Q4 2024 Newmark Group Inc Earnings Call
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Speaker Change: Good day and welcome to the Newmark Group 4Q 2024 Financial Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Head of Investor Relations, Jason McGruder. Please go ahead.
Jason Mcgruder: Thank you, Operator, and good morning. Newmark issued its fourth quarter 2024 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare only the three months ending December 31st, 2024, with a year earlier period.
Jason Mcgruder: except as otherwise specified, we'll be referring to results only on a non-GAAP basis, including the terms adjusted earnings and adjusted EBITDA.
Jason Mcgruder: Unless otherwise stated, any figures discussed today with respect to cash flow from operations refers to net cash provided by operating activities
Jason Mcgruder: excluding GSE FHA loan origination and sales. We may also use the term cash generated by the business, which is the same operating cash flow measure before the impact of cash used for employee loans.
Jason Mcgruder: Please refer to today's press release, the supplemental tables, and the quarter results presentation on our website for complete and updated definitions of any non-GAAP terms, reconciliation of these items, the corresponding GAAP results, and how, when, and why management uses them, for additional information on our cash flow measures, as well as relevant industry or economic statistics.
Jason Mcgruder: 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.
Jason Mcgruder: 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 risks and uncertainties which could cause our actual results to differ from expectations.
Jason Mcgruder: accept as required by law we undertake no obligation to update any forward-looking statements for complete discussion of the risk and other factors that may impact these forward-looking statements
Jason Mcgruder: 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 Barry Gosin.
Barry Gosin: Good morning and thank you for joining us. The investments Newmark has made in talent and our platform over the past two years drove double-digit top-line improvement across every major business line in the quarter.
Barry Gosin: We grew management and servicing by 21%, capital markets by 20%, and leasing by 15%. Our capital markets platform materially outpaced the industry as we continued to expand our market share.
excluding the fourth quarter 2023 signature transaction
Barry Gosin: Newmark increased volumes by 209% for mortgage brokerage, 85% for GSE origination, and 71% for investment sales.
Barry Gosin: For the year, we increased our U.S. debt market share by approximately 300 base points to 9%, which is up by 6 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.
Barry Gosin: We are a key advisor to our clients, which continues to drive growth across our platform. As we have said in the past, if you are great, you belong at Newmark, the company's position for success in an industry that is poised for growth over the next several years. We anticipate the following industry trends.
Barry Gosin: The stabilization of interest rates, approximately $2.1 trillion of near-term U.S. debt maturities, and a narrowing of bid-ask spreads that are expected to drive double-digit gains in industry capital markets volumes.
Barry Gosin: the ongoing strength and expected capital investments in the U.S. economy.
Speaker Change: The Trend of Institutional Allocation to Real Estate as an Asset Class.
Speaker Change: the continued outsourcing of real estate services, improving fundamentals for industrial, including the reshoring of manufacturing and investment in data centers fueled by artificial intelligence.
Speaker Change: 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.
Speaker Change: I've spent the last 12 years building, an incredible management team and a deep bench to support our continued growth. We look forward to the future and are excited about our prospects with that I'm happy to turn the call over to our CFO microscopy.
Speaker Change: Thank you Barry and good morning.
Speaker Change: Grew our revenues 18, 8% to $888 $3 million. This performance is impressive considering the challenging fourth quarter comparison, we faced in each of our business lines, including the $39 $5 billion signature transaction.
Speaker Change: The increased revenues from management services servicing another by 21, 1%.
Speaker Change: The sixth consecutive period of solid year on year improvement.
Speaker Change: Generated strong organic growth across nearly all of our management businesses.
Speaker Change: Leasing revenues increased by 15, 1% led by strong double digit growth in office, where new Mark advised on many high profile transactions.
Speaker Change: Capital markets revenues grew by 20%, which reflected strength across every major property type excluding.
Speaker Change: Excluding the signature transactions Newmark increased total capital markets volumes by 113, 2% <unk>.
Speaker Change: Materially exceeding relevant industry growth metrics.
Speaker Change: Turning to expenses.
Speaker Change: Uh huh.
Speaker Change: Compensation increased by 13, 4%, which reflected higher commission based revenues and other costs related to the growth in our management and servicing businesses.
Speaker Change: Non compensation expenses included higher pass through costs and increased warehouse interest expense, both of which were offset by associated revenues.
Speaker Change: Excluding the impact of these items non compensation expenses rose by eight 2%.
Speaker Change: 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.
Speaker Change: Moving on to earnings.
Speaker Change: We increased adjusted EPS by 19, 6% to 55.
Speaker Change: Adjusted EBITDA was $182 9 million up 10, 1%.
Speaker Change: Excluding the prior year favorable legal settlement adjusted EBITDA was up 19, 2% and our EBITDA margin was up slightly.
Speaker Change: On the same basis, our full year 2024 margin improved by approximately 55 basis points to 16, 2%.
Speaker Change: Later, I will discuss our expectation for continued margin expansion.
Speaker Change: With respect to share count.
Speaker Change: Our fully diluted weighted average share count for adjusted earnings was $253 1 million in line with guidance.
During the quarter, we repurchased two 1 million shares and units to $31 4 million.
Speaker Change: For the full year, we repurchased $18 6 million shares and units for $224 $9 million at.
Speaker Change: At an average price of $12.09.
Speaker Change: Turning to the balance sheet.
Speaker Change: We ended the year with $197 $7 million of cash and cash equivalents and 1.1 times net leverage.
Speaker Change: The balance sheet changes from year end 2023 reflect $437 $6 million of cash generated from the business representing approximately 98% EBITDA conversion.
Speaker Change: As well as $123 $4 million of incremental corporate debt.
Speaker Change: This was offset by $211 $9 million, primarily for investments in revenue generating head count there.
Speaker Change: Return of $284 $2 million of capital to shareholders and other normal movements in working capital.
Speaker Change: With a healthy balance sheet strong cash generation and growing earnings Newmark is well positioned to invest for growth and return capital to shareholders.
Speaker Change: Moving to guidance.
Speaker Change: Our outlook for full year 2025, compared with 2024 is as follows.
Speaker Change: We expect total revenues of between $2 9 billion and $3 1 billion, an increase of approximately 9% at the midpoint we anticipate.
Speaker Change: Adjusted EPS between $1 40.
Speaker Change: And $1 50 up 14% to 22%.
We expect our adjusted earnings tax rate to be between 14 and 16% and.
Speaker Change: And we anticipate adjusted EBITDA in the range of 495 million to $545 million, an increase of 11% to 22%.
Speaker Change: This outlook highlights newmark strong operating leverage at the midpoint of our 2025 guidance range. We expect 16, 5% adjusted EBITDA growth on a nine 1% increase in total revenues representing.
Speaker Change: Representing at least a 110 basis points of margin expansion.
Speaker Change: We continue to target at least $630 million and adjusted EBITDA and an additional 110 basis point margin expansion in 2026.
Speaker Change: This means that between 24 and 2026, we expect to improve our EBITDA margin by at least 220 basis points.
Speaker Change: 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.
Speaker Change: I would now like to open the call for questions.
Speaker Change: Thank you if you have dialed in via the telephone and we'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: You're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again, Please press star one to ask a question.
We'll pause for just a moment.
Speaker Change: We'll go first to Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb: Yeah good morning.
Speaker Change: Happy Friday.
Alexander Goldfarb: So two questions here first just.
On the G&A Brian.
Alexander Goldfarb: Two part question, how much of the earnings outlook.
Alexander Goldfarb: Benefits from Howard not being in G&A anymore, and then second with regards to the settlement is there any material change in your D&O premiums.
Speaker Change: Sure Good morning, Alex.
Speaker Change: You know of course, Howard moving on as reflected in our guidance.
Speaker Change: 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&O.
Speaker Change: Okay.
Second question.
Speaker Change: Are you talking spoken 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.
Speaker Change: You look at data centers, it's a hot topic.
Speaker Change: There has been a challenging utility hookups the time to bring these things online.
Speaker Change: 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 the height versus the challenges versus what's what's reasonable, but we'll see.
Speaker Change: We did you know we did over 17 at close to $17 billion in data centers last year.
Speaker Change: And.
Speaker Change: We expect to do more.
Speaker Change: The combination of reassuring.
Speaker Change: The chips Act.
Speaker Change: The new administration investing heavily in infrastructure.
Speaker Change: And.
Speaker Change: The advent of artificial intelligence.
Speaker Change: Makes you know the future look incredibly bright for that particular industry.
Speaker Change: And there are you know there are power issues over the long term.
Speaker Change: But those are being dealt with all also on the other hand by us being involved in power acquisition.
Speaker Change: Advanced manufacturing.
Speaker Change: The nature of our business as we're designing it for to solve and come up with the solutions on all those fronts, which includes power which includes land which includes.
Speaker Change: The technology, which includes the financing which includes the equity and all of the buying the right players in the hyper scalar and the users and the tenants.
Speaker Change: We were in and we're in an incredible position to take advantage of that and capture market share in that space. We saw a decrease early we acted early and a result, we're doing a significant amount of business in that space.
Speaker Change: Okay. So it sounds like for you the hype is Israel.
Speaker Change: A lot of this stuff that we read about will come to fruition versus.
Speaker Change: I must say bubble, but like right now there is a moment of it for you but in a few years it will Peter out.
Speaker Change: I think it's more than euphoria.
Speaker Change: If you believe in AI.
Hugh you believe in advanced manufacturing you believe in semiconductors.
Speaker Change: We believe in robotics.
Speaker Change: We believe in America.
Speaker Change: You should believe in the reality of this.
Speaker Change: Vertical.
Speaker Change: Thank you.
Speaker Change: Well go next to Patrick O'shaughnessy with Raymond James.
Patrick O'Shaughnessy: Hi, good morning, so only $2 million a forgivable loan spend in the fourth quarter why was it so low in the period and then what are your expectations for 2025.
Speaker Change: Good morning, Patrick.
Speaker Change: For the year, we spent over $200 million the second consecutive year in a row, where we invest.
Speaker Change: <unk> invested heavily into the business and future growth. So you know the fourth quarter is just a point in time, it's one quarter I think you have to look at over a period.
Speaker Change: I would say looking ahead, we would expect it didn't 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 of capital on our investments.
Speaker Change: Got it thank you.
To what extent this leadership turnover at the FHFA and potential changes to Fannie and Freddie ownership structure impacts your outlook for multifamily activity.
Speaker Change: Well certainly if anything happened in terms of privatization or any change.
Speaker Change: There is a historic.
Speaker Change: No precedent for what happened I mean, do you still have loans, there's probably a 20 basis points change in spread historically, but the caps were the same.
Speaker Change: Celebrated loans.
Speaker Change: The importance of Freddie and.
Speaker Change: Penni was before the conservatorship was was pretty important.
Speaker Change: Don't think that's going to change.
Speaker Change: Anytime soon.
Speaker Change: Got it. Thank you and then last from me.
Speaker Change: Any.
Speaker Change: Views are any or detail on how Howard Lutnick, we'll divest as ownership.
Speaker Change: I think that as we put out a press release when his commerce Secretary.
Speaker Change: Appointment was originally announced he doesn't expect to sell shares on the open market.
Speaker Change: Certainly the confirmation hearing is coming up shortly and I'm sure we'll know more.
Speaker Change: Alright, thank you.
Speaker Change: We'll go next with Julian Blowin fluent with Goldman Sachs.
Julian Blowin: Thank you for taking my question and congratulations on an outstanding quarter.
Speaker Change: 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 how are you thinking about 2025. After what was a really strong end to the year and 'twenty four.
Speaker Change: Good morning, Julien as Barry said in his prepared remarks, our pipelines remained strong across all of our businesses.
Speaker Change: Certainly there is some some headwinds in the market, but you know our pipelines remained strong and we see double digit growth in capital markets over the next two years so.
Speaker Change:
Speaker Change: It would have been way better if there weren't the market headwinds.
Speaker Change: Okay, great. Thank you and I guess, specifically maybe touching on industrial you know we've heard from from some of your peers are.
Speaker Change: Around fears that.
Speaker Change: Trade policy uncertainty could lead to buyers and occupiers, maybe pausing activity I guess do you have any sort of view on that or are you seeing any signs of that yet.
Speaker Change: Yeah.
Speaker Change: Look there is there there's always.
Speaker Change: Fear and in some and some camps about things, but we are our.
Speaker Change: Our view that the reassuring the investment in creating jobs in the United States.
Speaker Change: We will have a positive effect on the United States, we think that that.
Speaker Change: It's likely to be a positive you know people look at inventories in supplies supply chain as a determinant of whether.
Speaker Change: There is excess capacity in manufacturing, but you know that that those metrics are pretty good.
Speaker Change: There was a little bit of an oversold supply last year of industrial there was quieter last year, but I think that that's going to accelerate in terms of the advanced manufacturing the chips are.
Speaker Change: Other aspects.
Speaker Change: We will replace any of that any issue in terms of an oversupply, but.
Speaker Change: We were encouraged by industrial.
Speaker Change: Okay, great. Thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one.
Speaker Change: Well go next to Jade Rahmani with K B W.
Speaker Change: Thank you very much.
Speaker Change: In terms of the our pipeline of deals from banks you know last year. Clearly you won the signature deal a record transaction do you anticipate any large loan portfolio sales from the banks can you talk to that trend if it the trend you see increasing broadly in the market.
Speaker Change: Well.
Speaker Change: Obviously, Basil requires banks to reserve a certain amount of cattle capital if they are overweighted in the CRE book.
Speaker Change: I would suspect that fundamentally many banks are overweight in real estate.
Speaker Change: But you know, but you know there they're carefully titrated between earnings and capital.
Speaker Change: <unk>, increasing their earnings and in 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.
Speaker Change: <unk> accelerated fashion that people might have predicted we were you know we are a slow and steady selling loans.
Speaker Change: And structuring those in a way that has that has the least negative impact on the banking community and.
Speaker Change: You know in the in the financial crisis, what the 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.
Speaker Change: To doing that and preserving the integrity of our banking system, but you know there there is an overweight and and there is a movement.
Speaker Change: The debt markets to private capital both captive insurance companies.
Speaker Change: Insurance companies in general private equity debt funds.
Speaker Change: That's going to proliferate, so a big part of the what was traditionally bank finance will move over to the private private world.
Speaker Change: Thank you and then in terms of the 2025 outlook just wondering I think you've talked to double digit growth in capital markets over the next two years, but could you perhaps tease out what your assumptions are for both capital markets and leasing in <unk>.
Speaker Change: 2025, it would just be helpful to.
Speaker Change: You hear about what Youre thinking.
Speaker Change: Sure.
Speaker Change: We're fundamentally.
Speaker Change: We have the benefit of building a company and having white space in attracting talent.
Speaker Change: Three years ago.
Speaker Change: We werent necessarily four years ago not necessarily in every conversation. We're in every conversation today. We're in every beauty contest where were considered as a sort of a go to advisor. So there's a there's a significant amount of opportunity for us too.
Speaker Change: To achieve market share there.
Speaker Change: That you know fights against the headwinds of the market. So we're optimistic about that.
Speaker Change: Being accelerated over any any any headwinds we think that's far greater than if we you know there is some pause because of interest rate moves short term interest rate moves. So and then we've been in we've been able to demonstrate that we continue to do that we've we we've we take the same approach in leasing.
Speaker Change: So yeah leasing.
Speaker Change: The good news is that people are coming back to the office. The good news is people realize that the productivity. There is a productivity client decline when people don't show up you know there is when you don't have a culture of what kind of business that you have so the the that the the anecdotes around that are moving in the right direction.
Speaker Change: They're not building much more office space, there is conversions of office space into residential and hotels et cetera, which which also bodes well.
Speaker Change: So you know and there are new industries cropping up you know the amount of new business is whether it's you know in our in the technology space in the crypto space in our in our financial services has done pretty well and they're generally expanding in the U S. Market has remained remain strong. So I think we as a company.
Speaker Change: <unk> will deal with the headwinds, but you know this is a good place for the best people and the best people garnered the most opportunity and as we continue to expand and attract brokers and professionals and advisors and bankers investment bankers, who want to be.
Speaker Change: Be it a platform that gives them the kind of running room for the high quality business coupled with.
Speaker Change: You know the the overlay of high high quality solutions, we think that all of that really plays well for us.
Speaker Change: So jade I would add that at the midpoint, we guided up 9% roughly on revenue.
Speaker Change: And I don't think you'll be shocked to hear that we think capital markets will grow a little faster than that.
Speaker Change: Are we seeing probably a little slower than that and we think our management sort of in line those are the high level assumptions.
Speaker Change: Great. Thanks, so much.
Speaker Change: Yeah.
Speaker Change: We will now take a follow up question from Alexandra Goldfarb with Piper Sandler.
Alexandra Goldfarb: Alright, thank you.
Alexandra Goldfarb: Barry you guys have had some good luck and success with your overseas expansion are often in the 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 been any adjustments.
Alexandra Goldfarb: 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.
Mike: Hey, Alex It's Mike I'll start and then Barry will probably jump in.
Mike: We're continuing to build our international business. So we just started building Germany.
Mike: In the last quarter or two.
Mike: Started building, France, maybe two or three quarters ago.
Mike: We bought Gerald even the U K and now we've combined.
Mike: All of our U K companies together I mean, our U K revenue in the fourth quarter was up 50% year over year.
Mike: 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.
Mike: Yeah I agree we don't believe that it's gonna have long long term, obviously, we're wrapping up we think that our profit margin margins could be certainly certainly equal or better.
Mike: Thank you.
Mike: This does conclude the question and answer portion of today's call at this time I would like to turn the call over to Derek Johnson CEO for any closing comments.
Derek Johnson: Thank you for joining us today.
Mike:
I remain very excited about the company and we look forward to updating you on our next quarterly call. So thank you.
Mike: This does conclude today's conference call you may now disconnect.
Mike: [music].
Mike: Okay.
Mike: [music].