Good day and welcome to the Newmark Group 4Q and FY 2023 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jason McGruder, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Newmark issued its fourth quarter and full-year 2023 financial results press release and presentation this morning. Unless otherwise stated, results provided on today's call compare only the three months ending December 31, 2023, with 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 section 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 uses 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 the 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. For more information on these cash flow items, our GAAP and non-GAAP results, and the industry statistics mentioned today, see our website, today's press release, the supplemental excel tables and/or the presentation. Our outlook discussed today assumes no material acquisitions or meaningful changes in this company's stock price. Our expectations are subject to change based on various macroeconomic, social, political and other factors. None of our long-term targets or goals beyond 2024 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 revenues increased by over 23% in the quarter, with double-digit gains across every revenue category. We completed the more than $50 billion Signature portfolio sale, the largest real estate loan sale in US history. We also closed the largest industrial occupier lease, the largest office tenant lease, and the largest office building sale in the United States. Newmark is successfully executing on its strategy of being the best in each of its service lines. In addition to completing the largest transactions in the industry, we generated 20% revenue growth from management services, servicing fees and other. This improvement reflected a more than doubling of our high margin asset management and servicing portfolio to $176 billion, the addition of Gerald Eve and continued organic growth from GCS. Newmark improved its leasing revenues by 20%, while overall industry leasing activity declined by more than 10%. Our significant outperformance was driven by strong double-digit organic growth in office and industrial. We also gained meaningful market share in capital markets. Newmark was the number two broker in US investment sales for the fourth quarter of 2023, and number three for the full year, which excludes the $22 billion equity portion of the Signature transactions. We continue to progress towards our goal of becoming the number one capital markets advisor in the US. We attract the best of the best. Already in 2024, we hired the preeminent affordable housing team, some of the most prolific and experienced debt and structured finance professionals, as well as one of the most innovative and active US leasing teams. We empower our extraordinary talent with world-class research, data analytics and technology to bring their best to Newmark's clients. We refuse to let complacency impede progress in this rapidly evolving industry, and we champion the entrepreneurial spirit. If you are great, you should be at Newmark. The MBA expects a record $929 billion of commercial and multi-family mortgage maturities in 2024. We estimate that about one-third are underwater and reasonably likely to be sold, one-third will need assistance with restructuring or recapitalization, and one-third will likely require an advisor to help find new lenders. As a service provider that does not own real estate, these maturities represent an enormous opportunity for us. This refinancing wave is expected to drive double-digit increases in commercial and multi-family originations this year and next. The difficulties that our clients may face will continue to drive them to seek our innovative financing solutions. We expect both existing owners as well as lenders who receive properties in foreclosure to turn to Newmark for the following services: finding new sources of capital, including equity recaps and joint ventures, selling loans, selling properties, property management, valuation and advisory, asset management and servicing, and agency leasing. With respect to leasing, vacancies remain below long-term averages in nearly all property types in the US and UK, except for office, which remains challenged outside of premium Class A properties. Quality office assets continue to command a disproportionate share of the market's activity. Class A properties accounted for 53% of all US office leasing in the fourth quarter of 2023. New construction pipelines have fallen significantly from their first quarter 2020 peak and a small but growing percentage of office buildings are being converted to other uses. In addition, owners and lenders are reaching the end of their ability to extend and pretend with respect to mortgages. The recapitalization of these properties will lead to a reset in values and stronger leasing activity. We continue to expect solid fundamentals with respect to industrial and retail leasing, which together represented over 40% of Newmark's leasing revenue in 2023, compared with just over 25% in 2019. We expect transaction volumes to accelerate in the second half of 2024, which coupled with Newmark's investments in Talon will drive our industry-leading revenue growth. With that, I'm happy to turn the call over to our CFO, Mike Rispoli.

Thank you, Barry, and good morning. We increased total revenues by 23.1% to $747.4 million, producing double-digit growth in every revenue category. Fees from management services, servicing and other grew by 19.4%. This improvement reflected the addition of Gerald Eve, an increase in our high-margin asset management and servicing portfolio to $175.9 billion, and continued organic growth from GCS. We improved our leasing revenues by 19.6%, driven by strong double-digit organic growth in office and industrial. This was the fourth consecutive quarter of leasing market share gains for Newmark as overall industry leasing activity was down by over 10%. We improved our investment sales and origination revenues by 20.7% and 45.9% respectively, and outpaced the market in each of these categories. Industry-wide investment sales activity was down by over 40% in the US and Europe, while US commercial and multi-family originations decreased by 25%. We also gained market share in GSE origination, as our volumes declined by approximately 11% compared to the 42% reduction in industry-wide activity. Turning to expenses. Compensation expenses were up 23.6%, mainly due to higher commissions tied to revenue, as well as expenses related to acquired companies, and the hiring of revenue-generating professionals under long-term contracts. Non-compensation expenses were up 8% due to a $10.3 million increase in pass-through expenses. Total expenses were up by 19.2%. With respect to the company's $75 million cost reduction initiative, Newmark recognized approximately $35 million in savings in 2023 and expects to realize an incremental $25 million in 2024, with the balance of the savings realized in 2025. Turning to earnings. Our adjusted earnings per share grew by 43.8% to $0.46, and our adjusted EBITDA improved to $166.2 million, up 62.6%. Our quarterly adjusted earnings tax rate was 14.8% compared with 9.3% a year earlier. Our full-year 2023 adjusted earnings tax rate was 15.1% as compared to 17.1% in 2022. Fully diluted weighted average share count was consistent with our previous guidance of approximately 250 million for the quarter and 246 million for the full year. Turning to the balance sheet. We ended the year with $164.9 million of cash and cash equivalents. The change from year-end 2022 reflects $341.2 million of cash generated by the business and $105.5 million from the redemption of a joint venture. These receipts of cash were partially offset by $325.8 million of cash invested for acquisitions and producers. Other uses of cash included capital expenditures and return of capital to shareholders. Our net leverage ratio was 1.0 as of year-end 2023. Last month, we successfully completed the refinancing of our long-term debt by issuing $600 million of five-year senior notes at 7.5%. Moving to our outlook for the full-year 2024 compared to 2023. We expect total revenues to grow between 3% and 7%. We anticipate both adjusted EBITDA and earnings per share to grow between 5% and 9%. We expect our fully diluted weighted average share count to increase by approximately 1% to 2%, and we expect our adjusted earnings tax rate to be between 16% and 18%. Due to the scale of our hiring, and our significant outperformance in the fourth quarter of 2023, we expect the majority of our year-over-year improvement in earnings to occur in the second and third quarters of 2024. As Barry discussed, we expect industry volumes to pick up in the back half of 2024 and into 2025. Once volumes fully normalize, which we expect to be around the middle of 2025, and given our substantial investments, we expect our business to generate on an annual basis over $3 billion in revenue and over $630 million in adjusted EBITDA. And with that, I would like to open the call for questions.

And our first question will come from Connor Mitchell with Piper Sandler.

Hey, good morning. Thanks for taking my questions. Speaking about the revenue outlook you guys outlined, can you just share a little bit more about how you're thinking of each line item's growth over the year in order to achieve that total revenue growth of 3% to 7%? I know Barry touched on a few of them, maybe you guys could provide some numbers or just some further outline on your thinking to reach that total growth number?

Sure, good morning. I would say that certainly we had great leasing performance in '23. Our expectation is that because we gained so much market share this year, that line item could be somewhat flat in '24, maybe even down a little, and the growth will come from our management businesses as we continue to grow those businesses and our capital markets businesses. I think Barry mentioned debt industry-wide will be up probably 20% or more, and we think we'll see some more sales activity because of the debt maturity wall that's coming.

That's helpful. Barry mentioned in the opening remarks that you have brought in a lot of great talent, including the top affordable housing advisory team and expertise in debt and structured finance. Are there any areas you are considering for future moves? Perhaps specific product lines, geographical focus, or sector specialties where you want to strengthen your team or enhance your capabilities?

We are always adding talent. That is really our strategy, adding talent. We added affordable, which has implications with Freddie and Fannie, it's mission critical to the GSE business. So we're excited about that opportunity. We brought in and strengthened our debt and structured finance, certainly with $2.6 trillion of debt maturing over the next few years. Many of these loans are going to need help that will offer us an opportunity, so we strengthened that bench. There are some white spaces in the US, and then we're growing across Europe, but we always continue to look for talent that fills a spot.

Okay, appreciate the color. Thank you.

Our next question will come from Jade Rahmani with KBW.

Thank you very much. Realize there's not too much you can disclose, but on Signature, I want to confirm there's no revenue expectation in 2024?

Good morning, Jade. Yeah, I can confirm that.

And do you know, roughly speaking, where investment sales commission percentage rates and debt brokerage commission percentage rates would be ex Signature in the fourth quarter?

I would say that they're within historical averages without the Signature transaction.

But we gain market share without this, we gain market share without the Signature transactions.

Yeah, it certainly appears that way, based on the data that we've seen. Wanted to ask about the outlook again, and the phone was a bit difficult to hear. Did you say debt capital markets volumes would be up 20% or more, there would be growth in investment sales and that leasing would be down a little bit?

Yeah, that's generally correct. I said, because of our leasing outperformance in '23, our expectation going into the year is somewhat flat. For '24, it could be down a little. We expect to continue to see growth in management services and our management businesses, generally our servicing business. The MBA expects debt to be up around 20% year-over-year in '24, and we would expect to maintain or grow our market share there, and then we would expect sales activity to be up year-over-year as well.

Thanks very much. And then the GSEs, Walker & Dunlop, and I think Cushman & Wakefield, both expect volumes to be relatively flat in 2024. I mean, that does go against their historical countercyclical role in the market, but they're being much more judicious in terms of what they accept for origination. Do you expect GSE volumes within your business to be flattish?

We disagree with Walker & Dunlop and believe that the GSE business will reach or get closer to its caps. We also anticipate gaining market share, especially as we enter the affordable space. Additionally, we are currently developing a private client segment of our business, which will enable us to offer smaller, institutional-quality deals that are more critical for Freddie and Fannie.

And just lastly, on the recruitment front, there's been some high profile departures of late, so called superstar producers. Does that characterize the types of folks you're looking to recruit, or would you be looking to recruit smaller infill teams that are more niche-focused?

Both. Little of both. We're always looking for great talent, and that's exceptional people bring exceptional results.

Thanks very much.

Thank you. And that does conclude the question-and-answer session. I'll now hand the conference back over to you.

I want to thank everybody for joining us today and look forward to next quarter. Thanks.

Thank you. That does conclude today's conference. Thank you for your participation and have an excellent day.