Newmark Group, Inc. Price & Performance (NMRK)

For additional information on our cash flow measures, as well as relevant industry or economic statistics, The outlook discussed today assumes no material acquisitions or meaningful changes in our stock price. Our expectations are subject to change based on various macroeconomic, social, political and other factors. None of our targets or goals beyond 2025 should be considered formal guidance. Also, I remind you that information on this call contains forward looking statements including without limitation, statements concerning our economic outlook and business Such statements are subject to risk and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward looking statements. For a complete discussion of the risks and other factors that may impact these forward looking statements, see our SEC filings. Including but not limited to the risk factors and disclosures regarding forward looking information on our most recent SEC filings. Which are incorporated by reference. I'm now happy to turn the call over to our host, and Chief Executive Officer, [indiscernible] Good morning and thank you for joining us. The investments Newmark has made in talent, and our platform over the two year over the past two years drove double digit top line improvement across every major business line in the quarter.

We grew management and servicing by 21% Newmark markets by 20% and leasing by 15%. Our capital markets platform materially outpaced the industry as we continued to expand Newmark market share. Excluding the fourth quarter twenty twenty three signature transaction, Newmark increased volumes by 209% for mortgage brokerage 85% for GSE origination and 71% for investment sales. For the year, we increased our U. S. Debt market share by approximately 300 basis points to 9%, which is up by six times compared with our 1.5% market share in 2015. Which is when we started the business. These strong results validate our strategy of leading with talent. We are a key advisor to our clients which continues to drive growth across our platform. As we have said in the past, fewer great you belong at Newmark Newmark. Company is positioned for success in an industry that is poised for growth over the next several years. We anticipate the following trends. The stabilization of interest rates, approximately $2,100,000,000,000 of near term U. S. Debt maturities and the narrowing of bid ask spreads that are expected to drive double digit gains industry capital markets volumes. The ongoing strength and expected capital investments in The U. S. Economy the trend of institutional allocation to real estate as an asset class, the continued outsourcing of real estate services, improving fundamentals for industrial including the reshoring of manufacturing investment in data centers fueled by artificial intelligence.

Additionally, we expect the following positive factors in the office sector. Return to the workplace and growth in office employment. Reduction in the pipeline of new construction, and ongoing conversion of office space into alternative uses Newmark continues to elevate its brand and is the go to advisor for complex transactions that require innovative solutions. This has driven our growth in leasing, and capital markets and enables us to create new demand as our professionals execute sophisticated transactions, on behalf of clients, Our pipeline across all major business lines remains [indiscernible] And we expect momentum throughout the year. Anticipate strong revenue and earnings growth in 2025 and remain confident in meeting our target of at least $630,000,000 of adjusted EBITDA by 2026. I want to take a moment to discuss the recent nomination of Howard Lutnick for United States Secretary of Commerce Many of you know, Howard announced that upon U. S. Senate confirmation, will step down from his position at Canner, PGC and Newmark Newmark. It has been a privilege partnering with Howard to build Newmark into a powerhouse with someone I can call my friend and advisor. In a highly competitive sector, Howard has helped Newmark make bold and decisive decisions that have catapulted our company's growth in The United States and our expansion abroad.

We are thankful for his partnership and the invaluable contribution he has made to the organization and are thrilled his expertise will serve and support American people We have spent the last twelve years building an incredible management team a deep bench to support our continued growth. We look forward to the future With that, I'm happy to turn the call over to our CFO, Mike Rispoli. Thank you, Barry, and good morning.

We grew our revenues 18.8% to $888,300,000 This performance is impressive considering the challenging fourth in each of our business lines. Including the $39,500,000,000 signature transaction. We increased revenues for management services, servicing and other by 21.1% the sixth consecutive period of solid year on year improvement.

We generated strong organic growth across nearly all of our management businesses. Leasing revenues increased by 15.1% led by strong double digit growth in office. Where Newmark advised on many high profile transactions Capital Markets revenues grew by 20% which reflected strength across every major property type. Excluding the signature transactions ViewMark increased total capital markets volumes by 113.2% materially exceeding relevant industry growth metrics. Turning to expenses. Compensation increased by 13.4% which reflected higher commission based revenues, and other costs related to the growth in our management and servicing businesses.

Non compensation expenses included higher pass through costs, and increased warehouse interest expense both of which were offset by associated revenues. Excluding the impact of these items, non compensation expenses rose by 8.2%. The company's tax rate for adjusted earnings was 13.9% in the quarter and 14.1% for the year. In line with previous guidance. Moving on to earnings. Increased adjusted EPS by 19.6% to $0.55 adjusted EBITDA was $182,900,000 up 10.1%. Excluding the prior year favorable legal settlement, adjusted EBITDA was up 19.2% and our EBITDA margin was up slightly. On the same basis, our full year 2024 margin improved by approximately 55 basis points to 16.2%. Later, I will discuss our expectation for continued margin expansion. With respect to share count, fully diluted weighted average share count for adjusted earnings was $253,100,000 in line with guidance. During the quarter, we repurchased 2,100,000.0 shares and units, for $31,400,000 For the full year, we repurchased 18,600,000.0 shares in units for $224,900,000 at an average price of $12.09 Turning to the balance sheet. We ended the year with $197,700,000 of cash and cash equivalents and 1.1 times net leverage. The balance sheet changes from year end 2023 reflect $437,600,000 of cash generated from the business representing approximately 98% EBITDA conversion.

As well as $123,400,000 of incremental corporate debt. This was offset by $211,900,000 used primarily for investments in revenue generating headcount the return of $284,200,000 of capital [indiscernible] and other normal movements in working capital. With a healthy balance sheet, strong cash generation and growing earnings Newmark is well positioned to invest for growth and return capital to shareholders. Moving to guidance.

Our outlook for full year 2025 compared with 2024 is as follows.

We expect total revenues of between $2,900,000,000 and $3,100,000,000 an increase of approximately 9% at the midpoint. We anticipate adjusted EPS between $1.4 and $1.5 up 14% to 22%. We expect our adjusted earnings tax rate to be between 1416% and we anticipate adjusted EBITDA in the range of $495,000,000 to $545,000,000 an increase of 11% to 22%.

This outlook highlights Newmark's strong operating leverage. At the midpoint of our 2025 guidance range, we expect 16.5% adjusted EBITDA growth on a 9.1% increase in total revenues. Representing at least 110 basis points of margin expansion. We continue to target at least $630,000,000 in adjusted EBITDA and an additional 110 basis point margin expansion in 2026, This means that between '24 and 2026, We expect to improve our EBITDA margin by at least two twenty basis points. Also, we are now introducing a 2026 goal of $1.75 of adjusted EPS representing more than 40% earnings growth over the next two years.

I would now like to open the call for questions.

Thank you. We'll go first to Alexander Goldfarb with Piper Sandler. Good morning.

Happy Friday. So two questions here. First, just on the G and A front. Two part question to this. How much of the earnings outlook I guess, benefits from Howard's not being in G and A anymore? And then second, with regards to the settlement, there any material change in your D and O premiums?

Good morning, Alex. Of course, Howard moving on is reflected in our guidance. As is continuing to invest in the business and continuing to invest in AI to drive efficiencies over time. So that's all reflected including any premium increases in our D and O. Okay.

Second question, Barry, you've talked a lot, it was in your release about data centers and the growth that you guys are seeing in your platform.

Just curious, as you look at data centers, it's a hot topic. There's the challenge of utility hookups, the time to bring these things online. I don't know how close or how far away they need to be from sort of their ultimate end user. But maybe you could just provide some perspective of versus the challenges versus What's reasonable that we'll say We did We did over 17 it closes $17,000,000,000 in data centers last year.

And we expect to do more The combination of reshoring [indiscernible] the new administration investing heavily in infrastructure, and the advent of artificial intelligence, makes the future look incredibly bright for that particular industry, And there are power issues over the long term Those are being dealt with also on the other hand by us being involved in power acquisition, advanced manufacturing, [indiscernible] The nature of our business is we're designing it to solve and come up with the solutions on all those fronts. Which includes power, which includes land, which includes the technology, which includes the financing, which includes the equity, and all of the right players and the hyperscalers and the users and the tenants we are in an incredible position to take advantage of that and capture market share in that space. We saw the crease early. We acted early. And a result we're doing a significant amount of business in that space.

Okay. So it sounds like for you the hype is is real, like It's a lot of the stuff that we read about will come to fruition versus I want to say bubble, but like right now there's a moment of euphoria, but in a few years it will peter out.

I think it's more than euphoria. Mean, if you believe in AI, you believe in advanced manufacturing you believe in semiconductors, You believe in robotics. You believe in America. You should believe in the reality of this vertical.

Thank you. We'll go next to Patrick O'Shaughnessy with Raymond James.

Hi, good morning. So only $2,000,000 of forgivable loan spend in the fourth quarter Why was it so low in the period? And then what are your expectations for 2025? Good morning, Patrick. For the year, we spent over $200,000,000 at the second consecutive year in a row where we invested heavily into the business and future growth. So So the fourth quarter is just a point in time. It's one quarter. I think you have to look at over over period I would say looking ahead, we would expect to continue to invest at least that amount of money into growth in the company. It could be employee loans or it could be acquisitions. It just really depends on where we see the best return to capital on our investments.

Got it. Thank you. To what potential changes to Fannie and Freddie's ownership structure, impact your outlook for multifamily activity? Well, certainly if anything happened in terms of privatization or any change, there is a historic precedent for what happened. I mean, you still have loans is probably a 20 basis points change in spread historically But the caps were the same the accelerated loans and the importance of Freddie and Bear Knoll, if you've been a was before the conservatorship was was pretty important We don't think that's going to change. Anytime soon. Thank you. And then last from me, Any views or any detail on how Howard Lutnick will divest his ownership I think that as we put out in a press release, when his Commerce Secretary appointment was originally announced. He doesn't expect to sell shares on the open Newmark. Certainly, the confirmation hearing is coming up shortly and I'm sure we'll know more.

All right. Thank you.

We'll go next with Julien Blauen with Goldman Sachs.

Thank you for for taking my question and congratulations on an outstanding quarter. I guess, can you help us understand how capital markets activity is trending year to date and ultimately sort of what sort of outlook is being baked into guidance or are you thinking about 2025 after what was a really strong end to the year? [indiscernible] As Barry said in his prepared remarks, our pipelines remain strong across all of our businesses. Certainly, there's some headwinds in the market but our pipelines remain strong and we see double digit growth in capital markets over the next two years. So It would have been way better if there weren't the market headwinds. Okay, great. Thank you. And I guess, specifically maybe touching on industrial industrial, we've heard from some of your peers around fears that trade policy uncertainty could lead to buyers buyers maybe pausing activity I guess, do you have any sort of view on that? Are you seeing any signs of that yet?

Look, there's always fear in some camps about things, but we are our view that the reshoring the investment in creating jobs in The United States will have a positive effect on The United States. We think that that it's likely to be a positive. People look at inventories and supplies, supply chain, as a determinant of whether there is excess capacity in manufacturing, but those metrics are pretty good. There was a little bit of an oversupply supply last year of industrial and it was quieter last year, but I think that that's going to accelerate in terms of the advanced manufacturing, the chips, other aspects will replace any of that, any issue in terms of an oversupply. But But we're encouraged by industrial Okay, great. Thank you.

We'll go next to Jade Rahmani with KBW.

Thank you very much. In terms of the pipeline of debt deals, from banks. Last year, clearly, you won the signature deal a record transaction. You anticipate any large loan portfolio sales from the banks Can you talk to that trend, if it's a trend you see increasing broadly in the market? Well, obviously, Basel requires banks to reserve a certain amount of capital if they're overweighted in their CRE book. I would suspect that fundamentally many banks are overweight in real estate But there carefully titrating between earnings and capital increasing their earnings and building their capital base and the CRE overweight will probably trickle out over the next five years. So the answer is yes, but not in the same accelerated fashion that people might have predicted We are slow and steady selling loans and structuring those in a way that has the least negative impact on the banking community [indiscernible] In the financial crisis, what the Fed did was by lowering interest rates and allowing the banks to make the spread, they were able to reflate and shore up their capital And it's amazing how resilient and smart the Fed is with respect to to doing that and preserving the integrity of our banking system.

There is an overweight and there is a movement of the debt market to private capital, both captive insurance companies, insurance companies in general, private equity debt funds, that's going to proliferate. So a big part of the what was traditionally bank finance will move over to the private private world Thank you. And then terms of your 2025 outlook, just wondering I think you talked to double digit growth in capital markets over the next two years could you perhaps tease out what your assumptions are for both capital markets and leasing in 2025. It would just be helpful to to hear about what you're thinking.

Sure. Look, we're fundamentally we have the benefit of building a company and having white space and attracting talent Three years ago, we weren't necessarily four years ago, not necessarily in every conversation. We're in every conversation today. We're in every beauty contest. We're We're considered as a sort of a go to adviser So there is a significant amount of opportunity for us to to achieve market share that fights against the headwinds of the market So we're optimistic about that being accelerated over any headwinds. We think that's far greater than if we there is some pause because of interest rate moves, short term interest rate moves. And then we've been able to demonstrate that. We continue to do that. We take the same approach in leasing. So leasing the good news is that people are coming back to the office. The good news is people realize that the productivity is a productivity decline when people don't show up. There is when you don't have a culture, what kind of business do you have, [indiscernible] the anecdotes around that are moving in the right direction. They're not building much more office space. There is conversions of office space into residential and hotels, etcetera.

Which also bodes well. So and there are new industries cropping up. The amount of new businesses whether it's in the technology space, in the crypto space, in financial services has done pretty well and they're generally expanding. And The U. S. Market has remained strong.

So I think we as a company will deal with the headwinds This is a good place for the best people and the best people garner the most opportunity and as we continue to expand and attract brokers and professionals and advisors and investor investment bankers who want to be at a platform that gives them the kind of running room for the high quality business coupled with The overlay of high quality solutions we think that all of that really plays well for us.

So Jade, I would add that at the midpoint, we guided up 9%. Roughly on revenue.

And I don't think you'll be shocked to hear that we think capital markets will grow a little faster than that. Our leasing probably a little slower than that and we think our management sort of in line. Those are the high level assumptions. Great. Thanks so much.

We will now take a follow-up question from Alexander Goldfarb with Piper Sandler.

Thank you. Barry, you guys have had some good luck and success with your overseas expansion. Often U. S. Firms go overseas and the profit margins suffer. So just sort of curious, how you guys are looking overseas on a profit comparability versus The U. S. And if there have been any adjustments that you needed to make to ensure that you can drive the same sort of bottom line returns that you expect out of your U. S. Platform?

Hey, Alex, it's Mike. I'll start and then Barry will probably jump in. We're continuing to build our international business We just started building Germany in the last quarter or two, we started building France maybe two or three quarters ago. We bought Geraldine in The UK and now we've combined all of our UK companies together. I mean, our UK revenue in the fourth quarter was up 50% Year over year, And so I think it's going to take time for some of the new countries to play out.

We think the profit margins will be as good if not better internationally than what we're seeing in The U. S. Yes, I agree. Don't believe that it's going to have long term, obviously, we're ramping up. We think that our profit margins could be certainly equal or better Thank you.

This does conclude the question and answer portion of today's any closing comments.

Thank you for joining us today. I remain very excited about the company. And we look forward to updating you on our next quarterly call. So thank you.

This does conclude today's conference call. You may now disconnect.