NEWMARK GROUP, INC. Q3 FY2024 earnings call

Growth Acceleration

• Every major business line improved during the quarter, with capital markets revenues up over 18% for the fourth consecutive quarter of double-digit growth, fueled by a 77% increase in mortgage brokerage volumes.
• Fannie Mae origination volumes increased by 58% over the trailing 12 months, fueling growth in the high-margin primary servicing business.

Service Lines Growth

• Management services, servicing, and other revenues saw an 11.4% increase with organic growth across all businesses.
• Leasing revenues increased by 5.6% led by growth in retail and industrial; office leasing activity continues to increase with a strong pipeline.
• Capital markets revenues improved by 18.5%, with the debt business gaining market share, commercial mortgage origination fees up 45.2%, and investment sales fees up 4.8%.

Expansion

• Continued expansion in Europe with recent openings in France, UK, and Germany; hiring top talent across service lines and geographies.

Total revenues were $685.9 million, up 11.3%. Capital markets revenues increased by over 18%, fueled by a 77% increase in mortgage brokerage volumes. Debt business expanded commercial mortgage origination fees by 45.2% with mortgage brokerage volume up 76.8%. Management services, servicing, and other revenues improved by 11.4%. Leasing fees increased by 6%, led by retail and industrial. Adjusted EPS was up 22.2% and adjusted EBITDA up 17%. Compensation expenses were up 6.3% due to higher variable commissions, and non-compensation expenses up 9.3% tied to higher management and servicing fees.

Full Year 2024 Guidance

• Total revenues expected to be between $2.620 billion and $2.680 billion, an increase of 6% to 9%.
• Adjusted EPS anticipated between $1.11 and $1.17, up 6% to 11%.
• Adjusted EBITDA expected in the range of $410 million to $430 million, an increase of 3% to 8%.
• Outlook subject to macroeconomic, social, political, and other factors; targets beyond 2024 not formal guidance.

Risks

• Forward-looking statements subject to risks and uncertainties from macroeconomic, social, political, and other factors that could cause actual results to differ from expectations. Risks detailed in SEC filings, including risk factors and disclosures regarding forward-looking information in recent SEC filings.

Q: How should we think about Newmark's office leasing commissions contribution in the quarter and potential upside for leasing commission contribution for office along with strong performance of retail and industrial?

A: Our office leasing pipeline continues to be strong, winning a lot of big mandates. Year-over-year, we'll have good leasing performance. Office mandates are coming back with a strong pipeline continuing into 2025. For retail and industrial, significant activity is seen with continued tailwinds from data centers, reshoring, and nearshoring.

Q: What lessons have you guys learned so far about continued growth overseas and focus?

A: We hired great people in verticals across every geography. Goal is to be throughout Europe intentionally, hiring the best people in each geography. The plan is similar to that in the United States, hiring top talent in each vertical and geography.

Q: Can you give color on how you're viewing capital markets and what you anticipate going forward?

A: We see a very active pipeline of sales. The debt market is strong with market share gains in complex larger transactions. Investment sales will pick up once pricing stabilizes and capitulation on values occurs. Short-term interest rate moves dampen activity but there's a lot of activity expected.

Q: How to reconcile the change to adjusted EBITDA and divergence from revenue and EPS guidance?

A: Our increased revenue and adjusted EPS guidance is due to strong performance year-to-date and growing pipeline. Adjusted EBITDA is affected by how legal settlements are treated for adjusted EPS vs EBITDA. Prior year adjusted EBITDA included a large favorable litigation settlement. This year, guidance adjusted due to legal settlement movements.

Q: How do you characterize debt financing availability right now and shift in sources of lending?

A: There's a new category of lenders (debt funds) replacing banks concerned about CRE book size. Debt funds are proliferating, providing liquidity for good quality real estate.