Q1 2025 Newmark Group Inc Earnings Call
Good day and welcome to the Newmark Group first quarter 2025 financial results. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Jason Mcgruder head of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, and good morning, Newmark issued its first quarter 2025 financial results press release. This morning, unless otherwise stated the results provided on today's call compare only the three months ending March 31, 2025, with a year earlier period.
Speaker Change: That is otherwise specified we will be referring to results only on a non-GAAP basis, including the terms adjusted earnings and adjusted EBITDA unless otherwise stated any figures discussed today with respect to cash flow from operations refers to net cash provided by operating activities excluding loans.
Loan origination and sale.
Speaker Change: Activity. 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. Please refer to today's press release, the supplemental tables in our quarterly results presentation on our website for complete updated definitions of any non-GAAP terms reconciliations of these items to the corresponding GAAP results and win.
Speaker Change: How and why management uses them 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 to 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.
Speaker Change: Should be considered formal guidance also I'll remind you that information on this call contains forward looking statements <unk>.
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.
Speaker Change: As required by law, we undertake no obligation to update any forward looking statements for complete discussion of the risks and other factors that may impact. These forward looking statements.
Speaker Change: Our SEC filings, including but not limited to the risk factors and disclosure regarding forward looking information on our most recent SEC filings, which are incorporated by reference Im now happy to turn the call over to host and Chief Executive Officer, Barry Gossip.
Barry Gossip: Good morning, and thank you for joining us.
Barry Gossip: We are pleased to report another successful quarter, demonstrating robust growth and strong operational performance, which underscores our strat strategic vision and commitment to delivering value to our clients and stakeholders.
Barry Gossip: <unk> exceptional talent and industry, leading insight led to our 22% increase in revenues and approximately 40% growth in our earnings metrics.
Barry Gossip: This included another quarter of double digit gains across every major business line, we grew capital markets by 33% as new Mark once again outpaced the industry across both investment sales and origination while continuing to advise on earnings increasing number of portfolio.
Barry Gossip: And entity M&A deals please.
Barry Gossip: Please your fees were up 31% driven by increased activity in New York City, Boston and as well as a strong rebound in the San Francisco Bay area.
Barry Gossip: We increased management and servicing revenues by over 10%, which reflected strong valuation and advisory growth.
Barry Gossip: We also benefited from the expansion of services across our recurring business lines, such as asset management and servicing underwriting and due diligence dedicated staffing solutions and outsource lease administration and property accounting.
Barry Gossip: Our continued focus on our strong balance sheet and cash flow generation has put the company in an excellent position to grow.
Barry Gossip: We continue to Hans our capabilities in nearly all verticals and geographies, while broadening and diversifying into more service lines and alternative property types.
Barry Gossip: We have built a platform that is engineered to excel.
Barry Gossip: Given our deep relationships with clients and the strength of our brand we anticipate further market share gains over time.
Barry Gossip: We recognize however that there are potential geopolitical headwinds that may have a dampening effect on industry activity. Despite recent market turbulence. We are excited to come to work every day to continue this odyssey of building on the foundation, we have created for a scalable and sustainable.
micro slowly: Enterprise with that I'm happy to turn the call over to our CFO micro slowly.
Speaker Change: Thank you Barry and good morning.
Speaker Change: We had a strong start to the year with 21, 8% growth in revenues and approximately 40% growth in our earnings metrics.
Speaker Change: Revenues were $665 5 million compared with $546 5 million.
Speaker Change: We increased management services servicing and other by 10, 5% the seventh consecutive period of solid year on year improvement.
Speaker Change: Leasing revenues were up by 31% driven by strong double digit growth in office and retail leasing volumes.
Speaker Change: Capital markets revenues grew by 32, 7% as we continue to gain market share.
Speaker Change: This reflected 62, 5% volume improvement with growth across every major property types, including 40% in our GSE FHA origination volumes.
Speaker Change: Turning to expenses.
Speaker Change: Compensation increased by 21, 8%, which reflected higher commission based revenues and costs related to new market growth initiatives.
Speaker Change: Non compensation expenses included higher pass through costs and other items related to increased revenues.
Speaker Change: The company's tax rate for adjusted earnings was 14, 3% in line with full year guidance.
Speaker Change: Moving to earnings.
Speaker Change: We increased adjusted EPS by 40% to 21.
Speaker Change: Compared with 15.
Speaker Change: Adjusted EBITDA was $89 2 million up 45% versus $63 5 million.
Speaker Change: Our adjusted EBITDA margin improved by approximately 180 basis points to 13, 4%.
Speaker Change: With respect to share count.
Speaker Change: Our fully diluted weighted average share count for adjusted earnings was down slightly to $255 3 million.
Speaker Change: Although we did not repurchase any shares during the quarter, we have $371 $9 million remaining under our repurchase program.
Speaker Change: We continue to believe buybacks are prudent allocation of capital and anticipate further share repurchases.
Speaker Change: Turning to the balance sheet.
Speaker Change: We ended the quarter with $157 $1 million of cash and cash equivalents and one three times net leverage.
Speaker Change: The changes from year end, 2024, reflecting $100 million of incremental borrowing under our credit facilities.
Speaker Change: Offset by cash used with respect to the hiring of revenue generating professionals and normal seasonal first quarter movements in working capital.
Speaker Change: Moving to guidance.
Speaker Change: For 2025 outlook remains unchanged.
Speaker Change: While our revenue pipeline continues to show growth into the second quarter. It is difficult to predict the impact if any the tariffs and interest rate volatility may have on our results.
Speaker Change: For the full year, we expect capital markets revenues.
Speaker Change: To be better than the 9% midpoint of our guidance range management and servicing to perform roughly consistent with the first quarter.
Speaker Change: And our leasing business to grow less than the midpoint of our revenue guidance range.
Speaker Change: Lastly, we want to take a moment to congratulate Lew Alvarado on his recent promotion to Chief operating officer.
Speaker Change: <unk> been with the company since 2015 and has helped us deliver strong growth over the past decade.
Speaker Change: As always we will be joining us for Q&A.
Speaker Change: With that I would now like to open the call for questions.
Speaker Change: Thank you.
Speaker Change: If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment again, you can press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: Yes.
Speaker Change: We will now take your first question coming from Alex Goldfarb with Piper Sandler.
Speaker Change: Hey.
Alex Goldfarb: Good morning, good morning down there and first Lou Congratulations Mazeltov Thats awesome on the promotion.
Speaker Change: Thank you so the FERC.
Alex Goldfarb: First question is just Barry I mean, obviously, what everyone wants to know is what the what your clients. Your your your relationships, what theyre, saying very strong first quarter, we've seen from the office Reits there.
Alex Goldfarb: There doesn't seem to be any leasing slowdown we've heard the same on the retail REIT. So far so how do we interpret sort of this macro uncertainty with what youre seeing in the business and do you have any anecdotes of people pulling back leasing deals are or stepping away from transactions built.
Alex Goldfarb: <unk> sales et cetera, anything that gives color to whats going on in the market.
Alex Goldfarb: We're seeing deals go through continuing to go through that's why we're seeing so far and same with the same leases, we're not we're not really seeing any.
Alex Goldfarb: Firm change and.
Alex Goldfarb: And making decisions.
Alex Goldfarb: In the <unk> market has slowed down.
Alex Goldfarb: It seems like the banks are putting out bridging the gap at this point, we are seeing some bank loans.
Alex Goldfarb: For the first time in some respects, but but generally not it's too early to tell.
Alex Goldfarb: It's 100 days in it's been <unk>.
Alex Goldfarb: Active 100 days.
Alex Goldfarb: We'll see what happens over the next 90 days.
Speaker Change: And on the transaction front have you seen people pulling buildings from the market or I mean that would seem logical just given what's going on in the capital markets or your view is no people are still putting product out on the market to transact.
Speaker Change: Generally interest rate if there was a perceived significant decline in interest rates people might.
Speaker Change: Slow up putting things on the market, but we haven't we haven't really seen that.
If if the fed indicated Dave.
Speaker Change: They drop interest rates by 50 basis points, you might see you might see a change in the market because people will expect cap rates to rise in light of the decline in interest rates, but but not really not really it's right now it's the uncertainty is.
Speaker Change: <unk> is annoying.
Speaker Change: And concerning.
Speaker Change: Things are still trading.
Speaker Change: And then Mike just on the stock buybacks you mentioned that in your opening comments again, just with the backdrop of the uncertain economy.
Speaker Change: The capital markets et cetera, do you do you feel comfortable engaging in stock buybacks in the current or you would say hey, we're better off to keep our cash on hand.
Speaker Change: For the future rather than buying back stock.
Speaker Change: Short answer is I feel really comfortable buying back stock and when you look at our balance sheet.
Speaker Change: Really clean low net leverage of one three times.
Speaker Change: And we're pretty careful about how we manage our balance sheet and how we manage our capital.
Speaker Change: We made some investments in the first quarter.
Speaker Change: Into continuing to grow the business and you can see that in our cash flows and so we didnt buyback any stock, but I think youll see us.
Speaker Change: Pivoted to buying back stock as we move into the second quarter here.
Speaker Change: Thank you.
Speaker Change: Again as star one to ask a question we will now move to our next question coming from Jade Rahmani from K B W.
Speaker Change: Thank you very much.
Speaker Change: You all have grown the management services part of the business.
Speaker Change: And continue to do so can you talk about what differentiates newmark.
Speaker Change: And that business what the core services are that you are providing and what's driving the growth there.
Speaker Change: Well, we do a bunch of things that we think are different than our than our peers.
Speaker Change: We have a managed service program, we provide staffing.
Speaker Change: We are moving in to the fund administration and property accounting.
Speaker Change: <unk>, which is a little different.
Speaker Change: It really puts us.
Speaker Change: It puts us squarely in partnership with our investor clients, providing them with service and giving them the ability to provide variable support.
Speaker Change: It fits with our strategy, we think it.
Speaker Change: Elevates our brand.
Speaker Change: It's a very sticky and value added piece of business.
Speaker Change: We are still growing our property management and facility management as well.
Speaker Change: And.
Speaker Change: And all of that at all of that is growing world. We're a lot more focus.
Speaker Change: On it.
Speaker Change: Our superpower has been.
Speaker Change: Our investment advisory sales in loan origination business, that's what gives us the gravitas.
Speaker Change: And the.
Speaker Change: The reputation.
Speaker Change: And the elevation of our brand over the last.
Speaker Change: 10 years not in 2015, we had a one 5% market share we're now nine pushing up to 10.
Speaker Change: I mean, that's a significant increase in market share in a and.
Speaker Change: Big segment of the business, which which also has characteristics that make it incredibly advantageous to the same people that higher property managers.
Speaker Change: Asset managers.
Speaker Change: Ill provide staffing all of those things.
Speaker Change: Put us around the hoop with those clients and.
Speaker Change: And we think that now that we have.
Speaker Change: Continue to elevate and build we think we're at it.
Speaker Change: And a much more mature positioned to be able to take advantage of.
Speaker Change: Of building more recurring revenue opportunities and it's it's hiring the right people going after the right business, having the right reputation.
Speaker Change: Having good success.
Speaker Change: We're doing all those things and everything that we've done has indicated that.
Speaker Change: That.
Speaker Change: And it continues to grow and it's going to build a head of steam.
Speaker Change: Thanks very much.
Speaker Change: I wanted to ask about.
Speaker Change: Stock compensation, which was I think outsized in the quarter, but <unk> included a one time item just the $21 million in GAAP charges related to Howard Lutnick that is called out in the press release is that a onetime item do you expect any other charges related to him that investors should anticipate.
Speaker Change: We would be helpful to know about that.
Mike: Sure Hi, Jade its Mike.
Speaker Change: The stock comp in the quarter I would say for the full year.
Speaker Change: We would expect it to be similar to last year.
Speaker Change: Howard item is a one time item converting as remaining units into shares as he exited the company.
Speaker Change: So we don't expect that to recur.
Speaker Change: Sure.
Speaker Change: So that's how we see the year playing out for Satcom.
Speaker Change: Thanks very much.
Speaker Change: We will now take your next question coming from Julien Blewitt with Goldman Sachs.
Speaker Change: Thank you and congratulations on the strong quarter.
Speaker Change: When I think about the decision to maintain guidance. Despite what was a pretty strong first quarter.
Speaker Change: Granted I know the back half of the year is where you derive the vast majority of your earnings for the year, but is that decision to maintain guidance really down to the broader macroeconomic uncertainty is there anything in April that sort of giving you pause.
Speaker Change: Or is it just sort of general conservatism at this point.
Speaker Change: Yes, Hi, Julien certainly we had a really strong start to the year.
Speaker Change: And we're seeing our pipelines continue to build on a year over year basis.
Speaker Change: I would say for Q2, we're seeing up about 10% or so in terms of our pipelines.
Speaker Change: Had.
Speaker Change: Had the macro environment been different we certainly would've been considering.
Speaker Change: Guiding towards the higher end of the range or perhaps even increase in guidance.
Speaker Change: But the macro environment is what it is.
Speaker Change: I would say that we have pretty good visibility through the first half of the year as Barry said, we're not seeing deals fall out of the pipeline at this point.
Speaker Change: Seeing things close.
Speaker Change: And when you think about the back half of the year, we now have 40% of our revenues and our earnings that are recurring.
Speaker Change: And we have very good visibility into that and so really what that means is in the back half of the year. Our transaction business is up low single digits to get to the midpoint of our guidance range.
Speaker Change: Which isn't which isn't a lot, but given the macro environment and I think we're just taking a more cautious approach right now.
Speaker Change: Okay, that's very helpful.
Speaker Change: And on that point.
Speaker Change: Their pipelines in the second quarter up 10% year over year does that correlate pretty closely to what you would expect for transaction volumes or can there be a significant sort of spread between those two.
Speaker Change: Yes, I think it's pretty consistent with what we would expect in terms of transaction volumes.
Speaker Change: We're seeing really strong capital markets activity.
Speaker Change: Continuing into the second quarter.
Speaker Change: Particularly on the on the debt side, where we continue to pick up market share. So as of right now everything continues to look good.
Speaker Change: We also have a.
Speaker Change: Again, we are we are.
Speaker Change: We are seeing opportunities.
Speaker Change: In our segment of the market that we weren't playing in.
Speaker Change: We are now playing in new markets, new categories, new types of business.
Speaker Change: We will continue to elevate the brand.
Speaker Change: People call us for things they might not have called us for two years ago and so that's that's a.
Speaker Change: That's an incredibly encouraging.
Speaker Change: Scenario that is playing out over the next few years.
Speaker Change: That's very helpful. Alright, Thank you.
Speaker Change: Yes.
Speaker Change: Your next question is coming from Patrick O'shaughnessy with Raymond James.
Patrick O'Shaughnessy: Hey, good morning, So newmark hasn't done an acquisition a while I'm just curious what's your current appetite for M&A versus continued broker team lift outs.
Speaker Change: Yes, I guess, we Havent said that 100% of our growth has been organic.
Speaker Change: We're careful about how we buy.
Speaker Change: Companies.
Speaker Change: <unk> depends on the company as you buy you buy a really Big company. Then you spend a lot of time with the friction involved in integrating lots of personalities lots of duplicate activity. So you get that on a big et cetera, that's a risky.
Speaker Change: Acquisition on a bolt on if you get smaller companies you are getting.
Speaker Change: The bulk of the spend is has gone to people who are retiring.
Speaker Change: And the real talent that drives the business.
Speaker Change: No.
Speaker Change: We navigate very carefully and how we bolt on and tack on so we have found and although it has some implications on an accounting basis for acquiring talent that the cost of sales acquisition of sales for us is much lower by going directly to talent and we've hired.
Speaker Change: Great talent so in some respects what we think is when the dust settles we will have a.
Speaker Change: Higher quality professional in our business now that doesn't mean that we're not going to buy there are things. We are looking at and we think when the pipeline is appropriate.
Speaker Change: There is a white space that we can continue to fill to build out the platform on a global basis, and we're doing it and if buying makes sense will bias acquiring talent makes sense, we'll acquire we're very nimble in that respect.
Speaker Change: Okay great.
Speaker Change: And then can I get your current thoughts on the outlook for multifamily and then I guess any on Friday in particular, given some of the leadership changes there.
Speaker Change: I mean, the word coming out of the FHFA is generally consistent that.
Speaker Change: The government, regardless of what side of the <unk> wants more housing need an understanding of the shortage of housing United States. So I don't think theyre going to want to get in the way of creating housing so that seems to be the the narrative coming out of Canada.
Speaker Change: Out of Washington.
Speaker Change: The talk about privatization of Fannie and Freddie.
Speaker Change: It would be a three to four year process to get it done it'll be outside the realm of this administration before the benefits of doing it.
Speaker Change: Really happen.
Speaker Change: <unk>.
Speaker Change: So thats and there is a history of an unprecedented of that before.
Speaker Change: Yes, as long as the implicit guarantee from the government to create housing is continues it will have no impact, but nothing for the foreseeable future 'twenty six 'twenty seven.
Speaker Change: Yes, I would add to that.
Speaker Change: We certainly had a strong year over year performance in terms of volumes and origination in the first quarter on the debt side, we continue to see that building.
Speaker Change: We don't we don't really see any slowdown in those markets at this point, our multifamily has not missed a beat in terms of demand.
Speaker Change: You have a shortage of housing you also have the same metrics that.
Speaker Change: That's been happening for the last 10 years people are buying houses later, there's more mobility piece.
Speaker Change: People rent for longer and Thats and the ability to rely on a 30 year mortgage paying down your mortgage and retiring off the value of the house is not really something that happens the way it used to happen in the $60 $70 80, so are.
Speaker Change: We think multifamily is going to continue to be an important asset class and continued to be strong there'll be pockets, where there'll be oversupply.
Speaker Change: But like any any market that has an oversupply, but it's in general multifamily is really a good category for we think a long time to come.
Speaker Change: Alright terrific. Thank you.
We will take your next question coming from Jade Rahmani with K B W.
Jade Rahmani: Thank you I'm not sure if the tariff environment has impacted this but competitive environment for recruiting has seen.
Speaker Change: Seemingly picked up quite a lot.
Speaker Change: Cushman <unk> Wakefield outlined their plans and some of the team they're hiring.
Speaker Change: No. He's still is also active as well so I just wanted to get your comment on the competitive environment recruiting and Nu Mark plans I believe we do still plan to grow in <unk>.
Speaker Change: Terms of your.
Speaker Change: Commission driven revenue producing staff.
Speaker Change: So I mean, we were going to go to company people want to be at Newmar that.
Speaker Change: That's looking at everything we say and everything we do.
Speaker Change: We continue to hire.
Speaker Change: But we're not going to overcrowd ourselves.
Speaker Change: There are places, where we have white space, we believe in high revenue per capita.
Speaker Change: More with less.
Speaker Change: That's part of our strategy our strategy isn't just more one word.
Speaker Change: And.
Speaker Change: So we continue to hire I mean, you just look at the people we hire.
Speaker Change: And.
Speaker Change: Eric.
Speaker Change: <unk>.
Speaker Change: Everyone has the higher you have to constantly replenish your talent.
Speaker Change: And train your talent and bring talent up from the bottom up.
Speaker Change: So we don't.
Speaker Change: We think we're incredibly competitive and most of the recruiting is going our way.
Speaker Change: And that's we think that's going to continue and it is going to continue to accelerate which has had as we've had in Europe.
Speaker Change: We opened in Germany.
Speaker Change: Five months ago.
Speaker Change: We've signed our 54th contract.
Speaker Change: We're incredibly competitive.
Speaker Change: It's.
Speaker Change: It's an exciting market people are excited to see us in Europe.
Speaker Change: As the.
Speaker Change: The kind of the kind of company that recognizes talent respects professionals and.
Speaker Change: <unk> is a good place to work.
Speaker Change: Thank you.
Speaker Change: And it appears there are no additional questions at this time I will now.
Speaker Change: Now I'll turn the call back to you for your closing remarks.
Speaker Change: Well, thank everyone for joining us today, we hope to see you in the next quarter.
Speaker Change: Okay.
Speaker Change: This concludes today's call.
Speaker Change: For your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
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