Newmark Group, Inc. (NASDAQ:NMRK) Q4 2018 Earnings Conference Call Transcript 2019-02-12T15:00:00+0000 Executives Jason A. McGruder - Newmark Group, Inc., Howard W. Lutnick - Newmark Group, Inc., Barry M. Gosin - Newmark Group, Inc., Michael Rispoli - Newmark Group, Inc., Analysts David Ridley-Lane - Bank of America Merrill Lynch, Jade Rahmani - Keefe , Bruyette & Woods , Inc., Alexander Goldfarb - Sandler O'Neil + Partners, Patrick O'Shaughnessy - Raymond James Financial Inc., Peter Christiansen - Citigroup Global Markets, Inc., Operator - Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Newmark Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I'll now turn the call over to Jason McGruder, Head of Investor Relations. Sir, you may begin when ready. Jason A. McGruder - Newmark Group, Inc. Good morning. We issued our fourth quarter and full year 2018 financial results press release and a presentation summarizing these results this morning. You can find these documents at ir.ngkf.com. Unless otherwise stated, the results provided in today's call compare only the fourth quarter and\/or full year of 2018 with the year-earlier period. We'll be referring to our results on this call only on an adjusted earnings basis, unless otherwise stated. We may also refer to adjusted EBITDA. Please see today's press release results under Generally Accepted Accounting Principles or GAAP. Please see the sections in the back of today's press release for the complete definitions of any such non-GAAP terms, reconciliations of these items to the corresponding GAAP results, and how, when, and why management uses them. I also remind you that the information on this call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 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 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, risk factors set forth in our most recent Form 10-K, Form 10-Q, or Form 8-K filings. I'm now happy to turn the call over to our host, Howard Lutnick, Chairman of Newmark Group, Inc. Howard W. Lutnick - Newmark Group, Inc. Thank you, Jason. Good morning and thank you for joining us for Newmark's fourth quarter 2018 conference call. With me today are Newmark's CEO, Barry Gosin; and our Chief Financial Officer, Mike Rispoli. Newmark had a record quarter generating 37% revenue growth, 50% improvement in post-tax earnings per share, and 71% improvement in adjusted EBITDA. I'm pleased to report that the Company's Board of Directors declared a qualified dividend for the fourth quarter of $0.09 per common share. In addition, at the end of November, we successfully completed our spin-off from BGC Partners, simplifying Newmark's corporate structure. With that, I'm happy to turn the call over to Barry. Barry M. Gosin - Newmark Group, Inc. Thanks, Howard. Good morning, everyone. Our strong performance in the fourth quarter capped a year of exceptional growth, as we generated strong double-digit increases in revenues, pre-tax earnings, and adjusted EBITDA in 2018. Newmark continued to significantly outpace the industry and capture market share driven by robust quarterly results across virtually all of our business lines and by a 20% year-over-year quarterly improvement in revenue per producer. Nearly 90% of our top line growth for the quarter was organic as we continue to attract leading professionals across all of our business lines. Some of the key areas in which we have recently invested includes senior housing capital markets, hotel investment sales and financing, industrial services, retail leasing, multifamily debt origination, and valuation and advisory. In addition, our recent acquisitions include RKF, a leading retail leasing platform, and Jackson Cooksey, a Texas-based tenant representation frim. We also continue to invest in our industry-leading technology for use by both our clients and our professionals. In terms of our overall market view, US office and industrial market conditions held steady during the fourth quarter. As absorption strengthened, they could see rates continue to improve moving rental rates modestly higher in many markets. Multifamily volumes remained strong as this property type has attracted the highest sales volume for the past seven quarters, now surpassing office sales volumes. Industry-wide US multifamily investment sales recorded a record of $173 billion in 2018. We estimate US investment sales and industry-wide originations were up approximately 7%, Newmark's 23% increase in full year volumes across investment sales, mortgage brokerage, and origination therefore compares very favorably to the overall market. Industry-wide leasing activity remained strong in many markets in 2018. For 2019, Newmark Research expects the overall commercial leasing and investment sales to be flat to slightly higher. The MBA expects overall originations to be up 2% in 2019. We expect to outperform these metrics. I'm very proud of our outstanding accomplishments this year, led by Newmark's partners and employees, who embraced a strong culture of collaboration and data-driven technologies. We are well positioned to continue our momentum driving profitable growth, strong returns on investment, and significant value for our shareholders and clients. With that, I'm happy to turn the call over to Mike. Michael Rispoli - Newmark Group, Inc. Thank you, Barry, and good morning, everybody. In the fourth quarter Newmark generated revenues of $631.7 million, an increase of 37.2%. Our compensation expenses increased 21.6% to $343.1 million and improved by approximately 700 basis points to 54.3% of revenues. Non-compensation expenses increased 41.4% to $130.1 million. As a percentage of revenues, non-compensation expenses were unchanged at approximately 20% despite the additional $22.4 million of pass-through expense related to ASC 606. More than 70% of our annual expenses are variable in nature and directly tied to revenue. Turning to our quarterly earnings. Our adjusted EBITDA improved by 71.4% to $169.2 million. Our pre-tax adjusted earnings for the quarter were up by 74.3% to $148.5 million. Our tax rate for adjusted earnings was 18% for the quarter and 15% for the year versus 18% for full-year 2017. While our full-year tax rate declined due to lower US corporate tax rates, it was higher than our previous outlook largely due to our fourth quarter earnings outperformance. Our post-tax earnings increased 75.2% to $121.3 million. Our post-tax earnings per share increased 50% to $0.45. Newmark's fully diluted weighted average share count for the quarter was $267.6 million. The year-earlier weighted average share count was $233.4 million. Newmark's fully diluted weighted average share count increased mainly due to the first quarter 2018 sale to BGC of approximately $16.6 million exchangeable limited partnership units of Newmark for $242 million. Additionally, our share count rose due to equity-based compensation, front office hires, and acquisitions. Going forward, we expect to take a number of steps to reduce share issuance. These include a greater percentage of cash for acquisitions, employee compensation, and new hires. We expect our weighted average fully diluted share count to grow by between 5% and 7% year-over-year in 2019. In comparison, Newmark's weighted average fully diluted share count increased by 7% in 2018, excluding the units sold to BGC last year. Our share issuance outlook for 2019 assumes no material acquisitions, buybacks, or meaningful changes to the Company's stock price. Moving onto the balance sheet. Including cash and cash equivalents and marketable securities, Newmarks total liquidity was $171.4 million. Our unsecured long-term debt was $537.9 million. Therefore, our net debt was $366.5 million. Total equity was $1.083 million. During the quarter we issued $550 million of senior unsecured notes due in 2023. To meet tax-free spin-off requirements, the proceeds from this issuance were used to pay down pre-existing debt owed to or guaranteed by BGC. We also entered into a $250 million revolving credit facility improving our financial flexibility. As a result of our greatly strengthened balance sheet, the Company's net debt to adjusted EBITDA has improved 0.7 times as of year-end 2018 versus 2.6 times in the prior year. Our balance sheet does not yet reflect the approximately $430 million of additional Nasdaq payments expected from 2023 through 2027 because the shares are contingent upon Nasdaq generating at least $25 million in gross revenues on an annual basis. Nasdaq generated gross revenues of approximately $4.3 billion in 2018. Given the strength of our on and off balance sheet assets, our $250 million credit facility, strong cash flow generation from the business, and low leverage, we believe that we are well positioned to invest for growth. And as a reminder, we will simplify our definitions of adjusted earnings and adjusted EBITDA beginning with the first quarter of 2019. Please see the section of today's press release titled Simplifying Non-GAAP Reporting Beginning in 2019 for additional details. And with that, I'm happy to turn the call back over to Barry. Barry M. Gosin - Newmark Group, Inc. Thank you, Mike. Our full-year outlook for 2019 is as follows: we expect to generate revenues in the range of $2.2 billion to $2.3 billion; we anticipate our 2018 tax rate for adjusted earnings to be in the range of 14% to 16%; we expect our weighted average fully diluted share count to grow 5% to 7%; we expect our earnings per share to be in the range of $1.55 and $1.65; we estimate our adjusted EBITDA to be in the range of $575 million and $610 million. Our outlook assumes no material acquisitions, investments, or share repurchases. Operator, we'd like to open the call for questions. Q & A Operator - (Operator Instruction) And your first question comes from the line of David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead. Your line is open. David Ridley-Lane - Bank of America Merrill Lynch Good morning. Curious to get your thoughts on the capture rate that you're getting inside of mortgage debt brokerage from your multifamily investment sales. I know the goal was to get 35% to 40% over time. Where did you finish in 2018? What's kind of a reasonable pace of improvement for 2019? Barry M. Gosin - Newmark Group, Inc. Well, the last quarter we were actually 32%. For the year we were closer to 19%. Michael Rispoli - Newmark Group, Inc. 23% for the year. Barry M. Gosin - Newmark Group, Inc. 23%, sorry. As we continue to embed the debt originators with the investment sales multifamily brokers, the capture rate rises. I mean recently in the last quarter we had a portfolio in one of our markets that $1.5 billion of three separate properties and our capture rate was 100%. So the opportunity to be nearby the acceptance of the industry towards using the same broker to provide the debt as a service and a benefit to the client is growing. So we think that that will continue to improve. David Ridley-Lane - Bank of America Merrill Lynch And then as a quick follow up. Could you talk about any puts and takes to 2019 margins that you would be calling out for next year? Michael Rispoli - Newmark Group, Inc. So when you think about our margin, we continue to lower our comp and non-comp expenses as a percentage of revenue as we move forward. And as we continue to grow our revenue, we expect those margins to stay in the 20% -- adjusted earnings margin 20% range and above. We do have the Nasdaq which will come down year-over-year in our adjusted earnings because of the -- we bought the puts and the value of those puts will come out of the earnings next year. David Ridley-Lane - Bank of America Merrill Lynch Thank you very much. Operator - Your next question comes from the line of Jade Rahmani of KBW. Please go ahead. Your line is open. Jade Rahmani - Keefe , Bruyette & Woods , Inc. Thanks very much. Touching on the market in terms of transaction volumes, can you comment on whether you saw any volatility in December and perhaps January relative to typical seasonality or your expectations? Barry M. Gosin - Newmark Group, Inc. Obviously we had a good quarter, and we continue to be optimistic about sales and market share. And there's enormous amount of capital available to invest. Some things are pricey, but we're feeling pretty good about the market. Jade Rahmani - Keefe , Bruyette & Woods , Inc. And in terms of bid list on transactions, have you seen any changes of note, any concentrations perhaps at the lower end of pricing or any other indicators? Barry M. Gosin - Newmark Group, Inc. As I've said in previous calls, there are less bidders (inaudible) depends on what the product is. If it's industrial multi, better; on core properties you may see less bidders on core investments, but they're still -- the pricing is still holding up and at the end of the music, there is somebody there to pay the proper price for the assets. Jade Rahmani - Keefe , Bruyette & Woods , Inc. In terms of leasing trends, how much of the organic growth you're experiencing is driven by co-working and perhaps the tech sector more broadly? Barry M. Gosin - Newmark Group, Inc. Do you have any numbers, Mike, in terms of the ... Michael Rispoli - Newmark Group, Inc. Yeah. We saw a lot of activity in the co-working space and in the tech sector, both on the East Coast and the West Coast, and we do continue to see that trend going into 2019. They continue to take a lot of space in a lot of the major markets around US. Barry M. Gosin - Newmark Group, Inc. The place that it's most affecting in the market, there many building owners used to build prebuilds to capture the smaller tenants which was work. So that -- I think that the prebuild market is most impacted by that and the co-working, flex-working environment takes up a lot of that space. And then the ability to have variable space for large corporates is something that is having an impact on the market, but it's a market that's here today and continues to grow and the tech market is growing pretty rapidly in most of the major markets around the country. Jade Rahmani - Keefe , Bruyette & Woods , Inc. Are both of those sectors driving the majority of the leasing growth you're seeing? Barry M. Gosin - Newmark Group, Inc. No, it's all over the lot. You have -- there's always a certain amount -- remember a lot of our business is renewal and consolidation. So we do a lot of business representing law firms around the country on their renewals. In some cases, it may be downsizing and some of this space is picked up by other tenants, but a lot of our activity has to do with companies just moving or renewing or even in the downsize market, it's still -- they still have to sign leases, they still have to expand, and they still need space. Jade Rahmani - Keefe , Bruyette & Woods , Inc. Turning to the mortgage brokerage business. Excluding Berkeley Point, looks like your debt placement business grew almost 200% year-on-year. Any color as to whether that's driven by recruiting or any emphasis on placing debt more aggressively, any perhaps debt fund clients, anything driving that outsized growth in mortgage brokerage? Barry M. Gosin - Newmark Group, Inc. We're winning market share. We've hired really great people. It's a combination of the above. The collaborative, cooperative environment that we have, our leasing agents for buildings are generating opportunities for our mortgage brokers. Everybody is working towards the goal of more synergy and more opportunities. I think we're just winning market share. Howard W. Lutnick - Newmark Group, Inc. I think one of the most interesting things I've seen Newmark create is that rather than just having a GSE business, they now offer clients the ability to clear the market. Meaning we will search in every possible category, whether that's insurance companies, whether that's any possible outcome to get you the lowest price for your mortgage and that has grown the business or having a full ecosystem of selling multifamily financing with the agencies, and now being able to offer those same clients clear the market has been able to garner a much larger percentage of the overall multifamily business coming our way, a better product for clients, and that's why you're seeing it drive is because in the old days if we didn't get a GSE transaction, we got nothing. Now if we don't get the GSE transaction, we're helping place that with an insurance company or otherwise and really valuing ecosystem. And I think that's why you're seeing this collective drive value across the market. And Barry's done an extraordinary job of building that ecosystem. Barry M. Gosin - Newmark Group, Inc. But it's also across the capital stack. We're involved in every level of the capital stack, raising equity, mezzanine, pref equity, things -- we have programs that allow an owner\/investor partner to be able to recap his property, whether it's a refinance, a sale, raise additional equity, buyout partners. I think we have to be prepared to provide all those services, and as long as we do, we'll have a bigger market share and we'll have more touch points with the client. Jade Rahmani - Keefe , Bruyette & Woods , Inc. And suffice it to say, I assume you expect that business, the debt placement business at Berkeley Point to grow in 2019? Barry M. Gosin - Newmark Group, Inc. Yes, we do. We've hired a series of originators. We just hired a team that we embedded. We hired two teams, which didn't -- where our investment sales operations didn't have debt located, they are now together, so in two separate markets. So just in those markets alone, not to mention the ability to have our investment sales brokers get accustomed to the importance of capturing the debt to service our clients. It's not only that we sell the building, but it is a benefit to the clients to be able to underwrite and know going into an acquisition how it's going to be looked at by Freddie or Fannie or an insurance company right at the onset of their acquisition and their interest in the acquisition. Michael Rispoli - Newmark Group, Inc. And the other thing I would add to that is -- and I think Howard said this, as you put together the GSE business with the non-originated lending business, mortgage brokerage and the investment sales on the multifamily side, that's a business we've grown 25% year-over-year, and we've done $35 billion of transactions across those categories. So we just continue -- as you put those together, whether it comes from GSE or more investment sales or more mortgage brokerage, we just think we'll outgrow the market in that space. Jade Rahmani - Keefe , Bruyette & Woods , Inc. In terms of the value of equity compensation, you said you expect to grow the share count 5% to 7%, which should be about $140 million to $200 million of value based on the current stock price. I think that's about 8% of the fee revenue guidance. So in terms of accounting, if you were to decide not to issue those shares and to issue cash, would that all be -- would 100% of that be expensed, and so it would impact your fee revenue margin or, sorry, your adjusted earnings margin as a percentage of fee revenues by about that same 8%? Michael Rispoli - Newmark Group, Inc. So when you think about the share count growth, it's compensation to employees, it's compensation for new hires, and some of the tuck-in small acquisitions that we have that are on our horizon. So I think you have to look across all the categories of where we issue equity compensation. Some of it's acquisition accounting and then some of it is just equity accounting for the employees. But I think the answer is that wouldn't all -- not all of it is going to brokers as sign-ons or brokers as part of their equity compensation. Barry M. Gosin - Newmark Group, Inc. I think we can reduce the issuance and keep the retentive nature. As the scale of our brokers have a substantial equity in the Company that is something that we can do and we think we have factored that into our guidance. And I think while it will be slightly more expensive, we think because of the scale of the Company, we are driving up our margins otherwise, and this would just to offset that. So, as Mike said before, by us saying we're comfortable with the margins now, we have the flexibility to reduce our share issuance, and that will be offset by the -- as our scale grows, we would have margin improvement otherwise, and those two will offset each other equally, a pretty balanced margin of where we are now to slight improvement. Operator - Your next question comes from the line of Alexander Goldfarb of Sandler O'Neill. Please go ahead. Your line is open. Alexander Goldfarb - Sandler O'Neil + Partners Hey, good morning. I just have just two questions for you. I realize it's a busy morning. The first one is on your EBITDA, you guys have clearly been delivering on double-digit growth, whether it's revenue per producer or your various top line revenue lines and driving EBITDA growth. But when you boil it down to EPS for 2019, we're looking at sort of mid-single digits. Are there things that you guys can do now that you're totally independent to sort of match EPS growth to be commensurate with the double-digit EBITDA growth that you guys are delivering? Michael Rispoli - Newmark Group, Inc. So as you see in our guidance and just talk at the midpoint, our revenue growth, we're projecting around 10% based upon what we know today, the people that we have in-house today and EPS is up about 5%. And that is factoring in the 5% to 7% share count dilution that we had mentioned earlier. We're always looking at ways to drive EPS higher. We're looking at ways to lessen the share count dilution, and we'll continue to look at that all the time. Alexander Goldfarb - Sandler O'Neil + Partners But it sounds like it's the share count that's really the dilutive offset there. Michael Rispoli - Newmark Group, Inc. Yeah. Between revenue growth and EPS growth, that's the difference. And, of course, we're just generating a lot of cash flow from the business, and we plan to continue to invest that cash flow back into the business to continue to grow our EPS, to continue to grow our EBITDA. We've invested significant amounts in 2018 and we plan to continue to do the same next year in 2019. Barry M. Gosin - Newmark Group, Inc. We also had invested a lot of money where much of what we're doing is gestating (ph). So we have lots of things that are developing organically that are ramping up and that haven't hit our earnings and we expect that it will (inaudible) full-blown. You also have, if you look at the multifamily space, we talk about the ramping up in the capture of debt, but the other aspect of it as we continue to add pieces to the multifamily, we have more solid looks at portfolios. So we're growing the platform as a national platform, and our production being number two in the multifamily space has not -- the portfolio amount (ph) of business that we do is below what we should be, and there is an opportunity to get more of that business. And the same goes in investment in office and industrial and all those categories as we continue to put the athletes on the field in the locations that they need to be, as an institution that's representative as a full global institution. We're going to continue to build market share on large structure transactions that are not obvious in the production today. Alexander Goldfarb - Sandler O'Neil + Partners Okay. So then ... Michael Rispoli - Newmark Group, Inc. And Alex, I would add to that, as we continue to drive those cross-selling synergies and opportunities to the top line that will translate to additional EPS growth, to additional EBITDA growth over time. Alexander Goldfarb - Sandler O'Neil + Partners Okay. Okay, and then just second just to that point. Capital wise, for external, if you're not going to issue as much shares for acquisitions, do you guys feel that you have to come back to the capital markets to raise cash or you feel that you have sufficient capital internally to do the acquisitions you want to do? Michael Rispoli - Newmark Group, Inc. So I think if you look at our balance sheet, we have a $171 million of liquidity. We have a $250 million line of credit revolver available to us. We generated significant amount of cash flow from the business in 2018. We expect that to continue into 2019. So we think we have adequate capital to continue to invest and grow this business. Alexander Goldfarb - Sandler O'Neil + Partners Thank you. Operator - Your next question comes from the line of Patrick O'Shaughnessy of Raymond James. Please go ahead. Your line is open. Patrick O'Shaughnessy - Raymond James Financial Inc. Hey. Good morning, guys. Wanted to ask about DC and potential rule changes and privatization of the GSEs. Obviously the Trump administration has started to maybe take some tangible steps. How do you see that process unfolding? And how do you currently think of the potential ramifications for Newmark? Michael Rispoli - Newmark Group, Inc. We don't see any near-term changes that affect the GSE business, Fannie and Freddie. We operate across the entire multifamily ecosystem. And given the growth and strength of this asset class and our broad strength across the platform, we expect to grow that business irrespective of how things may change. Patrick O'Shaughnessy - Raymond James Financial Inc. Got it. A question on the flexible workspace strategy for you guys. How would you describe your flexible workspace strategy and how does your investment in Knotel connects into that? Barry M. Gosin - Newmark Group, Inc. Look, we recognized early on the importance and the changing structural aspects of the variability of space for large corporations. We invested in Knotel pretty early. We do a lot of business with we work (ph) as well and same with industries and spaces and all the other players in the industry. So we think that it's an add-on to what we do. We think our brokers put small tenants in the co-working facilities and we get paid commissions for that. And there -- so we think it's just part of the continuum of the real estate lifecycle, and it's a good one. Patrick O'Shaughnessy - Raymond James Financial Inc. Got it. And then maybe one last one for me. So now that you've put up a couple quarters after getting your credit ratings and obviously the spin has been complete, any progress in working with the rating agencies and potentially getting -- I think it was S&P took you guys up to investment grade. Michael Rispoli - Newmark Group, Inc. I think S&P will continue to look at the Company. They had indicated they want to see so maybe a year of track record after the initial rating. Obviously at 0.7 times net debt to EBITDA, more than 10 times interest coverage, our credit metrics are pretty superb. And we continue to just operate the Company with a lot of available capital to continue invest and grow this business. So over time though we think they'll come to the answer of the other rating agencies. But it doesn't really have much of an effect on us at this point. We're paying 6.125% for our long-term debt and that's in place for five years. Patrick O'Shaughnessy - Raymond James Financial Inc. Great. Thank you. Operator - Your next question comes from the line of Peter Christiansen of Citi. Please go ahead. Your line is open. Peter Christiansen - Citigroup Global Markets, Inc. Good morning. Thanks for the questions. Nice trends, gentlemen. I was wondering if you could talk about some of the drivers in the leasing market. You've been growing roughly mid-to-high 20s there for the last three quarters. You had this nice step-up in Q4 and I know there's some seasonality there. But can you give us a sense of what portion of that growth was organic? I know you had two deals this year. Barry M. Gosin - Newmark Group, Inc. (inaudible) said our organic growth was 90%. We have a relatively young group of athletes. We have people that are enormously talented that we've recruited over years. We continue to improve the platform, improve our brands. Our brokers continue to get better. We've provided them with infrastructure, technology, information that helps them differentiate themselves to the client. I think that our capital markets business, our understanding of the new FASB rules and how it impacts the balance sheet and the P&L for companies is significant. I think all of the different aspects of our business, our focus on providing the most sophisticated product, including we aggregating information and data to provide a better understanding of the market and the markets future for our clients. Peter Christiansen - Citigroup Global Markets, Inc. Okay. And then, Mike, if we look at cash flow conversion this year, I think it was around -- if we excluded the loan originations and sales portion, looks like it was around 55%-ish of EBITDA. Do you see that conversion rate improving in '19 and what might be some of those factors? Michael Rispoli - Newmark Group, Inc. So in 2018, we generated $296 million of cash flow from operations, but there's really two things that I'd like to point out there. One, Nasdaq added another $85 million to that which the money came in in the fourth quarter. And we invested over $100 million back into producers and the business. So if you look at our cash flow before those investments and including Nasdaq, it's $490 million of cash flow from the business on a $552 million EBITDA. We continue to believe that we're going to generate significant amounts of cash flow from the business. And we will continue to reinvest in the business in producers, in acquisition of companies, and in strategic investments. Peter Christiansen - Citigroup Global Markets, Inc. That's helpful. And then interest expense year-over-year, roughly 30-ish kind of million. Is that how we should think about it? Michael Rispoli - Newmark Group, Inc. Yeah, maybe mid-30s. We're at 6.125% on $550 million of debt. And then we have a $250 million revolver. Barry M. Gosin - Newmark Group, Inc. Which is undrawn. Michael Rispoli - Newmark Group, Inc. Which is undrawn today. Peter Christiansen - Citigroup Global Markets, Inc. Right. And then last one for me, gentlemen, I was hoping you could just discuss what you're seeing in the M&A environment, how it's changed in the last couple of months. DC, a number of opportunities still out there, or how are valuations (ph) trending in your view? Barry M. Gosin - Newmark Group, Inc. We're seeing a lot of opportunities. The market is still incredibly fragmented as we've said before. It's important for everything we do to have a multiplier effect. So one and one has to equal three or four. So we're very careful about what we buy, but we have lots of interest and lots of -- as we get bigger, better, more differentiated, more accepted by institutions, we have way more interest from companies that want to be part of what we're creating here, and that's the exciting part of what we're doing. Peter Christiansen - Citigroup Global Markets, Inc. Thank you. Operator - (Operator Instructions) Your next question comes from the line of David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead. Your line is open. David Ridley-Lane - Bank of America Merrill Lynch Sure. Just a quick follow-up on that change in the mix of cash versus stock and recruiting new brokers sort of dawns on me that that might have an impact on your reported free cash flow. Can you sort of quantify potentially what that could be? Thank you. Barry M. Gosin - Newmark Group, Inc. So all that was really built into the guidance that we gave for EBITDA and for earnings growth for next year as well as for share count growth. So on acquisitions, obviously that's just if we're opportunistic and we have a good target, we may use a little bit more cash and a little bit less equity than in the past. David Ridley-Lane - Bank of America Merrill Lynch Understood. Thank you. Operator - There are no further questions in the queue. I'll turn the call back over to Barry Gosin. Barry M. Gosin - Newmark Group, Inc. I'd like to thank everybody for joining us today and we look forward to speaking to you again soon. Howard W. Lutnick - Newmark Group, Inc. Thanks, everyone. Have a good day. Operator - This concludes today's conference call. Thank you very much for joining the call.