Good day, and welcome to the Newmark First Quarter 2023 Earnings Call. Today's conference is being recorded. [Operator Instructions] And at this time, I'd like to turn the conference over to Jason McGruder, Head of Investor Relations. Please go ahead, sir.

Thank you for your patience as we dealt with some technical difficulties on the vendor in. But also thank you operator and good morning. Newmark issued its first quarter 2023 financial results press release and a presentation summarizing these results this morning. Unless otherwise stated, the results provided on today's call compare only to three months ending March 31, 2023 in the year-earlier period. Unless otherwise stated, we will be preparing for results only on a non-GAAP basis, which terms include adjusted earnings adjusted EBITDA. Please refer to the section in today's press release for complete and/or updated definitions of any non-GAAP terms reconciliations of these terms to the corresponding GAAP results and how when and why management uses them. You can find more information with respect to our GAAP and non-GAAP results from today's website in today's press release and supplemental Excel tables and the quarterly results presentation. Unless otherwise stated any figures discussed today with respect to cash flow from operations refer to net cash provided by operating activities, excluding loan origination and sale as well as the impact of 2021 equity van. Cash from the business is the same cash flow metric excluding loan or producers. The outlook on today's call assumes no additional share repurchases material acquisitions or meaningful changes in the company's stock price. Our expectations are subject to change based on various factor economic, social, political and other factors. While our long-term financial and operating targets assume no acquisitions, they are also subject to change with these same reasons. None of our long-term targeted goal should be considered formal guidance. Last remind you that, information on this call, but our business that are not historical facts are forward-looking statements within the meaning of Section 27A, the Securities Act of 1933 as amended Section 21E of the Security and 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 complete 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 mission filings, including but not listed to the risk factors in our most recent Form 10-K, Form 10-Q, Form 8-K filing which are incorporated by reference. I'm now happy to hand the call over your host Chief Executive Officer of Newmark, Barry Gosin.

Good morning and thank you for joining us. With me today are Newmark's Chief Financial Officer, Mike Rispoli; our Chief Strategy Officer, Jeff Day; and our Chief Revenue Officer, Lou Alvarado. Newmark's strategy is to assemble the industry's most talented professionals and arm them with superior data and analytics for our clients. Since the beginning of the year, we added industry-leading capital markets producers in New York, Dallas Phoenix and San Diego focused on industrial multifamily office and life science. We continued our global expansion by acquiring UK-based full-service real estate advisory firm Gerald, bringing to Newmark a top three UK industrial capital markets platform. Now, we generate nearly $200 million in annual revenues in the UK, and plan to expand further across Europe. Our exclusive FDIC mandate to sell Signature Bank's $60 billion loan portfolio exemplifies our strength in managing large and complex transactions. This portfolio represents the largest real estate loan sale in US history and demonstrates the capacity and depth of Newmark. Loan advisory services are becoming increasingly significant for us. Trust almost $2.6 trillion in US commercial and multifamily loans mature over the next five years with 55% owned by banks. During the quarter, we acquired the remainder of Spring 11 increasing the size of our overall servicing portfolio from $71 billion to $169 billion. Our loan portfolio solutions practice, which provides risk assessment and stress testing services for banks is seeing a significant increase in activity. These businesses together with Capital Markets and GSE FHA origination provide Newmark with tremendous insight into commercial and multifamily lending. This combination helps us to better advise our clients, across property types and service lines. Newmark's long-term prospects remain strong because of the $400 billion of uninvested capital in closed-end funds, which will drive capital markets. The $2.6 trillion of commercial and multifamily mortgages maturity over the next five years, which will fuel our debt loan service loan sales and loan advisory businesses and the continuing consolidation of our industry and the ongoing trend of outsourcing of real estate services which will drive business towards full service well-capitalized companies like Newmark. Given our strong financial position of significant global growth prospects, we expect to remain the preferred destination for industry's top professionals. With interest rates stabilizing, capital markets activity should increase in the fourth quarter and continue growing through 2024. As a result of our strong client relationships and deep pool of talent, we are uniquely positioned to benefit as industry volumes are bound similar to our success in 2021. With that, I'm happy to turn the call over to Mike.

Thank you, Barry, and good morning. During the first quarter, Newmark made significant investments for future growth. Once our new producers ramp up, we expect these investments to add approximately $300 million of annualized revenues. For full year 2023, we anticipate generating $300 million to $350 million of cash from the business and using a portion to pay down our revolver, which we used to fund these first quarter investments. Our first quarter results were down compared to our record performance in the first quarter of 2022, but in line with our expectations. Total revenues were $520.8 million, down 23.2%, mainly due to lower industry-wide capital markets activity with US investment sales down 56% according to RCA and origination activity down by as much as 53% according to Newmark Research. Leasing revenues declined 2.8%, but grew 31.1% versus the first quarter of 2021, with retail and industrial revenues rising year-on-year to above pre-pandemic levels. We achieved these results despite US leasing volumes being down more than 10%. We produced double-digit percentage organic growth in fees from Global Corporate Services, as well as continued improvement on our high-margin servicing business. Total revenues for management services, servicing fees and other, declined by 8.9% due to lower pass-through revenues and valuation fees. Total expenses of $461.9 million or 13% lower, largely due to the variable nature of our cost structure. We remain ahead of schedule with respect to our $50 million annualized fixed cost savings target and expect to realize at least $35 million during 2023. Turning to earnings. Adjusted EBITDA was $62.9 million versus $126.5 million. Our EPS was $0.15 compared with $0.36. These results reflect the impact of the dramatic rise in interest rates on a higher margin capital markets platform. Our fully diluted weighted average share count, declined by 5.1% to $239.9 million. Moving to the balance sheet. We ended the quarter with $210.7 million of cash and cash equivalents and $773.4 million of total corporate debt. Changes from year-end 2022 were primarily related to cash generated by the business, offset by normal first quarter movements in working capital and $225 million of borrowings under our revolving credit facility, which were used to fund our first quarter investors. We remain in a strong financial position with net leverage of 1.3 times. Moving to our outlook. We expect to be near the low end of our full year guidance range, which was first issued on February 16, 2023. Our full year outlook assumes that the decline in industry-wide transactions will begin to rebound in the fourth quarter. We expect our second quarter results to be up sequentially, but down year-on-year by similar percentages to the first quarter of 2023. For the balance of the year, we expect continued sequential improvement. And with that, I would like to open the call for questions. Operator?

Thank you. [Operator Instructions] Our first question is going to come from Chandni Luthra from Goldman Sachs. Please go ahead.

Hi. Good morning. Thank you taking my question. I'd like to start with the Signature Bank loan sale. Could you guys talk about the composition of the portfolio in terms of the asset class, what's the geography? What is the age? Are there any restrictions you have to keep in mind as you sell them? And then, Barry, give us a sense of the economics, perhaps talk about the commission rate. How do you think about the timing of this sale? When do you expect to complete the $60 billion like and what's the impact in 2023?

I apologize, we can't comment on the loan portfolio. Whatever is public is in the -- on the FDIC website and we're not prepared to comment on anything beyond that.

Okay. Noted.

However, you should note that we are in the -- we are doing other loan sales and we are seeing way more activity in that space in advisory and debt. So it serves us very well.

Got it. So let me pivot to a little bit more of a macro question then. How would you say the backdrop for capital markets has changed after the events of the banking industry almost two months ago? And then are you seeing anything different in the market right now? Are there any green shoots in the business currently that you're seeing? Just give us a sense of the broader landscape please? Thank you.

And what has been signaled is the -- an opportunity for more certainty in interest rates. So the stabilizing of the interest rates and a pause by the Fed in raising interest rates is a good thing. I mean it's very hard to trade properties when you can't underwrite what the interest rates will be. So we see that that has shortened the period of time for the uncertainty and will lead to a faster rebound in terms of opportunities to finance. There are green shoots. There are other parts of the world that are financing the GSE, Freddie and Fannie they're actually financing. Our life quotas are in some cases under-allocated. And there's new formation of CMBS debt that seems to be coming up. So we're seeing some things. And then ultimately what the banking crisis has made is I think it speeded up the capitulation in terms of the delta between buyer and seller on valuation. So once that's established people start to trade.

Got it. And this one is going to be quick for Mike. In your outlook, as we think about adjusted EBITDA is there any incremental M&A embedded based on the recent deals that you just announced? And is there any impact of the Signature Bank loan portfolio in there?

So the outlook for the year includes our pipeline everything we know that's in the pipeline and includes Gerald Eve for the remainder of the year. It does not include any incremental M&A beyond that. So as I said the second quarter, while sequentially better than the first quarter we'll be down in a similar percentage for the first quarter of last year. But the results should get sequentially better as we go through the year.

Thank you so much.

And our next question will come from Jade Rahmani from Keefe, Bruyette & Woods. Please go ahead.

Thank you very much. Hopefully, you can hear this. I just wanted to ask -- excuse me.

Hi, Jade. We can hear you.

Great. I wanted to ask on the low portfolio health side if you could talk to the magnitude of deal flow that you're seeing and maybe general comments around economics. I know that one of your prior competitors HFF broke out the commission rates on that business and I believe they're quite attractive higher than on the investment sales side and debt placement side. But clearly sporadic and I'm sure very large portfolios there would be caps in place on what the commission would look like and probably some kind of incentive for execution. But what's the volume you're seeing and the economic impact?

We generally don't comment on the specifics of guidance and we have confidentiality agreements on the things that we do. These are sensitive topics. Now we are just not going to comment on Jade, I apologize.

That's actually a good answer. I really appreciate that. You mentioned the banking crisis speeding up capitulation on pricing. Historically, the banks have cleaned outsized share in commercial real estate. When you look at the ratios prior to the GFC, it's clear that the CMBS market has declined dramatically post the regulations that Dodd-Frank put in place on risk retention, as well as curtailment of liquidity and the banks, as well as the debt funds comprise the difference in terms of market share gain. When you look at the banks today they probably will shrink their share in commercial real estate. And so how do you think this unfolds? Could it potentially extend the magnitude and length of the downdraft in transaction volumes, or are you seeing any green this that would lead you to believe in the fourth quarter there would be a pickup?

Jade, this is Lou. We're definitely seeing more activity. There's -- or with time I think most of our clients have been really trying to find out where pricing will shake out right? Where will things settle? I think now that we've gotten some guidance from the Fed on rates. And I think as we get stability we definitely believe we're going to see that activity as we get down in the year. It's very similar to what you saw what happened in 2021, right, where once we have -- we got over the impact that the pandemic hit the activity picked up. I think you're going to see a very similar response as we get later on into the year.

Thank you. And included in the slide. Sorry.

The GSE will …

Thank you….

The GSE will, -- sorry -- The GSE will in the back-end of this year accelerate and get capture some of it up to the -- closer to the caps we think we'll see more activity. They will be a lender of choice. And as I said, the life goes in some respects are under-allocated in the sweet spot of $50 million to $150 million that are out there. And we're starting to see some ASP loans which SASB loans which and CMBS loans there's some activity and discussions. And you'll see it come from the private markets. And then, ultimately the banks will step back in.

Thank you. And just lastly, leasing was a bright spot as this quarter, significantly stronger than what we had forecast. Your slide 9 notes across the platform office, comprises 36%. But can you give any color, what drove the relative strength in leasing clearly better than some of your peers that have reported.

Yes. Jade. This is Lou. I think …

Go ahead, Lou.

Do you want me to go back? Yeah. I think what you've seen is and what we've spoken about there's been a continuing flight to quality and a flight to the Class A product. We happen to represent a fair amount of Class A products across the markets. We also have some pretty sizable tenant deals of people that did make a commitment to face and did move forward with a plan to return people to the office. I think overtime we still believe that there's going to be an increase and move to bringing people back to the office. It may not be five days a week, it could be three days a week, but whether it's three days or five days you still need the space. The space will be different, but that's what we're seeing. We were fortunate that we were in the right sector. Industrial was up. Retail was up. So weren't just whole office, but the office sector did very well as well, because of the product mix that we have.

Thanks very much.

[Operator Instructions] And now is Alexander Goldfarb from Piper Sandler. Please go ahead.

Hey. Good morning. Well, I understand. I appreciate all your efforts with this morning's tactical difficulties. Barry, if we look at the loans that are coming due, when you -- when we went back to the GSE, we all remember like GD10 right, like all these monster peak of the credit boom CMBS that everyone was worried about. And all that stuff basically worked its way out. There was blend extend. I mean apart from the Chorus condos there wasn't really any distress that was sold into the market. So looking at the current wave, it doesn't seem so much it's a credit issue. It's one is, rightsizing of loans two is, no one wants an office loan, but my question is, do you really see that this $1.4 trillion this year and next for the $2.7 -- that you guys talked about is really going to be actionable stuff, or in your view, there may be a few actionable loans but a lot of this is just going to be blend and extend and that's the way it's going to be resolved between the servicers and the borrowers.

Well, blend and extend is actionable. -- where the maturities drive opportunity, in recaps raising equity, looking for new partners, looking for refinancing so that they have to be dealt with. There's really no choice. So we're in at every piece of it in every way. So that's going to provide and drive opportunities for us on the advisory side, on the equity raise, side on the loan replacement side all of those.

But if it's blend and extend, that doesn't seem to generate the same amount of fees that if it goes through an auction and a restructuring and sale to new owners like that would be much more lucrative I would think fee wise versus the lenders and borrowers just getting together and re-cutting the deal. Wouldn't that, -- I mean, that -- blended extent doesn't seem to be the same fee stream that an auction and wholesale restructuring and sale to new owners would be.

Well this is going to be all of the above. If there's a blend and extend is going to be short-term with a recap and probably a sale. And so there's just -- there's a lot of stuff that comes along with loan sales and re-sales and recaps and resets. In a market of disruption there are opportunities that rise up that we don't think of and that's happening. But it is a big market. There are term dates on maturities. And there is still an enormous amount of capital sitting on the sidelines. It was $400 billion of closed-end funds available. There's lots of dry powder around the world. We're seeing foreign investors that are becoming more interested in investing in United States for a host of different reasons. They'll see an opportunity and they're jumping in. We've done some recent equity raises from first-time foreign investors, in projects where the domestic buyers were out of the market and no one anticipate us, finding equity in other parts of the world that were not available, even 12 months ago. Q – Alexander Goldfarb: So then that leads to my second question. We all talk about negative leverage and certain sectors like industrial, it's easy to pencil because the growth is there office, I would imagine is much tougher. So Barry, is -- or a new, in order for this transaction market to reopen, and let's talk more about office, do we need to see positive leverage return, or can the office transaction market recover, if it still has negative leverage on trades?

I think you, have to see some positive leverage return right in order to, really move the market. I think it also will depend on the quality of the asset, right? The Class A, core product, well amenitized, and all that will obviously, trade at a much smaller premium. But the Class B and C is where we're going to struggle, right? Those are the areas where I think that the demand out there will be created by the fact, that I think some of the market will shrink, as the obsolete products no longer are viewed as competitive in the marketplace. And that's where I think, you're going to see the shift. Q – Alexander Goldfarb: Okay. Thank you.

-- And we have -- Patrick O'Shaughnessy from Raymond James. Please go ahead.

Hi, good morning, Can you speak to the expected revenue contribution this year from Gerald Eve? And absent the acquisition, would you have had to lower your full year revenue outlook?

Good morning. So, when we announced the acquisition we said, they did about £92 million of revenue in the prior fiscal year. So we'll get nine months of that. A lot of their revenue is recurring management services type business, more than a majority of it. So we think it's pretty steady revenue and we'll see that on a pro-rata basis, in our results this year. And as we said, we think the market continues to improve. Our results will sequentially get better as we move through the year, and we currently feel comfortable around the low end of our guidance range.

Okay. I appreciate that. And then Michael another question, I think for you. You guys have your senior notes coming due this November. How are you thinking about refinancing that? Do you have any kind of preliminary expectations, on what the refinancing rate might look like?

It will be higher, than what we currently pay. I'm pretty sure about that. But look, we have great clean balance sheet, low leverage and great ratings. And so, we think we'll be able to execute on the refinance. We'll certainly go to market, well in advance of maturity, which is in November and we don't really see so much issue, other than we'll pay a little bit more.

Okay. And then maybe one, last one for me. Can you guys speak to your aspirations, with that Spring11 business? And why was now the right time, to buy the remainder of it?

The Spring -- this is Jeff. The Spring11 business, is a business that crosses a broad spectrum of support services for our clients, but particularly the servicing and asset management businesses and special servicing businesses, we felt we're going to increase in need. And we saw an entry point that was important, for us. And actually the velocity has pleasantly surprised us to date. So, we're expecting because of some of these bank failures, because of these large portfolio sales and some of the resets in the marketplace to grow this business rapidly.

Great. Thank you.

And our next question will come from Jade Rahmani from Keefe Bruyette & Woods. Please go ahead.

Thank you very much. I wanted to ask about maybe for Jeff today, multifamily credit. What are your expectations there? Do you think that there'll be a decent amount of loans going through, performance issues, given floating rate loans as well as interest rate caps expiring this year.

So let's level set where we are today versus some of our previous downturns. Yes, I've had the privilege to build our credit book for the last 23 years along with my team. We went through 9/11. We went through the GFC. And where we are today in multifamily is nothing compared to those prior periods in terms of distress. Top line revenues are still growing although a little bit slower. Expenses are increasing a little more rapidly particularly insurance. But overall, we see very little distress. We, as Barry said, expect the GSEs to if not approach certainly hit the cap this year. And our book is pro-seen. Our performance has always been significantly better than the marketplace and significantly better than any of our competitors. So, I don't expect that to even be an issue.

And in the office sector, I think prominence, they said, the only lender in the office right now is the current lender. So that opens the door clearly for modifications and extensions as most likely route to cushion the downfall, they'll have to be preferred equity brought in and probably loans being carved into A notes, B notes. But what do you expect the office cycle to look like in terms of how the debt and how the capitalization plays out? What's your team seeing in terms of the office transactions that they're involved with? Clearly they've been active.

I mean one of the things, by hiring the best talent in every market, in every category from multi-office industrial, which is what we've been on a quest to do. We're the go-to firm for complex, complicated recaps, which includes talking to the lenders, talking to the owners raising equity, restructuring, restructuring notes, recapitalizing MAS, doing all of that. And we're seeing an enormous amount of activity in the -- with the owner -- and many of the owners, who may have a solid book and our stress in other parts of their business are selling assets, potentially a bit where they may have good assets that are salable with a good wall weighted average lease term, and they're raising capital on those other assets to support the -- those that are sort of sparkling. And so we're seeing activity come from a lot of different places and a lot of different ways that are -- really work well for what we've built.

Thank you.

And I have no further questions in the queue. I will turn the call back over to Barry Gosin for the closing remarks.

Thank you for joining us today. I’m still extremely excited about the company's future and look forward to updating you on our next quarterly call. Thank you.

And this concludes today's call. Thank you for your participation. You may now disconnect.