Newmark Group, Inc.

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 three months ending June 30th, 2025 with the year earlier period. Except as otherwise specified, 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 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 on our 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 were 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. I'll also remind you that the information on this call contains forward-looking statements, including, without limitations, statements concerning our economic outlook and business. Such statements are subject to risk and assurances, 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 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 on 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 Gosselin.

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 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, Numark was ranked as the number one 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 among to number three 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 outlet. 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 1.4 times 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 gap 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.

And if you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Once again, that is star one if you would like to ask a question. We'll now take our first question from Mitchell Germain with Citizens.

Thank you, and congrats on the quarter. Barry, obviously you referenced the global investment sales number three, 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. 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 and UK and other parts of Europe. So I think it all bodes well for us there. We're excited.

Great. Thanks for that. Do you think the capital markets... activity is sustainable, or are you seeing maybe a little bit of a pull forward given some of the future uncertainty?

Yeah. I mean, just so you understand, we've hired leasing people, appraisal people. We're a fully integrated platform. So in all of our markets, we hire full boat of services for clients as we have in Germany. So it's a pretty diversified mix of people that includes the UK, includes France, includes what we're doing in Asia as well. We have, for the moment, a sighted advantage. We have a lot of white space. We have an enormous runway. A couple years ago, we did virtually zero business in Europe. It's now a 13% plus of our volume. We're building in Asia as well. And we think it's a great opportunity to build a completely diversified, integrated platform. It'll serve our corporate clients well to be in all of those markets so we can be able to serve our corporate leasing clients on consulting and other aspects of our business. Not only capital markets, but we think there's There's always going to be capital markets. We think the runway is pretty good in Europe, and some people think that Europe is a better opportunity right now. But we're pretty bullish on our direction and where we go.

Great. Thanks for that. 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, you know, where is investment dollars? Obviously, they're going to new broker acquisitions, but, you know, could we potentially see you guys consider some M&A here? Is buyback still on the table? Some thoughts around that, please?

Sure. I would say buybacks are certainly still on the table. As I said, we did a pretty significant buyback in the second quarter. So I would expect us to pivot to M&A in the back half of the year. We have a lot of interesting opportunities, particularly on the management services side that we're looking at that we think we can add a lot to those companies. They can add a lot to our platform. So I would say for the back half of the year, you'll see us pivot to growth capital, versus buybacks. But longer term, we still think the stock is undervalued. You know, if you look at our adjusted free cash flow, even relative to the current market cap, it's probably around 6% yield versus the S&P 500, which is 2.8%, our peer group, which is around 4.2%. So, you know, we still think there's a lot of upside to our stock, and that's why we'll continue to look at buybacks as well.

You should also, it's important to note that 100% of our growth is organic. Thank you. I appreciate it and great quarter. Thanks.

Well, now I'll take our next question from Alexander Goldfarb with Piper Sandler.

Hey, good morning. Morning down there. And Barry, thanks for the opening comments. Just obviously tragic. Mike, appreciate the free cash flow emphasis in the slide. You know, I think it's very helpful to help, you know, understand the economics of the business, which, you know, this quarter just really impressive. Along those lines, data centers have been, you know, 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 used the example of like 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?

Well, we believe we're appropriately staffed. It's a center of excellence. There's a lot of reach with a small amount of people if you are the best at it. And we think we are the best at it. We also, there are two aspects of the business. There's the powered land play, which which is at some point there will be less of the power land play, but our big emphasis has been on equity and finance. And those are the areas which were the strongest. We think there's an enormous runway. There's a big runway in Europe. There's a big runway in Asia. AI is so relatively new. It's only really two years old. And a lot of people want to get into the game. And the question for everyone is really, what do you think about AI and the future of AI? And if you believe in the future of AI, then you have to believe there is a long runway. Life science has been, is a more mature business that was just faced over building, over supply. It's kind of like multifamily is a business that has enormous demand in the country. and will continue. We are underserved for housing, but there are markets where you just have too much supply. Life science is just a moment in time where there's just too much supply to be absorbed. A lot of these transactions haven't come online. It's all coming online. So it'll be three, four years before we could see whether there is an oversupply, and it is pretty early.

Okay.

And I would add one thing to that, which is that there's also tremendous opportunity in data center 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... And leasing.

And leasing. You know, people, they won't... I mean, not everything is going to be just a handful of hyperscalers. You're going to still see the co-location facilities, not everything is going to be in the cloud. So it's going to be, and we're also, we're also involved in a very active in digital infrastructure as well, which, you know, includes chip manufacturing and things like that, which are, are proliferating. There's, you know, there's a host of things.

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, you know, our sense of market visits is that, you know, 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 want to understand better. the drivers of the dramatic boom in your San Francisco leasing growth?

I mean, we're told that San Francisco and the entire Bay Area has opened up, that there is activity coming from every direction. Now, that's based on what our brokers tell us and what we have in the pipeline. It's coming from all different places. A lot of that, some of that's AI, but there's other tech tech companies as well that are growing. There's always one thing about the ecosystem in the Bay Area is, you know, there's a company born every five minutes in the Bay Area.

It's part of the ecosystem. Thank you.

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

Hi, this is actually Jason Sapshon 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? Thanks.

Yeah, hi.

The target on the management business is about $2 billion. You know, 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, you know, we feel that those are very achievable.

Last quarter, we pointed to a couple of metrics. In 2014, we were 1.1% of the market in respect of the sales and now we're close to 10% in debt. And 1.8% in sales and now we're close to 10 and nine and a half respectively. We're 1% of the property management business. So there is an enormous runway to connect with the relationships and the things we are doing. We are very focused on things that will provide us with recurring revenue. We're looking for the smart ways to do it. We're looking at things that fit in with how our brand works. And we are getting really good traction in many of those areas.

Great, thank you. 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 no different than the average fees that you see across the rest of our business. Typically, on average... It's based on deal size, but our average sales has been around 70 basis points, and our average debt fee has been in the 40 to 50 basis point range. As deals get larger, those basis points go down. As deals get smaller, they go up. But on average, that's where you've seen our fees, and data centers really are no different.

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

So, you know, 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 below double digits in the back half of the year and the capital markets business probably mid to high teens. And which, you know, 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.

Great. Thank you.

We'll now take our next question from Julian Bluen with Goldman Sachs.

Thank you for the question 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 reacceleration in activity relative to what seemed to be a slower May and June for the industry?

You know, 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 bit early, but everything at the moment looks pretty good.

Got it. That's helpful. And it sounds like there wasn't any change to sort of how you're thinking about the 2026 targets. I guess, is it just that you feel even more confident that they're sort of what you've put out there of $1.75 and $630 million of adjusted EBITDA are achievable? Or, you know, was there any temptation to maybe increase 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. You know, if you just take the midpoint of our guidance for the rest of this year or for 2025 full year, you know, 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 tell. Mondami hasn't been elected yet there's a lot of noise unfortunately I think we have a firewall in our governor if people are concerned the mayor has a limited amount of power to do stuff you still have the City Council the City Council is pretty has moved more moderate over the last couple years very few democratic socialists and so it's not New York is incredibly resilient. I don't believe it will have an impact. For certain people, it may annoy them, but New York is New York. The pool of talent in New York is unparalleled. The level of excitement in New York City being here is unparalleled. I'm pretty sanguine about it.

Okay, great. Thank you.

And as a final reminder, that is star one if you would like to ask a question. We'll now take our next question from Patrick O'Shaughnessy from Raymond James.

Hey, good morning. So with the new disclosures, your adjusted free cash flow, what are your expectations in terms of adjusted free cash flow in 2025 and I guess, bigger picture or longer term, do you have a framework in terms of targeted conversion ratio, what that pre-cash flow should look like as compared to your adjusted net income?

Sure. Thanks for the question, Patrick. On a trailing 12-month basis compared to our post-tax adjusted earnings, it's about 65% conversion. Remember, In that metric or taken out of the cash flow from operations 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, um, 65 to 85%, depending on, you know, how much we invest in the business at any given time.

Yeah, that's very helpful. Speaking of, uh, hiring talent with industry broker driven is generally trending better. Is it getting any harder to poach top talent away from competitors?

Well, it's never easy.

But no, I think that we seem to have struck a chord in the industry in terms of what the industry needs in respect of talent. And I think we fit the bill for many people that are high production, high revenue professionals. So that We don't think that's going away. It's always been hard in some respects, but we don't see it changing.

Got it. Thank you. And then lastly from 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?

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, et cetera. 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's 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've you know, we we're looking at companies we've been we've been focusing on our superpower, which is hiring great talent. And we're also have turned our attention to management services, and things that will provide more recurring revenue that don't consistently conflict with the brand, things that work very well and are synergistic with both our capital markets and our leasing business.

All right. Thank you.

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.