Newmark Group, Inc. (NASDAQ:NMRK) Q4 2018 Earnings Conference Call - Final Transcript

Feb 12, 2019 • 10:00 am ET


Newmark Group, Inc. (NASDAQ:NMRK) Q4 2018 Earnings Conference Call - Final Transcript


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Barry M. Gosin

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

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