Good day, and welcome to the Newmark Group 2Q 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, sir.

Thank you, operator. Good morning. Newmark issued its second quarter 2025 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare only the 3 months ending June 30, 2025, with the year earlier period. Except as otherwise specified, we will be referring to our 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 the impact of GST, FHA, loan origination and sales. 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 and quarterly results presentation on our website for complete updated definitions of any GAAP terms, reconciliations of these terms to the corresponding GAAP results and when and why and how management uses them for additional information under cash flow measures as well as relevant industry or economic statistics. The outlook discussed today 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 2025 should be considered formal guidance. Also remind you that the 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 our 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, Chief Executive Officer, Barry Gosin.

Good morning, and thank you for joining us. Before we begin today's call, on behalf of everyone at Newmark, I want to take a moment to acknowledge Monday's tragic shooting in New York City. Our thoughts are with the families of the individuals who lost their lives, some of whom we know personally, as well as with our clients and friends and everyone impacted. In moments like these, we are reminded of the importance of community and unity throughout our cities. Now on to our results. We are pleased to report another outstanding quarter. Newmark delivered strong revenue and earnings growth, validating our strategic vision and commitment to creating value for our clients and stakeholders. The company increased total revenues by 20%, which again reflected double-digit gains across every major business line. Our adjusted EPS increased by 41%, demonstrating strong operating leverage. During the quarter, Newmark advised on some of the largest office and retail leases signed year-to-date in New York City and the San Francisco Bay Area. We continue to expand our occupier solutions and leasing footprint, providing corporations with comprehensive real estate solutions on a global scale in nearly 100 countries. Newmark gained further market share in capital markets during the quarter and year-to-date. We increased our total debt volumes by 135%. In comparison, U.S. commercial and multifamily originators were up by 38%. In investment sales, Newmark was ranked as the #1 office broker in the U.S. in the first half of 2025 by both MSCI and Real Estate Alert. On a global basis, across all property types, we improved to #3 among sales brokers for the first half of 2025 based on preliminary figures from MSCI. This is noteworthy as we are in the early stages of building out our international platform. Given our strong first half results and robust pipeline, we have raised our full year outlook. With that, I'm happy to turn the call over to our CFO, Mike Rispoli.

Thank you, Barry, and good morning. Our strong start to the year continued through the second quarter with revenue growth of 19.9% and adjusted EPS improvement of 40.9%. As a result, we are increasing our full year outlook for both revenues and earnings, which I will discuss later in more detail. Total revenues were $759.1 million, up 19.9% compared with $633.4 million. We increased management services, servicing and other by 13.6%, which reflected approximately 30% growth from our Valuation and Advisory business as well as continued improvement in our high-margin servicing and asset management platform. Leasing revenues were up by 13.8%, led by double-digit growth in our retail volumes and improving office activity in key gateway markets. Capital Markets revenues increased by 37.9%, which reflected an approximately 135% improvement in our total debt volumes as compared to U.S. commercial and multifamily originations, which were up by 38%. Our investment sales volumes were up 26% as compared to U.S. industry investment sales volumes, which were up by approximately 11%. Our continued market share gains were led by significant data center growth as well as higher office and multifamily activity. Turning to expenses. Total expenses for adjusted earnings increased by 18.4%, which reflected 26% improvement in our commission-based revenues, costs related to Newmark's growth initiatives and higher pass-through costs. The company's tax rate for adjusted earnings was 14%, in line with full year guidance. Moving to earnings. We increased adjusted EPS by 40.9% to $0.31 compared with $0.22. Adjusted EBITDA was $114 million, up 32.1% versus $86.3 million. Our adjusted EBITDA margin improved by 139 basis points to 15%. With respect to share count, our fully diluted weighted average share count was down 1.2% to 252.6 million. During the quarter, we repurchased approximately 10.8 million shares for $125.5 million at $11.58 per share. Turning to the balance sheet. We ended the quarter with $195.8 million of cash and cash equivalents and a 1.4x net leverage. The balance sheet changes from year-end 2024 reflected cash generated by the business of $133.9 million and $200 million of incremental borrowing under Newmark's revolving credit facility. This was offset by $157.9 million of cash used with respect to the hiring of revenue-generating professionals, share repurchases and normal seasonal movements in working capital. This quarter, we introduced a new reporting metric, adjusted free cash flow, which can be found in today's earnings materials. Adjusted free cash flow takes our GAAP cash flow from operations, minus capital expenditures and the impact of GSE, FHA, loan originations and sales. We believe this new metric will provide further insight into the company's strong cash generation and allow for easier comparability versus other companies. While our adjusted free cash flow significantly improved year-on-year, both in the quarter and year-to-date, we believe it is best to view this metric on an annual basis. For the 12 months ended June 2025, Newmark's adjusted free cash flow was $228 million a 121.4% improvement year-over-year. Moving to guidance. We are raising our outlook for 2025 as follows: We now expect total revenues of between $3.05 billion and $3.25 billion, an increase of approximately 15% at the midpoint. We anticipate adjusted EPS between $1.47 and $1.57, up 20% to 28%. We continue to expect our adjusted earnings tax rate to be between 14% and 16%. And we anticipate adjusted EBITDA in the range of $523 million to $573 million, an increase of 17% to 29%. With that, I would now like to open the call for questions.

We'll now take our first question from Mitchell Germain with Citizens.

Congrats on the quarter. Barry, obviously, you referenced the global investment sales #3. And obviously, you're making investments outside the U.S. I'm curious how the opportunity in Germany has been transpiring to date?

Well, we launched about a year ago, actually, at just about the time of Expo Real in Munich. Since that time, we've signed 70 brokers, many of whom are on garden leave, generally how it's done in Europe. So our real launch of that business is actually this Expo Real, which is in October. So there seems to be a clamoring of people who want to come to Newmark. They like our model. They like the platform. They like what we've done in France, the U.K. and other parts of Europe. So I think it all bodes well for us here, and we're excited.

Great. Do you think the capital markets activity is sustainable? Or are you seeing maybe a little bit of a pullforward given some of the future uncertainty?

Yes. We've hired leasing and appraisal professionals, and our platform is fully integrated. In all our markets, including Germany, we have a diverse mix of services for clients. This also applies to the U.K., France, and our initiatives in Asia. Currently, we have a significant advantage with plenty of room for growth. A couple of years ago, we had minimal business in Europe, which now represents over 13% of our volume. We're also expanding in Asia, and we see a great opportunity to build a fully diversified integrated platform. This will enable us to effectively serve our corporate clients across all these markets, assisting them not only in capital markets but also in consulting and other areas of our business. While some may view Europe as a more favorable opportunity right now, we are optimistic about our direction and future prospects.

Great. And then just some thoughts on capital allocation. Mike, you talked about some of the free cash flow growth. You bought back shares, but we've obviously seen a rally 25% plus since you did that. So where are investment dollars? Obviously, they're going to new broker acquisitions, but could we potentially see you guys consider some M&A here? Is buyback still on the table? Some thoughts around that, please?

Certainly. Buybacks are still a possibility. We executed a significant buyback in the second quarter. Moving forward, I anticipate a shift towards mergers and acquisitions in the latter half of the year. We have several intriguing opportunities, especially in management services, that we believe can enhance both those companies and our platform. Therefore, in the second half of the year, we plan to focus on growth capital rather than buybacks. However, we still consider our stock to be undervalued. Our adjusted free cash flow indicates a yield of about 6% compared to the current market cap, which is higher than the S&P 500 at 2.8% and our peer group at around 4.2%. We believe there’s significant upside for our stock, which is why we will continue to explore buybacks.

It’s important to note that 100% of our growth is organic.

We'll now take our next question from Alexander Goldfarb with Piper Sandler.

And Barry, thanks for the opening comments. Just obviously tragic. Mike, I appreciate the free cash flow emphasis in the slide, I think it's very helpful to help understand the economics of the business, which this quarter just really impressive. Along those lines, data centers have been huge in the news. Clearly, Barry, you've spoken before that it's been a focus of the company. But I think in prior comments, you talked about keeping it restrained like using the example, I think it was you or one of your colleagues use the example of Life Science, which boomed and then cooled off dramatically. So as you look at data centers today, is the view still that it's akin to Life Science in the sense that right now, that area is booming, but you want to keep your personnel appropriately staffed versus it's more enduring in which case there's room to expand and invest further in your data center offering?

We believe we have the right staffing in place. Our team is highly skilled, enabling us to achieve significant reach with a small workforce, and we think we excel at this. There are two main aspects of our business. One is the powered land play, which may diminish over time, but our primary focus has been on equity and finance, which are our strongest areas. We see tremendous potential, particularly in Europe and Asia. AI is still relatively new, having emerged only two years ago, and many are eager to get involved. The real question for everyone is their perspective on AI and its future. If you are optimistic about AI, then you must recognize the long-term opportunities it presents. The Life Science sector has been more established but is currently dealing with issues of overbuilding and oversupply. It resembles the multifamily housing market, which has significant demand but also areas of excess supply. Life Science is presently experiencing a temporary phase of oversupply, and many transactions have yet to finalize; we expect it will take about three to four years to determine if there is indeed an oversupply, and it’s still in the early stages.

Okay. And...

Alex, I would add one thing to that, which is that there's also a tremendous opportunity in data centers outside of the transactions on the management side, both project management and facilities management. And those are areas we really haven't touched to date. But certainly...

Leasing personnel will not only focus on a few hyperscalers; colocation facilities will continue to exist, and not everything will move to the cloud. We are also actively participating in digital infrastructure, including chip manufacturing, which is increasing. There will be many additional opportunities.

Okay. The second question is, in your leasing stats, San Francisco led more so than New York. And just want to get some more perspective on that. Is that our sense of market visits is that AI is a small part, but growing, but the larger tech companies still have too much space. So curious what's driving your business? Is it that you're advising tech in resizing their business? Or is AI just booming a lot more than we anticipated? Just wanted to understand better the drivers of the dramatic boom in your San Francisco leasing growth.

We have been informed that San Francisco and the entire Bay Area have reopened, resulting in activity from various sources. This information comes from our brokers and what we see in our pipeline. The growth is emerging from multiple areas. While some of it is driven by AI, there are also other technology companies that are expanding. One notable aspect of the Bay Area ecosystem is that a new company is established approximately every five minutes, which is a significant part of its dynamic.

We'll now take our next question from Jade Rahmani with KBW.

This is actually Jason Sabshon on for Jade. First, I just want to say congrats on the strong quarter. In your presentation, you provided a revenue target for management services for 2029. We applaud the long-term view, and are there any other 2029 targets that you're thinking about in terms of total revenue, capital markets leasing or adjusted free cash flow?

Yes. The target on the management business is about $2 billion. We put out, I think, a few quarters ago, and we continue to believe in the strong opportunity across all of our management and servicing businesses. We don't have similar targets out there for capital markets or leasing, but we do have targets out there for 2026 in terms of the adjusted EBITDA of $630 million and adjusted EPS of $1.75, and we feel that those are very achievable.

In the last quarter, we highlighted a few metrics. In 2014, our market share was 1.1% in terms of sales, and we are now approaching 10% in debt and 1.8% in sales, with figures close to 10% and 9.5% respectively. We hold 1% of the property management sector, indicating significant potential to build connections through our ongoing efforts. Our focus remains on generating recurring revenue, and we are exploring intelligent strategies that align with our brand, achieving solid progress in several of these areas.

Great. And to touch on data centers. First, could you provide more color on what your deal flow looks like? And as well as fee ranges on those deals. Specifically, if you broker a new development capitalization, what are fees earned and are those negotiated in dollars or as a commission rate?

The fees are consistent with the average fees seen across our business. Typically, it's based on deal size, but our average sales fee is around 70 basis points, and our average debt fee ranges from 40 to 50 basis points. Larger deals tend to have lower basis points, while smaller deals have higher ones; however, that's the average for our fees, and data centers are no different.

Great. And to pivot to capital markets and leasing. What growth rates do you expect are reasonable to see in the second half?

So if you look at the midpoint of our guidance, let's just start there, we would expect the management and the leasing businesses to grow, say, high-single-digits to low-double-digits in the back half of the year. In the capital markets business, probably mid- to high-teens. Which would suggest maybe there's a slowdown from the first half. But I think really, we put the range out there because there could be some macro events that affect the market and affect the activity. But if we have a really good pipeline into the third quarter, very strong. And if things continue along the path they're going now, I would certainly expect us to perform above the midpoint of the range towards the higher end.

We'll now take our next question from Julien Blouin with Goldman Sachs.

And congrats on another strong quarter. I guess digging into a little bit more into those comments around the pipeline, I guess, as we look into July, does it feel like there was sort of a re-acceleration in activity relative to what seemed to be a slower May and June for the industry?

It's interesting. Our pipelines have been pretty strong throughout the year. We didn't see any significant slowdowns as we move through the year. If anything, our pipelines continue to grow and get stronger. We certainly don't have full visibility into the fourth quarter at this point. It's still a little early, but everything at the moment looks pretty good.

Got it. That's helpful. It seems there hasn't been any change in your outlook regarding the 2026 targets. Do you feel even more confident that the figures you've provided of $1.75 and $630 million in adjusted EBITDA are achievable? Or was there any consideration to possibly raise those targets?

Probably a little early to increase the targets. I think we put those targets out more than a year ago, and we felt pretty confident about the targets when we put them out based on the people we hired and the businesses that we're building, and I would say, we certainly feel more confident today as we get closer and closer to those targets. If you just take the midpoint of our guidance for the rest of this year or for 2025 full year, it suggests probably high single-digit revenue growth and mid-teens earnings growth, which seems very achievable for 2026 at this point.

Got it. That makes sense. And maybe one last one. Just in New York City, I'm wondering if you're sort of expecting or seeing any impacts from the mayoral race there when you talk to your teams or your clients, are you seeing any signs of caution from buyers in Manhattan. It looked like New York City property sales volumes were maybe a little subdued in June. Wondering if there's anything to read into there.

It's too early to assess the situation since Mamdani hasn't been elected yet. There's a lot of chatter around this. Unfortunately, I think we have a barrier in our Governor if there are concerns from the public. The Mayor's influence is somewhat limited. We still have the City Council, which has become more moderate in the last couple of years with very few democratic socialists. New York remains remarkably resilient. I don't think it will significantly affect certain individuals; it might simply annoy them. But New York is unique. The talent pool in New York is unmatched, and the level of excitement in the city is extraordinary. So, I feel quite positive about it.

We'll now take our next question from Patrick O'Shaughnessy from Raymond James.

So with the new disclosure regarding your adjusted free cash flow, what are your expectations for adjusted free cash flow in 2025? Additionally, looking at the bigger picture or longer term, what is your targeted conversion ratio for how that free cash flow should compare to your adjusted net income?

Sure. Thanks for the question, Patrick. So on a trailing 12-month basis compared to our post-tax adjusted earnings, it's about 65% conversion. Remember, in that metric is all the money we invest in brokers for growth. So that on a trailing 12-month basis was about $184 million, so it's hard to put a target precisely on what the conversion ratio will be because you have to know how much we're going to be investing into the business and how much of that investment will go towards talent versus go towards companies. And as you know, if you just buy a company, it goes through cash outflow from investing versus hiring a broker, which comes out of operations. But certainly, we expect 65% to 85% depending on how much we invest in the business at any given time.

Got it. That's very helpful. Speaking of hiring talent with industry brokerage revenues generally trending better. Is it getting any harder to poach top talent away from competitors?

It's always challenging, but we appear to have resonated with the industry's needs concerning talent. We seem to be an ideal fit for many high-performing professionals, and we believe that demand will continue. Although it has always been somewhat difficult, we don't anticipate any major changes in this regard.

Got it. And then lastly for me, you spoke about the likelihood of doing some M&A in the back half of the year. Can you remind us both strategically and financially, what your criteria is for M&A?

So generally, we've done mostly bolt-ons, tuck-ins. We think that strategy works really well for us. Less friction, less disturbance, less disruption. You never know what you get when something is too big; the amount of change, people leaving, etcetera? And it's more targeted towards the talent and the needs and how we fit and curate the entire platform together as a puzzle. So that seems to be going well. That's generally how we've done it. We think we'll do some more of that going forward because there are certain areas that we want to focus on and that we are looking at companies. We've been focusing on our superpower, which is hiring great talent, and we also have turned our attention to management services and things that will provide more recurring revenue that don't conflict with the brand, things that work very well and are synergistic with both our capital markets and our leasing business.

And it appears there are no further telephone questions. I'd like to turn the conference back to our presenters for any additional or closing comments.

Well, I'd like to thank everybody for joining us today, and we look forward to updating you on our next quarterly call. Thank you.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.