Newmark(NMRK) - 2024 Q2 - Quarterly Report

Glossary of Terms, Abbreviations, and Acronyms Glossary Content Key financial, corporate, and industry terms are defined for clarity and understanding - Key terms defined include financial instruments like the Company's 7.500% Senior Notes due January 12, 2029, issued for $600.0 million[5] - Important entities and concepts such as AI (Artificial intelligence), BGC Group, Cantor Fitzgerald, L.P., and Newmark Group, Inc. are clarified[5][8] - Industry-specific terms like 'Contractual revenues' (business with contracts generally a year or longer) and 'Producers' (revenue-generating professionals) are explained[6][8] Special Note Regarding Forward-Looking Information Forward-Looking Statements and Risk Factors Report contains forward-looking statements subject to risks from macroeconomic, market, and regulatory factors - Forward-looking statements are identified by words such as 'may,' 'will,' 'should,' 'estimates,' 'predicts,' 'possible,' 'potential,' 'continue,' 'strategy,' 'believes,' 'anticipates,' 'plans,' 'expects,' 'intends,' and similar expressions[15] - Key risk factors include macroeconomic and geopolitical uncertainties (e.g., wars, interest rates, inflation, U.S. presidential election), challenges in business repositioning, market volatility, and potential deterioration of capital markets for commercial real estate[15] - Other significant risks involve competition, integration of past acquisitions (Knotel, Deskeo, BH2, Gerald Eve), liquidity concerns, relationships with Cantor and affiliates, retention of key employees, and extensive regulatory oversight[15][17][19] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Unaudited condensed consolidated financial statements and explanatory notes for Newmark Group, Inc Condensed Consolidated Balance Sheets Balance sheets show financial position as of June 30, 2024, with increased assets and liabilities Total Assets, Liabilities, and Equity (in thousands) | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | | Total Assets | $4,758,909 | $4,471,575 | | Total Liabilities | $3,222,481 | $2,876,649 | | Total Equity | $1,522,963 | $1,578,682 | - Current assets increased from $1,506,104 thousand to $1,760,236 thousand, primarily driven by an increase in loans held for sale[25] - Current liabilities increased from $1,489,604 thousand to $1,695,831 thousand, mainly due to an increase in warehouse facilities collateralized by U.S. Government Sponsored Enterprises[25] Condensed Consolidated Statements of Operations Statements of operations detail financial performance, showing revenue growth and net income changes Consolidated Statements of Operations Summary (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $633,375 | $585,844 | $1,179,874 | $1,106,643 | | Total Operating Expenses | $598,293 | $562,226 | $1,167,389 | $1,091,829 | | Income from Operations | $40,719 | $27,543 | $18,108 | $15,729 | | Consolidated Net Income (Loss) | $23,415 | $11,229 | $(2,900) | $(5,120) | | Net Income (Loss) Available to Common Stockholders | $14,280 | $6,429 | $(1,973) | $(3,921) | | Basic Earnings Per Share | $0.08 | $0.04 | $(0.01) | $(0.02) | | Fully Diluted Earnings Per Share | $0.08 | $0.04 | $(0.01) | $(0.02) | - Total revenues increased by 8.1% for the three months ended June 30, 2024, and by 6.6% for the six months ended June 30, 2024, compared to the respective prior year periods[28] - Consolidated net income significantly increased for the three-month period, from $11,229 thousand in 2023 to $23,415 thousand in 2024[28] Condensed Consolidated Statements of Comprehensive Income Statements of comprehensive income present total comprehensive income, including currency adjustments Consolidated Statements of Comprehensive Income Summary (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Consolidated Net Income (Loss) | $23,415 | $11,229 | $(2,900) | $(5,120) | | Foreign Currency Translation Adjustments | $(2,151) | $3,693 | $(5,062) | $7,951 | | Comprehensive Income (Loss), Net of Tax | $21,264 | $14,922 | $(7,962) | $2,831 | | Comprehensive Income (Loss) Available to Common Stockholders| $12,555 | $9,467 | $(6,025) | $2,625 | - Comprehensive income available to common stockholders increased by 32.6% for the three months ended June 30, 2024, but decreased significantly for the six-month period[30] Condensed Consolidated Statements of Changes in Equity Changes in equity are detailed, including net income, dividends, and share repurchases Total Equity and Components (in thousands) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------------------------------------- | :------------ | :---------------- | | Total Equity (Balance at end of period) | $1,522,963 | $1,578,682 | | Class A Common Stock (issued) | $2,165 | $2,095 | | Additional Paid-in Capital | $703,299 | $657,736 | | Treasury Stock (cost) | $(648,820) | $(569,235) | - The company repurchased 5,502,703 shares of Class A Common Stock for the three months ended June 30, 2024, and 8,966,102 shares for the six months ended June 30, 2024[32][33] - Dividends declared and paid per share of common stock remained constant at $0.03 for the three-month periods and $0.06 for the six-month periods in both 2024 and 2023[35] Condensed Consolidated Statements of Cash Flows Cash flow statements outline operating, investing, and financing activities, showing cash changes Consolidated Statements of Cash Flows Summary (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Used in Operating Activities | $(327,269) | $(899,478) | | Net Cash Used in Investing Activities | $(16,620) | $(133,519) | | Net Cash Provided by Financing Activities | $363,382 | $971,749 | | Net Increase (Decrease) in Cash and Restricted Cash | $19,493 | $(61,248) | | Cash and Restricted Cash at End of Period | $278,199 | $251,704 | - Operating activities used significantly less cash in 2024 compared to 2023, improving from $(899,478) thousand to $(327,269) thousand[38] - Financing activities provided $363,382 thousand in 2024, primarily from proceeds from warehouse facilities and borrowing of debt, partially offset by treasury stock repurchases[38] Notes to Condensed Consolidated Financial Statements Detailed notes provide explanations for financial statements, policies, and specific line items (1) Organization and Basis of Presentation Describes Newmark's business, structure, and financial statement preparation basis - Newmark is a leading commercial real estate advisor offering diverse integrated services including capital markets, leasing, valuation, property management, and flexible workspace solutions[40] - The financial statements are prepared in conformity with U.S. GAAP, with certain reclassifications made for consistent presentation[41] - Expenses allocated from Cantor for administrative services (treasury, legal, IT, HR) are included in operating expenses, based on utilization or benefits received[44] (2) Limited Partnership Interests in Newmark Holdings and BGC Holdings Explains partnership interests, their exchangeability, and accounting treatment - Newmark is a holding company, with substantially all operations conducted through its consolidated variable interest entities, Newmark Holdings, L.P. and Newmark Partners, L.P. (Newmark OpCo)[60] - Limited partnership interests in Newmark Holdings were distributed to BGC Holdings partners, with an Exchange Ratio of 0.9248 as of June 30, 2024, allowing exchange into Newmark Class A common stock[61][73] - Founding/Working Partners' limited partnership interests (FPUs) are classified as 'Redeemable partnership interests' and are generally redeemed upon termination of employment[63] (3) Summary of Significant Accounting Policies Outlines key accounting policies for revenue, goodwill, credit losses, and segment reporting - Revenue from management services, servicing fees, and other sources is recognized as services are performed, including flexible workspace licensing and reimbursed expenses[76][78] - Capital markets revenue, including investment sales and commercial mortgage origination, is recognized when services are provided and commissions are legally due, or when derivative assets are recorded for loan commitments[82] - The CECL methodology is applied to financial assets measured at amortized cost, requiring earlier recognition of expected credit losses based on historical data, current, and forecasted macroeconomic conditions[85] Revenues by Service Line (in thousands) | Revenue Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Management services, servicing fees and other | $262,778 | $240,660 | | Leasing and other commissions | $208,557 | $203,611 | | Capital markets | $162,040 | $141,573 | | Total Revenues | $633,375 | $585,844 | Revenues by Geographic Region (in thousands) | Region | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :----- | :------------------------------- | :------------------------------- | | U.S. | $552,261 | $509,535 | | U.K. | $45,904 | $41,647 | | Other | $35,210 | $34,662 | | Total | $633,375 | $585,844 | (4) Acquisitions Details the acquisition of Gerald Eve, including purchase price and asset allocation - Newmark acquired Gerald Eve, a U.K.-based real estate advisory firm, on March 10, 2023[96] Gerald Eve Acquisition Summary (in thousands) | Metric | As of Acquisition Date | | :----------------- | :--------------------- | | Purchase Price | $113,015 | | Cash | $101,152 | | Contingent Consideration | $11,863 | | Goodwill | $75,638 | | Other Intangible Assets, net | $23,472 | - The acquisition contributed $91.6 million to Newmark's revenues for the year ended December 31, 2023[97] (5) Earnings Per Share and Weighted-Average Shares Outstanding Calculates basic and diluted EPS and weighted-average shares outstanding Basic EPS Calculation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net income (loss) available to common stockholders | $14,280 | $6,429 | | Basic weighted-average shares outstanding | 173,469 | 173,939 | | Basic earnings per share | $0.08 | $0.04 | Fully Diluted EPS Calculation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net income (loss) for fully diluted shares | $20,582 | $8,850 | | Fully diluted weighted-average shares outstanding | 255,604 | 244,954 | | Fully diluted earnings per share | $0.08 | $0.04 | - For the three and six months ended June 30, 2024, 0.5 million and 81.6 million potentially dilutive securities, respectively, were excluded from fully diluted EPS computation due to their anti-dilutive effect[102] (6) Stock Transactions and Unit Redemptions Details changes in common stock, share repurchases, and partnership unit redemptions Changes in Class A Common Stock Outstanding (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Shares outstanding at beginning of period | 152,681,596 | 153,142,810 | | LPU redemption/exchange | 2,978,758 | 1,158,346 | | Treasury stock repurchases | (5,502,703) | (2,354,217) | | Shares outstanding at end of period | 150,384,929 | 152,234,598 | - As of June 30, 2024, there were 21.3 million shares of Newmark Class B common stock outstanding, convertible into Class A common stock[106] - Newmark repurchased 5.5 million shares of Class A common stock for $10.09 per share during the three months ended June 30, 2024, with $262.2 million remaining under the authorization[108] (7) Investments Discusses Newmark's investments, including former equity method and non-marketable holdings - Newmark previously held a 27% ownership in Real Estate LP, accounted for under the equity method, and recognized equity income of $5.0 million and $8.5 million for the three and six months ended June 30, 2023, respectively[112] - Newmark exercised its redemption option and received a $105.5 million payment from Cantor during 2023, terminating its interest in Real Estate LP[112] - Other non-marketable investments, carried at $5.2 million as of June 30, 2024, are measured at fair value on a non-recurring basis to reflect observable transactions[114] (8) Capital and Liquidity Requirements Confirms compliance with GSE capital and liquidity requirements for loan origination - Newmark is subject to capital requirements from GSEs for seller/servicer agreements, with failure potentially leading to inability to originate and service loans[115] - As of June 30, 2024, Newmark exceeded Fannie Mae's net worth requirement by $399.6 million, and met all liquidity requirements for Fannie Mae DUS and Freddie Mac TAH programs[115][116] - Outstanding borrower advances for uncollected principal and interest due to investors were $1.4 million as of June 30, 2024[117] (9) Loans Held for Sale, at Fair Value Details loans held for sale, their fair value, and related interest income and adjustments - Loans held for sale are measured at fair value (Level 2) and are typically sold within 45 days, with all loans under commitment to be purchased by Freddie Mac or having confirmed forward trade commitments as of June 30, 2024[118] Loans Held for Sale - Cost Basis and Fair Value (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :----------- | :------------ | :---------------- | | Cost Basis | $802,937 | $502,282 | | Fair Value | $818,993 | $528,944 | Interest Income and Fair Value Adjustments on Loans Held for Sale (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Interest income on loans held for sale | $5,933 | $10,135 | | Gains (losses) recognized on change in fair value | $6,853 | $(10,675) | (10) Derivatives Describes derivative financial instruments, their fair value, and related gains/losses - Newmark uses rate lock commitments and Forward Sales Contracts as derivative financial instruments, measured at fair value and recognized on the balance sheet[120] Fair Value of Derivative Contracts (in thousands) | Derivative Contract | June 30, 2024 Assets | June 30, 2024 Liabilities | December 31, 2023 Assets | December 31, 2023 Liabilities | | :------------------------ | :------------------- | :------------------------ | :----------------------- | :---------------------------- | | Rate lock commitments | $5,824 | $3,521 | $9,604 | $1,023 | | Forward Sales Contracts | $5,588 | $7,765 | $1,259 | $20,304 | | Total | $11,412 | $11,286 | $10,863 | $21,327 | Gains and Losses on Derivative Contracts (in thousands) | Location of Gains (Losses) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------- | :------------------------------- | :------------------------------- | | Capital markets (Rate lock commitments) | $1,107 | $(7,167) | | Compensation and employee benefits (Rate lock commitments) | $(363) | $1,238 | | Capital markets (Forward Sale Contracts) | $(3,452) | $18,718 | | Total | $(2,708) | $12,789 | (11) Revenues from Contracts with Customers Disaggregates revenues by service type and details contract balances and obligations Revenues from Contracts with Customers (in thousands) | Revenue Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :---------------------------- | :------------------------------- | :------------------------------- | | Leasing and other commissions | $208,557 | $203,611 | | Investment sales | $91,731 | $77,604 | | Mortgage brokerage and debt placement | $28,260 | $19,330 | | Management services | $198,778 | $176,196 | | Total | $527,326 | $476,741 | - Deferred revenue decreased from $2.7 million at December 31, 2023, to $1.6 million at June 30, 2024[127] - Remaining performance obligations for Knotel and Deskeo (flexible workspace) are approximately $181.0 million as of June 30, 2024, with over half expected to be recognized within the next twelve months[128] (12) Capital markets Breaks down capital markets revenue components, including investment sales and mortgage brokerage Capital Markets Activity (in thousands) | Activity | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | | Investment sales | $91,731 | $77,604 | | Fair value of expected net future cash flows from servicing recognized at commitment, net | $23,395 | $23,046 | | Loan originations related fees and sales premiums, net | $18,654 | $21,593 | | Mortgage brokerage and debt placement | $28,260 | $19,330 | | Total | $162,040 | $141,573 | - Total capital markets revenue increased by 14.5% for the three months ended June 30, 2024, driven by growth in investment sales and mortgage brokerage[130] (13) Mortgage Servicing Rights, Net Details changes in MSRs, servicing portfolio, and estimated fair value Mortgage Servicing Rights (MSRs) Activity (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | | Beginning Balance | $525,579 | $556,916 | | Additions | $20,298 | $22,654 | | Amortization | $(29,072) | $(29,007) | | Net Balance | $514,203 | $544,531 | - Newmark's primary servicing portfolio was $63.8 billion as of June 30, 2024, and its limited servicing portfolio with recorded MSRs was $8.1 billion[133] - The estimated fair value of MSRs was $665.2 million as of June 30, 2024, with valuation sensitive to discount rates (6.1% to 13.5%)[133][134] (14) Goodwill and Other Intangible Assets, Net Outlines changes in goodwill and intangible assets, including acquisitions and amortization Changes in Goodwill (in thousands) | Metric | Amount | | :------------------------------------------ | :----- | | Balance, January 1, 2023 | $705,894 | | Acquisitions | $75,638 | | Measurement period and currency translation adjustments | $(2,692) | | Balance, June 30, 2024 | $773,855 | Other Intangible Assets, Net (in thousands) | Asset Type | June 30, 2024 Net Carrying Amount | | :------------------------ | :-------------------------------- | | Indefinite life: | | | Trademark and trade names | $11,350 | | License agreements (GSE) | $5,390 | | Definite life: | | | Trademark and trade names | $4,217 | | Non-contractual customers | $11,923 | | Contractual customers | $34,836 | | Total | $74,239 | - Intangible amortization expense was $4.4 million for the three months ended June 30, 2024, and $8.9 million for the six months ended June 30, 2024[138] (15) Fixed Assets, Net Provides a breakdown of fixed assets, depreciation, and capitalized software costs Fixed Assets, Net (in thousands) | Asset Type | June 30, 2024 | December 31, 2023 | | :---------------------------------------- | :------------ | :---------------- | | Total, cost | $352,477 | $339,838 | | Accumulated depreciation and amortization | $(178,756) | $(161,803) | | Total, net | $173,721 | $178,035 | - Depreciation expense was $9.2 million for the three months ended June 30, 2024, and $20.6 million for the six months ended June 30, 2024[140] - Capitalized software development costs were $1.1 million for the three months ended June 30, 2024, with amortization of $0.9 million for the same period[141] (16) Leases Details operating leases for real estate and equipment, including liabilities and expenses - Newmark has operating leases with remaining terms of one to eleven years, with renewal options, and lease expense is recognized on a straight-line basis[143] - Total lease liability was $635.8 million as of June 30, 2024, with $152.1 million related to flexible workspace businesses in SPVs, having $36.6 million exposure to Newmark[147] - Operating lease costs were $32.0 million for the three months ended June 30, 2024, and $65.5 million for the six months ended June 30, 2024[148] Minimum Lease Payments (in thousands) | Year | June 30, 2024 | | :--------- | :------------ | | 2024 | $66,815 | | 2025 | $133,777 | | 2026 | $123,955 | | 2027 | $113,391 | | 2028 | $100,717 | | Thereafter | $196,733 | | Total | $735,388 | (17) Other Current Assets and Other Assets Breaks down components of other current and long-term assets on the balance sheet Other Current Assets (in thousands) | Asset Type | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Derivative assets | $11,412 | $10,863 | | Prepaid expenses | $54,568 | $51,367 | | Other taxes | $20,432 | $9,607 | | Rent and other deposits | $22,194 | $22,572 | | Total | $110,384 | $95,946 | Other Assets (in thousands) | Asset Type | June 30, 2024 | December 31, 2023 | | :------------------------ | :------------ | :---------------- | | Deferred tax assets | $100,366 | $100,229 | | Non-marketable investments | $5,213 | $4,902 | | Other tax receivables | $11,816 | $9,312 | | Other | $26,083 | $22,058 | | Total | $143,478 | $148,501 | (18) Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises Details warehouse facilities, outstanding borrowings, and covenant compliance - Newmark uses warehouse facilities and repurchase agreements to fund mortgage loans, collateralized by underlying mortgages and third-party purchase commitments[156] Warehouse Facilities Summary (in thousands) | Facility Type | Committed Lines | Uncommitted Lines | Balance at June 30, 2024 | Balance at December 31, 2023 | | :------------------------------------------ | :-------------- | :---------------- | :----------------------- | :--------------------------- | | Warehouse facility due May 6, 2025 | $450,000 | $300,000 | $57,017 | $0 | | Warehouse facility due September 25, 2024 | $250,000 | $150,000 | $248,550 | $94,873 | | Warehouse facility due October 5, 2024 | $800,000 | $600,000 | $487,294 | $403,758 | | Fannie Mae repurchase agreement, open maturity | $0 | $400,000 | $0 | $0 | | Total | $1,500,000 | $1,450,000 | $792,861 | $498,631 | - Newmark was in compliance with all financial covenants for its warehouse facilities as of June 30, 2024, and December 31, 2023[157] (19) Debt Details corporate debt, including Senior Notes and Credit Facility, and repayment activities Debt Composition (in thousands) | Debt Type | June 30, 2024 | December 31, 2023 | | :------------------------ | :------------ | :---------------- | | 7.500% Senior Notes | $595,161 | $0 | | Credit Facility | $150,000 | $0 | | Delayed Draw Term Loan | $0 | $417,260 | | Cantor Credit Agreement | $0 | $130,000 | | Total Corporate Debt | $745,161 | $547,260 | - Newmark issued $600.0 million aggregate principal amount of 7.500% Senior Notes on January 12, 2024, maturing on January 12, 2029, with net proceeds used to repay the Delayed Draw Term Loan and Cantor Credit Agreement[162][169] - The Credit Facility was amended and restated on April 26, 2024, extending its maturity to April 26, 2027, with $150.0 million outstanding as of June 30, 2024[174][177] (20) Financial Guarantee Liability Explains financial guarantee liability for GSE loans, risk of loss, and credit loss provision - Newmark shares risk of loss for Fannie Mae DUS and Freddie Mac TAH loans, with a maximum contingent liability of approximately 33% of the outstanding principal balance[181] - As of June 30, 2024, credit risk loans serviced had outstanding principal balances of $30.4 billion, with a maximum potential loss of approximately $9.4 billion[182] - The provision for expected credit losses increased by $0.1 million for the three months and $1.4 million for the six months ended June 30, 2024[183] Financial Guarantee Liability Balance (in thousands) | Metric | Amount | | :----------------------------------- | :----- | | Balance, January 1, 2023 | $27,729 | | Provision for expected credit losses | $1,357 | | Balance, June 30, 2024 | $29,908 | (21) Concentrations of Credit Risk Identifies credit risk concentrations in lending activities, particularly in specific geographic regions - Newmark's lending activities create credit risk, especially for Fannie Mae DUS and Freddie Mac TAH loans[187] - As of June 30, 2024, 19% of the maximum potential loss ($9.4 billion) was for properties in California, and 13% in Texas[187] (22) Escrow and Custodial Funds Provides information on segregated escrow and custodial funds held for loan servicing - Newmark holds escrow and custodial funds for borrowers, segregated in custodial bank accounts, amounting to $1.0 billion as of June 30, 2024[188] - These funds are excluded from Newmark's assets and liabilities[188] (23) Fair Value of Financial Assets and Liabilities Presents fair value hierarchy for financial assets and liabilities, detailing valuation processes Fair Value of Financial Assets and Liabilities (in thousands) - June 30, 2024 | Metric | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :--------- | :--------- | :--------- | | Assets: | | | | | | Marketable securities | $135 | $0 | $0 | $135 | | Loans held for sale | $0 | $818,993 | $0 | $818,993 | | Rate lock commitments | $0 | $0 | $5,824 | $5,824 | | Forward Sales Contracts | $0 | $0 | $5,588 | $5,588 | | Total Assets | $135 | $818,993 | $11,412 | $830,540 | | Liabilities: | | | | | | Contingent consideration | $0 | $0 | $25,553 | $25,553 | | Rate lock commitments | $0 | $0 | $3,521 | $3,521 | | Forward Sales Contracts | $0 | $0 | $7,765 | $7,765 | | Total Liabilities | $0 | $0 | $36,839 | $36,839 | - Level 3 financial assets and liabilities, including rate lock commitments, Forward Sales Contracts, and contingent consideration, are measured at fair value using significant unobservable inputs[191][194] - The fair value of contingent consideration is based on the discount rate and probability of meeting earnout targets, with a present value of $25.6 million as of June 30, 2024[197][198] (24) Related Party Transactions Details transactions and agreements with Cantor affiliates, executive officers, and other related parties - Cantor provides administrative services to Newmark, with allocated expenses of $6.7 million for the three months and $14.2 million for the six months ended June 30, 2024[200] - Employee loans, including forgivable portions, totaled $787.7 million as of June 30, 2024, with related compensation expense of $24.8 million for the three months and $49.2 million for the six months ended June 30, 2024[202] - Newmark's Executive Chairman, Howard W. Lutnick, received exchange rights for 617,262 PSUs and monetization rights for 81,275 PPSUs in January 2024, and a one-time bonus award of $50 million in December 2021[206][209] - Cantor purchased $125.0 million aggregate principal amount of Newmark's 7.500% Senior Notes issued on January 12, 2024[242] (25) Income Taxes Explains income tax accounting, deferred taxes, uncertain tax positions, and OECD Pillar Two impact - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[245][246] - Newmark provides for uncertain tax positions based on management's assessment of whether a tax benefit is more likely than not to be sustained[247] - As of June 30, 2024, Newmark had no unrecognized tax benefits that would affect the effective tax rate and had not accrued any tax-related interest and penalties[247] (26) Accounts Payable, Accrued Expenses and Other Liabilities Breaks down current and long-term liabilities, including accrued expenses and contingent consideration Accounts Payable, Accrued Expenses and Other Liabilities (in thousands) | Liability Type | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Accounts payable and accrued expenses | $264,912 | $266,486 | | Outside broker payable | $72,987 | $70,569 | | Payroll taxes payable | $117,543 | $106,247 | | Derivative liability | $11,286 | $21,327 | | Right-of-use liabilities | $107,331 | $107,084 | | Total | $581,283 | $583,564 | Other Long-Term Liabilities (in thousands) | Liability Type | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Accrued compensation | $114,481 | $112,528 | | Payroll and other taxes payable | $64,580 | $59,277 | | Financial guarantee liability | $29,908 | $28,551 | | Contingent consideration | $24,984 | $25,740 | | Total | $253,065 | $241,741 | (27) Compensation Describes equity-based compensation plans, awards, and related expenses - Newmark's Equity Plan authorizes up to 400.0 million shares of Class A common stock for awards, with 102.4 million shares granted and 297.6 million available as of June 30, 2024[250] Equity-Based Compensation and Allocations (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Issuance of common stock and exchangeability expenses | $11,852 | $5,832 | | Limited partnership units amortization | $7,169 | $7,434 | | RSU amortization | $5,920 | $6,221 | | Total equity compensation | $24,941 | $19,487 | - As of June 30, 2024, there was $74.5 million of total unrecognized compensation expense related to unvested Newmark RSUs[265] (28) Commitments and Contingencies Outlines contractual obligations, contingent payments, and legal proceedings - Newmark was committed to fund approximately $0.3 billion in construction loans and forward commitments as of June 30, 2024[266] - Contingent consideration for acquisitions from 2022-2024 amounted to $25.6 million, recorded at fair value[267] - Newmark is involved in various legal actions, including derivative complaints regarding executive bonus awards and class action complaints challenging non-compete provisions, with management believing these will not have a material adverse effect[268][269][270] (29) Subsequent Events Reports a subsequent event: the declaration of a quarterly dividend - On August 1, 2024, Newmark declared a qualified quarterly dividend of $0.03 per share, payable on September 3, 2024, to Class A and Class B common stockholders of record as of August 16, 2024[272] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of Newmark's financial condition, operations, and key business drivers Overview Newmark is a leading commercial real estate advisor focused on capital markets and recurring revenues - Newmark provides diverse services including capital markets (investment sales, commercial mortgage brokerage), landlord/tenant leasing, valuation and advisory, property management, and flexible workspace solutions[276][277] - Strategic goals include becoming number one in U.S. capital markets, significant international growth, and increasing recurring/contractual revenues from servicing, V&A, GCS, agency leasing, and property management[279] - From 2011 to 2023, Newmark increased total revenues by a CAGR of 22%, outperforming publicly traded commercial real estate services peers[281] Business Environment Commercial real estate faced declines, but Newmark gained market share and expects a rebound - Commercial real estate origination and investment volumes declined from H2 2022 to Q4 2023 and remained generally lower in H1 2024 due to rising global interest rates[283] - Newmark gained market share in U.S. capital markets in 2023 and continued in Q1 and Q2 2024, expecting industry volumes to rebound with interest rate stabilization and significant debt maturities[283] - Institutional investors hold approximately $394 billion in investible funds for real estate, with $2.6 trillion in U.S. commercial and multifamily mortgage debt expected to mature between 2024 and 2028[285][286] Key Business Drivers Newmark's growth is driven by talent investment, capital markets, and expanding servicing portfolio - Newmark invests in talented producers, who typically generate significantly higher revenues in their second and third years, accelerating commission revenues and earnings due to operating leverage[289] - The overall loan servicing and asset management portfolio was $175.4 billion as of June 30, 2024, with 36.4% in higher-margin primary servicing[290] - Industrial real estate demand is expected to grow due to global supply chain disruptions, U.S.-China tensions, and government spending on infrastructure and green energy, potentially increasing U.S. manufacturing by over 10% in ten years[292] - Newmark continues to hire top professionals in multifamily GSE/FHA origination, debt and structured finance, and leasing, and opened a flagship office in France, demonstrating global brand strength[313] Economic Growth and Outlook in the United States and the United Kingdom U.S. GDP expanded, while U.K. growth was lower, with central banks addressing inflation - U.S. GDP expanded at annualized rates of 1.4% and 2.8% in Q1 and Q2 2024, respectively, driven by consumer spending and investment[296] - The FOMC kept the federal funds rate target at 5.25%-5.5% since July 2023, but Chairman Powell indicated potential rate cuts as early as September 2024 due to cooling inflation[298][299] - U.K. GDP grew by 0.1% in 2023 and 0.3% year-on-year in Q1 2024. The MPC lowered the Official Bank Rate to 5.0% on August 1, 2024, its first cut in over four years[296][301] - U.S. consumer-price index rose 3.0% year-over-year in June 2024, down from 9.1% in June 2022, leading to expectations of stabilizing or slightly declining long-term interest rates[302] Market Statistics Mixed U.S. leasing, declining U.K. leasing, and lower CRE prices, but Newmark gained market share - U.S. office leasing activity turned positive in Q2 2024 for the first time since early 2022, with increased demand in premium Class A properties and technology sectors[307][308] - U.S. commercial real estate prices were down 20% from their March 2022 peak as of June 30, 2024, according to Green Street[309] - Newmark's Q2 2024 investment sales revenues and volumes increased by 18.2% and 17.5% respectively, outperforming the industry's 2% decline[309] - Newmark's Q2 2024 revenues from Commercial mortgage origination, net, improved by 9.9% year-on-year, driven by 46.2% growth in mortgage brokerage and debt placement fees[310] Financial Overview Overview of Newmark's revenue sources, expense categories, seasonality, and business mix - Newmark's revenues are primarily derived from Management Services, Servicing Fees and Other (property/facilities management, V&A, technology, flexible workspace), Leasing and Other Commissions (brokerage, advisory), and Capital Markets (investment sales, commercial mortgage origination)[314] - Compensation and employee benefits constitute the majority of operating costs, including base salaries, commissions, forgivable loans, and equity-based compensation, which are largely variable[318][319] - The business exhibits seasonality, with revenues typically lowest in Q1 and strongest in Q4, leading to higher profitability in Q4 due to approximately 30% fixed expenses[332] Results of Operations Analysis of financial performance, detailing changes in revenues, expenses, and net income Consolidated Statements of Operations Summary (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $633,374 | $585,844 | $1,179,874 | $1,106,643 | | Total Compensation and Employee Benefits | $403,009 | $366,539 | $782,646 | $730,538 | | Income from Operations | $40,718 | $27,543 | $18,108 | $15,729 | | Consolidated Net Income (Loss) | $23,414 | $11,229 | $(2,900) | $(5,120) | | Net Income (Loss) Available to Common Stockholders | $14,279 | $6,429 | $(1,973) | $(3,921) | - Management services, servicing fees and other revenue increased by 9.2% to $262.8 million for the three months ended June 30, 2024, driven by growth in V&A and GCS[338] - Capital markets revenue increased by 14.5% to $162.0 million for the three months ended June 30, 2024, reflecting improved investment sales and mortgage brokerage, despite a decline in GSE/FHA origination fees[339] - Equity-based compensation and allocations of net income to limited partnership units and FPUs increased by 30.0% to $25.5 million for the three months ended June 30, 2024, due to timing of grants and increased share price[340] Financial Position, Liquidity and Capital Resources Details Newmark's financial position, liquidity sources, and capital resources - Newmark's primary liquidity sources are cash on the balance sheet ($176.4 million at June 30, 2024), cash flow from operations, and a $600.0 million revolving Credit Facility ($450.0 million available)[354][357] Corporate Debt (in thousands) | Debt Type | June 30, 2024 | December 31, 2023 | | :------------------------ | :------------ | :---------------- | | 7.500% Senior Notes | $595,161 | $0 | | Credit Facility | $150,000 | $0 | | Delayed Draw Term Loan | $0 | $417,260 | | Cantor Credit Agreement | $0 | $130,000 | | Total Corporate Debt | $745,161 | $547,260 | - Cash used in operations for the six months ended June 30, 2024, was $327.3 million, but excluding loan originations and sales, it was $53.3 million[380] - Financing activities provided $363.4 million in cash for the six months ended June 30, 2024, primarily from net corporate debt borrowings and warehouse facilities[380] Acquisitions Lists recent acquisitions and their contributions to Newmark's service offerings - Newmark completed the acquisition of Gerald Eve, a U.K.-based real estate advisory firm, on March 10, 2023[382] - In Q1 2023, Newmark acquired the remaining 49% of Spring11, which provides asset management and servicing, commercial real estate due diligence, consulting, and advisory services[382] - Other acquisitions include Open Realty (retail real estate advisory), BH2 (London-based advisory), McCall & Almy (tenant representation), Deskeo (flexible workspace in France), and Knotel (global flexible workspace provider)[382][383] Credit Ratings Provides Newmark's public long-term credit ratings and their influence on debt financing Newmark's Public Long-Term Credit Ratings (as of June 30, 2024) | Rating Agency | Rating | Outlook | | :---------------------- | :----- | :------ | | Fitch Ratings Inc. | BBB- | Stable | | JCRA | BBB+ | Stable | | Kroll Bond Rating Agency | BBB- | Stable | | S&P Global Ratings | BB+ | Stable | - Credit ratings influence the availability and cost of debt financing, and may impact competitiveness in certain markets[386] - The interest rate on Newmark's 7.500% Senior Notes may increase by up to 2% in the event of credit ratings downgrades[386] Certain Related Party Transactions Details transactions and agreements with executive officers and Cantor affiliates - Howard W. Lutnick, Executive Chairman, received exchange rights for 617,262 PSUs and monetization rights for 81,275 PPSUs in January 2024, and a $50 million bonus award in December 2021[387][390] - Barry M. Gosin, CEO, had NPSUs converted to PSUs and received exchange rights on a portion of them in 2023, as part of his amended employment agreement[394][395] - Cantor purchased $125.0 million of Newmark's 7.500% Senior Notes issued in January 2024, and CF&Co received approximately $0.5 million in underwriting fees for the issuance[423] - Newmark has various service agreements with Cantor affiliates, including for administrative support, real estate services, and real estate investment banking services, often with mark-up fees[403][405][424] Regulatory Requirements Confirms compliance with GSE capital and liquidity requirements for loan origination and servicing - Newmark is subject to various capital requirements from GSEs, and failure to maintain minimums could prevent loan origination and servicing[425] - As of June 30, 2024, Newmark met all capital requirements, exceeding Fannie Mae's net worth requirement by $399.6 million[425] - Newmark also met all liquidity requirements for Fannie Mae DUS and Freddie Mac TAH programs as of June 30, 2024, and December 31, 2023[426] Equity Details share repurchase program, fully diluted share count, and equity offering registration - Newmark's fully diluted weighted-average share count was 174,121 thousand for the six months ended June 30, 2024[431] - As of June 30, 2024, the fully diluted period-end (spot) common stock, limited partnership unit, RSU, and Newmark exchange share count totaled 253,121 thousand[432] - Newmark has an effective registration statement on Form S-4 for up to 20.0 million shares for business combination transactions, having issued 2.5 million shares under it as of June 30, 2024[433] Construction Loans Outlines commitments to fund and sell construction loans under HUD and Fannie Mae programs - As of June 30, 2024, Newmark was committed to fund approximately $0.3 billion in remaining draws on construction loans originated under HUD 221(d)4, 220, and 232 programs, and Fannie Mae structured transactions[434] - Newmark has corresponding commitments to sell these loans to various purchasers as they are funded[434] Contingent Payments Related to Acquisitions States total contingent consideration for acquisitions, recorded at fair value as a liability - Newmark completed acquisitions from 2019 through Q2 2024 with contingent consideration totaling $25.6 million[436] - This contingent consideration is recorded at fair value in 'Accounts payable, accrued expenses and other liabilities' on the balance sheet[436] Legal Proceedings Details ongoing legal proceedings, including derivative and class action complaints - Two derivative complaints (Garfield and Cardinal actions) were filed against the Board and Mr. Lutnick, alleging breach of fiduciary duty and unjust enrichment related to a December 2021 bonus award to Mr. Lutnick[437][438] - A purported class action complaint was filed in March 2023 against Cantor, BGC Holdings, and Newmark Holdings, alleging breach of contract and antitrust violations related to non-compete and economic forfeiture provisions[440] - Management believes these lawsuits have no merit, but acknowledges the uncertainty of litigation outcomes[439][440] Critical Accounting Policies and Estimates Highlights critical accounting policies requiring significant management judgment and estimates - Revenue recognition involves significant judgment in determining transaction price, variable consideration, and whether Newmark acts as a principal or agent[443][444][445] - MSRs are initially recognized at fair value and subsequently measured using the amortization method, with impairment assessed annually based on fair value estimates that are sensitive to assumptions like prepayment rates and discount rates[447][448] - Equity-based compensation (RSUs, restricted stock, limited partnership units) and employee loans involve estimates for forfeiture rates, fair value, and collectability, which can differ from actual results[451][452][454][458] - Goodwill is tested for impairment annually using a discounted cash flow model and market comparables, requiring significant judgment in cash flow projections and cost of capital[459][461] - The CECL methodology for credit losses requires estimating lifetime expected losses based on historical experience, current, and future macroeconomic conditions, involving significant judgment in determining the reasonable and supportable period and risk drivers[462][463] Capital Deployment Priorities, Dividend Policy and Repurchase and Redemption Program Outlines capital deployment, including share repurchases and dividend policy - Newmark returned $92.7 million to shareholders through share repurchases and redemptions during the six months ended June 30, 2024, and expects to continue returning capital[471] - The Board has declared a quarterly dividend of $0.03 per share since 2022, with no assurance of future dividends[471][472] - Newmark's ability to pay dividends is limited by available cash, distributions from Newmark OpCo, regulatory considerations, and covenants in financing agreements[473] Our Organizational Structure Describes Newmark's organizational structure, stock classes, and ownership interests - As of June 30, 2024, Newmark had 216,526,322 Class A common shares issued and 150,384,929 outstanding, with each share entitled to one vote[474] - Cantor and CFGM held 21,285,533 shares of Class B common stock, representing approximately 58.6% of total voting power, with each Class B share entitled to 10 votes[474] - Newmark controls Newmark Holdings and Newmark OpCo through general partnership interests, consolidating their results for financial reporting[478] - The Exchange Ratio between Newmark Holdings limited partnership interests and common stock was 0.9248 as of June 30, 2024, subject to adjustment based on dividend policies[483] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Discusses Newmark's exposure to credit, interest rate, and foreign currency market risks - Newmark is exposed to credit risk from Fannie Mae DUS program loans, generally required to absorb one-third of losses on unpaid principal balance, with potential for material adverse effects if loan defaults increase[490] - Interest rate risk affects Newmark's 7.500% Senior Notes ($600.0 million outstanding) and Credit Facility ($150.0 million outstanding), as well as earnings from escrows and borrowing costs on warehouse facilities[491][493][494] - A 100-basis point increase in 30-day SOFR would increase annual earnings by $9.7 million from escrows but decrease annual earnings by $7.9 million from warehouse borrowing costs, based on June 30, 2024 balances[493][494] - Newmark is exposed to foreign currency risk, but currently does not consider it material, though it expects international revenues to grow[495][496] ITEM 4. CONTROLS AND PROCEDURES Confirms effectiveness of disclosure controls and no material changes in internal control over financial reporting - Newmark Group, Inc.'s disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2024[497] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2024[498] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Refers to detailed legal proceedings information in the financial statement notes and MD&A - Legal proceedings information is incorporated by reference from Note 28 ('Commitments and Contingencies') and the 'Legal Proceedings' section in Item 2 of this report[500] ITEM 1A. RISK FACTORS States no material changes to risk factors since the prior annual report on Form 10-K - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2023[501] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Incorporates information on unregistered equity sales and use of proceeds from financial statement notes - Information on unregistered sales of equity securities and use of proceeds is incorporated by reference from Note 6 ('Stock Transactions and Unit Redemptions') and Note 27 ('Compensation') of the financial statements[502] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable, indicating no defaults on senior securities ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable, indicating no mine safety disclosures ITEM 5. OTHER INFORMATION Reports no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2024[505] ITEM 6. EXHIBITS Lists exhibits filed with the Form 10-Q, including financial statements and certifications - Exhibit 101 includes financial statements formatted in inline eXtensible Business Reporting Language (iXBRL)[506] - Certifications by the Principal Executive Officer and Principal Financial Officer are included pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[507] - Exhibit 10.1 is the Second Amended and Restated Credit Agreement, dated April 26, 2024[507]