MMI · Read the filing

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included elsewhere herein. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A – “Risk Factors”

Table of Contents

and Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview –

Factors Affecting Our Business

” of this Annual Report on

Form 10-K.

Overview

Our Business

We are a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of December 31, 2020, we had 2,097 investment sales and financing professionals that are primarily exclusive independent contractors operating in 84 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate. We also offer market research, consulting and advisory services to our clients. During the year ended December 31, 2020, we closed 8,954 investment sales, financing and other transactions with total sales volume of approximately $43.4 billion. During the year ended December 31, 2019, we closed 9,726 sales, financing and other transactions with total sales volume of approximately $49.7 billion.

We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing of commercial properties and by providing consulting, advisory and other real estate services. Real estate brokerage commissions are typically based upon the value of the property, and financing fees are typically based upon the size of the loan. During the year ended December 31, 2020, approximately 88% of our revenues were generated from real estate brokerage commissions, 10% from financing fees and 2% from other real estate related services.

Acquisitions

We continue to increase our market presence through the execution of our growth strategies by targeting markets based on population, employment, level of commercial real estate sales, inventory and competitive opportunities where we believe the markets will benefit from our commercial real estate investment sales, financing, research and advisory services. During the year ended December 31, 2020, we completed four acquisitions that expanded our financing and real estate brokerage markets presence in the Northeast, Southwest and Southeast. None of the acquisitions were individually material to the financial statements.

COVID-19

Since March 2020, the

COVID-19

pandemic has been and continues to be a prolonged widespread global health crisis that has affected and will continue to affect how we operate our business. The duration and extent to which it will continue to impact our business is unknown. Many states, counties and cities where we conduct our business activities, have instituted quarantines, restrictions on travel, “shelter in place” rules, and restrictions on the types of business that may continue to operate, which has and may continue to limit the activity of our sales and financing professionals in engaging with our clients. These factors are also impacting the financial performance of real estate to varying degrees by property type, which in turn has and continues to create challenges in valuations and trading volumes. First and foremost, we have been and remain committed to protecting the health and safety of our employees, investment sales and financing professionals, clients and their families, while at the same time focusing on our clients’ success. 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 all but a few of our offices have

re-opened,

and those that have not been able to

re-open

due to state and local restrictions 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 taken multiple measures to support our investment

Table of Contents

sales and financing professionals’ ability to generate and execute business remotely. Such measures include multiple technological solutions, intensified internal training and education, as well as a significant increase in client outreach and investor education webcasts. Our business was impacted during most of 2020, with the total number of transactions and total revenues declining 7.9% and 11.1% in the year ended December 31, 2020, respectively, compared to the same period in 2019. The pandemic caused a major market disruption starting in the second quarter of 2020 as we saw a significant slowing of our real estate brokerage and financing transaction activity, difficulty in pricing assets and, in certain cases, restrictions on the ability of borrowers to access the capital markets and other sources of financing. During the second half of 2020, we started to see recovery in transaction activity, in part, attributable to historically low interest rates, improved investor confidence due to the progress of vaccines and resurrected deals and cancelled listings continuing to come back. While our financial results continue to be well-below prior levels, returning to prior year levels remains a major priority for us. We are extending the uses of technology and resource sharing measures adopted over the past nine months as ways to achieve more efficiency on a long-term basis.

The long-term impact of the disruption in financial markets, consumer spending, unemployment as well as other unanticipated consequences remain unknown. Although the negative impact to our business has moderated, we anticipate that total revenues will be negatively impacted for at least the first half of 2021 and until more stable business conditions begin to resume in 2021. Due to a high degree of uncertainty and fluidity of this situation, we are unable to predict the extent of the negative impact on our financial condition, results of operations and cash flows. These uncertainties include the scope, severity and duration of the pandemic; variants in the virus and the effects thereof; expectation gaps among buyers and sellers on pricing and property operation, vulnerability to further economic weakness and/or slow recovery; a more difficult market environment for new investment sales and financing professionals who are experiencing extended

ramp-up

time to reach production goals; the actions taken by state and local governments to contain the pandemic or mitigate its impact, including vaccination programs; 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, 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 response to this ongoing period of business disruption, we assessed our cost structure and instituted various expense reduction initiatives, including, but not limited to, compensation reductions, reductions in events and travel, suspension of company matching contributions in our 401(k) plan and layoffs to preserve our balance sheet and financial position. We have recalled some of our furloughed employees and have restored compensation levels for all employees, who received a compensation reduction other than our Chief Executive Officer, who requested that his reduction be extended. Our priority is to support our team’s efforts to increase client contact, provide expanded content and advisory services to investors and clients, and preserve our financial position through expense reductions. Given our significant liquidity, we expect our company to be well positioned to benefit from and contribute to the real estate transaction recovery when it emerges, including making accretive and synergistic acquisitions, which will help expand service offerings and market coverage.

Factors Affecting Our Business

Our business and our operating results, financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions that we close in any period. The number and size of these transactions are affected by our ability to recruit and retain investment sales and financing professionals, identify and contract properties for sale and identify those that need financing and refinancing. We principally monitor the commercial real estate market through four factors, which generally drive our business. The factors are the economy, commercial real estate supply and demand, capital markets and investor sentiment and investment activity.

Table of Contents

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.

The U.S. economy continues to face significant

COVID-19

headwinds, and though government stimulus has partially offset the economic impact, we believe a full revival is dependent on broadly distributed vaccines. In recent months, the economy was slowed by the combination of a

COVID-19

winter surge and the waning support of the CARES Act stimulus. Job creation slipped into negative territory and retail sales gave back some of its earlier gains, but the late December passage of a $900 billion second stimulus package should deliver modest renewed economic traction. Another major round of stimulus measures, still in congressional negotiation, could potentially help bridge the macro-level economy until widespread vaccinations begin to revive

hard-hit

metros and business sectors. We believe that vaccinations covering the majority of citizens could spark accelerated economic growth as uncertainty and fear abate and

pent-up

demand is released. We believe this could

in-turn

begin to support space demand for all commercial real estate property types, particularly,

hard-hit

metros and sectors like hotels, shopping malls and vacation destinations. A revival of investor activity appears to be emerging ahead of the broader recovery, but it could still face setbacks if events lead to renewed investor uncertainty.

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.

Apartment and single-tenant property types, which are a significant part of our business, have performed comparatively well as demand has been more stable than other property types. The hotel sector and parts of the retail sector continue to face headwinds, although we believe segments of each of the sectors appear to have built some momentum. While large destination tourist hotels and those catering to conferences continue to face the severe impact of the pandemic, it appears smaller drivable vacation hotels have performed comparatively well. In the retail sector, older enclosed shopping malls, experiential retail, gyms, movie theaters and

sit-down

dining restaurants have faced extensive difficulties while restaurants with drive-thru facilities, necessity and discount retailers as well as pharmacies have in many cases maintained healthy performance. We believe suburban office and apartment properties have generally outperformed their urban counterparts as home offices and the need for more space outweighed the many closed amenities offered in the urban core. Elevated new apartment deliveries, particularly in the urban core, is expected to weigh on Class A apartment performance. Industrial property fundamentals, meanwhile, have generally remained stable, bolstered by strong eCommerce as a primary consumption channel. Rent collections for apartment, office and industrial properties remain above 90 percent, and the new round of stimulus measures, which includes expanded unemployment benefits, $25 billion for rental assistance and a renewed Paycheck Protection Program should help support tenants. Asset performance could continue to vary significantly by locality as cities across the country face wide-ranging economic and health-related fallout.

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

Table of Contents

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.

Lenders remain active and debt is available for most property types. Led by local and regional banks, financing availability and terms have been sustained for most property types while interest rates remain near record lows. Hotels and some retail centers, which are the property types grappling with the greatest levels of distress, still face limited access to debt capital. Other property types, particularly those that have maintained strong rent collections, have financing options. Speculative investment, including construction and

value-add

assets, face closer lender scrutiny, but private capital sources continue to offer a bridge for well-qualified borrowers. The increased debt liquidity and particularly low interest rates supported rising investor activity in the fourth quarter, but sales remained well below

pre-crisis

levels. Although the Federal Reserve’s commitment to low interest rates could support the low interest rate climate for an extended period, the prospect of accelerated economic growth in the second half of the year could put some upward pressure on rates. We believe market liquidity should remain strong, barring a significant medical or financial market setback.

Investor Sentiment and Investment Activity

We rely on investors to buy and sell properties in order to generate commissions. Investors’ desires to engage in real estate transactions are dependent on many factors that are beyond our control. The economy, supply and demand for properly positioned properties, available credit and market events impact investor sentiment and, therefore, transaction velocity. In addition, our private clients are often motivated to buy, sell and/or refinance properties due to personal circumstances such as death, divorce, partnership breakups and estate planning.

Investor activity continued to accelerate in the fourth quarter as it appears investors began to focus more on upside opportunities and less on downside risk. Based on informal surveys, many were motivated to transact ahead of the administration change and speculation about possible tax law changes. Questions remain for substantially all facets of the near-term real estate sector outlook, but many investors are focusing more on the post-vaccine recovery. The most stable assets in stronger markets have demonstrated fully recovered pricing, while assets with considerable uncertainty continue to navigate the price discovery process. However, we believe low interest rates and generally broad capital availability have been positive forces supporting activity. We believe the many investors still on the sidelines have ample capital

on-hand

to spur transaction activity once uncertainties abate, particularly after vaccinations reach a critical mass. Looking forward, tax policy could become a larger concern for investors, with potential proposals for changes to capital gains, estate taxes and 1031 tax deferred exchanges. Any changes to the tax code could influence activity either to the upside or downside. Nonetheless, we believe a medical solution to the health crisis and the eventual release of

pent-up

demand among consumers and real estate investors remain significant factors in determining investor decisions.

Seasonality

Our real estate brokerage commissions and financing fees have tended to be seasonal and, combined with other factors, can affect an investor’s ability to compare our financial condition and results of operations on a

quarter-by-quarter

basis. Historically, this seasonality has generally caused our revenue, operating income, net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year, particularly in the fourth quarter. The concentration of earnings and cash flows in the last six months of the year, particularly in the fourth quarter, is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year. This historical trend can be disrupted both positively and negatively by major economic events, political events, natural disasters or pandemics such as the

COVID-19

pandemic, which may impact, among other things, investor sentiment for a particular property type or location,

Table of Contents

volatility in financial markets, current and future projections of interest rates, attractiveness of other asset classes, market liquidity and the extent of limitations or availability of capital allocations for larger property buyers, among others. Private client investors may accelerate or delay transactions due to personal or business-related reasons unrelated to economic events. In addition, our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals. These senior investment sales and financing professionals are on a graduated commission schedule that resets annually, pursuant to which higher commissions are paid for higher sales volumes. Our historical pattern of seasonality may or may not continue to the same degree experienced in prior years.

Operating Segments

We follow the guidance for segment reporting, which requires reporting information on operating segments in interim and annual financial statements. Substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales, financing and consulting and advisory services. Management makes operating decisions, assesses performance and allocates resources based on an ongoing review of these integrated operations, which constitute only one operating segment for financial reporting purposes.

Key Financial Measures and Indicators

Revenues

Our revenues are primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenues from financing fees and from other revenues, which are primarily comprised of consulting and advisory fees.

Because our business is transaction oriented, we rely on investment sales and financing professionals to continually develop leads, identify properties to sell 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

private client market segment. These factors can cause transactions to be accelerated or delayed beyond our control. Further, commission rates earned are generally inversely related to the value of the property sold. As a result of our expansion into the middle and larger transaction market segments, we have seen our overall commission rates fluctuate from

period-to-period

as a result of changes in the relative mix of the number and volume of investment sales transactions closed in the middle and larger transaction market segments as compared to the

$1-$10 million

private client market segment. These factors may result in

period-to-period

variations in our revenues that differ from historical patterns.

A small percentage of our transactions include retainer fees and/or breakage fees. Retainer fees are credited against a success-based fee paid upon the closing of a transaction or a breakage fee. Transactions that are terminated before completion will sometimes generate breakage fees, which are usually calculated as a set amount or a percentage of the fee we would have received had the transaction closed.

Real Estate Brokerage Commissions

We earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties. Revenues from real estate brokerage commissions are typically recognized at the close of escrow.

Financing Fees

We earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients’ existing mortgage debt. We recognize financing fee revenues at the time the loan closes, and we have no remaining significant obligations for performance in connection with the transaction.

Table of Contents

To a lesser extent, we also earn mortgage servicing revenue, mortgage servicing fees, equity advisory services, loan sales 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 other real estate services performed by our investment sales professionals, as well as referral fees from other real estate brokers. Revenues from these services are recognized as they are performed and completed.

Operating Expenses

Our operating expenses consist of cost of services, selling, general and administrative expenses and depreciation and amortization. The significant components of our expenses are further described below.

Cost of Services

The majority of our cost of services expense is variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities. Commission expenses are directly attributable to providing services to our clients for investment sales and financing services. Most of our investment sales and financing professionals are independent contractors and are paid commissions; however, because there are some who are initially paid a salary and certain of our financing professionals are employees, costs of services also include employee-related compensation, employer taxes and benefits for those employees. The commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals. Some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual financial thresholds. These additional commissions are recognized as cost of services in the period in which they are earned. Payment of a portion of these additional commissions are generally deferred for a period of one to three years, at our election, and paid at the beginning of the second and fourth calendar year. 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 and deferred 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 assets. Amortization expense consists of (i) amortization recorded on our mortgage servicing rights (“MSRs”) using the interest method over the period that servicing income is expected to be received and (ii) amortization recorded on intangible assets amortized on a straight-line basis using a useful life between one and seven years.

Table of Contents

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,

foreign currency gains and losses and other

non-operating

income and expenses.

Interest Expense

Interest expense primarily consists of interest expense associated with the stock appreciation rights (“SARs”) liability, notes payable to former stockholders (through the second quarter of 2020 when fully repaid) 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 the impact of permanent items, including principally compensation charges, qualified transportation fringe benefits, uncertain tax positions, meals and entertainment and

tax-exempt

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

We record deferred taxes, net based on the tax rate expected to be in effect at the time those items are expected to be recognized for tax purposes.

Results of Operations

Following is a discussion of our results of operations for the years ended December 31, 2020, 2019 and 2018. The tables included in the period comparisons below provide summaries of our results of operations. The

period-to-period

comparisons of financial results are not necessarily indicative of future results.

Table of Contents

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. We also believe these metrics are relevant to investors’ and others’ assessment of our financial condition and results of operations. During the years ended December 31, 2020, 2019 and 2018, we closed more than 8,900, 9,700 and 9,400 investment sales, financing and other transactions, respectively, with total sales volume of approximately $43.4 billion, $49.7 billion and $46.4 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

Years Ended December 31,

Real Estate Brokerage:

Average Number of Investment Sales Professionals 1,920 1,843 1,726

Average Number of Transactions per Investment Sales Professional 3.28 3.82 4.10

Average Transaction Size (in thousands) $ 5,097 $ 5,234 $ 5,095

Years Ended December 31,

Financing (1):

Average Number of Financing Professionals 86 102 100

Average Number of Transactions per Financing Professional 22.59 19.06 16.78

Average Transaction Size (in thousands) $ 3,948 $ 3,693 $ 3,716

Table of Contents

Comparison of Years Ended December 31, 2020 and 2019

Below are key operating results for the year ended December 31, 2020 compared to the results for the year ended December 31, 2019 (dollars in thousands):

Dollar Percentage

Revenues:

Operating expenses:

Revenues

Our total revenues were $716.9 million in 2020 compared to $806.4 million in 2019, a decrease of $89.5 million, or 11.1%. Total revenues decreased as a result of decreased real estate brokerage commissions, partially offset by increases in financing fees and other revenues, as described below.

Real estate brokerage commissions.

Revenues from real estate brokerage commissions decreased to $633.2 million in 2020 from $729.4 million in 2019, a decrease of $96.2 million, or 13.2%. The decrease was driven by a 13.0% reduction in sales volume. Sales volume was impacted by a 10.7% decrease in the number of transactions and a 2.6% decrease in the average transaction size, primarily as a result of the economic uncertainty and other transactional impediments related to the

COVID-19

pandemic. The average commission rates remained comparable.

Table of Contents

Financing fees.

Revenues from financing fees increased to $70.5 million in 2020 from $66.3 million in 2019, an increase of $4.2 million, or 6.4%. The increase was, in part, spurred by growth from acquisitions and was primarily driven by a 6.9% increase in financing volume, partially offset by a 3 basis points reduction in average fee rates. Financing volume was impacted by a 6.9% increase in the average transaction size as the number of transactions remained relatively comparable.

Other revenues.

Other revenues increased to $13.2 million in 2020 from $10.8 million in 2019, an increase of $2.4 million, or 22.5%. The increase was primarily driven by increases in consulting and advisory services during 2020, compared to the same period in 2019.

Operating expenses

Our total operating expenses were $663.3 million in 2020 compared to $710.0 million in 2019, a decrease of $46.7 million, or 6.6%. The decrease was primarily due to a decrease in cost 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 depreciation and amortization expense, as described below.

Cost of services.

Cost of services in 2020 decreased to $447.9 million from $498.9 million in 2019, a decrease of $51.0 million, or 10.2%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenues due to the

COVID-19

pandemic noted above. Cost of services as a percent of total revenues increased to 62.5% for 2020 compared to 61.9% for 2019, primarily due to a higher proportion of transactions closed by our more senior investment sales and financing professionals.

Selling, general and administrative expense.

Selling, general and administrative expense in 2020 increased $1.4 million, or 0.7%, to $204.5 million from $203.1 million in 2019. The increase was primarily due to increases in (i) business development, marketing and other support related to the long-term retention of our sales and financing professionals, as well as recent additions of experienced professionals; (ii) facilities expenses due to the expansion of existing offices and our acquisition activities; (iii) acquisition-related costs; (iv) stock-based compensation; and (v) certain software licensing fees. These increases were partially offset by reductions in (i) compensation related costs, primarily driven by decreases in variable employee incentive compensation and salaries and related benefits due to

COVID-19;

(ii) sales events, travel and other related expenses due to

COVID-19;

and (iii) legal costs.

Depreciation and amortization expense.

Depreciation and amortization expense increased to $10.9 million in 2020 from $8.0 million in 2019, an increase of $2.9 million, or 35.9%. The increase was primarily driven by the increase in amortization of intangible assets resulting from the increase in intangible assets due to acquisitions.

Other income (expense), net

Other income (expense), net decreased to $6.7 million in 2020 from $12.5 million in 2019. The decrease was primarily driven by (i) a $5.1 million reduction in interest income on our investments in marketable debt securities,

available-for-sale

due to overall decrease in interest rates and (ii) a $0.8 million reduction in net other categories, including a decrease in the returns on the assets of our deferred compensation plan that are held in a rabbi trust and foreign currency gain (losses) related to our Canadian operations.

Interest expense

Interest expense decreased to $0.9 million in 2020 from $1.4 million in 2019. The decrease was primarily due to a reduction in interest expense related to stock appreciations rights liability and notes payable to former stockholders, which were fully repaid during 2020.

Table of Contents

Provision for income taxes

The provision for income taxes was $16.5 million for 2020 compared to $30.6 million in 2019, a decrease of $14.1 million, or 46.0%. The effective tax rate for 2020 was 27.8%, compared with 28.4% in 2019. The decrease in the effective tax rate was primarily due to the decrease in state taxes, the partial reversal of a reserve of uncertain tax positions and a relative change in valuation allowance related to our Canadian losses, partially offset by a net shortfall tax expense in 2020 versus a net windfall tax benefit in 2019 related to stock-based compensation.

Comparison of Years Ended December 31, 2019 and 2018

A discussion regarding our results of operations for the year ended December 31, 2019 compared to the results for the year ended December 31, 2018 can be found under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020, which is available on the SEC’s website at

www.sec.gov.

Non-GAAP

Financial Measure

In this Annual Report on Form

10-K,

we include a

non-GAAP

financial measure, adjusted earnings before interest income/expense, taxes, depreciation and amortization, stock-based compensation and other

non-cash

items, or Adjusted EBITDA. We define Adjusted EBITDA as net income before (i) interest income and other, including net realized gains (losses) on marketable debt securities,

available-for-sale

and cash and cash equivalents, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation, and

(vi) non-cash

MSR activity. We use Adjusted EBITDA in our business operations to evaluate the performance of our business, develop budgets and measure our performance against those budgets, among other things. We also believe that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance. However, Adjusted EBITDA has material limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a useful tool to assist in evaluating performance, because Adjusted EBITDA eliminates items related to capital structure, taxes and

non-cash

items. In light of the foregoing limitations, we do not rely solely on Adjusted EBITDA as a performance measure and also consider our U.S. GAAP results. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):

Years Ended December 31,

Adjustments:

Table of Contents

(3) Non-cash MSR activity includes the assumption of servicing obligations.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, marketable debt securities,

available-for-sale

and, if necessary, borrowings under our credit agreement. In order to enhance yield to us, we have invested a portion of our cash in money market funds and fixed and variable income debt securities, in accordance with our investment policy approved by the board of directors. Certain of our investments in money market funds may not maintain a stable net asset value and may impose fees on redemptions and/or gating fees. To date, the Company has not experienced any restrictions or gating fees on its ability to redeem funds from money market funds. Although we have historically funded our operations through operating cash flows, there can be no assurance that we can continue to meet our cash requirements entirely through our operations, cash and cash equivalents, proceeds from the sale of marketable debt securities,

available-for-sale

or availability under our credit agreement.

Cash Flows

Our total cash and cash equivalents balance increased by $10.5 million to $243.2 million at December 31, 2020, compared to $232.7 million at December 31, 2019. The following table sets forth our summary cash flows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Years Ended December 31,

Effect of currency exchange rate changes on cash and cash equivalents (48 ) — —

Net increase (decrease) in cash and cash equivalents 10,482 17,987 (6,103 )

Operating Activities

2020 Compared to 2019

. Cash flows provided by operating activities were $38.1 million in 2020 compared to cash flows provided by operating activities of $25.3 million in 2019. Net cash provided by operating activities is driven by our net income adjusted for

non-cash

items and changes in operating assets and liabilities. The $12.8 million improvement in operating cash flows for 2020 compared to 2019 was primarily due to differences in timing of certain payments and receipts, an increase in deferral of certain discretionary commissions and commission payable, and a decrease in bonus payments in 2020 related to bonuses earned based on 2019 performance. These improvements in operating cash flows were partially offset by lower total revenues and a

Table of Contents

higher proportion of operating expenses compared to total revenues and an increase in advances related to the acquisitions of teams and long-term retention of our investment sales and financing professionals.

Investing Activities

2020 Compared to 2019

. Cash flows used in investing activities were $17.2 million for 2020 compared to cash flows used in investing activities of $3.4 million for the same period in 2019. The $13.8 million increase in cash flows used in investing activities for 2020 compared to 2019 was primarily due to a $10.2 million increase in net outflows for acquisitions and a $5.5 million reduction in net proceeds from sales and maturities of marketable debt securities. See Note 6 – “Acquisitions, Goodwill and Other Intangible Assets” of our Notes to Consolidated Financial Statements for additional information.

Financing Activities

2020 Compared to 2019

. Cash flows used in financing activities were $10.3 million for 2020 compared to cash flows used in financing activities of $3.9 million for the same period in 2019. The $6.5 million increase in cash flows used in financing activities for 2020 compared to 2019 was primarily impacted by principal payments on notes payable to former stockholders, payments related to SARs liability and payments related to contingent and deferred consideration, partially offset by lower taxes paid related to net share settlement of stock-based awards. See Note 12 – “Stock-Based Compensation Plans” of our Notes to Consolidated Financial Statements for additional information.

Liquidity

We believe that our existing balances of cash and cash equivalents, cash flows expected to be generated from our operations, proceeds from the sale of marketable debt securities,

available-for-sale

and borrowings available under the Credit Agreement (defined below) will be sufficient to satisfy our operating requirements for at least the next 12 months. If we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could prevent us from funding acquisitions or otherwise financing our growth or operations. In addition, our SARs agreements have provisions, which could accelerate repayment of outstanding principal and accrued interest and impact our liquidity. As of December 31, 2020, cash on hand and core-cash investments (generally part of short-term marketable debt securities,

available-for-sale)

aggregated $401.6 million, and we had $59.5 million of borrowing capacity under our credit agreement. In response to this period of business disruption, we assessed our cost structure and have instituted various expense reduction initiatives as discussed in “Overview –

COVID-19”

section above.

Credit Agreement

We have a Credit Agreement with Wells Fargo Bank, National Association for a $60.0 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on June 1, 2022 (the “Credit Agreement”). See Note 16 – “Commitments and Contingencies” of our Notes to Consolidated Financial Statements for additional information on the Credit Agreement.

Table of Contents

Contractual Obligations and Commitments

The contractual obligations and other commitments consisted of the following at December 31, 2020 (in thousands):

Total Less than1 Year 1-3Years 3-5Years MoreThan 5Years Other (7)

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 uncertain or changing economic and market conditions, including inflation/deflation arising in connection with and in response to the

COVID-19

pandemic. The actual economic impact from inflation/deflation to our business remains unknown at this time.

Table of Contents

Critical Accounting Policies; Use of Estimates

We prepare our financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

We believe that the critical accounting policies discussed below involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. See the notes to our consolidated financial statements for a summary of our significant accounting policies.

Income Taxes

We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and (ii) operating losses and tax credit carryforwards. We measure existing deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to have temporary differences realized or settled. We recognize in the provision for income taxes, the effect on deferred tax assets and liabilities of a change in tax rates in the period that includes the enactment date. We periodically evaluate deferred tax assets to assess whether it is likely that the deferred tax assets will be realized. In determining whether a valuation allowance is required, we consider the timing of deferred tax reversals, current year taxable income and historical performance. Valuation allowances are provided against deferred tax assets when it is

more-likely-than-not

that some portion or all of the deferred tax asset will not be realized.

Because of the nature of our business, which includes activity in the U.S. and Canada, incorporating numerous states and provinces as well as local jurisdictions, our tax position can be complex. As such, our effective tax rate is subject to changes as a result of fluctuations in the mix of our activity in the various jurisdictions in which we operate including changes in tax rates, state apportionment, tax related interest and penalties, valuation allowances and other permanent items. Calculating some of the amounts involves a high degree of judgment.

We evaluate our tax positions quarterly. The threshold for recognizing the benefits of tax return positions in the financial statements is “more likely than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the

more-likely-than-not

criterion, based on the largest benefit that is more than 50% likely to be realized. We assess our inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction) and determine whether uncertain tax positions are required to be recognized in our consolidated financial statements.

We recognize interest and penalties incurred as income tax expense.

Leases

We utilize operating leases for all our facilities and autos. We determine if an arrangement is a lease at inception.

Right-of-use

assets (“ROU assets”) represent our right to use an underlying asset for the lease term and lease liabilities represent our contractual obligation to make lease payments under the lease. Operating leases are included in operating lease ROU assets,

non-current,

and operating lease liabilities current and

non-current

captions in the consolidated balance sheets.

Table of Contents

Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent, predetermined fixed increases in the minimum rent and renewal or termination options, all of which add complexity and impact the determination of the lease term and lease payments to be used in calculating the lease liability. Certain facility leases provide for rental escalations related to increases in the lessors’ direct operating expenses. We use the implicit rate in the lease when determinable. As most of our leases do not have a determinable implicit rate, determining the rate to be used in our calculations is judgmental. We use a derived incremental borrowing rate based on borrowing options under our credit agreement and apply a spread over treasury rates for the indicated term of the lease based on the information available on the commencement date of the lease. We typically lease general purpose

built-out

office space, which reverts to the lessor upon termination of the lease. Any payments for completed improvements, determined to be owed by the lessor, net of incentives received, are recorded as an increase to the ROU asset and considered in the determination of the lease cost.

We have lease agreements with lease and

non-lease

components, which are accounted for as a single lease component. Lease cost is recognized on a straight-line basis over the lease term. Variable lease payments consist of common area costs, insurance, taxes, utilities, parking and other lease related costs, which are determined principally based on billings from landlords.

Investments in Marketable Debt Securities,

Available-for-Sale

We maintain a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities and other. We consider our investments in marketable debt securities to be

available-for-sale,

and accordingly, are recorded at their fair values. We determine the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expense), net in the consolidated statements of net and comprehensive income. See Note 5 – “Investments in Marketable Debt Securities” of our Notes to the Consolidated Financial Statements for additional information. We typically invest in highly-rated debt securities, and our investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.

We review quarterly our investment portfolio for 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,

for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income (loss), net of applicable taxes. We made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. We evaluate

write-off

of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.

Determining whether a credit loss exists requires a high degree of judgment, and we consider both qualitative and quantitative factors in making our determination. We evaluate our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, we evaluate, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets,

Table of Contents

analyst reports and recommendations, and changes in base and market interest rates. If the qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, we typically do not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are our best estimate based on past events, current conditions and reasonable and supportable economic forecasts.

Recent Accounting Pronouncements

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

10-K.

Although we do not believe any of the other accounting pronouncements listed in that note will have a significant impact on our business, we are still in the process of determining the impact of the new pronouncements may have on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We maintain a portfolio of investments in a variety of fixed and variable debt rate securities, including U.S. Treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities and other. As of December 31, 2020, the fair value of investments in marketable debt securities,

available-for-sale

was $206.0 million. The primary objective of our investment activity is to maintain the safety of principal, and to provide for future liquidity requirements while maximizing yields without significantly increasing risk. While some investments may be securities of companies in foreign countries, all investments are denominated and payable in U.S. Dollars. We do not enter into investments for trading or speculative purposes. While our intent is not to sell these investment securities prior to their stated maturities, we may choose to sell any of the securities for strategic reasons including, but not limited to, anticipated capital requirements, anticipation of credit deterioration, duration management and because a security no longer meets the criteria of our investment policy. We do not use derivatives or similar instruments to manage our interest rate risk. We seek to invest in high quality investments. The weighted average rating (exclusive of cash and cash equivalents) was AA as of December 31, 2020. Maturities are maintained consistent with our short-, medium- and long-term liquidity objectives.

Currently, our portfolio of investments predominantly consists of fixed interest rate debt securities; however, a portion of our investment portfolio may consist of variable interest rate debt securities. Our investments in fixed interest rate debt securities are subject to various market risks. Changes in prevailing interest rates may adversely or positively impact their fair market value should interest rates generally rise or fall. Accordingly, we also may have interest rate risk with variable interest rate debt securities as the income produced may decrease if interest rates fall. Contraction in market liquidity may adversely affect the value of portions of our portfolio and affect our ability to sell securities in the time frames required and at acceptable prices. Uncertainty in future market conditions may raise market participant’s expectations of returns, thus impacting the value of securities in our portfolio as well. During the year ended December 31, 2020, increased demand for treasury securities caused a significant decrease in the yields on treasury securities and unbalanced demand and supply factors created significant liquidity shortfalls until the Federal Reserve initiated market intervention programs to stabilize the market. The following table sets forth the impact on the fair value of our investments as of December 31, 2020 from changes in interest rates based on the weighted average duration of the debt securities in our portfolio (in thousands):

Table of Contents

Due to the nature of our business and the manner in which we conduct our operations, we believe we do not face any material interest rate risk with respect to other assets and liabilities, equity price risk or other market risks. The functional currency of our Canadian operations is the Canadian dollar. We are exposed to foreign currency exchange rate risk for the settlement of transactions of the Canadian operations as well as unrealized translation adjustments. To date, realized foreign currency exchange rate gains and losses have not been material.

Item 8. Financial Statements and Supplementary Data

See pages beginning at

F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules

13a-15(f),

including maintenance of (i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, (b) our receipts and expenditures are being made only in accordance with authorizations of management and our board of directors and (c) we will prevent or timely detect unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Our management, with the supervision and participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules

13a-

15(e) and

15d-

15(e) under the Exchange Act, as of the end of the period covered by this Annual Report on Form

10-K,

based on the criteria established under the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). Based on such evaluation, our management has concluded that as of December 31, 2020, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act.

Our system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with United States generally accepted accounting principles. Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In conducting its assessment, management used the criteria issued by COSO. Based on this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria. The effectiveness of internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Table of Contents

Management, including our CEO and CFO, does not expect that our disclosure controls and procedures, or our internal control over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act) during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees and independent contractors are working remotely due to the

COVID-19

pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the

COVID-19

situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.

Inherent Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of the inherent limitations of any system of internal control. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses of judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper overriding of controls. As a result of such limitations, there is risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Item 9B. Other Information

None.

Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Executive Officers

The names and ages of our executive officers and directors as of March 1, 2021 are as follows:

Name Age Position(s)

Hessam Nadji 55 President, Chief Executive Officer and Director

Steven F. DeGennaro 57 Executive Vice President and Chief Financial Officer

Gregory A. LaBerge 50 Senior Vice President, Chief Administrative Officer

Martin E. Louie 59 Senior Vice President, Corporate Initiatives

Hessam Nadji

Mr. Nadji has served as President and Chief Executive Officer and as a director of the Company since March 2016. Mr. Nadji previously served as Senior Executive Vice President and Chief Strategy Officer. He joined the Company as Vice President of Research in 1996 and held various other senior management roles through the years, including Chief Marketing Officer and head of the Company’s specialty brokerage divisions. He played a leading role in the Company’s initial public offering in 2013. Mr. Nadji received a B.S. in information management and computer science from City University in Seattle and has over 30 years of experience working in the real estate industry.

Steven F. DeGennaro

Mr. DeGennaro has served as Executive Vice President and Chief Financial Officer since August 2020. Prior to joining the Company, Mr. DeGennaro held the position of Chief Financial Officer at InTouch Technologies, Inc., a venture-backed telehealth company, from March 2018 to July 2020. Prior to that he served as Chief Financial Officer at Xirrus, Inc., a manufacturer of wireless networking products, from January 2004 to November 2017. Mr. DeGennaro began his career at KPMG. Mr. DeGennaro holds a B.B.A. in Accounting from the University of San Diego.

Gregory A. LaBerge

Mr. LaBerge has served as Senior Vice President and Chief Administrative Officer since 2015. Mr. LaBerge joined the Company in 2005 as an investment broker, became a regional manager in 2008, and was named National Director of our National Hospitality Group in 2012. Prior to that, he worked for 10 years as a management consultant, five years with Ernst & Young, and for Diamond Technology Partners (now part of PricewaterhouseCoopers). His expertise was in working with Fortune 500 companies on strategic and operational initiatives. Mr. LaBerge received his B.A. degree in economics from Northwestern University and his M.B.A. from the Kelley School of Business at Indiana University.

Martin E. Louie

Mr. Louie has served as our Senior Vice President, Corporate Initiatives since August 2020. Prior to this, Mr. Louie was Chief Financial Officer from 2010 to August 2020, First Vice President of Finance from 2009 to 2010, and Vice President of Finance from 2006 to 2009. Mr. Louie has served as a senior financial executive with worldwide responsibilities for various companies, including Sony Pictures Entertainment, The Walt Disney Co., Infineon Technologies and West Marine. In those roles, he was responsible for accounting, strategic planning, financial planning and analysis, treasury and investor relations. Prior to that, Mr. Louie, who is a CPA, was with KPMG. Mr. Louie received a B.A. in Economics from the University of California, Los Angeles and an M.B.A. in Finance from the University of Southern California.

Table of Contents

Other Proxy Information

Certain information required by this Item regarding our Audit Committee is incorporated herein by reference to information appearing in our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders (“Proxy Statement”), which information will appear under the caption entitled “Corporate Governance-Board Committees and Charters.”

With regard to the information required by this item relating to compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement under the caption entitled “Other Matters-Delinquent Section 16(a) Reports” in the Proxy Statement, and such disclosure, if any, is incorporated herein by reference.

Code of Ethics

We have adopted a Code of Ethics that applies to all of our executive officers and directors. The Code of Ethics is posted on our website. The Internet address for our website is www.marcusmillichap.com, and the Code of Ethics may be found as follows:

• Next click on “Corporate Governance” in the middle navigation bar.

• Then click on “Governance Documents.”

• Finally, click on “Code of Ethics.”

We intend to satisfy the disclosure requirements under Item 5.05(c) of Form

8-K

regarding an amendment to, or waiver from, a provision of the Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions by posting such information on our website, at the address and location specified above.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to information appearing in our Proxy Statement, which information will appear under the caption entitled “Compensation Discussion and Analysis” and “Executive Compensation” in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference to information appearing in our Proxy Statement, which information will appear under the captions entitled “Principal Stockholders” in the Proxy statement.

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of December 31, 2020. All outstanding awards relate to our common stock.

Table of Contents

(a) (b) (c)

Equity compensation plans approved by security holders 1,243,217 $ — 5,092,371

Equity compensation plans not approved by security holders — — —

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

Item 13. Certain Relationships and Related Transactions, and Director Independence

Any information required by this Item is incorporated herein by reference to information appearing in our Proxy Statement, which information will appear under the captions entitled “Corporate Governance-Director Independence” and “Certain Relationships and Related Party Transactions” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to information appearing in our definitive Proxy Statement, which information will appear under the caption entitled “Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm for 2021” in the Proxy Statement.

Table of Contents

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this Report:

(1) Consolidated Financial Statements

The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are attached to this Form

10-K

beginning on page

F-1.

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Net and Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

The financial statement schedules have been omitted because they are not applicable, or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

(b) Exhibits

The following exhibits are included herein or incorporated herein by reference:

Number Description

Table of Contents

Number Description

21.1* List of Subsidiaries.

23.1* Consent of Ernst & Young LLP.

Table of Contents

Number Description

† Indicates management contract or compensatory plan.

* Filed herewith.

** Furnished, not filed.

Not applicable.

Item 16. Form

10-K

Summary

Not applicable.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 1, 2021 Marcus & Millichap, Inc.

/s/ Hessam Nadji

Hessam Nadji

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ George M. Marcus George M. Marcus Director March 1, 2021

/s/ Norma J. Lawrence Norma J. Lawrence Director March 1, 2021

/s/ Lauralee E. Martin Lauralee E. Martin Director March 1, 2021

/s/ Nicholas F. McClanahan Nicholas F. McClanahan Director March 1, 2021

/s/ George T. Shaheen George T. Shaheen Director March 1, 2021

/s/ Don C. Watters Don C. Watters Director March 1, 2021

Table of Contents

MARCUS & MILLICHAP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-6

Notes to Consolidated Financial Statements F-10

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

Marcus & Millichap, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marcus & Millichap, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of net and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical matter or on the accounts or disclosures to which it relates.

F-2

Table of Contents

Deferred Commissions Payable

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Los Angeles, California

March 1, 2021

F-3

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

Marcus & Millichap, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Marcus & Millichap Inc.’s (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of net and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

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

Definition and Limitations of Internal Control Over Financial Reporting

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

F-4

Table of Contents

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

/s/ Ernst & Young LLP

Los Angeles, California

March 1, 2021

F-5

Table of Contents

MARCUS & MILLICHAP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for shares and par value)

December 31,

Assets

Current assets:

Income tax receivable — 4,999

Operating lease right-of-use assets, net 84,024 90,535

Goodwill and other intangible assets, net 52,053 22,312

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and other liabilities $ 18,288 $ 10,790

Notes payable to former stockholders — 6,564

Deferred compensation and commissions 58,106 44,301

Income tax payable 3,726 —

Accrued bonuses and other employee related expenses 21,007 22,388

Deferred compensation and commissions 38,745 45,628

Commitments and contingencies — —

Stockholders’ equity:

Preferred stock, $0.0001 par value:

Common stock, $0.0001 par value:

Stock notes receivable from employees — (4 )

Accumulated other comprehensive income 2,574 1,978

Total liabilities and stockholders’ equity $ 779,122 $ 709,034

See accompanying notes to consolidated financial statements.

F-6

Table of Contents

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS OF NET AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

Years Ended December 31,

Revenues:

Operating expenses:

Other comprehensive income (loss):

Marketable debt securities, available-for-sale:

Change in net unrealized gains (losses) 799 1,822 (536 )

Total other comprehensive income (loss) 596 1,203 (152 )

Earnings per share:

Weighted average common shares outstanding:

See accompanying notes to consolidated financial statements.

F-7

Table of Contents

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for shares)

Shares Amount Shares Amount

Net and comprehensive income (loss) — — — — — — 87,257 (152 ) 87,105

Stock-based award activity:

Stock-based compensation — — — — 11,983 — — — 11,983

Stock-based award activity:

Stock-based compensation — — — — 9,278 — — — 9,278

Stock-based award activity:

Stock-based compensation — — — — 9,905 — — — 9,905

Reduction of stock notes receivable from employees — — — — — 4 — — 4

See accompanying notes to consolidated financial statements.

F-8

Table of Contents

MARCUS & MILLICHAP, INC.

CONSOLIDATED STATEMENTS

CASH FLOWS

(in thousands)

Years Ended December 31,

Cash flows from operating activities

Amortization of right-of-use assets 22,825 21,207 —

Unrealized foreign exchange gain (299 ) — —

Changes in operating assets and liabilities:

Prepaid rent — — 1,500

Accounts payable and other liabilities 1,251 (486 ) 226

Accrued bonuses and other employee related expenses (2,095 ) (5,889 ) 4,676

Deferred compensation and commissions 6,421 (8,975 ) (438 )

Cash flows from investing activities

Acquisition of businesses, net of cash received (16,298 ) (6,083 ) (14,926 )

Issuances of employee notes receivable (243 ) (200 ) (451 )

Payments received on employee notes receivable 187 42 18

Purchase of property and equipment (6,945 ) (8,812 ) (8,072 )

Proceeds from sale of property and equipment — 21 —

Cash flows from financing activities

Principal payments on stock appreciation rights liability (1,251 ) (185 ) —

Payments of contingent and deferred consideration (1,134 ) (528 ) —

Effect of currency exchange rate changes on cash and cash equivalents (48 ) — —

Net increase (decrease) in cash and cash equivalents 10,482 17,987 (6,103 )

Supplemental disclosures of cash flow information

See accompanying notes to consolidated financial statements.

F-9

Table of Contents

MMI US Equity

MMI · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form

MMI US Equity☆

MMI · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form

MMI US Equity