Good morning, and welcome to Newmark's First Quarter 2022 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to turn the call over to Jason McGruder, Head of Investor Relations. Thank you, and please go ahead.

Thank you, operator, and good morning. Newmark issued its first quarter 2022 financial results press release and a presentation summarizing these results this morning. The results provided on today's call compare only the first quarter of 2022 with the year-earlier period, unless otherwise stated. Any figures with respect to cash flow from operations discussed on today's call refer to net cash provided by operating activities excluding loan originations and sales. We will be referring to our results on this call only on a non-GAAP basis unless otherwise stated. These non-GAAP terms include adjusted earnings and adjusted EBITDA; please see the section in today's press release for complete and/or updated definitions of any non-GAAP terms, 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 is available on our website in supplemental excel tables and then in the quarterly financial results presentation. Any outlook discussed on today's call assumes no material acquisitions, share repurchases, or meaningful changes in the company stock price. These expectations are subject to change based on various macroeconomic, social, political, and/or other factors, including the COVID-19 pandemic and the Russia/Ukraine conflicts. While our 2025 financial and operational targets do assume acquisitions, they are also subject to change for these same reasons. None of our targets or goals through 2025 should be considered formal guidance. I also remind you that the information on this call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements involve risks and uncertainties. These include statements about the effects of 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 that actual impacts may differ 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 additional risks and uncertainties that could cause the actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including but not limited to the risk factors set forth in our most recent Form 10-K, Form 10-Q, or Form 8-K filings. I'm now happy to turn the call over to our host, Barry Gosin, Chief Executive Officer of Newmark Group, Inc.

Good morning everyone and thank you all for joining us. With me today are Newmark's Chief Financial Officer, Mike Rispoli; our Chief Strategy Officer, Jeff Day; and our Chief Revenue Officer, Lou Alvarado. I'm proud to report that our revenues increased 35%, resulting in our fourth consecutive quarter of record revenues. This included a record first quarter for management services, servicing fees, and other. These businesses increased by 24%. We are on track for our recurring revenue businesses to represent over 40% of our total revenue by 2025, compared with 31% currently. We had our best ever first quarter in leasing revenues, which improved by 35%. This reflected significant increases in office transactions as tenants continue with their plans to return to the workplace. Newmark generated 50% growth in revenues from investment sales and a 40% increase from commercial mortgage origination, including multifamily. After the end of the quarter, we acquired two companies, BH2, a well-known firm in the London market that specializes in investment sales on the sell side and buy side leasing and occupy advisory, and McCall and Almy which strengthens our multi-market tenant representation business. These firms strategically enhance our business, adding best-in-class talent and client relationships. Historically, the companies we have acquired benefited from our platform and grown their top line by more than 50%. In addition, we launched operations in Hong Kong this month, where we hired some of the industry’s leading capital markets and leasing professionals. We remain confident that we will meet our goal of generating over 10% of our revenues from outside the U.S. well before our prior target of 2025. Despite the current macroeconomic conditions, we believe that the fundamentals of our business and our industry-leading growth remain strong and that we will meet our previously issued guidance. We are in a very strong financial position with virtually no net debt and remain confident and on track to achieve our 2025 goal of $900 million of adjusted EBITDA. With that, I'm happy to turn the call over to Mike.

Thank you, Barry, and good morning. Today, Newmark reported its best ever first quarter revenues and earnings. Revenues were $678.2 million, up 34.6% compared with $504 million. Adjusted EBITDA was up 64.5% to $126.5 million versus $76.9 million. Adjusted EPS was up 80% to $0.36 compared with $0.20. Our adjusted EBITDA margin improved by 339 basis points to 18.7% versus 15.3%. Expenses increased by $126 million, of which $77.1 million was variable compensation, primarily related to growth in commission-based revenues. $35.8 million was related to acquisitions, and the remainder was due to increased business activity. Moving to the balance sheet. We had $442.8 million of cash at quarter end, and our net leverage ratio was 0.15 times. During the quarter, we sold the remaining NASDAQ shares that were held on our balance sheet at year-end. From July 1st of 2021 through March 31st of 2022, we realized $30.2 million of additional GAAP income from these shares as compared to the $1,093.9 million we recognized in the second quarter of last year. Since 2017, Newmark received nearly $1.5 billion from the NASDAQ asset, including hedging and dividends. Our liquidity decreased by $133.1 million from year-end, which includes the $87.6 million decline related to the sale of NASDAQ shares, $30.9 million for repurchases of 1.7 million shares of Newmark stock, and normal first quarter changes in working capital. This year through yesterday's close, we repurchased 7.4 million shares of Newmark for $110.4 million at an average price of $15.01 per share. Turning to our guidance. Despite the current macroeconomic environment, given our strong first quarter performance and revenue visibility for the second quarter, we continue to have confidence in our full-year outlook, and we are confirming our guidance. We expect revenues to grow between 3% and 7% compared with $2,906.4 million. We anticipate adjusted EBITDA to increase between 4% and 9% versus $597.5 million. We expect our adjusted earnings tax rate to be between 17% and 19% compared with 18.9%. We expect the weighted average share count to decline between 2% to 3% compared with $264 million. And now, I'd like to turn the call back over to Barry.

Based on the analyst consensus, we will have increased our EPS by 40% between 2019 and 2022, with a large majority of this growth being organic. While our stock is up only 2% since 2019 as of yesterday, that is why we continue to buy back shares. Operator, we're now ready to take questions.

Thank you. [Operator Instructions] Our first question is from Alexander Goldfarb from Piper Sandler. Alexander, you may proceed.

Great. Hey. Good morning, good morning down there.

Good morning.

First, appreciate the commentary on the record volumes and record revenues in the first quarter. So two parts about that. One is the $0.12 NASDAQ gain, was that what drove the overage, I guess the outperformance in the stock, I mean, sorry, in the results? And then the second is just given the overall strong commentary, there was no change in the full year outlook. So are you guys expecting sort of a weaker back half or are there other things at work such that you didn't raise the EBITDA or revenue expectations just given the strength of the first quarter?

Good morning, Alex. So on the NASDAQ, we had received the shares back in the second quarter of last year at about $175. And over the course of that time through March, we were able to exit the stock at an average of $180.66. So about 2.5% to 3% above the value which we received. The $30 million is the gain over that period of time. None of that of course, is in our non-GAAP results. That's just all in GAAP. With respect to EBITDA guidance and earnings guidance, over since 2019, we'll be up 37% in earnings. And I think we like to get a little credit for that performance. We had a great first quarter, our Q2 pipeline continued to be strong and I think as long as soon as we have some more visibility into the back half of the year, we'll consider revisiting guidance.

Okay. So Mike, if I understood you correctly, strong first quarter, you're hopeful that the second quarter follows suit, but right now just given everything in the macro backdrop you guys don't want to be adjusting the outlook right now, is that correct?

I think it's a little too early in the year to start changing our guidance.

Okay. The second question is on the NASDAQ. Previously, you guys had indicated that you were in no rush to exit; you were going to retain it for flexibility, I think also, but you obviously accelerated that. Was that again due to changes in the macro backdrop or was there something else, either you're planning on accelerating stock buybacks or something else at work?

Our intent was always to exit the stock gradually over time. Certainly, the macro conditions changed as we got into the first quarter, and we wanted to make sure we maximize the value from those shares and over time, put close to $1.5 billion on our balance sheet because of that. So we think it was the right time to do it. As you saw, we continue to buy back stock into the second quarter fairly aggressively. And as long as the stock continues to trade below where we think is a fair value, we'll continue to consider that for ease capital.

Okay. Thank you.

Our next question is from Chandni Luthra from Goldman Sachs. Chandni, your line is open.

Hi, good morning, everybody, and thank you for taking my question. So we heard from several multifamily REITs this week, and a lot of companies talked about seeing some form of falls in transaction activity, talking about basically how a lot of leverage buyers are getting priced out or perhaps a bit spooked. What are you seeing from your standpoint? How do you think about multifamily volume, transaction volumes ahead in the year?

Hi, this is Jeff Day. We've seen a decrease in the total number of buyers, which were a huge group in every transaction last year. However, there is still significant liquidity in the marketplace. We saw very good flow in the first quarter, and we've seen very good flow going into the second quarter. So we're cautious, but we're still optimistic that there's a sufficient supply of capital out there that is still very interested in getting into the multifamily space. Certainly through the second quarter, we're not expecting a material slow down.

And on industrial, if I could kind of continue with sort of that volume transaction thread. So this morning, I mean, last night, Amazon reported, and they basically talked about getting it perhaps a bit too aggressive in their supplies. They are going to be a bit more cautious. How do you think about basically transactions on the industrial side looking ahead into 2022?

Hi, this is Lou Alvarado. We have seen the issue on industrial; really the activity has been there. It's been more about supply. A lot of the supply has been absorbed, so it's really the new construction that's coming online. And yet the demand still seems to be there. Yes, there's been a slow down from Amazon, but there have been others that have been taking up that space. There's also been some repurposing of space as well. So we're still seeing a fair amount of volume, we're not seeing a significant slow down, particularly in those larger cities as they move in closer for that last mile distribution; the activity is still strong.

Got it. I may get one more. You guys obviously have outlined these plans to expand in eight to ten global markets, but given the geopolitical situation right now we have COVID lockdowns in China. How do you think about your ability to scale in some of these businesses, these newer businesses that you just expanded into?

Great.

Our next question is from Jade Rahmani from KBW. Jade, your line is open.

Yes. Thank you very much. Can you hear me?

Yes.

Hello? Okay, great. Just wanted to make sure there's no technical issues. Are you seeing any changes in investor behavior thus far given the move-in rates just in the last few weeks?

Jade, this is Lou Alvarado. No, definitely the rates have had some impact. As Jeff said, what you're seeing is a reduction in the number of bidders, but not really a real slowdown in the activity. There's plenty of cash out there still looking for deals and properties that are well-positioned are still transacting.

And those kinds of deals that are still in process, are folks changing pricing right now? I suspect that if there's a rate lock in place, they would-- they perhaps would not be trading in pricing assuming it's fixed-rate debt, but if it's floating-rate debt or there isn't a rate lock in place, are we seeing deals re-trade or are we seeing any price concessions?

We are seeing some impact of the rates, either re-pricing or just delays in the closing, but deals are still moving forward and there is still a connection between the two.

Okay. Do you think that investors... I was looking at some single-family for rent and multi-family rental IRR models, and it seems that over the last couple of years, IRRs are actually several hundred basis points above normal target hurdle rates. For buyers of those asset classes, especially if there's some kind of development component. So there's cushion already to absorb a slightly lower IRR and still hit hurdle rates. Do you think investors are in the beginning part of this rate cycle going to just accept several hundred basis points lower IRR and go forward with the deal because of the capital needing to be deployed? Or are they more likely to get more conservative and start closing deals that are much, much lower pace than what we are seeing?

My apologies. We do need to interrupt this question. It seems like we're having technical difficulties with some of the speaker lines.

No, actually we don't.

Please be patient while we...

Okay. We are back.

Hi, you may now proceed.

All right.

Can you hear now?

Yes. We can hear you loud and clear.

All right, let's go back to Jade's question. I think we were on Jade.

Yes, it was just basically that you got... oh, go ahead.

This is Jeff. I remember your question, so we won't make you repeat it. So what I would say is that SFR and BTR have had great returns over the last few years as a regular way multifamily for that matter. So I believe your question was two pieces. One is, are there going to be re-trades now? And two, are people going to accept lower yields going forward? So let's start with the first piece; any transaction that's in process right now, when you're in the middle of a transaction and the price is set, and there's a material movement in rates or otherwise, certainly a bidder is going to try to find a way to take advantage of that by reducing the price. Sometimes that will work, sometimes it won't work. There's still a tremendous amount of capital available for SFR, BTR, and multifamily. But on a going forward basis, because the returns have been so significant over the past few years, I do believe that even if they fall off due to an increase in rates or risk, there’s still quite a bit of return built into these business models and that it's not going to necessarily impact flow.

Okay. So it sounds like there's some cushion for investors to absorb higher rates without necessarily there being a price correction?

Jade, there's an enormous amount of demand for housing in this country, and although there are spreads of widening rates, rates are higher. It opens up some other opportunities; some of the debt funds and some of the SASB market will be replaced in some respects by Fannie and Freddie being more active. And this – which is good for our business in some respects. And if interest rates are higher and more speculative, opportunities like development, if development slows a bit then it will increase value and subsequently reduce supply. There'll be some moments of time when there's less supply, which will increase value in certain markets. So, there is always a yin to the yang.

Great. And then one other question is I've seen that the non-traded REITs are raising capital at such a phenomenal clip, raising $3 billion per month. And I was wondering if you could remind us whether Newmark has investment banking capabilities that would be advising on such deals as well. It seems that the non-traded REITs are going to have to do re-acquisitions in order to deploy their capital. So is that an opportunity for Newmark going forward this year?

Yes. We see that, Jade, as an enormous opportunity for Newmark, and we're really excited about it. We think we'll play really well in that area and all aspects of it. And also the amount of liquidity in those markets is going to drive values as well. They need to invest.

Thanks very much for taking the questions.

Our next question is from Patrick O'Shaughnessy from Raymond James. Patrick, your line is open.

Hey, good morning. I guess maybe digging into the topic of interest rates a little bit more. How do you see that impacting the mortgage brokerage and debt placement business of yours, if at all?

Look, obviously when there isn't security and what the spreads will be, there's a little bit of disruption, but we're doing more equity recaps and we're doing other forms of data. I just said, so people always need to refinance regardless of where the interest rates are.

Okay. Got it. Now that you guys have sold your remaining NASDAQ shares, your net debt-to-EBITDA is around in there at this point. How are you thinking about your long-term capital structure and what level of net debt is appropriate for your business model?

I think we've always said that use of capital; certainly, we're going to continue to use the capital to grow the company. We're going to return capital to shareholders, and operating at 1.5 times net debt leverage or below long-term is our target. So we think we can operate the business, get to the EBITDA targets that we've discussed—$900 million—and maintain really low leverage. So we're in a great position.

Got it. Thank you. And then maybe lastly from me, can you speak to some of the drivers behind your management services fee revenue growth and what is really leading to the strength there?

So Patrick, on the management and the non-recurring revenue really, it's really our valuation business, our corporate service business on the consulting side, and our property management. Those are areas that we've invested in and have had a focus in growth. We have a targeted amount of what we want them to continue to expand, and we're really happy with the way it's been working out.

Yes. And we also have the flex business in there, which we didn't have last year and in the first quarter, and we have in the first quarter of this year. So that's also contributing.

Great. Thank you.

There are no further questions at this time. [Operator Instructions]

Thank you for joining us today. And we look forward to updating you on the business next quarter.

As there are no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Gosin for any closing remarks.

Thank you all for joining us today. And we look forward to updating you on the next quarter.

That concludes the conference call. Thank you for your participation. You may now disconnect your line.