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Operator: Greetings, welcome to the Newmark Group Fourth Quarter 2022 Financial Results. This time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. At this time, I’ll now turn the conference over to Jason McGruder, Head of Investor Relations. Mr. McGruder, you may now begin.

Jason McGruder: Thank you, operator, good morning. Newmark issued its fourth quarter 2022 financial results press release and a presentation summarizing these results this morning. The results provided on today’s call compare only to the three months ending December 31, 2022 with the year earlier period, unless otherwise stated. We will be referring to our results on this call only on a non-GAAP basis, unless otherwise stated. These non-GAAP terms include adjusted earnings and adjusted EBITDA. Please see the section in today’s press release for the complete and/or updated definitions of any non-GAAP terms, reconciliation of these items to the corresponding GAAP results and how, when and why management uses them. More information with respect to our GAAP and non-GAAP results is available on our website in today’s press release, the supplemental Excel tables and the quarterly results presentation.

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 origination and sales, and also excludes the impact of the 2021 Equity Event. Cash from the business with the same cash flow metric by excluding employee loans for producers. The outlook discussed on today’s call assumes no additional share repurchases, material acquisitions share repurchases are meaningful changes in the Company stock price. These expectations are subject to change based on various macroeconomic, social, political, and other factors. While our 2025 or other log driven financial and operational targets do assume acquisitions, they are also subject to change for the same reason.

None of our long-term targets or goals should considered formal guidance. I also remind you that the information on this call about our business that are non-historical facts, forward looking statements within the meaning of Section 27-A of Securities Act of 1933 as amended and Section 21-E of the Securities Exchange Act 1934 as amended. Such statements involve risks and uncertainties. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a complete discussion of additional risks and uncertainties which could cause actual results to differ from those contained in forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors set forth in the most recent 10-K, 10-Q or 8-K filings, which are incorporated by reference.

I’m now happy to turn the call over to our host, Barry Gosin, Chief Executive Officer of Newmark Group, Inc.

Barry Gosin: Good morning and thank you for joining us. With me today are Newmark’s Chief Financial Officer, Mike Rispoli; ourChief Revenue Officer, Lou Alvarado; and our Chief Strategy Officer, Jeff Day. For the past decade, Newmark has strived to become the Company with the greatest talent in the industry. Our near-term objectives include becoming number one in capital markets in the United States. Yesterday, we took a major step towards this goal by adding the industry’s top capital markets team, led by Doug Harmon and Adam Spies, who are based in New York, the largest real estate market in the world. We have an incredible combination of the top strategists and advisors together with extraordinary local expertise. This has led to over a decade of strong growth and becoming a top commercial real estate services platform in the US.

During the fourth quarter, interest rates rose at the fastest pace in over 30 years. This led to challenging market conditions, but also has created an opportunity for Newmark to solidify its position as the platform of choice for the real estate industry’s top professionals. We believe the current market dislocation, coupled with our strong financial position, is creating opportunities for us to hire top talent and acquire companies at attractive valuations. As we have seen with past downturns and subsequent recoveries, capital market leads the rebound. Once the markets and the Fed are aligned, we expect pent up demand drives significantly higher industry volumes. Historically, our investment sales and debt businesses have had a multiplier effect, which drives outside’s growth across Newmar.

When activity rebounds, we expect our market share revenues and earnings to materially outperform the industry. While the macroeconomic environment may be challenging in the short term, we remain excited about our market position and our future. Our professionals are actively assisting clients as they navigate the current environment, restructure their portfolios, and redesign their workplaces. On the investor side, we are advising our clients on equity recapitalization, debt financing, and repurposing underutilized properties, including conversion into multi-family, life science, industrial, and other uses. We also expect the growing demand for hybrid work environments to create opportunities for consulting and our flexible workspace business.

As an example, we recently arranged the sale and financing of 25 Water Street, a 1.1 million square foot conversion to multi-family of an office, office building in New York City. This transaction represents one of the largest ever conversions in the United States. The long term fundamentals of commercial real estate remains strong with closed end funds alone, having approximately $436 billion of global capital waiting to be deployed. More than $2.5 trillion of U.S. commercial and multi-family debt maturing over the next five years, and the continuing secular trend towards outsourcing of real estate services to companies like Newmark. With that, I’m happy to turn the call over to Mike.

Mike Rispoli: Thank you, Barry, and good morning. Our total revenues were $607.3 million, down 38.3% due to lower industry-wide transaction activity, particularly in capital markets where U.S. investment sales were down 62% and debt originations were down 54%. In leasing, industrial and retail were bright spots, surpassing pre pandemic levels for the year. However, office remains challenging with CoStar reporting a 20% decline in U.S. office leasing activity during the fourth quarter. Total expenses of $497.1 million were 31% lower, largely due to the variable nature of our expenses. We are ahead of schedule with respect to our $50 million annualized fixed cost savings target, and expect to realize at least $35 million during 2023.

Turning to earnings, our fourth quarter results compare to record fourth quarter 2021 earnings, creating a difficult year-over-year comparison. Adjusted EBITDA was $102.2 million compared with $225.4 million. This result largely reflects the dramatic rise in interest rates on our higher margin capital markets business. Our EPS was $0.32 compared with $0.65. We repurchased 1.7 million shares at an average of $8 per share and reduced our weighted average share count to 236.3 million shares, down 7.1%. Our fully diluted share count is now slightly below year end 2017. Over the past few years, we have returned $792 million to shareholders through share repurchases and redemptions. In addition, we have returned $38.8 million in dividends and after tax distributions.

We expect to continue returning capital to shareholders, although our near-term rate of share repurchases will decline. This is due to the current market dislocation, which is providing us with high-quality opportunities to hire the industry’s best talent and acquired companies at attractive valuations. Moving to the balance sheet. We ended the year with $233 million of cash and cash equivalents. The change in cash from a year earlier reflects cash flows from operations of $261.5 million and proceeds from the sale of our remaining NASDAQ shares, offset by $294.8 million of share repurchases, cash used for acquisitions of $64.2 million and normal movements in working capital. We remain in a strong financial position with net leverage at 0.6 times.

Our cash and cash equivalents expected cash flow generation and $600 million revolving credit line provides us with over $1 billion of available capital. Turning to 2023 guidance. We expect total revenues of between $2.5 billion and $2.7 billion compared with $2.7055 billion. We anticipate solid fee growth across our suite of management services and loan servicing businesses. This guidance also reflects reduced U.S. transaction volumes in the first half of 2023 and improvements thereafter. We anticipate adjusted EBITDA of between $425 million and $510 million versus $510.7 million. We expect the tax rate for adjusted earnings between 14% and 17% and weighted average share count to be flat to down 1%. You will also note that, we included guidance for the first quarter of 2023 in our press release.

While we do not normally provide quarterly guidance, we thought it was important to include this information, given the macroeconomic conditions, which are expected to dampen industry volumes through the first half of 2023. And with that, I would like to open the call for questions.

Operator: Thank you. At this time, we will be conducting a question-and-answer session. And our first question today comes from line of Chandni Luthra with Goldman Sachs. Please proceed with your question.

Chandni Luthra: Very helpful on the guidance and the first quarter guidance as well, but could you perhaps talk a little bit about how do you think different segments of the business would perform as you think about the overall revenue guidance? Especially, if there’s a way to parse out first half in the second half, and help us understand what kind of recovery are you embedding in the back half for leasing and for capital markets?

Barry Gosin: Sure. I think, we talked a little bit about this last quarter and we had actually put a hypothetical model into our earnings materials. And if you notice the guidance we gave for 2023 is a little bit better than that hypothetical model. Certainly, we still continue to believe our management business will grow in the low to mid-teens. And our transactional businesses certainly down but less down for the leasing business, and more down for the capital markets business investment sales in particular. You could see our guidance for the first quarter is down. We would expect that each of these businesses would incrementally improve as we go through the year with the third and fourth quarter being a bit stronger as interest rates sort of settle and transaction activity comes back in the capital markets world.

Chandni Luthra: Very helpful. Thank you. And I’d like to pivot a little bit to the hirings that you’ve made recently. So you’ve obviously mentioned just moments ago that you expect to pull back a little bit on share repurchase at least compared to 2022 as you focus on hiring and acquisitions potentially given the opportunity in those items. What are the gaps that are left to be filled as you think about building a very strong muscle within capital markets? And how do you think about sort of within the brokerage business? How do you think about different segments or geographies? Help us understand that please.

Barry Gosin: So, the fundamental foundation of our business is built around talent, the best talent, in every sector, in every vertical, in every geography. So, we have work to do and we have white space in many places, but it now becomes as the more talent that we bring on board, the more we elevate our brand, the more top professionals want to be here. It helps us everywhere. It all — not just capital markets, but it helps in leasing. The follow-on business to fantastic and gifted professionals is — in capital markets there’s leasing agencies that follow, there’s property management that follows. There’s servicing business that follows. There’s project management that follows all that. It all has a multiplier effect. And the same thing goes in the tenant rep and the multi-market tenant rep business.

If you hire great people, you do great things, and all of the other businesses that we build around, it will be better. That may be more recurring revenue, because we have visibility and an opportunity to penetrate deeper into the markets that those opportunities exist, because of our capital markets, and because of our delivering great tenants and the many things that we do, which is provided by the underlying foundation of the business is getting a talent premium that we expect. And that is really the plan.

Operator: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Alexander Goldfarb: And definitely quite the headline that you guys made last night after the close. The first question is sort of continuing on that, obviously, I’m sure that Adam and Doug don’t come cheap, but I know that you are building for the long term. You’ve done a very good job building out a cross, but you’re also a public company. So, you’re sort of balancing the long term benefits to new market and the platform of building up in the different verticals versus you’re a public company. And obviously, right now, in the current environment, we all know that it’s not a great time, but obviously next year and forward people expect paybacks. So, when someone sees the headline of Adam and Doug coming on board, how do they think about the payback on that? Is it sort of the normal trajectory? Or will this take longer to earn a return that we’ll see to the bottom line just because of whatever the cost of hiring was?

Barry Gosin: Alex, we underwrite every acquisition to be profitable and to get us the return that we desired returns. So, there’s a lot of mythology out there. People don’t move for money. That’s not, because it’s even anywhere because any firm would hire great talent if they could get the great talent. But when you build a foundation like we’ve built, we actually we’re certainly more attractive for them. So, I think everything we do is about being a creative on its own, but it also gives us the ability to attract other talent for less money because this is where they want to be because the money upfront is not why people move. It just isn’t.

Alexander Goldfarb: And then the second question, Barry is, we just went through an incredible decade of transaction activity, compressing cap rates, street retail, trading at crazy prices. Clearly, we’re now experiencing higher interest rates and repricing of certain asset classes. Based on your tenure over your years and decades of the real estate market, how do you envision the next transaction cycle to be? Do you think it will be sort of what we had before? Maybe just give us some perspective because a lot of us have only known compressing cap rates and lower and lower interest rates versus higher interest rates in changing capital markets. So maybe some perspective on what you think the recovery will look like.

Barry Gosin: Well, I’ve been through five cycles. What’s interesting is, we found — what we found out in the pandemic, which is if you look back at our performance. In ’19, we used this strategy of hiring great talent and we built up our multi and that the market was relatively good. And then in the pandemic, cycles are more knowable than a pandemic. We like everybody were put on our heels a little bit in understanding how deep this is, what this is, how long will it last? So, we didn’t hire, and what we found is in when the pandemic resided and people were back to work, we crushed it. All of those, all of those investments in ’19 paid off in spades. We came out like a bat out of hell. So what we realized is that, you have to keep hiring talent, growing the talent base.

It will be beneficial to the platform, and we will outperform the market. Now here we are in what’s way more knowable as a cycle. Yes, there are nuances to every cycle. There is fed induced cycles, there is supply demand cycles, there is a host of things, there is .com bubble cycle in 2000 and the RTC bank crisis in ’90. They all have a different taste, a different makeup. But we know that the one thing that all cycles have in common is they end. And in this case, the cycle begins, so it’s a sort of a reset. If cap rates go up 300 basis points or 200 to 300 basis points, interest rates go up 300 basis points. That we are in the business as an intermediary, prices reset, people sell property and then it starts over again. There are other things that impact the purchasing of assets.

Inflation will never go away. So where you have a supply demand constrained market, you build new product. It’s more intensive. So you need a better return. You need higher rents. And so rents always over the long period of time continue to go up. So even in a market that gets reset, it’s not only cap rate compression, it’s supply demand. It’s mobility and look — whether it’s a low tax state, attracting lots of new population. There is always things that impact demand and cycles. And we are in a good place. At the moment, transactions are down. At the moment, we generally do larger transactions, which are impacted more greatly by debt freeze up in the market. So we are incredibly encouraged to continue leaning forward and doing what we have done because we know it’s going to yield a better result.

Operator: The next question comes from the line of Jade Rahmani with KBW. Please proceed with your questions.

Jade Rahmani: Thank you very much. There is starting to be a few signs of improving liquidity in the market. Not sure how sustainable it is, but wondering on your side from some of your top clients, the largest, most institutional clients. Are you seeing any green shoots? Are you seeing any improvement in tone?

Jeff Day: Hi, Jade. This is Jeff. We actually just in the last 30 days or so, have seen investors increasingly active just one anecdote. We had property on the market. In Texas, we had 88 contracts signed. We had 33 offers, 15 best in finals. So, the first step here obviously is people willing to engage in transactions. The property did sell for less than the owner wanted to sell it for. But we are starting to see people interested in transacting and evaluating where the price point is which is a better place than where we were at the end of the quarter.

Jade Rahmani: Thank you very much. Go ahead.

Lou Alvarado: Hey, Jade, this is Lou. On the off-premise, industrial and retail sector, I mean, we have definitely seen more activity as far as people engaging and understand a lot of BOVs, right? We’re really trying to understand where the market is in order to position themselves and determine what’s the best timing for them to go. There’s definitely going to be activity as we see the fed slow down, people are getting more comfortable as to where things are going to be so that they can make these decisions and hit the market and prepare — and are preparing at this time.

Jade Rahmani: Thank you very much. The target to be the number one capital markets company in the space. Do you need large deals to come back to make that happen? Can you just talk to the scope of the business? Maybe give some color around how it stratifies by deal size, when we look at someone like a CBRE. They’re also very big in the large deal space, so to really outtake them. Do you need the large transactions to come back?

Barry Gosin: Look, we’ll play in the private clients smaller deals. We are — we have a strategy for that. I think when you’re due the big deals it’s much more attractive for even the private client guys that do smaller deals. So we’re going to play up and down the levels of transaction. But when you — if you start with the big and create the foundation and you elevate the brand, it’s good in all sides, but we fully expect to do small deals as well. It’s also affordable and smaller deals in the multi space is also a good place to be as well. So, we’ll be in all sides of that.

Operator: The next question comes from the line of Patrick O’Shaughnessy with Raymond James. Please proceed with your question.

Patrick O’Shaughnessy: Maybe a question for Jeff. Jeff, the GSE did not lend up to their caps in 2022. Do you have a sense for why that was the case, and as you look to 2023, do you think they’ll get closer to the caps?

Jeff Day: The GSEs have seen an evolution which is increasingly focused on what they call their mission business, which is the affordable business, small loans, targeted affordable, et cetera. And so, as they are measured and as FHFA has changed how their affordability is measured, which used to be by units, but now it’s by percentage of production. The pressure to hit their caps every year is not the same as it was historically. So, what I would expect is to see a slight shift, which we already saw last year, towards a greater focus on affordability. And we would expect to be slightly countercyclical so that as other debt capital sources are out of the market the GSEs fill the gap. When debt capital is plentiful, then we would expect the GSEs to back off a little bit. And that’s what we saw last year. So as it relates to this year, particularly with interest rates, I would expect them to fill the gaps and I would expect them to be somewhere close to their caps.

Patrick O’Shaughnessy: Great. That’s helpful, thank you. And then Barry, you indicated that brokers don’t move to Newmark because of the upfront signing bonus. Does that imply that you are offering the same upfront cash as where they’re leaving or kind of what are the implications of that statement?

Barry Gosin: We don’t offer any more money than anybody else. And in some places have to offer more because of the nature of the platform. So, we don’t believe people choose Newmark because of the money.

Patrick O’Shaughnessy: And then maybe just a — go ahead.

Barry Gosin: I was going to add remember, we use accommodation of cash and equity and our equity is forfeitable at the end. And we have long term contracts that we sign with our top producers. So, the way we do it, we think is a little bit differentiated and a little bit better in the market and it builds a brand over a long period of time.

Patrick O’Shaughnessy: And then maybe an adjacent follow-up to that, you indicated that market dislocations do kind of tend to stimulate some attractive hiring opportunities. Why is that the case? Does it just people become less satisfied with their existing employer in dislocated market situations? Or what would kind of cause them to maybe look for greener pastures?

Mike Rispoli: I don’t know that it makes them more unhappy with their existing. Usually that exists prior, but when you are immersed in a very active market, it’s very hard to pick your head up and take the time to make a move. And when there is a slowdown, it’s a moment in time when people can make a move. And that’s — that usually occurs in a time like this when there is more space between transactions.

Barry Gosin: I think a lot of people are also look and say, look as the market’s going to recover, who do I want my teammates to be so I can capture more market share and make more money over the period of the contract? And that’s when they look and say, well, where do I really want to be and who do I really want to be partnering with in order to be more successful? And that’s one of the things that we do. We make people better. We make people have higher production than they had where they were before. And that’s really why they look to join us when they’re — when these times are like these are happening.

Operator: The next question is follow-up from the line of Jade Rahmani with KBW. Please proceed with your question.

Jade Rahmani: Just a few technical questions. As a result of the Cushman hires, do you expect a material increase in the share account and when would we start seeing that?

Mike Rispoli: So, I think we guided our share account to be flattened down 1% for ’23 compared to ’22. Obviously, we’ve considered all things we know about today, so we won’t be changing guidance based on that fact.

Jade Rahmani: On the adjusted tax rate, it looked like it came in pretty low for the fourth quarter. What drove that and what’s the driver of the low tax rate on an adjusted basis for 2023?

Mike Rispoli: It’s actually really simple less earnings. So, our stock compensation, which is tax deductible for the Company came in roughly around the 7% to 9% range that we guided to actually a little bit below for 2022. But on lower earnings, that just drives your tax rate down a bit. So, we came in around 17% for ’22, we’re guiding 14% to 17% based on the guidance range for 23.

Mike Rispoli: What do you expect for stock based compensation for 2023?

Barry Gosin: It’s within the same range of 7% to 9% of our commissionable revenues. So I think it came in around $120 million for 2022. You can do the math. It will be roughly in that range, maybe a little bit more, a little bit less, but nothing materially different.

Jade Rahmani: And on commissionable revenues, basically we should take investment sales, capital markets, we should exclude MSR gains. And then should we also exclude management services?

Mike Rispoli: Yes. The only part of management services that falls into that is the valuation business, because they are on a commission basis. But other than that, it’s leasing, its capital markets, which is sales and debt, as you said without the MSR in valuation.

Jade Rahmani: Okay. And then is there employee loan amortization expense running through the P&L?

Mike Rispoli: Yes. It’s running through GAAP and non-GAAP. So it’s already reflected in our numbers.

Jade Rahmani: What’s the magnitude of that?

Mike Rispoli: I’m not sure we have disclosed that, but maybe as we prepare the 10-K, we will take a look and see if it’s in there or if we can add something that would be helpful to you.

Operator: Thank you. We have reached the end of the question-and-answer session. I’ll now turn the call over to Mr. Barry Gosin, Chief Executive Officer for closing remarks.

Barry Gosin: Thank you all for joining us today. I am extremely excited about the Company’s future and look forward to updating you on the next quarterly call. So thank you.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.