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

Thank you, Operator. Good morning. We issued our third quarter 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 on today's call compare only the third quarter of 2018 with the year earlier period. We'll be referring to results today only on an adjusted earnings basis, unless otherwise stated. We may also refer to adjusted EBITDA. Please see today's press release results on the Generally Accepted Accounting Principles or GAAP. Please see the sections [indiscernible] press release for the complete definitions of any such non-GAAP terms, reconciliations of these items to corresponding GAAP results, and how, when, and why [indiscernible] use them. I also remind you that 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 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 the forward-looking statements, see Newmark's Securities and Exchange Commission filings, including, but not limited to the risk factors set forth in our most recent 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, Inc.

Thank you, Jason. Good morning and thank you for joining us for Newmark's third 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 approximately 30% growth in revenues, adjusted EBITDA and post-tax adjusted earnings. Our quarterly pre-tax earnings and post-tax earnings per share would have been approximately $6million higher or $0.02 a share respectively after the decline of NASDAQ stock price since August. Because we established the downside redemption value related to these expected earnouts for 2019 through 2022, while retaining order potential upsides, our cash position will only be the same or better with respect to Nasdaq over the next four years. I'm pleased to report that the company's board of directors declared a dividend through the third quarter of $0.09 per common share, we expect our dividend to remain consistent for each of the four fiscal quarters of 2018. In addition, we recently received our credit ratings and continue to make progress towards the plant spin-off with BGC intended to complete by the end of 2018, Mike will provide more details a little later on in the call. So with that, I will turn it over to Barry.

Thank you, Howard. Good morning. The company had a great quarter producing strong topline growth across leasing, investment sales, mortgage brokerage, multifamily agency origination, servicing, valuation and advisory, management services and global corporate services. Over 90% of Newmark's revenue growth for the quarter and year-to-date was organic and market share gains in the quarter were fuelled by a 14% improvement in revenue per producer and a 13% increase in the number of front office employees both compared with the year earlier. As we continue to increase productivity and add to our revenue generating headcount, we expect to gain further market share, grow our revenues and profits and create value for our investors. U.S. office and industrial market conditions held steady during the third quarter as absorptions strengthened, vacancies continue to decline, rental rates rose moderately in many markets, retail continues to lag but we view it as an opportunity following its call back. Industry multifamily volumes were strong quarter-over-quarter as this property type has attracted the highest sales volumes for the past six quarters surpassing office, national investment sales volume recorded highest quarterly total since the fourth quarter of 2015 with volumes up 17% in comparison Newmark's investment sales volumes were up 20% year-over-year. Industry-wide leasing activity remains strong in many markets throughout the country, our multifamily agency originations increased by 87% which compares favorably with the combined increase of 3% reported by the GSCs. Given our strong pipeline of financings we expect our full-year origination volumes to grow compared to last year taking into consideration the $2.2 billion deal in the second quarter of 2017. With that, I'm happy to turn the call over to Mike.

Thank you, Barry and good morning everybody. Newmark generated overall revenues of $518.8 million an increase of 30.3%. Our compensation expenses increased 17.3% $291.1 million while non-compensation expenses increased 44% to $123.6 million. As a percentage of revenue, compensation expenses represented 56.1% in the third quarter versus 62.3% in the same period a year ago. Non-compensation expenses for adjusted earnings include the additional $21.1 million of pass-through expense related to ASC 606. Excluding these items, non-compensation expenses for adjusted earnings increased by approximately 19% in the third quarter of 2018 and would have represented 20.6% of revenues versus 21.5% a year earlier. More than 70% of our overall expenses are variable in nature and tied directly to revenue. Because of the seasonality of commercial real estate revenues, the first quarter generally had the lowest revenues and operating margin of the year, this seasonality is typically reversed in the second half of the year making our third and fourth quarters our most profitable. Turning to our quarterly earnings, our adjusted EBITDA improved by 30.7% a $204.6 million, 39.4% margin. Our pretax adjusted earnings for the quarter were up by 23.5% to $177.6 million, a 34.2% margin. This represents a slight year-over-year decrease in margin which was largely due to the additional $21.1 million of pass-through expense related to ASC 606. Our tax rate for adjusted earnings was 13.3% for the quarter versus 18% a year earlier. Our tax rate declined due to the U.S. Tax Cuts and Jobs Act. Our post-tax earnings increased 29.9% to $153.5 million, our post-tax earnings per share increased 15.7% to $0.59. Newmark's fully diluted weighted average share count for the quarter was $185.1 million for GAAP and $262.5 million for adjusted earnings. The GAAP weighted average share count excluded certain share equivalents in order to avoid…

Thank you, Mike. Our updated full year outlook is as follows. We expect to generate revenues of between $1.975 billion and $2.025 billion for an increase of 24% to 27% compared with 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 $1.45 and $1.53 has compared to a $1.15 last year, for an increase of 26% to 33%. We estimate our adjusted EBITDA to be between $518 million and $538 million an increase of 39% to 44% compared with 2017. Our full year 2018 outlook issued approximately three months ago assumed other income related to the NASDAQ payment of approximately $91 million based on that stocks August 1, 2018 closing price $91.39. Newmark's updated outlook assumes other income of approximately $81 million related to the NASDAQ earn out based on yesterday's closing price. Operator, we'd like to open the call for questions.

[Operator Instructions] Your first question comes from Jade Rahmani with KBW. Your line is open.

Thanks very much. The commercial real estate brokerage stocks are all off about 10% to 20% over the last month and most are off over 20% the last three months and so wanted to ask if you could say anything about the 2019 outlook just more broadly with the Fed intent on raising rates further. I think investors are concerned that a few more rate hikes could tip the market into a softer environment in terms of transaction volumes and real estate prices and we're also seeing this plan in the residential housing market, so could you give any color on your confidence in the outlook for 2019 regarding transaction volume growth and leasing and what you're kindly hearing from clients?

The categories of multifamily and industrial have a pretty good track, I mean all the metrics look encouraging to those. The West Coast doesn't look like it's missing of the incredibly active, certain markets the Northwest, Southern California, technology, the combination of contents, Convergence with technology is really lighting a fire under the Southern California market. There are markets that are a little more pricey and a little more sensitive the cap rate changes and interest rate changes but there is a tremendous amount of liquidity. There's a lot of money to U.S. is the safe place to invest. We continue to hire really great talent and win market share and perform better than the market but we know there are always a certain amount of headwinds in an interest rate increase environment but some respects, the spread have narrowed and liquidity still there and their interest of growing institutional investment in real estate is fueling the market for some time. Also we have a big runway in the mortgage business and we are finance business is growing at a pretty rapid pace. We keep adding talent, opportunities, our ability to provide structured finance, financing is still important regardless of whether an investment sale occurs you still need financing, so in some cases we're providing either met debt financing other forms of structured finance, so the amount of creativity we have built in to our model our understanding of the global capital markets is unique and robust and we've been able to navigate and create value for clients who are concerned with exactly what you just said.

And in terms of the tone from clients are you hearing increased concerns from commercial real estate investors. I think some of the surveys have actually showed intentions to increase allocations next year but any risk of deals getting pushed out beyond 4Q delayed closings reach free trade et cetera?

We're seeing a lot of activity a lot of interest.

Okay, just turning the Newmark on a trailing 12 month basis your slide show and adjusted EBITDA margin of 25.7%, you're just looking at the business mix, GSC multifamily typically in the 30% to 40% range capital markets 20% to 25% and the other businesses leasing in the 10% to 15% range what do you think drives Newmark's higher margin than peers given its business mix?

Because a couple of things of course we're leading with technology on the corporate side close to some of the lower margin businesses which we have less revenue and so that obstruct on margin hire. You can see we're driving our compensation ratios down over time which is also helping increase our overall margins and you could see our non-com as a percentage of revenues going down as well, so as we're growing the business, we're consolidating and centralizing operations and squeezing more margin out of our businesses, so make when you put all those things together plus the mix of business that's what allows us to maintain a bit of a higher margin in some of our peers.

And in terms of your cash flow expectations just wondering if you could share an outlook for the fourth quarter and for the full year, I think year-to-date you're at $134 million of operating cash which is about 11% of revenue excluding non-cash MSR gains and what we estimate for client pass-through costs any expectation for the full year?

Well, we've said that we expect any year with more than $150 million of cash on the balance sheet. We have $70 million at the end of the third quarter. We're going to generate a $125 million roughly for the fourth quarter in terms of adjusted EBITDA, so we're generating significant amounts of cash flow will still look to continue to reinvest in the business. I think what you've seen three quarters as we invested roughly $84 million in continuing the higher talent, we've announced recently in the quarters from acquisitions which is a use of cash. So we'll continue to generate a significant amount of cash flow and we'll continue to look to invest and generate 15 plus percent returns on investments.

Is the $150 million of cash by year end before or net of additional hiring and acquisitions?

That would be at least a 150 after all of our hiring in acquisition that we expected to do in the fourth quarter.

Okay, thanks very much welcome.

You're welcome.

Your next question comes from the line of David Ridley-Lane with Bank of America Merrill Lynch. Your line is open.

Good morning.

Good morning. Wondering what the percentage of capital market transactions in the multifamily space were financed by preferred point on Newmark in the third quarter or if you have that date data, year-to-date?

So we were 19%, around, approximately.

And that's significantly from where we started the year. If you remember, we started around 13% last year and we've been hovering around the high teens this year as we expect to continue to drive that up towards the roughly 40% we expect over time.

Got it. And then based on your progress to date and hiring and the offsets, capital market sales offsets could you give us a little bit more details or color around the timeline in reaching that 40% conversion goal?

We continue to make improvement. An example might be New York where we have our multi-family people completely embedded with our debt people. Where that happens our capture rate is even higher than the 40%, way higher than the 40% we had used as our suggested glide path to. So it's really a function of - some of it's physical and leases and consolidating and getting people used to each other, but we're -- I think we're making good progress every quarter.

Got it. And then the last question from me, Mike, could you help walk through the sort of puts and takes on the pro forma balance sheet, because there's a few moving parts. So you're going to withdraw restricted cash to repay the inter company loans? Did you give a dollar amount on that and then could you potentially size I don't know if you can that the expected debt offering, what that approximately would be?

Sure. So we withdrew $252 million out of the restricted liquidity account 100% of that was used to pay down into company debt. We have not given the size of the offering, but certainly you can see our balance sheet and our outstanding debt. So our goal is to pay off all the related debt and do the spend as quickly as we possibly can.

Thank you very much.

You're welcome.

Your next question comes from the line of Pete Christiansen with Citi. Your line is open.

Hey, guys, good job. Just two quick questions, I know you mentioned that capital has been really strong even though you're seeing narrow spreads. It seems like there's been more activity shifting from major metros than maybe secondary or even tertiary markets. How do you think new markets is positioned in that situation regionally to take advantage of that?

Actually, we're positioned pretty well and we're doing a lot of suburban portfolios now. Certainly, in the multi-family space that's historically been a big part of the capital markets business. In the multi, it's getting bigger in the industrial side of things. And there is capital moving to better opportunities to earn higher rates of return in the suburbs. So it's an ebb and flow always in the suburbs. But we're doing fairly well. Some suburbs are doing better than others but we're pretty well-positioned for that.

That's helpful color. And then what do you say given the 30 bips change in interest rates, what -- on the transaction and leasing side, what are you seeing in terms of some of your inventory levels and how is that impacting inventories?

So could you explain the question --

Well, listing. What are you seeing in terms of listings or impetus to transact you know, given the change in rates lately?

to : I mean, you're seeing foreign investors going to industrial and health care and other things that they wouldn't ordinarily go into. It actually opens the field a bit, creates more opportunity for investment sales as a combination of and then in aggregation.

Great. And then has there been any changes on some of your hiring plans going forward, whether it be across certain segments of the business or just overall in general?

We have a very solid, clear strategy of hiring the best talent there is in the marketplace in all the markets, in all the food groups. That will not change.

Okay. Thank you.

[Operator Instructions] Your next question comes from Alexander Goldfarb with Sandler O'Neil. Your line is open.

Morning. Thank you.

Good morning.

Morning, morning. How are you guys? First, congrats on the announcement on the private placement and then also on the rating agency. You guys have worked hard to get here. But just a few questions on this. You know, when we look at your balance sheet and your leverage, it looks pretty good. I mean, our numbers may be one-and-a-half 2x debt to EBITDA certainly seems pretty low leverage. So the ratings that you initially cited, BB plus from S&P and the BBB minus from Fitch surprised a bit. So just sort of curious given how much work you guys have done on capital with the two NASDAQ transactions and other things this year, why did the ratings come out the way they did and what were the key push facts that they cite just given overall your business -- you know, at least from where we sit doesn't seem to be over-leveraged to warrant these ratings? So just curious on this.

Sure. This is Mike. So you're right, we've done a tremendous amount of work in improving the credit metrics of the company. We paid down more than $500 million of debt since the end of last year. We've increased our adjusted EBITDA by 30% year-to-date and we're now at about 1x net debt to EBITDA leverage. We think these are really strong credit metrics, clearly very strong credit metrics that compare very favorably to our full service peers. You know, you see the credit ratings and you can read the reports and see why and how they view the company, but we obviously view the company as an investment company. We'll continue to strive to get S&P up to BBB minus over time. And we stated our leverage target at 1.5x net debt to EBITDA or less. So we will continue to run the business that way and we'll continue to grow the business and just stay focused on growing and building a great company.

But Mike, what were some of the things that they're pushing back on as far as -- because you guys have been pretty consistent all year that hey we think we are investor grade and it kept getting pushed back and now we see this. What are some of the key points that has said hey, Newmark, we don't like this -- is it like above the revenue stream or is it the inner company stuff or what were some of the things that are holding them up?

Sure. If you read the report, what they say is that the anchor rating is a BBB minus, but they modify it down because of what they call unfavorable comparable ratings. So because we're not international, because we're smaller in size and scale, they've notched us down for those ratings and that's their discretion.

Okay. That seems to be where -- there are a lot of domestic only companies much smaller than you guys who have better ratings, so that just seems odd, but I'll have to dig up that report and take a look at it. The next question is --

Great point, Alex. That is a great point, Alex.

Barry, a compliment. I'll treasure this.

So proud of you.

Listen, Barry, I'm proud of you, and I am proud that you are proud of me. The next question is on adjusted earnings for next year. In the press release you guys talked about changing the way you're going to treat the equity comp on the exchangeability units, and now you're going to add back all of the equity comp. So can you just walk through what the practical impact on earnings is as we think about our 2019 estimates? Are we bumping it up a few pennies, taking it off a few pennies, or net it's really not an impact because it's a deduction on one said and add back in the other, so net it's not something for us to really get too caught up in at this point?

Yes, I wouldn't get too caught up on it. I mean all we're really doing is, for adjusted EBITDA we add back all of our stock compensation today and for adjusted earnings, going forward, will be the same. The component that was in adjusted earnings was relatively minor. When we do update the numbers and start reporting that way in 2019 we'll obviously give you the exact amount of the impact for each period so that you can see it. But it's not going to be anything material.

Okay. So from a gross perspective we shouldn't expect any material change in whatever we're expecting for adjusted earnings growth?

Not at this time, no.

Okay, thank you very much.

You're welcome.

Your next question comes from the line of Jade Rahmani with KBW. Your line is open.

Thanks very much. Just a couple of clarifying questions, is the total amount of indebtedness to BGC currently $223.8 million based on the $475.8 million on slide 27 less the $252 million of restricted cash that was used to pay down debt?

Yes, let me try and break it down. The total number is $546.5 million. And if you look at the balance sheet, there's $133 million 950 of what's called long-term debt. That debt due to the banks but guaranteed by BGC, so we'll repay that. The line below that is the long-term debt payable to related parties, that's $300 million. And that's due directly to BGC. And then within the portion of payable to related parties, there's the $112.5 million that we borrowed from BGC during the third quarter to repay the 8%-plus retail loans. So if you add those three pieces together that's $546.5 million.

Of which $252 million has already been repaid based on the restricted cash?

No, that is after the $252 million repayment. So the $546.5 million is what we owe to them.

Okay. And then just the current portion of payables related to parties, on the balance sheet it's $398 million, and in the slides, slide 27, it's $112.5 million. What's the difference between those two numbers?

It's the $252 million that we repaid. And then there's just some normal back and forth for some of the services that are provided from the parent. All that will be paid as normal course of business.

So the $112.5 million that's on that slide 27, current portion of that payable to related parties, that's after the $252 million, because the slide says, as of 9-30.

Yes, it's both as of 9-30 and as of today. So the $546.6 million is the amount that we owe back to BGC for long-term debt.

Got it. Okay, thanks very much.

You're welcome.

Your next question comes from Patrick O'Shaughnessy with Raymond James. Your line is open.

Good morning. A question about the RKF acquisition, I know there was some stuff during the quarter about maybe it was taking longer to close or the talent wasn't coming over as you had expected. Can you maybe clarify on the talent and the expected revenues from that business, and is it consistent with your expectations when you announced the deal?

Well, in all of our acquisitions we have all of the -- at least 70% of the brokers signing contracts long-term, so when you do that, 70% creates a halo, and that's usually very, very close to 100%. If the senior people who produce and originate yield work for other people that get paid on it, so it's consistent with what we had bought.

Got it. And then maybe another macro question for you, Barry. So I think there's maybe some concern that with rates moving up you're going to see cap rates move up, and we haven't really seen that to date. But would your expectation be that cap rates start moving up or is there just so much money on the sidelines and so much interest in commercial real estate that you think it'll actually remain relatively stable?

We see money coming from all over. I mean, if you look at the market this year, the Chinese have been somewhat absent and replaced by the Canadians. The Japanese are very interested in the U.S.; look at the returns that you can get in Japan. Returns look pretty good. We have a lot of room to hit the returns in Japan. So they put their first foot in by buying stock in real estate companies, then doing joint ventures. They're now starting to look directly at real estate again as an alternative to investing in their local market where they can't. So there's enormous amount of interest in real estate in the U.S., so at some point the cap rates will have more of an impact. But the moment the levels of change hasn't been significant enough to make that that much of a difference.

Got it. And then maybe one last one for me, so once the debt raise and the spinoff process are complete and you turn your focus to 2019, should we be thinking about you guys maybe looking to expand internationally in 2019 or is that still maybe a few years away?

I can't really say at this time. We have plenty of white space in the U.S.; we have even more white space in Europe, Middle East, and Asia. That's an opportunity for us and a runway. So we're excited about that.

Okay. Thank you.

There are no further questions at this time. Barry Gosin, I turn the call back over to you.

I want to thank you all for joining us today. And we look forward to speaking to you again next quarter. Thanks everyone.

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