# Marcus & Millichap, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Marcus & Millichap, Inc.](/companies/mmi.md) (CIK 1578732)
- Form: 10-Q
- Filed: 2023-08-04
- Accepted by EDGAR: Aug 4, 2023, 16:53 ET
- Period: 2023-06-30
- Accession: 0001578732-23-000030
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1578732/000157873223000030/mmi-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1578732/000157873223000030/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $162.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $317.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $68.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $141.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$10.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$26.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $216.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $431.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $2.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | −$2.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$8.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$14.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.37 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 38,538,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 38,867,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$94.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $5.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $10.3m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $34.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2023-06-30 | $381.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $883.5m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $89.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $219.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $663.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,268 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 further interest rate changes, rising inflation, and geopolitical unrest. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023, 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, 2022 filed with the SEC on February 28, 2023, 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 16 years. As of June 30, 2023, we had 1,865 investment sales and financing professionals that are primarily exclusive independent contractors operating in 80 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, 2023, we closed 1,946 and 3,753 investment sales, financing and other transactions with total sales volume of approximately $9.7 billion and $20.2 billion, respectively. During the year ended December 31, 2022, we closed 12,272 investment sales, financing and other transactions with total sales volume of approximately $86.3 billion.

We generate revenue 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, 2023, approximately 86% of our revenue was generated from real estate brokerage commissions, 11% from financing fees and 3% 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 69% and 59% of our real estate brokerage commissions during the three months ended June 30, 2023 and 2022, respectively, and approximately 68% and 58% of our real estate brokerage commissions during the six months ended June 30, 2023 and 2022, respectively. The following tables set forth the number of transactions, sales volume and revenue by commercial real estate market segment for real estate brokerage:

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

| Real Estate Brokerage | Three Months Ended June 30, 2023 Number | Volume | Revenue | 2022 Number | Volume | Revenue | Change Number | Volume | Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 209 | $120 | $4,665 | 279 | $168 | $6,672 | (70) | $(48) | $(2,007) |
| Private Client Market ($1 – \<$10 million) | 1,070 | 3,571 | 96,238 | 2,021 | 7,348 | 209,868 | (951) | (3,777) | (113,630) |
| Middle Market ($10 – \<$20 million) | 77 | 1,021 | 17,425 | 209 | 2,819 | 56,456 | (132) | (1,798) | (39,031) |
| Larger Transaction Market (≥$20 million) | 66 | 2,830 | 22,002 | 176 | 9,533 | 81,689 | (110) | (6,703) | (59,687) |
|  | 1,422 | $7,542 | $140,330 | 2,685 | $19,868 | $354,685 | (1,263) | $(12,326) | $(214,355) |

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

| Real Estate Brokerage | Six Months Ended June 30, 2023 Number | Volume | Revenue | 2022 Number | Volume | Revenue | Change Number | Volume | Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 392 | $236 | $9,703 | 485 | $296 | $12,459 | (93) | $(60) | $(2,756) |
| Private Client Market ($1 – \<$10 million) | 2,040 | 6,825 | 186,741 | 3,627 | 13,044 | 370,899 | (1,587) | (6,219) | (184,158) |
| Middle Market ($10 – \<$20 million) | 143 | 1,921 | 34,793 | 393 | 5,322 | 103,216 | (250) | (3,401) | (68,423) |
| Larger Transaction Market (≥$20 million) | 126 | 5,692 | 44,139 | 317 | 18,411 | 155,020 | (191) | (12,719) | (110,881) |
|  | 2,701 | $14,674 | $275,376 | 4,822 | $37,073 | $641,594 | (2,121) | $(22,399) | $(366,218) |

### 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 consumer 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.

Economic uncertainty continues to weigh on the investor perspective. Although numerous key economic indicators such as job creation, the unemployment rate and GDP growth remain positive and most economists are now predicting a soft landing, recession risk remains a concern among investors. Inflation has eased, with the headline Consumer Price Index (CPI) falling to 3.0% and the forward looking Producer Price Index (PPI) falling to just 0.1%, but many measurements including the core Personal Consumption Expenditures Index (core PCE), which is monitored most closely by the Federal Reserve, still remain well above their target of 2.0%. Following the Federal Reserve's 25 basis points increase in July 2023, we believe the combination of slowing job creation, reduced wage pressure, easing inflation, tighter credit markets and more modest economic growth has the potential to curtail further Federal Reserve rate increases.

Various economic indicators continue to send mixed signals about the near-term economic outlook. The two best-known indicators of an ensuing recession remain in contradiction. The treasury rate yield curve inverted early in the fourth quarter last year, and short-term treasury rates remain higher than longer-term rates, signaling a possible downturn ahead.

However, the 3.6% unemployment rate has moved little, remaining near its 54-year low as of July 2023, indicating continued labor market strength. Other measures are mixed as well. The Institute for Supply Management (ISM) manufacturing index continues to point to contraction, while the ISM services index points to growth. Meanwhile, job creation, inflation-adjusted retail sales and other metrics have begun to flatten, suggesting the economic growth trajectory may be shifting into neutral. The inconsistency among indicators continues to confound economic forecasts for 2023, but the broad consensus is leaning toward a soft landing and a period of slow growth in late 2023, early 2024. The rising perception that the U.S. economy could avoid a recession has convinced an increasing number of commercial real estate investors to cautiously reengage the investment market, but the sector has yet to attain the critical mass needed to fully revive investment activity.

### 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.

Space demand for most commercial property types remained positive in the second quarter of 2023. Apartment absorption was reinvigorated by strengthening consumer sentiment and reduced fears of a recession, but the number of net new apartment leases fell short of the robust construction deliveries in the quarter, resulting in a 10 basis points rise of vacancy rates on a national level. Nonetheless, rent growth resumed in the second quarter, taking the national average effective rent to a record high. Retail space demand was also positive in the second quarter, slightly outpacing construction. As a result, retail vacancy rates remained flat for a third consecutive quarter at 4.6%, matching the record low set in 2018. Industrial space demand remained positive in the second quarter, but tapered relative to the first quarter in response to reduced retailer inventories and downshifted international trade. The robust pace of industrial space construction, on track to deliver a record 400 million square feet in 2023, resulted in an up-tick in industrial vacancy rates to 4.3%, up from the record low 3.6% rate achieved in the second quarter last year. Nonetheless, industrial rent growth remains elevated, achieving a 14.3% gain on a year-over-year basis.

Contrary to the positive momentum achieved by the other property types, office space demand has yet to stabilize. Hybrid and work-from-home business practices remain in place for most companies, but questions surrounding the long-term viability of these models remain. Some companies have reinvigorated their efforts to bring workers back to the office full time, while others appear content with more flexible practices. Thus far, no clear consensus has emerged, and long-term office space demand remains in question. The national average office vacancy rate continued to rise in the second quarter, reaching a 23 year record high of 17%. Suburban office space has outperformed the urban core while class B/C office space has a lower vacancy rate than class A office space. The broad-based uncertainty surrounding office space demand has been further complicated by dramatically tightened lending on office building assets, which has further restrained the limited office investor activity.

Although fundamentals for most property types remain positive, both lending and investor activity remain below the pre-pandemic norm. The expectation gap between buyers and sellers remains wide, though it is beginning to show preliminary signs of stabilization. Space demand will likely be strongly influenced in the second half of 2023 by Federal Reserve rate movements, consumer and business sentiment, and the prospects of a soft landing.

### 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. 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 directly influence investor demand for commercial real estate investments. Furthermore, the use of debt or loan-to-value ratios can shift along with lender confidence and underwriting standards. At times of heightened uncertainty or liquidity issues, loan-to-values decline, requiring buyers to provide more equity and take more risk to close deals.

The capital markets remain at the heart of the commercial real estate transaction slowdown. The combination of sharply higher interest rates with tighter lender underwriting, reduced loan-to-value standards and a broad-based reduction in the volume of available debt capital have restrained market liquidity and forced investors to recalibrate their underwriting. This exacerbated the buyer/seller expectation gap and restrained trading in the first half of 2023.

The rapid withdrawal of savings from Silicon Valley Bank in March and then First Republic Bank in May forced the shutdown of both banks, causing other banks to shore up their reserves. To mitigate their risk exposure to runs on the bank by depositors, banks have increased their reserves by 10% to $3.3 trillion. They accomplished this by reducing their lending, including their lending on commercial real estate properties, and increasing their emphasis on deposits.

Following the Federal Reserve’s 25 basis points rate increase in July 2023, Chairman Powell indicated that future rate decisions will be data-driven. While this is not a clear signal that the Federal Reserve will stop increasing rates, Wall Street has assigned a 61% likelihood that the overnight rate at the end of the year will be in the current range of 5.25% - 5.5%. The 10-year treasury rate has recently been range-bound in the upper 3% to low 4% range, with each periodic fluctuation requiring repricing and causing transaction delays. Although many lenders continue to maintain lending rate floors that have sustained a widened lender spread and higher interest rates for borrowers, if the Federal Reserve signals rate stability at its September meeting, lenders may begin to tighten their spreads thereby reducing rates, if only nominally. While debt capital remains available for most property types, the underwriting remains stringent, with tightened loan-to-value percentages that have forced investors to underwrite acquisitions with higher cap rates. An increasing number of property owners have begun to seek updated property valuations and more owners have begun to test the sales market, suggesting that activity may begin to revive, despite fewer property owners bringing assets to the market in the first half of the year.

The Federal Reserve’s rate decision in September could significantly impact the market. Should the Federal Reserve signal at least a temporary end to their rate increases, lenders may begin to rein in their spreads, thereby reducing mortgage rates. Investors may begin to underwrite assets more aggressively, potentially narrowing the buyer/seller expectation gap. However, if the Federal Reserve continues to signal an intention to raise rates further, many lenders and investors may sustain their more conservative practices. In addition, concerns regarding commercial property loan performance and potential defaults have increased, particularly for office properties. Although overall systemic risk appears limited given healthy property fundamentals in most property types, these concerns add to a conservative stance among lenders in general. We believe record capital on the sidelines, eventual clarity on the factors outlined above and an end to the tightening cycle should result in a recovery in transaction volumes. The timing of such a recovery is difficult to predict.

### Investor Sentiment and Investment Activity

We facilitate investors buying, selling, and financing properties in order to generate commissions. Investors’ desires and need 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 activity remained constrained through the first half of 2023 as tightened lender underwriting, significantly higher interest rates, recession risk and broad-based market uncertainty weighed on investor decisions. We believe a significant volume of investment capital remains on the sidelines waiting for economic, interest rate, financial market and commercial real estate pricing clarity. Price adjustments are necessary to recalibrate values to higher interest rates, but how long that recalibration process takes will substantially depend on the Federal Reserve rate policies. Once investors re-engage in the market, it will likely take time to navigate the price discovery process and for sales activity to revive.

Office properties, particularly those in the urban core, face the greatest uncertainty and the greatest challenges in acquiring debt financing. Apartment financing, underpinned by Fannie Mae and Freddie Mac, has generally been the most attainable, with typically lower interest rates than other property types. However, the rapid interest rate spike relative to the sector's very low cap rates and the large apartment development pipeline together with the three quarters of weakened apartment demand in 2022 has weighted on apartment sales. Defensive assets — such as single-tenant net lease properties backed by high-credit tenants — and medical office assets continue to receive buyer interest, but sales of these types of properties have also fallen as the flow of 1031 exchange capital coming from other property types has diminished. Ultimately, the market velocity will be dictated by a combination of the economic outlook, Federal Reserve action, interest rates and the narrowing of the buyer/seller expectation gap. If the Federal Reserve signals an end to their rate increases and the economy avoids a significant recession, we believe commercial real estate sales activity should begin to move toward its historical norm in the latter part of 2023.

### Key Financial Measures and Indicators

### Revenue

Our revenue is primarily generated from our real estate investment sales business. In addition to real estate brokerage commissions, we generate revenue from financing fees and from other revenue, 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 revenue 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. Revenue from real estate brokerage commissions is 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 revenue 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. During the six months ended June 30, 2022, we 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 revenue upon the acquisition of a servicing obligation.

#### Other Revenue

Other revenue includes fees generated from consulting, advisory and other real estate services performed by our investment sales professionals. Revenue from these services is 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, costs to acquire and retain talent, 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 for the 2022 period 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 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, and our Credit Agreement.

#### Provision (Benefit) 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 (i) changes in our annual effective tax rate applied to current pre-tax income (loss), (ii) the change in the mix of our activities in the jurisdictions in which we operate due to differing tax rates in those jurisdictions and (iii) 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 (benefit) 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, 2023 and 2022. 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, 2023 and 2022, we closed more than 1,900 and 3,600 investment sales, financing and other transactions, respectively, with total sales volume of approximately $9.7 billion and $26.4 billion, respectively. During the six months ended June 30, 2023 and 2022, we closed more than 3,700 and 6,500 investment sales, financing and other transactions, respectively, with total sales volume of approximately $20.2 billion and $47.4 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, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average Number of Investment Sales Professionals | 1,757 | 1,822 | 1,769 | 1,839 |
| Average Number of Transactions per Investment Sales Professional | 0.81 | 1.47 | 1.53 | 2.62 |
| Average Commission per Transaction | $98,686 | $132,099 | $101,954 | $133,056 |
| Average Commission Rate | 1.86% | 1.79% | 1.88% | 1.73% |
| Average Transaction Size (in thousands) | $5,303 | $7,399 | $5,433 | $7,688 |
| Total Number of Transactions | 1,422 | 2,685 | 2,701 | 4,822 |
| Total Sales Volume (in millions) | $7,542 | $19,868 | $14,674 | $37,073 |

| Financing (1) | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average Number of Financing Professionals | 95 | 87 | 94 | 86 |
| Average Number of Transactions per Financing Professional | 2.99 | 8.01 | 5.99 | 14.15 |
| Average Fee per Transaction | $52,166 | $44,985 | $49,382 | $44,198 |
| Average Fee Rate | 0.90% | 0.70% | 0.82% | 0.75% |
| Average Transaction Size (in thousands) | $5,786 | $6,453 | $5,986 | $5,882 |
| Total Number of Transactions | 284 | 697 | 563 | 1,217 |
| Total Financing Volume (in millions) | $1,643 | $4,498 | $3,370 | $7,158 |

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

### Comparison of Three Months Ended June 30, 2023 and 2022

Below are key operating results for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 (dollars in thousands):

| Revenue: | Three Months Ended June 30, 2023 | Percentage of Revenue Dollar | Three Months Ended June 30, 2022 Percentage | Percentage of Revenue | Change |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $140,330 | 86.2% | $354,685 | 89.6% | $(214,355) | -60.4% | (60.4)% |
| Financing fees | 17,896 | 11.0 | 36,811 | 9.3 | (18,915) | -51.4% | (51.4)% |
| Other revenue | 4,640 | 2.8 | 4,461 | 1.1 | 179 | 4.0% | 4.0% |
| Total revenue | 162,866 | 100 | 395,957 | 100 | (233,091) | -58.9% | (58.9)% |
| Operating expenses: |  |  |  |  |  |  |  |
| Cost of services | 101,163 | 62.1 | 256,042 | 64.7 | (154,879) | -60.5% | (60.5)% |
| Selling, general and administrative | 68,910 | 42.3 | 79,841 | 20.2 | (10,931) | -13.7% | (13.7)% |
| Depreciation and amortization | 3,468 | 2.1 | 3,332 | 0.8 | 136 | 4.1% | 4.1% |
| Total operating expenses | 173,541 | 106.5 | 339,215 | 85.7 | (165,674) | -48.8% | (48.8)% |
| Operating (loss) income | (10,675) | (6.5) | 56,742 | 14.3 | (67,417) | -118.8% | (118.8)% |
| Other income (expense), net | 4,890 | 3.0 | (461) | (0.1) | 5,351 | -1160.7% | (1) |
| Interest expense | (216) | (0.1) | (158) | 0.0 | (58) | 36.7% | 36.7% |
| (Loss) income before provision for income taxes | (6,001) | (3.7) | 56,123 | 14.2 | (62,124) | -110.7% | (110.7)% |
| Provision for income taxes | 2,728 | 1.7% | 13,955 | 3.5 | (11,227) | -80.5% | (80.5)% |
| Net (loss) income | $(8,729) | (5.4)% | $42,168 | 10.6% | $(50,897) | -120.7% | (120.7)% |
| Adjusted EBITDA (2) | $(1,056) | (0.6)% | $62,909 | 15.9% | $(63,965) | -101.7% | (101.7)% |

(1) Percentage not meaningful.

(2) 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.”

#### Revenue

Our total revenue was $162.9 million for the three months ended June 30, 2023 compared to $396.0 million for the same period in 2022, a decrease of $233.1 million, or 58.9%. Total revenue decreased as a result of decreases in real estate brokerage commissions and financing fees, as described below. See "Factors Affecting Our Business" section for additional market information.

*Real estate brokerage commissions.* Revenue from real estate brokerage commissions decreased to $140.3 million for the three months ended June 30, 2023 from $354.7 million for the same period in 2022, a decrease of $214.4 million, or 60.4%. The number of transactions decreased by 47.0% and the average commission per transaction decreased 25.3%, which drove a decrease of revenue of 54.1% in the Private Client Market and a decrease of 71.5% in the combined Middle Market and Larger Transaction Market. The average commission rate increased by seven basis points in the second quarter of 2023 compared to the same quarter in 2022 as a result of a shift in the proportion of transactions to the Private Client Market from the Middle Market and Larger Transaction Market as Private Client Market transactions typically earn higher commission rates.

*Financing fees*. Revenue from financing fees decreased to $17.9 million for the three months ended June 30, 2023 from $36.8 million for the same period in 2022, a decrease of $18.9 million, or 51.4%, resulting primarily from a 59.3% decrease in the number of financing transactions, partially offset by a 16.0% increase in the average fee per transaction. The average fee rate increased by 20 basis points primarily due to a decrease in the average transaction size of 10.3% as a result of a decrease in the percentage of larger size financing transactions, which typically earn lower commission rates.

*Other revenue*. Other revenue increased to $4.6 million for the three months ended June 30, 2023 from $4.5 million for the same period in 2022, an increase of $0.2 million, or 4.0%. The increase was primarily driven by increases in consulting and advisory services during the three months ended June 30, 2023, compared to the same period in 2022.

#### Total Operating Expenses

Our total operating expenses were $173.5 million for the three months ended June 30, 2023 compared to $339.2 million for the same period in 2022, a decrease of $165.7 million, or 48.8%. Cost of services decreased by $154.9 million and selling, general, and administrative expenses decreased by $10.9 million, as described below. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities.

*Cost of services.* Cost of services decreased to $101.2 million for the three months ended June 30, 2023 from $256.0 million for the same period in 2022, a decrease of $154.9 million, or 60.5%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenue noted above. Cost of services as a percentage of total revenue decreased by 260 basis points to 62.1% compared to the same period in 2022.

*Selling, general, and administrative expense.* Selling, general and administrative expense for the second quarter of 2023 decreased to $68.9 million, from $79.8 million compared to the same period in the prior year, a decrease of $10.9 million or 13.7%. The change was primarily due to a reduction in compensation related costs, specifically performance-based bonuses for the second quarter of 2023, partially offset by an increase in business development, marketing, and other support costs related to the long-term retention of our sales and financing professionals.

*Depreciation and amortization expense.* Depreciation and amortization expense increased by an immaterial amount for the three months ended June 30, 2023 compared to the same period in the prior year.

#### Other Income (Expense), Net

Other income (expense), net increased to income of $4.9 million for the three months ended June 30, 2023 from an expense of $0.5 million for the same period in 2022. The increase of $5.4 million was primarily driven by an increase of $3.2 million in income from investments and a favorable change of $1.7 million in the value of our deferred compensation plan assets that are held in a rabbi trust.

#### Interest Expense

Interest expense increased by an immaterial amount for the three months ended June 30, 2023 compared to the same period in 2022, and primarily relates to interest expense on the Company’s SARs liability.

#### Provision for Income Taxes

The provision for income taxes was $2.7 million for the three months ended June 30, 2023, compared to $14.0 million for the same period in 2022. The effective income tax rate for the three months ended June 30, 2023, was (45.5)% compared to 24.9% for the same period in 2022. The tax provision for the three months ended June 30, 2023 is affected by non-deductible permanent items and changes in estimates to reflect income taxes through June 30, 2023 at the estimated annual effective tax rate. This resulted in recording a tax provision versus a tax benefit despite the loss before income taxes for the three months ended June 30, 2023.

### Comparison of Six Months Ended June 30, 2023 and 2022

Below are key operating results for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 (dollars in thousands):

| Revenue: | Six Months Ended June 30, 2023 | Percentage of Revenue Dollar | Six Months Ended June 30, 2022 Percentage | Percentage of Revenue | Change |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $275,376 | 86.7% | $641,594 | 89.7% | $(366,218) | -57.1% | (57.1)% |
| Financing fees | 33,764 | 10.6 | 63,264 | 8.8 | (29,500) | -46.6% | (46.6)% |
| Other revenue | 8,518 | 2.7 | 10,563 | 1.5 | (2,045) | -19.4% | (19.4)% |
| Total revenue | 317,658 | 100 | 715,421 | 100 | (397,763) | -55.6% | (55.6)% |
| Operating expenses: |  |  |  |  |  |  |  |
| Cost of services | 196,590 | 61.9 | 452,810 | 63.3 | (256,220) | -56.6% | (56.6)% |
| Selling, general and administrative | 141,129 | 44.4 | 154,376 | 21.6 | (13,247) | -8.6% | (8.6)% |
| Depreciation and amortization | 6,675 | 2.1 | 7,243 | 1.0 | (568) | -7.8% | (7.8)% |
| Total operating expenses | 344,394 | 108.4 | 614,429 | 85.9 | (270,035) | -43.9% | (43.9)% |
| Operating (loss) income | (26,736) | (8.4) | 100,992 | 14.1 | (127,728) | -126.5% | (126.5)% |
| Other income (expense), net | 9,700 | 3.0 | (11) | 0.0 | 9,711 | -88281.8% | (1) |
| Interest expense | (431) | (0.1) | (318) | 0.0 | (113) | 35.5% | 35.5% |
| (Loss) income before (benefit) provision for income taxes | (17,467) | (5.5) | 100,663 | 14.1 | (118,130) | -117.4% | (117.4)% |
| (Benefit) provision for income taxes | (2,905) | (0.9) | 25,712 | 3.6 | (28,617) | -111.3% | (111.3)% |
| Net (loss) income | $(14,562) | (4.6)% | $74,951 | 10.5% | $(89,513) | -119.4% | (119.4)% |
| Adjusted EBITDA (2) | $(8,479) | (2.7)% | $114,761 | 16.0% | $(123,240) | -107.4% | (107.4)% |

(1) Percentage not meaningful.

(2) 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.”

#### Revenue

Our total revenue was $317.7 million for the six months ended June 30, 2023 compared to $715.4 million for the same period in 2022, a decrease of $397.8 million, or 55.6%. Total revenue decreased as a result of decreases in real estate brokerage commissions, financing fees and other revenue, as described below. See "Factors Affecting Our Business" section for additional market information.

*Real estate brokerage commissions.* Revenue from real estate brokerage commissions decreased to $275.4 million for the six months ended June 30, 2023 from $641.6 million for the same period in 2022, a decrease of $366.2 million, or 57.1%. The number of transactions decreased by 44.0% and the average commission per transaction decreased 23.4%, which drove a decrease of revenue of 49.7% in the Private Client Market and a decrease of 69.4% in the combined Middle Market and Larger Transaction Market. The average commission rate increased by 15 basis points in the second quarter of 2023 compared to the same quarter in 2022, as a result of a shift in the proportion of transactions to the Private Client Market from the Middle Market and Larger Transaction Market as Private Client Market transactions typically earn higher commission rates.

*Financing fees*. Revenue from financing fees decreased to $33.8 million for the six months ended June 30, 2023 from $63.3 million for the same period in 2022, a decrease of $29.5 million, or 46.6%, resulting primarily from a 53.7% decrease in the number of financing transactions, partially offset by an 11.7% increase in the average fee per transaction. The average fee rate increased by seven basis points due to an increase in the number of smaller size financing transactions, which typically earn higher commission rates.

*Other revenue*. Other revenue decreased to $8.5 million for the six months ended June 30, 2023 from $10.6 million for the same period in 2022, a decrease of $2.0 million, or 19.4%. The decrease was primarily driven by decreases in consulting and advisory services during the six months ended June 30, 2023, compared to the same period in 2022.

#### Total Operating Expenses

Our total operating expenses were $344.4 million for the six months ended June 30, 2023 compared to $614.4 million for the same period in 2022, a decrease of $270.0 million, or 43.9%. Cost of services decreased by $256.2 million and selling, general, and administrative expenses decreased by $13.2 million, as described below. Cost of services are variable commissions paid to our investment sales professionals and compensation-related costs in connection with our financing activities.

*Cost of services.* Cost of services decreased to $196.6 million for the six months ended June 30, 2023 from $452.8 million for the same period in 2022, a decrease of $256.2 million, or 56.6%. The decrease was primarily due to decreased commission expenses driven by the related decreased revenue noted above. Cost of services as a percentage of total revenue decreased by 140 basis points to 61.9% compared to the same period in 2022.

*Selling, general, and administrative expense.* Selling, general and administrative expense for the six months ended June 30, 2023 decreased to $141.1 million, from $154.4 million compared to the same period in the prior year, a decrease of $13.2 million or 8.6%. The change was primarily due to a reduction in compensation-related costs, specifically performance-based bonuses for the first half of 2023, partially offset by an increase in business development, marketing, other support and expensing of capital related to the long-term retention of our sales and financing professionals.

*Depreciation and amortization expense.* Depreciation and amortization expense decreased by an immaterial amount for the six months ended June 30, 2023 compared to the same period in the prior year.

#### Other Income (Expense), Net

Other income (expense), net increased to $9.7 million for the six months ended June 30, 2023 from $0.0 million for the same period in 2022. The increase of $9.7 million was primarily driven by an increase of $6.7 million in income from investments and a favorable change of $2.7 million in the value of our deferred compensation plan assets that are held in a rabbi trust.

#### Interest Expense

Interest expense increased by an immaterial amount for the three months ended June 30, 2023 compared to the same period in 2022, and primarily relates to interest expense on the Company’s SARs liability.

#### (Benefit) Provision for Income Taxes

The benefit for income taxes was $2.9 million for the six months ended June 30, 2023, compared to a provision for income taxes of $25.7 million for the same period in 2022. The effective income tax rate for the six months ended June 30, 2023 was 16.6% compared to 25.5% for the same period in 2022. The effective income tax rate decreased primarily due to relationship of permanent nondeductible items to projected pre-tax income for the full year.

### 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 (loss) income before (i) interest income and other, including net realized gains (losses) on marketable debt securities, available-for-sale and cash, cash equivalents, and restricted cash, (ii) interest expense, (iii) provision (benefit) for income taxes, (iv) depreciation and amortization, and (v) stock-based compensation. 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, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income | $(8,729) | $42,168 | $(14,562) | $74,951 |
| Adjustments: |  |  |  |  |
| Interest income and other (1) | (4,090) | (979) | (8,480) | (1,594) |
| Interest expense | 216 | 158 | 431 | 318 |
| Provision (benefit) for income taxes | 2,728 | 13,955 | (2,905) | 25,712 |
| Depreciation and amortization | 3,468 | 3,332 | 6,675 | 7,243 |
| Stock-based compensation | 5,351 | 4,275 | 10,362 | 8,131 |
| Adjusted EBITDA | $(1,056) | $62,909 | $(8,479) | $114,761 |

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

### Liquidity and Capital Resources

Our primary sources of liquidity are cash, cash equivalents, and restricted cash, 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, cash equivalents, and restricted cash, proceeds from the sale of marketable debt securities, available-for-sale or availability under our Credit Agreement.

### Cash Flows

Our total cash, cash equivalents, and restricted cash balance decreased by $64.7 million to $171.2 million at June 30, 2023, compared to $235.9 million at December 31, 2022. The following table sets forth our summary cash flows for the six months ended June 30, 2023 and 2022 (in thousands):

|  | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash flows used in operating activities | $(94,775) | $(51,840) |
| Net cash flows provided by (used in) investing activities | 82,373 | (56,575) |
| Net cash flows used in financing activities | (52,372) | (61,899) |
| Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash | 121 | (175) |
| Net decrease in cash, cash equivalents, and restricted cash | (64,653) | (170,489) |
| Cash, cash equivalents, and restricted cash at beginning of period | 235,873 | 382,140 |
| Cash, cash equivalents, and restricted cash at end of period | $171,220 | $211,651 |

#### Operating Activities

Cash flows used in operating activities were $94.8 million for the six months ended June 30, 2023 compared to $51.8 million for the same period in 2022. The $42.9 million increase in cash flows used in operating activities for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to decreased operating income as discussed above. The cash flows from operating activities are also affected by the timing of certain cash receipts and payments.

#### Investing Activities

Cash flows provided by investing activities were $82.4 million for the six months ended June 30, 2023 compared to cash flows used in investing activities of $56.6 million for the same period in 2022. The $138.9 million increase in cash provided by investing activities for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to a net increase of $127.0 million in net proceeds from sales and maturities of securities in 2023 compared to the same period in 2022, as well as the 2022 acquisition of a business for $12.5 million, with no corresponding outflow in the current period.

#### Financing Activities

Cash flows used in financing activities were $52.4 million for the six months ended June 30, 2023 compared to $61.9 million for the same period in 2022. The decrease of $9.5 million in cash flows used in financing activities for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to a decrease of $4.1 million in taxes paid related to net share settlement of stock-based awards, along with a decrease of $39.8 million in dividends paid, partially offset by $34.9 million in stock repurchases in 2023, which did not occur in the 2022 period.

#### Liquidity

We believe that our existing balances of cash, cash equivalents, and restricted cash, cash flows expected to be generated from our operations, and proceeds from the sale of marketable debt securities, available-for-sale 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, 2023, cash, cash equivalents, and restricted cash and marketable debt securities, available-for-sale, aggregated $406.8 million, and we had $59.5 million of borrowing capacity under our Credit Agreement (defined below).

### 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”). The Company is monitoring covenant compliance on a regular basis to ensure continued compliance with the Credit Agreement. Our ability to borrow under our Credit Agreement is limited by our ability to comply with its covenants or obtain necessary waivers. 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, 2023, the Company has agreed to a maximum aggregate guarantee obligation of $114.7 million relating to loans with an unpaid balance of $688.1 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. The Company records a loan-loss obligation and is required to provide cash collateral to MTRCC for this obligation.

### 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, 2022 through the date the condensed consolidated financial statements were issued, other than for the semi-annual regular dividend of $0.25 per share on outstanding common stock declared by our Board of Directors on August 1, 2023, payable on October 6, 2023.

### 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 and impact of rising interest rates on the broader economy.

The annual inflation rate in the U.S. increased to 9.1% in June 2022, the highest annual inflation rate since November 1981, but has since decreased to 3.0% in June 2023. In response to elevated inflation levels, the Federal Reserve has increased the federal funds rate by 525 basis points through July 26, 2023. In the wake of several bank failures and continued concerns in the banking system, the Federal Reserve has sustained their tapered rate increases, fueling speculation that they may soon pause their upward pressure on the overnight rate. As a byproduct of the rapid increases in interest rates since March 2022, lenders have tightened their underwriting standards and raised rates substantively, adversely impacting commercial real estate transactions. Although inflation is still elevated and well above the Federal Reserve’s target rate, it appears to be on a downward trend. Services and wage inflation, however have yet to deliver a measurable downturn. Both of these types of inflation affect commercial real estate operators, increasing their operating costs. Sustained elevated interest rates and inflation would be expected to have a negative impact on client demand for commercial real estate.

### 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, 2022.

## Market risk

As filed, 3,440 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 others. As of June 30, 2023, the fair value of investments in marketable debt securities, available-for-sale was $235.6 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, cash equivalents, and restricted cash) was AA as of June 30, 2023. 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, 2023 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 ….................. | $4,424 |
| 1% Decrease ….................. | $2,212 |
| 1% Increase ….................. | $(2,211) |
| 2% Increase ….................. | $(4,422) |

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. Historically foreign exchange rate risk has not been material.

## Controls and procedures

As filed, 2,865 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, 2023, 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, 2023 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 number of our employees and independent contractors are still working remotely. The design of our processes and controls allow for remote execution with accessibility to secure data. Given the current environment, we are continually monitoring and assessing 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, 2022.

Filed Aug 4, 2023.
Source: SEC EDGAR, the filing index for accession 0001578732-23-000030. Last ingested by Listed: Nov 6, 2026, 18:20 ET. No prices; not investment advice.