Good day, and welcome to the Newmark Group Second Quarter 2024 Financial Results. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Jason McGruder, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Newmark issued its second quarter 2024 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare only the three months ended June 30, 2024, with the year earlier period. Except as otherwise noted, 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 refer to net cash provided by operating activities, excluding GSE/FHA loan origination and sales. Please refer to today's press release, supplement tables and the quarterly results presentation on our website for complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them as well as relevant industry or economic statistics. The outlook today discusses and 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. None of our targets or goals beyond 2024 should be considered formal guidance. I also 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 actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures regarding forward-looking information in 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.

Good morning, and thank you for joining us. We are happy to report that Newmark delivered growth across every business line, fueled by $2 trillion of near-term US commercial and multifamily mortgage maturities, nearly $400 billion of investable dry powder and a stable interest rate environment. We produced a 15% increase in capital markets revenues. We also generated solid growth from management, servicing and leasing. Our 8% top line improvement and strong operating leverage produced 22% earnings per share growth. We increased investment sales by 18%, which outpaced industry volumes. Newmark's debt business was up 15%, while industry-wide activity was down by over 5%. Newmark's outperformance was led by mortgage brokerage growth of 46% and our deep position within the credit markets and strong access to both traditional and alternative sources of capital. Our office leasing revenues were up 16% as companies commit to the space and office employment continues to outpace overall job growth. Demand for additional office space is led by technology, including artificial intelligence and financial services. Recapitalization of properties at lower values will drive macro tailwinds across the leasing market. Solid fundamentals will drive industrial and retail leasing activity, and we expect to outperform across all three property types over time. We remain confident in our 2024 full year guidance as well as our 2026 target of generating 50% EBITDA growth over the next two years. With that, I'm happy to turn the call over to Mike Rispoli.

Thank you, Barry, and good morning. Newmark's second quarter results demonstrated our strong operating leverage. Our 8.1% revenue improvement delivered adjusted EPS growth of 22.2% and adjusted EBITDA growth of 18.3%. Total revenues were $633.4 million. We improved revenues for management services, servicing and other, by 9.2%, the fourth consecutive quarter of strong growth and were up 14.7% year-to-date. These businesses have grown at a 17% CAGR since our initial public offering in 2017, and recently surpassed $1 billion of annual revenues. We anticipate these service lines generating solid organic improvement for the remainder of the year. We increased our leasing revenues by 2.4%, led by the 15.8% growth in office. We increased capital markets revenues by 14.5%, continuing to gain market share in both investment sales and debt. Investment sales fees improved 18.2% against the 2% volume decline in the US and Europe. Fees from our debt business increased 14.6%, against a more than 5% decline in the US commercial and multifamily originations. This outperformance was driven by 46.2% growth in mortgage brokerage fees, partially offset by a decline in GSE/FHA origination. The decline in origination is due to a 27% decrease in industry activity as well as the difficult comparison to the second quarter of last year when we closed the $947 million Park La Brea origination. Turning to expenses, excluding pass-through items, total expenses were up 4.3%. Compensation expenses were up 8.3%, reflecting higher variable commissions as well as the recent addition of revenue-generating professionals. Non-compensation expenses were down 5.3%. During the second quarter, we completed our $75 million cost savings plan. This consisted of long-term and sustainable expense reductions focused on streamlining and improving operational efficiency and service delivery to our producers and their clients. While we have achieved our previously announced savings target, business transformation and operational excellence is an ongoing part of our DNA. Reimagining every part of our service delivery model through the lens of enhanced technology, artificial intelligence and automation will drive operating results, more stable cash flow generation and shareholder value. Turning to earnings, our adjusted EPS was $0.22, up 22.2%. Adjusted EBITDA was $86.3 million, up 18.3%. With respect to our share count, our fully diluted weighted average share count was 255.6 million, flat compared with the first quarter of 2024. We repurchased 5.5 million shares in the quarter. Year-to-date, we repurchased 9 million shares at an average price of $10.32. Turning to the balance sheet, we ended the quarter with $176.4 million of cash and cash equivalents and $745.2 million in corporate debt. Year-to-date, we have generated $132.5 million of cash from the business, representing 88.5% of our year-to-date adjusted EBITDA. We expect this strong cash generation to continue. Changes from year-end cash reflect the cash generated by the business and $197.9 million of incremental corporate debt. These increases were partially offset by $185.7 million used primarily for investment in our business, $92.7 million of share repurchases and normal first half movements in working capital. We ended the quarter at 1.4 times net leverage, among the lowest in the industry. Moving to guidance, our full year 2024 revenue and earnings outlook remains unchanged, and we expect sequential earnings improvement for the remainder of the year. We continue to target annual share count growth of 2% or less over time. For 2024, we expect slightly higher fully diluted weighted average share count growth as a result of our 16% year-to-date increase in share price, which accelerates the recognition of certain RSUs under the treasury stock method. This is just timing and does not reflect the issuance of any additional equity. And with that, I would like to open the call for questions.

We will take our first question from Connor Mitchell with Piper Sandler.

Hey, good morning. Thanks for taking my questions. So kind of across the whole real estate industry, we've seen cap rates coming in, especially with multifamily and shopping centers. So Blackstone might be interested in some shopping centers. We've seen some large apartment transactions. Just wondering how you guys kind of think about the institutional appetite for putting dry powder to use paired with higher pricing and bidding more, especially on the favorable property types and how that might impact your investment sales fees in the back half of the year?

Well, I mean we passed the inflection point. We hit the trough. We're on our way to better times. Interest rates have stabilized. The ecosystem is designed to buy property. The whole industry that is there to invest dry powder and they're starting to feel better about the opportunities. Many of the categories, it's not a demand or supply issue. It's really about interest rates and liquidity. And as interest rates come down or stabilize at the very least, there is a better look at positive leverage. So looking at where and the creases in the market where you want to invest, the smart guys are looking at lots of different things, and retail is one of those. It had a softer year this year in terms of retail leasing and industrial, but the underlying fundamentals are all strong: nearshoring, onshoring, and consumers. There have been a lot of retail centers that have been taken off the market. As long as population continues to grow, there will still be a need, and the consumer is still strong. So I think that all bodes well for the opportunities looking forward over the next couple of years.

Okay. And then maybe turning to office. You guys talked about the strong office leasing in the quarter and saw that you're the number one broker in the space now in the first half. We're well aware of the strength in Park Avenue and then Century City out West. Just wondering, if these two submarkets are truly differentiated? Or are you guys starting to see the spillover to some other submarkets, maybe closer by or even other regions of the country in terms of leasing and then also any investment activity?

I mean I think it's pretty consistent across the gateway cities at the top of the markets are generally pretty good. That's a bifurcated market: top of the market, low vacancy, high pricing. Next, as that gets rented, the next tier starts to see activity. I think you could say that for other cities. Luis, you want to add to that?

Yeah, I would agree, Connor. I think what we're seeing is consistent across the market. Demand is up. Certainly, people are making commitments for longer term, whereas before, it was much more of a shorter-term commitment. I think the other thing that you're seeing is as these buildings get recapitalized, it creates the opportunities for these buildings that weren't competitive to become competitive by having the capital to provide the tenant improvements, which is a big issue in the leasing market today, as well as to amenitize these buildings to make them competitive and attractive for the tenants that are out there looking in the market. So I think we're seeing a couple of things impacting the growth in office. And look, we're certainly not back to where we were, but we're certainly making good strides and good growth and the pipeline looks good and activity looks good going forward.

Okay. And maybe just one more for me as well. Just curious and wanted to get your take on how the business is progressing with some of the new international launches, most recently Paris.

Fantastic. It's incredibly exciting. Yes, we've hired great people in Paris. We opened four months ago. We have now 30 to 40 people sitting in our office in Paris, and we expect to grow that over the next 12 months. We've hired the number one and number two teams in capital markets and retail brokerage, and we have a great team in office leasing, both on the tenant and agency sides. We're very excited about France. And then we're doing well in the UK. We built a very good foundation of a business in the UK in a relatively short time, 24 months, since we broke up from our alliance partner, and we're going to do the same thing throughout Europe.

Okay. Thank you very much.

We will take our next question from Jade Rahmani with KBW.

Hi, good morning. This is actually Jason Sabshon on for Jade. Thanks for taking my question. What kind of growth rates do you expect to see in leasing and capital markets in 2025?

Good morning, Jason. So look, I think we've been pretty clear that we're seeing a turn in the market. Our pipelines are building. We have a clear target for 2026, which is about 50% EBITDA growth over two years. Exactly how that plays out each year is a little bit difficult to predict at the moment, but I would imagine that we're going to continue to see improvement as we move through the back half of '24 and into '25. And certainly, by the back half of '25 and into '26, we expect pretty robust activity throughout all the markets.

Great. Thank you. And for commercial real estate transaction volumes to really pick up, would you rather see weaker employment and lower rates or stronger employment paired with higher interest rates?

Yeah, that's got to be carefully titrated. I mean the reality is you would think that lower employment takes the fear out of inflation, people will come back to the office. Lower interest rates is probably the single biggest driver of capital markets transactions. People are looking for returns relative to the fixed free rate of return. And if you can't get positive leverage, it's hard to invest. I mean people are investing at the inflection point where there's even leverage on the anticipation of taking floating rate loans or bridge or CMBS loans for shorter terms in anticipation of a takeout at a lower interest rate and arbitrage as a result. So that's really the biggest driver. On one hand, lower employment, you want higher employment and employment growth because that establishes demand. So it's tricky. It's tricky. Inflation will never fully subside in some respects; if you have population growth and you have inflation, it makes the existing inventory and stock more valuable and subject to replacement value. It's never going to get cheaper to build office buildings, so that inflation with population growth and low interest rates would be the optimum condition to have because you would then be too expensive to build an office, the existing inventory would get filled up, and they would be more valuable at higher rents. And so it's a complex set of levers that drive the market, but from our perspective, we have a very good runway. We have an increasing market share. We've hired a lot of people over the last few years that have not even entered our numbers who are gestating into production. So we are in a really good position to benefit from both all aspects of the market improvement and market stabilization and runway increase.

Great. Thank you. And for my last question, it seems though office leasing volume has started to pick up a bit. So I'd be curious to hear your view on how occupier sentiment has changed and how you see the July jobs report, which was weaker than expected, how that factors in at all?

Well, the financial services industry has been doing really well, artificial intelligence, there are green shoots all over the place. Data centers, digital businesses, even Bitcoin and those kinds of businesses are doing well. The only issue in terms of office space in the cities are the businesses where people are more comfortable with working from home, but the metrics are starting to show that productivity is declining and opportunities decline for young workers that don't come to the office. Coming to the office, every other category of real estate is a supply-demand interest rate-driven business. Consumer demand is high in retail and multifamily; population growth is strong. There's really a tremendous need for multifamily. There will always be up and downs in respect of oversupply in certain industries that will come back, and it's timing, but the office industry has been more complicated because of the nature of hybrid work. A lot of the information is anecdotal. It's our belief that people will come to work and the further away we get from the experience of COVID, the excitement of young people coming to cities to work and get jobs and build relationships and build their careers, it's going to get better. And I believe it is. Our people are in the office. Of course, we're in the real estate business. Financial services companies are bringing their people into the office. They have to be there, but it's all going to get better. CEOs are trying to get their people back to the office because they know that it's really beneficial in terms of culture. The CEOs have, for the most part, wanted to bring their people back to the office, but the one positive of lower employment is the fact that it provides a lever of the power between employee and employer and that gives CEOs a little more power to bring people back to the office.

Thank you.

We will take our next question from Patrick O'Shaughnessy with Raymond James.

Hey, good morning. Can you speak to the multifamily outlook in general and then your loan origination pipeline in particular?

Well, multifamily still has tremendous demand. There will be some recaps and situations where people refinanced and purchased at high prices, but the demand and growth in many of these markets continues to be strong. Some markets have an oversupply and have too much in the pipeline, but that's just the normal cyclical nature of the business. We're optimistic about it. We're seeing a lot of bids and a lot of interest in things that we're doing bids for, and then you have affordable housing, which is a real opportunity. The good thing about affordable housing is it's supported on both sides of the aisle. Republicans like low income tax credits and the private sector coming into building affordable housing, and Democrats want more workforce and affordable housing. So that's a growing industry. We're a big player in the affordable space around the country, particularly LIHTC and other affordable programs. So that's all good for housing.

Yeah, Patrick, I would add that our multifamily debt business is up about 13% year-to-date and our GSE pipelines look pretty good going forward. While the industry is not going to hit prior caps, it should look pretty healthy in the back half of the year, and our pipelines look strong.

Are you saying just GSE originations or generally loans in general? Because our debt business is going through the roof. We have an enormous pipeline for recaps and financings in every aspect of our business. I've never— we've never had as much as we have now.

Got you. I know you answered my question. Thank you. Maybe building off that, what is Newmark's ability to participate in the conversion of outdated office properties into multifamily properties?

I couldn't hear your question.

Can you repeat that?

What is Newmark's ability to participate in the conversion of outdated office properties into multifamily properties?

Well, the two largest conversions in the country were sold by Newmark, financed by Newmark, and the equity was raised by Newmark: 25 Water Street downtown, which is 900,000 square feet in New York City alone, and 222 Broadway, which we sold and financed and which is another very large project in New York. We've been actively involved both on the legislative side of creating programs and recommending programs, certainly in New York State and in other parts of the country. So we're involved in it in many respects. That's certainly in the markets where there is inventory that is not suitable for top-tier office, like New York, but other cities around the country are looking at this as an incredible opportunity to repurpose outdated office buildings into either affordable housing or multifamily. Some are hard, because some of the buildings are so deep you have to create light wells. It's really a function of the cost and what the yield-to-cost is in developing those buildings, and depending on the amount of light and how the building is situated will determine that.

Got it. Thank you. And then last one for me. So a pretty strong second quarter. The macro backdrop seems to be becoming more favorable at this point. What was the thought process behind the full year outlook— you said unchanged versus maybe raising your outlook?

Sure. So as you probably remember, we outperformed the peer group by a pretty wide margin last year and, in particular, we had a really strong fourth quarter with the largest loan sale in US history. So we're up against a little bit of a tough comp in the fourth quarter. We're seeing good pipeline build throughout our businesses. We feel really good about where the guidance is right now. And you can never predict timing of when these transactions will start to close. So things look good going forward. And certainly, over the next few years, we feel really great about the business.

Thank you.

We currently do not have any further questions. I would like to turn the call back to Mr. Barry Gosin to close out the call.

Thank you for joining us again. I look forward to the next quarter. Very excited about our future and hope to hear from you again. Thanks.

This concludes today's call. Thank you for your participation. You may now disconnect.