Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to the Newmark Group, Inc. First Quarter 2018 Financial Results Earnings call. [Operator Instructions] Thank you. I'll now turn the call over to Jason McGruder, Head of Investor Relations. Sir, you may begin.

Good morning. We issued our first quarter 2018 financial results press release and a presentation summarizing our results this morning. You can find these documents at ir.ngkf.com. Unless otherwise stated, the results provided on today's call compare only the first quarter of 2018 with the year earlier period. We'll be referring to 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 for a result on the generally accepted accounting principles or GAAP. Please also see the section in the back of today’s press release for the complete definition of any such non-GAAP terms; reconciliation of these items to the corresponding GAAP results and how, when and why management uses them. I also remind you that the information on the today's call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A, the Securities Act of 1933 as amended and Section 21E of 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. With regard to references about the proposed spin-off of Newmark on today's call, it is important to note that we cannot provide any assurance regarding when, if or how and whether the spin-off of Newmark will take place. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the 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 prospective and any updates to such risk factors contained in subsequent Form 10-K, Form 10-Q or Form 8-K filings. I'm happy to turn the call over to our host, Howard Lutnick, Chairman of Newmark Group.

Thank you, Jason. Good morning and thank you for joining us for Newmark's first quarter 2018 conference call. With me today are Newmark's CEO, Barry Gosin; our Chief Operating Officer, Jim Ficarro and our Chief Financial Officer, Mike Rispoli. Newmark had another excellent quarter, generating over 29% growth in revenues. We also generated strong adjusted EBITDA and post-tax adjusted earnings, which increased by 68% and 93% respectively. Given our success and expectation of strong growth for the full year 2018, the company's Board of Directors declared a dividend for the first quarter of $0.09 per common share. We expect our dividend to remain consistent for each of the four quarters of 2018. With that, I am happy to turn the call over to Barry.

Thanks, Howard and Good morning. Newmark's strong performance in the quarter included double-digit revenue growth from leasing, capital markets, management services and global corporate services. We gained market share in investment sales and mortgage brokerage, driving our year-over-year volume increases of 23% and 62% respectively. Nearly 90% of our revenue growth for the quarter was organic. This was led by a 15% improvement in revenue per producer. We expect our strategy of hiring top producers, providing them with technology and data and embedding them in our culture of cross selling and collaboration will enable us to continue to outpace the overall industry. As an example of our recent success, I'd like to take a moment to discuss some notable wins. Newmark was recently awarded the exclusive leasing agency for the 3.2 million square foot, One World Trade Center, the tallest building in the United States. We've recently advised and completed multiple significant leasing transactions around the country, including for some of the largest Internet, technology, financial services, healthcare, law and accounting firms in the world. Our capital markets team recently closed iconic sales transactions including $4.3 billion of multi-family assets as well as $4.2 billion in office, industrial and retail. We're also very pleased with our many new global corporate service clients, including NBC Universal, Transmerica, Skyworks, Walgreens and United Technologies. These wins help illustrate the growing success of the Newmark brand and the tremendous talent of our professionals. Multifamily fundamentals remain strong with effective rents up 2.5% year-on-year in the quarter, NKF research expects apartment rents to continue to rise through the end of 2019, as new supply levels off. The industrial market remains very robust. Last mile warehouses located in primary markets have seen impressive price appreciation and rent growth over the last several years, bolstered by e-commerce sales activity. Overall industry notional volumes and investment sales were up by 5% in the first quarter compared with last year, while overall US leasing activity was up by low single digits. According to NKF Research, total industry Fannie Mae and Freddie Mac multifamily new business notional volumes were down by approximately 35% and up by 3% respectively, over the same timeframe. Berkeley Point’s originations declined by 14% in notional terms year-on-year during the quarter. The timing of loan originations often varies from period-to-period which makes full year comparisons more effective. For example, the second quarter this year will not likely be a particularly meaningful comparison because Berkeley Point completed a very large transaction in the second quarter of 2017. As we continue to integrate our multifamily investment sales, origination and mortgage brokerage businesses, we expect further growth across our combined origination and capital markets platform. With that, I'm happy to turn the call over to Mike.

Thank you, Barry and good morning everyone. Newmark generated revenues of $430.5 million, an increase of 29.4%. Our quarterly compensation expenses increased 17.5% to $252.7 million, while non-compensation expenses increased 27% to $106.4 million. Non-compensation expenses were higher as a result of the $18.4 million of additional pass-through expenses related to the implementation of ASC 606. But for this accounting change, our non-compensation expenses would have risen 4.9%. The majority of our compensation expenses are variable in nature and tied directly to revenue. While our non-compensation expenses are largely fixed because of the seasonality of commercial real estate revenues, the first quarter is generally the lowest margin quarter of the year. This seasonality is typically reversed for us in the third and fourth quarters making them more profit. Turning now to our earnings, our adjusted EBITDA before allocations to units improved by 67.8% to $79.1 million, and margin of 18.4% which was up by approximately 420 basis points year-on year. Our pre-tax adjusted earnings for the quarter were up by 83.1% to $63.6 million, while our pre-tax margin expanded by approximately 430 basis points to 14.8%. Our tax rate for adjusted earnings was 13.3% for the quarter as compared to 18% in the first quarter of 2017. Our tax rate declined due to the recently enacted US Tax Cuts and Jobs Act. Our post-tax earnings increased 92.8% to $54.4 million. Our post-tax earnings per share increased 69.2% to $0.22. Newmark's fully diluted weighted average share count for the quarter was 246.8 million for both GAAP and adjusted earnings. The year earlier weighted average share count for adjusted earnings was 225.2 million. Newmark had no statistics for GAAP earnings per share prior to the IPO. Our fully diluted share count as of March 31, 2018, was 254.7 million, including the previously…

Thank you, Mike. I'm happy to report that our outlook per share remains the same, while we have improved our credit metrics. Additionally, I'm happy to introduce guidance for adjusted EBITDA. Our outlook is as follows. We expect to generate revenues of between $1.9 billion and $2.05 billion or an increase of 19% to 28% compared with approximately $1.6 billion last year. We continue to anticipate our 2018 tax rate for adjusted earnings to be in the range of 12% to 14% versus 18% in 2017. We expect our 2018 earnings per share to be between $1.40 and a $1.60 as compared to $1.15 last year or an increase of 22% to 39%. We anticipate generating adjusted EBITDA before allocations to units of between $475 million and $525 million, an increase of 27% to 40% compared with approximately $374 million in 2017. We expect to update our annual guidance periodically over the course of the year. Operator, we'd like to open it up to questions.

[Operator Instructions] Your first question comes from the line of Jade Rahmani with KBW.

Thanks. I was wondering how you would characterize the current market environment for investment sales and in the first quarter, can you comment on whether you saw any volatility in volumes as a result of interest rate movements.

We're seeing an incredibly active market. There are lots of portfolios that are still in the market. There seems to be a portfolio premium. So, we're seeing a lot of activity in that area. The interest rate environment hasn't been significant enough to overrun the liquidity available in the market. We're seeing money come in from everywhere, so we expect it to continue.

On the Berkeley Point side, in your view, what drove the lower Fannie Mae originations, leaving aside January, which the year ago surged due to the prior year’s lending caps, but generally, Fannie Mae did decline through the quarter as you mentioned. Do you anticipate Fannie's volumes picking up and what do you think drove the lower volumes.

Well, the cap was short lived last year. It always continues to be an ebb and flow of Freddie and Fannie. Right now, Freddie is a little more aggressive based on the spreads. In my – by statement, the Fannie business is down 35%. That's an industry based decline and the Freddie is up 3%, the blend is 19%, our decline was 14%. We believe that that 14% versus the 19% is due to an increased conversion of ARA sales into the Berkeley Point environment and as we continue to embed ARA brokers in and Berkeley brokers together, the likelihood of the conversion rate going up is -- it will consistently improve over the next periods and we see it loosening up and there are more pools of multifamily assets that are entering the market and we're seeing the pipeline in pools and the portfolio premium will likely to unleash some of that activity.

Question for Mike on operating cash flows, which I think you disclosed. Excluding Berkeley Point and the timing of deliveries and originations, do you have what that number would be.

Yeah, it's in the press release, but it is $12 million in the first quarter.

Okay, $12 million of operating cash flow excluding Berkeley Point?

Yes, including the warehouse.

Next question comes from Alexander Goldfarb with Sandler.

Good morning. So, first, appreciate that you provide a little bit of color on the Fannie Mae and timing of the spin. But it does remain a concern, it's been basically the main concern of investors’ questions that we've been fielding for the past few months. So on the two points, first on the Fannie Mae, can you just help us understand how increased borrowings helps your credit profile.

So when we look at our -- how credit rating agencies look at our credit profile for Newmark, having more cash in the restricted liquidity account should benefit Newmark allow as to maintain investment grade as we go out and look for our own separate credit rating and lower cost of capital over time and I think we've talked a little bit about our intentions there.

Right. But if you're borrowing more money to put it in a restricted account. So now your leverage is going up, so how does -- how does borrowing more money help on the credit side. I don't think the rating agencies are worried that you guys can access capital it just seems odd that they would give you a plus -- check mark for increasing borrowings.

Yeah. When we look at our credit profile, we think that the long term benefits of having a lower cost of capital will far away any additional interest expense in short term.

Okay. And then the second question is obviously understand that BGCP and [indiscernible] have a credit watch that they're trying to deal with. How does that impact Newmark's timing of the spinout and getting its own rating, if Newmark has separate metrics, why can't Newmark be judged on its own why does the parent have to get resolved first if Newmark is sort of an independent entity.

The rating agencies tend to look at the parent and it influences their outcome. So BGC has improved its credit metrics and it has done the things necessary to meet the existing standards for investment grade from the rating agencies, so BGC does expect or is optimistic that the rating agencies will resolve the credit rating, the credit watch positively this quarter. So it's really beneficial to Newmark to have that positively resolve itself. And so when it goes into the rating agencies, there is nothing out there, but positives with respect to its parent and it's spinning off from and therefore would more likely assist in getting a investment grade rating itself.

Okay. So your view is that if BGC, it sounds like you're saying that they get resolved this quarter, meaning second quarter and is your view that then Newmark will also get an investment grade rating in the second quarter or it will take a few more quarters to get the IG rating.

Well, it is the objective of Newmark to get that investment grade rating and it would -- management has said that it would pursue that investment grade rating as soon as the BGC credit watch is resolved. And so hopefully if the BGC credit watch is resolved this quarter, then Newmark would begin the process of pursuing its credit rating soon after that and so depending on when those things occur, it's not a long period of time. It surely does not -- it's not our expectation that it would take a quarter to get a credit rating for someone who's already been part of BGC and has already been part of that group.

Okay. I mean hopefully everything gets resolved in due course, because obviously the business is sound. Investors like the business, but it's this stuff, the Fannie and the separation that are causing the concern. So it sounds like there's some hopeful progress there. Hopefully, it's resolved quickly, but thank you for your time.

Next question comes from Pete Christiansen with Citi.

Hi, guys. Thanks for the question. It seems like there was a breakout in the management services line. I was wondering if you could take us through some of the puts and takes there. I know you are ramping aggressively in valuation services, but are there any other areas that are notable to call out.

All the areas of management services we do -- we've increased our management, our property management business. We've increased our valuation services exponentially and we continue to ramp up on facilities management.

Okay. So broad base, there was some valuation services ramp. And then I guess it was helpful that you put out some of the compares versus the industry. It seems like you're certainly outperforming the market in investment sales than on the leasing side. I guess anecdotally, is this a function of where you’re position regionally and by asset class or what or you’re seeing yourself taking share from some of the other players and if you are taking share, where do you think that’s coming from.

Hiring great people, giving people the tools to succeed. Having much more of a cross selling collaborative culture in an environment that in some respects because it's a -- it was a little smaller, it's able to recreate and we're winning business in geographies, where we're underserved in categories where we also -- have been under represented and we're attracting great talent.

[Operator Instructions] Your next question comes from David Ridley-Lane with Bank of America Merrill Lynch.

Thank you. Just following up on that last comment of hiring great talent, what's your outlook for broker headcount additions in 2018? Should we expect to keep pace with the 5% growth here in the first quarter?

Yes. We expect to key pace and we do have a strategy of hiring high revenue producers that are leaders in the industry and by hiring high revenue producers that lead the industry, it elevates the brand, elevates the platform, they work better together, the clients get the fact that we're hiring the right people and it resonates throughout the entire spectrum of Newmark's services.

Okay. And noted you did call out the tough comparison in mortgage origination volumes in the second quarter, are you still looking for mortgage origination to be up in the 25% range in 2018.

A lot has to do with Freddie and Fannie. So barring that, we believe very strongly if you look at ARAs, ARA is doing incredibly well. We're hiring more people in ARA as we increase the conversion to Berkeley, we expect that to increase. So a lot of it has to do with the outside forces of Freddie and Fannie. But we're still really optimistic about Berkeley.

Got it. I mean maybe one way of conceptualizing this is I think you were previously talking about 25% in the context, does the single digit grower should we expect Berkeley Point to outperform by, let's call it, 15, 20 points relative to the market. Is that something you'd be more comfortable in throwing out?

I'd be comfortable with that absolutely.

Next question comes from Patrick O'Shaughnessy with Raymond James.

I was wondering if you could speak to the M&A pipeline for Newmark and to what extent the timing of any acquisitions might be dependent upon the refinancing of Newmark's debt.

The pipeline is incredibly robust. We were held back by the whole IPO process. When we buy people, when we buy a company, we sign the brokers, I mean there are those who would buy a company and allow the brokers to just be there. When we buy company, we obligate the seller to sign up all his both owners and non-sellers in the company to long term contracts and that is more work, but we believe that more work will lead to a better result.

Got it. And then can you talk about how we should be thinking about in modeling margins as you grow your management services businesses, I think historically those tend to be a little bit lower margin rather than leasing and capital markets. So how do you think about that changing Newmark's margin profile over time?

I think you've seen our margins continue to expand over time and the businesses that we're in such as valuation, it's not necessarily that much different than the leasing business. So we're growing businesses that still have margin in them, consulting, technology. I see our margins continuing to expand little bit over time and being up year-over-year.

Got it. And then last one for me, at the time of the Berkeley Point acquisition and since then, I think you spoke to a target of what percentage of ARA broker transactions that Berkeley Point can provide the financing on and I don't remember the total off the top of my head, but can you remind us what that target was and how you're tracking towards that.

Well, so I guess before we fully followed it, we were 10% and last year, we were 13% and first quarter, we were close, were 18%. Our target is 40% and the industry metrics would follow that. There are those in other categories of debt that even have a higher penetration. We're not -- we think we have a good glide path and a good story to tell and as ARA increases and we've just hired a great team in Philly, we continue to hire more ARA investment sales brokers as we hire them we hire more originators, the combination of both will lead to more business, we think there's a good runway there and we plan to increase the penetration and increase the amount of origination.

Next question comes from David Ridley-Lane with Bank of America Merrill Lynch.

Sure. Just a quick one for Mike. There was a step-up in the non-controlling interest. Could you just provide a little color on the drivers behind that?

Sure. That's really directly related to the separation of Newmark from BGC. And at that time, Newmark limited partnership units were issued and income gets allocated to the limited partnership units and it runs through that particular line item. So that's new and directly resulting from the change in structure.

Okay. And should we expect a similar level going forward or what's the right way to think about that going forward?

Yeah. I think that’s fair to think about as a similar level, as a percentage of the earnings.

At this time, I'll turn the call over to the presenters.

Thank you very much. We look forward to seeing all of you again.

This concludes today's conference call. You may now disconnect.