Good day, and welcome to the Newmark Group Third Quarter 2025 Financial Results Call. Today's call is being recorded. At this time, I'd like to turn the call over to Jason McGruder, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning. Newmark released its financial results for the third quarter of 2025 this morning. Unless stated otherwise, the results discussed today will compare the three months ending September 30, 2025, with the same period from the previous year. We will be focusing on our non-GAAP results, including adjusted earnings and adjusted EBITDA. Any cash flow figures mentioned today will refer to net cash provided by operating activities, excluding GSE/FHA loan origination and sales impacts. We may also refer to cash generated by the business, which is the same measure as operating cash flow before employee loan cash use. For complete definitions of non-GAAP terms and reconciliations to GAAP results, please refer to today's press release and our website. The outlook we discuss today assumes no major acquisitions or significant stock price changes. Our expectations may change based on various macroeconomic, social, political, and other factors, and none of our targets beyond 2025 should be regarded as formal guidance. Additionally, I want to remind you that today’s call contains forward-looking statements regarding our economic outlook and business, which are subject to risks and uncertainties that could lead to actual results differing from our expectations. Except as mandated by law, we are not obligated to update any forward-looking statements. For a detailed discussion of the risks that could influence these statements, please refer to our SEC filings. I am now pleased to hand the call over to our host and Chief Executive Officer, Barry Gosin.

Good morning, and thank you for joining us. Newmark again delivered strong quarterly top and bottom line improvements. Our record third quarter revenues included double-digit gains across every major business line. Newmark's growth was entirely organic. Earlier this month, we acquired RealFoundations, which offers management consulting and outsourced managed services for institutional real estate clients across the U.S., Europe and Asia Pacific. We also recently launched a fund administration business. Newmark now has one of the most comprehensive sets of investor solutions to drive value for owners of commercial real estate, banks and debt funds. Coupled with our best-in-class talent and client relationships, we believe Newmark is poised for growth across all of our investor and occupier-focused businesses. With respect to our international expansion, this week, we launched property and facility management services in India and the APAC region. Since the beginning of last year, we have opened 9 international offices and hired over 100 revenue-generating professionals based outside the U.S. This includes expansions in France, Germany, the U.K., Singapore, India, South Korea as well as the UAE. Newmark's client-centric approach, expanding global reach and our commitment to remaining agile, accountable and adaptable is resulting in seeing and winning more global occupier assignments. We are becoming the brand of choice. This gives us increased confidence in our stated goal of producing more than $2 billion of recurring revenues annually by 2029. With that, I'm happy to turn the call over to our CFO, Mike Rispoli.

Thank you, Barry, and good morning. I'm pleased to report that for the fifth consecutive quarter, Newmark produced double-digit revenue and earnings growth. Total revenues were $863.5 million, up 25.9% compared with $685.9 million. We increased management services, servicing and other by 12.6%, leading to the company's best-ever quarter for these recurring businesses. This included 23.5% growth from valuation and advisory. In addition, our high-margin servicing and asset management platform grew by over 12% when excluding the impact of lower interest rates on escrow earnings. Leasing revenues were up 13.7%, resulting in a record third quarter for this service line. This was led by strong activity in New York, Texas and Northern California, where we generated growth in office and industrial. Capital Markets revenues increased by 59.7%, which reflected an approximately 129% improvement in our total debt volumes, nearly 2.5 times faster than the industry. We increased our investment sales volumes by 67%, also significantly outpacing the industry. Turning to expenses. Total expenses were up by 24.9%, which reflected a 32.9% increase in our commission-based revenues, higher pass-through costs as well as investments in growth. We are more confident than ever in meeting or exceeding our 2026 targets of generating record earnings of over $630 million in adjusted EBITDA and $1.75 per share of adjusted EPS. With respect to taxes, the company's tax rate for adjusted earnings was 12.1% in the quarter and 13.2% year-to-date. The lower rate was primarily driven by higher tax-deductible stock compensation. We have, therefore, adjusted our full-year range to 13% to 15%. Moving to earnings. We increased adjusted EPS by 27.3% to $0.42 compared with $0.33. Adjusted EBITDA was $145.2 million, up 28.9% versus $112.6 million. Our adjusted EBITDA margin on total revenues improved by 40 basis points to 16.8%. For the first 9 months of 2025, this margin improved by approximately 116 basis points to 15.2% compared with a year earlier. With respect to share count, our fully diluted weighted average share count was down 1.3% to 251.7 million. Turning to the balance sheet. We ended the quarter with $224.1 million of cash and cash equivalents and 1x net leverage. The balance sheet changes from year-end 2024 reflected cash generated by the business of $325.5 million and $75 million of incremental borrowing under Newmark's revolving credit facility. This was offset by $177.3 million of cash used mainly to hire revenue-generating professionals, $125.5 million of share repurchases and normal seasonal movements in working capital. Newmark continues to generate significant cash flow. Our adjusted free cash flow for the trailing 12 months was up 134% to $291.9 million. Moving to guidance. Our updated outlook for 2025 is as follows: we now expect total revenues of between $3.175 billion and $3.325 billion, an increase of 18.5% at the midpoint. We anticipate adjusted EPS between $1.53 and $1.63, up 24% to 33%. And we anticipate adjusted EBITDA in the range of $543 million to $579 million, an increase of 22% to 30%, and an EBITDA margin improvement of approximately 100 basis points at the midpoint of the range. With that, I would now like to open the call for questions.

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

Barry, 2 questions. The first question is on data centers. It's been a topic we've discussed before with you guys and certainly just seems to show no slowdown in investor and capital enthusiasm. As your team looks at the amount of capital that's been committed versus the ability to actually build data centers over the next foreseeable future, do you think all the capital can be put to work in the next, whatever, 5, 10 years? Or is there a lot more capital raised versus the physical ability to actually build data centers?

America is a vast country with significant land and natural gas resources. There is a long-term initiative to develop nuclear energy, both in small and large-scale projects. Recently, we participated in a company that went public focused on constructing a nuclear plant in Texas. After completing a Series C funding round, they successfully entered the public market. We anticipate seeing more such developments. As for data centers, there is tremendous demand, and reports suggest that power requirements may reach 100 to 200 gigawatts. This indicates that the nation will need extensive infrastructure, not just in data centers, but also in nuclear and power plants, pipelines, and advancements in quantum computing and other related technologies. Investment in this infrastructure significantly influences GDP growth. If one believes in the potential of AI, it also suggests optimism for the future, highlighting ample opportunities ahead.

But do you think it's the case that the capital has gotten ahead of itself when it comes to the physical construction of infrastructure, utilities, and power plants? Or do you believe that the capital raised can be effectively utilized for production in a timely manner?

There's a significant amount of production happening, and even more is expected as the necessary capital is secured first. This focus on capital is beneficial for us. If you look at the numbers, it's clear that more capital will be needed in the future. Once the projects are built, we will be positioned to provide financing and pursue public offerings. We are following the progress closely and will benefit from future developments, while also being involved right from the start.

Okay. And then the second question is, years ago, when you were investing in hiring a lot of different producers and expanding into new areas, acquiring smaller shops, there was a lot of drag initially from those hires. You spent the money to onboard them. It took a while for them to deliver. Recently, that seems to be a thing of the past, and you guys have been expanding into Europe. You mentioned the expansion in India, et cetera. Is all of that drag that we experienced years ago when you were onboarding producers, is that just a thing of the past? Or has the company gotten big enough? Or is it where the stock price is today? Just trying to understand because it's a pretty sharp contrast, now as you grow and expand, it doesn't seem to have a slowdown to earnings, whereas years ago, it did.

Alex, it's Mike. I'll take that one. Of course, it still has a drag on earnings. We're going to grow nicely this year and expand our EBITDA margins by 100 basis points. Have we not been investing for the future, that could have been double EBITDA expansion. What I would say is the investments we're making today, which are very purposeful, and you can see we've accelerated as we move throughout this year are going to result in a 10% earnings improvement next year. And so that is our model. We're very intentional about it. And we can grow margin while expanding the business and continuing to invest, and we'll continue to do that.

We will keep growing the company, and there is still potential for expansion. We are continuing to piece together a solid foundation and are beginning to see greater success. This means we will gain more market share in areas where we have integrated all necessary components. Once we reach that point and present the business, we expect to have better win rates and increased volume without needing additional capital. This success is already noticeable in some of our businesses, as we are capturing market share. Furthermore, we are working on other areas while also focusing on recurring revenue streams that support all of our established businesses.

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

The 2026 targets that Mike reiterated, when were those conceived?

We've had those targets out there for a while, as you know. Certainly, we'll get through the fourth quarter, and we'll give formal guidance for 2026 probably on our next earnings call. But we feel very confident and that's still double-digit growth from the midpoint of our guidance range this year. So we'll certainly reevaluate that next quarter.

It was a couple of years ago, and if you look back at the earnings calls, we've predicted that for a while.

Yes. Well, what I'm trying to imply or suggest is that since they were created prior to the very robust growth that Newmark has demonstrated across its businesses, particularly capital markets, plus the data center fundraising wave in which Newmark is taking part, the outlook 2026, as previously mentioned, seems quite conservative. Growth coming out of SRI recoveries tends to be a lot stronger than that and the recovery thus far, macro risks notwithstanding, seems to be gaining momentum. So do you believe that those targets are conservative? And are you also seeing anything in the macro economy that would cause you to be erring on this side of caution?

I would say it's always good to be a little cautious. Certainly, those are conservative targets. And we'll give you an update next quarter once we get through the full year.

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

Congrats on the strong quarter. Barry, I wanted to ask about New York City. The third quarter commercial real estate transactions and leasing in the city looked really strong, but we keep hearing that institutional investors, particularly from abroad, may be starting to worry about political risk in the city related to the mayoral race. Are you noticing any signs of impact or any cautiousness from buyers in the city?

Not really. There's a lot of discussion surrounding the mayor, but as I mentioned a couple of calls ago, the mayor has limited power. The gubernatorial race is crucial, as the governor acts as a safeguard for the city. Additionally, how the federal government engages with New York also plays a significant role. I view much of this concern as just noise. New York's law firms are performing well, financial institutions are expanding, and all of our clients are growing. Therefore, I don't perceive any real impact.

Got it. That's helpful. And then, Mike, can you help us understand maybe the cadence of capital markets across the quarter? Was September particularly strong given rates coming down? And did you see sort of a follow-through of that activity into October? And then maybe how do pipelines compare to this time last year?

I wouldn't say there was anything in particular that stood out to me this month. It was a strong quarter overall for us. The pipelines remain robust as we head into the fourth quarter, which is reflected in our guidance. We feel optimistic and don't see anything in the market currently that is dampening transaction activity.

We'll go next to Mitchell Germain with Citizens Bank.

Congrats on the quarter. Just maybe on the RealFoundations transaction, Barry, just maybe talk about kind of your view of the fit and potential to expand or cross-sell that platform.

We consider ourselves primarily a pure play company. Our goal is to create a business that partners with institutional investors to help them implement their strategies. This entails offering various services that enable these investors to utilize firms like ours more effectively. RealFoundations functions as both a consulting firm and a technology advisor. They assist in the implementation and integration of major technology platforms such as MRI and Yardi, which are essential for how investors manage their operations. RealFoundations can support a company in selecting the right technology, integrating it, and optimizing its use. This is complemented by our expertise in real estate property accounting, staffing, due diligence, and cost monitoring. Together, these elements create a comprehensive solution, positioning us as a preferred firm when funds consider their operational strategies, whether they prefer in-house solutions or outsourcing some functions. We are dedicated to hiring exceptional talent and have acquired outstanding companies. Our focus on centers of excellence ensures we attract the skills our clients depend on, which we believe will establish us as the leading brand in this sector. We also launched our fund administration services, and without RealFoundations, achieving this would have been considerably more challenging. We have meticulously assembled the right components and believe we now offer an impressive range of services for a complete solution.

Great. That's super helpful. And Mitch... Yes, go ahead, Mike.

No, this is Lou Alvarado. The other value that we saw in RealFoundations is to augment our growth in occupier solutions, right? So they were primarily investor focused, but we saw a lot of the skills that they have and the talent that they bring really blends well with our occupier platform as well. As we have significantly grown that and continue to focus on growing that, we think RealFoundations will be an excellent match for us. And that was part of the reason why RealFoundations also picked us to be a partner with them in their growth as well as ours.

Great. Barry, obviously, you've been making a lot of hires outside the U.S., opening new offices. I'm curious about your views about organically growing services platform, facilities management and other services versus more traditional brokerage and kind of how you view that organic growth and the timeline to augment those capabilities on a global scale?

We are seeing acceleration in our efforts. We are aligning our strategies for facility management and occupier solutions in the same way we have for our investor side. Lou is correct. When clients on the occupier side utilize the same technology, we can assist them in implementing a technology strategy that enhances their real estate management, giving us an advantage over competitors. It’s crucial for us to establish a presence in various geographies and verticals. Our reception in Europe has been remarkable, and skilled individuals are joining us because of our business approach. We are agile, accountable, and nimble, providing customized solutions rather than just offering a one-size-fits-all approach. Since we are not deeply entrenched in certain areas, we can adapt effectively to our clients' needs. Everything is coming together, and as we expand our geographical presence, we will have more opportunities to engage in various initiatives.

We'll take a follow-up question from Jade Rahmani with KBW.

I just wanted to ask if there's anything in the fourth quarter '24 comp period that you want to call out. For example, leasing commissions were up 15.1%. So that's a tougher comp than what you dealt with this quarter. Capital markets, of course, was very strong last year. But given the strength this quarter, it seems achievable to exceed that. And then anything on the expense side, just so we're aware.

Sure. I think generally, Q4 is going to be a tougher comp for us. We were up 17% last year in '24 in the fourth quarter. But that's all been thought through and reflected in the guidance that we provided, both in terms of top line and bottom line. The pipeline continues to remain strong. And really, it just comes down to when do transactions close. And as you know, there's always some that are going to push out, some that are going to pull in. And we've thought through that as we gave you the guidance range that we put out today.

We'll take a follow-up question from Julien Blouin with Goldman Sachs.

Just a quick follow-up, Barry, following on from Alex's question on data centers. Your data center capital markets volumes have been really impressive this year, particularly on the financing side. Can you just maybe talk through the team you've built there, how you've been able to build such a dominant early foothold in the space? And then how should we think about the growth in data center financing volumes and investment sales going forward?

A few years ago, we engaged experts in our valuation group to conduct risk assessments and stress testing for banks. The goal was to be proactive. We noticed early signs in the data center sector and responded swiftly, demonstrating our agility. We quickly added new team members who could adapt effectively. We've assembled an outstanding team, and we continue to enhance it, particularly on the leasing side. The cloud computing sector will continue to thrive, and some older colocation facilities will upgrade their racking systems to improve cooling and support the new AI chips, which generate more heat and require greater computing power. There’s a significant opportunity in updating these older facilities for the new environment, and we plan to be part of that. We are still in the process of hiring talented individuals, as talent is crucial across all our sectors. It's essential to have the right people in the right positions without overcrowding.

We'll take a follow-up question from Alexander Goldfarb with Piper Sandler.

And Barry, just want to continue that. A while back, if my recollection is right, when you and I discussed this, there was the comparison to life science and how you didn't want to overcommit from an investment to data centers, just given that real estate tends to follow boom-bust cycles. It doesn't mean it's out, it just means, hey, there's a big boom and then there's a cooling and then it grows from there. Obviously, life science went crazy during COVID and now it's dealing with the consequences. So from a staffing level, are you now feeling more bullish that this has longer legs to hire more? Or are you still of that restraint mentality, which is, hey, we don't want to get too far over our skis on this. It's a great sector, but every sector that has huge growth eventually has a cooling period, and we just want to maintain staffing appropriately?

We're always focused on doing more with less as part of our operating model. With a strong team, we can adjust our workforce as needed. When we become overly committed, it becomes challenging to scale back. We believe we have the right staffing levels to grow at this time. There are opportunities to expand, particularly in the leasing aspect of our data center business, but we can allocate resources flexibly. Our strategy emphasizes achieving more with less, rather than simply increasing our resources.

With no additional questions in queue at this time, I'd like to turn the call back over to Barry Gosin for any additional or closing remarks.

Once again, I'd like to thank everybody for joining, and I look forward to updating you next quarter.

That will conclude today's call. We appreciate your participation.