Good day and welcome to the Newmark Group 3Q ‘23 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Jason McGruder, Head of IR. Please go ahead.

Thank you, operator, and good morning. Newmark issued its third quarter 2023 financial results press release and presentation this morning. Unless otherwise stated, the results provided on today’s call compare only the three months ended September 30, 2023, for the year-earlier period. Except as otherwise specified, we will be referring to our results only on a non-GAAP basis, which includes the terms adjusted earnings and adjusted EBITDA. Please refer to the sections in today’s press release for complete and/or updated definitions of any non-GAAP terms, reconciliation of these items to the corresponding GAAP results, and how, when and why management use them. Unless otherwise stated, any figures discussed today with respect to cash flow from operations refer to net cash provided by operating activities, excluding loan origination and sales. Cash generated by the business is this latter cash flow metric before the impact of loans, forgivable loans and other receivables from employees and partners and the impact of the 2021 equity event. You can find more information on these items and with respect to our GAAP and non-GAAP results on our website in today’s press release in the supplemental Excel tables and the presentation. The outlook discussed today assumes no additional share repurchases, material acquisitions, or meaningful changes in the company’s stock price. Our expectations are subject to change based on various macroeconomic, sociopolitical and other factors. None of our long-term targets or goals beyond 2023 should be considered formal guidance. I’ll also remind you that information on this call about 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. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a complete discussion of additional risks and uncertainties, which could cause 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 in our most recent Form 10-K, Form 10-Q or Form 8-K filings, which are incorporated by reference. I am now happy to turn the call over to our host, Barry Gosin, Chief Executive Officer of Newmark.

Good morning and thank you for joining us. Newmark’s strategy of attracting, retaining and empowering the industry’s best talent resulted in significant market share gains in leasing and capital markets during the quarter. Clients increasingly seek our advice to help navigate the challenging environment and respond to shifting market dynamics. Our deep bench of world-class professionals in all major verticals across our expanding global footprint has enabled us to outpace the industry. We also generated double-digit growth in our recurring businesses during the quarter as we continue to expand our property management and global corporate services businesses as well as our high-margin servicing and asset management platforms. With respect to leasing, Newmark continued to outperform the industry with a 7.6% decline compared to overall U.S. leasing activity declining by 15% to 20% for both the third quarter and the year-to-date. Our year-to-date leasing revenues are down 5% versus last year and flat compared with the same period in 2019. Newmark’s industrial and retail leasing strength are expected to drive additional market share gains in the fourth quarter. Vacancies remain below long-term averages in nearly all property types in the U.S., except for office, which remains challenged outside of premium Class A properties. Our recurring revenues were up 14%. We expect these businesses to continue their strong growth led by the addition of Gerald and solid organic improvement across our global corporate services and property management platforms as well as our high-margin asset management and servicing businesses. We gained meaningful market share in investment sales during the quarter. This was particularly true in the U.S., where we materially outperformed the market by 19 percentage points according to RCA. Similarly, our total debt volumes outpaced the industry originations. We expect this outperformance to continue in the fourth quarter given our strong pipeline of capital markets activity. In terms of our intermediate and long-term view on capital markets, MSCI reports that the level of distressed assets in the U.S. is at its highest level in 10 years. And Newmark research estimates that approximately $1.2 trillion of outstanding commercial and multifamily mortgages in the U.S. are potentially troubled. As the industry leader in loan sales, this is an enormous opportunity for Newmark. Higher interest rates, rising cap rates, and the pullback in lending by banks and other traditional lenders continues to lead more investors and owners to seek innovative financing solutions. Talent matters most when markets are difficult, which is why our team of the highest quality professionals uniquely positions Newmark to gain market share and capitalize on the changing landscape. We expect our world-class debt platform to drive meaningful growth over time, due in part to the record $1.9 trillion of U.S. commercial real estate debt maturing by 2025. We anticipate these debt maturities will provide long-term tailwinds to our mortgage brokerage and origination businesses. And in the near-term, we expect a continued increase in the number of financings requiring the more bespoke and innovative transactions in which our professionals specialize. Recapitalizations and restructuring volumes are expected to become an ever bigger part of our business. We significantly outperformed our full-service peers in the record market of 2021 and also expect to outperform our peers in a challenging 2023 market. Our model has proven to be resilient and successful across the cycles. We expect to continue outpacing the industry in the fourth quarter of 2023 by generating double-digit growth in revenues, adjusted earnings per share and adjusted EBITDA. Our strong incremental margins will drive significant revenue and earnings outperformance when the industry capital markets volumes recover. With that, I’m happy to turn the call over to our CFO, Mike Rispoli.

Thank you, Barry, and good morning. Total revenues were $616.3 million, down 7.3%. We significantly outperformed the industry in capital markets as our investment sales and commercial mortgage origination revenues declined by 28.1% and 28.8%, respectively, compared to a more than 50% decline in overall market activity. Our leasing revenues also outperformed the industry, declining 7.6% in the quarter and 5% year-to-date as compared to a 15% to 20% decline for the industry for both periods. Our industrial and retail platforms have grown 45% over the last 12 months compared with pre-pandemic levels for 2019. Our management services, servicing and other revenues grew by 14.1%, led by the addition of Gerald Eve and growth from Newmark’s high-margin servicing business and improvement in GCS fees. Turning to expenses. Compensation expenses were down 5.2%, reflecting lower variable compensation, partially offset by expenses related to acquired companies and new revenue-generating professionals. Non-compensation expenses were up 1.4%, excluding the $9.8 million increase in pass-through expenses. The increase was due to acquisitions, which were largely offset by our cost savings initiatives. We have completed our $50 million fixed cost reduction initiative one quarter ahead of schedule and are now increasing our savings target to $75 million. We expect to complete this additional $25 million of savings by the second quarter of 2024. Moving to earnings. Adjusted EBITDA was $96.3 million versus $122.5 million. Our earnings per share were $0.27 compared with $0.35. Our fully diluted weighted average share count increased by 1.5% to $247.2 million. We repurchased 2.8 million shares for $18.9 million during the quarter and 5.1 million shares for $32.3 million year-to-date. We expect our fully diluted weighted average share count for adjusted earnings to be approximately $250 million in the fourth quarter and $246 million for the year. Turning to the balance sheet. We ended September with $143.3 million of cash and cash equivalents. During the quarter, we generated $89.1 million of cash flow from operations and received $105.5 million from the redemption of a joint venture. We used this cash to repay $170 million on a revolver and ended the period with $604.7 million of total corporate debt. Newmark’s net leverage was 1.4x, an improvement compared to 1.7x at the end of June. To repay our $550 million November debt maturity, we plan to borrow $420 million under our recently announced credit agreement and the remaining $130 million from our $600 million revolver. Moving to outlook. We expect to outperform the industry in the fourth quarter and to generate between $692 million and $742 million of total revenues, an increase of 14% to 22% compared with last year. Adjusted EBITDA of between $143 million and $167 million, a 40% to 63% improvement and earnings per share of $0.42 to $0.49, up 31% to 53%. For the full year, we anticipate revenues between $2.415 billion and $2.465 billion, adjusted EBITDA of $375 million to $400 million, and earnings per share between $1.02 and $1.09. Newmark’s model of investing for long-term growth has driven our revenue and earnings outperformance across the cycles. As we demonstrate in today’s investor presentation on Slide 14, we significantly outperformed the industry in 2021, which was a record year for industry capital markets volumes. And in 2023, based on the midpoint of our guidance and street consensus for our competitors, we will once again outperform our peers. And with that, I would like to open the call for questions.

Thank you. Our first question will come from Alexander Goldfarb with Piper Sandler.

Hey, good morning. Just the first question is clearly strong fourth quarter guidance. So that’s great to see. Just curious, one, the drivers of that in particular, is it just a few transactions that are closing? And then two, is that setting up that we should think of 2024 being equally as robust? Or is fourth quarter just being enhanced by a few deals closing?

Good morning, Alex. It’s Mike. I would say that what you’re seeing is we’ve sort of bottomed out from an earnings perspective and now we see the floor of the company’s earnings performance. Certainly, we continue to be in a difficult market. And at least the first half of next year will continue to be challenging. We will see what happens in the second half. But from a Newmark perspective, we just continue to win more market share. Our management businesses are up 14% in the third quarter, will be up double digits again in the fourth quarter. Our leasing business continues to outperform the market. And I think you’ll see that our leasing business will continue to be better than the market and probably up in the fourth quarter. In our capital markets business, we just continue to win a larger share of the really significant transactions in the market. And I think that’s attributed to the talent we have on our platform. So, I wouldn’t say 2024 is going to be significantly up. It’s a little early to tell. But certainly, 2023 will be a strong year for us relative to the market.

Okay. And then on the guidance, it was indicated that equity compensation is going to be at the low end of the 7% to 9%. Obviously, everyone in compensation in finance and real estate is always a fun topic. I would – I’m a little surprised that it would be towards the lower end, just given the positive comments you’ve made and the investment – the business wins that you guys have had. So are you altering or reducing your compensation payout? And is that also part of the reason why the fourth quarter adjusted EPS guidance is so far ahead of the Street? Or how should we think about the comments relating to the equity compensation guidance range?

Look, I think we’ve always said as our management businesses grow, equity will become a smaller percentage of our overall revenue and our overall earnings of the company. Certainly, we have a unique structure and what comes through our GAAP compensation expenses for stock compensation or the monetization of shares that we’ve issued in previous years. And so with the stock price being down a little bit, the fair value of what’s coming through the P&L is just going to be a little bit lower. We’re not changing our model in any way, but the 7% to 9% guidance we think holds true in most markets, and we will be just a little bit towards the lower end this year.

Okay. Thank you for that color. Thank you.

Our next question comes from Jade Rahmani with KBW.

Thank you very much. One of the outperformers this quarter was management services. Can you provide any comment as to what specifically within that is driving the strong growth?

Well, we continue to do more servicing. We continue to do asset management. We are also increasing our property management business. With our really strong capital markets business, the relationships that we build, the things we sell, give us a better opportunity and a closer look at getting those opportunities to manage property. So, that continues to grow.

Yes. And the one other item we have mentioned in there, Jade, is if you remember earlier in the year, we bought Gerald Eve in the UK, and we said about two-thirds of their business, they do about $110 million plus or minus of revenue annually, about two-thirds of that is management business. So, that’s also contributing to the management line.

Okay. Thank you for that. I was wondering if you could make any broad comment about 2024. CBRE has said that the earliest they would expect recovery to begin is in the second half and that would be with respect to capital markets. Also on the leasing side, with respect to office, it’s clear that new leases are smaller than they were before, and there is some pressure on revenue – on rents. So, it would be helpful to hear from you how you are starting to think about 2024.

As Mike said, we think we are at the bottom, and we think it’s only going to get better, the question as to how much better. We have done pretty well in leasing, retail leasing, industrial leasing has done fairly well, office, there are transactions being made. The high-quality premium office market is generally pretty good in most cities. Companies are making decisions around occupying space. And as we get closer to determining what the hybrid environment looks like, we will get a clearer vision of what that is. But it’s going to get better. And I don’t think anybody could really say exactly whether it’s in the middle of ‘24, or at the end of ‘24; I think it’s hard to predict.

And broadly speaking, a follow-up to that would be absolute growth year-on-year you expect to be positive in 2024?

We do. We have been hiring, we have been hiring really great people. This is a company where the highest and most productive brokers would like to be. That’s been our plan from the very beginning. We’ve stated this almost every quarter since we went public that our view is we bring the best professionals to our platform. We will have the best results and the highest market share. We think that has been proven across all the cycles. We have done well in the trough. We are doing well in the rise. We do better in the market recovery. So, I think there has been enough time for you guys to evaluate that what we have said is our plan and what the results of our plan has been over this period of time has proven true.

Thanks very much.

And our next question will come from Patrick O’Shaughnessy with Raymond James.

Hey. Good morning guys. Maybe to follow-up on an earlier question, how should we think about sizing the revenue impact of the Signature Bank portfolio sales? And is it a big enough benefit to you in the fourth quarter this year to create a tough comp for you in capital markets in 2024?

As we have said before, we are just not going to comment on the size of the Signature portfolio. But we believe that we will have consistent market share outperformance sequentially going forward. We have hired new people. We have acquired great talent. We will continue as the market evolves itself and recovers to get an outsized proportion of the business that gets transacted.

Okay. Thank you. And then your loan servicing portfolio looks like it grew a decent amount in the third quarter. If I recall correctly, you bought the remainder of Spring 11 earlier this year. Can you just provide an update on your servicing strategy?

Well, we have built a nice servicing business. I mean we have a $177 billion servicing book. We have now better integrated as we own 100% of Spring 11. We have integrated the Spring 11 business, which does loan screening, servicing, and asset management, together with that. So, that really adds to what the flexibility and capability of that platform in a market like this, having people who can run the gamut of asset management, servicing, leasing, property management, project management, all those combined services within one enterprise puts us in a very good position to work through this moment in time.

Great. Thank you.

Thank you. And that does conclude…

Just to clarify, it’s $177 billion. Go ahead, operator.

Thank you. We do have an additional question from Alexander Goldfarb with Piper Sandler.

Hi. Thank you for taking the question. Just going back, Barry, I can appreciate that you don’t want to outline the FDIC details. But just in general, you guys have advised on that, you advised on the Blackstone M&A transaction. I mean clearly, you are building up more of what I guess I would term sort of traditional investment bank revenues that complement your brokerage verticals. So, is there just a way that we can think about holistically the addition of sort of the new revenue streams as we try to think about the company?

Well, we have, as we said last time, we are getting more heavily into the advisory business, so we are bringing on bankers. We are starting to do more complex, more in-depth types of transactions where we see a real opportunity in REIT-to-REIT M&A continuations, total recaps, new investors as a whole new array of investors and debt providers in the business, and we think we are in a good place to do that. As you saw, last quarter, we did a $2.2 billion self-storage sale to a major institution. Park La Brea was a $900 million debt placement. We just yesterday across the wire, will come maybe the largest multifamily office or multifamily office, 2.2 million square feet of office out of Texas that just traded yesterday. In all these cases, in most of these cases, there were other incumbents that we are picking up these opportunities from. And we continue to be the go-to company in respect of providing more creative solutions. So, we just see a vast array and a wider spectrum of things in the real estate business right now that will bring our talent to the table. We are in the room, and that’s the first step.

Thank you.

Thank you. And that does conclude the question-and-answer session. I will now turn the conference back over to Barry Gosin for closing or additional remarks.

Well, I want to thank everybody for joining us and I look forward to next quarter. Thank you.

Thank you. That does conclude today’s conference. We do thank you for your participation. Have an excellent day.