Newmark Group, Inc.

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 issued its third quarter 2025 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare only the three months ending September 30th, 2025 with the year earlier period. Except as otherwise stated, 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 GSC 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, supplemental tables, and quarter results presentation on our website for complete updated definitions of any non-GAAP terms, reconciliation of these items to the corresponding GAAP results, and how, when, and why 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 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 i 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 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 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 Gossin.

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 Real Foundations, 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 nine international offices and hired over 100 revenue-generating professionals based outside the U.S. This includes expansions in France, Germany, the UK, Singapore, India, South Korea, as well as the UAE. Numark'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 and 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 in approximately 129% improvement in our total debt volumes, nearly two and a half 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 and 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 42 cents compared with 33 cents. 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 nine 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 one times 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.

Thank you. If you would like to ask a question, you may signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star 1 for question. We'll take our first question from Alexander Goldfarb with Piper Sandler.

Hey, morning down there. Barry, I have two 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, five, 10 years? Is there a lot more capital raised versus the physical ability to actually build data centers?

America is a big place. There is quite a bit of land and there's quite a bit of gas. And there's an effort long term to build nuclear, both micro and large scale nuclear. We were just involved in a company going public, building a nuclear plant in Texas. We did a, you know, we were involved in a Series C, and then they were taken public. And we'll see a lot more of that. I mean, on the exit, there'll be a lot of that in respect of some of these hyperscalers figuring a way to exit and raise more capital. I mean, there is an endless amount of interest in data centers. I mean, we produce about three gigs a year, I think. I believe that's the number. You know, we've seen people. and estimates as high as 100 to 200 gigawatts of power. So the country is going to require an enormous amount of infrastructure, so it's not just data centers, it's infrastructure, and infrastructure meaning nuclear plants and power plants and pipelines and data centers and quantum computing and a host of other things that surround it and support it on the industrial side of the business. So generally, I mean, if you look at the GDP, the GDP was primarily the investment in this kind of infrastructure. So I think it has a lot of traction. And again, as I said before, probably three quarters ago, if you believe in AI, you'll believe in the future. And so there is runway.

But do you think it's, I mean, but the point is, it sounds like there's, we all know there's a lot out there of potential needs, but it just sounds like physically building the infrastructure, laying the utilities, building the power plants, like all this stuff, it sounds like the capital has gotten ahead of itself. Do you think that's the case or you think that the capital raised can commensurately basically go into production pretty quickly?

Well, there is a lot of production going on, but there will be a lot more I mean, the capital comes first. We're on the capital side, so that's good for us. Raising the capital to build is good for us. I mean, just look at the numbers and the predictions are there's going to be a lot more capital required. I mean, on the end, when it's built, we'll be there with financing and going public and doing all those kind of things. So we're following the continuum. We'll be a beneficiary. of the future, but we're also right there in the beginning.

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.

Good morning, 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. Had we not been investing for the future, that could have been double the 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 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're going to continue to grow the company, Alex. And there's still running room. There's still white space. And we are still putting all the pieces together to build a complete foundation. We're now winning more and seeing more, like I just said. What does that mean? That means we're just going to have more market share on the things that we have now put all the pieces together in whatever spectrum of activities that are required in that vertical. And once we're there, we pitch the business, we'll have a higher ratio of win rates and our volume will go up without any capital requirements. And that you could see in some of our businesses, it's more apparent because we've already built it. It's happening. We're winning market share. So there's other verticals that we're working on, not to mention all of the recurring revenue businesses that are around the hoop and supporting all of the other businesses that we've created.

Thank you.

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

Thank you very much. The 2026 targets that Mike reiterated, when were those conceived?

Morning, Jade. 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.

Jay, it was a couple of years ago. You just 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, you know, the outlook 2026, as previously mentioned, seems quite conservative. Growth coming out of Siri 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, you know, we'll give you an update next quarter once we get through the full year.

Thank you very much. Great job.

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

Hi, thank you for the question and congrats on a strong quarter. Barry, I wanted to ask about New York City. I mean, third quarter CRE transactions and leasing in the city looked really strong, but we continue to hear, you know, signs that institutional investors, especially abroad, are maybe beginning to worry about political risk in the city related to the mayoral race. I guess, are you seeing any sign of impact or any cautiousness from buyers in the city?

Not really. I mean, there's a lot of noise around the mayor, but as I said probably two calls ago, the mayor has limited power. The governor's race, the governor really is the firewall for the city. That's really, and the federal government on what, you know, what the federal, how the federal government is going to treat New York, but that's New York State as well as New York. So, I don't, I don't really, I believe it's, you know, it's a lot, it's just a lot of noise. New York is, New York is the law firms are doing great. The financial institutions are all expanding. All of our clients are expanding.

So I don't really see 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 of that activity into October, and then maybe how do pipelines compare to this time last year?

I wouldn't say there was any particular anything within months that would stand out to me. It was a strong quarter across the board for us. The pipelines remain really strong into the fourth quarter. You could see that in our guidance. you know, we feel pretty good. We don't see anything in the market that is slowing transaction activity down at the moment.

Okay, great. Thank you.

As a reminder, if you'd like to ask a question, please signal by pressing star one. We'll go next to Mitch Germain with Citizens Bank.

Thank you, and congrats on the quarter. Just maybe on the real foundation transaction, Barry, just maybe talk about, you know, kind of your view of the fit and potential to expand or cross-sell that platform?

So we look at ourselves as a pure play for the most part. We are designing a business to be able to be a partner with institutional investors to help them execute on their strategy. And that means all things for them to help them leverage companies like us to be able to do more. And what Real Foundations is, is both a consulting firm and a technology advisor. They implement and integrate, for example, MRI and Yardi, which are the two biggest technology platforms for investors and how they manage. They can go in and advise a company on which tech how to integrate it and how to get the maximum out of it. Now that's a piece of all the other things that we've done, real estate property accounting, staffing, due diligence, cost monitoring. So all those pieces fit neatly together and bridge the gaps between a holistic solution as becoming the go-to firm when a fund is thinking about how they want to operate. And some would prefer to operate with everything in-house and some prefer to operate with some of this outsource. We hire great people. We've bought great companies. Our strategy is about centers of excellence and people who are excellent. And if we continue to hire the kind of talent that our clients rely on, we think we'll be you know, be the go-to brand for that kind of business. And we think that has enormous traction. We launched fund administration as well. And without Real Foundations, it would have been much harder for us to deliver on fund administration. So we put the pieces together very carefully. We thought about it. And we think we now have an incredible array of services to provide a very comprehensive solution. Great. That's super helpful.

And Mitch. Oh, yeah. I can. No, this is this is Lou Alvarado. If I can.

Oh, sorry about that.

My thoughts. The other value that we saw in real foundations is to augment our growth and occupy our 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 Real Foundations will be an excellent match for us. And that was part of the reason why Real Foundations also picked us to be a partner with them in their growth as well as ours.

Great. Thanks for that perspective. 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, you know, kind of how you view that organic growth and the timeline to augment those capabilities on a global scale.

Well, we, you know, it's accelerating. Our, you know, we're putting all the pieces together the same way we did on the investor side. We're doing it the same way on the facility management and the occupier solution side. Lou's absolutely right. I mean, we have clients on the occupier side who use the same technology, and to be able to help them implement a technology strategy to manage their real estate better will give us a leg up on the competition. We need to be in the geographies, we need to be in all the verticals, and we need to be out there. I think that our reception in Europe has been incredible. The same, you know, the talented people want to be with us and they're joining the firm because of how we approach the business. They said agile, accountable, nimble. We provide customized solutions. It's easier for us to provide customized solutions for clients and not just a black box. We're not overly pregnant in certain areas, so it gives us the ability to be adaptable for our clients. So, you know, all the things are coming together. And as we continue to put in, you know, hit a geography and have that geography, when we, you know, we're invited to many more parties.

Thank you. Thank you. We'll take a follow-up question from Jade Romani with KBW.

Thank you very much. I just wanted to ask if there's anything in the fourth quarter 24 comp period that you want to call out. For example, you know, leasing commissions were up 15.1%, so that's a tougher comp than what you dealt with this quarter. You know, capital markets, of course, was very strong last year, but given the strength this quarter, you know, it seems achievable to exceed that. And then anything on the, you know, 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 thought through that as we gave you the guidance range that we put out today.

Thanks very much.

Thank you. We'll take a follow-up question from Julian Bluin with Goldman Sachs.

Thank you. 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?

You know, what's interesting, a couple years ago we brought in – experts in our evaluation group that did risk assessment and stress testing for banks. The idea is to be early, and early as often as you can. We saw signs of the data center business. We acted quickly. That goes into the definition of nimble. We hired people quickly. And we got in front of it and we have incredibly good people that can, you know, can adapt as well. So we, you know, we, we, we put together an incredible team of people and we still, we're still building it actually, you know, we're building more on the leasing side of it and the, um, because there's still, you're still going to have, um, you know, cloud computing, you're going to still have the, some of the old co-location facilities. that are going to change out their racking systems to have better cooling and more capability for the new AI chipset that provide much more heat and much higher level of computing. So, you know, there's a whole business of adapting some of the old co-location facilities to the new environment and, you know, we'll be involved in that kind of stuff. So we still continue to hire good people. It's just all about talent. I mean, it's everything. In all of our verticals, it's about getting the right people in the right place and not overcrowding.

Thank you. Thank you.

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

Hey, thank you. 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 you're 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 always view doing more with less. That's just our operating model. If you have great people, you can flex up and down. When you get overly committed on anything, it's hard to go the other way. So we think we're appropriately staffed to scale now. We think there are parts of it that we could expand. And the geography is probably more on the leasing side of the data center business. But money is fungible. It travels everywhere. We can do it with our team and flexing our team the way it is. Our strategy is more with less, not more.

Thank you.

Thank you. With no additional questions in queue at this time, I'd like to turn the call back over to Barry Gossett. 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.