Newmark Group - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong organic growth: revenue rose 21.8% to $665.5M, Adjusted EPS reached $0.21 (+40% YoY), and Adjusted EBITDA was $89.2M (+40.5% YoY). Both revenue and EPS beat Wall Street consensus; revenue $665.5M vs $606.1M estimate and EPS $0.21 vs $0.186 estimate. Bold beat: revenue and EPS.
• Growth was broad-based: Management Services/Servicing +10.5%, Leasing +31.0%, Capital Markets +32.7%, with debt originations and investment sales volume strength and a 62.5% capital markets volume increase.
• 2025 guidance was maintained (revenue $2.9–$3.1B, Adjusted EPS $1.40–$1.50, Adjusted EBITDA $495–$545M, Adjusted tax rate 14–16%), reflecting macro caution (tariffs/interest-rate volatility) despite robust pipelines.
• Potential stock catalysts: management indicated Q2 pipelines up ~10% YoY and signaled share repurchases could resume, supported by $371.9M remaining authorization and 1.3x net leverage.

What Went Well and What Went Wrong

What Went Well

• Broad-based outperformance: “another quarter of double-digit gains across every major business line” and ~22% revenue growth, with ~40% growth in earnings metrics (Adjusted EPS and Adjusted EBITDA).
• Capital markets leadership: revenues +32.7% with volumes +62.5% and GSE/FHA originations +40%; management highlighted continued market share gains and strong debt-side activity into Q2.
• Leasing rebound and geographic breadth: leasing fees +31% led by NYC, Boston, and a strong rebound in the San Francisco Bay Area involving AI, financial services, and healthcare.

What Went Wrong

• GAAP loss persisted: GAAP net loss of $(8.8)M and GAAP EPS of $(0.05), including a notable $21.1M equity-based comp charge tied to the departure of the former Executive Chairman, which depressed GAAP profitability.
• Expense growth: total GAAP expenses increased 20.1% YoY (compensation +21.7%, non-compensation +10.8%), reflecting higher pass-through costs and growth investments.
• Cash flow seasonality and investments: operating cash flow excluding loan originations/sales was $(126.4)M; excluding employee loans it was $(8.7)M, as the company funded hires and experienced typical first-quarter working capital movements.

Transcript

Operator (participant)

Good day, and welcome to the Newmark Group Q1 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.

Jason McGruder (Head of Investor Relations)

Thank you, Operator, and good morning. Newmark issued its Q1 2025 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare only the three months ending March 31, 2025, with the year earlier period. Except as otherwise specified, 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 refers to net cash provided by operating activities, excluding loan origination and sale activity. We may also use the term cash generated by the business, which is the same operating cash flow measured before the impact of cash used for employee loans.

Please refer to today's press release, the supplemental tables, and the quarterly results presentation on our website for complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results, and when, how, 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 to our stock price. Our expectations are subject to change based on various macroeconomic, social, political, and other factors, and 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 limitations, 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, we have 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 host and Chief Executive Officer, Barry Gosin.

Barry Gosin (CEO)

Good morning, and thank you for joining us. We are pleased to report another successful quarter, demonstrating robust growth and strong operational performance, which underscores our strategic vision and commitment to delivering value to our clients and stakeholders. Newmark's exceptional talent and industry-leading insight led to our 22% increase in revenues and approximately 40% growth in our earnings metrics. This included another quarter of double-digit gains across every major business line. We grew capital markets by 33%, as Newmark once again outpaced the industry across both investment sales and origination, while continuing to advise on an increasing number of portfolio and entity M&A deals. Leasing fees were up 31%, driven by increased activity in New York City, Boston, as well as a strong rebound in the San Francisco Bay Area. We increased management and servicing revenues by over 10%, which reflected strong valuation and advisory growth.

We also benefited from the expansion of services across our recurring business lines, such as asset management and servicing, underwriting and due diligence, dedicated staffing solutions, and outsourced lease administration and property accounting. Our continued focus on a strong balance sheet and cash flow generation has put the company in an excellent position to grow. We continue to enhance our capabilities in nearly all verticals and geographies while broadening and diversifying into more service lines and alternative property types. We have built a platform that is engineered to excel. Given our deep relationships with clients and the strength of our brand, we anticipate further market share gains over time. We recognize, however, that there are potential geopolitical headwinds that may have a dampening effect on industry activity.

Despite recent market turbulence, we are excited to come to work every day to continue this odyssey of building on the foundation we have created for a scalable and sustainable enterprise. With that, I'm happy to turn the call over to our CFO, Mike Rispoli.

Mike Rispoli (CFO)

Thank you, Barry, and good morning. We had a strong start to the year with 21.8% growth in revenues and approximately 40% growth in our earnings metrics. Revenues were $665.5 million compared with $546.5 million. We increased management services, servicing, and other by 10.5%, the seventh consecutive period of solid year-on-year improvement. Leasing revenues were up by 31%, driven by strong double-digit growth in office and retail leasing volumes. Capital markets revenues grew by 32.7% as we continued to gain market share. This reflected 62.5% volume improvement with growth across every major property type, including 40% in our GSE FHA origination volumes. Turning to expenses, compensation increased by 21.8%, which reflected higher commission-based revenues and costs related to Newmark's growth initiatives. Non-compensation expenses included higher pass-through costs and other items related to increased revenues. The company's tax rate for adjusted earnings was 14.3%, in line with full-year guidance.

Moving to earnings, we increased adjusted EPS by 40% to $0.21 compared with $0.15. Adjusted EBITDA was $89.2 million, up 40.5% versus $63.5 million. Our adjusted EBITDA margin improved by approximately 180 basis points to 13.4%. With respect to share count, our fully diluted weighted average share count for adjusted earnings was down slightly to 255.3 million. Although we did not repurchase any shares during the quarter, we have $371.9 million remaining under our repurchase program. We continue to believe buybacks are a prudent allocation of capital and anticipate further share repurchases. Turning to the balance sheet, we ended the quarter with $157.1 million of cash and cash equivalents and 1.3 times net leverage.

The changes from year-end 2024 reflected $100 million of incremental borrowing under our credit facilities, offset by cash use with respect to the hiring of revenue-generating professionals and normal seasonal Q1 movements in working capital. Moving to guidance, our 2025 outlook remains unchanged. While our revenue pipeline continues to show growth into the Q2, it is difficult to predict the impact, if any, that tariffs and interest rate volatility may have on our results. For the full year, we expect capital markets revenues to be better than the 9% midpoint of our guidance range, management and servicing to perform roughly consistent with the Q1, and our leasing business to grow less than the midpoint of our revenue guidance range. Lastly, we want to take a moment to congratulate Lou Alvarado on his recent promotion to Chief Operating Officer.

Lou has been with the company since 2015 and has helped us deliver strong growth over the past decade. As always, Lou will be joining us for Q&A. With that, I would now like to open the call for questions.

Operator (participant)

Thank you. And if you would like to ask a question, please signal by pressing star one 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 our equipment. Again, you can press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will now take your first question coming from Alex Goldfarb with Piper Sandler.

Alex Goldfarb (Managing Director and Senior Research Analyst)

Hey, good morning. Morning down there. First, Lou, congratulations. Mazel tov. That's awesome on the promotion.

Lou Alvarado (CFO)

Thank you.

Alex Goldfarb (Managing Director and Senior Research Analyst)

The first question is just Barry. I mean, obviously, what everyone wants to know is what your clients, your relationships, what they're saying. Very strong Q1. We've seen from the office REITs, there doesn't seem to be any leasing slowdown. We've heard the same on the retail REITs so far. So how do we interpret sort of this macro uncertainty with what you're seeing in the business? And do you have any anecdotes of people pulling back leasing deals or stepping away from transactions, building sales, et cetera? Anything that gives color to what's going on in the market?

Barry Gosin (CEO)

We're seeing deals go through, continue to go through. That's what we're seeing so far. And same with leases. We're not really seeing any firm change in making decisions. The CMBS market has slowed down. It seems like the banks are putting out, bridging the gap at this point. We're seeing some bank loans for the first time in some respects, but generally not. It's too early to tell. I mean, it's 100 days in. It's been an active 100 days. We'll see what happens over the next 90 days.

Alex Goldfarb (Managing Director and Senior Research Analyst)

And on the transaction front, have you seen people pulling buildings from the market? I mean, that would seem logical just given what's going on in the capital markets. Your view is, no, people are still putting product out on the market to transact?

Barry Gosin (CEO)

Generally, interest rate, if there was a perceived significant decline in interest rates, people might slow up putting things on the market. But we haven't, we haven't really seen that. If the Fed indicated they'd you know they'd drop interest rates by 50 basis points, you might see you might see a change in the market because people will expect cap rates to rise in light of a decline in interest rates. But not really. Not really. Right now, it's the uncertainty is annoying and concerning, but things are still trading.

Alex Goldfarb (Managing Director and Senior Research Analyst)

And then Mike, just on the stock buybacks, you mentioned that in your opening comments. Again, just with the backdrop of the uncertain economy, the capital markets, et cetera, do you feel comfortable engaging in stock buybacks in the current? Or you would say, "Hey, we're better off to keep our cash on hand you know for the future rather than buying back stock"?

Mike Rispoli (CFO)

Short answer is I feel really comfortable buying back stock. I mean, you look at our balance sheet, still really clean, low net leverage at 1.3 times. And you know we are pretty careful about how we manage our balance sheet and how we manage our capital. We made some investments in the Q1 into continuing to grow the business, and you could see that in our cash flows. And so we did not buy back any stock, but I think you will see us pivot to buying back stock as we move into the Q2 here.

Alex Goldfarb (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Again, a star one to ask a question. We'll now move to our next question coming from Jade Rahmani from KBW.

Jade Rahmani (Managing Director)

Thank you very much. You all have grown the management services part of the business and continue to do so. Can you talk about what differentiates Newmark in that business, what the core services are that you're providing, and what's driving the growth there?

Barry Gosin (CEO)

Well, we do a bunch of things that we think are different than our peers. We have a managed service program. We provide staffing. We are moving into the fund administration and property accounting business, which is a little different. So it really puts us it puts up squarely in partnership with our investor clients, providing them with service and giving them the ability to provide variable support. It fits with our strategy. We think it elevates our brand. It's a very sticky and value-added piece of business. We are still growing our property management and facility management as well. And you know all that is all that is growing, we're a lot more focused on it. Look, our superpower has been our investment advisory sales and loan origination business. That's what gives us the gravitas and the reputation and the elevation of our brand over the last 10 years. In 2015, we had a 1.5% market share.

We're now nine, pushing up to 10. I mean, that's a significant increase in market share in a big segment of the business, which also has characteristics that make it incredibly advantageous to the same people that hire property managers, asset managers, provide staffing. All those things put us around the hoop with those clients. We think that now that we have continued to elevate and build, we think we're in a much more mature position to be able to take advantage of building more recurring revenue opportunities. And it's it's you know hiring the right people, going after the right business, having the right reputation, having good success. And we think we're doing all those things. And everything that we've done has indicated that, and it continues to grow, and it's going to build ahead of steam.

Jade Rahmani (Managing Director)

Thanks very much. I wanted to ask about stock compensation, which was, I think, outsized in the quarter but may have included a one-time item. Just the $21 million in GAAP charges related to Howard Lutnick that is called out in the press release. Is that a one-time item? Do you expect any other charges related to him that investors should anticipate? It would be helpful to know about that. Thanks.

Mike Rispoli (CFO)

Sure. Hi, Jade. It's Mike. The stock comp in the quarter, I would say for the full year, you know we would expect it to be similar to last year. The Howard item is a one-time item, converting his remaining units into shares as he exited the company. So we do not expect that to recur. That is how we see the year playing out for stock comp.

Jade Rahmani (Managing Director)

Thanks very much.

Operator (participant)

We will now take your next question coming from Julien Blouin with Goldman Sachs.

Julien Blouin (VP of Real Estate Global Investment Research)

Thank you and congratulations on the strong quarter. When I think about the decision to maintain guidance despite what was a pretty strong Q1, you know granted, I know the back half of the year is where you derived the vast majority of your earnings for the year. But is that decision to maintain guidance really down to the broader macroeconomic uncertainty? Is there anything in April that's sort of giving you pause? Or is it just sort of general conservatism at this point?

Mike Rispoli (CFO)

Yeah, Julien. Certainly, we had a really strong start to the year. And we're seeing our pipelines continue to build on a year-over-year basis. I would say you know for Q2, we're seeing up about 10% or so in terms of our pipelines. You know had the macro environment been different, we certainly would have been considering guiding towards a higher end of the range or perhaps even increasing guidance. But the macro environment is what it is. I would say that we have pretty good visibility through the first half of the year. As Barry said, we're not seeing deals fall out of the pipeline at this point. We're seeing things close. and you know when you think about the back half of the year, we now have 40% of our revenues and our earnings that are recurring. And we have very good visibility into that.

And so really what that means is in the back half of the year, our transaction business is up low single digits to get to the midpoint of our guidance range, which isn't a lot. But given the macro environment, I think we're just taking a more cautious approach right now.

Julien Blouin (VP of Real Estate Global Investment Research)

That's very helpful. And on that point of your pipelines in the Q2, up 10% year-over-year, does that correlate pretty closely to what you would expect for transaction volumes? Or can there be a significant sort of spread between those two?

Mike Rispoli (CFO)

Yeah, I think it's pretty consistent with what we would expect in terms of transaction volumes. You know we're seeing really strong Capital Markets activity continuing into the Q2, particularly on the debt side, where we continue to pick up market share. So as of right now, everything continues to look good.

Barry Gosin (CEO)

Well, we also have, again, we are seeing opportunities in a segment of the market that we weren't playing in. We are now playing in new markets, new categories, new types of business. We have continued to elevate the brand. People call us for things they might not have called us for two years ago. And so that's a that's a that is an incredibly encouraging scenario that is playing out over the next few years.

Julien Blouin (VP of Real Estate Global Investment Research)

That's very helpful. All right. Thank you.

Operator (participant)

Your next question is coming from Patrick O'Shaughnessy with Raymond James.

Patrick O'Shaughnessy (Managing Director)

Hey, good morning. So Newmark hasn't done an acquisition in a while. Just curious, what's your current appetite for M&A versus continued broker team liftouts?

Barry Gosin (CEO)

Yeah, I guess we haven't said that 100% of our growth has been organic. We're careful about how we buy companies. You know it depends on the companies you buy. You buy a really big company, then you spend a lot of time with the friction involved in integrating lots of personalities, lots of duplicate activity. So you get that on a big—that's a risky acquisition. On a bolt-on, if you get smaller companies, you're getting the bulk of the spend is gone to people who are retiring and the real talent that drives the business. So you know we, we navigate very carefully in how we bolt on and tack on. So we have found, although it has some implications on an accounting basis for acquiring talent, that you know the cost of sales, acquisition of sales for us, is much lower by going directly to talent. And we've hired great talent.

So in some respects, what we think is when the dust settles, we will have a higher quality professional in our business. Now, that doesn't mean that we are not going to buy. There are things we are looking at, and we think when the pipeline is appropriate, there is a white space that we can continue to fill to build out the platform on a global basis. And we're doing it. And if buying makes sense, we'll buy. If acquiring talent makes sense, we'll acquire. We are very nimble in that respect.

Patrick O'Shaughnessy (Managing Director)

Okay. Great. And then can I get your current thoughts on the outlook for multifamily? I guess, Fannie and Freddie, in particular, given some of the leadership changes there.

Barry Gosin (CEO)

I mean, the word coming out of the FHFA is generally consistent that the government, regardless of what side of the aisle you're on, wants more housing, understands the shortage of housing in the United States. I don't think they're going to want to get in the way of creating housing. So that seems to be the narrative coming out of Washington. You know the talk about privatization of Fannie and Freddie, it would be a three to four-year process to get it done. It'll be outside the realm of this administration before the benefits of doing it really happen. And you know so that's—and there's a history and a precedent of that before. You know as long as the implicit guarantee from the government to create housing continues, it will have no impact. But nothing for the foreseeable future, 2026, 2027.

Mike Rispoli (CFO)

Yeah. I would add to that that we certainly had a strong year-over-year performance in terms of volumes and origination in the Q1. On the debt side, we continue to see that building. We do not really see any slowdown in those markets at this point.

Barry Gosin (CEO)

Yeah. Multifamily has not missed the beat in terms of demand. You have a shortage of housing. You also have the same metrics that have been happening for the last 10 years. People are buying houses later. There's more mobility. People rent for longer. The ability to rely on a 30-year mortgage, paying down your mortgage and retiring off the value of the house is not really something that happens the way it used to happen in the 1960s and 1970s and 1980s. We think multifamily is going to continue to be an important asset class and continue to be strong. There'll be pockets where there'll be oversupply, like any market that has an oversupply. But it's in general, multifamily is really a good category for, we think, a long time to come.

Patrick O'Shaughnessy (Managing Director)

All right. Terrific. Thank you.

Operator (participant)

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

Jade Rahmani (Managing Director)

Thank you. I'm not sure if the tariff environment has impacted this, but the competitive environment for recruiting has seemingly picked up quite a lot. I think Cushman & Wakefield you know outlined their plans and some of the teams they're hiring. I know Eastdil is also active as well. So I just wanted to get your comment on the competitive environment, recruiting, and Newmark's plans. I believe you do still plan to grow in terms of your commission-driven, revenue-producing staff.

Barry Gosin (CEO)

So I mean, we're the go-to company. People want to be at Newmark. That's looking at everything we say and everything we do. We continue to hire, but we're not going to overcrowd ourselves. There are places where we have white space. We believe in high revenue per capita. More with less, that's part of our strategy. Our strategy isn't just more, one word. And so we continue to hire. I mean, you just look at the people we hire. And you know everyone has to hire. You have to constantly replenish your talent and train your talent and bring talent up from the bottom up. So we think we're incredibly competitive. And most of the recruiting is going our way. And that's we think that's going to continue, and it's going to continue to accelerate, which we've had in Europe. I mean, we opened Germany five months ago.

We've signed our 54th contract. We're incredibly competitive. It's you know it's an exciting market. People are excited to see us in Europe as the kind of company that recognizes talent, respects professionals, and is a good place to work.

Jade Rahmani (Managing Director)

Thank you.

Operator (participant)

It appears there are no additional questions at this time. I'll now turn the call back to you for your closing remarks.

Barry Gosin (CEO)

Oh thank everyone for joining us today. We hope to see you in the next quarter.

Operator (participant)

This concludes today's call. Thank you for your participation. You may now disconnect.