Transaction tax

MARCUS & MILLICHAP: Management report and analysis of the financial situation and operating results (form 10-Q)


[ad_1]

Unless the context requires otherwise, the words "Marcus & Millichap," "MMI,"
"we," the "Company," "us" and "our" refer to Marcus & Millichap, Inc., and its
other consolidated subsidiaries.
Forward-Looking Statements
The following discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including but not limited to the potential continuing impact of the
COVID-19
pandemic. The results of operations for the three and six months ended June 30,
2021 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2021, 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, 2020 filed with the SEC on March 1, 2021,
including the "Risk Factors" section and the consolidated financial statements
and notes included therein.
Overview
We are a leading national brokerage firm specializing in commercial real estate
investment sales, financing, research and advisory services. We have been the
top commercial real estate investment broker in the United States based on the
number of investment transactions for more than 15 years. As of June 30, 2021,
we had 2,022 investment sales and financing professionals that are primarily
exclusive independent contractors operating in 84 offices, who provide real
estate brokerage and financing services to sellers and buyers of commercial real
estate assets. We also offer market research, consulting and advisory services
to our clients. During the three and six months ended June 30, 2021, we closed
3,285 and 5,617 investment sales, financing and other transactions with total
sales volume of approximately $17.4 billion and $29.4 billion, respectively.
During the year ended December 31, 2020, we closed 8,954 investment sales,
financing and other transactions with total sales volume of approximately
$43.4 billion.
We generate revenues by collecting real estate brokerage commissions upon the
sale, and fees upon the financing, of commercial properties, and by providing
equity advisory services, loan sales 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 each of
the three and six months ended June 30, 2021, approximately 89% of our revenues
were generated from real estate brokerage commissions, 10% from financing fees
and 1% from other real estate related services. During the year ended
December 31, 2020, approximately 88% of our revenues were generated from real
estate brokerage commissions, 10% from financing fees and 2% from other real
estate related services.
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 from $ 10 million up to but less than $ 20 million; and


  •   Larger transaction market:
      properties priced from $20 million and above.


Our strength is in serving private clients in the
$1-$10 million
private client market segment, which contributed approximately 63% and 69% of
our real estate brokerage commissions during the three months ended June 30,
2021 and 2020, respectively, and approximately 63% and 67% of our real estate
brokerage commissions during the six months ended June 30, 2021 and 2020,
respectively. The following table sets forth the number of transactions, sales
volume and revenues by commercial real estate market segment for real estate
brokerage:

                                                                                                      Three Months Ended June 30,
                                                                                       2021                                                 2020                                                Change
Real Estate Brokerage                                            Number          Volume              Revenues         Number          Volume              Revenues         Number          Volume              Revenues
                                                                              (in millions)       (in thousands)                   (in millions)       (in thousands)                   (in millions)       (in thousands)
<$1 million                                                          297     $           200     $          7,618         192     $           118     $          4,518         105     $            82     $          3,100
Private client market ($1 - <$10 million)                          1,767               5,675              158,136         793               2,614               70,817         974               3,061               87,319
Middle market ($10 - <$20 million)                                   156               2,134               41,745          43                 618               11,591         113               1,516               30,154
Larger transaction market (
³
$20 million)                                                         110               5,551               45,404          47               2,074               16,445          63               3,477               28,959

                                                                   2,330     $        13,560     $        252,903       1,075     $         5,424     $        103,371       1,255     $         8,136     $        149,532




                                       25

————————————————– ——————————

  Table of Contents
                                                                                                       Six Months Ended June 30,
                                                                                       2021                                                 2020                                                Change
Real Estate Brokerage                                            Number          Volume              Revenues         Number          Volume              Revenues         Number          Volume              Revenues
                                                                              (in millions)       (in thousands)                   (in millions)       (in thousands)                   (in millions)       (in thousands)
<$1 million                                                          524     $           349     $         13,756         408     $           254     $         10,260         116     $            95     $          3,496
Private client market ($1 - <$10 million)                          2,967               9,343              263,559       2,035               6,615              185,081         932               2,728               78,478
Middle market ($10 - <$20 million)                                   234               3,201               62,346         134               1,840               34,259         100               1,361               28,087
Larger transaction market (
³
$20 million)                                                         193               9,531               76,038         113               5,157               45,600          80               4,374               30,438

                                                                   3,918     $        22,424     $        415,699       2,690     $        13,866     $        275,200       1,228     $         8,558     $        140,499



COVID-19
We are closely monitoring the continuing impact of the
COVID-19
pandemic on all aspects of our business and in the regions we operate. We
continue to follow the local guidelines in cities where our offices are located,
and all of our offices have
re-opened
and are available to our employees and sales and financing professionals.
Our business was impacted by the
COVID-19
pandemic during most of 2020, with the total number of transactions and total
revenues declining 7.9% and 11.1%, respectively, in the year ended December 31,
2020 compared to the same period in 2019. During the six months ended June 30,
2021, total revenues and total number of transactions increased 52.2% and 46.4%,
respectively, compared to the same period in 2020 and 26.6% and 25.2%,
respectively, compared to the same period in 2019. While our total revenues were
significantly above prior years' levels, some uncertainty exists in our ability
to sustain the growth rates experienced during the three and six months ended
June 30, 2021, for the second half of 2021.
We continue to monitor the economic trends and related demand for our services
and will adjust our operations accordingly. Our priority continues to be to
support our team's efforts to increase client contact, provide expanded content
and advisory services to investors and clients, and preserve our financial
position through expense controls. We continue to extend the use of technology
and resource sharing measures adopted over the past year as ways to achieve more
efficiency on a long-term basis. Given our significant liquidity, we expect our
company to be well positioned to benefit from and contribute to the economic
recovery and the related increase in the volume of real estate transactions as
the pandemic subsides, including making accretive and synergistic acquisitions,
which will help expand service offerings and market coverage.
Due to a continuing uncertainty around the
COVID-19
pandemic, we are unable to predict its potential impact on our financial
condition, results of operations and cash flows. These uncertainties include the
scope, severity and duration of the pandemic; variants in the virus, vaccination
rates and the effects thereof; expectation gaps among buyers and sellers on
pricing and property operation, vulnerability to further economic weakness
and/or slow recovery; the direct and indirect economic effects of the actions
taken by state and local governments to continue to contain the pandemic or
mitigate its impact; and the impact of these and other factors on our employees,
independent contractors, clients and potential clients.
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 a negative impact on our business. Economic indicators
and projections related to job growth, unemployment, interest rates, retail
spending and confidence trends can have a positive or a negative impact on our
business. Overall market conditions, including global trade, interest rate
changes and job creation, can affect investor sentiment and, ultimately, the
demand for our services from investors in real estate.

                                       26
--------------------------------------------------------------------------------
  Table of Contents
The infusion of over $5 trillion of stimulus funds in conjunction with the
reopening of states after the prolonged lockdowns fueled strong second quarter
GDP growth of 6.5%, supporting outsized annual economic growth this year. We
believe the prospect of a strong recovery could continue to fuel space demand
for all types of commercial real estate, although the emergence of the
COVID-19
variants could potentially slow the recovery of some real estate sectors in
select parts of the country. The addition of nearly 3.3 million jobs so far this
year, largely in the
hard-hit
service sectors, reflects strengthening economic growth as consumers return to
retail stores, restaurants, entertainment venues and hotels. The rapid
consumption gains have outpaced manufacturing and supply chain capacity,
delivering elevated inflationary pressure. Although heightened inflation risk
merits investor attention, particularly in relation to Federal Reserve policy
and interest rates, we believe that commercial real estate tends to be a
comparatively strong inflation hedge relative to many other investment classes.
This combination, along with elevated liquidity, supported particularly strong
investor activity in the second quarter of 2021. Potential headwinds could still
emerge in the second half of 2021, however, as the U.S. Congress considers tax
policy revisions that could affect commercial real estate investments.
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.
During the second quarter of 2021, economic reopening bolstered space demand for
all commercial real estate property types. Apartment, self-storage and
industrial properties delivered particularly strong results as they built on the
momentum they sustained through the
COVID-19
pandemic. Retail, hotel and seniors housing properties delivered more modest
gains, beginning their recovery from the severe impact of the pandemic. Office
space demand remains comparatively weak, but it has finally moved back into
positive territory following four quarters of negative space demand. A key
consideration for office space will be the extent to which companies bring their
employees back to the office. It appears that some headway has been made as a
modest recovery of housing demand in major urban metros like New York and the
Bay Area manifested in the second quarter of 2021. Whether employees fully
return to the office, adopt some form of hybrid work week or continue to work
from home could significantly impact future commercial real estate space demand.
Through the pandemic, housing and space demand followed the population migration
to suburban areas and to smaller cities, drawing increased investor capital to
these areas. If workers return to offices in the urban core of major metros, the
trend could at least partially revert to
pre-pandemic
trends. Regardless, on a macro-level space demand drivers appear to be reviving,
and this is supporting increased investor activity.
Capital Markets
Credit and liquidity issues in the financial markets have a direct impact on the
flow of capital to the commercial real estate market. Real estate purchases are
often financed with debt and, as a result, credit and liquidity impact
transaction activity and prices. Changes in interest rates, as well as steady
and protracted movements of interest rates in one direction, whether increases
or decreases, could adversely or positively affect the operations and income
potential of commercial real estate properties, as well as lender and equity
underwriting for real estate investments. These changes generally influence the
demand of investors for commercial real estate investments.
Capital liquidity remains strong with debt financing available for most property
types in most markets. Although hotels and some retail properties have faced
difficulty in obtaining financing through the
COVID-19
pandemic, lenders are becoming increasingly active in these segments. On a macro
level, banks and government agencies have been the most active lenders, but
commercial mortgage-backed securities and life insurance company lenders have
become increasingly active, further increasing the availability of debt capital.
Interest rates were particularly favorable through the second quarter of 2021,
with the
ten-year
treasury hovering in the 1.5% range, and have since dipped even lower. The low
cost of capital has been promoting investor activity, but elevated inflation
risk could force the Federal Reserve to begin to tighten their monetary policy
earlier than previously expected. We believe such action could result in upward
pressure on interest rates and could potentially weigh on investor activity
depending on the speed and magnitude of any changes.
Investor Sentiment and Investment Activity
We rely on investors to buy and sell properties in order to generate
commissions. Investors' desires to engage in real estate transactions are
dependent on many factors that are beyond our control. The economy, supply and
demand for properly positioned properties, available credit and market events
impact investor sentiment and, therefore, transaction velocity. In addition, our
private clients are often motivated to buy, sell and/or refinance properties due
to personal circumstances such as death, divorce, partnership breakups and
estate planning.

                                       27
--------------------------------------------------------------------------------
  Table of Contents
During the second quarter of 2021, commercial real estate activity was notably
strong, well above the pandemic restrained second quarter of 2020 and in
alignment with the second quarter of 2019. Positive market and economic factors
including rising commercial real estate space demand, strong liquidity, low
interest rates, expectations of a robust economic recovery and positive
demographics aligned to spur investor optimism. The demand for highly
sought-after property types and markets was robust as buyers competed to place
capital, but the transaction flow has been inhibited by a limited volume of
for-sale
properties and by the price discovery process which is still ongoing. Recovery
property segments like hotels, seniors housing, office and some retail
properties often face a wide buyer/seller expectation gap, as do properties in
major urban areas that were particularly
hard-hit
by the
COVID-19
pandemic. It appears some buyers still hope to find distressed properties in
these
hard-hit
segments, but well-financed owners have generally been able to weather the worst
of the downturn and the majority are expected to hold through the nascent
recovery until pricing fully revives. We believe the investment climate remains
positive, but could be inhibited by a significant
COVID-19
resurgence or variants, Federal Reserve actions or commentary that pushes
interest rates higher or by the release of potential tax policy changes by
Congress. Prospective increases in personal, corporate, capital gains and estate
taxes have the potential to dampen consumption and business investment while
simultaneously rendering existing investment and estate plans obsolete. Tax
policy changes could spark a short-term wave of transactions or they could slow
transaction activity depending on exactly how the changes are framed and the
time frame in which they are enacted. In addition, questions remain about the
future of 1031 tax deferred exchanges, but this tax code section has survived
many attempts at elimination largely because studies have demonstrated that
cancelling this tax code section would likely cause considerable economic and
tax revenue losses. Nonetheless, based on the foregoing, we believe the emerging
medical solutions to the health crisis and the nascent release of
pent-up
demand among consumers and real estate investors should ultimately outweigh tax
policy headwinds.
Seasonality
Our real estate brokerage commissions and financing fees have tended to be
seasonal and, combined with other factors, can affect an investor's ability to
compare our financial condition and results of operations on a
quarter-by-quarter
basis. Historically, this seasonality has generally caused our revenue,
operating income, net income and cash flows from operating activities to be
lower in the first half of the year and higher in the second half of the year,
particularly in the fourth quarter. The concentration of earnings and cash flows
in the last six months of the year, particularly in the fourth quarter, is due
to an industry-wide focus of clients to complete transactions towards the end of
the calendar year. This historical trend can be disrupted both positively and
negatively by major economic events, political events, natural disasters or
pandemics such as the
COVID-19
pandemic, which may impact, among other things, investor sentiment for a
particular property type or location, volatility in financial markets, current
and future projections of interest rates, attractiveness of other asset classes,
market liquidity and the extent of limitations or availability of capital
allocations for larger property buyers, among others. Private client investors
may accelerate or delay transactions due to personal or business-related reasons
unrelated to economic events. In addition, our operating margins are typically
lower during the second half of each year due to our commission structure for
some of our senior investment sales and financing professionals. These senior
investment sales and financing professionals are on a graduated commission
schedule that resets annually, pursuant to which higher commissions are paid for
higher sales volumes. Our historical pattern of seasonality may or may not
continue to the same degree experienced in prior years.
Operating Segments
We follow the guidance for segment reporting, which requires reporting
information on operating segments in interim and annual financial statements.
Substantially all of our operations involve the delivery of commercial real
estate services to our customers including real estate investment sales,
financing and consulting and advisory services. Management makes operating
decisions, assesses performance and allocates resources based on an ongoing
review of these integrated operations, which constitute only one operating
segment for financial reporting purposes.
Key Financial Measures and Indicators
Revenues
Our revenues are primarily generated from our real estate investment sales
business. In addition to real estate brokerage commissions, we generate revenues
from financing fees and from other revenues, which are primarily comprised of
consulting and advisory fees.

                                       28
--------------------------------------------------------------------------------
  Table of Contents
Because our business is transaction oriented, we rely on investment sales and
financing professionals to continually develop leads, identify properties to
sell and finance, market those properties and close the sale timely to generate
a consistent flow of revenue. While our sales volume is impacted by seasonality
factors, the timing of closings is also dependent on many market and personal
factors unique to a particular client or transaction, particularly clients
transacting in the
$1-$10 million
private client market segment. These factors can cause transactions to be
accelerated or delayed beyond our control. Further, commission rates earned are
generally inversely related to the value of the property sold. As a result of
our expansion into the middle and larger transaction market segments, we have
seen our overall commission rates fluctuate from
period-to-period
as a result of changes in the relative mix of the number and volume of
investment sales transactions closed in the middle and larger transaction market
segments as compared to the
$1-$10 million
private client market segment. These factors may result in
period-to-period
variations in our revenues that differ from historical patterns.
A small percentage of our transactions include retainer fees and/or breakage
fees. Retainer fees are credited against a success-based fee paid upon the
closing of a transaction or a breakage fee. Transactions that are terminated
before completion will sometimes generate breakage fees, which are usually
calculated as a set amount or a percentage of the fee we would have received had
the transaction closed.
Real Estate Brokerage Commissions
We earn real estate brokerage commissions by acting as a broker for commercial
real estate owners seeking to sell or investors seeking to buy properties.
Revenues from real estate brokerage commissions are typically recognized at the
close of escrow.
Financing Fees
We earn financing fees by securing financing on purchase transactions or by
securing refinancing of our clients' existing mortgage debt. We recognize
financing fee revenues at the time the loan closes, and we have no remaining
significant obligations for performance in connection with the transaction.
To a lesser extent, we also earn mortgage servicing revenue, mortgage servicing
fees, equity advisory services, loan sales and ancillary fees associated with
financing activities. We recognize mortgage servicing revenues upon the
acquisition of a servicing obligation. We generate mortgage servicing fees
through the provision of collection, remittance, recordkeeping, reporting and
other related mortgage servicing functions, activities and services.
Other Revenues
Other revenues include fees generated from consulting, advisory and other real
estate services performed by our investment sales professionals, as well as
referral fees from other real estate brokers. Revenues from these services are
recognized as they are performed and completed.
Operating Expenses
Our operating expenses consist of cost of services, selling, general and
administrative expenses and depreciation and amortization. The significant
components of our expenses are further described below.
Cost of Services
The majority of our cost of services expense is variable commissions paid to our
investment sales professionals and compensation-related costs related to our
financing activities. Commission expenses are directly attributable to providing
services to our clients for investment sales and financing services. Most of our
investment sales and financing professionals are independent contractors and are
paid commissions; however, because there are some who are initially paid a
salary and certain of our financing professionals are employees, costs of
services also include employee-related compensation, employer taxes and benefits
for those employees. The commission rates we pay to our investment sales and
financing professionals vary based on individual contracts negotiated and are
generally higher for the more experienced professionals. Some of our most senior
investment sales and financing professionals also have the ability to earn
additional commissions after meeting certain annual financial thresholds. These
additional commissions are recognized as cost of services in the period in which
they are earned. Payment of a portion of these additional commissions are
generally deferred for a period of one or three years, at our election, and paid
at the beginning of the second 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.

                                       29
--------------------------------------------------------------------------------
  Table of Contents
Selling, General and Administrative Expenses
The largest expense component within selling, general and administrative
expenses is personnel expenses for our management team and sales and support
staff. In addition, these costs include facilities costs (excluding depreciation
and amortization), staff related expenses, sales, marketing, legal,
telecommunication, network, data sources, transaction costs related to
acquisitions, changes in fair value for contingent and deferred consideration
and other administrative expenses. Also included in selling, general and
administrative are expenses for stock-based compensation to
non-employee
directors, employees and independent contractors (i.e. investment sales and
financing professionals) under the Amended and Restated 2013 Omnibus Equity
Incentive Plan ("2013 Plan") and the 2013 Employee Stock Purchase Plan ("ESPP").
Depreciation and Amortization Expense
Depreciation expense consists of depreciation recorded on our computer software
and hardware and furniture, fixture and equipment. Depreciation is provided over
estimated useful lives ranging from three to seven years for assets.
Amortization expense consists of (i) amortization recorded on our mortgage
servicing rights ("MSRs") using the interest method over the period that
servicing income is expected to be received and (ii) amortization recorded on
intangible assets amortized on a straight-line basis using a useful life between
one and seven years.
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income, net gains or
losses on our deferred compensation plan assets, realized gains and losses on
our marketable debt securities,
available-for-sale,
foreign currency gains and losses and other
non-operating
income and expenses.
Interest Expense
Interest expense primarily consists of interest expense associated with the
stock appreciation rights ("SARs") liability, notes payable to former
stockholders (through the second quarter of 2020 when fully repaid) and our
credit agreement.
Provision for Income Taxes
We are subject to U.S. and Canadian federal taxes and individual state and local
taxes based on the income generated in the jurisdictions in which we operate.
Our effective tax rate fluctuates as a result of the change in the mix of our
activities in the jurisdictions we operate due to differing tax rates in those
jurisdictions and the impact of permanent items, including compensation charges,
qualified transportation fringe benefits, uncertain tax positions, meals and
entertainment and
tax-exempt
deferred compensation plan assets. Our provision for income taxes includes the
windfall tax benefits and shortfall expenses, net, from shares issued in
connection with our 2013 Plan and ESPP.
We record deferred taxes, net based on the tax rate expected to be in effect at
the time those items are expected to be recognized for tax purposes.

                                       30
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations
Following is a discussion of our results of operations for the three and six
months ended June 30, 2021 and 2020. 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, 2021 and 2020, we
closed more than 3,200 and 1,500 investment sales, financing and other
transactions, respectively, with total sales volume of approximately
$17.4 billion and $6.9 billion, respectively. During the six months ended
June 30, 2021 and 2020, we closed more than 5,600 and 3,800 investment sales,
financing and other transactions, respectively, with total sales volume of
approximately $29.4 billion and $18.7 billion, respectively. Such key metrics
for real estate brokerage and financing activities (excluding other
transactions) are as follows:

                                                Three Months Ended                Six Months Ended
                                                     June 30,                         June 30,
Real Estate Brokerage                          2021            2020             2021             2020
Average Number of Investment Sales
Professionals                                    1,934           1,926            1,946            1,908
Average Number of Transactions per
Investment Sales Professional                     1.20            0.56             2.01             1.41

Average commission by operation $ 108,542 $ 96,159

  $  106,100       $  102,305
Average Commission Rate                           1.87 %          1.91 %           1.85 %           1.98 %

Average transaction size (in thousands) $ 5,820 $ 5,045

  $    5,723       $    5,155
Total Number of Transactions                     2,330           1,075            3,918            2,690
Total Sales Volume (in millions)            $   13,560       $   5,424       $   22,424       $   13,866

                                                Three Months Ended                Six Months Ended
                                                     June 30,                         June 30,
Financing
(1)                                            2021            2020             2021             2020
Average Number of Financing
Professionals                                       85              87               86               88
Average Number of Transactions per
Financing Professional                            8.05            4.38            13.70             9.76
Average Fee per Transaction                 $   34,783       $  30,260       $   32,972       $   30,616
Average Fee Rate                                  0.82 %          1.00 %           0.86 %           0.91 %

Average transaction size (in thousands) $ 4,228 $ 3,021

  $    3,824       $    3,382
Total Number of Transactions                       684             381            1,178              859

Total financing volume (in millions) $ 2,892 $ 1,151

$ 4,504 $ 2,905

(1) The operating measures exclude certain financing costs not directly associated with

    transactions.



                                       31

————————————————– ——————————

Table of contents Comparison of the three completed months June 30, 2021 and 2020 Below are the main operating results for the three months ended June 30, 2021
compared to the three months ended June 30, 2020 (dollars in thousands):

                                            Three Months         Percentage        Three Months         Percentage                 Change
                                                Ended                of                Ended                of
                                            June 30, 2021         Revenue  

June 30, 2020 Income Dollar Percentage Income: Real estate brokerage commissions $ 252,903

88.8 %    $       103,371              88.1 %    $ 149,532             144.7 %
Financing fees                                      28,214               9.9               12,703              10.8         15,511             122.1 %
Other revenues                                       3,829               1.3                1,326               1.1          2,503             188.8 %

Total revenues                                     284,946             100.0              117,400             100.0        167,546             142.7 %

Operating expenses:
Cost of services                                   178,585              62.7               73,743              62.8        104,842             142.2 %
Selling, general and administrative                 61,797              21.7               43,519              37.1         18,278              42.0 %
Depreciation and amortization                        2,959               1.0                2,752               2.3            207               7.5 %

Total operating expenses                           243,341              85.4              120,014             102.2        123,327             102.8 %

Operating income (loss)                                                                                                                           nm (2)
                                                    41,605              14.6               (2,614 )            (2.2 )       44,219
Other income (expense), net                          1,370               0.5                2,975               2.5         (1,605 )           (53.9 )%
Interest expense                                      (146 )             0.0                 (213 )            (0.2 )           67             (31.5 )%

Income before provision for income taxes                                                                                                          nm (2)
                                                    42,829              15.1                  148               0.1         42,681
Provision for income taxes                                                                                                                        nm (2)
                                                    11,297               4.0                   42               0.0         11,255

Net income                                                                                                                                        nm (2)
                                           $        31,532              11.1 %    $           106               0.1 %    $  31,426

Adjusted EBITDA                                                                                                                                   nm (2)
(1)                                        $        48,110              16.9 %    $         4,150               3.5 %    $  43,960



(1) Adjusted EBITDA is not a measure of our financial performance based on we

generally accepted accounting principles (“we GAAP “) and must not be

considered as an alternative to net income, operating income or any other

derived measurements according to we GAAP. For a definition of Adjusted

    EBITDA and a reconciliation of Adjusted EBITDA to net income, see
    "Non-GAAP
    Financial Measure."


(2) Not meaningful



Income

Our total revenues were $284.9 million for the three months ended June 30, 2021
compared to $117.4 million for the same period in 2020, an increase of
$167.5 million, or 142.7%. Total revenues increased primarily as a result of
increases in real estate brokerage commissions, financing fees and other
revenues due to the recovery from the slowdown impacted by the pandemic in 2020,
as described below.
Real estate brokerage commissions.
Revenues from real estate brokerage commissions increased to $252.9 million for
the three months ended June 30, 2021 from $103.4 million for the same period in
2020, an increase of $149.5 million, or 144.7%. The increase was primarily
driven by a 150.0% increase in overall sales volume generated by a 116.7%
increase in the number of investment sales transactions and a 15.4% increase in
average transaction size, partially offset by a 4 basis points reduction in
average commission rates due to a larger proportion of transactions closed from
the Larger Transaction Market segment.
Financing fees.
Revenues from financing fees increased to $28.2 million for the three months
ended June 30, 2021 from $12.7 million for the same period in 2020, an increase
of $15.5 million, or 122.1%, in part spurred by growth from our recent
acquisitions and other ancillary financing fees.
Additionally,
the increase was driven by a 151.3% increase in financing volume. Financing
volume was impacted by a 79.5% increase in the number of financing transactions
and a 40.0% increase in average transaction size. The increase was partially
offset by an 18 basis points decrease in average commission rates.
Other revenues.
Other revenues increased to $3.8 million for the three months ended June 30,
2021 from $1.3 million for the same period in 2020, an increase of $2.5 million,
or 188.8%. The increase was primarily driven by increases in consulting and
advisory services during the three months ended June 30, 2021, compared to the
same period in 2020.
Total Operating Expenses
Our total operating expenses were $243.3 million for the three months ended
June 30, 2021 compared to $120.0 million for the same period in 2020, an
increase of $123.3 million, or 102.8%. The increase was primarily due to
increases in cost of services, which are variable commissions paid to our
investment sales professionals and compensation-related costs in connection with
our financing activities, selling, general and administrative costs and
depreciation and amortization expense, as described below.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
Cost of services.
Cost of services increased to $178.6 million for the three months ended June 30,
2021 from $73.7 million for the same period in 2020, an increase of
$104.8 million, or 142.2%. The increase was primarily due to increased
commission expenses driven by the related increased revenues noted above. Cost
of services as a percent of total revenues decreased to 62.7% compared to 62.8%
for the same period in 2020 primarily due to a higher proportion of transactions
closed by our more senior investment sales and financing professionals at the
start of the pandemic during the three months ended June 30, 2020.
Selling, general and administrative expense.
Selling, general and administrative expense for the three months ended June 30,
2021 increased $18.3 million, or 42.0%, to $61.8 million from $43.5 million for
the same period in 2020. The increase was primarily due to increases in
(i) compensation related costs, primarily driven by increases in management
performance compensation due to a significant increase in operating results;
(ii) the value of contingent consideration in connection with our acquisition
activities; (iii) business development, marketing and other support related to
the long-term retention of our sales and financing professionals;
(iv) facilities expenses; and (v) net other expense categories, including
stock-based compensation expense. These increases were partially offset by a
decrease in legal costs.
Depreciation and amortization expense.
Depreciation and amortization expense increased to $3.0 million for the three
months ended June 30, 2021 from $2.8 million for the same period in 2020, an
increase of $0.2 million, or 7.5%.
Other Income (Expense), Net
Other income (expense), net decreased to $1.4 million for the three months ended
June 30, 2021 from $3.0 million for the same period in 2020. The decrease was
primarily driven by (i) a reduction in interest income on our investments in
marketable debt securities,
available-for-sale
due to an overall decrease in interest rates; (ii) an unfavorable change in the
value of our deferred compensation plan assets that are held in a rabbi trust;
and (iii) a reduction in net other categories including a foreign currency loss
related to our Canadian operations.
Interest Expense
Interest expense decreased to $0.1 million for the three months ended June 30,
2021 from $0.2 million for the same period in 2020. The decrease for the three
months ended June 30, 2021 was primarily due to a decrease in interest expense
on SARs liability and no interest expense related to notes payable to former
stockholders, which were fully repaid during the second quarter of 2020.
Provision for Income Taxes
The provision for income taxes was $11.3 million for the three months ended
June 30, 2021 compared to $42,000 in the same period in 2020, an increase of
$11.3 million. The effective income tax rate for the three months ended June 30,
2021 was 26.4% compared to 28.4% for the same period in 2020. The effective
income tax rate decreased primarily due to the change in the relationship of
permanent nondeductible items to income before provision for income taxes and a
decrease in Canadian losses, which are subject to a full valuation allowance.

                                       33
--------------------------------------------------------------------------------
  Table of Contents
Comparison of Six Months Ended June 30, 2021 and 2020
Below are key operating results for the six months ended June 30, 2021 compared
to the six months ended June 30, 2020 (dollars in thousands):


                                             Six Months          Percentage         Six Months          Percentage                  Change
                                                Ended                of                Ended                of
                                            June 30, 2021         Revenue          June 30, 2020         Revenue           Dollar         Percentage
Revenues:
Real estate brokerage commissions          $       415,699              88.7 %    $       275,200              89.3 %    $  140,499              51.1 %
Financing fees                                      46,057               9.8               28,054               9.1          18,003              64.2 %
Other revenues                                       7,167               1.5                4,863               1.6           2,304              47.4 %

Total revenues                                     468,923             100.0              308,117             100.0         160,806              52.2 %

Operating expenses:
Cost of services                                   287,688              61.4              187,500              60.9         100,188              53.4 %
Selling, general and administrative                113,474              24.2               98,379              31.9          15,095              15.3 %
Depreciation and amortization                        5,956               1.3                5,216               1.7             740              14.2 %

Total operating expenses                           407,118              86.9              291,095              94.5         116,023              39.9 %

Operating income                                    61,805              13.1               17,022               5.5          44,783             263.1 %
Other income (expense), net                          2,414               0.5                2,609               0.8            (195 )            (7.5 )%
Interest expense                                      (292 )             0.0                 (496 )            (0.1 )           204             (41.1 )%

Income before provision for income taxes            63,927              13.6               19,135               6.2          44,792             234.1 %
Provision for income taxes                          17,383               3.7                5,959               1.9          11,424             191.7 %

Net income                                 $        46,544               9.9 %    $        13,176               4.3 %    $   33,368             253.2 %

Adjusted EBITDA
(1)                                        $        73,805              15.7 %    $        26,528               8.6 %    $   47,277             178.2 %



(1) Adjusted EBITDA is not a measure of our financial performance based on we

generally accepted accounting principles (“we GAAP “) and must not be

considered as an alternative to net income, operating income or any other

derived measurements according to we GAAP. For a definition of Adjusted

    EBITDA and a reconciliation of Adjusted EBITDA to net income, see
    "Non-GAAP
    Financial Measure."

Income

Our total revenues were $468.9 million for the six months ended June 30, 2021
compared to $308.1 million for the same period in 2020, an increase of
$160.8 million, or 52.2%. Total revenues increased primarily as a result of
increases in real estate brokerage commissions, financing fees and other
revenues, as described below.
Real estate brokerage commissions.
Revenues from real estate brokerage commissions increased to $415.7 million for
the six months ended June 30, 2021, from $275.2 million for the same period in
2020, an increase of $140.5 million, or 51.1%. The increase was primarily driven
by a 61.7% increase in sales volume generated by a 45.7% increase in the number
of investment sales transactions and an 11.0% increase in the average
transaction size, partially offset by a 13 basis points reduction in average
commission rates due to a larger proportion of transactions closed from the
Larger Transaction Market segment.
Financing fees.
Revenues from financing fees increased to $46.1 million for the six months ended
June 30, 2021 from $28.1 million for the same period in 2020, an increase of
$18.0 million, or 64.2%, in part spurred by growth from our recent acquisitions
and other ancillary financing fees. The increase was driven by a 55.0% increase
in financing volume, partially offset by a 5 basis points reduction in average
commission rates. Financing volume was impacted by a 13.1% increase in average
transaction size and a 37.1% increase in the number of financing transactions.
Other revenues.
Other revenues increased to $7.2 million for the six months ended June 30, 2021
from $4.9 million for the same period in 2020, an increase of $2.3 million, or
47.4%. The increase was primarily driven by an increase in consulting and
advisory services during the six months ended June 30, 2021, compared to the
same period in 2020.
Total Operating Expenses
Our total operating expenses were $407.1 million for the six months ended
June 30, 2021 compared to $291.1 million for the same period in 2020, an
increase of $116.0 million, or 39.9%. The increase was primarily due to
increases in cost of services, which are variable commissions paid to our
investment sales professionals and compensation-related costs in connection with
our financing activities, selling, general and administrative costs and
depreciation and amortization expense, as described below.

                                       34
--------------------------------------------------------------------------------
  Table of Contents
Cost of services.
Cost of services increased to $287.7 million for the six months ended June 30,
2021 from $187.5 million for the same period in 2020, an increase of
$100.2 million, or 53.4%. The increase was primarily due to increased commission
expenses driven by the related increased revenues noted above. Cost of services
as a percent of total revenues increased to 61.4% compared to 60.9% for the same
period in 2020 primarily due to a higher proportion of transactions that were
closed by our more senior investment sales and financing professionals as they
surpassed thresholds earlier in the year than anticipated.
Selling, general and administrative expense.
Selling, general and administrative expense for the six months ended June 30,
2021 increased $15.1 million, or 15.3%, to $113.5 million from $98.4 million for
the same period in 2020. The increase was primarily due to increases in
(i) compensation related costs, primarily driven by increases in management
performance compensation due to a significant increase in operating results;
(ii) facilities expenses; (iii) the value of contingent consideration in
connection with our acquisition activities; and (iv) business development,
marketing and other support related to the long-term retention of our sales and
financing professionals. These increases were partially offset by decreases in
(i) sales operations support and promotional marketing expenses primarily due to
the cancellation of the Company's annual sales recognition event typically held
during the first quarter of 2021 due to ongoing concerns about the pandemic;
(ii) legal costs; and (iii) stock-based compensation expense.
Depreciation and amortization expense.
Depreciation and amortization expense increased to $6.0 million for the six
months ended June 30, 2021 from $5.2 million for the same period in 2020, an
increase of $0.7 million, or 14.2%. The increase was primarily driven by capital
expenditures due to our expansion and growth.
Other Income (Expense), Net
Other income (expense), net decreased to $2.4 million for the six months ended
June 30, 2021 from $2.6 million for the same period in 2020. The decrease was
primarily driven by (i) a reduction in interest income on our investments in
marketable debt securities,
available-for-sale
due to an overall decrease in interest rates; and (ii) a net reduction in other
categories. These decreases were partially offset by (i) a favorable change in
the value of our deferred compensation plan assets that are held in a rabbi
trust; and (ii) a foreign currency gain related to our Canadian operations.
Interest Expense
Interest expense decreased to $0.3 million for the six months ended June 30,
2021 from $0.5 million for the same period in 2020. The decrease for the six
months ended June 30, 2021 was primarily due to a decrease in interest expense
on SARs liability and no interest expense related to notes payable to former
stockholders, which were fully repaid during the second quarter of 2020.
Provision for Income Taxes
The provision for income taxes was $17.4 million for the six months ended
June 30, 2021 compared to $6.0 million in the same period in 2020, an increase
of $11.4 million, or 191.7%. The effective income tax rate for the six months
ended June 30, 2021 was 27.2% compared to 31.1% for the same period in 2020. The
effective income tax rate decreased primarily due the change in the relationship
of permanent nondeductible items to income before provision for income taxes and
a decrease in Canadian losses, which are subject to a full valuation allowance.

                                       35
--------------------------------------------------------------------------------
  Table of Contents
Non-GAAP
Financial Measure
In this quarterly report on Form
10-Q,
we include a
non-GAAP
financial measure, adjusted earnings before interest income/expense, taxes,
depreciation and amortization, stock-based compensation and other
non-cash
items, or Adjusted EBITDA. We define Adjusted EBITDA as net income before
(i) interest income and other, including net realized gains (losses) on
marketable debt securities,
available-for-sale
and cash and cash equivalents, (ii) interest expense, (iii) provision for income
taxes, (iv) depreciation and amortization, (v) stock-based compensation, and
(vi) non-cash
MSR activity. We use Adjusted EBITDA in our business operations to evaluate the
performance of our business, develop budgets and measure our performance against
those budgets, among other things. We also believe that analysts and investors
use Adjusted EBITDA as a supplemental measure to evaluate our overall operating
performance. However, Adjusted EBITDA has material limitations as an analytical
tool and should not be considered in isolation, or as a substitute for analysis
of our results as reported under U.S. GAAP. We find Adjusted EBITDA to be a
useful tool to assist in evaluating performance, because Adjusted EBITDA
eliminates items related to capital structure, taxes and
non-cash
items. In light of the foregoing limitations, we do not rely solely on Adjusted
EBITDA as a performance measure and also consider our U.S. GAAP results.
Adjusted EBITDA is not a measurement of our financial performance under U.S.
GAAP and should not be considered as an alternative to net income, operating
income or any other measures calculated in accordance with U.S. GAAP. Because
Adjusted EBITDA is not calculated in the same manner by all companies, it may
not be comparable to other similarly titled measures used by other companies. A
reconciliation of the most directly comparable U.S. GAAP financial measure, net
income, to Adjusted EBITDA is as follows (in thousands):

                                  Three Months Ended             Six Months Ended
                                       June 30,                      June 30,
                                  2021           2020          2021           2020
Net income                      $  31,532      $    106      $  46,544      $  13,176
Adjustments:
Interest income and other
(1)                                  (436 )      (1,198 )         (967 )       (3,201 )
Interest expense                      146           213            292            496
Provision for income taxes         11,297            42         17,383          5,959

Depreciation and amortization 2,959 2,752 5,956

    5,216
Stock-based compensation            2,662         2,536          4,950          5,168
Non-cash
MSR activity
(2)                                   (50 )        (301 )         (353 )         (286 )

Adjusted EBITDA
(3)                             $  48,110      $  4,150      $  73,805      $  26,528



(1) Other includes net realized gains (losses) on negotiable debt securities,

    available-for-sale.


(2) Cashless

The MSR activity includes the assumption of service obligations.

(3) The increase in adjusted EBITDA for the three and six months ended June 30th,

2021, compared to the same period in 2020 is mainly due to an increase in

total revenues and a lower proportion of operating expenses compared to the total

income.


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

                                       36
--------------------------------------------------------------------------------
  Table of Contents
Cash Flows
Our total cash and cash equivalents balance decreased by $12.7 million to
$230.4 million at June 30, 2021, compared to $243.2 million at December 31,
2020. The following table sets forth our summary cash flows for the six months
ended June 30, 2021 and 2020 (in thousands):

                                                                 Six Months Ended
                                                                     June 30,
                                                               2021             2020

Net cash provided by (used in) operating activities $ 33,466

  $  (51,849 )
Net cash used in investing activities                          (41,850 )        (16,459 )
Net cash used in financing activities                           (4,458 )    

(9,332)

Effect of exchange rate changes on cash and cash equivalents

                                                   104      

(150)

Net decrease in cash and cash equivalents                      (12,738 )        (77,790 )
Cash and cash equivalents at beginning of period               243,152      

232 670

Cash and cash equivalents at end of period                  $  230,414       $  154,880



Operating Activities
Cash flows provided by operating activities were $33.5 million for the six
months ended June 30, 2021 compared to cash flows used in operating activities
of $51.8 million for the same period in 2020. Net cash provided by operating
activities is driven by our net income adjusted for
non-cash
items and changes in operating assets and liabilities. The $85.3 million
improvement in operating cash flows for the six months ended June 30, 2021
compared to the same period in 2020 was primarily due to higher total revenues
and a lower proportion of operating expenses compared to total revenues,
differences in timing of certain payments and receipts, a reduction in advances
to our investment sales and financing professionals and lower bonus payments
paid during the first quarter of 2021 compared to the same period in 2020 due to
the significant decline in operating results for the year ended December 31,
2020. The improvement in operating cash flows was partially offset by a
reduction in the deferral of certain discretionary commissions.
Investing Activities
Cash flows used in investing activities were $41.9 million for the six months
ended June 30, 2021 compared to $16.5 million for the same period in 2020. The
$25.4 million increased usage in investing activities for the six months ended
June 30, 2021 compared to the same period in 2020 was primarily due to a
$39.3 million increase in net purchases of marketable debt securities, partially
offset by a $12.1 million reduction in cash used in acquisitions of businesses,
net of cash received during the six months ended June 30, 2021 compared to the
same period in 2020.
Financing Activities
Cash flows used in financing activities were $4.5 million for the six months
ended June 30, 2021 compared to $9.3 million for the same period in 2020. The
$4.9 million reduction in cash flows used in financing activities for the six
months ended June 30, 2021 compared to the same period in 2020 was primarily
impacted by principal payments on notes payable to former stockholders, which
were fully repaid during the second quarter of 2020, partially offset by
principal payments on deferred consideration in connection with acquisitions
with no such comparable outflow for the same period in 2020.
Liquidity
We believe that our existing balances of cash and cash equivalents, cash flows
expected to be generated from our operations, proceeds from the sale of
marketable debt securities,
available-for-sale
and borrowings available under the Credit Agreement (defined below) will be
sufficient to satisfy our operating requirements for at least the next 12
months. If we need to raise additional capital through public or private debt or
equity financings, strategic relationships or other arrangements, this capital
might not be available to us in a timely manner, on acceptable terms, or at all.
Our failure to raise sufficient capital when needed could prevent us from
funding acquisitions or otherwise financing our growth or operations. In
addition, our SARs agreements have provisions, which could accelerate repayment
of outstanding principal and accrued interest and impact our liquidity. As of
June 30, 2021, cash and cash equivalents and marketable debt securities,
available-for-sale,
aggregated $475.1 million, and we had $59.5 million of borrowing capacity under
our credit agreement.

                                       37
--------------------------------------------------------------------------------
  Table of Contents
Credit Agreement
We have a Credit Agreement with Wells Fargo Bank, National Association for a
$60.0 million principal amount senior secured revolving credit facility that is
guaranteed by all of our domestic subsidiaries and matures on June 1, 2022 (the
"Credit Agreement"). See Note 13 - "Commitments and Contingencies" of our Notes
to Condensed Consolidated Financial Statements for additional information on the
Credit Agreement.
Contractual Obligations and Commitments
There have been no material changes in our commitments under contractual
obligations, as disclosed in our Annual Report on Form
10-K
for the year ended December 31, 2020 through the date the condensed consolidated
financial statements were issued.
Off Balance Sheet Arrangements
We do not have any
off-balance
sheet arrangements.
Inflation
Our revenues and other variable costs related to revenue are primarily affected
by real estate market supply and demand, which may be affected by uncertain or
changing economic and market conditions, including inflation/deflation arising
in connection with and in response to the
COVID-19
pandemic. The actual economic impact from inflation/deflation to our business
remains unknown at this time.
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, 2020.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 1 -
"Description of Business, Basis of Presentation and Recent Accounting
Pronouncements" of our Notes to Condensed Consolidated Financial Statements.
Although we do not believe any of the other accounting pronouncements listed in
that note will have a significant impact on our business, we are still in the
process of determining the impact of the new pronouncements may have on our
condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain a portfolio of investments in a variety of fixed and variable debt
rate securities, including U.S. Treasuries, U.S. government sponsored entities,
corporate debt, asset-backed securities and other. As of June 30, 2021, the fair
value of investments in marketable debt securities,
available-for-sale
was $244.7 million. The primary objective of our investment activity is to
maintain the safety of principal, and to provide for future liquidity
requirements while maximizing yields without significantly increasing risk.
While some investments may be securities of companies in foreign countries, all
investments are denominated and payable in U.S. Dollars. We do not enter into
investments for trading or speculative purposes. While our intent is not to sell
these investment securities prior to their stated maturities, we may choose to
sell any of the securities for strategic reasons including, but not limited to,
anticipated capital requirements, anticipation of credit deterioration, duration
management and because a security no longer meets the criteria of our investment
policy. We do not use derivatives or similar instruments to manage our interest
rate risk. We seek to invest in high quality investments. The weighted average
rating (exclusive of cash and cash equivalents) was AA as of June 30, 2021.
Maturities are maintained consistent with our short-, medium- and long-term
liquidity objectives.

                                       38
--------------------------------------------------------------------------------
  Table of Contents
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,
2021 from changes in interest rates based on the weighted average duration of
the debt securities in our portfolio (in thousands):

                              Approximate Change in
                            Fair Value of Investments
Change in Interest Rates       Increase (Decrease)
2% Decrease                $                     2,417
1% Decrease                $                     1,700
1% Increase                $                    (3,043 )
2% Increase                $                    (6,085 )


Due to the nature of our business and the manner in which we conduct our
operations, we believe we do not face any material interest rate risk with
respect to other assets and liabilities, equity price risk or other market
risks. The functional currency of our Canadian operations is the Canadian
dollar. We are exposed to foreign currency exchange rate risk for the settlement
of transactions of the Canadian operations as well as unrealized translation
adjustments. To date, realized foreign currency exchange rate gains and losses
have not been material.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f),
including maintenance of (i) records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets, and
(ii) policies and procedures that provide reasonable assurance that
(a) transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America, (b) our receipts and expenditures are being made only
in accordance with authorizations of management and our board of directors and
(c) we will prevent or timely detect unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial
statements.
Our management, with the supervision and participation of our chief executive
officer ("CEO") and chief financial officer ("CFO"), has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-
15(e) and
15d-
15(e) under the Exchange Act, as of the end of the period covered by this 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, 2021, 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, 2021 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. We have not experienced any significant impact
to our internal controls over financial reporting despite the fact that a
significant number of our employees and independent contractors are still
working remotely due to
the COVID-19 pandemic.
The design of our processes and controls allow for remote execution with
accessibility to secure data. We are continually monitoring and assessing
the COVID-19 situation
to minimize the impact, if any, on the design and operating effectiveness on our
internal controls.

                                       39

————————————————– ——————————

Contents

© Edgar online, source Previews

[ad_2]

Leave a Reply

Your email address will not be published.