☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 35-2478370 | ||
(State or Other Jurisdiction of | (I.R.S. Employer | ||
Incorporation or Organization) | Identification No.) | ||
23975 Park Sorrento, Suite 400 Calabasas, California | 91302 | ||
(Address of Principal Executive Offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.0001 per share | MMI | New York Stock Exchange |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | |||||
Emerging growth company | ||||||
☐ | ||||||
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June 30, 2019 (Unaudited) | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 206,758 | $ | 214,683 | ||||
Commissions receivable | 5,768 | 4,948 | ||||||
Prepaid expenses | 9,593 | 7,904 | ||||||
Income tax receivable | 4,762 | — | ||||||
Marketable securities, available-for-sale | 118,909 | 137,436 | ||||||
Other assets, net | 6,233 | 6,368 | ||||||
Total current assets | 352,023 | 371,339 | ||||||
Prepaid rent | — | 13,892 | ||||||
Property and equipment, net | 20,854 | 19,550 | ||||||
Operating lease right-of-use assets, net | 93,090 | — | ||||||
Marketable securities, available-for-sale | 80,329 | 83,209 | ||||||
Assets held in rabbi trust | 9,119 | 8,268 | ||||||
Deferred tax assets, net | 18,525 | 22,959 | ||||||
Goodwill and other intangible assets, net | 14,889 | 15,385 | ||||||
Other assets | 50,845 | 31,778 | ||||||
Total assets | $ | 639,674 | $ | 566,380 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 11,115 | $ | 11,035 | ||||
Notes payable to former stockholders | 6,564 | 1,087 | ||||||
Deferred compensation and commissions | 31,638 | 47,910 | ||||||
Income tax payable | — | 4,486 | ||||||
Operating lease liabilities | 17,400 | — | ||||||
Accrued bonuses and other employee related expenses | 14,050 | 28,338 | ||||||
Total current liabilities | 80,767 | 92,856 | ||||||
Deferred compensation and commissions | 38,964 | 49,887 | ||||||
Notes payable to former stockholders | — | 6,564 | ||||||
Operating lease liabilities | 67,429 | — | ||||||
Deferred rent and other liabilities | 2,001 | 7,499 | ||||||
Total liabilities | 189,161 | 156,806 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $ 0.0001 par value: | ||||||||
Authorized shares – 25,000,000 ; issued and outstanding shares – none at June 30, 2019 and December 31, 2018, respectively | — | — | ||||||
Common stock, $ 0.0001 par value: | ||||||||
Authorized shares – 150,000,000 ; issued and outstanding shares –39,090,861 and38,814,464 at June 30, 2019 and December 31, 2018, respectively | 4 | 4 | ||||||
Additional paid-in capital | 100,098 | 97,458 | ||||||
Stock notes receivable from employees | (4 | ) | (4 | ) | ||||
Retained earnings | 348,258 | 311,341 | ||||||
Accumulated other comprehensive income | 2,157 | 775 | ||||||
Total stockholders’ equity | 450,513 | 409,574 | ||||||
Total liabilities and stockholders’ equity | $ | 639,674 | $ | 566,380 |
June 30, 2020 (Unaudited) | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 154,880 | $ | 232,670 | ||||
Commissions receivable, net | 4,956 | 5,003 | ||||||
Prepaid expenses | 8,391 | 10,676 | ||||||
Income tax receivable | 4,224 | 4,999 | ||||||
Marketable debt securities, available-for-sale at June 30, 2020 and December 31, 2019, respectively, and $0 | 169,768 | 150,752 | ||||||
Advances and loans, net | 1,830 | 2,882 | ||||||
Other assets | 3,619 | 3,185 | ||||||
Total current assets | 347,668 | 410,167 | ||||||
Property and equipment, net | 23,429 | 22,643 | ||||||
Operating lease right-of-use | 86,035 | 90,535 | ||||||
Marketable debt securities, available-for-sale at June 30, 2020 and December 31, 2019, respectively, and $0 | 42,781 | 60,809 | ||||||
Assets held in rabbi trust | 9,081 | 9,452 | ||||||
Deferred tax assets, net | 17,710 | 22,122 | ||||||
Goodwill and other intangible assets, net | 37,829 | 22,312 | ||||||
Advances and loans, net | 101,781 | 66,647 | ||||||
Other assets | 4,501 | 4,347 | ||||||
Total assets | $ | 670,815 | $ | 709,034 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 10,914 | $ | 10,790 | ||||
Notes payable to former stockholders | — | 6,564 | ||||||
Deferred compensation and commissions | 25,549 | 44,301 | ||||||
Operating lease liabilities | 17,880 | 17,762 | ||||||
Accrued bonuses and other employee related expenses | 4,211 | 22,388 | ||||||
Total current liabilities | 58,554 | 101,805 | ||||||
Deferred compensation and commissions | 31,388 | 45,628 | ||||||
Operating lease liabilities | 60,262 | 63,155 | ||||||
Other liabilities | 7,698 | 3,539 | ||||||
Total liabilities | 157,902 | 214,127 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value: | ||||||||
Authorized shares – 25,000,000; issued and outstanding shares – 0ne at June 30, 2020 and December 31, 2019, respectively | — | — | ||||||
Common stock, $0.0001 par value: | ||||||||
Authorized shares – 150,000,000; issued and outstanding shares – 39,328,017 and 39,153,195 at June 30, 2020 and December 31, 2019, respectively | 4 | 4 | ||||||
Additional paid-in capital | 108,308 | 104,658 | ||||||
Stock notes receivable from employees | — | (4 | ) | |||||
Retained earnings | 401,414 | 388,271 | ||||||
Accumulated other comprehensive income | 3,187 | 1,978 | ||||||
Total stockholders’ equity | 512,913 | 494,907 | ||||||
Total liabilities and stockholders’ equity | $ | 670,815 | $ | 709,034 | ||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||
Revenues: | |||||||||||||||||
Real estate brokerage commissions | $ | 188,680 | $ | 181,640 | $ | 333,617 | $ | 344,165 | |||||||||
Financing fees | 17,742 | 15,563 | 31,474 | 25,287 | |||||||||||||
Other revenues | 3,171 | 2,199 | 5,209 | 4,491 | |||||||||||||
Total revenues | 209,593 | 199,402 | 370,300 | 373,943 | |||||||||||||
Operating expenses: | |||||||||||||||||
Cost of services | 127,847 | 119,869 | 219,535 | 221,518 | |||||||||||||
Selling, general and administrative expense | 52,836 | 49,080 | 101,754 | 97,133 | |||||||||||||
Depreciation and amortization expense | 1,932 | 1,503 | 3,764 | 2,878 | |||||||||||||
Total operating expenses | 182,615 | 170,452 | 325,053 | 321,529 | |||||||||||||
Operating income | 26,978 | 28,950 | 45,247 | 52,414 | |||||||||||||
Other income (expense), net | 3,119 | 1,724 | 6,494 | 2,933 | |||||||||||||
Interest expense | (340 | ) | (352 | ) | (689 | ) | (712 | ) | |||||||||
Income before provision for income taxes | 29,757 | 30,322 | 51,052 | 54,635 | |||||||||||||
Provision for income taxes | 8,478 | 8,155 | 14,135 | 14,457 | |||||||||||||
Net income | 21,279 | 22,167 | 36,917 | 40,178 | |||||||||||||
Other comprehensive income (loss): | |||||||||||||||||
Marketable securities, available-for-sale: | |||||||||||||||||
Change in unrealized gains (losses) | 856 | (172 | ) | 1,714 | (664 | ) | |||||||||||
Less: reclassification adjustment for net (gains) losses included in other income (expense), net | (9 | ) | 8 | (18 | ) | 8 | |||||||||||
Net change, net of tax of $ 283 , $(57) , $571 and $(221) for the three and six months ended June 30, 2019 and 2018, respectively | 847 | (164 | ) | 1,696 | (656 | ) | |||||||||||
Foreign currency translation (loss) gain, net of tax of $ 0 for each of the three and six months ended June 30, 2019 and 2018 | (216 | ) | 34 | (314 | ) | 73 | |||||||||||
Total other comprehensive income (loss) | 631 | (130 | ) | 1,382 | (583 | ) | |||||||||||
Comprehensive income | $ | 21,910 | $ | 22,037 | $ | 38,299 | $ | 39,595 | |||||||||
Earnings per share: | |||||||||||||||||
Basic | $ | 0.54 | $ | 0.57 | $ | 0.94 | $ | 1.03 | |||||||||
Diluted | $ | 0.54 | $ | 0.56 | $ | 0.93 | $ | 1.02 | |||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 39,395 | 39,154 | 39,353 | 39,124 | |||||||||||||
Diluted | 39,527 | 39,385 | 39,524 | 39,298 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Real estate brokerage commissions | $ | 103,371 | $ | 188,680 | $ | 275,200 | $ | 333,617 | ||||||||
Financing fees | 12,703 | 17,742 | 28,054 | 31,474 | ||||||||||||
Other revenues | 1,326 | 3,171 | 4,863 | 5,209 | ||||||||||||
Total revenues | 117,400 | 209,593 | 308,117 | 370,300 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 73,743 | 127,847 | 187,500 | 219,535 | ||||||||||||
Selling, general and administrative | 43,519 | 52,836 | 98,379 | 101,754 | ||||||||||||
Depreciation and amortization | 2,752 | 1,932 | 5,216 | 3,764 | ||||||||||||
Total operating expenses | 120,014 | 182,615 | 291,095 | 325,053 | ||||||||||||
Operating (loss) income | (2,614 | ) | 26,978 | 17,022 | 45,247 | |||||||||||
Other income (expense), net | 2,975 | 3,119 | 2,609 | 6,494 | ||||||||||||
Interest expense | (213 | ) | (340 | ) | (496 | ) | (689 | ) | ||||||||
Income before provision for income taxes | 148 | 29,757 | 19,135 | 51,052 | ||||||||||||
Provision for income taxes | 42 | 8,478 | 5,959 | 14,135 | ||||||||||||
Net income | 106 | 21,279 | 13,176 | 36,917 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Marketable debt securities, available-for-sale: | ||||||||||||||||
Change in unrealized gains | 1,214 | 856 | 717 | 1,714 | ||||||||||||
Less: reclassification adjustment for net losses (gains) included in other income (expense), net | 13 | (9 | ) | 24 | (18 | ) | ||||||||||
Net change, net of tax of $421, $283, $253 and $571 for the three and six months ended June 30, 2020 and 2019, respectively | 1,227 | 847 | 741 | 1,696 | ||||||||||||
Foreign currency translation (loss) gain, net of tax of $0 for each of the three and six months ended June 30, 2020 and 2019 | (423 | ) | (216 | ) | 468 | (314 | ) | |||||||||
Total other comprehensive income | 804 | 631 | 1,209 | 1,382 | ||||||||||||
Comprehensive income | $ | 910 | $ | 21,910 | $ | 14,385 | $ | 38,299 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | — | $ | 0.54 | $ | 0.33 | $ | 0.94 | ||||||||
Diluted | $ | — | $ | 0.54 | $ | 0.33 | $ | 0.93 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 39,629 | 39,395 | 39,585 | 39,353 | ||||||||||||
Diluted | 39,673 | 39,527 | 39,662 | 39,524 |
Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Stock Notes Receivable From | Retained | Accumulated Other Comprehensive | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income | Total | |||||||||||||||||||||||||||||
Balance at March 31, 2019 | — | $ | — | 39,042,434 | $ | 4 | $ | 97,587 | $ | (4 | ) | $ | 326,979 | $ | 1,526 | $ | 426,092 | ||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 21,279 | 631 | 21,910 | ||||||||||||||||||||||||||||
Stock-based award activity | |||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,585 | — | — | — | 2,585 | ||||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 11,022 | — | 338 | — | — | — | 338 | ||||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 40,823 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 10,542 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (13,960 | ) | — | (412 | ) | — | — | — | (412 | ) | |||||||||||||||||||||||||
Balance as of June 30, 2019 | — | $ | — | 39,090,861 | $ | 4 | $ | 100,098 | $ | (4 | ) | $ | 348,258 | $ | 2,157 | $ | 450,513 |
Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
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 March 31, 2020 | — | $ | — | 39,272,429 | $ | 4 | $ | 105,601 | $ | (4 | ) | $ | 401,308 | $ | 2,383 | $ | 509,292 | |||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 106 | 804 | 910 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,536 | — | — | — | 2,536 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 15,923 | — | 371 | — | — | — | 371 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 27,373 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 19,516 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (7,224 | ) | — | (200 | ) | — | — | — | (200 | ) | ||||||||||||||||||||||||
Reduction of stock notes receivable from employees | — | — | — | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||
Balance as of June 30, 2020 | — | $ | — | 39,328,017 | $ | 4 | $ | 108,308 | $ | — | $ | 401,414 | $ | 3,187 | $ | 512,913 | ||||||||||||||||||||
Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Stock Notes Receivable From | Retained | Accumulated Other Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income (Loss) | Total | ||||||||||||||||||||||||||||
Balance at March 31, 2018 | — | $ | — | 38,578,834 | $ | 4 | $ | 90,840 | $ | (4 | ) | $ | 242,095 | $ | 474 | $ | 333,409 | |||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 22,167 | (130 | ) | 22,037 | ||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 3,159 | — | — | — | 3,159 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 13,028 | — | 356 | — | — | — | 356 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 21,810 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 12,852 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (4,812 | ) | — | (64 | ) | — | — | — | (64 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2018 | — | $ | — | 38,621,712 | $ | 4 | $ | 94,291 | $ | (4 | ) | $ | 264,262 | $ | 344 | $ | 358,897 |
Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
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 March 31, 2019 | — | $ | — | 39,042,434 | $ | 4 | $ | 97,587 | $ | (4 | ) | $ | 326,979 | $ | 1,526 | $ | 426,092 | |||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 21,279 | 631 | 21,910 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,585 | — | — | — | 2,585 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 11,022 | — | 338 | — | — | — | 338 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 40,823 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 10,542 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (13,960 | ) | — | (412 | ) | — | — | — | (412 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2019 | — | $ | — | 39,090,861 | $ | 4 | $ | 100,098 | $ | (4 | ) | $ | 348,258 | $ | 2,157 | $ | 450,513 | |||||||||||||||||||
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Stock Notes Receivable From | Retained | Accumulated Other Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Employees | Earnings | Income | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | — | $ | — | 38,814,464 | $ | 4 | $ | 97,458 | $ | (4 | ) | $ | 311,341 | $ | 775 | $ | 409,574 | |||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 36,917 | 1,382 | 38,299 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 4,926 | — | — | — | 4,926 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 11,022 | — | 338 | — | — | — | 338 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 325,219 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 10,542 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (70,386 | ) | — | (2,624 | ) | — | — | — | (2,624 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2019 | — | $ | — | 39,090,861 | $ | 4 | $ | 100,098 | $ | (4 | ) | $ | 348,258 | $ | 2,157 | $ | 450,513 |
Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
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, 2019 | — | $ | — | 39,153,195 | $ | 4 | $ | 104,658 | $ | (4 | ) | $ | 388,271 | $ | 1,978 | $ | 494,907 | |||||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax | — | — | — | — | — | — | (33 | ) | — | (33 | ) | |||||||||||||||||||||||||
Balance at January 1, 2020, as adjusted | — | — | 39,153,195 | 4 | 104,658 | (4 | ) | 388,238 | 1,978 | 494,874 | ||||||||||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 13,176 | 1,209 | 14,385 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 5,168 | — | — | — | 5,168 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 15,923 | — | 371 | — | — | — | 371 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 197,479 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 19,516 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (58,096 | ) | — | (1,889 | ) | — | — | — | (1,889 | ) | ||||||||||||||||||||||||
Reduction of stock notes receivable from employees | — | — | — | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||
Balance as of June 30, 2020 | — | $ | — | 39,328,017 | $ | 4 | $ | 108,308 | $ | — | $ | 401,414 | $ | 3,187 | $ | 512,913 | ||||||||||||||||||||
Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In | Stock Notes Receivable From | Retained | Accumulated Other 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 | — | — | — | — | — | — | 40,178 | (583 | ) | 39,595 | ||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 5,772 | — | — | — | 5,772 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 13,028 | — | 356 | — | — | — | 356 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 274,740 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 12,852 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (52,919 | ) | — | (1,714 | ) | — | — | — | (1,714 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2018 | — | $ | — | 38,621,712 | $ | 4 | $ | 94,291 | $ | (4 | ) | $ | 264,262 | $ | 344 | $ | 358,897 | |||||||||||||||||||
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||
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, 2018 | — | $ | — | 38,814,464 | $ | 4 | $ | 97,458 | $ | (4 | ) | $ | 311,341 | $ | 775 | $ | 409,574 | |||||||||||||||||||
Net and comprehensive income | — | — | — | — | — | — | 36,917 | 1,382 | 38,299 | |||||||||||||||||||||||||||
Stock-based award activity | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 4,926 | — | — | — | 4,926 | |||||||||||||||||||||||||||
Shares issued pursuant to employee stock purchase plan | — | — | 11,022 | — | 338 | — | — | — | 338 | |||||||||||||||||||||||||||
Issuance of common stock for vesting of restricted stock units | — | — | 325,219 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Issuance of common stock for unvested restricted stock awards | — | — | 10,542 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares withheld related to net share settlement of stock-based awards | — | — | (70,386 | ) | — | (2,624 | ) | — | — | — | (2,624 | ) | ||||||||||||||||||||||||
Balance as of June 30, 2019 | — | $ | — | 39,090,861 | $ | 4 | $ | 100,098 | $ | (4 | ) | $ | 348,258 | $ | 2,157 | $ | 450,513 | |||||||||||||||||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 36,917 | $ | 40,178 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization expense | 3,764 | 2,878 | ||||||
Amortization of right-of-use assets | 10,242 | — | ||||||
Recovery of bad debt expense | (13 | ) | (29 | ) | ||||
Stock-based compensation | 4,926 | 5,772 | ||||||
Deferred taxes, net | 3,863 | 1,489 | ||||||
Net realized gains on marketable securities, available-for-sale | (12 | ) | (12 | ) | ||||
Other non-cash items | (228 | ) | 151 | |||||
Changes in operating assets and liabilities: | ||||||||
Commissions receivable | (820 | ) | 2,861 | |||||
Prepaid expenses | (1,689 | ) | 2,006 | |||||
Prepaid rent | — | 482 | ||||||
Other assets, net | (21,367 | ) | (3,588 | ) | ||||
Accounts payable and other liabilities | 14 | (1,525 | ) | |||||
Income tax receivable/payable | (9,248 | ) | 1,525 | |||||
Accrued bonuses and other employee related expenses | (14,228 | ) | (6,751 | ) | ||||
Deferred compensation and commissions | (28,291 | ) | (23,066 | ) | ||||
Operating lease liabilities | (8,169 | ) | — | |||||
Deferred rent and other liabilities | (24 | ) | 675 | |||||
Net cash (used in) provided by operating activities | (24,363 | ) | 23,046 | |||||
Cash flows from investing activities | ||||||||
Acquisition, net of cash received | — | (6,216 | ) | |||||
Purchases of marketable securities, available-for-sale | (79,357 | ) | (57,411 | ) | ||||
Proceeds from sales and maturities of marketable securities, available-for-sale | 103,108 | 64,969 | ||||||
Issuances of employee notes receivable | — | (125 | ) | |||||
Payments received on employee notes receivable | 1 | 6 | ||||||
Purchase of property and equipment | (4,126 | ) | (2,643 | ) | ||||
Net cash provided by (used in) investing activities | 19,626 | (1,420 | ) | |||||
Cash flows from financing activities | ||||||||
Taxes paid related to net share settlement of stock-based awards | (2,624 | ) | (1,714 | ) | ||||
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 | (3,188 | ) | (2,393 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (7,925 | ) | 19,233 | |||||
Cash and cash equivalents at beginning of period | 214,683 | 220,786 | ||||||
Cash and cash equivalents at end of period | $ | 206,758 | $ | 240,019 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid during the period | $ | 1,967 | $ | 2,005 | ||||
Income taxes paid, net | $ | 19,520 | $ | 11,443 |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 13,176 | $ | 36,917 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization | 5,216 | 3,764 | ||||||
Amortization of right-of-use | 11,151 | 10,242 | ||||||
Credit loss recovery | (78 | ) | (13 | ) | ||||
Stock-based compensation | 5,168 | 4,926 | ||||||
Deferred taxes, net | 4,172 | 3,863 | ||||||
Unrealized foreign exchange loss | 557 | — | ||||||
Net realized (gains) losses on marketable debt securities, available-for-sale | (117 | ) | (12 | ) | ||||
Other non-cash items | 567 | (228 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Commissions receivable | (5 | ) | (820 | ) | ||||
Prepaid expenses | 2,259 | (1,689 | ) | |||||
Advances and loans | (34,149 | ) | (17,614 | ) | ||||
Other assets | (1,059 | ) | (3,753 | ) | ||||
Accounts payable and other liabilities | (1,204 | ) | 14 | |||||
Income tax receivable/payable | 775 | (9,248 | ) | |||||
Accrued bonuses and other employee related expenses | (18,168 | ) | (14,228 | ) | ||||
Deferred compensation and commissions | (31,425 | ) | (28,291 | ) | ||||
Operating lease liabilities | (9,016 | ) | (8,169 | ) | ||||
Other liabilities | 331 | (24 | ) | |||||
Net cash used in operating activities | (51,849 | ) | (24,363 | ) | ||||
Cash flows from investing activities | ||||||||
Acquisition of businesses, net of cash received | (11,821 | ) | — | |||||
Purchases of marketable debt securities, available-for-sale | (95,266 | ) | (79,357 | ) | ||||
Proceeds from sales and maturities of marketable debt securities, available-for-sale | 95,028 | 103,108 | ||||||
Issuances of employee notes receivable | (211 | ) | — | |||||
Payments received on employee notes receivable | 1 | 1 | ||||||
Purchase of property and equipment | (4,190 | ) | (4,126 | ) | ||||
Net cash (used in) provided by investing activities | (16,459 | ) | 19,626 | |||||
Cash flows from financing activities | ||||||||
Taxes paid related to net share settlement of stock-based awards | (1,889 | ) | (2,624 | ) | ||||
Proceeds from issuance of shares pursuant to employee stock purchase plan | 371 | 338 | ||||||
Principal payments on notes payable to former stockholders | (6,563 | ) | (1,087 | ) | ||||
Principal payments on stock appreciation rights liability | (1,251 | ) | 185 | |||||
Net cash used in financing activities | (9,332 | ) | (3,188 | ) | ||||
Effect of currency exchange rate changes on cash and cash equivalents | (150 | ) | — | |||||
Net decrease in cash and cash equivalents | (77,790 | ) | (7,925 | ) | ||||
Cash and cash equivalents at beginning of period | 232,670 | 214,683 | ||||||
Cash and cash equivalents at end of period | $ | 154,880 | $ | 206,758 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid during the period | $ | 1,193 | $ | 1,967 | ||||
Income taxes paid, net | $ | 1,013 | $ | 19,520 | ||||
1. | Description of Business and Basis of Presentation |
2. | Accounting Policies and Recent Accounting Pronouncements |
3. | Property and Equipment, Net |
June 30, 2019 | December 31, 2018 | |||||||
Computer software and hardware equipment | $ | 22,960 | $ | 20,427 | ||||
Furniture, fixtures, and equipment | 22,816 | 24,227 | ||||||
Less: accumulated depreciation and amortization | (24,922 | ) | (25,104 | ) | ||||
$ | 20,854 | $ | 19,550 |
June 30, 2020 | December 31, 2019 | |||||||
Computer software and hardware equipment | $ | 28,445 | $ | 25,252 | ||||
Furniture, fixtures, and equipment | 23,114 | 23,468 | ||||||
Less: accumulated depreciation and amortization | (28,130 | ) | (26,077 | ) | ||||
$ | 23,429 | $ | 22,643 | |||||
4. | Operating Leases |
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Operating lease cost: | ||||||||
Lease cost (1) | $ | 6,106 | $ | 12,015 | ||||
Variable lease cost (2) | 1,284 | 2,490 | ||||||
Sublease income | (43 | ) | (131 | ) | ||||
$ | 7,347 | $ | 14,374 | |||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Operating lease cost: | ||||||||||||||||
Lease cost (1) | $ | 6,341 | $ | 6,106 | $ | 12,604 | $ | 12,015 | ||||||||
Variable lease cost (2) | 1,215 | 1,284 | 2,611 | 2,490 | ||||||||||||
Sublease income | (89 | ) | (43 | ) | (166 | ) | (131 | ) | ||||||||
$ | 7,467 | $ | 7,347 | $ | 15,049 | $ | 14,374 | |||||||||
(1) | Includes short-term lease cost and ROU asset amortization. |
(2) | Primarily relates to common area maintenance, property taxes, insurance, |
June 30, 2019 | ||||
Remainder of 2019 | $ | 10,242 | ||
2020 | 20,469 | |||
2021 | 17,842 | |||
2022 | 13,820 | |||
2023 | 10,741 | |||
Thereafter | 21,237 | |||
Total future minimum lease payments | 94,351 | |||
Less imputed interest | (9,522 | ) | ||
Present value of operating lease liabilities | $ | 84,829 |
June 30, 2020 | ||||
Remainder of 2020 | $ | 10,505 | ||
2021 | 20,891 | |||
2022 | 15,681 | |||
2023 | 12,286 | |||
2024 | 10,081 | |||
Thereafter | 15,368 | |||
Total future minimum lease payments | 84,812 | |||
Less imputed interest | (6,670 | ) | ||
Present value of operating lease liabilities | $ | 78,142 | ||
Six Months Ended June 30, 2019 | ||||
Operating cash flow information: | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 9,973 | ||
Noncash activity: | ||||
ROU assets obtained in exchange for operating lease liabilities | $ | 16,264 | ||
Tenant improvements owned by lessor related to ROU assets (1) | $ | 2,532 |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Operating cash flow information: | ||||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 10,456 | $ | 9,973 | ||||
Noncash activity: | ||||||||
ROU assets obtained in exchange for operating lease liabilities | $ | 6,334 | $ | 16,264 | ||||
Tenant improvements owned by lessor related to ROU assets (1) | $ | 317 | $ | 2,532 |
(1) | Reclassification from other assets current. |
June 30, 2020 | December 31, 2019 | |||
Weighted average remaining operating lease term | 4.87 years | 5.04 years | ||
Weighted average discount rate | 3.3% | 3.8% |
December 31, 2018 | ||||
2019 | $ | 19,649 | ||
2020 | 19,287 | |||
2021 | 16,833 | |||
2022 | 12,368 | |||
2023 | 8,805 | |||
Thereafter | 10,452 | |||
$ | 87,394 |
5. | Investments in Marketable Debt Securities |
June 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 | $ | 95,607 | $ | 143 | $ | — | $ | 95,750 | $ | 121,252 | $ | 7 | $ | (79 | ) | $ | 121,180 | |||||||||||||||
U.S. government sponsored entities | — | — | — | — | 3,512 | — | (7 | ) | 3,505 | |||||||||||||||||||||||
Corporate debt securities | 23,137 | 26 | (4 | ) | 23,159 | 11,962 | — | (11 | ) | 11,951 | ||||||||||||||||||||||
Asset-backed securities and other | — | — | — | — | 806 | — | (6 | ) | 800 | |||||||||||||||||||||||
$ | 118,744 | $ | 169 | $ | (4 | ) | $ | 118,909 | $ | 137,532 | $ | 7 | $ | (103 | ) | $ | 137,436 | |||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 37,139 | $ | 393 | $ | (1 | ) | $ | 37,531 | $ | 44,997 | $ | 128 | $ | (115 | ) | $ | 45,010 | ||||||||||||||
U.S. government sponsored entities | 1,478 | — | (18 | ) | 1,460 | 1,569 | — | (62 | ) | 1,507 | ||||||||||||||||||||||
Corporate debt securities | 32,967 | 826 | (5 | ) | 33,788 | 32,467 | 3 | (633 | ) | 31,837 | ||||||||||||||||||||||
Asset-backed securities and other | 7,464 | 91 | (5 | ) | 7,550 | 4,889 | 12 | (46 | ) | 4,855 | ||||||||||||||||||||||
$ | 79,048 | $ | 1,310 | $ | (29 | ) | $ | 80,329 | $ | 83,922 | $ | 143 | $ | (856 | ) | $ | 83,209 |
June 30, 2020 | ||||||||||||||||||||
Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||
Short-term investments: | ||||||||||||||||||||
U.S. treasuries | $ | 108,982 | $ | — | $ | 498 | $ | (1 | ) | $ | 109,479 | |||||||||
U.S. government sponsored entities | 37,699 | — | 14 | — | 37,713 | |||||||||||||||
Corporate debt | 22,514 | — | 62 | — | 22,576 | |||||||||||||||
$ | 169,195 | $ | — | $ | 574 | $ | (1 | ) | $ | 169,768 | ||||||||||
Long-term investments: | ||||||||||||||||||||
U.S. treasuries | $ | 3,892 | $ | — | $ | 319 | $ | — | $ | 4,211 | ||||||||||
U.S. government sponsored entities | 1,218 | — | 36 | — | 1,254 | |||||||||||||||
Corporate debt | 28,139 | — | 1,758 | (181 | ) | 29,716 | ||||||||||||||
ABS and other | 7,559 | — | 128 | (87 | ) | 7,600 | ||||||||||||||
$ | 40,808 | $ | — | $ | 2,241 | $ | (268 | ) | $ | 42,781 | ||||||||||
December 31, 2019 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Short-term investments: | ||||||||||||||||
U.S. treasuries | $ | 124,389 | $ | 196 | $ | (5 | ) | $ | 124,580 | |||||||
U.S. government sponsored entities | — | — | — | — | ||||||||||||
Corporate debt | 26,128 | 44 | — | 26,172 | ||||||||||||
$ | 150,517 | $ | 240 | $ | (5 | ) | $ | 150,752 | ||||||||
Long-term investments: | ||||||||||||||||
U.S. treasuries | $ | 24,188 | $ | 235 | $ | — | $ | 24,423 | ||||||||
U.S. government sponsored entities | 1,353 | 3 | (1 | ) | 1,355 | |||||||||||
Corporate debt | 25,447 | 1,027 | (3 | ) | 26,471 | |||||||||||
ABS and other | 8,480 | 93 | (13 | ) | 8,560 | |||||||||||
$ | 59,468 | $ | 1,358 | $ | (17 | ) | $ | 60,809 | ||||||||
June 30, 2019 | December 31, 2018 | |||||||||||||||
Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | |||||||||||||
Less than 12 months | $ | (7 | ) | $ | 9,825 | $ | (576 | ) | $ | 127,326 | ||||||
12 months or longer | $ | (26 | ) | $ | 4,045 | $ | (383 | ) | $ | 30,609 |
June 30, 2020 | ||||||||||||||||||||||||
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
U.S. treasuries | $ | 16,889 | $ | (1 | ) | $ | — | $ | — | $ | 16,889 | $ | (1 | ) | ||||||||||
Corporate debt | 2,073 | (181 | ) | — | — | 2,073 | (181 | ) | ||||||||||||||||
ABS and other | 2,256 | (87 | ) | — | — | 2,256 | (87 | ) | ||||||||||||||||
$ | 21,218 | $ | (269 | ) | $ | — | $ | — | $ | 21,218 | $ | (269 | ) | |||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Less than 12 months | 12 months or greater | Total | ||||||||||||||||||||||
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
U.S. treasuries | $ | 39,823 | $ | (5 | ) | $ | — | $ | — | $ | 39,823 | $ | (5 | ) | ||||||||||
U.S. government sponsored entities | — | — | 566 | (1 | ) | 566 | (1 | ) | ||||||||||||||||
Corporate debt | 6,029 | (3 | ) | — | — | 6,029 | (3 | ) | ||||||||||||||||
ABS and other | 1,971 | (13 | ) | — | — | 1,971 | (13 | ) | ||||||||||||||||
$ | 47,823 | $ | (21 | ) | $ | 566 | $ | (1 | ) | $ | 48,389 | $ | (22 | ) | ||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Gross realized gains (1) | $ | 24 | $ | 12 | $ | 59 | $ | 12 | ||||||||
Gross realized losses (1) | $ | — | $ | — | $ | (47 | ) | $ | — |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Gross realized gains (1) | $ | 79 | $ | 24 | $ | 132 | $ | 59 | ||||||||
Gross realized losses (1) | $ | (15 | ) | $ | — | $ | (15 | ) | $ | (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. |
June 30, 2019 | December 31, 2018 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 118,744 | $ | 118,909 | $ | 137,532 | $ | 137,436 | ||||||||
Due after one year through five years | 58,273 | 59,002 | 61,875 | 61,846 | ||||||||||||
Due after five years through ten years | 15,941 | 16,451 | 17,310 | 16,747 | ||||||||||||
Due after ten years | 4,834 | 4,876 | 4,737 | 4,616 | ||||||||||||
$ | 197,792 | $ | 199,238 | $ | 221,454 | $ | 220,645 | |||||||||
Weighted average contractual maturity | 1.9 years | 1.8 years |
June 30, 2020 | December 31, 2019 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 169,195 | $ | 169,768 | $ | 150,517 | $ | 150,752 | ||||||||
Due after one year through five years | 25,166 | 26,426 | 41,123 | 41,794 | ||||||||||||
Due after five years through ten years | 10,709 | 11,395 | 12,813 | 13,467 | ||||||||||||
Due after ten years | 4,933 | 4,960 | 5,532 | 5,548 | ||||||||||||
$ | 210,003 | $ | 212,549 | $ | 209,985 | $ | 211,561 | |||||||||
Weighted average contractual maturity | 1.7 | 1.7 years |
6. | Acquisitions, Goodwill and Other Intangible Assets |
June 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying 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 | (810 | ) | 3,430 | 4,240 | (314 | ) | 3,926 | ||||||||||||||||
$ | 15,699 | $ | (810 | ) | $ | 14,889 | $ | 15,699 | $ | (314 | ) | $ | 15,385 |
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
Goodwill and intangible assets: | ||||||||||||||||||||||||
Goodwill | $ | 24,319 | $ | — | $ | 24,319 | $ | 15,072 | $ | — | $ | 15,072 | ||||||||||||
Intangible assets (1) | 17,291 | (3,781 | ) | 13,510 | 9,050 | (1,810 | ) | 7,240 | ||||||||||||||||
$ | 41,610 | $ | (3,781 | ) | $ | 37,829 | $ | 24,122 | $ | (1,810 | ) | $ | 22,312 | |||||||||||
(1) | Total weighted average amortization period was 5.08 years and 4.37 years as of June 30, 2020 and December 31, 2019, respectively. |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Beginning balance | $ | 15,072 | $ | 11,459 | ||||
Additions from acquisitions | 9,247 | — | ||||||
Impairment losses | — | — | ||||||
Ending balance | $ | 24,319 | $ | 11,459 | ||||
June 30, 2019 | ||||
Remainder of 2019 | $ | 410 | ||
2020 | 817 | |||
2021 | 734 | |||
2022 | 638 | |||
2023 | 508 | |||
Thereafter | 323 | |||
$ | 3,430 |
June 30, 2020 | ||||
Remainder of 2020 | $ | 1,924 | ||
2021 | 2,972 | |||
2022 | 2,585 | |||
2023 | 2,582 | |||
2024 | 2,013 | |||
Thereafter | 1,434 | |||
$ | 13,510 | |||
7. | Selected Balance Sheet Data |
Advances and Loans | Commissions Receivable | Total | ||||||||||
Beginning balance as of January 1, 2020 | $ | 512 | $ | 32 | $ | 544 | ||||||
Credit loss (recovery) expense | (79 | ) | 1 | (78 | ) | |||||||
Write-offs | (32 | ) | — | (32 | ) | |||||||
Ending balance as of June 30, 2020 | $ | 401 | $ | 33 | $ | 434 | ||||||
Advances and Loans | Commissions Receivable | Total | ||||||||||
Beginning balance as of January 1, 2019 | $ | 514 | $ | — | $ | 514 | ||||||
Credit loss recovery | (13 | ) | — | (13 | ) | |||||||
Write-offs | (103 | ) | — | (103 | ) | |||||||
Ending balance as of June 30, 2019 | $ | 398 | $ | — | $ | 398 | ||||||
Current | Non-Current | |||||||||||||||
June 30, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | |||||||||||||
Mortgage servicing rights (“MSRs”), net of amortization | $ | — | $ | — | $ | 2,099 | $ | 2,209 | ||||||||
Due from independent contractors, net (1) (2) | 2,288 | 3,831 | 46,328 | 27,157 | ||||||||||||
Security deposits | — | — | 1,301 | 1,196 | ||||||||||||
Employee notes receivable (3) | 151 | 156 | 264 | 370 | ||||||||||||
Customer trust accounts and other | 3,794 | 2,381 | 853 | 846 | ||||||||||||
$ | 6,233 | $ | 6,368 | $ | 50,845 | $ | 31,778 |
Current | Non-Current | |||||||||||||||
June 30, 2020 | December 31, 2019 | June 30, 2020 | December 31, 2019 | |||||||||||||
Mortgage servicing rights (“MSRs”), net of amortization | $ | — | $ | — | $ | 2,133 | $ | 2,002 | ||||||||
Security deposits | — | — | 1,388 | 1,345 | ||||||||||||
Employee notes receivable (1) | 170 | 65 | 406 | 323 | ||||||||||||
Customer trust accounts and other | 3,449 | 3,120 | 574 | 677 | ||||||||||||
$ | 3,619 | $ | 3,185 | $ | 4,501 | $ | 4,347 | |||||||||
(1) | Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were |
June 30, 2019 | December 31, 2018 | |||||||
Beginning balance | $ | 2,209 | $ | — | ||||
Additions from acquisition | — | 2,121 | ||||||
Additions | 165 | 391 | ||||||
Amortization | (275 | ) | (303 | ) | ||||
Ending balance | $ | 2,099 | $ | 2,209 |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Beginning balance | $ | 2,002 | $ | 2,209 | ||||
Additions | 384 | 165 | ||||||
Amortization | (253 | ) | (275 | ) | ||||
Ending balance | $ | 2,133 | $ | 2,099 | ||||
Current | Non-Current | |||||||||||||||
June 30, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | |||||||||||||
Stock appreciation rights (“SARs”) liability (1) | $ | 1,969 | $ | 1,810 | $ | 17,856 | $ | 19,299 | ||||||||
Commissions payable to investment sales and financing professionals | 28,218 | 44,812 | 13,939 | 23,983 | ||||||||||||
Deferred compensation liability (1) | 1,451 | 1,288 | 7,169 | 6,605 | ||||||||||||
$ | 31,638 | $ | 47,910 | $ | 38,964 | $ | 49,887 |
Current | Non-Current | |||||||||||||||
June 30, 2020 | December 31, 2019 | June 30, 2020 | December 31, 2019 | |||||||||||||
Stock appreciation rights (“SARs”) liability (1) | $ | 2,162 | $ | 2,080 | $ | 16,316 | $ | 18,122 | ||||||||
Commissions payable to investment sales and financing professionals | 21,693 | 40,235 | 8,641 | 20,818 | ||||||||||||
Deferred compensation liability (1) | 1,433 | 1,553 | 6,431 | 6,688 | ||||||||||||
Other | 261 | 433 | — | — | ||||||||||||
$ | 25,549 | $ | 44,301 | $ | 31,388 | $ | 45,628 | |||||||||
(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. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Increase in the carrying value of the assets held in the rabbi trust (1) | $ | 225 | $ | 176 | $ | 928 | $ | 190 | ||||||||
Increase in the net carrying value of the deferred compensation obligation (2) | $ | 227 | $ | 188 | $ | 912 | $ | 188 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Increase (decrease) in the carrying value of the assets held in the rabbi trust (1) | $ | 1,124 | $ | 225 | $ | (264 | ) | $ | 928 | |||||||
Increase (decrease) in the net carrying value of the deferred compensation obligation (2) | $ | 973 | $ | 227 | $ | (300 | ) | $ | 912 | |||||||
(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. |
Non-Current | ||||||||
June 30, 2019 | December 31, 2018 | |||||||
Deferred rent (1) | $ | — | $ | 5,445 | ||||
Contingent consideration and other (2) | 2,001 | 2,054 | ||||||
$ | 2,001 | $ | 7,499 |
Non-Current | ||||||||
June 30, 2020 | December 31, 2019 | |||||||
Deferred consideration (1) (2) | $ | 3,372 | $ | 830 | ||||
Contingent consideration (1) (2) | 3,805 | 2,709 | ||||||
Other | 521 | — | ||||||
$ | 7,698 | $ | 3,539 | |||||
(1) |
The current portions of |
Deferred consideration in the aggregate amount of $1,401 as of December 31, 2019 was reclassified from contingent consideration during the six months ended June 30, 2020 and of this amount, $560 and $841 pertained to the current and non-current portions, respectively. |
8. | Notes Payable to Former Stockholders |
9. | Related-Party Transactions |
10. | Fair Value Measurements |
• | Level 1: |
June 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 | $ | 9,119 | $ | — | $ | 9,119 | $ | — | $ | 8,268 | $ | — | $ | 8,268 | $ | — | ||||||||||||||||
Cash equivalents (1) : | ||||||||||||||||||||||||||||||||
Commercial paper and other | $ | 1,496 | $ | — | $ | 1,496 | $ | — | $ | 1,599 | $ | 1,599 | $ | — | $ | — | ||||||||||||||||
Money market funds | 171,663 | 171,663 | — | — | 163,126 | 163,126 | — | — | ||||||||||||||||||||||||
$ | 173,159 | $ | 171,663 | $ | 1,496 | $ | — | $ | 164,725 | $ | 164,725 | $ | — | $ | — | |||||||||||||||||
Marketable securities, available-for-sale: | ||||||||||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 95,750 | $ | 95,750 | $ | — | $ | — | $ | 121,180 | $ | 121,180 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | — | — | — | — | 3,505 | — | 3,505 | — | ||||||||||||||||||||||||
Corporate debt securities | 23,159 | — | 23,159 | — | 11,951 | — | 11,951 | — | ||||||||||||||||||||||||
Asset-backed securities and other | — | — | — | — | 800 | — | 800 | — | ||||||||||||||||||||||||
$ | 118,909 | $ | 95,750 | $ | 23,159 | $ | — | $ | 137,436 | $ | 121,180 | $ | 16,256 | $ | — | |||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 37,531 | $ | 37,531 | $ | — | $ | — | $ | 45,010 | $ | 45,010 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 1,460 | — | 1,460 | — | 1,507 | — | 1,507 | — | ||||||||||||||||||||||||
Corporate debt securities | 33,788 | — | 33,788 | — | 31,837 | — | 31,837 | — | ||||||||||||||||||||||||
Asset-backed securities and other | 7,550 | — | 7,550 | — | 4,855 | — | 4,855 | — | ||||||||||||||||||||||||
$ | 80,329 | $ | 37,531 | $ | 42,798 | $ | — | $ | 83,209 | $ | 45,010 | $ | 38,199 | $ | — | |||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration (2) | $ | 2,859 | $ | — | $ | — | $ | 2,859 | $ | 2,875 | $ | — | $ | — | $ | 2,875 | ||||||||||||||||
Deferred compensation liability | $ | 8,620 | $ | 8,620 | $ | — | $ | — | $ | 7,893 | $ | 7,893 | $ | — | $ | — |
June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Assets held in rabbi trust | $ | 9,081 | $ | — | $ | 9,081 | $ | — | $ | 9,452 | $ | — | $ | 9,452 | $ | — | ||||||||||||||||
Cash equivalents (1) : | ||||||||||||||||||||||||||||||||
Commercial paper and other | $ | 5,751 | $ | — | $ | 5,751 | $ | — | $ | 5,087 | $ | — | $ | 5,087 | $ | — | ||||||||||||||||
Money market funds | 114,909 | 114,909 | — | — | 185,513 | 185,513 | — | — | ||||||||||||||||||||||||
$ | 120,660 | $ | 114,909 | $ | 5,751 | $ | — | $ | 190,600 | $ | 185,513 | $ | 5,087 | $ | — | |||||||||||||||||
Marketable debt securities, available-for-sale: | ||||||||||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 109,479 | $ | 109,479 | $ | — | $ | — | $ | 124,580 | $ | 124,580 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 37,713 | — | 37,713 | — | — | — | — | — | ||||||||||||||||||||||||
Corporate debt | 22,576 | — | 22,576 | — | 26,172 | — | 26,172 | — | ||||||||||||||||||||||||
$ | 169,768 | $ | 109,479 | $ | 60,289 | $ | — | $ | 150,752 | $ | 124,580 | $ | 26,172 | $ | — | |||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
U.S. treasuries | $ | 4,211 | $ | 4,211 | $ | — | $ | — | $ | 24,423 | $ | 24,423 | $ | — | $ | — | ||||||||||||||||
U.S. government sponsored entities | 1,254 | — | 1,254 | — | 1,355 | — | 1,355 | — | ||||||||||||||||||||||||
Corporate debt | 29,716 | — | 29,716 | — | 26,471 | — | 26,471 | — | ||||||||||||||||||||||||
ABS and other | 7,600 | — | 7,600 | — | 8,560 | — | 8,560 | — | ||||||||||||||||||||||||
$ | 42,781 | $ | 4,211 | $ | 38,570 | $ | — | $ | 60,809 | $ | 24,423 | $ | 36,386 | $ | — | |||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 5,208 | $ | — | $ | — | $ | 5,208 | $ | 3,387 | $ | — | $ | — | $ | 3,387 | ||||||||||||||||
Deferred consideration | $ | 5,217 | $ | — | $ | 5,217 | $ | — | $ | 1,390 | $ | — | $ | 1,390 | $ | — | ||||||||||||||||
Deferred compensation liability | $ | 7,864 | $ | 7,864 | $ | — | $ | — | $ | 8,241 | $ | 8,241 | $ | — | $ | — | ||||||||||||||||
(1) | Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets. |
There were 0 transfers in or out of Level 3 during the six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, contingent and deferred consideration has a maximum undiscounted payment of $17.3 million and $7.3 million, respectively. Assuming the achievement of the applicable performance criteria and/or service and time requirements, the Company anticipates theseearn-out and deferred payments will be made over the next one to seven-year period. Changes in fair value are included 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):
22 MARCUS & MILLICHAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis consisted of the following (dollars in thousands):
Nonrecurring Fair Value Measurements In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of MSRs, intangibles, goodwill and other assets for indications of impairment MSRs are COVID-19 pandemic on default, severity, prepayment and discount rates related to the specific types and underlying collateral of the various serviced loans, interest rates, refinance rates, and current government and private sector responses to the pandemic. The fair value of the MSRs approximated the carrying value at June 30, As market conditions change, the Company will re-evaluate assumptions used in the determination of fair value for MSRs and is uncertain to the extent of the volatility in the unobservable inputs in the foreseeable future.23 MARCUS & MILLICHAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial assets measured at fair value on a nonrecurring basis consisted of the following (dollars in thousands):
Common Stock As of June 30, non-employee directors, respectively. See Note 14 – “Earnings per Share” for additional information.Preferred Stock The Company has 25,000,000 authorized shares of preferred stock with a par value $0.0001 per share. At June 30, Accumulated Other Comprehensive Income/Loss Amounts reclassified from accumulated other comprehensive income/loss include marketable debt securities, available for sale are included as a component of other income (expense), net or selling, general and administrative expense, as applicable, in the condensed consolidated statements of net and comprehensive income. The reclassifications were determined on a specific identification basis. The Company has not provided for U.S. taxes on unremitted earnings of its foreign subsidiary as it is operating at a loss and has
2013 Omnibus Equity Incentive Plan The Company’s board of directors adopted the 2013 Omnibus Equity Incentive Plan (the “2013 Plan”), which became effective upon the Company’s IPO. In February 2017, May , subject to certain restrictions as to the number and value of shares that may be granted to any individual. In addition,non-employee directors receive annual grants under a director compensation policy. As of June 30, 24 MARCUS & MILLICHAP , INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Awards Granted and Settled Under the 2013 Plan, the Company has issued non-employee directors and restricted stock units (“RSUs”) to employees and independent contractors. RSAs vest in equal annual installments over aone-year period from the date of grant. During the six months ended June 30, Outstanding Awards Activity under the 2013 Plan consisted of the following (dollars in thousands, except weighted average per share data):
Employee Stock Purchase Plan In 2013, the Company adopted the 2013 Employee Stock Purchase Plan (“ESPP”). The ESPP non-overlapping 6-month offering periods.The offering periods generally start on the first trading day on or after May 15 and November 15 of each year. Qualifying employees may purchase shares of the Company stock at a 10% discount based on the lower of the market price at the beginning or end of the offering period, subject to IRS limitations. The Company determined that the ESPP was a compensatory plan and is required to expense the fair value of the awards over eachThe ESPP initially had 366,667 shares of common stock reserved, and 0.38years. 25 MARCUS & MILLICHAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SARs and Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were frozen at the liability amount, and will be paid out to each participant in installments upon retirement or departure under the terms of the revised SARs agreements. To replace beneficial ownership in the SARs, the difference between the book value liability and the fair value of the awards was granted to plan participants in the form of DSUs, which were fully vested upon receipt and
Summary of Stock-Based Compensation Components of stock-based compensation are included in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income and consisted of the following (in thousands):
The Company’s effective tax rate for the three and six months ended June 30, The provision for income taxes differs from the amount computed by applying the U.S. federal statutory rate to income before provision for income taxes and consisted of the following (dollars in thousands):
26 MARCUS & MILLICHAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic and diluted earnings per share for the three and six months ended June 30,
Credit Agreement On June 18, 2014, and further June 1, Borrowings under the Credit Agreement are available for general corporate purposes and working capital. The Credit Facility includes a $10.0 million sublimit for the issuance of standby letters of credit of which $533,000 was utilized at June 30, (b) LIBOR plus27 MARCUS & MILLICHAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Credit Facility contains customary covenants, including financial and other covenant reporting requirements and events of default. Financial covenants require the Company, on a combined basis with its guarantors, to maintain (i) an EBITDAR Coverage Ratio (as defined in the Credit Agreement) of not less than 1.25:1.0 as of each quarter end, determined on a rolling four-quarter basis, and (ii) total funded debt to EBITDA not greater than 2.0:1.0 as of each quarter end, determined on a rolling four-quarter basis, and non-financial covenants and has not experienced any limitation in its operations as a result of the covenants.Other In connection with certain agreements with COVID-19 The Company could experience other potential impacts as a result of the COVID-19 pandemic. Actual results may differ from the Company’s current estimates as there is considerable uncertainty around the scope and duration of theCOVID-19 pandemic, and, as a result, the extent of the impact ofCOVID-19 on our operational and financial 28 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, the words “Marcus & Millichap,” “we,” the “Company,” “us” and “our” refer to Marcus & Millichap, Inc., Marcus & Millichap Real Estate Investment Services, Inc. and its other consolidated subsidiaries. Forward-Looking Statements The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many COVID-19 pandemic. The results of operations for the three and six months ended June 30, 10-Q and in conjunction with our Annual Report on Form10-K for the year ended December 31, Overview We are a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions over the last 10 years. As of June 30, We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing of, commercial properties and by providing consulting, advisory and We divide commercial real estate into four major market segments, characterized by price:
Our strength is in serving private clients in the $1-$10 million
Acquisitions We continue to increase our market presence COVID-19 In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Many states and cities, including where we conduct our business activities, have reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate, which may limit the activity of our sales and financing professionals in engaging with our clients. We have implemented measures such as increased sanitizing, physical distancing and remote work arrangements, with the goal of protecting our employees, sales and financing professionals and clients. We continue to follow the local guidelines in cities where our offices are located and many of our offices havere-opened and are available to our employees and sales and financing professionals on an as needed basis.We are closely monitoring the impact of COVID-19 pandemic on all aspects of our business and in the regions we operate. Since the start of the pandemic, we have seen significant slowing of our real estate brokerage COVID-19 restrictions, including the effects of preventative and precautionary health measures mandated to us by federal, state and local governments will likely continue to affect our ability to identify and close commercial real estate transactions, which could significantly impact our revenue during the second half of 2020.The long-term impact of the disruption in financial markets, consumer spending, unemployment as well as other unanticipated consequences remain unknown. Additionally, we are unable to predict the extent of the negative impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties and the fluidity of this situation, but we anticipate that total revenues will be negatively impacted for at least the third and fourth quarter of 2020 and until normal business conditions begin to resume. These uncertainties include the scope, severity and duration of the pandemic, the actions taken by state and local governments to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures and actions taken, and the impact of these and other factors on our employees, independent contractors and clients and potential clients.We continue to monitor the expected trends and related demand for our services and will continue to adjust our operations accordingly. In 30 Factors Affecting Our Business Our business and our operating results, financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period. The number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals, identify and contract properties for sale and identify those that need financing and refinancing. We principally monitor the commercial real estate market through four factors, which generally drive our business. The factors are the economy, commercial real estate supply and demand, capital markets and The Economy Our business is dependent on economic conditions within the markets in which we operate. Changes in the economy on a global, national, regional or local basis can have a positive or a negative impact on our business. Economic indicators and projections related to job growth, unemployment, interest rates, retail spending and confidence trends can have a positive or a negative impact on our business. Overall market conditions, including global trade, interest rate changes and job creation, can affect investor sentiment and, ultimately, the demand for our services from investors in real estate. COVID-19 has dramatically impacted the global, U.S. and key local economies in which we operate. The movement of most of the U.S. population to“sheltering-in-place” COVID-19 spread has forced most states to walk back their reopening plans. The retail sales sector remains fragile and at risk given the rise inCOVID-19 cases. Numerous retailsub-sectors such as gyms, entertainment venues and restaurants are still largely shut down, and we believe that any recovery will likely be health dependent. Earlier actions by both the Federal Reserve and Congress have temporarily sustained financial market liquidity by delivering resources to support local governments, the healthcare sector, businesses of all sizes and the general public, but we believe that the Federal Government’s ability to sustain the economy is limited and economic growth will likely continue to be at risk until a medical solution emerges. With the magnitude and duration of the pandemic still in question, the severity and length of the economic impact remains unclear. The broad range of unknowns, including health, economic and public policy have increased investor uncertainty. We believe these and other factors that raise uncertainty caused many investors to step to the sidelines until additional clarity emerges.Commercial Real Estate Supply and Demand Our business is dependent on the willingness of investors to invest in or sell commercial real estate, which is affected by many factors beyond our control. These factors include the supply of commercial real estate coupled with user demand for these properties and the performance of real estate assets when compared with other investment alternatives, such as stocks and bonds. The impact of COVID-19 on both the hotel and retail sectors has been significant with many retailers withholding rental payments in locations withshelter-in-place mid-90 percent range since the onset of the pandemic. Apartment collections vary significantly by state, but have been in thelow-90 percent range on average since the onset of the pandemic, supported in part by the expanded Federal unemployment benefits. Health issues and public policy, including any forthcoming stimulus, eviction moratorium rules and momentum toward reopening the economy may all impact property performance and investor sentiment. This could result in very fragmented market results as different states follow different protocols and trajectories.Capital Markets Credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market. Real estate purchases are often financed with debt and, as a result, credit and liquidity impact transaction activity and prices. Changes in interest rates, as well as steady and protracted movements of interest rates in one direction, whether increases or decreases, could adversely or positively affect the operations and income potential of commercial real estate properties, as well as lender and equity underwriting for real estate investments. These changes influence the demand of investors for commercial real estate investments. 31 Financial markets, particularly commercial real estate lending, went through a period of turbulence in the second quarter as lenders grappled with uncertainty. Although the 10-year treasury remained stable at very low levels through the second quarter of 2020, a number of real estate lenders increased their spreads, tightened underwriting and some withdrew funding offers in the midst of transactions. This contributed to a particularly challenging transactional climate, but in June, lenders began to tighten their spreads while making capital more readily available. Distress levels, as measured by commercial mortgage-backed securities (“CMBS”), increased substantively with the volume of loans making payments 30+ days late rising from 2 percent in March to 10 percent in June. The majority of the late payments were in the hospitality and retail sectors. The Federal Reserve and Congress are working on adjustments that could give CMBS lenders more latitude in granting forbearance. Government agency multifamily lenders have been active but cautious. They increased their reserve requirements in the second quarter, but they continue to actively recalibrate their underwriting based on market performance. Local community banks and credit unions have been the most active capital source, and they have also tended to give borrowers more latitude on repayment schedules. Although lending processes have been impeded by theCOVID-19 pandemic, we believe that capital flow may be improving and sufficient capital could be available to meet market needs for most property types.Investor Sentiment and Investment Activity We rely on investors to buy and sell properties in order to generate commissions. Investors’ desires to engage in real estate transactions are dependent on many factors that are beyond our control. The economy, supply and demand for properly positioned properties, available credit and market events impact investor sentiment and, therefore, transaction velocity. In addition, our private clients are often motivated to buy, sell and/or refinance properties due to personal circumstances such as death, divorce, partnership breakups and estate planning. COVID-19 Seasonality Our real estate brokerage commissions and financing fees have tended to be seasonal and, combined with other factors, can affect an investor’s ability to compare our financial condition and results of operations on a quarter-by-quarter COVID-19 pandemic, which may impact, among other things, investor sentiment for a particular property type or location, volatility in financial markets, current and future projections of interest rates, attractiveness of other asset classes, market liquidity and the extent of limitations or availability of capital allocations for larger property COVID-19 pandemic due to uncertainties around all aspects of the economy and may not continue to the same degree experienced in prior years.Operating Segments We follow the guidance for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing, consulting, advisory and 32 Key Financial Measures and Indicators Revenues Our revenues are primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenues from financing fees and from other real estate related revenues, which are primarily comprised of consulting and advisory fees. Because our business is transaction oriented, we rely on investment sales and financing professionals to continually develop leads, identify properties to sell and finance, market those properties and close the sale timely to generate a consistent flow of revenue. While our sales volume is impacted by seasonality factors, the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction, particularly clients transacting in the $1-$10 million period-to-period $1-$10 million period-to-period A small percentage of our transactions include retainer fees and/or breakage fees. Retainer fees are credited against a success-based fee paid upon the closing of a transaction or a breakage fee. Transactions that are terminated before completion will sometimes generate breakage fees, which are usually calculated as a set amount or a percentage of the fee Real Estate Brokerage Commissions We earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties. Revenues from real estate brokerage commissions are typically recognized at the close of escrow. Financing Fees We earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients’ existing mortgage debt. We recognize financing fee revenues at the time the loan closes, and we have no remaining significant obligations for performance in connection with the transaction. To a lesser extent, we also earn mortgage servicing revenue, mortgage servicing fees and ancillary fees associated with financing activities. We recognize mortgage servicing revenues upon the acquisition of a servicing obligation. We generate mortgage servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related mortgage servicing functions, activities and services. Other Revenues Other revenues include fees generated from consulting, advisory and Operating Expenses Our operating expenses consist of cost of services, selling, general and administrative expenses and depreciation and amortization. The significant components of our expenses are further described below. 33 Cost of Services The majority of our cost of services expense is variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities. Commission expenses are directly attributable to providing services to our clients for investment sales and financing services. Most of our investment sales and financing professionals are independent contractors and are paid commissions; however, because there are some who are initially paid a salary and certain of our financing professionals are employees, costs of services also include employee-related compensation, employer taxes and benefits for those employees. The commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals. Some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenue thresholds. These additional commissions are recognized as cost of services in the period in which they are earned. Payment of a portion of these additional commissions are generally deferred for a period of three years, at our election, and paid at the beginning of the fourth calendar year. Cost of services also includes referral fees paid to other real estate brokers where we are the principal service provider. Cost of services, therefore, can vary based on the commission structure of the independent contractors that closed transactions in any particular period. Selling, General and Administrative Expenses The largest expense component within selling, general and administrative expenses is personnel expenses for our management team and sales and support staff. In addition, these costs include facilities costs (excluding depreciation and amortization), staff related expenses, sales, marketing, legal, telecommunication, network, data sources, transaction costs related to acquisitions, changes in fair value for contingent consideration and other administrative expenses. Also included in selling, general and administrative are expenses for stock-based compensation to non-employee directors, employees and independent contractors (i.e. investment sales and financing professionals) under the Amended and Restated 2013 Omnibus Equity Incentive Plan (“2013 Plan”) and the 2013 Employee Stock Purchase Plan (“ESPP”).Depreciation and Amortization Expense Depreciation expense consists of depreciation recorded on our computer software and hardware and furniture, fixture and equipment. Depreciation is provided over estimated useful lives ranging from three to seven years for Other Income (Expense), Net Other income (expense), net primarily consists of interest income, net gains or losses on our deferred compensation plan assets, realized gains and losses on our marketable debt securities, available-for-sale, non-operating gains and losses.Interest Expense Interest expense primarily consists of interest expense associated with the stock appreciation rights (“SARs”) liability, notes payable to former stockholders and our credit agreement. Provision for Income Taxes We are subject to U.S. and Canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate. Our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions and tax-exempt deferred compensation plan assets. Our provision for income taxes includes the windfall tax benefits, net, from shares issued in connection with our 2013 Plan and ESPP.We record deferred taxes, net based on the tax rate expected to be in effect at the time those items are expected to be recognized for tax purposes. 34 Results of Operations Following is a discussion of our results of operations for the three and six months ended June 30, period-to-period Key Operating Metrics We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. During the three months ended June 30,
35 Comparison of Three Months Ended June 30, Below are key operating results for the three months ended June 30,
Revenues Our total revenues were Real estate brokerage commissions. shelter-in-place COVID-19 pandemic. Sales volume was primarily Financing fees. shelter-in-place COVID-19 pandemic.Other revenues. Total Our total operating expenses were 36 Cost of services. COVID-19, we expect cost of services as a percent of total revenues to remain elevated in the coming quarters as we expect the majority of the deals closed to be weighted towards senior investment sales and financing professionals.Selling, general and administrative expense. Depreciation and amortization expense. Other Income (Expense), Net Other income (expense), net available-for-sale. Interest Expense There were no significant changes in interest expense for the three months ended June 30, Provision for Income Taxes The provision for income taxes was 37 Comparison of Six Months Ended June 30, Below are key operating results for the six months ended June 30,
Revenues Our total revenues were Real estate brokerage commissions. Financing fees. Other revenues. Total operating expenses Our total operating expenses were 38 Cost of services. Selling, general and administrative expense. Depreciation and amortization expense. Other Other income (expense), net available-for-sale Interest expense There were no significant changes in interest expense for the six months ended June 30, Provision for income taxes The provision for income taxes was 39 Non-GAAP Financial MeasureIn this quarterly report on Form 10-Q, we include anon-GAAP financial measure, adjusted earnings before interest income/expense, taxes, depreciation and amortization, non-cash items, or Adjusted EBITDA. We define Adjusted EBITDA as net income before (i) interest income and other, including net realized gains (losses) on marketable debt securities,available-for-sale (vi) non-cash non-cash items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies.A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):
Liquidity and Capital Resources Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, marketable debt securities, available-for-sale available-for-sale 40 Cash Flows Our total cash and cash equivalents balance decreased by
Operating Activities Cash flows used in operating activities were non-cash items and changes in operating assets and liabilities. The Investing Activities Cash flows Financing Activities Cash flows used in financing activities were Liquidity We believe that our existing balances of cash and cash equivalents, cash flows expected to be generated from our operations, proceeds from the sale of marketable debt securities, available-for-sale COVID-19” section above.Credit Agreement . See Note 15 – “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements for additional information on the Credit Agreement. 41 Contractual Obligations and Commitments There have been no material changes in our commitments under contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, Off Balance Sheet Arrangements We do not have any off-balance sheet arrangements.Inflation Our commissions and other variable costs related to revenue are primarily affected by real estate market supply and demand, which may be affected by COVID-19 pandemic. The economic impacts from inflation/deflation to our Critical Accounting Policies; Use of Estimates We prepare our financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. There were no 10-K for the year ended December 31, Investments in Marketable Debt Securities, We available-for-sale, We review quarterly our investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. We exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities, available-for-sale, write-off of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security. 42 Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 2 – “Accounting Policies and Recent Accounting Pronouncements” of our Notes to Condensed Consolidated Financial Statements. No. 2016-13, Financial Instruments—Credit Losses
We maintain a portfolio of investments in a variety of fixed and variable debt rate securities, including U.S. government and federal agency, available-for-sale Currently, our portfolio of investments predominantly consists of fixed interest rate debt securities; however, a portion of our investment portfolio may consist of variable interest rate debt securities. Our investments in fixed interest rate debt securities are subject to various market
43 Due to the nature of our business and the manner in which we conduct our operations, we believe we do not face any material interest rate risk with respect to other assets and liabilities, equity price risk or other market risks. The functional currency of our Canadian operations is the Canadian dollar. We are exposed to foreign currency exchange rate risk for the settlement of transactions of the Canadian operations as well as unrealized translation adjustments. To date, realized foreign currency exchange rate gains and losses have not been material.
Evaluation of Disclosure Controls and Procedures Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), including maintenance of (i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts and expenditures are being made only in accordance with authorizations of management and our board of directors and (c) we will prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.10-Q, based on the criteria established under the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). Based Changes in Internal Control over Financial Reporting There 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended June 30, 44 PART II. OTHER INFORMATION
We are involved in claims and legal actions arising in the ordinary course of our business, some of which involve claims for damages that are substantial in amount. Most of these litigation matters are covered by our insurance policies, which contain deductibles, exclusions, claim limits and aggregate policy limits. Such litigation and other proceedings may include, but are not limited to, actions relating to commercial relationships, standard brokerage disputes like the alleged failure to disclose physical or environmental defects or property expenses or contracts, the alleged inadequate disclosure of matters relating to the transaction like the relationships among the parties to the transaction, potential claims or losses pertaining to the asset, vicarious liability based upon conduct of individuals or entities outside of our control, general fraud claims, conflicts of interest claims, employment law claims, including claims challenging the classification of our sales professionals as independent contractors, claims alleging violations of state consumer fraud statutes and intellectual property. While the ultimate liability for these legal proceedings cannot be determined, we review the need for
There have been no material changes from the risk factors described in our Annual Report on Form 10-K for COVID-19 pandemic.The COVID-19 pandemic has adversely affected and could continue to adversely affect how we operate our business, and the duration and extent to which it will impact our future results of operations and overall financial performance is unknown.The COVID-19 pandemic is a prolonged widespread global health crisis that has adversely affected and could continue to adversely affect the broader economies, capital markets and overall demand for our services.Government imposed restrictions intended to slow the community spread of COVID-19 have, and the possible resumption of any state or localshelter-in-place COVID-19 pandemic, the reoccurrence of theCOVID-19 pandemic or a future pandemic, could materially affect our future sales, operating results, liquidity and overall financial performance due to, among other factors:Any impairment in value of our investments in marketable debt securities, available-for-sale, If significant portions of our workforce are unable to work effectively, including because of quarantines, facility closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. If we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all due to various risks and uncertainties. Our failure to raise sufficient capital when needed could prevent us from, among other factors, to fund acquisitions or to otherwise finance our growth or operations. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed. The long-term potential economic impact of a pandemic may be difficult to assess or predict. The COVID-19 pandemic has resulted in significant disruption of global financial markets, and on June 8, 2020, the National Bureau of Economic Research announced that the United States was in a recession. A long-term recession or long-term market correction could have a long-term impact on the flow of capital to the commercial real estate market and/or the willingness of investors to invest in or sell commercial real estate. This may adversely impact the demand for our services as well as the value of our common stock and our access to capital.While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, our business was materially adversely impacted during the three months ended June 30, 2020. To date, we have seen a significant increase in closing timelines, a dramatic slowing of our real estate brokerage and financing transaction activity, difficulty in pricing assets and, in certain cases, restricted ability of borrowers to access the capital markets and other sources of financing. Further, the effect of theCOVID-19 restrictions on our operations, including preventative and precautionary health measures mandated to us by federal, state and local governments will likely continue to affect our ability to identify and close commercial real estate transactions.45 Please see “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the potential impact of the COVID-19 pandemic and associated economic disruptions.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not Applicable. Item 5. Other Information None. Item 6. Exhibits
46 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Marcus & Millichap, Inc
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