Good morning. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Newmark First Quarter 2019 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Jason McGruder, Head of Investor Relations. Sir, you may begin when you're ready.

Good morning. We issued our first quarter 2019 financial results press release and presentation summarizing 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 2019 with the year earlier period. We'll be referring to results on this call mainly on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. Please see today's press release for results under generally accepted accounting principles or GAAP. Please see the section in the back of today's press release for the complete definitions of any such non-GAAP terms, reconciliations of these terms 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 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 and special note regarding forward-looking statements 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 your host, Barry Gosin, CEO of Newmark Group, Inc.

Thank you, Jason. Good morning, and thank you for joining us for Newmark's First Quarter 2019 Conference Call. With me today are Newmark's Chairman Howard Lutnick; and our Chief Financial Officer Mike Rispoli. Newmark generated 4% revenue growth, an 18% improvement in post-tax adjusted earnings per share, and a 9% improvement in adjusted EBITDA. I'm pleased to report that the company's Board of Directors raised our dividends by $0.01 to $0.10 per common share. At yesterday's closing price this translates into a yield of 4.9%. We continue to grow across leasing, investment sales, mortgage brokerage and multifamily during the quarter. We are pleased to reaffirm our full year 2019 revenue and adjusted EBITDA guidance. As we execute on our plan to reduce net share issuance, we are increasing our 2019 adjusted earnings per share guidance by $0.05. We now expect adjusted earnings per share to improve to between $1.60 and $1.70, which is 7% to 13% higher for the full year. Our results are consistent with normal first quarter seasonality for Newmark and its full service peers. Now turning to our business. We continue to attract many leading producers to Newmark. For example, we significantly expanded our healthcare and alternative real estate asset group by adding the top-ranked senior housing capital markets team. We added a top-ranked senior housing debt origination team. In addition, we added a leading senior housing team in Canada. We expect to be the leading senior housing capital markets business in the Americas. We have added leading debt origination teams in Denver and the Carolinas to enhance our existing multifamily and commercial investment sales platform. We've also added strong industrial teams in Los Angeles, Seattle, Minneapolis, and Vancouver, and over 100 professionals in Latin America during the past year. Newmark's evolution over the past 5 years…

Thank you, Barry, and good morning, everybody. In the first quarter, Newmark generated revenues of $447.7 million, an increase of 4%. Our compensation expenses increased 0.9% to $263.4 million, and improved by approximately 180 basis points to 58.8% of revenues. Non-compensation expenses increased by 9% to $115.9 million, as a result of the impact of recent acquisitions and new hires and increased usage of our GSE warehouse facilities. Turning to our quarterly earnings. Our adjusted EBITDA improved by 8.6% to $79.3 million. Our pretax adjusted earnings for the quarter were up by 17.4% to $64.8 million. Our tax rate for adjusted earnings was 14.4%, which is consistent with our previous outlook for non-GAAP tax in the range of 14% to 16%. Our post-tax earnings increased 18.2% to $55.6 million. Our post-tax earnings per share increased 10.5% to $0.21. We have taken, and expect to take a number of steps to reduce net share issues. These include, using more cash and less equity with respect to acquisitions and new hires and deferred equity for employee compensation. We now expect our fully diluted share count for 2019 to increase by 0 to 1% from the 268 million shares outstanding as of December 31, 2018. Thereafter, for the foreseeable future our goal is to maintain annual net share count issuance in the 2% range on average. Our fully diluted share count was virtually unchanged in the first quarter of 2019 versus the fourth quarter of 2018. Year-over-year, the share count increased primarily due to the March 2018 sale to BGC of approximately $16.6 million, exchangeable limited partnership units of Newmark for $242 million. Moving onto the balance sheet. Newmark's total liquidity was $72.5 million, down from $171.4 million at December 31, 2018. This change reflects the payment of $59.3 million for corporate taxes, in addition to the impact of year-end bonuses. Our unsecured long-term debt was $538.6 million, therefore, our net debt was $466.1 million. The company's net debt to trailing 12-month adjusted EBITDA is 0.9x as of March 31, 2019, versus 1.9x in the prior year period. Our balance sheet does not yet reflect the approximately $451 million of additional NASDAQ payments expected from 2023 through 2027. 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 continue to invest for growth. With that, I'm happy to turn the call back over to Barry.

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, up from $2.048 billion in 2018. We estimate our adjusted EBITDA to be in the range of $550 million to $585 million, up from $524 million in 2018. We anticipate our 2018 tax rate for adjusted earnings to be in the range of 14% to 16% compared with 14.8% in 2018. We have raised our earnings per share guidance to be in the range of $1.60 and $1.70, up from a $1.55 and $1.60 previously. This outlook compares to a $1.50 in 2018. Our outlook assumes no material acquisitions or meaningful changes in the stock price. Operator, we'd like to open the call for questions

[Operator Instructions]. Your first question comes from Jade Rahmani from KBW.

Just in terms of the capital markets outlook, it seems that you were able to outgrow peers and the overall market this quarter. Can you talk to the drivers of that. And then secondly, can you comment on what drove the average, the lower average transaction fee rate, was that due to deal size and large deals or anything else?

Exactly right. Larger deals that renewed, the commissions are less, and we continue to ramp up and we hired incredible talent. The talent continues to ramp. They also continue to congeal as a group. Many of these people have come from other companies, and as they -- as the enterprise communicates, collaborates better and better each day, it just gets better.

Yes, I'll add to that, in the GSE origination business, more than 70% of our notional volumes in the quarter were ready and as you know, ready just has a little bit of a lower revenue stream, so that mix as well.

What percentage of transactions that you are leading, would you say there's a team-based effort where you have sales folks from capital markets and leasing, or management services teaming up?

Well, for starters, the debt origination team is side-by-side linked arm-in-arm on the projects that we sell. There generally is a connection to the leasing team in understanding the market. So they are also linked together in evaluating and enhancing the understanding of the property for those people that are buyers, and the management the same. I mean the understanding, the guts and the bones of a building is important, so we bring management together. So they're generally linked together and the ability to have a fully integrated platform with all of the services, all of the knowledge is a real advantage in the sales market and in the capturing the management and leasing after the sale.

On the leasing side, some of your peers put up America's growth north of 20% year-on-year, wondering if you have any comments as to why Newmark's growth in leasing was less than that. If it has to do with specific subsectors, such as technology, flex office or something else?

Well, the average was about 12%, we were -- in Americas, I thought, we were 8.2%. The first quarter of last year, we had a significant amount of large deals. We continue to grow. Some deals slipped from one quarter to the next. I expect that we'll have a good year in leasing.

Okay. Lastly, do you have any expectations you could offer for operating cash flow generation or free cash flow for the full year?

If you look at our business last year, we generated close to $300 million of cash flow from operations and that included about $100 million that we reinvested back into hiring new talent and new producers. So if you look at it before that investment, it was about $400 million. And we see the business generating similar amount of cash flow in 2019.

Your next question comes from Alexander Goldfarb from Sandler O'Neill.

Just a few questions here. First Barry, very good to see you guys addressing the share count challenges from the last call and it says that for the adjusted EBITDA, I guess, is the same adjusted for the footnote from last quarter, although in the future, it'd be helpful if that was clarified, when you guys are writing out the guidance foot notes so that we can remember all that stuff. But suffice to say, it sounds like business is doing well and it sounds like you have no problem hiring more teams. You've have made a dramatic adjustment to the way that you're compensating. So can you just walk through, are we to assume that there has been no impact as far as your ability to retain people or grow when you've redone the compensation structure, is that we're to understand or has there been some effect on your ability maybe either to grow more or grow less based on the revised compensation?

We continue to grow and accelerate with respect to hiring. The platform is so much improved. And as we -- as the evolution of the company gets better and more mature, there's no shortage of opportunities to hire people. The compensation has not impacted at all the ability to hire people.

I'll add to that, Alex, that, when we're going out now and recruiting and hiring people, we simplify the comp structure and it's just making it easier to recruit.

Okay. And then, just one thing I think that could be helpful, because you guys provide a lot of information and obviously, you guys are doing a lot of good things as far as addressing the dilutions to growth, but the releases can be a little bit confusing. So I would just say, on the release basis, if you guys can simplify and make clear things are actual changes versus just updates that were previously disclosed that now you're simplifying. Because this morning, when we look and see lower revenue but then we see higher earnings per share. As far as guidance, that's a good thing, unfortunately it gets lost with the stock being down. So just -- it's a suggestion, maybe going forward that I think it would be helpful to the stock. And certainly, you guys are putting in good performance. You're definitely doing all the right things. It's just a shame to see the stock be down in the way that it is this morning. So I don't know, if that's something that you think is reasonable to do or if this format is something the way you disclose is something that you in fact will be sticking with maybe if you could just provide some comment on that?

So as I said, we did have some adjustments and some changes to how we show the numbers and how we provide the information to the public that we talked about on the last earnings call. And so these numbers are consistent with those changes. And as you know, the business is seasonal, and we feel pretty good about the rest of the year and the pipeline that we see for the business, which is why we were able to reiterate our revenue and top line growth for the year.

Your next mission comes from Andrew Rosivach from Goldman Sachs.

The biggest question I'm getting on your stock is, is stock comp and my line died for a little bit and sorry, if you stated this earlier. But what do you anticipate will be the equity compensation adjustment between your adjusted earnings and GAAP earnings for '19?

We haven't provided specific guidance on that, but if you remember, the company's non-GAAP tax rate gets the benefit from the stock compensation deductions. And we still have the units, the LPUs that were shooting past that as they get the right to convert those units into stock, will generate stock charges for the company. And so to maintain our GAAP -- non-GAAP tax rate between 14% to 16%, we would have a similar amount of GAAP compensation charges for stock comp. But all that said, we are changing the comp structure in a way that will limit the share count issuance between 0 and 1% when measured against the 268 million shares fully diluted that were outstanding at the end of the last year.

So if that's the case, does it make -- because we know what your previous stated cash flows -- what your stock comp add back was last year, does that employ that it will be lower this year?

I would think it would be a similar amount or maybe a little bit higher.

Okay. And then one follow-up on this. If you look at other companies, and this is for multiple companies. They aren't necessarily adding back, for other brokers, they are not necessary adding back stock comp to their adjusted earnings. What they do though, is add back merger-related compensation. By the way, whether it is stock or it is just cash. And so my question for you, given Newmark's been doing a ton of M&A, when we look at that equity compensation number, how much of that is just going to go out for the end of time? And how much of it is potentially associated with the lock ups that you need to do to bring teams or companies in?

So as we bring on teams and as you know, in the past, we've used equity as part of the upfront compensation. When we hire, when we buy companies, the equity we give them is really just goodwill that goes onto the balance sheet and then they'll promptly get compensated over time similar to the rest of the population. But the compensation that we paid in the past for hiring will just continue to come through our earnings as they have normally in the past.

Just to throw it out, it might be worth segregating. Because if you look at other companies Push for now, JLL I believe, with HF, they're taking lockups, if you will, and they are adding that back. And if some of this equity comp people are worried about is essentially lockups, it might mitigate, I think, some of the concern of the market?

Yes, right now, all of the compensation that we pay to our producers to join the company is coming through the company's income statement. So it's a part of our earnings.

Right. But the question is, is stock comp just recurring or is some of the stock comp one time?

With all of the companies that we acquire, the principle signed non-competes, non-solicit non-reconstitutes. They can't do business for a significant period of time after their contracts. They generally sign long-term contracts to begin with. So there is a significant amount of control in respect of their being able to compete and actually be in the business, some likely that they can.

Your next question comes from Jade Rahmani from KBW.

I wanted to ask a follow-up related to your guidance. So the flat to up 1% for the share count on the 268 million shares outstanding, I think your prior guidance implied around 16 million shares of issuance and now you're flat to up 1%. So that would have equated to about $130 million of value. And my question is, is that amount being expensed anywhere. Is it going to show up as employee loans that are amortized? Where does that value go in terms of how it's either a cash item or an expense item?

Well to the extent it's a cash item, of course, it will come through our income statement over time over the course of the length of the contracts that we sign with our producers. And we're giving them stock compensation that will come through our income statement over time as well.

But essentially that $130 million of value, previously you anticipated it to be issued in the form of shares and now it's going to be issued likely in the form of cash?

No, no, no. It will be -- what happened is we were issuing units in the form of current fully diluted equity, and now we are issuing deferred equity, so it will come over long time. So instead of going into our share count today, it just comes in slowly over a long time. But it is just mathematically less shares, so we expect virtually no net issuance, now it's 0 to 1%. So it's not just being converted to cash, it's actually less issuance of shares and that's why Mike was able to say that we expect our fully diluted share count target to be 2% growth of shares for the foreseeable future after this year, which is 0 to 1%. So it's not more cash, it's not going to hurt our earnings, it's just we are giving less shares and deferring them.

Does that imply that your net hiring growth expectations have been curtailed?

Absolutely not.

So you've just restructured the hiring agreements to have deferred equity over a longer term than previously?

Yes, effectively.

Okay. That makes sense. We were wondering why there was no impact to the adjusted EBITDA guidance as a result of the lower share count.

Your next question comes from Patrick O'Shaughnessy from Raymond James.

Curious of what your take is on some of the conversations that have been taking place around GSE reform, whether it's things that [indiscernible] have said or the Senate Banking Committee hearing that took place, any change in your long-term optimism about the multifamily business?

No. We're pretty comfortable with it.

Okay. With the JLL acquisition of HFF, it seems like they did a pretty good job of locking up their key talent. Is that kind of your sense as well or do you think there might be some talent that might be available as a result of that deal?

Any time there is a player that's taken out of the market, it's good for everybody. We are happy about the merger and there is one less company in the beauty contest to get business.

Okay. And then for that 2% share count growth outlook going forward, is that also I think in response to a previous question, you said that does take into account any hiring you might do. Does that also reflect any acquisitions that you might do or if you do a particularly large deal, might we see that share dilution be greater than that 2% level?

Yes, I think we said our target excludes material acquisitions, so it could change, if we do a big transaction over time.

[Operator Instructions]. Your next question comes from Henry Coffey from Wedbush.

Tough day. So if I can summarize, you've made some changes sort of below the line that are good for EPS. You don't see anything that -- any real impediment to your recruiting or your hiring, which is obviously, a key way that people like you and Walker & Dunlop are growing, and the business seems fine. When I look at treasuries down today, if you are a residential mortgage REIT or a residential mortgage company, I'd say, well, this is all good. Can I make the same observation on the commercial side of the business that lower rates are good for you?

Absolutely. Lower rates are good for us. And we're pretty encouraged in the multi, in the commercial and all of our businesses, we are pretty optimistic.

So business is good, a major competitor is going to leave the building 6 months from now, either the JLL guy in Philadelphia or the HF guy in Philadelphia are going to lose their jobs. And they're probably going to come work for you or one of the other companies, that's going to be great. And then let's talk about the important fundamentals. And what is the key variable that drives your ability to increase your dividend and pay down debt?

Look, as I said, at the end of my conversation, I have never, and I couldn't say this more emphatically, never been more optimistic about our ability to hire. The level of people that are interested in our company is accelerating. The level of productivity per broker, the profile of the brokers, the profile of the team, the people that may not have talked to us 3 years ago, everyone is talking to us. Everyone is talking about us. The platform couldn't be in better shape. We continue to have really good cash flow, very good momentum. We just -- when you look at in our statement, we hired the #1 team in senior housing. Literally, we will own the market. Every private equity firm, every investor in the country is interested in senior housing because of the demographics. We continue to expand our -- in various disciplines and expand every aspect of our business.

So let me go back to my question. Okay. We got that. So if you took out your number two pencil, and said, all right, we're going to circle a couple of numbers here. And which -- what are those -- again it's a very complex company from some perspectives and then from others a very simple company. So which of those line items are going to really affect -- positively affect the ability for you to either a, raise your dividend or buyback -- or pay down debt or both. And I'm not interested in the stock buyback, obviously, at these levels. I think you're better off growing the -- reducing your interest expense and increasing your dividends. But what are the key items that really drive that, that we should focus on?

So as you saw, we did increase our dividend $0.09 in the first quarter, and that as a result of our comfort level with our guidance for the year. We'll continue to grow the top line as Barry talked about with our ability to recruit and hire talented professionals and give them the ability to cross sell with technology that we have and the tools that we put together on the platform. And we just feel good about the business and our ability to perform within the range of guidance that we provided this year.

Your next question comes from Patrick O'Shaughnessy from Raymond James.

Just a quick follow-up from me. So if you think about the liquidity that you have, the cash in your balance sheet, you're pretty minimal leverage at this point, the NASDAQ shares that you still have coming. How do you think about potentially doing a special dividend or some other big capital return versus trying to apply that capital to growing the company?

We have so many opportunities to grow the company. We'll continue to use the cash in hiring and acquiring, hiring of great brokers and professionals and acquiring companies. So we see an enormous amount of opportunity in the market, so we'll use that money wisely.

And of course, we target 15-plus-percent returns on the money that we invest and with our ability to grow the revenues of the companies that we acquired and the professionals that we put on our platform, that only makes that return on cash investment better.

Your next question comes from Andrew Rosivach from Goldman Sachs.

Sorry, I thought, I would ask the buyback question. Because if you really do take adjusted earnings as the right way to value you guys, you are at 4.5x now. And as other callers have highlighted, you did a nice job shoring up the balance sheet last year. You have an announced buyback program in place. Is the issue here just be -- and by the way the 4.5x would be better than a 15% return, right? Is the issue here just because it's a tax free spread and it makes it too difficult to do share repurchases or is there any other factor here we should be thinking about.

Yes, that's the primary factor. And we're still early in our two year process for spin, so we'll continue to look at and evaluate that.

We've figured the tools -- we figured out a variety of tools that have allowed us to reduce our share -- net share issuance to 0 to 1% for this year and to constrain it to our goal of 2% for the foreseeable future. And so we're using those tools that are available to us during this period of time, after the spin until 2 years has have lapsed. But for the 2 years, I think share buybacks would be very high on our priority list at these levels. The company has operated very well. We had always expected about 20% of our revenues in the first quarter. I have no idea why anyone else would have thought other than 20% of our revenues were in the first quarter. All of our peers do about 20% of their revenue in the first quarter. We are exactly doing what we expected to do for our guidance. And so I just don't understand how these things got misaligned, but they won't be misaligned in the future. We do expect to do between $2.2 billion and $2.3 billion in revenues, increased our earnings, constrained our share count, listen to all variety of things, a variety of -- you have suggested we take out employee loans from the EBITDA and we took that out. And so I think we've tried to hit all of the right tones and our business is performing well.

So to summarize, but the prior pieces, if you are in the same position today in terms of liquidity at $7.40 price target a year from now, you would be repurchasing shares -- 1.5 year now, you'll be repurchasing shares if people can hang in there.

Given our view of the stock right now, if you could change the calender it would certainly change our outlook to buying shares, and I for one and everyone around me, the management would be for buying back our shares at this levels for sure.

We have no further questions. I'd like to turn the call over to Barry Gosin, CEO of Newmark Group for closing remarks.

Thank you all for joining us today, and we look forward to speaking to you, again, next quarter.

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