Newmark Group, Inc.

Good morning. My name is Jason. I'll be your conference operator today. At this time, I'd like to welcome everyone to the Newmark first quarter 2021 earnings conference call. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'll now turn the call over to Jason Harbs, Vice President of Investor Relations. Sir, you may begin when you're ready. Thank you, and good morning. We issued our first quarter 2021 financial results press release and a presentation summarizing these results this morning. The results provided on today's call compare only the first quarter of 2021 with the year earlier period, unless otherwise stated. Any figures with respect to cash flow from operations discussed on today's call refer to net cash provided by operating activities excluding loan originations and sales. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. Please see today's press release for results under generally accepted accounting principles or GAAP. Please see the sections in the back of today's press release for the complete definitions of any such non-GAAP terms, reconciliations of these items, the corresponding GAAP results, and how, when, and why management uses them. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website and in our investor presentation. Any outlook discussed on today's call assumes no material acquisitions, shareable purchases, or meaningful changes in the company's stock price. These expectations are subject to change based on various macroeconomic, social, political, and other factors, including the COVID-19 pandemic. I also remind you that information on this call regarding 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. These include statements about the effects of the COVID-19 pandemic on the company's business results, financial position, liquidity, and outlook, which may constitute forward-looking statements that are subject to the risk that the actual impact may differ, possibly materially, from what is currently expected. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. for discussion of additional risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements seen in Newmark Securities and Exchange Commission filings, including but not limited to the risk factors set forth in our most recent Form 10-K, Form 10-Q, or Form 8-K filings. With respect to the NASDAQ earn-out, the number of shares received by Newmark will depend On the timing of the closing of NASDAQ sale of its U.S. fixed income business and NASDAQ stock price at the time, NASDAQ has stated that the closing is subject to the satisfaction of customary closing conditions, including the receipt of required regulatory approvals. Newmark can provide no assurance as to when or if the closing will occur. I'm now happy to turn the call over to our host, Barry Gossin, CEO of Newmark Group, Inc.

Thank you, Jason. Good morning, and thank you for joining us for Newmark's first quarter 2021 conference call. Joining me on the call today are Newmark's Chief Financial Officer, Mike Rispoli, our Chief Strategy Officer, Jeff Day, and our Chief Revenue Officer, Lou Alvarado. Newmark earned 20 cents per share on record first quarter revenues of $504 million, reflecting the value of our preeminent full service platform and the strategic investments we made before the onset of the global pandemic. As of May 5th, more than 41% of the adult American population has been fully vaccinated against COVID-19, and more than 56% have received at least one dose. At the same time, the U.S. economic recovery is accelerating with 6.4% annualized growth in the first quarter. Nationally, the U.S. workforce has recovered approximately 40% of the jobs lost during the pandemic, and the country's unemployment rate has fallen to 6% in March 2021, from 14.8% in April 2020. Businesses are now increasingly more confident and are announcing their plans to return to the office. We will be welcoming all our employees back to our offices on June 1st. Companies have increased their utilization space and are making long-term commitments across all sectors. In the first quarter, our leasing revenues surpassed the first quarter of last year. This outperformance was driven by demand for industrial retail and life science properties as the U.S. recovery gains traction. COVID-19 restrictions are easing across the country. Many states, including New York, plan to fully reopen before the end of the second quarter. We maintain an optimistic view for leasing in the second half of 2021. Our capital markets business modestly declined. However, we gained significant market share during the last 12 months, making Newmark the second largest investment sales platform in the U.S. There is increased confidence among investors and lenders as fundamentals stabilize and record amounts of investment capital are available. Management services and servicing fees contributed to our top-line revenue improvement as we continue to focus on growing our recurring revenues. In March, Newmark acquired the business of Notel, a global flex office provider. We expect the flex market to grow 20% to 30% annually over the next decade as corporate occupiers look to create optionality in their real estate portfolios. The response of our clients to this acquisition has been extremely positive. With that, I'm happy to turn the call over to Mike.

Thank you, Barry, and good morning. Good morning. Newmark generated record first quarter revenues of $504 million, up 4.1 percent. Management services and servicing fees rose 13.7 percent, including valuation and advisory fees, which grew 16.3 percent. These recurring revenues increased 312 basis points to 37 percent of total revenues in the first quarter as we maintain our focus on growing these businesses. Our leasing revenues increased 5%, driven by increased demand for industrial, retail, and life science properties. As more companies implement their plans to return to the office, we expect continued improvement in office leasing, particularly in the second half of the year. Capital markets revenues decreased by 5.1%. our investment sales volumes decreased 11% as compared with a 28% industry decline, according to RCA. We gained significant market share in investment sales during the last 12 months, making Newmark the second largest investment sales platform in the U.S. GSE volumes increased by 29%. However, gains from mortgage banking activities net declined 6% due to product mix. Total expenses decreased by 2.5%. Turning to earnings. Earnings per share were $0.20. That's compared to $0.09 in the prior year period. And adjusted EBITDA was $79.3 million, up 81%. Moving on to our balance sheets. Newmark generated $25.3 million of cash flow from operations. We maintained strong liquidity and credit metrics. As of March 31st, we had $146.9 million of liquidity, which declined from year end due to acquisitions, and $325 million of availability on our revolver. Our net leverage ratio remained at 1.4 times. Our balance sheet does not yet reflect the NASDAQ earn out. The value of the NASDAQ earn out increased $102 million in the first quarter and has a total net value to Newmark of approximately $850 million as of yesterday's closing price. We expect to receive this payment prior to the end of the second quarter. Our near-term capital allocation priorities are to return capital to stockholders through share and unit repurchases and to invest in growth and margin expansion at attractive returns. We also intend to pay down our revolving credit facility. Newmark plans to continue its dividend and distributions at or near current levels through the balance of 2021. Turning to our outlook. Newmark expects revenue growth of 37 to 42 percent in the second quarter based on a strong pipeline of activity. Including Notel, the company expects stable adjusted EBITDA margins in the second quarter relative to the first quarter. In addition, Newmark expects approximately $850 million of NASDAQ shares net from the NASDAQ earn out in the second quarter based on yesterday's closing price. For the full year, we are raising our outlook and now expect to generate 20 to 25% revenue growth and 40 to 50% adjusted EBITDA growth. These results will be increased by the additional $850 million of NASDAQ shares net from the NASDAQ earner. These expectations include the acquisition of Notel, which we anticipate will be 3 to 5 cents dilutive to 2021 post-tax adjusted EPS. and break even in 2022. Newmark's fully diluted weighted average share count for adjusted earnings was up 2.9% in the first quarter. In the quarter, Newmark repurchased 900,000 shares of Class A common stock for $9.3 million at an average price of $10.57 per share. Excluding material acquisitions, The company expects to use share buybacks to keep its fully diluted share count flat for 2021. Operator, we would now like to open the call for questions.