Q3 2021 Newmark Group Inc Earnings Call
Yes.
Hello, everyone and welcome to new MX third quarter, 2021 earnings conference call.
This time, all participants will be on listen only mode. After the speaker's presentation. There will be a question and answer question. Please be advised that today's conference is being recorded.
I would now like turn the call over to Jason Greta from the interim head of Investor Relations. Thank you. Please go ahead.
Hi, I'm actually permanent head now.
Thank you.
Thank goodness.
Thank you and good morning, New Mark issued its third quarter 2021 financial results press release, and a presentation summarizing our results.
Yeah.
Yeah.
Yeah.
My apologies apologies everyone. It appears we have lost connection with all speakers. Please standby as we reconnect him.
[music].
Yes.
[music].
And sales as well as the impact of the 2021 equity Abbett. Please see the section in today's press release for a complete and updated definitions.
For any non-GAAP term reconciliations of these items to the corresponding GAAP results and how when and why management uses them additional information with respect to our GAAP and non-GAAP results mentioned on today's call. It's available on our website and supplemental excel tables in our quarterly financial results presentation and the outlook discussed on today's call soon.
No material acquisitions share repurchases or meaningful changes in the company's stock price. These expectations are subject to change based on various macroeconomic social political and other factors, including the COVID-19 pandemic.
I also remind you that information on this call regarding our business that are not historical facts are forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended such statements involve risks and uncertainties, including statements about the effects of the.
The COVID-19 pandemic on the company's business results financial position liquidity and outlook.
Which may constitute forward looking statements and are subject to the risks.
Subject to the risk that the actual impact may differ possibly materially from what is currently expected except as required by law Newmark undertakes no obligation to update any forward looking statements for a discussion of the risks of additional risks and uncertainties, which could cause actual results to differ from those contained in forward looking statements see Newmark Securities and exchange Commission filings, including but not limited to the risk factors set forth.
Our most recent Form 10-K Form 10-Q or form 8-K filings and now happy to turn the call over to our host Barry <unk>, Chief Executive Officer of Newmark Group, Inc.
Thank you Jason.
Good morning, and thank you for joining us for New March 3rd quarter 2021 Conference call.
With me today are new marks Chief financial Officer microscope.
<unk> strategy Officer, Jeff Day, and our Chief revenue Officer Lou Alvarado.
Nu Mark continued its rapid growth producing record quarterly revenues and our best ever third quarter earnings.
Virtually all of our growth was organic as we benefited from our investments across life science.
Australia multifamily commercial mortgage brokerage and management services.
Our world class professionals and collaborative culture have created a platform that continues to win market share across all asset classes in service life.
New March revenue growth was led by a 204% increase in capital markets.
And an all time quarterly high.
New markets investment sales mortgage brokerage and multifamily originations were a record $35 billion in the quarter.
We continue to Maine.
Continue to gain market share in both investment sales and debt placement.
Our investment in sales volumes were up 208% and our debt placement in origination volumes increased by 126, 6% both at performing the industry.
These from leasing and other commissions were up by 101% as we continue to capture market share.
Our overall revenues benefited from much stronger demand across all major property types led.
Led by multifamily industrial and office.
Our recurring management services servicing fees and other revenues grew by 67% to an all time quarterly high of $245 million.
We expect these businesses to grow as a percentage of our revenues over time.
As part of our global expansion plans.
We acquired <unk>, a leading flexible works workspace provider with over 50 locations in Europe.
We also expanded our capital markets and corporate service business in Hong Kong, Singapore, and Dubai Newmark now currently operates in over 30 countries.
Due to our record third quarter results and a strong fourth quarter pipeline, we have raised our guidance for the full year 2021.
Mark has no debt.
Net debt.
We anticipate leveraging on our strong financial position to grow organically and strategically acquire as we drive towards our 2025 goal of $900 million and adjusted EBITDA.
With that I'm happy to turn the call over to Mike.
Thank you Barry and good.
Good morning.
Newmark generated record quarterly revenues of $788 $1 million up 88%.
Our adjusted EBITDA was up 229, 3% to a quarterly record of $174 $5 million.
Paired with $53 million.
EPS was up 318, 6% to 50.
Compared to 12.
Our adjusted EBITDA margin improved to 22, 1% as compared to 12, 2% last year.
In comparison to the third quarter of 2019 total revenues and adjusted EBITDA were all 34, 3% and 47, 4% respectively.
Turning to expenses.
Total expenses increased $266 5 million of which a $157 million was variable compensation related to growth in commission based revenues.
$61 $1 million was due to higher pass through expenses.
And support and operational expenses were up 36, 4% based on an increase in business activity.
During the quarter, we repurchased six 3 million shares at $13 44.
And year to date, $27 2 million shares and units for $12 69.
This was partially offset.
By ordinary compensation related share issuance and an increase of $6 2 million shares because of Newmark stock appreciation, which impacted previously issued <unk> accounted for using the treasury stock method.
Our fully diluted share count was $252 9 million down $11 million year over year.
Moving to the balance sheet we.
We ended the third quarter with $566 9 million of liquidity.
More than $1 6 billion of total equity and no net debt.
Our strong financial position continued cash flow generation, and our $465 million Undrawn credit facility provide us with ample means to invest in growth.
Returning capital to shareholders and maintain our investment grade credit metrics.
Moving to guidance.
We have increased our outlook for 2021 to reflect our strong pipeline and continued market share gains.
For the full year 2021, we expect revenues between two seven and $2 75 billion.
Up 42% to 44% in.
And adjusted EBITDA of $537 million to $557 million up 113% to 120% compared to 2020.
Up 17% at the midpoint compared to 2019.
As Barry mentioned, our plan is to achieve $900 million of adjusted EBITDA by 2025.
Which we believe is well within our reach given historical earnings growth of the company and available capital.
Operator, we would now like to open the call for questions.
Thank you very much if anyone would like to ask a question. Please press star followed by one on your telephone keypad. If you would like Twitch draw. Your question. Please press star followed by change when preparing to ask your question. Please ensure you I mean should likely.
As a reminder, that it's still slipped by one on your telephone keypad too much just a question.
Our first question comes from Jade Rahmani from Keefe Bruyette <unk> Woods. Please go ahead. Your line is open.
Thank you very much extremely strong results wanted to ask are you seeing any impact to the business from inflation labor constraints and supply chain.
I'm assuming that.
Ladies and show you, what I mean to lately.
Sorry can you hear me.
We will move on to a second question Henry Coffey from Wedbush. Your line is open. Please go ahead.
Yes, good morning, and congratulations on a solid beat.
Looking at the.
New York Manhattan rental market, you know anecdotally anecdotally I can tell you that rents just.
Absolutely.
<unk> back from where they were in February.
Is there anything comparable going on in in major commercial.
Office space.
Either in Manhattan, or other large cities.
Henry This is blue Alberto look we're seeing recovery really across all the markets as you saw by the pickup in activity.
Primarily this is really being driven by people finally, making some decisions in making commitments to space, although in our gateway cities I would tell you. The office volume is still not back to the 2019 levels, but certainly what's driven it is that a lot of the changes have been driven by growth in life science, and industrial which is more than <unk>.
Making up by some of the volume that is down in the office.
We believe that in those markets, where we've historically had a significant market share as these things improve which we believe will happen in January as people go back to the office, we're going to continue to pick up market share and our revenues will continue to grow. So we're very pleased with what has happened and we're optimistic about the return to the office.
In the January and specifically as you saw with the recent Osha release that gives a little more guidance as to how people will return to the office.
Great. Thank you.
Okay.
Alright next question operator.
Our next question comes from Patrick O'shaughnessy from Raymond James. Please go ahead.
Hey, good morning, guys. So obviously, you guys announced some key hires in.
Kind of foreshadowed some more global expansion and pushed into property and facilities management.
Can you talk about what impact do you think that's going to have on new marks margin profile over time.
Yes.
Sure Hi, Patrick it's Mike So I think what Youre seeing is on a fee revenue basis, we expect our margins to expand probably 50 to 100 basis points. This year.
As compared to 2019, and we think that we can continue to expand those margins over time, obviously, it will depend on mix, but we feel pretty good about our ability to expand margins over time.
Got it okay. Thank you.
And then as we look at your liquidity at the end of the third quarter still.
Pretty robust do you still have I think a good chunk of the NASDAQ shares on your balance sheet. How are you thinking about deploying that liquidity between repurchases hires M&A and other potential uses.
Well I think you've seen we continue to buy back shares in the third quarter.
And I think we'll continue to do that into the fourth quarter.
Particularly where the stock is trading we still think it's there's a lot of room for upside there.
And then we think there's a lot of opportunity to invest in the business.
Which we've been doing you saw we did some things internationally in the quarter.
We will continue to look globally and as well as in the U S. We still think there's a lot of white space to.
To grow our business across all the business lines.
So we will continue to invest back into the business.
To follow up on that what do you think you'd be relatively more inclined to invest in the business by hiring and potentially some acquisitions as opposed to the pretty aggressive pace of repurchases last couple of quarters or.
Would you still expect to be pretty aggressive on the repurchase front.
I think we can do both we.
As we said in our last quarter.
We have built the foundation for an opportunity to have significant gearing and scale.
Lots of markets that are mature in respect of infrastructure, but not in terms of market share.
We're really offering us enough white space to get the benefit of an increased margin and growth. So we have lots of opportunities in lots of places to use our capital to grow smartly wildly.
While maintaining margin. We also have an enormous amount of white space and runway and around the globe, which we've now opened up and we're seeing quite a quite a bit of reach out on the part of people who want to.
Be a participant in what we've created as a company and we're very excited about that global expansion.
The last point I would add to that is in addition to the $1 billion of capital we have available to us today more than $1 billion.
We generate $4 million to $500 million of cash flow from the business every year and we expect that number to continue to grow overtime.
Got it terrific and then one last question from me.
Last quarter, our conversation about the tax rate and the impact of maybe pulling forward some of that tax shield I think this quarter, the non-GAAP or adjusted tax rate was around 21% is that the right number to be using going forward as well.
I think we should be around 18% on a go forward basis, Patrick somewhere in that neighborhood.
Both this year on a full year basis and as we look ahead.
Okay terrific. Thank you.
Thank you Patrick we have Jade Rahmani back on the line from Keefe Bruyette <unk> Woods. Please go ahead. Your line is open.
Thank you very much.
For the market overall, what kind of growth rates do you think a reasonable next year for investment sales GSE multifamily leasing were thinking something around 7% to 10% is reasonable for our capital markets and for leasing something in the 15% to 25% range and I would assume that new market outgrow those estimates given its mark.
Share gains of late.
It's hard to determine exactly what the growth rate is I will tell you. There is pent up demand in the office leasing once it settles out and people are a secure about how theyre going to come back to the office, but we're seeing while we're not seeing is a lot of country errors.
Multiple.
People using single deaths are.
Our companies are using their headquarters in their office space more as a place to attract people.
Give them room and space to communicate and collaborate which is important.
So I think that the growth rate on the office will certainly pick up on capital on capital markets.
It's still the same enormous amount of liquidity.
17, or so trillion.
Dollars of.
Negative yield zero zero yield a negative yield around the around the world.
U S and other parts are very attractive to invest in the allocation of institutional money towards real estate is still continues to grow and interest rates remain low so interest rates remain low monies available.
And we'll pick up.
The categories that have driven the market like multifamily industrial life science seem to have a really good runway ahead of us.
And office coming back is actually an opportunity with the fact that the.
New York, and San Fran have not come back.
And we've done so well to me is a plus it's just once it starts to pick up and once the opportunities are and when you hit our hit our volumes it will be it will bode well for our company.
Thank you and many interest industries are facing a lot of issues with supply chain as well as the labor constraints.
That's starting to impact new MX business with respect to hiring perhaps pressure on wages that some of your peers have mentioned and in terms of the management services business as well as some of the other businesses are there any supply chain impacts currently being experienced.
So low interest rates and high inflation are generally historically good for real estate. The one issue that could have an impact of supply chain, but most people believe this is a temporary supply chain impediment.
Which will be corrected in once the supply chain gets corrected there.
There's pent up demand for goods and services and so that will pick up and catch up.
Yes.
And lastly, I just wanted to clarify excluding the equity based comp and allocation of net income line is the comp and employee benefits line item all cash.
Yeah, It would be all cash yes.
Okay.
Thank you very much.
As a reminder, if you would like to register a question. Please press star followed by one.
It appears we have no further questions. So I'll hand back for any closing remarks.
Okay.
We expect new Mark to continue to grow and gain market share and are incredibly excited about our global prospects.
We also look forward to seeing you at our analyst and Investor Day on December seven.
Hum.
Have a great times.
Okay.
Thank you everyone for joining today's call you may now disconnect your lines and have a lovely day.
Okay.
Yeah.
Okay.
[music].
Okay.
Okay.
Yeah.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Yes.
Okay.
[music].
Okay.
Yes.
[music].
Okay.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Uh huh.
[music].
Okay.
[music].