Marcus & Millichap, Inc. (MMI) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included elsewhere herein. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A – “Risk Factors” and Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Factors Affecting Our Business” of this Annual Report on Form 10-K.
Overview
Our Business
We are a leading national real estate services firm specializing in commercial real estate investment sales, financing services, research, and advisory services. We have been the top commercial real estate investment broker in the United States based on the number of investment transactions for more than 15 years. As of December 31, 2024, we had 1,712 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 year ended December 31, 2024, we closed 7,836 investment sales, financing and other transactions with total sales volume of approximately $49.6 billion. During the year ended December 31, 2023, we closed 7,546 investment sales, financing and other transactions with total sales volume of approximately $43.6 billion.
We generate revenue by collecting real estate brokerage commissions upon the sale, and financing fees upon the financing of commercial properties, by providing equity advisory services and loan sales, loan guarantees and providing 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 year ended December 31, 2024, approximately 85% of our revenue was generated from real estate brokerage commissions, 12% from financing fees and 3% from other revenue, including consulting and advisory services.
Acquisitions
We continue to pursue opportunities to increase our market presence through the execution of our growth strategies by targeting markets based on population, employment, level of commercial real estate sales, inventory and competitive opportunities where we believe the markets will benefit from our commercial real estate investment sales, financing, research, and advisory services.
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.
The economic landscape entering 2025 may change significantly due to the U.S. presidential and congressional elections in 2024 resulting in Republican control of both houses of Congress and the executive branch of government. Dramatic policy changes have the potential to reshape both growth and inflation outlooks, in turn spurring increased uncertainty. Following the two 25 basis point rate reductions by the Federal Reserve in November and December 2024, it
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appears further rate cuts will be placed on hold pending additional clarity on federal tax, budget, immigration, trade, deregulation and domestic policies.
Positive readings of key fourth quarter metrics including the addition of more than 500,000 jobs, low unemployment, positive retail sales, rising small business optimism, increasing consumer sentiment and a variety of other metrics suggest economic durability, but the federal policy decisions could alter the trajectory of the economy. Policies such as the introduction of broad-based trade tariffs, tighter immigration control and reduced taxes could put upward pressure on inflation, keeping interest rates elevated. Nonetheless, positive fourth quarter economic momentum supported increased household formation, in turn supporting strong demand for rental housing. Likewise, sturdy consumption bolstered demand for both retail and industrial space. Office space demand also gained ground as more employees worked from the office more frequently, whether by choice or by corporate mandate. The strengthened housing and commercial real estate space demand trends, together with a generally positive economic outlook and the prospect of accretive commercial real estate tax policies have the potential to drive increased investor activity, particularly if uncertainty abates and interest rates are reduced.
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.
All four major property types saw positive space demand in the fourth quarter of 2024 and in the year ended December 31, 2024. Over 200,000 net apartment units were filled in the fourth quarter, taking the annual total apartment unit demand above 660,000, the second strongest annual total in the 32 years on record. The demand modestly outpaced the record 590,000 apartment completions delivered in 2024 to reduce vacancy by 60 basis points to 5.2%. Robust apartment demand outpaced expectations and bolstered multifamily investor confidence.
The industrial vacancy rate increased in the fourth quarter of 2024 as still-elevated construction exceeded space demand. For the year, the industrial vacancy rate rose by 130 basis points to 6.9% as tempered space needs met the still-robust construction pipeline. Industrial completions are expected to fall by 40% in 2025 to 210 million square feet, the slowest construction pace since 2014. Although many retailers increased their inventories ahead of anticipated tariffs, warehouse industrial space needs have tapered significantly over the last two years. Retail vacancy rates have remained range-bound in the mid-4% range, near a record-low. Space absorption has been tempered by limited space availability and nominal construction levels. The limited availability of retail space is placing upward pressure on lease rates, but the pace of increases is restrained by extended pre-negotiated lease renewals. Office vacancy rates decreased an additional 20 basis points in the fourth quarter to 16.7% on positive absorption of 29 million square feet. For the year, total net office absorption approached 55 million square feet, the strongest annual office space demand since 2019. Although office space demand momentum appears to have shifted, office performance remains challenged by vacancy rates that are still near a record high.
We expect the generally positive commercial real estate space demand will align with an anticipated falloff in commercial real estate construction this year. New industrial and multifamily completions are trending lower entering 2025, but the reduction in construction activity may be accelerated by the diversion of workers and construction materials to areas impacted by severe natural disasters. In addition, tariff-driven construction material cost increases and reduced construction labor availability could impact commercial real estate deliveries. The combination of strengthening space demand and reduced construction suggests key commercial real estate fundamentals could improve steadily in the coming year, supporting investment 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. 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 and what they are willing to pay. Furthermore, the use of debt or loan-to-value ratios can shift along with
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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 have been at the heart of the commercial real estate transaction slowdown over the last two years. The combination of sustained 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. This has forced investors to recalibrate their underwriting. This widened the buyer/seller expectation gap and reduced trading throughout 2023 and 2024.
The 100-basis point rate reduction by the Federal Reserve in the latter part of 2024 initially improved investor sentiment, but the increase of the 10-year treasury rate following the rate cut negatively impacted borrowing rates. However, lending liquidity is gradually improving, and the competition to lend capital is rising, which is causing lenders to reduce their spreads over the underlying rates, in turn putting modest downward pressure on borrowing rates. At the same time, the slowing pace of new supply additions in conjunction with strengthening space demand suggests that asset performance could improve over the coming years. The prospect of falling vacancy rates and increasing rent growth have begun to encourage investors to recalibrate their underwriting on acquisition targets, helping to bridge the buyer/seller expectation gap. Despite still-high interest rates, improving fundamentals may be sufficient to offset the elevated cost of debt capital to bolster transactional velocity in the coming year if public policy remains accretive to household formation and rising sentiment levels.
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.
The commercial real estate sector experienced a modest upturn of sales activity in the fourth quarter of 2024 as investors capitalized on the short window of sub-4% 10-year treasury rates. While the 10-year treasury has returned to mid-4% range, the combination of improving fundamentals and the need for investors to place capital and reposition their portfolios may continue to support positive momentum. Investor sentiment rose in the fourth quarter as evidenced by the rise of small business optimism and consumer sentiment, suggesting that investor caution is beginning to abate. However, elevated uncertainty spawned by the rapidly evolving cadre of federal policies that could change has the potential to counterbalance investor enthusiasm.
Several metrics including increased exclusive inventory being brought to market and a rising number of property tours in several markets and property types, suggest investor activity may rise in 2025. Nonetheless, a variety of factors including the economy, interest rates, financial market trends, geopolitical and commercial real estate pricing clarity could suppress activity in 2025. Should the Federal Reserve continue to reduce rates, it would support positive momentum, but a full market recovery will take additional time. Lenders are becoming more assertive with borrowers, and though loan extensions and modification remain common, incidents of forced refinancing and distressed sales are becoming more frequent. Office properties, particularly those in the urban core, continue to 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. 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 interest rates trend lower, we believe commercial real estate investment activity could gain additional momentum.
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
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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 public health crises, 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. During 2024, seasonal fluctuations were disrupted by changes in overall market conditions and interest rates, and going forward our historical pattern of seasonality may or may not continue to the same degree experienced in prior years.
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 or financing in a timely manner 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 million to $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 or financed. As we have expanded our business into the middle and larger transaction markets, 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 markets as compared to the $1 million to $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 the transaction. We no longer hold any mortgage servicing rights ("MSRs"), but prior to the third quarter of 2022, we recognized mortgage servicing revenue upon the acquisition of a servicing obligation. We generated mortgage servicing fees through the provision of collection, remittance, recordkeeping, reporting, and other related mortgage servicing functions, activities, and services.
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Other Revenue
Other revenue includes fees generated from consulting and advisory services, leasing, as well as referral fees from other real estate brokers, and are recognized when services are provided, upon closing of the transaction or when we have no further obligations.
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 and financing 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 employees and initially paid a salary, 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 three years, at our election, and paid at the end of the third 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 investment sales and financing professionals that closed transactions in any particular period.
Selling, General and Administrative Expenses
The largest expense component within selling, general and administrative expenses is compensation for our management team and sales and support staff, as well as business development, marketing, and expensing of forgivable loans provided to our investment sales and financing professionals over the contractual term of the loan. In addition, these costs include facility costs (excluding depreciation and amortization), sales and events, licenses and subscriptions, legal, information technology, telecommunications, 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.
Depreciation and Amortization Expense
Depreciation expense consists of depreciation recorded on our computer software and hardware equipment, as well as our furniture, fixtures and equipment. Depreciation is recognized over estimated useful lives ranging from three to seven years for assets. Amortization expense consists of amortization recorded on intangible assets amortized on a straight-line basis using a useful life between one and seven years.
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
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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 (benefit) provision for income taxes includes the windfall tax benefits and shortfall expenses, net, from shares issued in connection with our Amended Plan and Amended 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
The following is a discussion of our results of operations for the years ended December 31, 2024 and 2023. 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 years ended December 31, 2024, 2023, and 2022, we closed more than 7,800, 7,500 and 12,200 investment sales, financing and other transactions, respectively, with total sales volume of approximately $49.6 billion, $43.6 billion and $86.3 billion, respectively. Such key metrics for real estate brokerage and financing activities (excluding other transactions) are as follows:
| Years Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Real Estate Brokerage | 2024 | 2023 | 2022 | |||||||||||
| Average Number of Investment Sales Professionals | 1,610 | 1,744 | 1,817 | |||||||||||
| Average Number of Transactions per Investment Sales Professional | 3.38 | 3.14 | 5.01 | |||||||||||
| Average Commission per Transaction | $ | 108,261 | $ | 102,238 | $ | 128,450 | ||||||||
| Average Commission Rate | 1.75 | % | 1.82 | % | 1.72 | % | ||||||||
| Average Transaction Size (in thousands) | $ | 6,174 | $ | 5,630 | $ | 7,473 | ||||||||
| Total Number of Transactions | 5,447 | 5,475 | 9,111 | |||||||||||
| Total Sales Volume (in millions) | $ | 33,630 | $ | 30,823 | $ | 68,088 |
| Years Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Financing (1) | 2024 | 2023 | 2022 | |||||||||||
| Average Number of Financing Professionals | 101 | 96 | 86 | |||||||||||
| Average Number of Transactions per Financing Professional | 12.37 | 11.21 | 24.92 | |||||||||||
| Average Fee per Transaction | $ | 52,955 | $ | 50,677 | $ | 44,546 | ||||||||
| Average Fee Rate | 0.73 | % | 0.81 | % | 0.74 | % | ||||||||
| Average Transaction Size (in thousands) | $ | 7,283 | $ | 6,254 | $ | 5,984 | ||||||||
| Total Number of Transactions | 1,249 | 1,076 | 2,143 | |||||||||||
| Total Financing Volume (in millions) | $ | 9,096 | $ | 6,729 | $ | 12,823 |
(1)Operating metrics exclude certain financing fees not directly associated to transactions.
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The following table sets forth the number of transactions, sales volume and revenue by commercial real estate market for real estate brokerage:
| Years Ended December 31, | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||||||||||||||||
| Real Estate Brokerage | Number | Volume | Revenue | Number | Volume | Revenue | Number | Volume | Revenue | |||||||||||||||||||
| (in millions) | (in thousands) | (in millions) | (in thousands) | (in millions) | (in thousands) | |||||||||||||||||||||||
| $1 million | 819 | $ | 446 | $ | 21,034 | 809 | $ | 483 | $ | 20,894 | 10 | $ | (37) | $ | 140 | |||||||||||||
| Private Client Market ($1 – $10 million) | 3,967 | 12,802 | 365,837 | 4,097 | 13,616 | 372,979 | (130) | (814) | (7,142) | |||||||||||||||||||
| Middle Market ($10 – $20 million) | 344 | 4,764 | 84,186 | 303 | 4,117 | 73,007 | 41 | 647 | 11,179 | |||||||||||||||||||
| Larger Transaction Market (≥$20 million) | 317 | 15,618 | 118,638 | 266 | 12,607 | 92,872 | 51 | 3,011 | 25,766 | |||||||||||||||||||
| 5,447 | $ | 33,630 | $ | 589,695 | 5,475 | $ | 30,823 | $ | 559,752 | (28) | $ | 2,807 | $ | 29,943 |
Comparison of Years Ended December 31, 2024 and 2023
Below are key operating results for the year ended December 31, 2024 compared to the results for the year ended December 31, 2023 (dollars in thousands):
| Year Ended December 31 2024, | Percentage of Revenue | Year Ended December 31 2023, | Percentage of Revenue | Change | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dollars | Percentage | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Real estate brokerage commissions | $ | 589,695 | 84.7 | % | $ | 559,752 | 86.6 | % | $ | 29,943 | 5.3 | % | ||||||||
| Financing fees | 84,512 | 12.1 | 66,898 | 10.4 | 17,614 | 26.3 | % | |||||||||||||
| Other revenue | 21,853 | 3.2 | 19,277 | 3.0 | 2,576 | 13.4 | % | |||||||||||||
| Total revenue | 696,060 | 100 | 645,927 | 100 | 50,133 | 7.8 | % | |||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Cost of services | 431,471 | 62.0 | 406,645 | 63.0 | 24,826 | 6.1 | % | |||||||||||||
| Selling, general and administrative | 280,909 | 40.3 | 285,023 | 44.1 | (4,114) | (1.4) | % | |||||||||||||
| Depreciation and amortization | 16,589 | 2.4 | 13,627 | 2.1 | 2,962 | 21.7 | % | |||||||||||||
| Total operating expenses | 728,969 | 104.7 | 705,295 | 109.2 | 23,674 | 3.4 | % | |||||||||||||
| Operating (loss) income | (32,909) | (4.7) | (59,368) | (9.2) | 26,459 | (44.6) | % | |||||||||||||
| Other income, net | 20,693 | 2.9 | 19,855 | 3.0 | 838 | 4.2 | % | |||||||||||||
| Interest expense | (812) | (0.1) | (888) | (0.1) | 76 | (8.6) | % | |||||||||||||
| Loss before benefit for income taxes | (13,028) | (1.9) | (40,401) | (6.3) | 27,373 | (67.8) | % | |||||||||||||
| Benefit for income taxes | (666) | (0.1) | (6,366) | (1.0) | 5,700 | (89.5) | % | |||||||||||||
| Net loss | $ | (12,362) | (1.8) | % | $ | (34,035) | (5.3) | % | $ | 21,673 | (63.7) | % | ||||||||
| Adjusted EBITDA (1) | $ | 9,372 | 1.3 | % | $ | (19,630) | (3.0) | % | $ | 29,002 | 147.7 | % |
(1)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 derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net (loss) income, which is the most directly comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measure” below.
Revenue
Our total revenue was $696.1 million in 2024 compared to $645.9 million in 2023, an increase of $50.1 million, or 7.8%. Total revenue primarily increased as a result of increases 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 increased to $589.7 million in 2024 from $559.8 million in 2023, an increase of $29.9 million, or 5.3%. The increase was primarily the result of a 9.1%
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increase in total sales volume, partially offset by a seven basis point decrease in the average commission rate earned, caused by the shift in the proportion of transactions to the Middle Market and Larger Transaction Market from the Private Client Market, as Middle Market and Larger Transaction Markets typically earn lower commission rates. The combined Middle Market and Larger Transaction Market revenue increased by 22.3%, while Private Client Market revenue decreased by 1.9%.
Financing fees. Revenue from financing fees increased to $84.5 million in 2024 from $66.9 million in 2023, an increase of $17.6 million, or 26.3%. The increase was a result of a 35.2% increase in the total financing volume, partially offset by a decrease of eight basis points in the average fee rate earned compared to 2023.
Other revenue. Other revenue increased to $21.9 million in 2024 from $19.3 million in 2023, an increase of $2.6 million, or 13.4%. The increase was primarily driven by increases in leasing fees during 2024 compared to 2023.
Total Operating Expenses
Our total operating expenses were $729.0 million in 2024 compared to $705.3 million in 2023, an increase of $23.7 million, or 3.4%. Cost of services increased by $24.8 million and selling, general, and administrative expenses decreased by $4.1 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 increased to $431.5 million in 2024 from $406.6 million in 2023, an increase of $24.8 million, or 6.1%. The increase was primarily due to increased commission expenses driven by the related increased revenue discussed above. Cost of services as a percentage of total revenue decreased by 100 basis points to 62.0% compared to 2023 primarily due to our senior investment sales and financing professionals earning a lower amount of commissions.
Selling, general, and administrative expense. Selling, general and administrative expense decreased to $280.9 million in 2024 from $285.0 million in 2023, a decrease of $4.1 million or 1.4%. The decrease was primarily due to a reduction in marketing support costs, partially offset by an increase in compensation-related costs. As a percentage of revenue, selling, general and administrative expense decreased due to the fixed nature of certain of these expenses.
Depreciation and amortization expense. Depreciation and amortization expense increased to $16.6 million in 2024 from $13.6 million in 2023, an increase of $3.0 million, or 21.7%. The increase primarily relates to accelerated amortization and impairment of certain intangible assets resulting from changes in estimates.
Other Income, Net
Other income, net increased to $20.7 million in 2024 from $19.9 million in 2023. The $0.8 million increase was primarily driven by an increase in interest income as a result of rebalancing the Company's investments to take advantage of higher yields.
Interest Expense
Interest expense increased by an immaterial amount in 2024 compared to 2023, and primarily relates to interest expense on our SARs liability.
(Benefit) Provision for Income Taxes
The benefit for income taxes was $0.7 million in 2024, compared to a benefit for income taxes of $6.4 million in 2023. The effective income tax rate for 2024 was 5.1% compared to 15.8% for 2023. The majority of the reduction in the effective tax rate is related to permanent and other items and stock based compensation expense as presented in Note 12 - "Income Taxes" of our accompanying Notes to Consolidated Financial Statements.
Comparison of Years Ended December 31, 2023 and 2022
A discussion regarding our results of operations for the year ended December 31, 2023 compared to the results for the year ended December 31, 2022 can be found under Item 7 – “Management’s Discussion and Analysis of Financial
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Condition and Results of Operations – Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 27, 2024, which is available on the SEC’s website at www.sec.gov.
Non-GAAP Financial Measure
In this Annual Report on Form 10-K, we include a non-GAAP financial measure, Adjusted 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 (loss) income, operating (loss) income or any other measures calculated in accordance with U.S. GAAP. Because Adjusted EBITDA is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. A reconciliation of the most directly comparable U.S. GAAP financial measure, net income, to Adjusted EBITDA is as follows (in thousands):
| Years Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||||||
| Net (loss) income | $ | (12,362) | $ | (34,035) | $ | 104,225 | ||||||||
| Adjustments: | ||||||||||||||
| Interest income and other (1) | (18,793) | (17,890) | (7,951) | |||||||||||
| Interest expense | 812 | 888 | 708 | |||||||||||
| (Benefit) provision for income taxes | (666) | (6,366) | 37,804 | |||||||||||
| Depreciation and amortization | 16,589 | 13,627 | 13,406 | |||||||||||
| Stock-based compensation | 23,792 | 24,146 | 17,312 | |||||||||||
| Adjusted EBITDA | $ | 9,372 | $ | (19,630) | $ | 165,504 |
(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 and cash equivalents, cash flows from operations, marketable debt securities, available-for-sale and, if necessary, borrowings under the Credit Agreement (as defined herein). 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, we have not experienced any restrictions on our 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 the Credit Agreement.
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Cash Flows
Our total cash, cash equivalents, and restricted cash balance decreased by $17.3 million to $153.4 million at December 31, 2024, compared to $170.8 million at December 31, 2023. The following table sets forth our summary cash flows for the years ended December 31, 2024, 2023, and 2022 (in thousands):
| Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| Net cash provided by (used in) operating activities | $ | 21,714 | $ | (72,430) | $ | 13,629 | ||||
| Net cash (used in) provided by investing activities | (9,902) | 74,867 | (53,975) | |||||||
| Net cash used in financing activities | (28,755) | (67,679) | (105,555) | |||||||
| Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash | (365) | 122 | (366) | |||||||
| Net decrease in cash, cash equivalents, and restricted cash | (17,308) | (65,120) | (146,267) | |||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 170,753 | 235,873 | 382,140 | |||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 153,445 | $ | 170,753 | $ | 235,873 |
Operating Activities
Cash flows provided by operating activities were $21.7 million in 2024 compared to cash flows used in operating activities of $72.4 million in 2023. The $94.1 million increase in cash flows from operating activities in 2024 compared to 2023 was primarily due to (a) a reduction in net losses, as discussed above, (b) a reduction in bonus payments as the 2023 payment for bonuses related to amounts accrued in 2022 based in part on 2022 profits and (c) a reduction in payments in deferred compensation and commissions. The cash flows from operating activities were also affected by the timing of certain cash receipts and payments.
Investing Activities
Cash flows used in investing activities were $9.9 million in 2024 compared to cash flows provided by investing activities of $74.9 million in 2023. The $84.8 million decrease in cash from investing activities in 2024 compared to 2023 was primarily due to a decrease in net proceeds of $86.3 million from sales, purchases, and maturities of securities in 2024 compared to the same period in 2023.
Financing Activities
Cash flows used in financing activities were $28.8 million in 2024 compared to $67.7 million in 2023. The decrease of $38.9 million in cash flows used in financing activities in 2024 compared to 2023 was primarily due to a decrease of $38.7 million in stock repurchases.
Liquidity
We believe that our existing balances of cash and cash equivalents, 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 and beyond. 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 December 31, 2024, cash, cash equivalents, and restricted cash and marketable debt securities, available-for-sale, aggregated $394.2 million, which includes $10.7 million in restricted cash.
Credit Agreement
We have a credit agreement with Wells Fargo Bank, National Association (as amended, the “Credit Agreement”) which provides for a $10 million principal amount senior secured revolving credit facility that is guaranteed by all of our domestic subsidiaries and matures on June 1, 2025. As of December 31, 2024, there were no amounts outstanding under the Credit Agreement. We monitor covenant compliance on a regular basis to ensure continued compliance with the Credit Agreement. Our ability to borrow under the Credit Agreement is limited by our ability to comply with its covenants or
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obtain necessary waivers. See Note 16 – “Commitments and Contingencies” of our accompanying Notes to 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 December 31, 2024, the Company has agreed to a maximum aggregate guarantee obligation of $296.3 million relating to loans with an unpaid balance of $1,831.8 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, and the Company has recorded an allowance for losses of $174,000 as of December 31, 2024 related to these guarantee obligations. The Company is required to provide cash collateral to MTRCC for this obligation and this is reflected as $0.7 million of restricted cash as of December 31, 2024, which is included in cash, cash equivalents, and restricted cash on the consolidated balance sheet.
Material Cash Requirements
The following table summarizes current and long-term material cash requirements as of December 31, 2024, which we expect to fund primarily with operating cash flows (in thousands):
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Other (7) | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating lease liabilities, including imputed interest (1) | $ | 96,645 | $ | 22,183 | $ | 36,533 | $ | 20,976 | $ | 16,953 | $ | — | ||||||||||
| SARs liability (principal and interest) (2) | 17,545 | 2,603 | 3,743 | 980 | 10,219 | — | ||||||||||||||||
| Deferred commissions payable (3) | 40,110 | 24,502 | 12,554 | 1,931 | 1,123 | — | ||||||||||||||||
| Deferred compensation liability (4) | 8,304 | 173 | 240 | 238 | 489 | 7,164 | ||||||||||||||||
| Contingent consideration (5) | 4,731 | 4,614 | 117 | — | — | — | ||||||||||||||||
| Deferred consideration (5) | 411 | 411 | — | — | — | — | ||||||||||||||||
| Other (6) | 16,775 | 6,980 | 7,850 | 550 | 75 | 1,320 | ||||||||||||||||
| $ | 184,521 | $ | 61,466 | $ | 61,037 | $ | 24,675 | $ | 28,859 | $ | 8,484 |
(1)See Note 4 – “Operating Leases” of our accompanying Notes to Consolidated Financial Statements.
(2)Forecasted principal payments are based on each participant’s estimated retirement age and current contractual interest rate of 5.95% as of January 1, 2024 and reflect required payments that resulted from the retirement of certain executives. See Note 7 – “Selected Balance Sheet Data” of our accompanying Notes to Consolidated Financial Statements.
(3)Includes short-term and long-term deferred commissions payable (excludes commissions currently payable on closed transactions). See Note 7 – “Selected Balance Sheet Data” of our accompanying Notes to Consolidated Financial Statements.
(4)Represents current estimated payouts for participants currently receiving payments based on their elections at the time of deferral. We hold assets in a rabbi trust of $12.2 million to settle outstanding amounts when they become due. Amounts assume no increase or decrease in the liability due to future returns or losses. See Note 7 – “Selected Balance Sheet Data” of our accompanying Notes to the Consolidated Financial Statements.
(5)Relates to contingent and deferred consideration in connection with our business acquisitions. See Note 6 – “Acquisitions, Goodwill and Other Intangible Assets” and Note 9 – “Fair Value Measurements” of our accompanying Notes to Consolidated Financial Statements.
(6)Relates to amounts that may be advanced to sales and financing professionals. See Note 16 – “Commitments and Contingencies” of our accompanying Notes to Consolidated Financial Statements.
(7)Amounts in Other represent amounts where payments are dependent on future events, which may occur at any time from less than 1 year to more than 5 years and relates to our deferred compensation liability and certain advances to sales and financing professionals. Payments for deferred compensation liability are based on the participants’ elections at the time of deferral and may not begin before separation from service. The ultimate resolution depends
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on many factors and assumptions. Certain amounts advanced to sales and financing professionals are contingent upon reaching specified performance criteria. Accordingly, we are not able to reasonably estimate the timing of such payments, if any.
Other than operating expenses, including those accrued and payable as December 31, 2024, cash requirements for 2025 are expected to consist primarily of capital expenditures for the future acquisitions, if any, payment of dividends, if any, payments for stock repurchases, if any, and advances to our investment sales and financing professionals.
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 increased interest rates on the broader economy.
The annual CPI inflation rate in the U.S. peaked at 9.1% in June 2022, the highest annual inflation rate since November 1981. CPI inflation has since fallen to 2.9% as of December 2024. In 2022 through 2023, the Federal Reserve increased the federal funds rate to the 5.25%-5.5% range in an effort to combat inflation, which had an adverse impact on commercial real estate transactions. In the latter part of 2024, the Federal Reserve lowered the overnight rate by 100 basis points to the 4.25%-4.5% range, which was a positive trend for investors, but the 10-year treasury has remained range-bound in the mid- to upper-4% range keeping the cost of debt capital elevated.
Looking forward, the Federal Reserve has communicated a restrained interest rate outlook pending additional clarity on federal fiscal, trade, tax, regulatory and domestic policies. Several of the policies in consideration such as tariffs and more stringent immigration controls have the potential to be inflationary in nature, so future inflation risk may depend on when and how assertively the proposed policies are implemented.
Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.
We believe that the critical accounting policies discussed below involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. See the notes to our consolidated financial statements for a summary of our significant accounting policies.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and (ii) operating losses and tax credit carryforwards. We measure existing deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to have temporary differences realized or settled. We recognize in the provision for income taxes, the effect on deferred tax assets and liabilities of a change in tax rates in the period that includes the enactment date. We periodically evaluate deferred tax assets to assess whether it is likely that the deferred tax assets will be realized. In determining whether a valuation allowance is required, we consider the timing of deferred tax reversals, estimates of future taxable income, current year taxable income, and historical performance. Valuation allowances are provided against deferred tax assets when it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Our valuation allowance is related principally to losses incurred in our Canadian operations. Future results of operations of the Canadian business will impact valuation allowances in the future.
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Due to the nature of our business, which includes activity in the U.S. and Canada, incorporating numerous states and provinces as well as local jurisdictions, our tax position can be complex. As such, our effective tax rate is subject to changes as a result of fluctuations in the mix of our activity in the various jurisdictions in which we operate including changes in tax rates, state apportionment, tax related interest and penalties, valuation allowances and other permanent items, including Sec. 162(m) and net windfalls and shortfalls related to stock-based compensation. Calculating some of the amounts involves a high degree of judgment. Our state taxes, net of federal benefit, has ranged from 1.5% to 4.5% over the past 3 years.
We evaluate our tax positions quarterly. The threshold for recognizing the benefits of tax return positions in the financial statements is “more likely than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized. We assess our inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction) and determine whether uncertain tax positions are required to be recognized in our consolidated financial statements.
The above factors create volatility in our effective tax rate from quarter to quarter and have caused our effective tax rates to range from 5.1% to 26.6% over the past three years.
We recognize interest and penalties incurred as income tax expense. See Note 12 – “Income Taxes” of our accompanying Notes to Consolidated Financial Statements for additional information.
Leases
Our leases consist of purpose built-out office space, which reverts to the lessor upon termination of the lease and operating leases for autos. We determine if an arrangement is a lease at inception. Right-of-use assets (“ROU assets”) represent our right to use an underlying asset for the lease term and lease liabilities represent our contractual obligation to make lease payments under the lease. Operating leases are included in operating lease ROU assets, non-current, and operating lease liabilities current and non-current captions in the consolidated balance sheets.
Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent, predetermined fixed increases in the minimum rent and renewal or termination options, all of which add complexity and impact the determination of the lease term and lease payments to be used in calculating the lease liability. Certain facility leases provide for rental escalations related to increases in the lessors’ direct operating expenses. We use the implicit rate in the lease when determinable. As most of our leases do not have a determinable implicit rate, determining the rate to be used in our calculations is judgmental. We use an estimated incremental borrowing rate calculated on a spread over treasuries based on our estimated credit rating for the indicated term of the lease based on the information available on the commencement date of the lease. As a result, the incremental borrowing rate has and will continue to be impacted by market interest rates. The weighted average incremental borrowing rate was 5.2% in 2024 and 4.7% in 2023. Any payments for completed improvements, determined to be owed by the lessor, net of incentives received, are recorded as an increase to the ROU asset and considered in the determination of the lease cost.
We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Lease cost is recognized on a straight-line basis over the lease term. Variable lease payments consist of common area costs, insurance, taxes, utilities, parking, and other lease related costs, which are determined principally based on billings from landlords.
Investments in Marketable Debt Securities, Available-for-Sale
We maintain a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, U.S. government sponsored entities, corporate debt, asset-backed securities, and other. We consider our investments in marketable debt securities to be available-for-sale, and accordingly, are recorded at their fair values. We determine the appropriate classification of investments in marketable debt securities at the time of purchase. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income, net in the consolidated statements of operations. See Note 5 – “Investments in Marketable Debt Securities, Available-for-Sale” of our accompanying Notes to Consolidated Financial Statements for additional information. We typically invest in highly rated debt securities, and our investment policy generally limits the amount of credit exposure to any one issuer. The policy
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requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss and matching long-term liabilities.
Unrealized losses on our marketable securities, available-for-sale, fluctuate based on changes in market interest rates due the fixed interest rates of most of the securities. Unrealized losses aggregated $1.6 million and $2.6 million as of December 31, 2024 and 2023, respectively. We review our investment portfolio quarterly for all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. We exclude accrued interest from both the fair value and the amortized cost basis of marketable debt securities, available-for-sale, for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive (loss) income, net of applicable taxes. We made an accounting policy election to not measure an allowance for credit losses for accrued interest receivable. We evaluate write-off of accrued interest receivable by the major security-type level at the time credit loss exists for the underlying security.
Determining whether a credit loss exists requires a high degree of judgment, and we consider both qualitative and quantitative factors in making our determination. We evaluate our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis. For all securities in an unrealized loss position, we evaluate, among other items, the extent and length of time the fair market value of a security is less than its amortized cost, time to maturity, duration, seniority, the financial condition of the issuer including credit ratings, any changes thereto and relative default rates and loss severity, leverage ratios, availability of liquidity to make principle and interest payments, performance indicators of the underlying assets, analyst reports and recommendations, and changes in base and market interest rates. If the qualitative and quantitative analysis is sufficient to conclude that an impairment related to credit losses does not exist, we typically do not perform further quantitative analysis to estimate the present value of cash flows expected to be collected from the debt security. Estimates of expected future cash flows are our best estimate based on past events, current conditions, and reasonable and supportable economic forecasts. To date, we have not recorded any credit losses or impairments on our portfolio of marketable securities, available for sale.
Contingent and Deferred Consideration
In connection with certain business acquisitions, the Company may enter into agreements to pay additional cash or other consideration based on the achievement of certain performance measures and/or service and time requirements. Contingent and deferred consideration in connection with the acquisition of a business is measured at fair value on the acquisition date and remeasured at fair value each reporting period thereafter until the consideration is settled, with changes in fair value recorded in selling, general and administrative expense in the consolidated statements of operations.
In its determination of fair value for contingent and deferred consideration, the Company uses judgment in determining the probability of achieving contractual performance targets and the time frame in which the settlements will occur. Further, judgment is used in determining the appropriate current and future interest rates to apply in each situation. The Company estimated the probability of achievement of contractual performance targets was between 0% to 100% based on each acquisition’s historical and estimated future performance and risk adjusted discount rates of between 4.8% to 6.1%, which resulted in a recorded fair value for the contingent consideration of $4.7 million and $5.5 million as of December 31, 2024, and 2023, respectively. The Company estimated the fair value of the deferred consideration using a discounted cash flow estimate using market rates, with the only remaining condition on such payments being the passage of time which resulted in a recorded fair value of $0.4 million and $1.6 million as of December 31, 2024, and 2023, respectively. The maximum undiscounted future settlements of contingent and deferred consideration was $12.0 million at December 31, 2024, and the Company is uncertain as to the extent of the volatility in the judgments and unobservable inputs will have on the ultimate settlement of these amounts in the foreseeable future.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 – “Accounting Policies and Recent Accounting Pronouncements” of our accompanying Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. We do not believe any of the other accounting pronouncements listed in that note will have a significant impact on our business.
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