☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | 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.) | |
23975 Park Sorrento, Suite 400 Calabasas, California | 91302 | |
(Address of Principal Executive Offices) | (Zip Code) |
submittedsu ☐ ☒Non-accelerated filer ☐ ☒
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September 30, 2018 (Unaudited) | December 31, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 181,020 | $ | 220,786 | ||||
Commissions receivable | 5,548 | 9,586 | ||||||
Prepaid expenses | 6,516 | 9,661 | ||||||
Income tax receivable | — | 1,308 | ||||||
Marketable securities,available-for-sale | 120,701 | 73,560 | ||||||
Other assets, net | 7,572 | 5,529 | ||||||
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Total current assets | 321,357 | 320,430 | ||||||
Prepaid rent | 14,517 | 15,392 | ||||||
Property and equipment, net | 18,169 | 17,153 | ||||||
Marketable securities,available-for-sale | 85,135 | 52,099 | ||||||
Assets held in rabbi trust | 9,115 | 8,787 | ||||||
Deferred tax assets, net | 23,635 | 22,640 | ||||||
Goodwill and other intangible assets, net | 5,639 | — | ||||||
Other assets | 32,568 | 23,163 | ||||||
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Total assets | $ | 510,135 | $ | 459,664 | ||||
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Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 8,780 | $ | 9,202 | ||||
Notes payable to former stockholders | 1,087 | 1,035 | ||||||
Deferred compensation and commissions | 29,839 | 49,180 | ||||||
Income tax payable | 5,963 | — | ||||||
Accrued bonuses and other employee related expenses | 23,103 | 23,842 | ||||||
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Total current liabilities | 68,772 | 83,259 | ||||||
Deferred compensation and commissions | 45,418 | 49,361 | ||||||
Notes payable to former stockholders | 6,564 | 7,651 | ||||||
Deferred rent and other liabilities | 6,690 | 4,505 | ||||||
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Total liabilities | 127,444 | 144,776 | ||||||
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Commitments and contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value: | ||||||||
Authorized shares – 25,000,000; issued and outstanding shares – none at September 30, 2018 and December 31, 2017, respectively | — | — | ||||||
Common stock, $0.0001 par value: | ||||||||
Authorized shares – 150,000,000; issued and outstanding shares – 38,651,360 and 38,374,011 at September 30, 2018 and December 31, 2017, respectively | 4 | 4 | ||||||
Additionalpaid-in capital | 97,375 | 89,877 | ||||||
Stock notes receivable from employees | (4 | ) | (4 | ) | ||||
Retained earnings | 285,116 | 224,071 | ||||||
Accumulated other comprehensive income | 200 | 940 | ||||||
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Total stockholders’ equity | 382,691 | 314,888 | ||||||
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Total liabilities and stockholders’ equity | $ | 510,135 | $ | 459,664 | ||||
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for shares and par value)
September 30, 2019 (Unaudited) | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 226,081 | $ | 214,683 | ||||
Commissions receivable | 6,316 | 4,948 | ||||||
Prepaid expenses | 9,330 | 7,904 | ||||||
Income tax receivable | 7,786 | — | ||||||
Marketable securities, available-for-sale | 124,475 | 137,436 | ||||||
Other assets, net | 12,352 | 6,368 | ||||||
Total current assets | 386,340 | 371,339 | ||||||
Prepaid rent | — | 13,892 | ||||||
Property and equipment, net | 21,609 | 19,550 | ||||||
Operating lease right-of-use assets, net | 90,165 | — | ||||||
Marketable securities, available-for-sale | 70,785 | 83,209 | ||||||
Assets held in rabbi trust | 9,102 | 8,268 | ||||||
Deferred tax assets, net | 18,513 | 22,959 | ||||||
Goodwill and other intangible assets, net | 14,647 | 15,385 | ||||||
Other assets | 53,432 | 31,778 | ||||||
Total assets | $ | 664,593 | $ | 566,380 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 11,003 | $ | 11,035 | ||||
Notes payable to former stockholders | 6,564 | 1,087 | ||||||
Deferred compensation and commissions | 32,450 | 47,910 | ||||||
Income tax payable | — | 4,486 | ||||||
Operating lease liabilities | 17,500 | — | ||||||
Accrued bonuses and other employee related expenses | 16,964 | 28,338 | ||||||
Total current liabilities | 84,481 | 92,856 | ||||||
Deferred compensation and commissions | 41,695 | 49,887 | ||||||
Notes payable to former stockholders | — | 6,564 | ||||||
Operating lease liabilities | 64,316 | — | ||||||
Deferred rent and other liabilities | 2,001 | 7,499 | ||||||
Total liabilities | 192,493 | 156,806 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value: | ||||||||
Authorized shares – 25,000,000; issued and outstanding shares – NaN at September 30, 2019 and December 31, 2018, respectively | — | — | ||||||
Common stock, $ 0.0001 par value: | ||||||||
Authorized shares – 150,000,000; issued and outstanding shares – 39,132,236 and38,814,464 at September 30, 2019 and December 31, 2018, respectively | 4 | 4 | ||||||
Additional paid-in capital | 102,142 | 97,458 | ||||||
Stock notes receivable from employees | (4 | ) | (4 | ) | ||||
Retained earnings | 367,550 | 311,341 | ||||||
Accumulated other comprehensive income | 2,408 | 775 | ||||||
Total stockholders’ equity | 472,100 | 409,574 | ||||||
Total liabilities and stockholders’ equity | $ | 664,593 | $ | 566,380 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues: | ||||||||||||||||
Real estate brokerage commissions | $ | 191,980 | $ | 169,357 | $ | 536,145 | $ | 472,069 | ||||||||
Financing fees | 15,947 | 11,368 | 41,234 | 34,131 | ||||||||||||
Other revenues | 2,663 | 2,616 | 7,154 | 10,724 | ||||||||||||
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Total revenues | 210,590 | 183,341 | 584,533 | 516,924 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Cost of services | 132,896 | 114,803 | 354,414 | 314,827 | ||||||||||||
Selling, general and administrative expense | 48,659 | 42,480 | 145,792 | 129,393 | ||||||||||||
Depreciation and amortization expense | 1,651 | 1,375 | 4,529 | 3,975 | ||||||||||||
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Total operating expenses | 183,206 | 158,658 | 504,735 | 448,195 | ||||||||||||
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Operating income | 27,384 | 24,683 | 79,798 | 68,729 | ||||||||||||
Other income (expense), net | 2,127 | 1,172 | 5,060 | 3,005 | ||||||||||||
Interest expense | (342 | ) | (370 | ) | (1,054 | ) | (1,126 | ) | ||||||||
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Income before provision for income taxes | 29,169 | 25,485 | 83,804 | 70,608 | ||||||||||||
Provision for income taxes | 8,315 | 10,010 | 22,772 | 27,564 | ||||||||||||
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Net income | 20,854 | 15,475 | 61,032 | 43,044 | ||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Unrealized (losses) gains on marketable securities, net of tax of $(38), $66, $(259) and $242 for the three months ended September 30, 2018 and 2017 and the nine months ended September 30, 2018 and 2017, respectively | (115 | ) | 104 | (771 | ) | 325 | ||||||||||
Foreign currency translation (loss) gain, net of tax of $0 for each of the three months ended September 30, 2018 and 2017 and each of the nine months ended September 30, 2018 and 2017 | (29 | ) | (40 | ) | 44 | (65 | ) | |||||||||
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Total other comprehensive (loss) income | (144 | ) | 64 | (727 | ) | 260 | ||||||||||
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Comprehensive income | $ | 20,710 | $ | 15,539 | $ | 60,305 | $ | 43,304 | ||||||||
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Earnings per share: | ||||||||||||||||
Basic | $ | 0.53 | $ | 0.40 | $ | 1.56 | $ | 1.10 | ||||||||
Diluted | $ | 0.53 | $ | 0.39 | $ | 1.55 | $ | 1.10 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 39,191 | 39,033 | 39,147 | 38,995 | ||||||||||||
Diluted | 39,484 | 39,204 | 39,359 | 39,136 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues: | ||||||||||||||||
Real estate brokerage commissions | $ | 180,198 | $ | 191,980 | $ | 513,815 | $ | 536,145 | ||||||||
Financing fees | 16,013 | 15,947 | 47,487 | 41,234 | ||||||||||||
Other revenues | 2,009 | 2,663 | 7,218 | 7,154 | ||||||||||||
Total revenues | 198,220 | 210,590 | 568,520 | 584,533 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 124,147 | 132,896 | 343,682 | 354,414 | ||||||||||||
Selling, general and administrative expense | 48,091 | 48,659 | 149,845 | 145,792 | ||||||||||||
Depreciation and amortization expense | 1,910 | 1,651 | 5,674 | 4,529 | ||||||||||||
Total operating expenses | 174,148 | 183,206 | 499,201 | 504,735 | ||||||||||||
Operating income | 24,072 | 27,384 | 69,319 | 79,798 | ||||||||||||
Other income (expense), net | 2,573 | 2,127 | 9,067 | 5,060 | ||||||||||||
Interest expense | (329 | ) | (342 | ) | (1,018 | ) | (1,054 | ) | ||||||||
Income before provision for income taxes | 26,316 | 29,169 | 77,368 | 83,804 | ||||||||||||
Provision for income taxes | 7,024 | 8,315 | 21,159 | 22,772 | ||||||||||||
Net income | 19,292 | 20,854 | 56,209 | 61,032 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Marketable securities, available-for-sale: | ||||||||||||||||
Change in unrealized gains (losses) | 160 | (115 | ) | 1,874 | (779 | ) | ||||||||||
Less: reclassification adjustment for net (gains) losses included in other income (expense), net | (23 | ) | — | (41 | ) | 8 | ||||||||||
Net change, net of tax of $ 46 , $(38), $617 and $(259) for the three and nine monthsended September 30, 2019 and 2018, respectively | 137 | (115 | ) | 1,833 | (771 | ) | ||||||||||
Foreign currency translation gain (loss), net of tax of $0 for each of the three and nine months ended September 30, 2019 and 2018 | 114 | (29 | ) | (200 | ) | 44 | ||||||||||
Total other comprehensive income (loss) | 251 | (144 | ) | 1,633 | (727 | ) | ||||||||||
Comprehensive income | $ | 19,543 | $ | 20,710 | $ | 57,842 | $ | 60,305 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.53 | $ | 1.43 | $ | 1.56 | ||||||||
Diluted | $ | 0.49 | $ | 0.53 | $ | 1.42 | $ | 1.55 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 39,441 | 39,191 | 39,383 | 39,147 | ||||||||||||
Diluted | 39,550 | 39,484 | 39,527 | 39,359 |
Inc.
Consolidated StatementS of Stockholders’ Equity
thousands, except for shares)
Preferred Stock | Common Stock | Additional Paid-In Capital | Stock Notes Receivable From Employees | Retained Earnings | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | — | $ | — | 38,374,011 | $ | 4 | $ | 89,877 | $ | (4 | ) | $ | 224,071 | $ | 940 | $ | 314,888 | |||||||||||||||||||
Cumulative effect of a change in accounting principle | — | — | — | — | — | — | 13 | (13 | ) | — | ||||||||||||||||||||||||||
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Balance at January 1, 2018, as adjusted | — | — | 38,374,011 | 4 | 89,877 | (4 | ) | 224,084 | 927 | 314,888 | ||||||||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 61,032 | (727 | ) | 60,305 | ||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 8,919 | — | — | — | 8,919 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 13,028 | — | 356 | — | — | — | 356 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 305,975 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 12,852 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (54,506 | ) | — | (1,777 | ) | — | — | — | (1,777 | ) | ||||||||||||||||||||||||
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Balance as of September 30, 2018 | — | $ | — | 38,651,360 | $ | 4 | $ | 97,375 | $ | (4 | ) | $ | 285,116 | $ | 200 | $ | 382,691 | |||||||||||||||||||
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Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||
Additional Paid-In | Stock Notes Receivable From | Retained | Accumulated Other Comprehensive | |||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income | Total | ||||||||||||||||||||||||||||
Balance at June 30, 2019 | — | $ | — | 39,090,861 | $ | 4 | $ | 100,098 | $ | (4 | ) | $ | $ | 2,157 | $ | |||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 19,292 | 251 | 19,543 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,114 | — | — | — | 2,114 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 41,257 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 2,264 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (2,146 | ) | — | (70 | ) | — | — | — | (70 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2019 | — | $ | — | 39,132,236 | $ | 4 | $ | 102,142 | $ | (4 | ) | $ | 367,550 | $ | 2,408 | $ | 472,100 |
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Stock Notes Receivable From | Retain ed | Accumulated Other Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income (Loss) | Total | ||||||||||||||||||||||||||||
Balance at June 30, 2018 | — | $ | — | 38,621,712 | $ | 4 | $ | $ | (4 | ) | $ | $ | 344 | $ | ||||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 20,854 | (144 | ) | 20,710 | ||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 3,147 | — | — | — | 3,147 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 31,235 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (1,587 | ) | — | (63 | ) | — | — | — | (63 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2018 | — | $ | — | 38,651,360 | $ | 4 | $ | 97,375 | $ | (4 | ) | $ | 285,116 | $ | 200 | $ | 382,691 | |||||||||||||||||||
Inc.
Consolidated StatementS of Stockholders’ Equity
thousands, except for shares)
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 61,032 | $ | 43,044 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization expense | 4,529 | 3,975 | ||||||
Provision for bad debt expense | 52 | 33 | ||||||
Stock-based compensation | 8,919 | 6,173 | ||||||
Deferred taxes, net | (735 | ) | 1,541 | |||||
Net realized (gains) losses on marketable securities,available-for-sale | (12 | ) | (2 | ) | ||||
Othernon-cash items | (148 | ) | (46 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Commissions receivable | 4,183 | 594 | ||||||
Prepaid expenses | 3,145 | 2,266 | ||||||
Prepaid rent | 875 | (1,831 | ) | |||||
Asset held in rabbi trust | — | (700 | ) | |||||
Other assets | (9,066 | ) | (12,780 | ) | ||||
Accounts payable and other liabilities | (1,552 | ) | (1,359 | ) | ||||
Income tax receivable/payable | 7,271 | 2,477 | ||||||
Accrued bonuses and other employee related expenses | (558 | ) | (1,763 | ) | ||||
Deferred compensation and commissions | (23,739 | ) | (16,760 | ) | ||||
Deferred rent and other liabilities | 817 | 476 | ||||||
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Net cash provided by operating activities | 55,013 | 25,338 | ||||||
Cash flows from investing activities | ||||||||
Acquisitions, net of cash received | (6,990 | ) | — | |||||
Purchases of marketable securities,available-for-sale | (168,672 | ) | (37,561 | ) | ||||
Proceeds from sales and maturities of marketable securities,available-for-sale | 88,027 | 14,950 | ||||||
Issuances of employee notes receivable | (126 | ) | (432 | ) | ||||
Payments received on employee notes receivable | 12 | 9 | ||||||
Proceeds from sale of property and equipment | — | 10 | ||||||
Purchase of property and equipment | (4,574 | ) | (4,987 | ) | ||||
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Net cash used in investing activities | (92,323 | ) | (28,011 | ) | ||||
Cash flows from financing activities | ||||||||
Taxes paid related to net share settlement of stock-based awards | (1,777 | ) | (1,442 | ) | ||||
Proceeds from issuance of shares pursuant to employee stock purchase plan | 356 | 392 | ||||||
Principal payments on notes payable to former stockholders | (1,035 | ) | (986 | ) | ||||
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Net cash used in financing activities | (2,456 | ) | (2,036 | ) | ||||
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Net decrease in cash and cash equivalents | (39,766 | ) | (4,709 | ) | ||||
Cash and cash equivalents at beginning of period | 220,786 | 187,371 | ||||||
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Cash and cash equivalents at end of period | $ | 181,020 | $ | 182,662 | ||||
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MARCUS & MILLICHAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollar amounts in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid during the period | $ | 2,180 | $ | 1,896 | ||||
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Income taxes paid, net | $ | 16,237 | $ | 23,546 | ||||
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Supplemental disclosures of noncash investing and financing activities | ||||||||
Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable | $ | 192 | $ | 243 | ||||
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Change in property and equipment included in accounts payable and other liabilities | $ | 708 | $ | (203 | ) | |||
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Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||
Stock Notes | Accumulated | |||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-I n | Receivable From | Retained | Other Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | — | $ | — | 38,814,464 | $ | 4 | $ | 97,458 | $ | (4 | ) | $ | $ | 775 | $ | |||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 56,209 | 1,633 | 57,842 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 7,040 | — | — | — | 7,040 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 11,022 | — | 338 | — | — | — | 338 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 366,476 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 12,806 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (72,532 | ) | — | (2,694 | ) | — | — | — | (2,694 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2019 | — | $ | — | 39,132,236 | $ | 4 | $ | 102,142 | $ | (4 | ) | $ | 367,550 | $ | 2,408 | $ | 472,100 | |||||||||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||
Additional Paid-In | Stock Notes Receivable | Accumulated Other | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | From | Retained | Comprehensive | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income (Loss) | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2017 | — | $ | — | 38,374,011 | $ | 4 | $ | 89,877 | $ | (4 | ) | $ | 224,071 | $ | 940 | $ | 314,888 | |||||||||||||||||||
Cumulative effect of a change in accounting principle | — | — | — | — | — | — | 13 | (13 | ) | — | ||||||||||||||||||||||||||
Balance at January 1, 2018, as adjusted | — | — | 38,374,011 | 4 | 89,877 | (4 | ) | 224,084 | 927 | 314,888 | ||||||||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 61,032 | (727 | ) | 60,305 | ||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 8,919 | — | — | — | 8,919 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 13,028 | — | 356 | — | — | — | 356 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 305,975 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 12,852 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (54,506 | ) | — | (1,777 | ) | — | — | — | (1,777 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2018 | — | $ | — | 38,651,360 | $ | 4 | $ | 97,375 | $ | (4 | ) | $ | 285,116 | $ | 200 | $ | 382,691 | |||||||||||||||||||
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 56,209 | $ | 61,032 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization expense | 5,674 | 4,529 | ||||||
Amortization of right-of-use assets | 15,433 | — | ||||||
Provision of bad debt expense | 75 | 52 | ||||||
Stock-based compensation | 7,040 | 8,919 | ||||||
Deferred taxes, net | 3,829 | (735 | ) | |||||
Net realized gains on marketable securities, available-for-sale | (70 | ) | (12 | ) | ||||
Other non-cash items | 489 | (148 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Commissions receivable | (1,368 | ) | 4,183 | |||||
Prepaid expenses | (1,426 | ) | 3,145 | |||||
Prepaid rent | — | 875 | ||||||
Other assets, net | (31,302 | ) | (9,066 | ) | ||||
Accounts payable and other liabilities | 103 | (1,552 | ) | |||||
Income tax receivable/payable | (12,272 | ) | 7,271 | |||||
Accrued bonuses and other employee related expenses | (11,314 | ) | (558 | ) | ||||
Deferred compensation and commissions | (24,409 | ) | (23,739 | ) | ||||
Operating lease liabilities | (12,725 | ) | — | |||||
Deferred rent and other liabilities | (19 | ) | 817 | |||||
Net cash (used in) provided by operating activities | (6,053 | ) | 55,013 | |||||
Cash flows from investing activities | ||||||||
Acquisition, net of cash received | — | (6,990 | ) | |||||
Purchases of marketable securities, available-for-sale | (115,744 | ) | (168,672 | ) | ||||
Proceeds from sales and maturities of marketable securities, available-for-sale | 143,638 | 88,027 | ||||||
Issuances of employee notes receivable | (200 | ) | (126 | ) | ||||
Payments received on employee notes receivable | 28 | 12 | ||||||
Purchase of property and equipment | (6,643 | ) | (4,574 | ) | ||||
Net cash provided by (used in) investing activities | 21,079 | (92,323 | ) | |||||
Cash flows from financing activities | ||||||||
Taxes paid related to net share settlement of stock-based awards | (2,694 | ) | (1,777 | ) | ||||
Proceeds from issuance of shares pursuant to employee stock purchase plan | 338 | 356 | ||||||
Principal payments on notes payable to former stockholders | (1,087 | ) | (1,035 | ) | ||||
Principal payments on stock appreciation rights liability | (185 | ) | — | |||||
Net cash used in financing activities | (3,628 | ) | (2,456 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 11,398 | (39,766 | ) | |||||
Cash and cash equivalents at beginning of period | 214,683 | 220,786 | ||||||
Cash and cash equivalents at end of period | $ | 226,081 | $ | 181,020 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid during the period | $ | 2,092 | $ | 2,180 | ||||
Income taxes paid, net | $ | 29,602 | $ | 16,237 | ||||
1. | Description of Business and Basis of Presentation |
2013
2. | Accounting Policies and Recent Accounting Pronouncements |
|
Accounting Policies
The complete list
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, under which the consideration for the acquisition is allocated to the assets acquired and liabilities assumed. The Company recognizes identifiable assets acquired and liabilities assumed (both specific and contingent) at their acquisition date fair values as determined by management as of the acquisition date. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed as incurred and not considered in determining the fair value of the acquired assets. The excess of the consideration over the assets acquired net of liabilities assumed is recognized as goodwill.
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 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 includenon-compete agreements and customer relationships that resulted from its business combinations. These intangible assets are amortized on a straight-line basis using a useful life between one and six years.The Company evaluates its intangible assets for impairment at least annually, or as events or changes in circumstances indicate the carrying value may be impaired.
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 andnon-employee directors. Awards are issued under the Amended and Restated 2013 Omnibus Equity Incentive Plan and 2013 Employee Stock Purchase Plan (“ESPP Plan”).
After adoption of Accounting Standards Update (“ASU”)No. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU 2016-09”) on January 1, 2017, the Company accounts for forfeitures as they occur.
For awards made to the Company’s employees and directors, the Company initially values restricted stock units and restricted stock awards based on the grant date closing price of the Company’s common stock. For awards with periodic vesting, the Company recognizes the related expense on a straight-line basis over the requisite service period for the entire award, subject to periodic adjustments to ensure that the cumulative amount of expense recognized through the end of any reporting period is at least equal to the portion of the grant date value of the award that has vested through that date.
The Company adopted ASUNo. 2018-7,Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accountingawards (“ASU2018-7”) on July 1, 2018. As a result, awards made to independent contractors will be 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. Prior to the adoption of ASU2018-7, the Company determined that the fair value of the awards made to independent contractors shall 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 commitment date, and the measurement date was the date the services were completed, which was the vesting date. As a result, the Company recorded stock-based compensation for these awards over the vesting period on a straight-line basis with periodic adjustments during the vesting period for changes in the fair value of the awards.
If there are any modifications or cancellations of the underlying unvested share-based awards, the Company may be required to accelerate, increase or cancel any remaining unrecognized or previously recorded stock-based compensation expense.
For awards issued under the ESPP Plan, the Company determined that the plan was a compensatory plan and is required to expense the fair value of the awards over eachsix-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.
The Company assessed the impact of the standard and determined that its contracts contain one performance obligation related to its real estate brokerage, financing and consulting and advisory services offered to buyers and sellers of commercial real estate and provide that it is operating as a principal in all of its revenue generating activities. The Company does not have multiple-element arrangements, variable consideration, financing components, significant noncash consideration, licenses, long-term contracts with customers or other items affecting the transaction price. The Company determined the transaction price is generally fixed and determinable and collectability is reasonably assured. Revenue was and will continue to be recognized in principally all cases at the close of escrow for real estate brokerage, close of loan for financing and when services are provided upon closing of the transaction for other revenues. Accordingly, the adoption of ASU2014-09, as clarified, did not have an effect on the manner or timing of the recognition of the Company’s revenue.
In January 2017, the FASB issued ASUNo. 2017-01,Business Combinations: Clarifying the Definition of a Business(“ASU 2017-01”). ASU2017-01 changed the definition of a business in an effort to assist entities with evaluating whether a set of transferred assets and activities is a business. ASU2017-01 was effective for the Company on January 1, 2018.
In January 2017, the FASB issued ASUNo. 2017-04,Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment(“ASU 2017-04”). ASU2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 from the goodwill impairment test. ASU2017-04 is effective for the Company on January 1, 2020, with early adoption permitted. The qualitative assessment remains optional and is unchanged. The Company prospectively adopted ASU2017-04 in the second quarter of 2018. There was no impact to the Company as the Company was not required to evaluate goodwill for impairment.
In February 2018, the FASB issued ASUNo. 2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeAccounting Standards Update (“ASU2018-02”). ASU2018-02 is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. ASU2018-02 permits companies that elect to make the reclassification adjustment the option to apply the guidance retrospectively or to record the reclassification as of the beginning of the period of adoption. The Company adopted the new standard on January 1, 2018 and elected to make the reclassification adjustment pertaining to the stranded tax effects resulting from the enactment of the Tax Cuts and Jobs Act (the “Act”ASU”) from accumulated other comprehensive income to retained earnings as of the beginning of the period, which was in the amount of $13,000.
In June 2018, the FASB issued ASUNo. 2018-7. ASU2018-7 is effective for reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted, including in interim periods, but no earlier than an entity’s adoption of ASC 606,Revenue from Contracts with Customers. For the Company, the new standard would have been effective during the first quarter of 2019 with early adoption permitted and will require equity-classified share-based payment awards issued tonon-employees to be measured based on the grant date price, instead of the previous requirement to remeasure the awards through the performance completion date. The Company early adopted ASU2018-7 during the third quarter of 2018. As a result of the adoption, awards issued tonon-employees prior to the adoption date of July 1, 2018 were remeasured at the adoption date stock price with no further remeasurement through the performance completion date. Awards issued to nonemployees subsequent to the adoption date are based on the grant date stock price. The Company will recognize the remaining unrecognized value of unvestednon-employee awards over the remaining performance period based on the adoption date stock price with no further remeasurement through the performance completion date.
Pending Adoption
In February 2016, the FASB issued ASUNo. 2016-02,
financial statements.
impairment model for marketable securities,
3. |
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September 30, | December 31, | |||||||
Computer software and hardware equipment | $ | 24,489 | $ | 20,427 | ||||
Furniture, fixtures, and equipment | 23,410 | 24,227 | ||||||
Less: accumulated depreciation and amortization | (26,290 | ) | (25,104 | ) | ||||
$ | 21,609 | $ | 19,550 | |||||
4. | Operating Leases |
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Operating lease cost: | ||||||||
Lease cost (1) | $ | 6,148 | $ | 18,163 | ||||
Variable lease cost (2) | 1,423 | 3,913 | ||||||
Sublease income | (68 | ) | (199 | ) | ||||
$ | 7,503 | $ | 21,877 | |||||
(1) | Includes short-term lease cost and ROU asset amortization. |
(2) | Primarily relates to common area maintenance, property taxes, insurance, utilities and parking. |
September 30, | ||||
Remainder of 2019 | $ | 5,187 | ||
2020 | 20,724 | |||
2021 | 18,233 | |||
2022 | 14,158 | |||
2023 | 10,959 | |||
Thereafter | 21,345 | |||
Total future minimum lease payments | 90,606 | |||
Less imputed interest | (8,790 | ) | ||
Present value of operating lease liabilities | $ | 81,816 | ||
Nine Months Ended September 30, 2019 | ||||
Operating cash flow information: | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 15,064 | ||
Noncash activity: | ||||
ROU assets obtained in exchange for operating lease liabilities | $ | 17,806 | ||
Tenant improvements owned by lessor related to ROU assets (1) | $ | 3,642 |
(1) | Reclassification from other assets current. |
September 30, 2019 | ||||
Weighted average remaining operating lease term | 5.18 years | |||
Weighted average discount rate | 3.9 | % |
December 31, | ||||
2019 | $ | 19,649 | ||
2020 | 19,287 | |||
2021 | 16,833 | |||
2022 | 12,368 | |||
2023 | 8,805 | |||
Thereafter | 10,452 | |||
$ | 87,394 | |||
5. | Investments in Marketable Securities |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 109,208 | $ | 192 | $ | (1 | ) | $ | 109,399 | $ | 121,252 | $ | 7 | $ | (79 | ) | $ | 121,180 | ||||||||||||||
U.S. government sponsored entities | — | — | — | — | 3,512 | — | (7 | ) | 3,505 | |||||||||||||||||||||||
Corporate debt securities | 15,019 | 57 | — | 15,076 | 11,962 | — | (11 | ) | 11,951 | |||||||||||||||||||||||
Asset-backed securities and other | — | — | — | — | 806 | — | (6 | ) | 800 | |||||||||||||||||||||||
$ | 124,227 | $ | 249 | $ | (1 | ) | $ | 124,475 | $ | 137,532 | $ | 7 | $ | (103 | ) | $ | 137,436 | |||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 30,146 | $ | 325 | $ | (15 | ) | $ | 30,456 | $ | 44,997 | $ | 128 | $ | (115 | ) | $ | 45,010 | ||||||||||||||
U.S. government sponsored entities | 1,415 | 2 | (4 | ) | 1,413 | 1,569 | — | (62 | ) | 1,507 | ||||||||||||||||||||||
Corporate debt securities | 29,870 | 980 | (8 | ) | 30,842 | 32,467 | 3 | (633 | ) | 31,837 | ||||||||||||||||||||||
Asset-backed securities and other | 7,965 | 113 | (4 | ) | 8,074 | 4,889 | 12 | (46 | ) | 4,855 | ||||||||||||||||||||||
$ | 69,396 | $ | 1,420 | $ | (31 | ) | $ | 70,785 | $ | 83,922 | $ | 143 | $ | (856 | ) | $ | 83,209 | |||||||||||||||
The acquisitions were accounted for as business combinations. Based on preliminary purchase price allocations, $2.0 million, net, was allocated to mortgage servicing assets ($2.1 million) and liabilities ($0.1 million), $1.6 million was allocated to the fair values of intangible assets, $0.8 million to other assets noncurrent and $0.1 million to acquired working capital, with the remainder of $4.2 million allocated to goodwill.
The goodwill recorded as partcontinuous unrealized loss position consisted of the acquisitions primarily arosefollowing (in thousands):
September 30, 2019 | December 31, 2018 | |||||||||||||||
Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | |||||||||||||
Less than 12 months | $ | (28 | ) | $ | 11,931 | $ | (576 | ) | $ | 127,326 | ||||||
12 months or longer | $ | (4 | ) | $ | 1,071 | $ | (383 | ) | $ | 30,609 | ||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Gross realized gains (1) | $ | 58 | $ | — | $ | 117 | $ | 12 | ||||||||
Gross realized losses (1) | $ | — | $ | — | $ | (47 | ) | $ | — | |||||||
(1) | Recorded in other income (expense), net in the condensed consolidated statements of net and comprehensive income. The cost basis of securities sold were determined based on the specific identification method. |
September 30, 2019 | December 31, 2018 | |||||||||||||||
Amortized | Fair Value | Amortized | Fair Value | |||||||||||||
Due in one year or less | $ | 124,227 | $ | 124,475 | $ | 137,532 | $ | 137,436 | ||||||||
Due after one year through five years | 49,754 | 50,435 | 61,875 | 61,846 | ||||||||||||
Due after five years through ten years | 14,923 | 15,601 | 17,310 | 16,747 | ||||||||||||
Due after ten years | 4,719 | 4,749 | 4,737 | 4,616 | ||||||||||||
$ | 193,623 | $ | 195,260 | $ | 221,454 | $ | 220,645 | |||||||||
Weighted average contractual maturity | 1.9 years | 1.8 years |
6. | Goodwill and Other Intangible Assets |
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
Goodwill and intangible assets: | ||||||||||||||||||||||||
Goodwill(1) | $ | 4,186 | $ | — | $ | 4,186 | $ | — | $ | — | $ | — | ||||||||||||
Intangible assets(1) | 1,571 | (118 | ) | 1,453 | — | — | — | |||||||||||||||||
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$ | 5,757 | $ | (118 | ) | $ | 5,639 | $ | — | $ | — | $ | — | ||||||||||||
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September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Gross Amount | Accumulated Amortization | Net Book Value | Gross Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
Goodwill and intangible assets: | ||||||||||||||||||||||||
Goodwill (1) | $ | 11,459 | $ | — | $ | 11,459 | $ | 11,459 | $ | — | $ | 11,459 | ||||||||||||
Intangible assets (1) | 4,240 | (1,052 | ) | 3,188 | 4,240 | (314 | ) | 3,926 | ||||||||||||||||
$ | 15,699 | $ | (1,052 | ) | $ | 14,647 | $ | 15,699 | $ | (314 | ) | $ | 15,385 | |||||||||||
(1) | Represents additions from |
September 30, 2018 | December 31, 2017 | |||||||
Beginning balance | $ | — | $ | — | ||||
Additions from acquisition | 1,571 | — | ||||||
Amortization | (118 | ) | — | |||||
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$ | 1,453 | $ | — | |||||
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Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Beginning balance | $ | 11,459 | $ | — | ||||
Additions from acquisitions | — | 4,186 | ||||||
Impairment losses | — | — | ||||||
Ending balance | $ | 11,459 | $ | 4,186 | ||||
September 30, 2018 | ||||
Remainder of 2018 | $ | 88 | ||
2019 | 340 | |||
2020 | 327 | |||
2021 | 245 | |||
2022 | 184 | |||
Thereafter | 269 | |||
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$ | 1,453 | |||
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September 30, 2019 | ||||
Remainder of 2019 | $ | 205 | ||
2020 | 817 | |||
2021 | 743 | |||
2022 | 621 | |||
2023 | 493 | |||
Thereafter | 309 | |||
$ | 3,188 | |||
|
Property and equipment, net consisted of the following (in thousands):
September 30, 2018 | December 31, 2017 | |||||||
Computer software and hardware equipment | $ | 18,311 | $ | 16,247 | ||||
Furniture, fixtures, and equipment | 23,527 | 21,695 | ||||||
Less: accumulated depreciation and amortization | (23,669 | ) | (20,789 | ) | ||||
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$ | 18,169 | $ | 17,153 | |||||
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During the nine months ended September 30, 2018 and 2017, the Company wrote off approximately $1.4 million and $2.9 million, respectively, of fully depreciated computer software and hardware equipment and furniture, fixtures and equipment.
Selected Balance Sheet Data |
Current | Non-Current | |||||||||||||||
September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | |||||||||||||
MSRs, net of amortization | $ | — | $ | — | $ | 2,329 | $ | — | ||||||||
Due from independent contractors, net(1) (2) | 3,236 | 3,672 | 28,032 | 21,726 | ||||||||||||
Security deposits | — | — | 1,170 | 1,158 | ||||||||||||
Employee notes receivable(3) | 184 | 366 | 139 | 255 | ||||||||||||
Customer trust accounts and other | 4,152 | 1,491 | 898 | 24 | ||||||||||||
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$ | 7,572 | $ | 5,529 | $ | 32,568 | $ | 23,163 | |||||||||
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Current | Non-Current | |||||||||||||||
September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
MSRs, net of amortization | $ | — | $ | — | $ | 2,039 | $ | 2,209 | ||||||||
Due from independent contractors, net (1) (2) | 2,381 | 3,831 | 48,911 | 27,157 | ||||||||||||
Security deposits | — | — | 1,313 | 1,196 | ||||||||||||
Employee notes receivable (3) | 150 | 156 | 373 | 370 | ||||||||||||
Customer trust accounts and other | 9,821 | 2,381 | 796 | 846 | ||||||||||||
$ | 12,352 | $ | 6,368 | $ | 53,432 | $ | 31,778 | |||||||||
(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. |
(2) | Includes allowance for doubtful accounts related to current receivables of wrote-off $82 and wrote-off $185 and |
(3) | Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $60 and $192 for the nine months ended September 30, 2019 and 2018, respectively. See Note |
September 30, 2018 | December 31, 2017 | |||||||
Beginning balance | $ | — | $ | — | ||||
Additions from acquisition | 2,121 | — | ||||||
Additions | 373 | — | ||||||
Amortization | (165 | ) | — | |||||
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$ | 2,329 | $ | — | |||||
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September 30, 2019 | December 31, 2018 | |||||||
Beginning balance | $ | 2,209 | $ | — | ||||
Additions from acquisition | — | 2,121 | ||||||
Additions | 243 | 391 | ||||||
Amortization | (413 | ) | (303 | ) | ||||
Ending balance | $ | 2,039 | $ | 2,209 | ||||
Current | Non-Current | |||||||||||||||
September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | |||||||||||||
Stock appreciation rights (“SARs”) liability(1) | $ | 1,735 | $ | 1,662 | $ | 19,150 | $ | 20,217 | ||||||||
Commissions payable to investment sales and financing professionals | 26,843 | 46,257 | 18,583 | 21,924 | ||||||||||||
Deferred compensation liability(1) | 1,261 | 1,261 | 7,685 | 7,220 | ||||||||||||
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$ | 29,839 | $ | 49,180 | $ | 45,418 | $ | 49,361 | |||||||||
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Current | Non-Current | |||||||||||||||
September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | |||||||||||||
Stock appreciation rights (“SARs”) liability (1) | $ | 1,895 | $ | 1,810 | $ | 18,082 | $ | 19,299 | ||||||||
Commissions payable to investment sales and financing professionals | 29,118 | 44,812 | 16,858 | 23,983 | ||||||||||||
Deferred compensation liability (1) | 1,437 | 1,288 | 6,755 | 6,605 | ||||||||||||
$ | 32,450 | $ | 47,910 | $ | 41,695 | $ | 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 retirement of certain participants, estimated amounts to be paid to the participants within the next twelve months have been classified as current. |
Under the revised agreements, MMI is required to accrue interest on the outstanding balance beginning onten10 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.2017 were 4.409% and 4.446%, respectively. MMI recorded interest expense related to this liability of $220,000$226,000 and $233,000,$220,000 for the three months ended September 30, 20182019 and 2017,2018, respectively, and $669,000$678,000 and $699,000$669,000 for the nine months ended September 30, 2019 and 2018, and 2017, respectively.(consistingof $1.8 million, consisting of principal ($interest)interest, respectively.
$1.3 million and $946,000, respectively.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Increase in the carrying value of the assets held in the rabbi trust(1) | $ | 266 | $ | 202 | $ | 456 | $ | 571 | ||||||||
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Increase in the net carrying value of the deferred compensation obligation(2) | $ | 267 | $ | 219 | $ | 455 | $ | 618 | ||||||||
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|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Increase in the carrying value of the assets held in the rabbi trust (1) | $ | 31 | $ | 266 | $ | 959 | $ | 456 | ||||||||
Increase in the net carrying value of the deferred compensation obligation (2) | $ | 31 | $ | 267 | $ | 943 | $ | 455 | ||||||||
(1) | Recorded in other income (expense), net in the condensed consolidated statements of net and comprehensive income. |
(2) | Recorded in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income. |
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Amortized cost
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 106,291 | $ | — | $ | (150 | ) | $ | 106,141 | $ | 57,712 | $ | — | $ | (88 | ) | $ | 57,624 | ||||||||||||||
U.S. government sponsored entities | 3,502 | — | (17 | ) | 3,485 | 7,016 | — | (8 | ) | 7,008 | ||||||||||||||||||||||
Corporate debt securities | 10,988 | — | (13 | ) | 10,975 | 8,931 | — | (3 | ) | 8,928 | ||||||||||||||||||||||
Asset-backed securities and other | 100 | — | — | 100 | — | — | — | — | ||||||||||||||||||||||||
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| |||||||||||||||||
$ | 120,881 | $ | — | $ | (180 | ) | $ | 120,701 | $ | 73,659 | $ | — | $ | (99 | ) | $ | 73,560 | |||||||||||||||
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Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 52,865 | $ | — | $ | (343 | ) | $ | 52,522 | $ | 18,111 | $ | 7 | $ | (164 | ) | $ | 17,954 | ||||||||||||||
U.S. government sponsored entities | 1,603 | — | (83 | ) | 1,520 | 5,306 | — | (62 | ) | 5,244 | ||||||||||||||||||||||
Corporate debt securities | 25,374 | 4 | (471 | ) | 24,907 | 22,505 | 268 | (54 | ) | 22,719 | ||||||||||||||||||||||
Asset-backed securities and other | 6,252 | 1 | (67 | ) | 6,186 | 6,180 | 17 | (15 | ) | 6,182 | ||||||||||||||||||||||
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$ | 86,094 | $ | 5 | $ | (964 | ) | $ | 85,135 | $ | 52,102 | $ | 292 | $ | (295 | ) | $ | 52,099 | |||||||||||||||
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The amortized cost and fair value of the Company’s investments inavailable-for-sale securities that have been in a continuous unrealized loss position consisted of the following (in thousands):
September 30, 2018 | December 31, 2017 | |||||||||||||||
Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | |||||||||||||
Less than 12 months | $ | (730 | ) | $ | 187,177 | $ | (158 | ) | $ | 63,229 | ||||||
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12 months or longer | $ | (414 | ) | $ | 17,099 | $ | (236 | ) | $ | 44,961 | ||||||
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Gross realized gains and gross realized losses from the sales of the Company’savailable-for-sale securities consisted of the following (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Gross realized gains(1) | $ | — | $ | 1 | $ | 12 | $ | 2 | ||||||||
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Gross realized losses(1) | $ | — | $ | — | $ | — | $ | — | ||||||||
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Non-Current | ||||||||
September 30, 2019 | December 31, 2018 | |||||||
Deferred rent (1) | $ | — | $ | 5,445 | ||||
Contingent consideration and other (2) | 2,001 | 2,054 | ||||||
$ | 2,001 | $ | 7,499 | |||||
(1) |
|
(2) | The current portions of contingent consideration in the amounts of $853 and $821 as of September 30, 2019 and December 31, 2018, respectively, are included in accounts payable and other |
As
Amortized cost and fair value of marketable securities,available-for-sale, by contractual maturity consisted of the following (in thousands):
September 30, 2018 | December 31, 2017 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 120,881 | $ | 120,701 | $ | 73,659 | $ | 73,560 | ||||||||
Due after one year through five years | 63,511 | 63,236 | 30,644 | 30,517 | ||||||||||||
Due after five years through ten years | 16,451 | 15,955 | 15,090 | 15,200 | ||||||||||||
Due after ten years | 6,132 | 5,944 | 6,368 | 6,382 | ||||||||||||
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$ | 206,975 | $ | 205,836 | $ | 125,761 | $ | 125,659 | |||||||||
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Weighted average contractual maturity | 2.0 years | 2.6 years |
Actual maturities may differ from contractual maturities because certain borrowers have the right to prepay certain obligations with or without prepayment penalties.
8. | Notes Payable to Former Stockholders |
Accrued interest included in accounts payable and other liabilities in the accompanying condensed consolidated balance sheets pertaining to the Notes consisted of the following (in thousands):
September 30, 2018 | December 31, 2017 | |||||||
Accrued interest | $ | 175 | $ | 305 | ||||
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Interest expense pertaining to the Notes consisted of the following (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Interest expense | $ | 96 | $ | 110 | $ | 307 | $ | 345 | ||||||||
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Related-Party Transactions |
Prior to October 2013, the Company operated under a shared services arrangement with MMC whereby the Company was charged for actual costs specifically incurred on behalf of the Company or allocated to the Company on a pro rata basis. Beginning in October 2013, certain
See Note 4 – “Operating Leases” for additional information.
For each
10. | Fair Value Measurements |
3 measurement.
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Assets held in rabbi trust | $ | 9,115 | $ | — | $ | 9,115 | $ | — | $ | 8,787 | $ | — | $ | 8,787 | $ | — | ||||||||||||||||
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Cash equivalents(1): | ||||||||||||||||||||||||||||||||
Commercial paper | $ | 8,496 | $ | — | $ | 8,496 | $ | — | $ | 11,441 | $ | — | $ | 11,441 | $ | — | ||||||||||||||||
Money market funds | 110,231 | 110,231 | — | — | 157,788 | 157,788 | — | — | ||||||||||||||||||||||||
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$ | 118,727 | $ | 110,231 | $ | 8,496 | $ | — | $ | 169,229 | $ | 157,788 | $ | 11,441 | $ | — | |||||||||||||||||
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Marketable securities,available-for-sale: | ||||||||||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 106,141 | $ | 106,141 | $ | — | $ | — | $ | 57,624 | $ | 57,624 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 3,485 | — | 3,485 | — | 7,008 | — | 7,008 | — | ||||||||||||||||||||||||
Corporate debt securities | 10,975 | — | 10,975 | — | 8,928 | — | 8,928 | — | ||||||||||||||||||||||||
Asset-backed securities and other | 100 | — | 100 | — | — | — | — | — | ||||||||||||||||||||||||
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| |||||||||||||||||
$ | 120,701 | $ | 106,141 | $ | 14,560 | $ | — | $ | 73,560 | $ | 57,624 | $ | 15,936 | $ | — | |||||||||||||||||
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Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 52,522 | $ | 52,522 | $ | — | $ | — | $ | 17,954 | $ | 17,954 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 1,520 | — | 1,520 | — | 5,244 | — | 5,244 | — | ||||||||||||||||||||||||
Corporate debt securities | 24,907 | — | 24,907 | — | 22,719 | — | 22,719 | — | ||||||||||||||||||||||||
Asset-backed securities and other | 6,186 | — | 6,186 | — | 6,182 | — | 6,182 | — | ||||||||||||||||||||||||
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$ | 85,135 | $ | 52,522 | $ | 32,613 | $ | — | $ | 52,099 | $ | 17,954 | $ | 34,145 | $ | — | |||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 1,806 | $ | — | $ | — | $ | 1,806 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
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At September 30, 2018, the fair value of the contingent consideration was $1.8 million. Assuming the achievement of the applicable performance criteria, the Company anticipates theseearn-out payments will be made over the next five-year period. Adjustments toearn-out liabilities in periods subsequent to the completion of acquisitions are reflected in selling, general and administrative expense in the condensed 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):
September 30, 2018 | December 31, 2017 | |||||||
Beginning balance | $ | — | $ | — | ||||
Contingent consideration in connection with acquisitions | 1,720 | — | ||||||
Change in fair value of contingent consideration | 86 | — | ||||||
Payments of contingent consideration | — | — | ||||||
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| |||||
$ | 1,806 | $ | — | |||||
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|
September 30, 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 | $ | 9,102 | $ | — | $ | 9,102 | $ | — | $ | 8,268 | $ | — | $ | 8,268 | $ | — | ||||||||||||||||
Cash equivalents (1) : | ||||||||||||||||||||||||||||||||
Commercial paper and other | $ | 12,480 | $ | — | $ | 12,480 | $ | — | $ | 1,599 | $ | 1,599 | $ | — | $ | — | ||||||||||||||||
Money market funds | 167,321 | 167,321 | — | — | 163,126 | 163,126 | — | — | ||||||||||||||||||||||||
$ | 179,801 | $ | 167,321 | $ | $ | — | $ | 164,725 | $ | 164,725 | $ | — | $ | — | ||||||||||||||||||
Marketable securities, available-for-sale: | ||||||||||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 109,399 | $ | 109,399 | $ | — | $ | — | $ | 121,180 | $ | 121,180 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | — | — | — | — | 3,505 | — | 3,505 | — | ||||||||||||||||||||||||
Corporate debt securities | 15,076 | — | 15,076 | — | 11,951 | — | 11,951 | — | ||||||||||||||||||||||||
Asset-backed securities and other | — | — | — | — | 800 | — | 800 | — | ||||||||||||||||||||||||
$ | 124,475 | $ | 109,399 | $ | 15,076 | $ | — | $ | 137,436 | $ | 121,180 | $ | 16,256 | $ | — | |||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 30,456 | $ | 30,456 | $ | — | $ | — | $ | 45,010 | $ | 45,010 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 1,413 | — | 1,413 | — | 1,507 | — | 1,507 | — | ||||||||||||||||||||||||
Corporate debt securities | 30,842 | — | 30,842 | — | 31,837 | — | 31,837 | — | ||||||||||||||||||||||||
Asset-backed securities and other | 8,074 | — | 8,074 | — | 4,855 | — | 4,855 | — | ||||||||||||||||||||||||
$ | 70,785 | $ | 30,456 | $ | 40,329 | $ | — | $ | 83,209 | $ | 45,010 | $ | 38,199 | $ | — | |||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration (2) | $ | 2,864 | $ | — | $ | — | $ | 2,864 | $ | 2,875 | $ | — | $ | — | $ | 2,875 | ||||||||||||||||
Deferred compensation liability | $ | 8,192 | $ | 8,192 | $ | — | $ | — | $ | 7,893 | $ | 7,893 | $ | — | $ | — | ||||||||||||||||
(1) | Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets. |
(2) | As of September 30, 2019, contingent consideration has a maximum undiscounted payment of $4.2 million. Assuming the achievement of the applicable performance criteria, the Company anticipates these earn-out payments will be made over the next three to seven-year period. A reconciliation of contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands): |
September 30, 2019 | December 31, 2018 | |||||||
Beginning balance | $ | 2,875 | $ | — | ||||
Contingent consideration in connection with acquisitions | — | 2,674 | ||||||
Change in fair value of contingent consideration | (11 | ) | 201 | |||||
Payments of contingent consideration | — | — | ||||||
Ending balance | $ | 2,864 | $ | 2,875 | ||||
2019.
Stockholders’ Equity |
The components ofIncome/Loss
Unrealized gains and (losses) of available-for- sale securities | Foreign currency translation (3) | Total | ||||||||||
Beginning balance, December 31, 2017 | $ | (62 | ) | $ | 1,002 | $ | 940 | |||||
Cumulative effect of change in accounting principle(1) | (13 | ) | — | (13 | ) | |||||||
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|
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|
|
| |||||||
Balance at January 1, 2018, as adjusted | (75 | ) | 1,002 | 927 | ||||||||
|
|
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|
|
| |||||||
Other comprehensive (loss) income before reclassifications | (779 | ) | 44 | (735 | ) | |||||||
Amounts reclassified from accumulated other comprehensive (loss) income(2) | 8 | — | 8 | |||||||||
|
|
|
|
|
| |||||||
Net current-period other comprehensive (loss) income | (771 | ) | 44 | (727 | ) | |||||||
|
|
|
|
|
| |||||||
$ | (846 | ) | $ | 1,046 | $ | 200 | ||||||
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|
Stock-Based Compensation Plans |
RSA Grants to Non-employee Directors | RSU Grants to Employees | RSU Grants to Independent Contractors | Total | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
Nonvested shares at December 31, 2017 | 30,732 | 500,859 | 450,264 | 981,855 | $ | 23.90 | ||||||||||||||
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|
|
| |||||||||||
Granted | ||||||||||||||||||||
February 2018 | — | 106,419 | 20,293 | 126,712 | ||||||||||||||||
March 2018 | — | 15,000 | — | 15,000 | ||||||||||||||||
May 2018 | 12,852 | 4,854 | 14,280 | 31,986 | ||||||||||||||||
August 2018 | — | 10,407 | 63,651 | 74,058 | ||||||||||||||||
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| |||||||||||||
Total Granted | 12,852 | 136,680 | 98,224 | 247,756 | 34.92 | |||||||||||||||
Vested | (16,488 | ) | (142,433 | ) | (163,542 | ) | (322,463 | ) | 22.06 | |||||||||||
Transferred | — | (7,356 | ) | 7,356 | — | 26.52 | ||||||||||||||
Forfeited/canceled | — | (1,960 | ) | (5,744 | ) | (7,704 | ) | 28.76 | ||||||||||||
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|
|
|
| |||||||||||
Nonvested shares at September 30, 2018(1) | 27,096 | 485,790 | 386,558 | 899,444 | $ | 27.56 | ||||||||||||||
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|
|
|
|
|
|
| |||||||||||
Unrecognized stock-based compensation expense as of September 30, 2018(2) | $ | 526 | $ | 10,884 | $ | 10,621 | $ | 22,031 | ||||||||||||
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| |||||||||||||
Weighted average remaining vesting period (years) as of September 30, 2018 | 0.95 | 3.27 | 3.27 | 3.22 | ||||||||||||||||
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|
|
RSA Grants to Non-employee Directors | RSU Grants to Employees | RSU Grants to Independent Contractors | Total | Weighted- Average Grant Date Fair Value Per Share | ||||||||||||||||
Nonvested shares at December 31, 2018 | 27,096 | 471,782 | 392,697 | 891,575 | $ | |||||||||||||||
Granted | 12,806 | 241,932 | 76,642 | 331,380 | 38.62 | |||||||||||||||
Vested | (22,422 | ) | (182,714 | ) | (183,762 | ) | (388,898 | ) | 24.11 | |||||||||||
Transferred | — | (8,136 | ) | 8,136 | — | 29.68 | ||||||||||||||
Forfeited/canceled | — | (8,119 | ) | (32,354 | ) | (40,473 | ) | 30.99 | ||||||||||||
Nonvested shares at September 30, 2019 (1) | 17,480 | 514,745 | 261,359 | 793,584 | $ | 33.73 | ||||||||||||||
Unrecognized stock-based compensation expense as of September 30, 2019 (2) | $ | 397 | $ | 14,629 | $ | 8,473 | $ | 23,499 | ||||||||||||
Weighted average remaining vesting period (years) as of September 30, 2019 | 0.63 | 3.70 | 3.45 | 3.56 | ||||||||||||||||
(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 |
As of September 30, 2018, 578,618 fully vested deferred stock units (“DSUs”) remained outstanding. See “Amendments to Restricted Stock and SARs” section below and Note 13 – “Earnings per Share” for additional information. Future share settlements of DSUs by year consisted of the following:
September 30, 2018 | ||||
2018 | 237,052 | |||
2019 | — | |||
2020 | — | |||
2021 | 60,373 | |||
2022 | 281,193 | |||
|
| |||
578,618 | ||||
|
|
Amendments to Restricted Stock and SARs
Restricted Stock
In connection with the IPO, the Company entered into sales restriction agreements with certain of its executive officers. The sale restriction agreements provided for vesting acceleration as to all outstanding shares of restricted shares held by the executive officers and termination of certain existingBuy-Sell Agreements entered into between the Company and such executive officers prior to the IPO in exchange for the executive officers’ agreement to limit their ability to sell, transfer, hypothecate, encumber, or in any way alienate any of their shares. Such sales restrictions lapse at a rate of 20% per year for five years if the participant remains employed by the Company. In the event of death or termination of employment after reaching the age of 67, 100% of the shares of stock will be released from the resale restriction. Further, 100% of the shares of stock will be released from the resale restriction upon the consummation of a change of control of the Company. Of the original 3,689,326 shares subject to resale restriction, 732,020 shares remained subject to sales restriction at September 30, 2018 and will be fully released during the fourth quarter of 2018.
Deferred Stock Units (“DSUs”)
September 30, 2019 | ||||
2021 | 60,373 | |||
2022 | 281,193 | |||
341,566 | ||||
The Company adopted ASU2018-7 on July 1, 2018. As a result of the adoption, awards issued to its independent contractors prior to the adoption date of July 1, 2018 were remeasured at the adoption date stock price. The Company will recognize the remaining unrecognized value of unvested awards over the remaining performance period with no further remeasurement through the performance completion date. For all new awards after the date of adoption, the Company will measure its awards made to independent contractors based on the grant date closing price of its common stock consistent with awards made to the Company’s employees andnon-employee directors.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
ESPP | $ | 40 | $ | 37 | $ | 108 | $ | 100 | ||||||||
RSAs – non-employee directors | 157 | 182 | 481 | 458 | ||||||||||||
RSUs – employees (1) | 1,230 | 1,112 | 4,197 | 3,161 | ||||||||||||
RSUs – independent contractors (2) | 687 | 1,816 | 2,254 | 5,200 | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Employee stock purchase plan | $ | 37 | $ | 31 | $ | 100 | $ | 106 | ||||||||
RSAs –non-employee directors | 182 | 105 | 458 | 284 | ||||||||||||
RSUs – employees | 1,112 | 975 | 3,161 | 2,841 | ||||||||||||
RSUs – independent contractors(1) | 1,816 | 1,081 | 5,200 | 2,942 | ||||||||||||
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|
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| |||||||||
$ | 3,147 | $ | 2,192 | $ | 8,919 | $ | 6,173 | |||||||||
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|
|
(1) | 2019 includes expense related to the acceleration of vesting of certain RSUs. |
(2) | 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 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 date of adoption. New awards after the date of adoption are measured based on the grant date closing price of non-employee directors. |
Income Taxes |
Three Months Ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
Income tax expense at the federal statutory rate | $ | 6,125 | 21.0 | % | $ | 8,920 | 35.0 | % | ||||||||
State income tax expense, net of federal benefit | 1,462 | 5.0 | % | 993 | 3.9 | % | ||||||||||
Effect of foreign operations | (28 | ) | (0.1 | )% | 16 | 0.1 | % | |||||||||
Windfall tax benefits, net related to stock-based compensation | (17 | ) | (0.1 | )% | 32 | 0.1 | % | |||||||||
Change in valuation allowance | 162 | 0.6 | % | 38 | 0.2 | % | ||||||||||
Permanent items and other(1) | 611 | 2.1 | % | 11 | — | |||||||||||
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$ | 8,315 | 28.5 | % | $ | 10,010 | 39.3 | % | |||||||||
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2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||||||||
Income tax expense at the federal statutory rate | $ | 21.0 | % | $ | 21.0 | % | $ | 21.0 | % | $ | 21.0 | % | ||||||||||||||||||||
State income tax expense, net of federal benefit | 1,118 | 4.2 | % | 1,462 | 5.0 | % | 3,359 | 4.3 | % | 3,974 | 4.7 | % | ||||||||||||||||||||
Windfall (shortfall) tax benefits, net related to stock-based compensation | 53 | 0.2 | % | (17 | ) | (0.1 | )% | (201 | ) | (0.2 | )% | (261 | ) | (0.3 | )% | |||||||||||||||||
Change in valuation allowance | 408 | 1.6 | % | 162 | 0.6 | % | 874 | 1.1 | % | 284 | 0.3 | % | ||||||||||||||||||||
Permanent and other items (1) | (81 | ) | (0.3 | )% | 583 | 2.0 | % | 880 | 1.1 | % | 1,176 | 1.5 | % | |||||||||||||||||||
$ | 7,024 | 26.7 | % | $ | 8,315 | 28.5 | % | $ | 21,159 | 27.3 | % | $ | 22,772 | 27.2 | % | |||||||||||||||||
(1) |
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2018 | 2017 | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
Income tax expense at the federal statutory rate | $ | 17,599 | 21.0 | % | $ | 24,713 | 35.0 | % | ||||||||
State income tax expense, net of federal benefit | 3,974 | 4.7 | % | 2,734 | 3.9 | % | ||||||||||
Effect of foreign operations | (48 | ) | — | 63 | 0.1 | % | ||||||||||
Windfall tax benefits, net related to stock-based compensation | (261 | ) | (0.3 | )% | (124 | ) | (0.2 | )% | ||||||||
Change in valuation allowance | 284 | 0.3 | % | 154 | 0.2 | % | ||||||||||
Permanent items and other(1) | 1,224 | 1.5 | % | 24 | — | |||||||||||
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$ | 22,772 | 27.2 | % | $ | 27,564 | 39.0 | % | |||||||||
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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, eliminating certain exceptions to Section 162(m) of the Internal Revenue Code and expanding the employees, companies and types of compensation covered by Section 162(m), and creating a territorial tax system with aone-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result of the Act, the Company revalued its deferred taxes, net due to the changes in the U.S. corporate statutory federal income tax rate and recorded a net charge of $11.6 million in the provision for income taxes during the fourth quarter of 2017. Although the Company’s accounting for certain income tax effects of the Act is incomplete, it was determined that the $11.6 million charge is a reasonable estimate of those effects. As of September 30, 2018, this amount continues to be our best estimate of the impact of the Act in accordance with our understanding of the Act and the related guidance available.When the IRS issues additional guidance and regulations enabling the Company to finalize certain tax positions, the Company will be able to conclude whether any further adjustments are required to be made to its deferred tax assets, net balance as of December 31, 2017. Any adjustments to this provisional amount will be reported no later than the fourth quarter of 2018, as a component of the provision for income taxes in the reporting period in which any such adjustments are determined.
Earnings per Share |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator (Basic and Diluted): | ||||||||||||||||
Net income | $ | 20,854 | $ | 15,475 | $ | 61,032 | $ | 43,044 | ||||||||
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Denominator: | ||||||||||||||||
Basic | ||||||||||||||||
Weighted average common shares issued and outstanding | 38,641 | 38,132 | 38,598 | 38,094 | ||||||||||||
Deduct: Unvested RSAs(1) | (29 | ) | (29 | ) | (30 | ) | (29 | ) | ||||||||
Add: Fully vested DSUs(2) | 579 | 930 | 579 | 930 | ||||||||||||
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Weighted Average Common Shares Outstanding | 39,191 | 39,033 | 39,147 | 38,995 | ||||||||||||
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Basic earnings per common share | $ | 0.53 | $ | 0.40 | $ | 1.56 | $ | 1.10 | ||||||||
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Diluted | ||||||||||||||||
Weighted Average Common Shares Outstanding from above | 39,191 | 39,033 | 39,147 | 38,995 | ||||||||||||
Add: Dilutive effect of RSUs, RSAs & ESPP | 293 | 171 | 212 | 141 | ||||||||||||
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Weighted Average Common Shares Outstanding | 39,484 | 39,204 | 39,359 | 39,136 | ||||||||||||
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Diluted earnings per common share | $ | 0.53 | $ | 0.39 | $ | 1.55 | $ | 1.10 | ||||||||
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Antidilutive shares excluded from diluted earnings per common share(3) | 76 | 205 | 250 | 381 | ||||||||||||
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2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator (Basic and Diluted): | ||||||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Denominator: | ||||||||||||||||
Basic | ||||||||||||||||
Weighted average common shares issued and outstanding | 39,116 | 38,641 | 39,062 | 38,598 | ||||||||||||
Deduct: Unvested RSAs (1) | (17 | ) | (29 | ) | (21 | ) | (30 | ) | ||||||||
Add: Fully vested DSUs (2) | 342 | 579 | 342 | 579 | ||||||||||||
Weighted Average Common Shares Outstanding | 39,441 | 39,191 | 39,383 | 39,147 | ||||||||||||
Basic earnings per common share | $ | 0.49 | $ | 0.53 | $ | 1.43 | $ | 1.56 | ||||||||
Diluted | ||||||||||||||||
Weighted Average Common Shares Outstanding from above | 39,441 | 39,191 | 39,383 | 39,147 | ||||||||||||
Add: Dilutive effect of RSUs, RSAs & ESPP | 109 | 293 | 144 | 212 | ||||||||||||
Weighted Average Common Shares Outstanding | 39,550 | 39,484 | 39,527 | 39,359 | ||||||||||||
Diluted earnings per common share | $ | 0.49 | $ | 0.53 | $ | 1.42 | $ | 1.55 | ||||||||
Antidilutive shares excluded from diluted earnings per common share (3) | 425 | 76 | 325 | 250 | ||||||||||||
(1) | RSAs were issued and outstanding to the |
(2) | Shares are included in weighted average common shares outstanding as the shares are fully vested but have not yet been delivered. See Note |
(3) | Primarily pertaining to RSU grants to the Company’s employees and independent . |
Commitments and Contingencies |
Litigation
The Company is subject to various legal proceedings
covenants.
16. | Subsequent Events |
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Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 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 | 268 | $ | 166 | $ | 7,224 | 259 | $ | 166 | $ | 7,032 | 9 | $ | — | $ | 192 | |||||||||||||||||||||
Private client market ($1 - $10 million) | 1,352 | 4,382 | 125,898 | 1,282 | 3,906 | 115,959 | 70 | 476 | 9,939 | |||||||||||||||||||||||||||
Middle market (³$10 - $20 million) | 119 | 1,581 | 31,158 | 94 | 1,284 | 24,505 | 25 | 297 | 6,653 | |||||||||||||||||||||||||||
Larger transaction market (³$20 million) | 70 | 3,169 | 27,700 | 62 | 2,644 | 21,861 | 8 | 525 | 5,839 | |||||||||||||||||||||||||||
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1,809 | $ | 9,298 | $ | 191,980 | 1,697 | $ | 8,000 | $ | 169,357 | 112 | $ | 1,298 | $ | 22,623 | ||||||||||||||||||||||
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2018 | 2017 | 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 | 764 | $ | 489 | $ | 20,819 | 762 | $ | 472 | $ | 20,110 | 2 | $ | 17 | $ | 709 | |||||||||||||||||||||
Private client market ($1 - $10 million) | 3,819 | 12,038 | 350,062 | 3,628 | 11,184 | 328,177 | 191 | 854 | 21,885 | |||||||||||||||||||||||||||
Middle market (³$10 - $20 million) | 350 | 4,789 | 85,984 | 258 | 3,501 | 64,047 | 92 | 1,288 | 21,937 | |||||||||||||||||||||||||||
Larger transaction market (³$20 million) | 213 | 8,846 | 79,280 | 162 | 6,607 | 59,735 | 51 | 2,239 | 19,545 | |||||||||||||||||||||||||||
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5,146 | $ | 26,162 | $ | 536,145 | 4,810 | $ | 21,764 | $ | 472,069 | 336 | $ | 4,398 | $ | 64,076 | ||||||||||||||||||||||
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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 | 274 | $ | 173 | $ | 7,182 | 268 | $ | 166 | �� | $ | 7,224 | 6 | $ | 7 | $ | (42 | ) | |||||||||||||||||||
Private client market ($1 - $10 million) | 1,301 | 4,257 | 121,228 | 1,352 | 4,382 | 125,898 | (51 | ) | (125 | ) | (4,670 | ) | ||||||||||||||||||||||||
Middle market ( ≥ $10 - $20 million) | 109 | 1,466 | 25,997 | 119 | 1,581 | 31,158 | (10 | ) | (115 | ) | (5,161 | ) | ||||||||||||||||||||||||
Larger transaction market ( ≥ $20 million) | 69 | 3,675 | 25,791 | 70 | 3,169 | 27,700 | (1 | ) | 506 | (1,909 | ) | |||||||||||||||||||||||||
1,753 | $ | 9,571 | $ | 180,198 | 1,809 | $ | 9,298 | $ | 191,980 | (56 | ) | $ | 273 | $ | (11,782 | ) | ||||||||||||||||||||
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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 | 733 | $ | 474 | $ | 19,607 | 764 | $ | 489 | $ | 20,819 | (31 | ) | $ | (15 | ) | $ | (1,212 | ) | ||||||||||||||||||
Private client market ($1 - $10 million) | 3,753 | 12,160 | 345,812 | 3,819 | 12,038 | 350,062 | (66 | ) | 122 | (4,250 | ) | |||||||||||||||||||||||||
Middle market ( ≥ $10 - $20 million) | 312 | 4,234 | 76,521 | 350 | 4,789 | 85,984 | (38 | ) | (555 | ) | (9,463 | ) | ||||||||||||||||||||||||
Larger transaction market ( ≥ $20 million) | 194 | 9,040 | 71,875 | 213 | 8,846 | 79,280 | (19 | ) | 194 | (7,405 | ) | |||||||||||||||||||||||||
4,992 | $ | 25,908 | $ | 513,815 | 5,146 | $ | 26,162 | $ | 536,145 | (154 | ) | $ | (254 | ) | $ | (22,330 | ) | |||||||||||||||||||
The following charts set forth the percentage of transactions by region for real estate brokerage.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||
2018 | 2017 | 2018 | 2017 | |||
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domestically, have also elevated investor caution, leading to a modest reduction in investor activity.
same degree experienced in prior years.
Our
Estate Brokerage Commissions
Fees
Revenuesrevenues
Services
General and Administrative Expenses
Amortization Expense
ESPP.
period comparisons below provide summaries of our results of operations. The
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Real Estate Brokerage | ||||||||||||||||
Average Number of Investment Sales Professionals | 1,738 | 1,658 | 1,701 | 1,638 | ||||||||||||
Average Number of Transactions per Investment Sales Professional | 1.04 | 1.02 | 3.03 | 2.94 | ||||||||||||
Average Commission per Transaction | $ | 106,125 | $ | 99,798 | $ | 104,187 | $ | 98,143 | ||||||||
Average Commission Rate | 2.06 | % | 2.12 | % | 2.05 | % | 2.17 | % | ||||||||
Average Transaction Size (in thousands) | $ | 5,140 | $ | 4,714 | $ | 5,084 | $ | 4,525 | ||||||||
Total Number of Transactions | 1,809 | 1,697 | 5,146 | 4,810 | ||||||||||||
Total Sales Volume (in millions) | $ | 9,298 | $ | 8,000 | $ | 26,162 | $ | 21,764 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Financing(1) | ||||||||||||||||
Average Number of Financing Professionals | 104 | 92 | 97 | 95 | ||||||||||||
Average Number of Transactions per Financing Professional | 4.17 | 4.45 | 12.28 | 12.72 | ||||||||||||
Average Fee per Transaction | $ | 34,733 | $ | 27,795 | $ | 33,326 | $ | 28,254 | ||||||||
Average Fee Rate | 0.84 | % | 0.85 | % | 0.90 | % | 0.88 | % | ||||||||
Average Transaction Size (in thousands) | $ | 4,112 | $ | 3,274 | $ | 3,717 | $ | 3,224 | ||||||||
Total Number of Transactions | 434 | 409 | 1,191 | 1,208 | ||||||||||||
Total Financing Volume (in millions) | $ | 1,785 | $ | 1,339 | $ | 4,427 | $ | 3,895 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Real Estate Brokerage | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Average Number of Investment Sales Professionals | 1,837 | 1,738 | 1,829 | 1,701 | ||||||||||||
Average Number of Transactions per Investment Sales Professional | 0.95 | 1.04 | 2.73 | 3.03 | ||||||||||||
Average Commission per Transaction | $ | 102,794 | $ | 106,125 | $ | 102,928 | $ | 104,187 | ||||||||
Average Commission Rate | 1.88 | % | 2.06 | % | 1.98 | % | 2.05 | % | ||||||||
Average Transaction Size (in thousands) | $ | 5,460 | $ | 5,140 | $ | 5,190 | $ | 5,084 | ||||||||
Total Number of Transactions | 1,753 | 1,809 | 4,992 | 5,146 | ||||||||||||
Total Sales Volume (in millions) | $ | 9,571 | $ | 9,298 | $ | 25,908 | $ | 26,162 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Financing (1) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Average Number of Financing Professionals | 98 | 104 | 103 | 97 | ||||||||||||
Average Number of Transactions per Financing Professional | 5.01 | 4.17 | 13.23 | 12.28 | ||||||||||||
Average Fee per Transaction | $ | 31,203 | $ | 34,733 | $ | 33,361 | $ | 33,326 | ||||||||
Average Fee Rate | 0.90 | % | 0.84 | % | 0.91 | % | 0.90 | % | ||||||||
Average Transaction Size (in thousands) | $ | 3,460 | $ | 4,112 | $ | 3,685 | $ | 3,717 | ||||||||
Total Number of Transactions | 491 | 434 | 1,363 | 1,191 | ||||||||||||
Total Financing Volume (in millions) | $ | 1,699 | $ | 1,785 | $ | 5,023 | $ | 4,427 |
(1) | Operating metrics calculated excluding certain financing fees not directly associated |
Results
2018
Three Months Ended September 30, 2018 | Percentage of Revenue | Three Months Ended September 30, 2017 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 191,980 | 91.2 | % | $ | 169,357 | 92.4 | % | $ | 22,623 | 13.4 | % | ||||||||||||
Financing fees | 15,947 | 7.6 | 11,368 | 6.2 | 4,579 | 40.3 | ||||||||||||||||||
Other revenues | 2,663 | 1.2 | 2,616 | 1.4 | 47 | 1.8 | ||||||||||||||||||
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Total revenues | 210,590 | 100.0 | 183,341 | 100.0 | 27,249 | 14.9 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Cost of services | 132,896 | 63.1 | 114,803 | 62.6 | 18,093 | 15.8 | ||||||||||||||||||
Selling, general, and administrative expense | 48,659 | 23.1 | 42,480 | 23.2 | 6,179 | 14.5 | ||||||||||||||||||
Depreciation and amortization expense | 1,651 | 0.8 | 1,375 | 0.7 | 276 | 20.1 | ||||||||||||||||||
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Total operating expenses | 183,206 | 87.0 | 158,658 | 86.5 | 24,548 | 15.5 | ||||||||||||||||||
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Operating income | 27,384 | 13.0 | 24,683 | 13.5 | 2,701 | 10.9 | ||||||||||||||||||
Other income (expense), net | 2,127 | 1.0 | 1,172 | 0.6 | 955 | 81.5 | ||||||||||||||||||
Interest expense | (342 | ) | (0.2 | ) | (370 | ) | (0.2 | ) | 28 | (7.6 | ) | |||||||||||||
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Income before provision for income taxes | 29,169 | 13.8 | 25,485 | 13.9 | 3,684 | 14.5 | ||||||||||||||||||
Provision for income taxes | 8,315 | 3.9 | 10,010 | 5.5 | (1,695 | ) | (16.9 | ) | ||||||||||||||||
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Net income | $ | 20,854 | 9.9 | % | $ | 15,475 | 8.4 | % | $ | 5,379 | 34.8 | % | ||||||||||||
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Adjusted EBITDA(1) | $ | 32,155 | 15.3 | % | $ | 28,499 | 15.5 | % | $ | 3,656 | 12.8 | % | ||||||||||||
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Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.53 | $ | 0.40 | ||||||||||||||||||||
Diluted | $ | 0.53 | $ | 0.39 | ||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 39,191 | 39,033 | ||||||||||||||||||||||
Diluted | 39,484 | 39,204 |
Three Months Ended September 30, 2019 | Percentage of Revenue | Three Months Ended September 30, 2018 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 180,198 | 90.9 | % | $ | 191,980 | 91.2 | % | $ | (11,782 | ) | (6.1 | )% | |||||||||||
Financing fees | 16,013 | 8.1 | 15,947 | 7.6 | 66 | 0.4 | % | |||||||||||||||||
Other revenues | 2,009 | 1.0 | 2,663 | 1.2 | (654 | ) | (24.6 | )% | ||||||||||||||||
Total revenues | 198,220 | 100.0 | 210,590 | 100.0 | (12,370 | ) | (5.9 | )% | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of services | 124,147 | 62.6 | 132,896 | 63.1 | (8,749 | ) | (6.6 | )% | ||||||||||||||||
Selling, general and administrative expense | 48,091 | 24.3 | 48,659 | 23.1 | (568 | ) | (1.2 | )% | ||||||||||||||||
Depreciation and amortization expense | 1,910 | 1.0 | 1,651 | 0.8 | 259 | 15.7 | % | |||||||||||||||||
Total operating expenses | 174,148 | 87.9 | 183,206 | 87.0 | (9,058 | ) | (4.9 | )% | ||||||||||||||||
Operating income | 24,072 | 12.1 | 27,384 | 13.0 | (3,312 | ) | (12.1 | )% | ||||||||||||||||
Other income (expense), net | 2,573 | 1.4 | 2,127 | 1.0 | 446 | 21.0 | % | |||||||||||||||||
Interest expense | (329 | ) | (0.2 | ) | (342 | ) | (0.2 | ) | 13 | (3.8 | )% | |||||||||||||
Income before provision for income taxes | 26,316 | 13.3 | 29,169 | 13.8 | (2,853 | ) | (9.8 | )% | ||||||||||||||||
Provision for income taxes | 7,024 | 3.6 | 8,315 | 3.9 | (1,291 | ) | (15.5 | )% | ||||||||||||||||
Net income | $ | 19,292 | 9.7 | % | $ | 20,854 | 9.9 | % | $ | (1,562 | ) | (7.5 | )% | |||||||||||
Adjusted EBITDA (1) | $ | 27,865 | 14.1 | % | $ | 32,155 | 15.3 | % | $ | (4,290 | ) | (13.3 | )% | |||||||||||
Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.49 | $ | 0.53 | ||||||||||||||||||||
Diluted | $ | 0.49 | $ | 0.53 | ||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 39,441 | 39,191 | ||||||||||||||||||||||
Diluted | 39,550 | 39,484 |
(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.” |
Nine Months Ended September 30, 2019 | Percentage of Revenue | Nine Months Ended September 30, 2018 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 513,815 | 90.4 | % | $ | 536,145 | 91.7 | % | $ | (22,330 | ) | (4.2 | )% | |||||||||||
Financing fees | 47,487 | 8.4 | 41,234 | 7.1 | 6,253 | 15.2 | % | |||||||||||||||||
Other revenues | 7,218 | 1.2 | 7,154 | 1.2 | 64 | 0.9 | % | |||||||||||||||||
Total revenues | 568,520 | 100.0 | 584,533 | 100.0 | (16,013 | ) | (2.7 | )% | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of services | 343,682 | 60.5 | 354,414 | 60.6 | (10,732 | ) | (3.0 | )% | ||||||||||||||||
Selling, general, and administrative expense | 149,845 | 26.3 | 145,792 | 24.9 | 4,053 | 2.8 | % | |||||||||||||||||
Depreciation and amortization expense | 5,674 | 1.0 | 4,529 | 0.8 | 1,145 | 25.3 | % | |||||||||||||||||
Total operating expenses | 499,201 | 87.8 | 504,735 | 86.3 | (5,534 | ) | (1.1 | )% | ||||||||||||||||
Operating income | 69,319 | 12.2 | 79,798 | 13.7 | (10,479 | ) | (13.1 | )% | ||||||||||||||||
Other income (expense), net | 9,067 | 1.6 | 5,060 | 0.8 | 4,007 | 79.2 | % | |||||||||||||||||
Interest expense | (1,018 | ) | (0.2 | ) | (1,054 | ) | (0.2 | ) | 36 | (3.4 | )% | |||||||||||||
Income before provision for income taxes | 77,368 | 13.6 | 83,804 | 14.3 | (6,436 | ) | (7.7 | )% | ||||||||||||||||
Provision for income taxes | 21,159 | 3.7 | 22,772 | 3.9 | (1,613 | ) | (7.1 | )% | ||||||||||||||||
Net income | 56,209 | 9.9 | % | $ | 61,032 | 10.4 | % | $ | (4,823 | ) | (7.9 | )% | ||||||||||||
Adjusted EBITDA (1) | $ | 83,040 | 14.6 | % | $ | 93,309 | 16.0 | % | $ | (10,269 | ) | (11.0 | )% | |||||||||||
Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 1.43 | $ | 1.56 | ||||||||||||||||||||
Diluted | $ | 1.42 | $ | 1.55 | ||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 39,383 | 39,147 | ||||||||||||||||||||||
Diluted | 39,527 | 39,359 |
(1) | Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Financial Measure.” |
fees, as described below.$210.6$568.5 million for the threenine months ended September 30, 20182019 compared to $183.3$584.5 million for the same period in 2017, an increase2018, a decrease of $27.2$16.0 million, or 14.9%2.7%. Total revenues increased primarilydecreased as a result of increases indecreased real estate brokerage commissions, andpartially offset by an increase in financing fees.increaseddecreased to $192.0$513.8 million for the threenine months ended September 30, 20182019 from $169.4$536.1 million for the same period in 2017, an increase2018, a decrease of $22.6$22.3 million, or 13.4%4.2%. The increasedecrease was primarily driven by the increasedecreases in the number of investment sales transactions (6.6%(3.0%) relative to a 5% investment sales transaction decline in the broader market as reported by Real Capital Analytics and an increase in average commission per transaction size (9.0%(1.2%). These factors combined generated the increasedecreases in sales volume of 16.2%. These increases were partially offset by a decrease in(1.0%) and average commission rates (6(7 basis points) due to a larger proportion of our transactions that closedlower average commission rates in the Middleprivate client market and Largerlarger transaction market segments, which generate lower commission rates.segments. This decrease was partially offset by an increase in the average transaction size (2.1%).
$15.9$47.5 million for the threenine months ended September 30, 20182019 from $11.4$41.2 million for the same period in 2017,2018, an increase of $4.6$6.3 million, or 40.3%,15.2% in part spurred by recent hiring and growth from acquisitions during 2018. The increase was primarily driven by an increase in financing volume (13.5%), in part due to an increase in refinancing activity, as the average fee rate was comparable. Financing volume was impacted by an increase in the number of financing transactions (6.1%(14.4%) and increasea decrease in average transaction size (25.6%(0.9%). These factors combined generated the increase in sales volume of 33.3%. This increase was partially offset by a 1 basis point decrease in average commission rate.
Total operating expenses
Our total operating expenses were $183.2 million for the three months ended September 30, 2018 compared to $158.7 million for the same period in 2017, an increase of $24.5 million, or 15.5%1.1%. The increasedecrease was primarily due to increasesa decrease in costcosts of services, which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities, partially offset by increases in selling, general and administrative costs and to a lesser extent depreciation and amortization expense, as described below.
transaction size, mix and brokerage compensation.
management performance compensation.
growth and the amortization of intangible assets and MSRs.
Interest expense
There were no significant changes in interest expense for the three months ended September 30, 2018 compared to the same period in 2017.
Provision for income taxes
The provision for income taxes was $8.3 million for the three months ended September 30, 2018 compared to $10.0 million in the same period in 2017, a decrease of $1.7 million, or 16.9%. The effective income tax rate for the three months ended September 30, 2018 was 28.5% compared to 39.3% for the same period in 2017. The decrease in the effective tax rate was primarily due to the decrease in the federal statutory rate from 35% to 21%, partially offset by an increase in permanent items and other. Permanent items and other increased in 2018 compared to the same period in 2017 due to changes in tax laws under the Act, primarily relating to changes to Section 162(m) of the Internal Revenue Code and the tax rules regarding the deductibility of entertainment expenses. As a result of our periodic review of uncertain tax positions, we recorded a provision of approximately $1.0 million in the three months ended September 30, 2018.
We calculate our provision for income taxes using an annual effective tax rate based on projected taxable income for the year adjusted for the effects of permanent and discrete items. Deferred taxes are adjusted for significant changes in temporary items in the period in which they occur. The future effective tax rate may vary from this estimated annual effective rate due to several factors, including but not limited to, the level of state and foreign jurisdiction activity, future changes in tax laws, the amount of future book versus income tax items that are permanent in nature and changes, if any, in a valuation allowance related to deferred tax assets.
The provisions for income taxes includes the difference in book and tax deductions associated with the settlement of shares under the Company’s 2013 Plan and certain disqualifying dispositions of shares issued under our ESPP Plan.
Comparison of Nine Months Ended September 30, 2018 and 2017
Below are key operating results for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 (dollar and share amounts in thousands, except per share amounts):
Nine Months Ended September 30, 2018 | Percentage of Revenue | Nine Months Ended September 30, 2017 | Percentage of Revenue | Change | ||||||||||||||||||||
Dollar | Percentage | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Real estate brokerage commissions | $ | 536,145 | 91.7 | % | $ | 472,069 | 91.3 | % | $ | 64,076 | 13.6 | % | ||||||||||||
Financing fees | 41,234 | 7.1 | 34,131 | 6.6 | 7,103 | 20.8 | ||||||||||||||||||
Other revenues | 7,154 | 1.2 | 10,724 | 2.1 | (3,570 | ) | (33.3 | ) | ||||||||||||||||
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Total revenues | 584,533 | 100.0 | 516,924 | 100.0 | 67,609 | 13.1 | ||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
Cost of services | 354,414 | 60.6 | 314,827 | 60.9 | 39,587 | 12.6 | ||||||||||||||||||
Selling, general, and administrative expense | 145,792 | 24.9 | 129,393 | 25.0 | 16,399 | 12.7 | ||||||||||||||||||
Depreciation and amortization expense | 4,529 | 0.8 | 3,975 | 0.8 | 554 | 13.9 | ||||||||||||||||||
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Total operating expenses | 504,735 | 86.3 | 448,195 | 86.7 | 56,540 | 12.6 | ||||||||||||||||||
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Operating income | 79,798 | 13.7 | 68,729 | 13.3 | 11,069 | 16.1 | ||||||||||||||||||
Other income (expense), net | 5,060 | 0.8 | 3,005 | 0.6 | 2,055 | 68.4 | ||||||||||||||||||
Interest expense | (1,054 | ) | (0.2 | ) | (1,126 | ) | (0.2 | ) | 72 | (6.4 | ) | |||||||||||||
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Income before provision for income taxes | 83,804 | 14.3 | 70,608 | 13.7 | 13,196 | 18.7 | ||||||||||||||||||
Provision for income taxes | 22,772 | 3.9 | 27,564 | 5.4 | (4,792 | ) | (17.4 | ) | ||||||||||||||||
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Net income | 61,032 | 10.4 | % | $ | 43,044 | 8.3 | % | $ | 17,988 | 41.8 | % | |||||||||||||
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Adjusted EBITDA(1) | $ | 93,309 | 16.0 | % | $ | 79,589 | 15.4 | % | $ | 13,720 | 17.2 | % | ||||||||||||
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Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 1.56 | $ | 1.10 | ||||||||||||||||||||
Diluted | $ | 1.55 | $ | 1.10 | ||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 39,147 | 38,995 | ||||||||||||||||||||||
Diluted | 39,359 | 39,136 |
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Revenues
Our total revenues were $584.5 million for the nine months ended September 30, 2018 compared to $516.9 million for the same period in 2017, an increase of $67.6 million, or 13.1%. Total revenues increased primarily as a result of increases in real estate brokerage commissions and financing fees, partially offset by a decrease in other revenues.
Real estate brokerage commissions. Revenues from real estate brokerage commissions increased to $536.1 million for the nine months ended September 30, 2018 from $472.1 million for the same period in 2017, an increase of $64.1 million, or 13.6%. The increase was primarily driven by the increase in the number of investment sales transactions (7.0%) and an increase in average transaction size (12.4%). These factors combined generated the increase in sales volume of 20.2%. This increase was partially offset by a decrease in average commission rates (12 basis points) due to a larger proportion of our transactions that closed in the Middle and Larger transaction market segments, which generate lower commission rates.
Financing fees. Revenues from financing fees increased to $41.2 million for the nine months ended September 30, 2018 from $34.1 million for the same period in 2017, an increase of $7.1 million, or 20.8%, in part spurred by recent hiring and growth from acquisitions during 2018. The increase was primarily driven by growth in sales volume (13.7%), which was generated by an increase in average transaction size (15.3%), partially offset by a decrease in the number of financing transactions (1.4%).
Other revenues. Other revenues decreased to $7.2 million for the nine months ended September 30, 2018 from $10.7 million for the same period in 2017, a decrease of $3.6 million, or 33.3%. The decrease was primarily driven by a large consulting and advisory fee earned in 2017 with no comparable fee in 2018.
Total operating expenses
Our total operating expenses were $504.7 million for the nine months ended September 30, 2018 compared to $448.2 million for the same period in 2017, an increase of $56.5 million, or 12.6%. The increase was primarily due to increases in cost of services, which are variable commissions paid to our investment sales professionals and compensation related costs in connection with our financing activities, selling, general and administrative costs and to a lesser extent depreciation and amortization, as described below.
Cost of services.Cost of services for the nine months ended September 30, 2018 increased approximately $39.6 million, or 12.6% to $354.4 million from $314.8 million for the same period in 2017. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a percent of total revenues decreased to 60.6% for the nine months ended September 30, 2018 compared to 60.9% for the same period in 2017 primarily due to a decrease in referral fees, partially offset by an increase in the proportion of transactions closed by our more senior investment sales professionals who are compensated generally at higher commission rates.
Selling, general and administrative expense. Selling, general and administrative expense for the nine months ended September 30, 2018 increased $16.4 million, or 12.7%, to $145.8 million from $129.4 million for the same period in 2017. Increases in our selling, general and administrative expense have been driven by our growth plans and investments in technology, sales and marketing tools and marketing and expansionvalue of our services supporting our investment salesdeferred compensation plan assets and financing professionals. These initiatives have primarily driven (i) a $5.2 million increase in compensation related costs, including salaries and related benefits and management performance compensation; (ii) a $4.5 million increase in sales and promotional marketing expenses to support increased sales activity; (iii) a $2.2 million increase in other expense categories, net, primarily driven by our expansion and growth and (iv) a $1.7 million increase in facilities expenses due to expansion of existing offices. In addition, selling, general and administrative expense increased due to (i) a $2.7 million increase in stock-based compensation expense due to fluctuations in our stock price and incremental stock-based awards since third quarter of 2017 and (ii) a $0.1 million increase in legal costs and accruals.
Depreciation and amortization expense.Depreciation and amortization expense increased to $4.5 million for the nine months ended September 30, 2018 from $4.0 million for the same period in 2017, an increase of $0.6 million, or 13.9%foreign currency gains (losses). The increase is primarily driven by our expansion and growth.
Other income (expense), net
Other income (expense), net increased to $5.1 million for the nine months ended September 30, 2018 from $3.0 million for the same period in 2017. The increase was primarily driven by an increase in interest income on our investments in marketable securities,available-for-sale.
2018.
We calculate our provision for income taxes using an annual effective tax rate based on projected taxable income for the year adjusted for the effects of permanent and discrete items. Deferred taxes are adjusted for significant changes in temporary items in the period in which they occur. The future effective tax rate may vary from this estimated annual effective rate due to several factors, including but not limited to, the level of state and foreign jurisdiction activity, future changes in tax laws, the amount of future book versus income tax items that are permanent in nature and changes, if any, in a valuation allowance related to deferred tax assets.
The provisions for income taxes includes the difference in book and tax deductions associated with the settlement of shares under our 2013 Plan and certain disqualifying dispositions of shares issued under our ESPP Plan.
Net income Adjustments: Interest income and other(1) Interest expense Provision for income taxes(2) Depreciation and amortization Stock-based compensation Non-cash mortgage servicing rights activity(3) Adjusted EBITDA Other for the three and nine months ended September 30, generally accepted accounting principles (“U.S. GAAP”).GAAP. We find Adjusted EBITDA asto be a useful tool to assist in evaluating performance because Adjusted EBITDA eliminates items related to capital structure, taxes and stock-based compensation charges. Three Months Ended
September 30, Nine Months Ended
September 30, 2018 2017 2018 2017 $ 20,854 $ 15,475 $ 61,032 $ 43,044 (1,824 ) (923 ) (4,626 ) (2,293 ) 342 370 1,054 1,126 8,315 10,010 22,772 27,564 1,651 1,375 4,529 3,975 3,147 2,192 8,919 6,173 (330 ) — (371 ) — $ 32,155 $ 28,499 $ 93,309 $ 79,589
September 30, $ $ $ $ ) ) ) ) ) ) ) ) $ $ $ $ (1) 20182019 and 20172018 includes net realized gains (losses) on marketable securities,(2) Provision for income taxes(3) The decrease in Adjusted EBITDA for the three and nine months ended September 30, 2019 compared to the same periods in 2018 was calculated using a 21% U.S. federal corporate tax rateis primarily due to the enactmentlower total revenues and a higher proportion of the Act, which reduced the U.S. federal corporate tax rate from 35%operating expenses compared to 21%.total revenues.(3)Non-cash mortgage servicing rights activity includes the assumption of servicing obligations following the completion of our business acquisition in 2018.Cash held in our Canadian operations aggregated $333,000 and $421,000 at September 30, 2018 and December 31, 2017, respectively.
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Net cash provided by operating activities | $ | 55,013 | $ | 25,338 | ||||
Net cash used in investing activities | (92,323 | ) | (28,011 | ) | ||||
Net cash used in financing activities | (2,456 | ) | (2,036 | ) | ||||
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Net decrease in cash and cash equivalents | (39,766 | ) | (4,709 | ) | ||||
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Cash and cash equivalents at beginning of period | $ | 220,786 | $ | 187,371 | ||||
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Cash and cash equivalents at end of period | $ | 181,020 | $ | 182,662 |
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Net cash (used in) provided by operating activities | $ | (6,053) | $ | 55,013 | ||||
Net cash provided by (used in) investing activities | 21,079 | (92,323 | ) | |||||
Net cash used in financing activities | (3,628 | ) | (2,456 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 11,398 | (39,766 | ) | |||||
Cash and cash equivalents at beginning of period | 214,683 | 220,786 | ||||||
Cash and cash equivalents at end of period | $ | 226,081 | $ | 181,020 | ||||
2019.
Revenue Recognition
Stock-Based Compensation
We follow the accounting guidance for share-based payments which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, independent contractors andnon-employee directors. Awards are issued under the Amended and Restated 2013 Omnibus Equity Incentive Plan (the “2013 Plan”) and 2013 Employee Stock Purchase Plan (“ESPP Plan”).
After adoption of Accounting Standards Update (“ASU”)No. 2016-09,Improvements to Employee Share-Based Payment Accounting (“ASU2016-09”) on January 1, 2017, we account for forfeitures as they occur.
For awards made to our employees and directors, we initially value restricted stock units and restricted stock awardslease based on the grantinformation available on the commencement date closing price of our common stock. For awardsthe lease. We typically lease general purpose
We adopted ASUNo. 2018-7,Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accountingawards (“ASU2018-7”) on July 1, 2018. As a result, awards made to independent contractors, will be measuredcommon area costs, insurance, taxes and other lease related costs, which are determined principally based on the grant date closing price of our common stock consistent with awards made to our employees and directors. Unvested awards issued to independent contractors as of the adoption date of July 1, 2018 were remeasured at the adoption date stock price. We will recognize the remaining unrecognized value of unvested awards over the remaining performance period with no further remeasurement through the performance completion date. Prior to the adoption of ASU2018-7, we determined that the fair value of the award made to independent contractors shall be measured based on the fair value of the equity instrument as it is more reliably measurable than the fair value of the consideration received. We used the grant date as the performance commitment date, and the measurement date was the date the services were completed, which was the vesting date. As a result, we recorded stock-based compensation for these awards over the vesting period on a straight-line basis with periodic adjustments during the vesting period for changes in the fair value of the awards.
If there are any modifications or cancellations of the underlying unvested share-based awards, we may be required to accelerate, increase or cancel any remaining unrecognized or previously recorded stock-based compensation expense.
For awards issued under the ESPP Plan, we determined that the plan was a compensatory plan and are required to expense the fair value of the awards over eachsix-month offering period. We estimate the fair value of these awards using the Black-Scholes option pricing model. We calculate the expected volatility based on the historical volatility of our common stock and the risk-free interest rate based on the U.S. Treasury yield curve in effect at the time of grant, both consistent with the term of the offering period. We incorporate no forfeiture rate and include no expected dividend yield as we have not, and currently do not intend to pay a regular dividend.
The accounting pronouncement related to leases had a material impact on our condensed consolidated balance sheets but did not have a material impact on our condensed consolidated statements of net and comprehensive income. Although we do not believe any of the other accounting pronouncements listed in that note will have a significant impact on our business, we are still in the process of determining the impact of the new pronouncements may have on our condensed consolidated financial statements.
Change in Interest Rates | Approximate Change in Fair Value of Investments Increase (Decrease) | |||
2% Decrease | $ | 5,983 | ||
1% Decrease | $ | 2,991 | ||
1% Increase | $ | (2,990 | ) | |
2% Increase | $ | (5,980 | ) |
Change in Interest Rates | Approximate Change in Fair Value of Investments Increase (Decrease) | |||
2% Decrease | $ | 4,587 | ||
1% Decrease | $ | 2,404 | ||
1% Increase | $ | (2,404) | ||
2% Increase | $ | (4,807) |
For information on our legal proceedings, see Note 14 – “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements.
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 acquire 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. Contingent consideration is included in accounts payable and other liabilities and deferred rent and other liabilities in the accompanying condensed consolidated balance sheet. 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 affected.
In addition, the acquisitions of businesses involve risks that the businesses acquired will not perform in accordance with expectations, that the expected synergies associated with acquisitions will not be achieved and that business judgments concerning the value, strengths and weaknesses of the businesses acquired will prove incorrect, which could have an adverse effect on our business, financial condition and results of operations.
Our existing goodwill and other intangible assets could become impaired, which may require us to takenon-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 anon-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.
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Exhibit No. | Description | |||
31.1* | ||||
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31.2* | ||||
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32.1** | ||||
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101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Net and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||
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104 | Cover Page Interactive Data File (formatted as Inline XBRL |
* | Filed herewith. |
** | Furnished, not filed. |
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Marcus & Millichap, Inc . | ||||||
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Date: | November 8, 2019 | By: | /s/ Hessam Nadji | |||
Hessam Nadji President and Chief Executive Officer (Principal Executive Officer) | ||||||
Date: | November 8, 2019 | By: | /s/ Martin E. Louie | |||
Martin E. Louie Chief Financial Officer (Principal Financial Officer) |