# Marcus & Millichap, Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [Marcus & Millichap, Inc.](/companies/mmi.md) (CIK 1578732)
- Form: 10-Q
- Filed: 2022-08-05
- Accepted by EDGAR: Aug 5, 2022, 16:08 ET
- Period: 2022-06-30
- Accession: 0001193125-22-213586
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1578732/000119312522213586/d357478d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1578732/000119312522213586/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $396.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-01-01 to 2022-06-30 | $715.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2022-04-01 to 2022-06-30 | $79.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2022-01-01 to 2022-06-30 | $154.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | $56.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | $101.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $158.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $318.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | $14.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-01-01 to 2022-06-30 | $25.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | $42.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | $75.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-04-01 to 2022-06-30 | $1.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-01-01 to 2022-06-30 | $1.85 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | $1.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-01-01 to 2022-06-30 | $1.87 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-04-01 to 2022-06-30 | 40,342,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-01-01 to 2022-06-30 | 40,390,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | −$51.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $5.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2022-01-01 to 2022-06-30 | $50.1m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2022-06-30 | $211.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-06-30 | $498.4m | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $966.8m | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $128.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $249.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-06-30 | $717.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,332 characters.

*Unless the context requires otherwise, the words “Marcus & Millichap,” “MMI,” “we,” the “Company,” “us” and “our” refer to Marcus & Millichap, Inc., and its 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 factors, including but not limited to any continuing impact of the COVID-19 pandemic, further interest rate changes and rising inflation. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022, including the “Risk Factors” section and the consolidated financial statements and notes included therein.

### 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 for more than 15 years. As of June 30, 2022, we had 1,901 investment sales and financing professionals that are primarily exclusive independent contractors operating in 82 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and six months ended June 30, 2022, we closed 3,636 and 6,540 investment sales, financing and other transactions with total sales volume of approximately $26.4 billion and $47.4 billion, respectively. During the year ended December 31, 2021, we closed 13,255 investment sales, financing and other transactions with total sales volume of approximately $84.4 billion.

We generate revenues by collecting real estate brokerage commissions upon the sale, and fees upon the financing, of commercial properties, and by providing equity advisory services, loan sales, loan guarantees and consulting and advisory services. Real estate brokerage commissions are typically based upon the value of the property and financing fees are typically based upon the size of the loan. During the three months ended June 30, 2022, and the year ended December 31, 2021, approximately 90% of our revenues were generated from real estate brokerage commissions, 9% from financing fees and 1% from other real estate related services.

We divide commercial real estate into four major market segments, characterized by price:

- Properties priced less than $1 million;
- Private client market: properties priced from $1 million to up to but less than $10 million;
- Middle market: properties priced from $10 million to up to but less than $20 million; and
- Larger transaction market: properties priced from $20 million and above.

We are the industry leader in serving private clients in the $1-$10 million private client market segment, which contributed approximately 59% and 63% of our real estate brokerage commissions during the three months ended June 30, 2022 and 2021, respectively, and approximately 58% and 63% of our real estate brokerage commissions during the six months ended June 30, 2022 and 2021, respectively. The following table sets forth the number of transactions, sales volume and revenues by commercial real estate market segment for real estate brokerage:

*(in millions)*

*(in thousands)*

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*(in thousands)*

| Real Estate Brokerage | Three Months Ended June 30, 2022 Number | Volume | Revenues | 2021 Number | Volume | Revenues | Change Number | Volume | Revenues |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 279 | $168 | $6,672 | 297 | $200 | $7,618 | (18) | $(32) | $(946) |
| Private Client Market ($1 – \<$10 million) | 2,021 | 7,348 | 209,868 | 1,767 | 5,675 | 158,136 | 254 | 1,673 | 51,732 |
| Middle Market ($10 – \<$20 million) | 209 | 2,819 | 56,456 | 156 | 2,134 | 41,745 | 53 | 685 | 14,711 |
| Larger Transaction Market (≥$20 million) | 176 | 9,533 | 81,689 | 110 | 5,551 | 45,404 | 66 | 3,982 | 36,285 |
|  | 2,685 | $19,868 | $354,685 | 2,330 | $13,560 | $252,903 | 355 | $6,308 | $101,782 |

25

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| Real Estate Brokerage | Six Months Ended June 30, 2022 Number | Volume | Revenues | 2021 Number | Volume | Revenues | Change Number | Volume | Revenues |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 485 | $296 | $12,459 | 524 | $349 | $13,756 | (39) | $(53) | $(1,297) |
| Private Client Market ($1 – \<$10 million) | 3,627 | 13,044 | 370,899 | 2,967 | 9,343 | 263,559 | 660 | 3,701 | 107,340 |
| Middle Market ($10 – \<$20 million) | 393 | 5,322 | 103,216 | 234 | 3,201 | 62,346 | 159 | 2,121 | 40,870 |
| Larger Transaction Market (≥$20 million) | 317 | 18,411 | 155,020 | 193 | 9,531 | 76,038 | 124 | 8,880 | 78,982 |
|  | 4,822 | $37,073 | $641,594 | 3,918 | $22,424 | $415,699 | 904 | $14,649 | $225,895 |

### Factors Affecting Our Business

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

### The Economy

Our business is dependent on economic conditions within the markets in which we operate. Changes in the economy on a global, national, regional or local basis can have a positive or 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 negative impact on our business. Overall market conditions, including global trade, interest rate changes, inflation, and job creation, can affect investor sentiment and, ultimately, the demand for our services from investors in real estate.

Following last year’s 5.7% increase in GDP, the U.S. economy has displayed a variety of mixed signals in the first half of 2022. Underlying inflation drivers including supply chain disruptions, oil and gas price surges and rapidly shifting inventory levels have aligned with financial market turbulence and weakening consumer confidence to weigh on investor sentiment. At the same time, positive economic indicators including the addition of more than 2.7 million jobs in the first six months of the year, near-record-low unemployment and underemployment rates and a 5.5% gain in core retail sales through just the first half of the year all suggest the economy remains sound. These mixed messages will likely empower the Federal Reserve to continue the inflation-battling monetary policies they initiated in late 2021. The Federal Reserve has signaled an acceleration of their quantitative tightening program is forthcoming as they double the pace of their balance sheet drawdown. They have also signaled steady increases of the Federal Funds rate through the remainder of 2022, which many believe will lift the overnight rate by a total of 300 to 400 basis points in 2022. The Federal Reserve’s actions are placing upward pressure on the cost of debt financing, adding to the complexity of investor underwriting and acquisition strategies. The unique blend of economic crosscurrents in 2022 has created additional choppiness in the commercial real estate market, causing each property type and geographic region to operate in a unique micro-climate significantly influenced by both national and local economic forces.

### 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 economic choppiness translated to mixed results for commercial real estate space demand. Occupied multifamily housing units tapered, giving back some of the first quarter gains that had driven the national vacancy rate to a record low. Office space demand remained positive for a fifth consecutive quarter, but absorption fell short of construction completions resulting in a modest vacancy gain. Retail space demand sustained momentum, delivering a seventh consecutive quarter of positive absorption and a quarterly vacancy rate decline. Industrial vacancy rates also declined, pushing deeper into record territory with a 3.6% vacancy rate. The hotel sector also achieved growth, with occupancy rates surpassing 70% in June, nearly back to 2019 levels, supporting record-high average daily rates. These performance metrics reiterate the highly localized, property-specific trends in the commercial real estate sector that are challenging real estate investors to closely assess each market and each asset. Financial market turbulence, economic crosscurrents and rising interest rates have the potential to create additional hurdles for investors in the second half of 2022.

### 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 increasing or decreasing, 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 generally influence investor demand for commercial real estate investments.

In their effort to battle inflation, the Federal Reserve has aggressively increased the overnight rate, placing upward pressure on the broader interest rate climate. However, it appears some of these efforts have been offset by financial market volatility as an increasing amount of capital has moved toward safer investments including long-term bonds. As a result, short-term interest rates have risen faster than long-term rates, keeping debt financing comparatively stable. Long-term rates may begin to rise in September when the Federal Reserve is scheduled to accelerate its quantitative tightening program. Both equity and debt capital remain very liquid, supporting an active commercial real estate transaction market. However, we believe that if interest rates increase significantly in a short period of time, they could restrain transaction activity as the higher cost of capital widens the expectation gap between buyers and sellers. Lenders have remained active in both the placement and pricing of capital, but caution has risen over the last quarter. Based on Federal Reserve Chairman Powell comments, many believe the Federal Reserve’s overnight rate could be lifted by a total of 300 to 400 basis points in 2022. While many investors believe the Federal Reserve rate increases will translate to higher commercial real estate mortgage costs, other factors could come into play. Federal Reserve action and long-term interest rates tend to not have a one-to-one movement relationship and can even move contrary to each other on occasion. Should there be a significant financial market or geopolitical disruption, an investor flight to safety could act as a meaningful counterbalance to upward pressure from the benchmark rate.

### 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, who make up the largest source of revenue, are often motivated to buy, sell and/or refinance properties due to personal circumstances, such as death, divorce, partnership breakups and estate planning.

Commercial real estate sales dollar volume set a record high in 2021, and the momentum largely carried into the first half of 2022. However, rising interest rates have begun to modestly restrain transaction flow moving the market back toward traditional levels. Assets trading at historically high prices in the most sought-after markets have in many cases generated fewer bids than last year while properties offering higher yields in slower growth metros have largely sustained momentum thus far. The rising cost of debt capital, perceptions of rising recession risk and the tempering of occupancy gains and rent growth relative to 2021 have led investors to more carefully calibrate their underwriting assumptions. In some cases, this has widened the buyer/seller expectation gap, in turn moderating investment activity. Industrial and apartment properties have remained in high demand, with hotels, self-storage and necessity-based retail centers also attracting investor attention. Interest in office properties and seniors housing has remained softer by historical standards as investors continue to consider the impact of COVID-19 and work-from-home business models. Looking forward, elevated inflation and stock market volatility could bolster interest in commercial real estate investments as many believe the sector offers increased inflation resistance and stability. This may at least partially offset the headwind posed by rising interest rates.

### 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 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 in connection with the transaction.

To a lesser extent, we also earn fees on loan performance, equity advisory services, loan sales, loan guarantees and ancillary services associated with financing activities. We recognize guarantee fees over the term of the guarantee and other fees when we have no further obligations, generally upon the closing of a transaction. We previously generated mortgage servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related mortgage servicing functions, activities and services. We recognized mortgage servicing revenues upon the acquisition of a servicing obligation.

#### 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 can also 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, third or 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.

#### Other (Expense) Income, Net

Other income, 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, 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 in which we operate due to differing tax rates in those jurisdictions and the impact of permanent items, including 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 three and six months ended June 30, 2022 and 2021. The tables included in the period comparisons below provide summaries of our results of operations. The period-to-period comparisons of financial results are not necessarily indicative of future results.

### Key Operating Metrics

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We also believe these metrics are relevant to investors’ and others’ assessment of our financial condition and results of operations. During the three months ended June 30, 2022 and 2021, we closed more than 3,600 and 3,200 investment sales, financing and other transactions, respectively, with total sales volume of approximately $26.4 billion and $17.4 billion, respectively. During the six months ended June 30, 2022 and 2021, we closed more than 6,500 and 5,600 investment sales, financing and other transactions, respectively, with total sales volume of approximately $47.4 billion and $29.4 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

| Real Estate Brokerage | Three Months Ended June 30, 2022 2021 | Six Months Ended June 30, 2022 2021 |
| --- | ---: | ---: |
| Average Number of Investment Sales Professionals | 1,822 1,934 | 1,839 1,946 |
| Average Number of Transactions per Investment Sales Professional | 1.47 1.20 | 2.62 2.01 |
| Average Commission per Transaction | $132,099 $108,542 | $133,056 $106,100 |
| Average Commission Rate | 1.79% 1.87% | 1.73% 1.85% |
| Average Transaction Size (in thousands) | $7,399 $5,820 | $7,688 $5,723 |
| Total Number of Transactions | 2,685 2,330 | 4,822 3,918 |
| Total Sales Volume (in millions) | $19,868 $13,560 | $37,073 $22,424 |
|  | Three Months Ended June 30, | Six Months Ended June 30, |
| Financing (1) | 2022 2021 | 2022 2021 |
| Average Number of Financing Professionals | 87 85 | 86 86 |
| Average Number of Transactions per Financing Professional | 8.01 8.05 | 14.15 13.70 |
| Average Fee per Transaction | $44,985 $34,783 | $44,198 $32,972 |
| Average Fee Rate | 0.70% 0.82% | 0.75% 0.86% |
| Average Transaction Size (in thousands) | $6,453 $4,228 | $5,882 $3,824 |
| Total Number of Transactions | 697 684 | 1,217 1,178 |
| Total Financing Volume (in millions) | $4,498 $2,892 | $7,158 $4,504 |

(1) Operating metrics exclude certain financing fees not directly associated to transactions.

### Comparison of Three Months Ended June 30, 2022 and 2021

Below are key operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 (dollars in thousands):

| Revenues: | Three Months Ended June 30, 2022 Dollar | Percentage of Revenue Percentage | Three Months Ended June 30, 2021 | Percentage of Revenue | Change |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $354,685 | 89.6% | $252,903 | 88.8% | $101,782 | 40.2% |
| Financing fees | 36,811 | 9.3 | 28,214 | 9.9 | 8,597 | 30.5% |
| Other revenues | 4,461 | 1.1 | 3,829 | 1.3 | 632 | 16.5% |
| Total revenues | 395,957 | 100.0 | 284,946 | 100.0 | 111,011 | 39.0% |
| Operating expenses: |  |  |  |  |  |  |
| Cost of services | 256,042 | 64.7 | 178,585 | 62.7 | 77,457 | 43.4% |
| Selling, general and administrative | 79,841 | 20.2 | 61,797 | 21.7 | 18,044 | 29.2% |
| Depreciation and amortization | 3,332 | 0.8 | 2,959 | 1.0 | 373 | 12.6% |
| Total operating expenses | 339,215 | 85.7 | 243,341 | 85.4 | 95,874 | 39.4% |
| Operating income | 56,742 | 14.3 | 41,605 | 14.6 | 15,137 | 36.4% |
| Other (expense) income, net | (461) | (0.1) | 1,370 | 0.5 | (1,831) | (133.6)% |
| Interest expense | (158) | 0.0 | (146) | 0.0 | (12) | 8.2% |
| Income before provision for income taxes | 56,123 | 14.2 | 42,829 | 15.1 | 13,294 | 31.0% |
| Provision for income taxes | 13,955 | 3.5 | 11,297 | 4.0 | 2,658 | 23.5% |
| Net income | $42,168 | 10.6% | $31,532 | 11.1% | $10,636 | 33.7% |
| Adjusted EBITDA (1) | $62,909 | 15.9% | $48,110 | 16.9% | $14,799 | 30.8% |

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S. generally accepted accounting principles (“U.S. GAAP”) and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Financial Measure.”

#### Revenues

Our total revenues were $396.0 million for the three months ended June 30, 2022 compared to $284.9 million for the same period in 2021, an increase of $111.0 million, or 39%. Total revenues increased as a result of increases in real estate brokerage commissions, financing fees and other revenues, as described below.

*Real estate brokerage commissions.* Revenues from real estate brokerage commissions increased to $354.7 million for the three months ended June 30, 2022 from $252.9 million for the same period in 2021, an increase of $101.8 million, or 40.2%. The increase was primarily driven by a 46.5% increase in overall sales volume generated by a 15.2% increase in the number of investment sales transactions and a 27.1% increase in average transaction size. The revenue from the combined Middle Market and Larger Transaction Market increased 58.5% in the second quarter of 2022 as compared to the same period last year and represented 38.9% of the brokerage revenue in the second quarter of 2022 versus 34.5% of the brokerage revenue in the second quarter of 2021. The average commission rates in the second quarter of 2022 decreased by 8 basis points compared to the same period last year primarily as a result of the increase in average transaction size as larger transactions typically earn lower commission rates.

*Financing fees*. Revenues from financing fees increased to $36.8 million for the three months ended June 30, 2022 from $28.2 million for the same period in 2021, an increase of $8.6 million, or 30.5%, resulting primarily from the 52.6% increase in average transaction size as the number of financing transactions remained relatively flat. The average fee rate declined by 12 basis points due to the larger size of financing transactions as larger transactions typically earn lower commission rates.

*Other revenues*. Other revenues increased to $4.5 million for the three months ended June 30, 2022 from $3.8 million for the same period in 2021, an increase of $0.6 million, or 16.5%. The increase was primarily driven by increases in consulting and advisory services during the three months ended June 30, 2022, compared to the same period in 2021.

#### Total Operating Expenses

Our total operating expenses were $339.2 million for the three months ended June 30, 2022 compared to $243.3 million for the same period in 2021, an increase of $95.9 million, or 39.4%. The increase was due to increases in cost of services, which are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities, selling, general and administrative costs and depreciation and amortization expense, as described below.

*Cost of services.* Cost of services increased to $256.0 million for the three months ended June 30, 2022 from $178.6 million for the same period in 2021, an increase of $77.5 million, or 43.4%. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a percent of total revenues increased to 64.7% compared to 62.7% for the same period in 2021 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier due to the increase in sales volume.

*Selling, general, and administrative expense.* Selling, general and administrative expense for the second quarter of 2022 increased to $79.8 million, from $61.8 million compared to the same period in the prior year, an increase of $18.0 million or 29.2%. The change was primarily due to increases in (i) compensation related costs, primarily driven by increases in management performance compensation due to significant year-over-year growth in operating results; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) return to in-person agent and client business events, conferences, and meetings.

*Depreciation and amortization expense.* Depreciation and amortization expense increased to $3.3 million for the three months ended June 30, 2022, from $3.0 million for the same period in 2021, an increase of $0.4 million, or 12.6%, principally related to additional amortization of intangible assets related to recent acquisitions and additional amortization of mortgage servicing rights due to the cancellation notices received on certain servicing contracts.

#### Other (Expense) Income, Net

Other (expense) income, net decreased to a net expense of $0.5 million for the three months ended June 30, 2022 from income of $1.4 million for the same period in 2021. The decrease was primarily driven by an unfavorable change in the value of our deferred compensation plan assets that are held in a rabbi trust and due to the $0.3 million loss on sale of the remaining mortgage servicing rights.

#### Interest Expense

Interest expense was comparable for the three months ended June 30, 2022 and 2021, and primarily relates to interest expense on the Company’s stock appreciation rights liability.

#### Provision for Income Taxes

The provision for income taxes was $14.0 million for the three months ended June 30, 2022, compared to $11.3 million for the same period in 2021, an increase of $2.7 million. The effective income tax rate for the three months ended June 30, 2022, was 24.9% compared to 26.4% for the same period in 2021. The effective income tax rate decreased primarily due to an increase in windfall tax benefits, net related to the settlement of stock-based awards, partially offset by an increase in permanent items that are not tax deductible.

### Comparison of Six Months Ended June 30, 2022 and 2021

Below are key operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 (dollars in thousands):

| Revenues: | Six Months Ended June 30, 2022 Dollar | Percentage of Revenue Percentage | Six Months Ended June 30, 2021 | Percentage of Revenue | Change |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $641,594 | 89.7% | $415,699 | 88.7% | $225,895 | 54.3% |
| Financing fees | 63,264 | 8.8 | 46,057 | 9.8 | 17,207 | 37.4% |
| Other revenues | 10,563 | 1.5 | 7,167 | 1.5 | 3,396 | 47.4% |
| Total revenues | 715,421 | 100.0 | 468,923 | 100.0 | 246,498 | 52.6% |
| Operating expenses: |  |  |  |  |  |  |
| Cost of services | 452,810 | 63.3 | 287,688 | 61.4 | 165,122 | 57.4% |
| Selling, general and administrative | 154,376 | 21.6 | 113,474 | 24.2 | 40,902 | 36.0% |
| Depreciation and amortization | 7,243 | 1.0 | 5,956 | 1.3 | 1,287 | 21.6% |
| Total operating expenses | 614,429 | 85.9 | 407,118 | 86.9 | 207,311 | 50.9% |
| Operating income | 100,992 | 14.1 | 61,805 | 13.1 | 39,187 | 63.4% |
| Other (expense) income, net | (11) | 0.0 | 2,414 | 0.5 | (2,425) | (100.5)% |
| Interest expense | (318) | 0.0 | (292) | 0.0 | (26) | 8.9% |
| Income before provision for income taxes | 100,663 | 14.1 | 63,927 | 13.6 | 36,736 | 57.5% |
| Provision for income taxes | 25,712 | 3.6 | 17,383 | 3.7 | 8,329 | 47.9% |
| Net income | $74,951 | 10.5% | $46,544 | 9.9% | $28,407 | 61.0% |
| Adjusted EBITDA | $114,761 | 16.0% | $73,805 | 15.7% | $40,956 | 55.5% |

#### Revenues

Our total revenues were $715.4 million for the six months ended June 30, 2022 compared to $468.9 million for the same period in 2021, an increase of $246.5 million, or 52.6%. Total revenues increased as a result of increases in real estate brokerage commissions, financing fees and other revenues, as described below.

*Real estate brokerage commissions.* Revenues from real estate brokerage commissions increased to $641.6 million for the six months ended June 30, 2022 from $415.7 million for the same period in 2021, an increase of $225.9 million, or 54.3%. The increase was primarily driven by a 65.3% increase in overall sales volume generated by a 23.1% increase in the number of investment sales transactions and a 34.3% increase in average transaction size. The revenue from the combined Middle Market and Larger Transaction Market increased 86.6% for the six months ended June 30, 2022 as compared to the same period last year and represented 40.2% of the brokerage revenue for the six months ended June 30, 2022, versus 33.3% of the brokerage revenue for the six months ended June 30, 2021. The average commission rates in the six months ended June 30, 2022 decreased by 12 basis points compared to the same period last year, primarily as a result of the increase in average transaction size as larger transactions typically earn lower commission rates.

*Financing fees*. Revenues from financing fees increased to $63.3 million for the six months ended June 30, 2022 from $46.1 million for the same period in 2021, an increase of $17.2 million, or 37.4%, resulting primarily from the 53.8% increase in average transaction size, and to a lesser extent, a 3.3% increase in the number of financing transactions. The average fee rate declined by 11 basis points as larger transactions typically earn lower commission rates.

*Other revenues*. Other revenues increased to $10.6 million for the six months ended June 30, 2022 from $7.2 million for the same period in 2021, an increase of $3.4 million, or 47.4%. The increase was primarily driven by increases in consulting and advisory services during the six months ended June 30, 2022, compared to the same period in 2021.

#### Total Operating Expenses

Our total operating expenses were $614.4 million for the six months ended June 30, 2022 compared to $407.1 million for the same period in 2021, an increase of $207.3 million, or 50.9%. The increase was due to increases in cost of services, which are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities, selling, general and administrative costs and depreciation and amortization expense, as described below.

*Cost of services.* Cost of services increased to $452.8 million for the six months ended June 30, 2022 from $287.7 million for the same period in 2021, an increase of $165.1 million, or 57.4%. The increase was primarily due to increased commission expenses driven by the related increased revenues noted above. Cost of services as a percent of total revenues increased to 63.3% compared to 61.4% for the same period in 2021 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier due to the increase in sales volume.

*Selling, general, and administrative expense.* Selling, general and administrative expense for six months ended June 30, 2022 increased to $154.4 million from $113.5 million compared to the same period in 2021, an increase of $40.9 million, or 36.0%. The change was primarily due to increases in (i) compensation related costs, primarily driven by increases in management performance compensation due to significant year-over-year growth in operating results; (ii) business development, marketing and other support related to the long-term retention of our sales and financing professionals; and (iii) return to in-person agent and client business events, conferences, and meetings.

*Depreciation and amortization expense.* Depreciation and amortization expense increased to $7.2 million for the six months ended June 30, 2022 from $6.0 million for the same period in 2021, an increase of $1.3 million, or 21.6%, principally related to additional amortization of intangible assets related to recent acquisitions and additional amortization of mortgage servicing rights due to the cancellation notices received on certain servicing contracts.

#### Other (Expense) Income, Net

Other (expense) income, net decreased to a net expense of $11,000 for the six months ended June 30, 2022 from $2.4 million of income for the same period in 2021. The decrease was primarily driven by an unfavorable change in the value of our deferred compensation plan assets that are held in a rabbi trust and due to the $0.3 million loss on sale of the remaining mortgage servicing rights.

#### Interest Expense

Interest expense was comparable for the six months ended June 30, 2022 and 2021, and primarily relates to interest expense on the Company’s stock appreciation rights liability.

#### Provision for Income Taxes

The provision for income taxes was $25.7 million for the six months ended June 30, 2022, compared to $17.4 million for the same period in 2021, an increase of $8.3 million. The effective income tax rate for the six months ended June 30, 2022, was 25.5% compared to 27.2% for the same period in 2021. The effective income tax rate decreased primarily due to an increase in windfall tax benefits, net related to the settlement of stock-based awards, partially offset by an increase in permanent items that are not tax deductible.

#### Non-GAAP Financial Measure

In this quarterly report on Form 10-Q, 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 Mortgage Servicing Rights (“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 a supplemental metric 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 management metric 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):

|  | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $42,168 | $31,532 | $74,951 | $46,544 |
| Adjustments: |  |  |  |  |
| Interest income and other (1) | (979) | (436) | (1,594) | (967) |
| Interest expense | 158 | 146 | 318 | 292 |
| Provision for income taxes | 13,955 | 11,297 | 25,712 | 17,383 |
| Depreciation and amortization | 3,332 | 2,959 | 7,243 | 5,956 |
| Stock-based compensation | 4,275 | 2,662 | 8,131 | 4,950 |
| Non-cash MSR activity (2) | — | (50) | — | (353) |
| Adjusted EBITDA | $62,909 | $48,110 | $114,761 | $73,805 |

(1) Other includes net realized gains (losses) on marketable debt securities available-for-sale.

(2) 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 decreased by $170.5 million to $211.6 million at June 30, 2022, compared to $382.1 million at December 31, 2021. The following table sets forth our summary cash flows for the six months ended June 30, 2022 and 2021 (in thousands):

|  | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash flows (used in) provided by operating activities | $(51,840) | $33,466 |
| Net cash flows used in investing activities | (56,575) | (41,850) |
| Net cash flows used in financing activities | (61,899) | (4,458) |
| Effect of currency exchange rate changes on cash and cash equivalents | (175) | 104 |
| Net decrease in cash and cash equivalents | (170,489) | (12,738) |
| Cash and cash equivalents at beginning of period | 382,140 | 243,152 |
| Cash and cash equivalents at end of period | $211,651 | $230,414 |

#### Operating Activities

Cash flows used in operating activities were $51.8 million for the six months ended June 30, 2022 compared to cash flows provided by operating activities of $33.5 million for the same period in 2021. The $85.3 million decrease in operating cash flows for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to an increase in advances to our investment sales and financing professionals, higher amount of deferred discretionary commissions paid, and higher bonus payments, partially offset by increased cash flows from increased sales and financing volume.

#### Investing Activities

Cash flows used in investing activities were $56.6 million for the six months ended June 30, 2022 compared to cash flows used in investing activities of $41.9 million for the same period in 2021. The $14.7 million increase in cash flow used in investing activities for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to a $12.7 million increase in cash used in acquisitions of businesses, net of cash received during the six months ended June 30, 2022 compared to the same period in 2021.

#### Financing Activities

Cash flows used in financing activities were $61.9 million for the six months ended June 30, 2022 compared to $4.5 million for the same period in 2021. The $57.4 million additional cash flow used in financing activities for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to a payment of $50.1 million of dividends in the second quarter and an increase of $6.0 million of taxes paid related to net share settlement of stock-based awards.

#### 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. As of June 30, 2022, cash and cash equivalents and marketable debt securities, available-for-sale, aggregated $542.3 million, and we had $59.5 million of borrowing capacity under our Credit Agreement.

### 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, 2025 (the “Credit Agreement”). See Note 12 – “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements for additional information on the Credit Agreement.

### Off Balance Sheet Arrangements

The Company, in connection with the Strategic Alliance with M&T Realty Capital Corporation (“MTRCC”), has agreed to provide loan opportunities that may be funded through MTRCC’s agreement with Fannie Mae which requires MTRCC to guarantee a portion of each funded loan. On a loan-by-loan basis, the Company, at its option, can assume a portion of MTRCC’s guarantee obligation to Fannie Mae of loan opportunities presented to and closed by MTRCC. As of June 30, 2022, the Company has agreed to a maximum aggregate guarantee obligation of $25.4 million relating to loans with an unpaid balance of $152.6 million. The maximum guarantee obligation is not representative of the actual loss we would incur. The Company would be liable for this amount only if all of the loans for which it is providing a guarantee to MTRCC were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.

### Material Cash Requirements

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, 2021 through the date the condensed consolidated financial statements were issued, other than for the payment of dividends and dividend equivalents declared by our board of directors in the first quarter of 2022, aggregating $52.1 million, and a semi-annual regular dividend of $0.25 per share of outstanding common stock declared on August 2, 2022.

### 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 various macroeconomic factors, including the effects of the COVID-19 pandemic on the broader economy.

The Federal Reserve has begun to combat inflation through monetary policy including ramping-up quantitative tightening and by raising the Federal Funds Rate. While commercial real estate investments are generally considered to be relatively inflation resistant, the upward pressure on interest rates has the potential to affect investor activity and therefore transactional activity from which we generate revenues. Investor activity could depend on the magnitude of changes in interest rates relative to the elevated level of capital liquidity targeting commercial real estate. The actual economic impact from inflation to our business remains unknown at this time.

### 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 significant changes in our critical accounting policies, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – “Description of Business, Basis of Presentation and Recent Accounting Pronouncements” of our Notes to Condensed Consolidated Financial Statements. 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 the new pronouncements may have on our condensed consolidated financial statements.

## Market risk

As filed, 3,369 characters.

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 June 30, 2022, the fair value of investments in marketable debt securities, available-for-sale was $330.6 million. The primary objective of our investment activity is to maintain the safety of principal and to provide for future liquidity requirements while maximizing yields without significantly increasing risk. While some investments may be securities of companies in foreign countries, all investments are denominated and payable in U.S. Dollars. We do not enter into investments for trading or speculative purposes. While our intent is not to sell these investment securities prior to their stated maturities, we may choose to sell any of the securities for strategic reasons including, but not limited to, anticipated capital requirements, anticipation of credit deterioration, duration management and because a security no longer meets the criteria of our investment policy. We do not use derivatives or similar instruments to manage our interest rate risk. We seek to invest in high quality investments. The weighted average rating (exclusive of cash and cash equivalents) was AA+ as of June 30, 2022. 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. The following table sets forth the impact on the fair value of our investments as of June 30, 2022 from changes in interest rates based on the weighted average duration of the debt securities in our portfolio (in thousands):

| Change in Interest Rates | Approximate Change in Fair Value of Investments Increase (Decrease) |
| --- | ---: |
| 2% Decrease | $5,729 |
| 1% Decrease | $2,873 |
| 1% Increase | $(2,872) |
| 2% Increase | $(5,743) |

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.

## Controls and procedures

As filed, 2,931 characters.

### 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 Form 10-Q, based on the criteria established under the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on such evaluation, our management has concluded that as of June 30, 2022, 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.

### 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 June 30, 2022 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 a significant number of our employees and independent contractors are still 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.

## Risk factors

As filed, 139 characters.

There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2021.

Filed Aug 5, 2022.
Source: SEC EDGAR, the filing index for accession 0001193125-22-213586. Last ingested by Listed: Nov 6, 2026, 18:20 ET. No prices; not investment advice.