 31, 2020, there was 0 impairment of its goodwill and intangible assets.
Advances and Loans, Net and Commissions Receivable, Net Allowance for credit losses for advances and loans and commissions receivable consisted of the following (in thousands):
Other Assets Other assets consisted of the following (in thousands):
F-28 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements MSRs The net change in the carrying value of MSRs consisted of the following (in thousands):
The portfolio of loans serviced by the Company aggregated $1.6 billion $3.2 million and $2.6 million as of December 31, 2020 and 2019, respectively, 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. Deferred Compensation and Commissions Deferred compensation and commissions consisted of the following (in thousands):
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 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 atF-29 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements January 1, 2020, 2019 and 2018 were 3.920%, 4.684% and 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, 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 deferredcompensation 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 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):
F-30 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements
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
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, 2020, 2019 and 2018 of $68,000, $127,000 and 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, 2020, 2019 F-31 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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 Accounts Payable and Other Liabilities with MMC As of December 31, Other The Company makes advances to non-executive employees fromtime-to-time. non-current) in the accompanying consolidated balance sheets. See Note 7 – “Selected Balance Sheet Data” for additional information.As of December 31, F-32 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements
Recurring Fair Value Measurements Assets and liabilities carried at fair value on a recurring basis consisted of the following (in thousands):
There were 0 transfers in or out of Level 3 during the year ended December 31, During the year ended December 31, 2020, the Company considered the economic impact of COVID-19 on the probability of achieving EBITDA and other performance targets, and current and future interest rates in its determination of fair value for the contingent consideration. The Company is uncertain as to the extent of the volatility in the unobservable inputs in the foreseeable future. Deferred consideration in connection with acquisitions is carried at fair value and calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time. F-33 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements As of December 31, 2020 and 2019, contingent and 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):
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):
Nonrecurring Fair Value Measurements Management made revisions to the assumptions used in the determination of fair value for MSRs after considering the economic impact of the COVID-19 pandemic on default, severity, prepayment and discount rates related to the specific types and underlying collateral of the various serviced loans, interest rates, refinance rates, and current government and private sector responses to the pandemic. 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, 2020 and 2019 F-34 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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):
Common Stock As of December 31, non-employee directors, respectively. See Note 15 – “Earnings per Share” for additional information.Preferred Stock The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At December 31, Accumulated Other Comprehensive Income/Loss Amounts reclassified from accumulated other comprehensive income/loss include marketable debt securities, available for sale are included as a component of other income (expense), net or selling, general and administrative expense, as applicable, 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 0 earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative foreign currency translation adjustments.
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 and restated the 2013 Plan, which was approved by the F-35 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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, Awards Granted and Settled Under the 2013 Plan, the Company has issued non-employee directors and one-year subject to service requirements . RSUs generally vest in equal annual installments over aDuring the year ended December 31, F-36 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):
The aggregate fair value of RSUs and RSAs that vested were $8.9 million, $14.6 million F-37 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements The fair value of fully vested DSUs that settled was $0 million , $0 million and
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 period.The ESPP initially had 366,667 shares of common stock reserved, and 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. F-38 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements 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):
The components of income
F-39
MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements The provision
Significant components of the Company’s deferred tax assets, net consisted of the following (in thousands):
F-40 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements As of December 31, 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, 2020 and 2019, 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):
A reconciliation of the beginning and ending amounts of unrecognized tax benefits consisted of the following (in thousands):
It is reasonably possible that the unrecognized tax benefits balance may decrease by 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 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 0 earnings and profits to remit. As a result, deferred taxes were not provided related to the cumulative translation adjustments.
F-42 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements
Basic and diluted earnings per share for the years ended December 31, 2020, 2019
Credit Agreement OnJune 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, February 9, 2021 (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 F-43 MARCUS & MILLICHAP, INC. Notes to Consolidated Financial Statements Facility must be repaid in full. Upon the expiration of the use of the LIBOR as a benchmark, the benchmark will be replaced with the SOFR plus a spread adjustment. 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, (b) 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 between 0.875% to 1.125% above LIBOR.In connection with the 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 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 time and performance goals. Such commitments as of December 31, F-44 MARCUS & MILLICHAP, Notes to Consolidated Financial Statements
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
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