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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Newmark's Fourth Quarter 2021 Earnings Conference Call. At this time, all participants will be in a listen-only mode. After speaker presentation there will be a question-and-answer session. Please be advised that today's conference call is being recorded.
I would now like to turn the call over to Jason McGruder, Head of Investor Relations. Thank you, and please go ahead.
Thank you, and good morning. Newmark issued its fourth quarter and full year 2021 financial results press release and a presentation summarizing these results this morning. The results provided on today's call compare only the fourth quarter of 2021 with the year-earlier period, unless otherwise stated. Any figures with respect to cash flow from operations discussed on today's call refer to net cash provided by operating activities excluding loan originations and sales as well as the impact of the 2021 Equity Event.
We will be referring to our results on this call only on a non-GAAP basis unless otherwise stated. These non-GAAP terms include adjusted earnings and adjusted EBITDA based on our current methodology, which exclude the Impact of Nasdaq and the 2021 Equity Event. Please see the section of today's press release for the complete and/or updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results, and how when and why management uses them. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website and in supplemental excel tables and the quarterly financial results presentation.
Any outlook discussed on today's call assumes no material acquisitions, share repurchases or meaningful changes in the company stock price. These expectations are subject to change based on various macroeconomic social, political and/or other factors, including the COVID-19 pandemic. While our 2025 financial and operational targets do assume some acquisitions, they are also subject to change for these same reasons. None of our targets or goals through 2025 should be considered formal guidance.
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 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. These include statements about the effects of the COVID-19 pandemic on the Company's business results, financial position, liquidity and outlook which may constitute forward-looking statements and are subject to the risks that actual impact may differ possibly materially from what is currently expected. Except as required by law, we take no obligation to update any forward-looking statements.
For a discussion of additional risks and uncertainties which could cause the actual results to differ from those contained forward-looking statements, see our 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 and Form 8-K filings.
I'm now happy to turn the call over to our host, Barry Gosin, Chief Executive Officer of Newmark Group, Inc.
Good morning everyone and thank you all for joining us. With me today are Newmark's Chief Financial Officer, Mike Rispoli; our Chief Revenue Officer, Lou Alvarado; and our Chief Strategy Officer, Jeff Day.
Newmark generated record quarterly revenues for the third quarter in a row, as we continue to gain momentum and increase our market share. We also produced record fourth quarter and annual earnings. Nearly all our growth was organic, due mainly to our prior investments in multifamily, commercial mortgage brokerage, life science, lodging, industrial and management services.
As an example of our organic growth, Newmark's 2019 annual revenue per producer was $895,000. In 2021, this figure exceeded $1.1 million contributing to 700 basis point improvement in our full-year adjusted EBITDA margin. Newmark's revenue growth was led by capital markets, which doubled to a quarterly record of $380 million. Our record capital markets and origination volumes of $58 billion were up 84%. Fees from leasing and other commissions were up by 91% and 5% better than the fourth quarter in 2019.
Turning to our recurring revenue businesses, management servicing fees and other grew by 53% to an all-time quarterly record of $264 million. This growth was led by strong improvements from Global Corporate Services, Valuation & Advisory, servicing and the Knotel acquisition. Our Valuation & Advisory revenues grew revenues grew by 47% in the full year 2021 to $157 million. The strong growth was organic and driven by our Engage technology platform, which significantly increased the productivity of our appraisers. Newmark remains in a very strong financial position, we remain on track to achieve our 2025 financial target of $900 million of adjusted EBITDA.
With that, I'm happy to turn the call over to Mike.
Thank you, Barry, and good morning.
Today Newmark reported its best ever quarterly revenues and earnings. Revenues were $984.5 million, up 63.7% compared with $601.4 million. Adjusted EBITDA was up 108.9% to $225.4 million versus $107.9 million and adjusted EPS was up 132.1% to $0.65 compared with $0.28. Our adjusted EBITDA margin improved by 495 basis points to 22.9% versus 17.9%.
Consolidated expenses increased by $283.4 million of which $166.1 million was variable compensation related to growth in commission-based revenues. $45.3 million was due to higher pass through expenses and the remainder due to higher business activity and the impact of acquisitions.
Moving to the year-end balance sheet. We had $564.7 million of liquidity and no net debt. Cash flows from operations were $410.2 million compared with $93.8 million in 2020 and $211.2 million in 2019.
Before we turn to guidance, I would like to review the significant economic impact the Nasdaq asset has provided to our business. In our 2017 IPO, we expected to receive Nasdaq shares nominally were approximately $846 million, payable over 11 years with a significantly lower net present value. Now four years later, we have received $1.5 billion based on yesterday's Nasdaq closing price, including hedging and monetization costs. This $1.5 billion has enabled the company to invest in growth, return significant amounts of capital to our shareholders and maintain our strong balance sheet and liquidity position, with no net debt.
The Compensation Committee of our Board of Directors in consideration of his delivering superior financial results as well as the value created for the Company's stockholders in connection with structuring, hedging and monetizing the Nasdaq shares awarded a one-time bonus payable over four years to our Chairman, Howard Lutnick. The committee chose to pay cash rather than issue new shares for this bonus in part due to our active buyback program which totaled over $150 million in the fourth quarter of 2021.
Howard intends to buy Class A common shares of Newmark in the open market with the after-tax portion of the award you received in 2021. The $20 million paid to Howard pursuant to this award in 2021 is included in our full year GAAP and non-GAAP results.
Now moving on to guidance. For the full year 2022 compared with 2021, we expect revenues to grow organically between 3% and 7% compared with $2,906.4 million. We anticipate adjusted EBITDA to increase organically between 4% and 9% versus $597.5 million. We expect our adjusted earnings tax rate to be between 17% and 19% compared with 18.9%. We continue on our path towards our 2025 goal of $900 million of adjusted EBITDA.
Turning to our stock buyback. During the year we repurchased 36.7 million shares in units at an average price of $13.53. Newmark has market leading revenue, EPS and adjusted EBITDA growth. As of yesterday, our forward EBITDA multiple was seven times as compared to our full service peers of 10 times. This is a fundamental reason we buy back our shares.
Operator, we would now like to open the call for questions.
[Operator Instructions] And our first question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
Good morning. So few questions here but the first is on the bonus payment for Howard Lutnick. Just more color around that's why, why did he receive a bonus, a onetime bonus, not all of management or all of top executives whatever voice, why just him? And what was this bonus based on?
Sure. Good morning, Alex. Thanks for the question. I think to understand, and you've to understand the context related to the Nasdaq shares. And if you remember at the time of the IPO, Newmark had over $1 billion of debt on its balance sheet. And because of the tax-free spin-off we needed to either pay that down and refinance it within a relatively short period of time.
It was the strong view of many people that were advising the company and I think many market participants as well at the time that the approach we should take is to just take the net present value of the shares we had, that were off balance sheet, which was probably in the $300 million to $400 million range at the time, use it to pay down the debt and just move forward. But rather than do that, what we did is a very unique and successful transaction where we monetize four years of Nasdaq shares with no downside and all of the upside. So no caps, no callers on the trade, we maintain all the upside on those shares.
We were able to successfully do that, get it categorized as Equity as opposed to debt on our balance sheet, it allowed us to lower our cost of capital on the remainder of the refinancing, which we successfully did in 2018. And today, we recognized $1.5 billion instead of that discounted present value.
Howard was instrumental in those trades, he was instrumental in the structuring. And because of the success of those trades and the value of Nasdaq and what it's been for the company as an asset, the compensation committee felt it was appropriate to rewarding for that as well as the performance of the company.
Right. I mean, it sounds like this is a new bonus that wasn't contemplated at the time that you guys made the original decision in 2017 to pursue this route, correct. This is something new done today, not - it was part of the original exercise, right.
Yes, I think if you look at the 8-K that we filed towards the end of December, the Compensation Committee, in connection with their legal and their competition advisors, over a period of time many meetings came to the conclusion that this was the best path and that's what they recommended and approved.
Okay. I mean, just, you guys have done an amazing job, truly amazing in the past few years of improvement, simplification and separating from the original issues that stem from the IPO and the overhang. That's just remind everyone of that, obviously it was done, but it just remind people of some of the stuff that post the IPO, that you guys have really addressed well. So I'll just leave it there.
The next question is just on guidance, you didn't provide a formal EPS range. But Mike, if you can just walk through the delta, with EBITDA growth of 49%, what are the things that would make that not literally translate to EPS growth, either on the negative or on the positive? So EPS should grow 4% to 9% or there are impacts between EBITDA and adjusted EPS that could make that either higher or lower than the 49% range?
Sure. I think the short answer is, our EPS because of the significant amount of stock we bought back in equity in 2021 should grow faster than our EBITDA.
Okay. EPS faster than EBITDA, right. Thank you.
Thanks, Alex.
Our next question comes from Jade Rahmani from KBW. Please go ahead. Your line is open.
Thank you very much. Just on the EPS question what drives the adjusted tax rate, the tax rate used for adjusted EPS?
Well, it's the expected tax payments that we would expect under GAAP over time. So GAAP and tax over time - GAAP and non-GAAP over time for tax rate should be pretty similar. Obviously the earnings of the company and the deductions from the stock compensation drive that. As we said, the reason our tax rate is going up or went up from prior years to about 19% this year is because we expect to have less tax expense over time and that's a function of the company structure as we continue to grow. Tax equity will become less of a percentage of total, commission earnings and earnings of the company. And we expect that number to continue to decline over time.
I think in the PowerPoint presentation, we haven't said that we expect between 7% and 9%, equity as a percentage of commission revenue next year - commission-based revenue and commission base was around $2 billion in 2021. So the equity comp continues to come down. We feel pretty good about the tax rate in the 17% to 19% range and will drive our EBITDA as the equity comes down, it will drive our EBITDA margins higher over time.
Okay. Over what period do you think your peers have tax rate typically around 25% - over what period would that gap narrow with Newmark's tax rate look more like peers?
We think unless there is a change in tax law, as the 17% to 19% which we expect for 2022 would stay in place for the foreseeable future.
Jade, also you look back at the Equity event, we were with all of those deferred tax assets, we were able to limit our tax on the $1.1 billion gain. And it's not merely just deferred comp, the deferred tax assets have a value, they have a value in reducing our comp over the long-term. It provides for some profitable equity in the renewing and retention of brokers. It is an attraction for brokers to come because they could build wealth by owning our stock and it's more than just deferring of comp.
Okay, thank you very much. Turning to the environment is clearly rates and inflation are top of mind. Barry at the level of folks you interact with, could you characterize whether there has been any change in sentiment, do you expect higher rates to start impacting the business, whether it'd be capital markets, asset pricing confidence in execution, confidence in underwriting. Think of that nature or on the leasing side, the ability to commit to a multi-year lease for space, do you think that the environment we're in right now it's too early to impact the market or you're starting to have some impact on sentiment?
Well, I mean, the increase in leasing activity in the fourth quarter gives a view of more confidence around elimination of Omicron and get back to the office. I think people are buying forward in terms of taking leases and companies are looking at leasing space. There will be some elements that change in terms of the hybrid working and what people do, but people are committed to being in the office and coming back to space over time.
Also with respect to interest rates, I've been here for a long time. Interest rates over the long-term, 81%, they were 18%, virtually no cost of money and the enormity of liquidity in the market drives value. Even a few bumps in 25 basis points at two or three clips would still allow you to finance depending on the weighted average lease term of properties or the multi for long-term at sub-4%, you can borrow it depending on the asset anywhere between 3% and 3.5% long-term. That's about as good as it gets.
And so the issues of - the issue of supply chain and those things that come into question have in some respects a positive effect on the market. But as it cost more to build, people build less - people build less demand remains the same rents go up and values go up. So people will look to capture the value they create even those it's bought in the last year or so, we'll take advantage of the opportunities derived out of lessening supply.
Okay. On the growth outlook, very strong revenue growth outlook above our expectations. Wondering if you could parse any color by business line perhaps since capital markets so far post COVID has been growing faster than leasing. Do you expect that trend to reverse? Do you expect leasing to grow faster? And then on the GSE multifamily side, 2021 was a down year, their caps are up about 11% for 2022, but they still have this 50% affordable housing constraint. Do you expect GSE business to grow as well as leasing in 2022?
Well, we had a spectacular year in capital markets. We continue to gain market share and continue gaining momentum. We also have white space and as our platform continues to develop credibility and grow in the eyes of the marketplace. We continue to - we'll continue to see more market share and more locations where we add talent.
In '19, we invested heavily in buying talent, and that talent is ramping up as we speak. With respect to multi, multi - the metrics for multi continue to look good. The opportunity to buy homes, people are buying homes later in life, marrying later in life, those things still remain a good opportunity for multifamily.
On the GSE, I think the caps have - they've announced the cap, the caps seem pretty solid. And I think that despite the fact that this is flat, our multifamily clearing of the market with debt funds and banks and insurance companies was through the roof. So there will be compensating factors in every segment of the market, and we'll take advantage of them and continue to grow talent and grow our market share.
Thank you very much.
And Jade, this is Jeff. Specific to that, one of the things that we've shown and continue to show is that the dominance of our multifamily investment sales platform is such that we're able to lever that. And so we do expect, obviously, to grow at least commensurate with the increase in caps and over time expect to exceed the growth of the overall market because of the strength of the multifamily investment sales platform. And as Barry said, we still have some white spaces to fill geographically with our loan origination team.
[Operator Instructions] And our next question comes from Patrick O'Shaughnessy from Raymond James. Please go ahead.
Newmark's Board of Directors is substantially smaller than those of its publicly traded. I think most of the members or most of the directors have limited real estate experience. Two of the three non-employee Board members also have long-standing relationships with Newmark's Chair. Why should public shareholders have confidence in the governance abilities of Newmark's Board?
What we expect, we're adding another Board member this year. I beg to differ on experience. Ken McIntyre is a well-known long-term career. That person spent time at MetLife under originating loans. Even [Jenny Bauer] has experience in real estate. Mike Snow is in financial, but these are real people that have real knowledge of business and are commercial and they're independent.
Okay. And then can you provide an update on your Knotel and flexible workspace post that progressing?
Yes. So we had an opportunity to buy Knotel and what we thought is an incredibly good price. We bought them out of a 363 bankruptcy plan. Our invested cash is around $100 million. The business will be either certainly breakeven and EBITDA positive in '22. So we're obviously very careful. We think that the environment and the world in terms of hybrid working, companies wanting more variability and flexibility has indicated that this is a category that is here to stay and is going to grow and be a bigger part of the market. And we think it's a great growth opportunity.
And obviously, we're doing it in a way that we think is going to continue to be carefully done but resonate. We've combined both hospitality, flexible work and activating retail and real estate as our methodology of how we look at it. We think buildings in order to attract their employees to the building are going to require amenities, more conference, more common spaces, and we think that Knotel could provide that added value for the real estate market.
To the extent that Knotel she is been in news and performs well, where would we see that show up on the income statement? Is that under leasing? Would there be management services fees? What would you look for that?
Sure, Patrick. The fees from - specifically related to the Knotel spaces run through management services. To the extent our producers are putting clients, their clients into a flex office space that's Knotel that obviously would come through the leasing line.
Yes, one other thing that you should - another point in the flex world. So we have developed technology, and that will allow us to advise corporate clients on flex work globally. So - and not only Knotel by the way, companies are going to have some form - some part of their footprint in flexible work that reduce the amount of spokes that they have. They'll maintain their hubs. And we think that flexible work environment will offer a great opportunity to give companies a back benefit.
We have a technology we call [Opcality], which allows us to advise clients on where they need seats, when they need seats. And if they want to move into a market and the market is not mature and it's - they think they're going to grow in the market, they could open up in a flexible work environment and then two or three years later, open a hub if they want. So we are both on the Knotel side and on the flex advisory side, building out a business that's going to be a part of our leasing business.
Great. And then last from me. I think it got two - you guys gave a breakdown of your revenue by property type. And I think at that time office was 42%, multifamily was 27%, industrial was 11%. I don't have it handy, but do you have a sense for what that looked like in 2021?
Yes. We'll put that probably into the March investor deck that we put out. We don't have it available today. But as you can imagine, multifamily industrial is growing overall. Office is a little bit of a smaller component in 2021 than historical. But all the asset classes that are driving the activity in the markets, were participating in them. And we have strength in, as you know, multifamily, we have strength in industrial, retail as well as office. So we'll be able to take advantage of that as the office market continues to recover.
And we have a follow-up question from Jade Rahmani from KBW. Your line is open.
Thank you very much. Wondering if you could give any insight into the international expansion strategy. Is the plan to buy into markets where do you think there is an opportunity to gain a foothold? Or are you trying to do more of a hub-and-spoke approach where you see a market, build an infrastructure and use that as the way to build out the approach? How are you thinking about in international?
We couldn't be more excited about the opportunity for the rest of the world. So that is a great opportunity for us to grow. We are - our historic strategy has been deadly focused on talent and elevating our brand to be the best in markets where we can. So we see that very clearly, and we - there are lots of opportunities for us to both acquire companies, bolt-ons, tuck-ins and talent and we're already doing it. We've hired people in Hong Kong, we've opened in several other markets. And we think over the next 12 to 24 months, you will see a real growth opportunity for us.
And do you have any targets in terms of revenue mix that was derived from international sources?
Yes, Jade, I think we said in our November Investor Presentation, we want to get to about 10% by 2025 of our overall revenue mix, maybe we'll do a little better than that.
Okay.
Perfect. Thank you, Jade, for your question. As there are no more questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gosin for closing remarks.
Thank you for joining us today, and we look forward to updating you on our business next quarter. Thank you.
Thank you, everybody, for joining today's call. You may now disconnect your lines.