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

- Company: [Marcus & Millichap, Inc.](/companies/mmi.md) (CIK 1578732)
- Form: 10-Q
- Filed: 2023-11-03
- Accepted by EDGAR: Nov 3, 2023, 16:51 ET
- Period: 2023-09-30
- Accession: 0001578732-23-000048
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1578732/000157873223000048/mmi-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1578732/000157873223000048/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $162.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $479.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $69.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $210.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$15.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$42.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $241.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $672.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$4.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$9.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$23.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.61 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 38,492,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 38,740,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$87.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $7.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $10.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $34.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2023-09-30 | $389.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $882.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $103.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $232.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $649.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,837 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 expectations for future interest rates, inflation, and geopolitical unrest. The results of operations for the nine months ended September 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 September 30, 2023, we had 1,820 investment sales and financing professionals that are primarily exclusive independent contractors operating in more than 80 offices, who provide real estate brokerage and financing services to sellers and buyers of commercial real estate assets. During the three and nine months ended September 30, 2023, we closed 1,846 and 5,599 investment sales, financing and other transactions with total sales volume of approximately $11.4 billion and $31.7 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 September 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 markets, 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, which contributed approximately 65% and 57% of our real estate brokerage commissions during the three months ended September 30, 2023 and 2022, respectively, and approximately 67% and 57% of our real estate brokerage commissions during the nine months ended September 30, 2023 and 2022, respectively. The following tables set forth the number of transactions, sales volume and revenue by each commercial real estate market for real estate brokerage:

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

| Real Estate Brokerage | Three Months Ended September 30, 2023 Number | Volume | Revenue | 2022 Number | Volume | Revenue | Change Number | Volume | Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 208 | $122 | $5,511 | 243 | $154 | $7,252 | (35) | $(32) | $(1,741) |
| Private Client Market ($1 – \<$10 million) | 1,014 | 3,344 | 91,466 | 1,658 | 5,885 | 165,534 | (644) | (2,541) | (74,068) |
| Middle Market ($10 – \<$20 million) | 75 | 1,002 | 18,647 | 188 | 2,527 | 46,901 | (113) | (1,525) | (28,254) |
| Larger Transaction Market (≥$20 million) | 64 | 2,965 | 24,193 | 157 | 9,360 | 73,202 | (93) | (6,395) | (49,009) |
|  | 1,361 | $7,433 | $139,817 | 2,246 | $17,926 | $292,889 | (885) | $(10,493) | $(153,072) |

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

*(in millions)*

*(in thousands)*

| Real Estate Brokerage | Nine Months Ended September 30, 2023 Number | Volume | Revenue | 2022 Number | Volume | Revenue | Change Number | Volume | Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<$1 million | 600 | $358 | $15,214 | 728 | $450 | $19,711 | (128) | $(92) | $(4,497) |
| Private Client Market ($1 – \<$10 million) | 3,054 | 10,169 | 278,207 | 5,285 | 18,929 | 536,433 | (2,231) | (8,760) | (258,226) |
| Middle Market ($10 – \<$20 million) | 218 | 2,923 | 53,440 | 581 | 7,849 | 150,117 | (363) | (4,926) | (96,677) |
| Larger Transaction Market (≥$20 million) | 190 | 8,657 | 68,332 | 474 | 27,771 | 228,222 | (284) | (19,114) | (159,890) |
|  | 4,062 | $22,107 | $415,193 | 7,068 | $54,999 | $934,483 | (3,006) | $(32,892) | $(519,290) |

### 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, job creation, and global events can affect investor sentiment and, ultimately, the demand for our services from investors in real estate.

Significant uncertainty in the economic outlook caused by government, geopolitical and financial market forces may impact the likelihood of an economic "soft landing". The ousting of the Speaker of the House in October 2023 and delay in selecting a replacement has raised the risk of a government shutdown occurring in November 2023. A government shutdown may spur economic fallout and a downgrade of the U.S. credit rating. In addition, labor union strikes could become increasingly disruptive for the U.S. economy. Escalating military conflict in the Middle East has the potential to draw additional nations into a regional conflagration with serious global economic implications. These risk factors, together with rising long-term treasury and mortgage rates, could derail the soft landing scenario forecast by many economists.

Despite the risks presented by these events, several economic drivers continue to support a soft landing scenario. Job creation has been durable, with the addition of an average of 266,000 jobs per month in the third quarter of 2023. The unemployment rate has been range-bound in the mid to upper 3% band for 20 months straight, while weekly first-time unemployment claims fell below 200,000 in October 2023. In addition, the total number of job openings remains high suggesting continued employment market strength. These positive trends align with steadily falling core inflation and stable inflation-adjusted core retail sales suggesting slowing but positive economic growth through the remainder of 2023 and into 2024.

Within this context, the Federal Reserve will likely hold rates flat through the remainder of 2023 and into 2024. This should help stabilize the commercial real estate lending climate in the coming months.

If the U.S. economy avoids a recession, an increasing number of commercial real estate investors could cautiously reengage the investment market, but the sector has yet to attain the critical mass needed for a full revival of 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 commercial real estate remained positive in the third quarter of 2023, though office absorption was marginally above zero. The number of net new apartment leases increased for a third consecutive quarter, but the absorption of 101,000 units in the quarter fell short of apartment completions, resulting in a 10 basis points increase of vacancy rates on a national level. Nonetheless, effective rent growth remained modestly positive in the third quarter. Retail space demand was also positive in the third quarter, roughly in alignment with construction resulting in stable vacancy rates and positive rent growth. Industrial space demand, while positive, continued to taper in the third quarter, with absorption falling short of the record pace of construction. As a result, industrial vacancy rates increased 50 basis points in the third quarter.

Although office space demand still faces significant headwinds, absorption was marginally positive in the third quarter. The space gains fell short of the modest pace of office completions, resulting in a 10 basis point increase in vacancy to 17.1% on a national level, the highest quarterly office vacancy rate in 23 years. Despite the overall weakening of the sector, some office property segments continue to outperform the sector as a whole. Smaller suburban office properties constructed since 2010 have a markedly lower vacancy rate than large, older urban properties, suggesting that the weakness in the office sector is not as broad-based as previously believed. 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 broad-based uncertainty surrounding the office investment market has been further complicated by dramatically tightened lending on office building assets, which has increasingly restrained the already limited office investor activity.

Although fundamentals for most property types remain positive, both lending and investor activity remain below the pre-pandemic norm and the expectation gap between buyers and sellers remains wide. The demand for space will continue to be influenced by consumer and business sentiment as well as the broader economic outlook.

### 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 reduced trading through the first three quarters of 2023.

Following the Federal Reserve’s 25 basis points rate increase in July 2023, Chairman Powell indicated that future rate decisions will be data-driven. The Federal Reserve held interest rates flat in the 5.25% - 5.5% range at their September meeting. Prevailing Wall Street sentiment has assigned a 75% likelihood that the overnight rate at the end of the year will remain unchanged. The 10-year treasury rate has recently surged to the upper 4% range, even surpassing 5% in intraday trading. While the increase in the federal funds rate has had an impact, the rise of the 10-year treasury is largely attributable to the combination of increased treasury issuance and reduced treasury purchases by the Federal Reserve. The jump in the 10-year treasury rate has directly impacted both residential and commercial lending rates. Although many believe the Federal Reserve will hold the overnight rate stable through the remainder of the year, rising long-term interest rates could continue to place upward pressure on commercial real estate lending rates.

While debt capital remains available for most property types, the lending climate is constrained by a variety of factors. Persistent beliefs that commercial real estate poses a risk to the broader banking system remain despite low distress levels. Only office properties, which represent approximately 3.6% of total bank lending, have demonstrated outsized risk, with most of the distress limited to older urban office buildings. To offset perceptions of real estate related risk, many banks have reduced their lending to the sector while bolstering their cash reserves. The reduced availability of lending capital from traditional sources has motivated numerous private lenders to enter the market, typically at elevated interest rates.

Investors have been forced to underwrite acquisitions with higher cap rates placing additional pressure on the buyer/seller expectation gap due to more stringent underwriting with tightened loan-to-value percentages and higher interest rates. Although property owners continue to seek updated property valuations to correspond with the market, broad-based uncertainty surrounding the economy and lending climate have impacted prospective seller activity. We believe that as economic and financial sector clarity and stability reemerges, transaction activity should revive. An estimated $237 billion or more of real estate investment capital that is currently undeployed could quickly reenter the market as clarity emerges. The timing of the reentry of this capital is difficult to predict given the range of economic, political and geopolitical forces in play at the national and global level.

### 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 three quarters of 2023 as tightened lender underwriting, significantly higher interest rates, recession risk and broad-based uncertainty impacted on investor decisions. We believe a significant volume of investment capital remains undeployed waiting for economic, interest rate, financial market, geopolitical and commercial real estate pricing clarity. Price adjustments are necessary to recalibrate values to higher interest rates, but the duration of the recalibration process will depend on the combination of Federal Reserve rate policies, political stability and the market forces driving long-term interest rates. 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 slackening rent growth has impacted 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, geopolitical forces, 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, the ten-year treasury rate stabilizes and the economy avoids a significant recession, we believe commercial real estate sales activity should begin to move toward its historical norm in 2024.

### 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. 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. 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 nine months ended September 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 on intangible assets amortized on a straight-line basis using a useful life between one and seven years and (ii) amortization recorded for the 2022 period on our mortgage servicing rights using the interest method over the period that servicing income is expected to be received.

#### Other Income, Net

Other income, net primarily consists of interest income, realized gains and losses on our marketable debt securities, available-for-sale, net gains or losses on our deferred compensation plan assets, 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.

#### (Benefit) 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 (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 nine months ended September 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 September 30, 2023 and 2022, we closed more than 1,800 and 3,000 investment sales, financing and other transactions, respectively, with total sales volume of approximately $11.4 billion and $22.6 billion, respectively. During the nine months ended September 30, 2023 and 2022, we closed more than 5,500 and 9,500 investment sales, financing and other transactions, respectively, with total sales volume of approximately $31.7 billion and $69.9 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:

| Real Estate Brokerage | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average Number of Investment Sales Professionals | 1,733 | 1,792 | 1,757 | 1,823 |
| Average Number of Transactions per Investment Sales Professional | 0.79 | 1.25 | 2.31 | 3.88 |
| Average Commission per Transaction | $102,731 | $130,405 | $102,214 | $132,213 |
| Average Commission Rate | 1.88% | 1.63% | 1.88% | 1.70% |
| Average Transaction Size (in thousands) | $5,462 | $7,981 | $5,442 | $7,781 |
| Total Number of Transactions | 1,361 | 2,246 | 4,062 | 7,068 |
| Total Sales Volume (in millions) | $7,433 | $17,926 | $22,107 | $54,999 |

| Financing (1) | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Average Number of Financing Professionals | 96 | 87 | 95 | 86 |
| Average Number of Transactions per Financing Professional | 2.88 | 5.95 | 8.83 | 20.17 |
| Average Fee per Transaction | $50,062 | $44,751 | $49,606 | $44,363 |
| Average Fee Rate | 0.73% | 0.70% | 0.79% | 0.74% |
| Average Transaction Size (in thousands) | $6,904 | $6,350 | $6,288 | $6,021 |
| Total Number of Transactions | 276 | 518 | 839 | 1,735 |
| Total Financing Volume (in millions) | $1,906 | $3,289 | $5,276 | $10,447 |

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

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

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

| Revenue: | Three Months Ended September 30, 2023 | Percentage of Revenue Dollar | Three Months Ended September 30, 2022 Percentage | Percentage of Revenue | Change |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $139,817 | 86.3% | $292,889 | 90.4% | $(153,072) | -52.3% | (52.3)% |
| Financing fees | 17,257 | 10.7 | 28,099 | 8.7 | (10,842) | -38.6% | (38.6)% |
| Other revenue | 4,952 | 3.0 | 2,852 | 0.9 | 2,100 | 73.6% | 73.6% |
| Total revenue | 162,026 | 100 | 323,840 | 100 | (161,814) | -50.0% | (50.0)% |
| Operating expenses: |  |  |  |  |  |  |  |
| Cost of services | 104,628 | 64.6 | 217,360 | 67.1 | (112,732) | -51.9% | (51.9)% |
| Selling, general and administrative | 69,192 | 42.7 | 73,004 | 22.6 | (3,812) | -5.2% | (5.2)% |
| Depreciation and amortization | 3,637 | 2.2 | 2,924 | 0.9 | 713 | 24.4% | 24.4% |
| Total operating expenses | 177,457 | 109.5 | 293,288 | 90.6 | (115,831) | -39.5% | (39.5)% |
| Operating (loss) income | (15,431) | (9.5) | 30,552 | 9.4 | (45,983) | -150.5% | (150.5)% |
| Other income, net | 4,422 | 2.7 | 978 | 0.3 | 3,444 | 352.1% | (1) |
| Interest expense | (241) | (0.1) | (229) | 0.0 | (12) | 5.2% | 5.2% |
| (Loss) income before (benefit) provision for income taxes | (11,250) | (6.9) | 31,301 | 9.7 | (42,551) | -135.9% | (135.9)% |
| (Benefit) provision for income taxes | (2,010) | (1.2)% | 9,939 | 3.1 | (11,949) | -120.2% | (120.2)% |
| Net (loss) income | $(9,240) | (5.7)% | $21,362 | 6.6% | $(30,602) | -143.3% | (143.3)% |
| Adjusted EBITDA (2) | $(6,647) | (4.1)% | $36,633 | 11.3% | $(43,280) | -118.1% | (118.1)% |

(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 $162.0 million for the three months ended September 30, 2023 compared to $323.8 million for the same period in 2022, a decrease of $161.8 million, or 50.0%. 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 $139.8 million for the three months ended September 30, 2023 from $292.9 million for the same period in 2022, a decrease of $153.1 million, or 52.3%. The number of transactions decreased by 39.4% and the average commission per transaction decreased 21.2%, which drove a decrease of revenue of 44.7% in the Private Client Market and a decrease of 64.3% in the combined Middle Market and Larger Transaction Market. The average commission rate increased by 25 basis points in the third 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 $17.3 million for the three months ended September 30, 2023 from $28.1 million for the same period in 2022, a decrease of $10.8 million, or 38.6%, resulting primarily from a 46.7% decrease in the number of financing transactions. This decrease was partially offset by an increase in the average transaction size of 8.7%, and an increase in the average fee per transaction of 11.9%, resulting in an increase in the average fee rate of three basis points.

*Other revenue*. Other revenue increased to $5.0 million for the three months ended September 30, 2023 from $2.9 million for the same period in 2022, an increase of $2.1 million, or 73.6%. The increase was primarily driven by increases in consulting and advisory services during the three months ended September 30, 2023, compared to the same period in 2022.

#### Total Operating Expenses

Our total operating expenses were $177.5 million for the three months ended September 30, 2023 compared to $293.3 million for the same period in 2022, a decrease of $115.8 million, or 39.5%. Cost of services decreased by $112.7 million and selling, general, and administrative expenses decreased by $3.8 million, as described below.

*Cost of services.* 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 decreased to $104.6 million for the three months ended September 30, 2023 from $217.4 million for the same period in 2022, a decrease of $112.7 million, or 51.9%. 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 250 basis points to 64.6% compared to the same period in 2022 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier in prior year than in current year.

*Selling, general, and administrative expense.* Selling, general and administrative expense for the third quarter of 2023 decreased to $69.2 million, from $73.0 million compared to the same period in the prior year, a decrease of $3.8 million or 5.2%. The change was primarily due to a reduction in compensation related costs, specifically performance-based bonuses for the third 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 September 30, 2023 compared to the same period in the prior year.

#### Other Income, Net

Other income, net increased to $4.4 million for the three months ended September 30, 2023 from $1.0 million for the same period in 2022. The increase of $3.4 million was primarily driven by an increase of $2.0 million in income from investments and the impact of unrealized foreign currency losses in 2022.

#### Interest Expense

Interest expense increased by an immaterial amount for the three months ended September 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 $2.0 million for the three months ended September 30, 2023, compared to a provision for income taxes of $9.9 million for the same period in 2022. The effective income tax rate for the three months ended September 30, 2023, was 17.8% compared to 31.7% for the same period in 2022. The majority of the reduction in the effective tax rate is related to permanent and other items as presented in Note 10 - "Income Taxes" in the notes to the condensed consolidated financial statements in Item 1, Part I of this quarterly report.

### Comparison of Nine Months Ended September 30, 2023 and 2022

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

| Revenue: | Nine Months Ended September 30, 2023 | Percentage of Revenue Dollar | Nine Months Ended September 30, 2022 Percentage | Percentage of Revenue | Change |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate brokerage commissions | $415,193 | 86.6% | $934,483 | 89.9% | $(519,290) | -55.6% | (55.6)% |
| Financing fees | 51,021 | 10.6 | 91,363 | 8.8 | (40,342) | -44.2% | (44.2)% |
| Other revenue | 13,470 | 2.8 | 13,415 | 1.3 | 55 | 0.4% | 0.4% |
| Total revenue | 479,684 | 100 | 1,039,261 | 100 | (559,577) | -53.8% | (53.8)% |
| Operating expenses: |  |  |  |  |  |  |  |
| Cost of services | 301,218 | 62.8 | 670,170 | 64.5 | (368,952) | -55.1% | (55.1)% |
| Selling, general and administrative | 210,321 | 43.9 | 227,380 | 21.9 | (17,059) | -7.5% | (7.5)% |
| Depreciation and amortization | 10,312 | 2.1 | 10,167 | 0.9 | 145 | 1.4% | 1.4% |
| Total operating expenses | 521,851 | 108.8 | 907,717 | 87.3 | (385,866) | -42.5% | (42.5)% |
| Operating (loss) income | (42,167) | (8.8) | 131,544 | 12.7 | (173,711) | -132.1% | (132.1)% |
| Other income, net | 14,122 | 2.9 | 967 | 0.1 | 13,155 | 1360.4% | (1) |
| Interest expense | (672) | (0.1) | (547) | (0.1) | (125) | 22.9% | 22.9% |
| (Loss) income before (benefit) provision for income taxes | (28,717) | (6.0) | 131,964 | 12.7 | (160,681) | -121.8% | (121.8)% |
| (Benefit) provision for income taxes | (4,915) | (1.0) | 35,651 | 3.4 | (40,566) | -113.8% | (113.8)% |
| Net (loss) income | $(23,802) | (5.0)% | $96,313 | 9.3% | $(120,115) | -124.7% | (124.7)% |
| Adjusted EBITDA (2) | $(15,126) | (3.2)% | $151,394 | 14.6% | $(166,520) | -110.0% | (110.0)% |

(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 $479.7 million for the nine months ended September 30, 2023 compared to $1,039.3 million for the same period in 2022, a decrease of $559.6 million, or 53.8%. 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 $415.2 million for the nine months ended September 30, 2023 from $934.5 million for the same period in 2022, a decrease of $519.3 million, or 55.6%. The number of transactions decreased by 42.5% and the average commission per transaction decreased 22.7%, which drove a decrease of revenue of 48.1% in the Private Client Market and a decrease of 67.8% in the combined Middle Market and Larger Transaction Market. The average commission rate increased by 18 basis points in the nine months ended September 30, 2023 compared to the same period 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 $51.0 million for the nine months ended September 30, 2023 from $91.4 million for the same period in 2022, a decrease of $40.3 million, or 44.2%, resulting primarily from a 51.6% decrease in the number of financing transactions. This decrease was partially offset by an increase in the average transaction size of 4.4%, and an increase in the average fee per transaction of 11.8%, resulting in an increase in the average fee rate of five basis points.

*Other revenue*. Other revenue of $13.5 million for the nine months ended September 30, 2023 was comparable to $13.4 million for the same period in 2022.

#### Total Operating Expenses

Our total operating expenses were $521.9 million for the nine months ended September 30, 2023 compared to $907.7 million for the same period in 2022, a decrease of $385.9 million, or 42.5%. Cost of services decreased by $369.0 million and selling, general, and administrative expenses decreased by $17.1 million, as described below.

*Cost of services.* 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 decreased to $301.2 million for the nine months ended September 30, 2023 from $670.2 million for the same period in 2022, a decrease of $369.0 million, or 55.1%. 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 170 basis points to 62.8% compared to the same period in 2022 primarily due to our senior investment sales and financing professionals who earn additional commissions after meeting certain annual financial thresholds, reaching their thresholds earlier in prior year than in current year.

*Selling, general, and administrative expense.* Selling, general and administrative expense for the nine months ended September 30, 2023 decreased to $210.3 million, from $227.4 million compared to the same period in the prior year, a decrease of $17.1 million or 7.5%. The change was primarily due to a reduction in compensation-related costs, specifically performance-based bonuses for the first three quarters 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 increased by an immaterial amount for the nine months ended September 30, 2023 compared to the same period in the prior year.

#### Other Income, Net

Other income, net increased to $14.1 million for the nine months ended September 30, 2023 from $1.0 million for the same period in 2022. The increase of $13.2 million was primarily driven by an increase of $8.8 million in income from investments, a favorable change of $2.8 million in the value of our deferred compensation plan assets that are held in a rabbi trust and the impact of unrealized foreign currency losses in 2022.

#### Interest Expense

Interest expense increased by an immaterial amount for the three months ended September 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 $4.9 million for the nine months ended September 30, 2023, compared to a provision for income taxes of $35.7 million for the same period in 2022. The effective income tax rate for the nine months ended September 30, 2023 was 17.1% compared to 27.0% for the same period in 2022. The majority of the reduction in the effective tax rate is related to permanent and other items as presented in Note 10 - "Income Taxes" in the notes to the condensed consolidated financial statements in Item 1, Part I of this quarterly report.

### 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) (benefit) provision 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 September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income | $(9,240) | $21,362 | $(23,802) | $96,313 |
| Adjustments: |  |  |  |  |
| Interest income and other (1) | (4,721) | (2,365) | (13,201) | (3,959) |
| Interest expense | 241 | 229 | 672 | 547 |
| (Benefit) provision for income taxes | (2,010) | 9,939 | (4,915) | 35,651 |
| Depreciation and amortization | 3,637 | 2,924 | 10,312 | 10,167 |
| Stock-based compensation | 5,446 | 4,544 | 15,808 | 12,675 |
| Adjusted EBITDA | $(6,647) | $36,633 | $(15,126) | $151,394 |

(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 a discretionary liquidity fee. 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 $11.7 million to $224.2 million at September 30, 2023, compared to $235.9 million at December 31, 2022. The following table sets forth our summary cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash flows used in operating activities | $(87,114) | $(11,775) |
| Net cash flows provided by (used in) investing activities | 128,733 | (31,291) |
| Net cash flows used in financing activities | (53,318) | (67,774) |
| Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash | — | (436) |
| Net decrease in cash, cash equivalents, and restricted cash | (11,699) | (111,276) |
| Cash, cash equivalents, and restricted cash at beginning of period | 235,873 | 382,140 |
| Cash, cash equivalents, and restricted cash at end of period | $224,174 | $270,864 |

39

#### Operating Activities

Cash flows used in operating activities were $87.1 million for the nine months ended September 30, 2023 compared to $11.8 million for the same period in 2022. The $75.3 million increase in cash flows used in operating activities for the nine months ended September 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 $128.7 million for the nine months ended September 30, 2023 compared to cash flows used in investing activities of $31.3 million for the same period in 2022. The $160.0 million increase in cash provided by investing activities for the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to a net increase of $146.7 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 $53.3 million for the nine months ended September 30, 2023 compared to $67.8 million for the same period in 2022. The decrease of $14.5 million in cash flows used in financing activities for the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to a decrease of $3.8 million in taxes paid related to net share settlement of stock-based awards, along with a decrease of $39.7 million in dividends paid, partially offset by an increase of $29.3 million in stock repurchases.

#### 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 September 30, 2023, cash, cash equivalents, and restricted cash and marketable debt securities, available-for-sale, aggregated $411.4 million.

### Credit Agreement

We have a credit agreement with Wells Fargo Bank, National Association (the "Credit Agreement") which provides for a $10.0 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on June 1, 2024. 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 September 30, 2023, the Company has agreed to a maximum aggregate guarantee obligation of $138.5 million relating to loans with an unpaid balance of $831.2 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, with a payment date of 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 United States increased to 9.1% in June 2022, the highest annual inflation rate since November 1981, but has since stabilized at 3.7% as of September 2023. Core inflation, which does not consider volatile food and energy prices, has demonstrated a more consistent downward trend, falling nearly every month since September 2022. In response to elevated inflation levels, the Federal Reserve increased the federal funds rate to the 5.25%-5.5% range as of their meeting on September 20, 2023. Prevailing sentiment on Wall Street currently assigns a 75% likelihood that the Federal Reserve will hold rates flat through the remainder of 2023. Although inflation is still elevated and well above the Federal Reserve’s target rate, it appears to be trending downward. Services inflation and the lagging housing inflation metric, however, have yet to deliver a measurable downturn. 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, 3,474 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 September 30, 2023, the fair value of investments in marketable debt securities, available-for-sale was $187.2 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, yield 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 September 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 September 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 ….................. | $3,643 |
| 1% Decrease ….................. | $1,821 |
| 1% Increase ….................. | $(1,821) |
| 2% Increase ….................. | $(3,641) |

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, 2,875 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 September 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 September 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 Nov 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001578732-23-000048. Last ingested by Listed: Nov 6, 2026, 18:20 ET. No prices; not investment advice.