Newmark Group (NASDAQ:NMRK) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://event.webcasts.com/starthere.jsp?ei=1758449&tp_key=12af26fa8a

Summary

Newmark Group reported significant year-over-year cash flow growth, aligning with adjusted EPS expectations, maintaining strong financial flexibility.

The company is actively expanding into data center opportunities despite concerns about CapEx and power availability, noting continued strength and client interest in this sector.

Recent acquisitions have enhanced cross-selling opportunities, particularly in fund administration, property accounting, and related services, contributing to growth.

Geographic expansion is progressing, with notable growth in Europe and other international markets, outpacing U.S. revenue growth.

Management expressed confidence in raising guidance despite a turbulent market, citing strong pipelines and continued transaction closings.

AI and infrastructure management are strategic focus areas, with AI enhancing productivity and infrastructure management expanding into technical facilities and energy sectors.

The company sees significant opportunities in advanced manufacturing and is aligning with hyperscalers despite community pushback on data centers.

The affordable housing sector is gaining traction, driven by strategic hires and investor interest in alternative asset classes.

Full Transcript

OPERATOR

With that, I would now like to open the call for questions. Thank you. If you are dialed in via the telephone and would like to ask a question, please Signal by pressing STAR 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press STAR 1 to ask a question and we will take our first question from Alex Goldfarb with Piper Sandler.

Alex Goldfarb (Equity Analyst)

Hey, morning. Good morning. Two questions. First Mike, you know the guidance increase. Great. You know it's impressive. Curious how your expectation for cash flow growth, you know, has changed. Is it mirroring growth that you now expect in the adjusted EPS or is cash flow expected to grow differently from earnings?

Mike

Morning, Alex. Yeah, I think our cash, our cash flow is going to grow in line with earnings as we said. And as you can see in the release, it's up significantly year-over-year on a trailing twelve-month basis. And we continue to just generate a lot of cash flow from the business which gives us a significant amount of flexibility.

Barry

Okay, and the second question is, Barry, you guys have expanded into data centers. Obviously there's a lot of leasing from AI and office spaces, but there are all these stories that we read about, you know, CapEx loads you can see with the big tech have increased their capex. There's concern about power availability and whether or not there's too much capital chasing data centers or not. But as you work with your clients and data centers are the, are the power and CapEx concerns, you know, playing out and affecting how data centers are being invested in or how your clients are looking at them? Or are these headlines that we read sort of, I don't want to say noise, but sort of noise around the edges and it hasn't changed the velocity at which people are, you know, investing and breaking ground on new data centers. Yeah, the behind the change from using the grid to behind the meter and developing distributed power requires additional expertise in structuring these transactions, which is good for us because we've been involved in the more complex transactions around structuring credit and the ability to get money for compute. And we think the velocity as we see it now, the pipeline looks really, really good and it's still people are aggressively pursuing opportunities and some of the deck chairs are changing. Some more of the power companies are getting involved closer up into the hyperscaler side of the business because they're holding the cards. So understanding how to navigate in this environment is really interesting and good for us. And we're really actively pursuing today, powered land where you were next to the grid or next to an oil or gas basin is almost any piece of dirt is available, subject to the community pushback to be created into either some form of digital infrastructure and hyperscaling, as opposed to the limited supply of land that was available right next to the grid and the ability for the grid to provide power. So it actually opens it up and requires people to be more expert about this. So we think it's good for us. Okay, so Net, you are not seeing any slowdown in the appetite as people face these challenges? You're seeing continued strength in your data center business. Yes. Okay, cool. Thank you.

OPERATOR

Thank you. And we will take our next question from Mitch Germain with Citizens Bank.

Mitch Germain (Analyst)

Thank you and congrats on the quarter. Just curious, obviously a couple acquisitions. I think you even mentioned one or so on the call so far. Curious about the integration and cross sell that you've been able to experience so far. The cross sell is, is, is incredible. The the opportunity to service our institutional investor portfolio by providing them with things like fund administration, real estate, property accounting, staffing, portfolio analysis, cost monitoring, all of those businesses and appraisal is incredibly well connected to the things that we do on the product side of selling property and financing property and placing debt. You guys provided some perspective on some of the hiring and share that you've gotten outside the US And I'm curious, I think, Barry, you've talked in the past about, you know, garden leave and a lot of that had to burn off. So where are you with regards to productivity of the producers that you've hired outside the U.S. I mean, are you at, you know, 50% of them still

Barry

know, still on the sidelines, or is that some of that really, you know, accelerated and you're starting to get a lot more activity from them? Well, as we continue to grow, we're going to still have people in garden leave,, but those the garden leave, is burning off. So in France, for example, we projected probably to a break even in year three, where we're profitable in year two. So we think the same thing is happening in Germany. We're building out Italy. So there will always be a certain amount of garden leave, and burn off, but it's burning off. That's in the UK we're more mature. And as we continue to mature, it will continue to burn off. But the capital up front and the requirements up front in Europe and other parts of the world will be less than what we have to do in the United States and the United States is pretty well built out. Yeah.

Mike

And Mitch, this is Mike. I would add to that. You could see in our earnings presentation, we show that the rest of the world is growing faster than revenue in the US and part of the reason is because the people are starting to ramp up that we hired 12, 18 months ago. We're growing 37.9% outside of the U.S., and 26.6% in the U.S., so it's starting to happen. To clarify, outside the U.S. and UK 37.9%. Thank you, Jason.

Mitch Germain (Analyst)

Yeah. All right, great. Last one for me, Mike. Happy. Maybe. Listen, great first quarter, but it's early in the year and, you know, the backdrop remains sort of turbulent.

Mike

So I'm curious about your confidence in raising the outlook so soon. You know, Mitch, we are always a little bit on the conservative side. At least I am. So, good start to the year. Obviously pipelines remain strong. We don't see transactions falling out of the pipeline. They're closing. Maybe they take a few more days to close because of the complexity of the market. But you know, in our recurring businesses, we obviously have very good visibility there. Up over 20% in the first quarter. We continue to grow our servicing book. It's now over 220 billion. So we feel really good about the guidance.

Mitch Germain (Analyst)

Thank you. Congrats.

OPERATOR

Thank you. We will take our next question from Brandon lynch with Barclays.

Brandon lynch

Great. Thanks for taking my questions. Maybe just one to clarify on the guidance. Leasing revenue growth is below the midpoint of revenue growth. Guidance falling a pretty strong Q1. Is this just comps or are you being conservative or is there something else that we should be aware of?

Mike

Mostly comps. We had a very, very strong leasing business in the second half of last year. So the business still looks really good. I think we had talked about San Francisco, New York, Texas being really strong markets. That continues to happen. But the comps get a little tougher as we move through the year.

Barry

Okay, makes sense. And then on capital markets, it seems like there's the industrial operators have suggested there's some momentum around advanced manufacturing. Maybe just tell us what your're seeing on the ground and what your see as the opportunity going forward. There's enormous activity around advanced manufacturing. There's a lot of incentives. It started with the CHIPS Act. It's now with the administration's investment in infrastructure and power and attracting and encouraging people to come to the United States to build these plants. You're also, I think your're going to see a trend towards matching hyperscalers with advanced manufacturing because there is pushback on some of these data centers by communities, because it is. It is a burden on the grid and it's a burden on the normal ratepayer. So if your come along with jobs, municipalities will be encouraged to invite your in. And the bonus will be to bring yourr chip manufacturing and then we'll give your the ability, we'll give your a few gigs for data centers. So I think that. And we're seeing more of that in parts of the country where they've gotten. They've sort of smartened up on trying to encourage job growth, which is what this country is looking for. Great. That's very helpful. Color, maybe just to dig in on that a little bit more. How many of the. What percentage of the hyperscale deals are your seeing that are coming in kind of some sort of conjunction with an advanced manufacturing kind of a package deal? It's early, but we're working on it. But early. I think that's a trend that will continue to build because of the nature of the community, sort of the nimby, the not, your know, don't build it in my neighborhood and the lack of power and the need for power. So I think if, your know, if advanced manufacturing is smart, they will hook together with hyperscalers or become hyperscalers. Okay, great. Thank your.

OPERATOR

Thank you. We will take our next question from Jade Ramani with kbw.

Jade Ramani (Analyst)

Thank you very much. Can you talk about how you're rolling out AI?

Barry

What percentage of the teams are using it, what safeguards you're putting in place to protect Newmark's data and where you see the biggest impact to the business? As we've said previously, we think we're in a terrific position to benefit from AI on a productivity basis. People look to the results in terms of enhanced margin. That's a piece of it. But for us, since our whole strategy has been around getting the best talent and doing more with less, if we can provide the better people with the infrastructure and technology to help them do more with less, they'll be in front of clients more. So we're, we, we believe in innovation at the cellular level, the same as evolution is. And we're seeing our smart people upskilling themselves and we're supporting that to make them better with AI. So we're getting a relatively broad and continuously accelerated adoption in AI and a variety of different platforms. And are you looking to expand management services, that whole business area into infrastructure management? Of course. What might that include? I'm talking about, you know, energy, utilities, potentially government agency work. As the government expands its AI investments, critical infrastructure needs, we've hired some energy and infrastructure bankers. We're doing banking along that side where clients of ours need power. Understanding how to get power and how to contract for power and how to structure leases around having the power is really important. So we think that's important. Managing facilities that are more technical is certainly a business that we're moving into. Cost monitoring around infrastructure building is a business that we are in in a smaller way, but we're, we're going to expand that. And construction project management around infrastructure is an area that is just at the beginning for us. And we see that as a real avenue of opportunity, especially in light of how active we are on the infrastructure and data center space in that space. Thank you.

OPERATOR

Thank you once again. If you would like to ask a question, please signal by pressing Star one. And we will take our next question from Julian Blouin with Goldman Sachs.

Julian Blouin (Analyst)

Yeah, thank you for taking my question. Just I was wondering if you could dig a little bit more into the financing volume success you're seeing. I mean there were some large transactions, but even beyond that, a really strong quarter there. And also I think there was a note about affordable housing. Business now really starting to contribute in a meaningful way. What's going on there? Well, so in the affordable space, we hired the number one team in the country, which was is now a year and a half, two years as you may or may not know, to do an affordable deal or get a HUD approval. It's a year and a half process to get started. So we are seeing that ramp. So it's so. And I think investors are looking for alternative asset classes and affordable is in that bucket. You know, senior housing is having a real charge and student housing and medical office buildings, those kind of things which in some cases to investors seems to be AI proof because it's distributed local. Nothing's going to impact that it's needed. So we're seeing investors move into those areas. So affordable is one of those areas. I mean a big part section 8 and another part LIHTC. With LIHTC, it enjoys bipartisan support. Basically from a Democratic point of view, you want more housing. From a Republican point of view, it's fueled by private tax credits. So it fits perfectly. And it's more housing. So it's, you know, it's a good category to invest in. No, that's really helpful, thank you. And then I guess slightly related to that, what about on sort of the AI risk, that business, you know, I hear worries out there that some parts of GSE loan origination or loan servicing could be disruptible, I guess. Do you agree with those views? You know, there will be, I mean, if you have a loan serving businesses, business, you're going to be able to bring margin to the equation. So that and that's in a bunch of businesses. We certainly will take advantage of that. But I don't see that changing much other than enhancing margin at this moment. That makes sense. Thank you very much.

OPERATOR

Thank you. This concludes today's question and answer session. I would now like to turn the call back to Barry Gossen, CEO, for any additional or closing remarks.

Barry Gossen (CEO)

We look forward to speaking to you next quarter.

OPERATOR

This does conclude today's call. Thank you for your participation.

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